Warren Buffett Wins Again?

AI Summary

Author analyzes why Warren Buffett's Chevron and Occidental Petroleum investments make sense, highlighting Chevron's capital discipline and Venezuela/Guyana advantages and OXY's US-based exposure.

CVX — WATCH The author sees Chevron as a more capital-disciplined oil major with a foothold in Guyana via the Hess acquisition and maintained Venezuela joint ventures, plus Gulf Coast refining configured for heavy sour Venezuelan crude. If the Venezuela regime change is smooth, Chevron would have a first-mover advantage and become important to US energy security. The author is still learning about the industry and is not committing to a large US shale position, but views Chevron positively.

If the regime change is smooth, Chevron will enjoy this first mover advantage in Venezuela and become very important to the energy security of the US.

Score 7

Comments 6

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As I search for new investments, I’ve been learning about the oil industry.

I was puzzled by Warren Buffett’s investment in Chevron. 

But now, it all makes sense.

**Starting with company management…**

Chevron’s management has a reputation for being more “capital disciplined” compared to other more aggressive oil majors like ExxonMobil or ConocoPhillips

**And then identifying competitive advantages…**

Despite ExxonMobil being the first mover Guyana, Chevron gained a foothold in Guyana by acquiring Hess and battling ExxonMobil’s “right of first refusal.”

Moreover, while ExxonMobil and ConocoPhillips exited Venezuela and won multibillion-dollar arbitration awards (that were difficult to collect), Chevron chose to stay and maintain its joint ventures.

Now Chevron is now the primary U.S. major operating there under specialized licenses.

Also, Chevron has its owns a massive refining network on the U.S. Gulf Coast specifically configured to process the heavy, sour Venezuelan crude.

**And finally, determining when the birds in the bush appear…**

This is where things get interesting.

If the regime change is smooth, Chevron will enjoy this first mover advantage in Venezuela and become very important to the energy security of the US.

If the regime change triggers a chain reaction of geopolitically instability and oil spikes…

Well Warren Buffett owns a massive stake in OXY where 80%+ of the assets are US based.

On a side note too, Greg Abel ripped out OxyChem for a low multiple at a cyclical low for the chemicals industry to shore up OXY’s balance sheet ensuring the Berkshire preferreds keep paying and the warrants might be worth something.

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Looking at Chevron and Occidental Petroleum, it seems like he bought them both at what he thought were reasonable multiples.

Now I don’t know if I have the guts to go balls deep into US Shale, but Chevron is a company that’s I’ve grown akin too as I learn more about it.

But overall, though it may be too soon to call this, but this Warren Buffett guy just can’t stop winning

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