‘Shale Production Takes Center Stage’
Former President and presidential candidate Donald Trump advocates for maximizing U.S. oil production, a stance seemingly shared by the legendary investor Warren Buffett. Buffett’s conglomerate, Berkshire Hathaway Inc. (NYSE: BRK-A) (NYSE: BRK-B), commands a significant stake in Occidental Petroleum Corporation (NYSE: OXY), showcasing a deep commitment to the American oil industry.
During his tenure in the Oval Office, Trump dismantled various environmental regulations aimed at spurring the growth of the U.S. oil sector, fostering energy independence, and reducing reliance on foreign oil imports.
In his annual letter to shareholders, Buffett lauded the efforts of companies driving domestic oil projects, a sharp contrast from the era of less than 10 million barrels per day in the 1970s.
‘The Rise and Fall of Oil Production’
Buffett highlighted a period of decline with production dropping to 5 million b/d by 2007, leading to the establishment of the Strategic Petroleum Reserve (SPR) in 1975 as a partial solution to the depletion of American self-sufficiency in energy.
However, a game-changing moment came in 2011 with the emergence of shale economics, marking the end of the nation’s energy dependency. Currently, U.S. production has soared past 13 million b/d, establishing a new balance of power in the oil landscape with OPEC losing its long-held dominance.
‘Berkshire Hathaway’s Strategic Investments’
Berkshire Hathaway holds a substantial 27.8% stake in Occidental Petroleum, a multinational player headquartered in Houston. The company boasts major shale projects in the U.S. Permian Basin, alongside conventional drilling activities in the Middle East, Canada, and Chile, and a robust carbon recapture business.
Beyond its stake, Berkshire Hathaway also retains warrants that grant it the option to further bolster its ownership at a predetermined price for an extended period.
Buffett expressed admiration for Occidental’s expansive oil and gas assets in the United States, coupled with its leadership in carbon capture efforts, stressing the importance of these initiatives for the nation’s welfare.
‘Long-Term Commitment’
While Berkshire Hathaway holds no intentions of taking operational control of Occidental, Buffett commended the leadership of Vicki Hollub, the company’s CEO, for steering it in the right direction for the benefit of both the nation and its shareholders.
Speaking to Occidental’s enduring appeal as an investment, Buffett affirmed his plans to maintain a stake in the company indefinitely, underscoring the inherent value of Hollub’s prowess in extracting oil resources efficiently.
The 27.8% stake held by Berkshire Hathaway in Occidental is presently valued at approximately $14.7 billion, with the conglomerate also owning an $18.8 billion position in Chevron Corp (NYSE: CVX).
Despite Berkshire Hathaway’s significant ownership, Occidental’s shares have exhibited volatility in recent years, fluctuating between record highs near $113 in 2011 and a more subdued range of $60-$70 since the start of 2023.
