No. of Recommendations: 16
That's some really interesting insights from Pabrai. And the "coupon clipping" strategy makes sense for the OXY investment. OXY does state they have some decades of reserves avlable in the Permian after the Anadarko acquisition. So it's not like they need new exploration to keep going for a long period.
The part about Chevron though doesn't really fit the strategy. While CVX is significant in the Permian, they have more outside the Permian plus a significant refining business and a JV venture in petrochemicals. So it would make more sense to be investing in other primarily Permian and shale oil companies. They are available and now have actually better dividend and buyback operations than OXY while OXY is concentrating on debt reduction.
This point also applies to buying all of OXY. Why pay a buyout premium for it when you can get comparable buys at market prices for very similar companies?
Some may argue about OXY's claims for future major business in CO2 recovery and reuse. I think this is so far in the future that it can be ignored for current investment decisions. And it is highly uncertain to happen. OXY claims to have "unique" opportunities in this field. I'm unable to identify any. All major producers in the Permian have CO2 based EOR capabilities similar to OXY. The direct air capture approach they're taking has huge obstacles to overcome. OXY has far smaller capabilities than the major oil companies in other CO2 capture and storage/uses. And they will also have to compete with the chemical industry. The only "unique" aspect I can see is their focus on DAC.
Their commercial scale DAC demo plant startup has now been delayed to sometime in 2025. And it is a scaleup by a factor of 1400 from the small pilot plant used to develop the technology. Yet they started claiming 35 commercial plants by 2035, raised that to 70, and have now talked 105. That's going way out on a limb. This initial plant is supposed to recover CO2 at a cost somewhere in the $380-420 a ton from their presentations. They expect to reduce this to around $100-120 a ton by the "n"th plant - with n being undefined. That's pretty optimistic. Yet they're already talking as if this will happen.
Not a reason to invest in OXY today.
Let me be clear. I have no objections to BRK investing in OXY as a Permian play. I think it's a good investment opportunity, and there are other similar ones still available. I do have reservations about buying all of OXY if it is truly a depleting business. And, after a lot of digging, I see no reasons to put added value on OXY for CO2 capture.
