When energy markets behave as they have in the last year, it can make sense to check in with other famed investors to see how they've played the tumult. So, far it appears that Warren Buffett is bullish on oil and gas producers as well as transporters.
However, it is worth noting that only Warren Buffett can truly invest like Warren Buffett.
According to its latest 13F filing, Berkshire Hathaway (BRK.A, BRK.B) increased its stake in Suncor Energy (SU) to 2% and Phillips 66 (PSX) to 11.5%. The former is a Canadian-based energy company that specializes in producing synthetic crude oil and the latter is a Texas-based processor and transporter of oil and natural gas products. Phillips 66 operates 18,000 miles of pipeline in the U.S. Berkshire Hathaway did not immediately respond to requests to comment.
Still, dissecting the Oracle of Omaha's energy holdings is no easy feat. The Berkshire Hathaway annual shareholder letter, released in February, highlighted the company's energy and freight railway businesses as distinct from Berkshire Hathaway's broader businesses and discussed results of those businesses in its own section. Berkshire Hathaway's Energy holdings include a mix of oil and gas-based products as well as renewable energy companies.
Soon after the letter was released, Buffett criticized President Obama's decision to veto the Keystone XL Pipeline, calling the decision a "mistake" and saying that a deal would have benefitted U.S. and Canadian interests. Most recently, Obama rejected the Keystone Pipeline deal in November.
Buffett's support of the deal was puzzling to many because it was perceived that deal, which would have allowed crude oil to be transported cheaply via pipeline, would have hurt Berkshire Hathaway's freight business. However, when looking more broadly at Berkshire Hathaway's diverse energy holdings, specifically holdings in Canadian-based Suncor, his support makes more sense.
In fact, Berkshire Hathaway's diverse holdings in energy make him distinct from individual companies in the space. Berkshire Hathaway's energy and freight companies are partially funded by debt that is not secured by the parent company. While companies such as Chesapeake Energy (CHK) and Kinder Morgan (KMI) have been grappling with their upcoming debt obligations, Berkshire Hathaway sounds more optimistic.
"Our credit is in fact not needed because each company has earning power that even under terrible economic conditions will far exceed its interest requirements," Berkshire Hathaway's letter read. Furthermore, the letter stated that Berkshire Hathaway Energy has "recession-resistant earnings" due to the diversity of its revenue streams. The combination, coupled with ties to the parent company, allows Berkshire Hathaway to issue debt at a lower cost.
In fact, earnings in Berkshire Hathaway Energy grew 9.7% in the third quarter to $1.15 billion. To be sure, some of increase can be accounted for by Berkshire Hathaway's non-oil-and-gas-related energy holdings.
While Buffett and company may be a buyer in these markets, investors will want to look at the full palette of Berkshire Hathaway's holdings.