Tags: warren buffett | berkshire hathaway | exxon | oil investments

Buffett Dumping Exxon Points Investors to Review Oil Bets

Thursday, 19 February 2015 08:34 AM

Warren Buffett’s decision to dump his stake in Exxon Mobil Corp. after oil prices plunged is pointing investors toward smaller, more nimble producers that will deliver higher returns during a market recovery.

Buffett’s Berkshire Hathaway Inc. sold its entire position in Exxon during the final three months of last year, according to a regulatory filing on Tuesday. The exit marks the end of a $3.7 billion investment in 2013 that at the time was Buffett’s biggest single bet since he bought into International Business Machines Corp. two years earlier.

Berkshire is focusing energy investments on more promising names, said Allen Good, an analyst at Morningstar Inc. in Chicago. The Omaha, Nebraska-based company added to its holdings in Canadian oil-sands miner Suncor Energy Inc. and crude refiner Phillips 66, according to the filing that detailed Buffett’s portfolio as of Dec. 31.

Berkshire “thinks there’s some value in the oil space but that there are other companies better positioned to benefit when prices recover,” Good said in a telephone interview. The Suncor investment indicates “a favorable long-term outlook on oil prices.”

Exxon put investors on notice last month that it’s dialing back share repurchases to a level not seen since 2000 after cash flow tumbled 36 percent during the fourth quarter. Oil and natural gas production from the company’s wells fell to the lowest for that time of year since the Mobil Corp. merger in 1999.

Dropped ConocoPhillips

Buffett’s fourth-quarter divestments in the energy sector also included ConocoPhillips, the Houston-based crude and gas producer that spun off its oil-refining business in 2012.

The spinoff created Phillips 66, which comprised the second-largest energy holding in Buffett’s portfolio on a dollar basis as of Dec. 31, after Suncor.

“When Buffett does something, it gets people’s attention definitely,” Manuj Nikhanj, head of energy research for independent broker-dealer ITG, said in an interview. “He’s the best investor in the world, but with oil and gas it’s just tougher.”

While Exxon’s shares have been resilient given the 45 percent decrease in oil prices, “The value proposition has changed dramatically over the last four or five months,” said Nihanj, who’s based in Calgary.

When the Oracle of Omaha, 84, was liquidating his Exxon investment in the fourth quarter, the shares averaged $93.25. Berkshire paid on average $90.86 a share in 2013, according to the company’s most recent annual report. That would amount to a gain of about $98 million.

Inopportune Time

Exxon fell 2.2 percent to $91.01 at the close in New York. Since the rout in global crude markets commenced in late June, Exxon preserved more market value than most of its peers, dropping 11 percent compared with 19 percent for Standard & Poor’s Supercomposite Energy index of 100 stocks.

For Exxon, the oil-market collapse came at an especially inopportune time: the company had 3.8 percent less production to sell than a year earlier as output from wells dipped to the equivalent of 4.05 million barrels a day.

Share repurchases are being cut by 70 percent to $1 billion during the current quarter, the lowest since the third quarter of 2000, when Exxon spent $856 million on buybacks.

Russian Sanctions

On the exploration front, the company remains locked out of the most appealing opportunities in Russia, Exxon’s largest drilling prospect outside the U.S., by international sanctions. The company had to temporarily walk away from a billion-barrel discovery in the Russian Arctic last year as the U.S. and European Union tightened sanctions in response to Russian involvement in the Ukraine conflict.

Part of Berkshire’s stock portfolio is overseen by Buffett’s deputy investment managers, Todd Combs and Ted Weschler. While Buffett has said the largest holdings are typically his, the company doesn’t distinguish who is responsible for each pick in its filings.

Despite the big splash Berkshire’s Exxon foray made when it was disclosed in a late 2013 filing, Buffett has never spent much time publicly discussing the Irving, Texas-based company’s strengths or prospects, Good said. For that reason, there’s little reason to interpret his exit as a broad judgment on the energy sector, he said.

“You never saw a lot of conviction on this and he never talked about Exxon,” Good said.

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Warren Buffett's decision to dump his stake in Exxon Mobil Corp. after oil prices plunged is pointing investors toward smaller, more nimble producers that will deliver higher returns during a market recovery. Buffett's Berkshire Hathaway Inc. sold its entire position in...
warren buffett, berkshire hathaway, exxon, oil investments
Thursday, 19 February 2015 08:34 AM
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