Note from Keith Kohl - Feb 27

[dan_s]

Warren Buffett is Long On Oil… Why Aren’t You?
KEITH KOHL | FEB 27, 2024

At 93 years young and over $137 billion to his name, Warren Buffett has had a long and spectacular investing career.

In 1941, at the ripe age of just eleven, Buffett first dipped his toes into the market after buying three shares of his first stock — an oil company, I’d like to note — that went on to return a solid 10% when he finally sold.

So when the Oracle from Omaha decided to go back to his roots and go on a buying spree of Occidental Petroleum, it wasn’t lost on my readers. If the greatest investor in history starts going on a buying spree, it’s best to sit up and pay attention.

If you remember, Occidental acquired Citgo (previously known as none other than Cities Services) all the way back in 1983.

One Investment That Leaves Buffett Comfortable

A couple of days ago, Buffett’s letter to Berkshire shareholders was published as a part of the company’s 2023 annual report.

Inside, he described an investment that he expects to "maintain indefinitely."

I’d give you three guesses as to what it was, but I expect the veteran members of our investment community would only need one.

With Berkshire holding 27.8% of Occidental’s common shares, are you really surprised? We’re talking about a wealth of oil and gas reserves under the company’s control. At the end of 2023, Occidental held more than 1.9 billion barrels in proven oil reserves and 6.3 trillion cubic feet of natural gas.

As Buffett described it, the shale boom that ignited over a decade ago had saved the United States from being shackled to foreign sources of oil.

He’s not wrong.

Just imagine the situation we would be in if our domestic oil output had continued declining and the oil boom had never taken place. We’d be in a far worse position than we were in 2008, when 55% of our crude oil imports came directly from OPEC members.

Today, that dependence has fallen to less than 15%.

Of course, it wasn’t lost on Warren Buffett that Occidental recently announced a $12 billion deal to pick up privately-held CrownRock to bolster its production.

However, it’s not just Occidental that is shopping around — everyone is!

Exxon buying Pioneer, Chevron scooping up Hess, Diamondback’s recent merger with Endeavor, and Occidental’s move on CrownRock… the Permian Basin has dominated M&A activity over the past twelve months.

More importantly, it will continue to do so again in 2024.

I can’t blame Buffett for going long on oil. He knows precisely what we’ve been talking about all year here — oil demand is not only going to hit a record in 2024, but the value of those drillers in the Permian will skyrocket as global supply and demand fundamentals get tighter later this year.

And here’s the best part…

We don’t need oil prices to shoot back over $100 per barrel to see a handsome return.

You see, the name of the game has changed in the U.S. oil patch. It’s no longer about posting some massive new discovery or betting all your chips on the success of a single well.

Today, it’s all about perfecting the technology that will boost the efficiency of your operations.

For my readers, we’ve already found that hidden gem in the Texas oil patch, and it feels like only a matter of time before Big Oil goes shopping again.

[dan_s]

I believe Devon Energy (DVN) is actively looking for a takeover target. They recently were outbid for ERF.

Possible Targets:
Matador Resources (MTDR)
Permian Resources (PR) < More likely to be a Buyer. Best merger is MTDR merging into PR.
SM Energy (SM)
Vital Energy (VTLE)