Warren Buffett lifts fossil fuel bets as global ESG push mints bargains
financialpost.comWarren Buffett’s multibillion-dollar purchases of oil and gas investments early in the pandemic paid off when the sector cranked out record earnings in 2022. But instead of selling out for a huge profit this year, the Oracle of Omaha wants more.
Berkshire Hathaway Inc. is using this year’s dip in commodity prices to load up on some of Buffett’s favourite oil and gas investments, showing that history’s most famous investor sees opportunity in a sector long disfavoured due to its volatility and effects on the climate.
Earlier this month, Berkshire agreed to spend US$3.3 billion to boost its stake in a liquefied natural gas export terminal in Maryland. This year it has also increased its holding in Occidental Petroleum Corp. by 15 per cent and bought more stock in five Japanese commodity traders.
Meanwhile, Berkshire’s energy division is lobbying hard for a bill that would see Texas spend at least US$10 billion on natural gas-fired power plants to back up its grid.
On one level, it’s classic bargain-hunting by Buffett and Berkshire vice-chairman Charlie Munger. Persistent concerns over the sector’s environmental, social and governance (ESG) performance, poor pre-pandemic returns and the risk of declining demand for fossil fuels in the decades ahead have soured many investors on the industry.
Energy trades at the lowest price-to-earnings valuation of any sector in the S&P 500 index, according to data compiled by Bloomberg. But it also generates the most cash flow per share.
The returns on capital in coal, oil and gas are off the charts compared with other sectors
“People are missing the economics that Buffett and Munger are looking at,” said Cole Smead, chief executive of Smead Capital Management Inc., which manages US$5.4
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