Wednesday, December 28, 2005

Warren Buffett on Oil and natural gas

- Everyone thinks oil has moved a lot...you have to consider the weakening of the dollar...if you look at oil priced in Euros it has not moved a lot...same situation with gold


- We have seen a real increase in many raw materials...coal is a good example; very scarce right now


- WB doesn't play the game of betting on the price of oil or commodities often


- Natty - MidAmerican is looking at an Alaskan pipeline


- Alaska has 80T-90T cubic feet of natural gas (a lot)


- Trouble with Alaska opportunity:

  • $2/mcf transport costs
  • Takes 6-7 years to build pipeline - hard to make 6-7 year commitment with uncertain future price outlook
  • Same issue with LNG terminal build-out


- Most commodity companies don't trust current prices because they've been burned too many times on price

- Oil exploration in the US is tough

- Today our onshore production is 6MM barrels/day

- We used to be self-sufficient in oil production, to the point where we had to periodically shut down because we were producing too much

- US is the most explored oil province in the world and we haven't found a real elephant in the lower 48 states in 30-40 years

- BRK is not tempted to bet in the oil exploration business in any material way

If what Warren Buffett said is true, the oil price should have been going up more. If you are not comfortable with betting on oil futures, try to look for a good oil company.

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