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Berkshire Hathaway has just announced that it has bought 40,089,371 shares for a total $3.7 billion stake in Exxon Mobil Corp, the world’s largest oil company by market value, making it its biggest new holding since purchasing a $10.7 billion stake in International Business Machines Corp. (IBM) in 2011. The information was revealed after a new SEC document was filed showing the company’s financial stakes as of the end of the third quarter 2013.
Apparently Warren Buffett, the Chairman and Chief Executive of Berkshire Hathaway for over 40 years, has been tracking Exxon’s stock for some time. David Kass, a professor at the University of Maryland’s Robert H. Smith School of Business, told Bloomberg that Exxon Mobil “is undervalued, in his (Buffett’s) opinion, and pretty much being ignored by the market. He knows the company. He knows it well.”
Related article: Exxon Mobil Returns to Madagascar - Four Years after Military Coup
According to Bloomberg, Exxon Mobil is one of the most efficient international oil and gas explorers, spending just $19.27 to find each barrel of oil equivalent in 2012, compared with $21.48 for Chevron Corp., and $22.66 for BP Plc.
During the third quarter of this year Exxon managed to boost its oil and natural gas production by 1.5%, reversing a two year decline, but the net income for the company over the same period has fallen by 18% to $7.87 billion; a of rising crude prices, which although they have boosted the profits of the company’s oil production business, have seriously reduced the margins at its refineries.
Buffett has made previous forays into the energy market, recording big successes, but also some record losses. In 2007 he made the decision to sell stock in PetroChina for eight times more than the $488 million that he paid for it in 2003. Yet in 2009 Berkshire Hathaway posted its worst loss after a decline ConocoPhillips’ stock, in the end Buffet was forced to sell 44% of the holding.
By. Charles Kennedy of Oilprice.com
Charles is a writer for Oilprice.com
One reason the author gives is the slightly lower cost for finding a barrel of oil-equivalent, as compared to peers such as Chevron. Looking at the cost of exploration, by itself, may be problematic. The EIA estimates that it costs about twice as much to find a barrel offshore as compared to onshore. We would have to know how Exxon is set up, offshore/onshore, compared to other companies in order to really compare finding costs.
Buffett's investment has me puzzled since it is multi-billion. Anyone else have an idea about this investment?