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Berkshire adds $3.7 billion Exxon stake, biggest since IBM

BY NOAH BUHAYAR and JOE CARROLL

OMAHA, Nebraska (Bloomberg) -- Berkshire Hathaway Inc. has reported a stake in ExxonMobil Corp. valued at more than $3.7 billion as Warren Buffett’s company disclosed its largest new holding since International Business Machines Corp. in 2011.

Buffett’s company owned 40.1 million shares of Exxon on Sept. 30, Omaha, Nebraska-based Berkshire said yesterday in a regulatory filing. The world’s biggest oil company by market value rose 1.4 percent to $94.52 at 8:36 a.m. in early trading in New York today.

Berkshire has benefited this year as its stock picks rallied along with the broader market, affirming a strategy of favoring equities instead of bonds amid near record-low interest rates. Buffett, 83, has tracked Exxon and bought its stock in the past, holding a stake in the Irving, Texas-based energy producer as recently as 2011.

Exxon Mobil “is undervalued, in his opinion, and pretty much being ignored by the market,” said David Kass, a professor at the University of Maryland’s Robert H. Smith School of Business who has taken students to meet Buffett in Omaha. “He knows the company. He knows it well.”

Exxon had advanced 7.7% this year through yesterday’s close in New York, trailing the 26% surge in the Standard & Poor’s 500 Index.

About three-quarters of the Exxon holding was added in the three months ended June 30, according to a separate filing yesterday. Berkshire requested confidential treatment in an August document detailing its portfolio at the end of the second quarter. The U.S. Securities and Exchange Commission sometimes allows companies to withhold information from the public to limit copycat investing.

Exxon, which traces its roots to the 1880s and John D. Rockefeller’s Standard Oil Trust, is among the most-efficient major international energy producers, spending $19.27 to find the equivalent of a barrel of crude last year, according to data compiled by Bloomberg.

That compared with $21.48 in per-barrel costs for Chevron Corp., the second-largest U.S. oil producer, and $22.66 for London-based BP Plc.

Exxon boosted oil and natural-gas production by 1.5% during the third quarter, reversing a two-year stretch of output declines. Net income for the period dropped by 18% to $7.87 billion as rising crude prices that benefited the company’s oil-production business squeezed margins at Exxon’s refineries.

Brent crude futures traded in London, the benchmark price for more than half the world’s oil, have averaged $108.48 a barrel this year. Although that’s down 2.9% from the 2012 average, it’s still almost twice as much as the 2001-2010 average, according to data compiled by Bloomberg.

Buffett, Berkshire’s chairman and chief executive officer for more than four decades, has had successes and blunders betting on energy. He booked profits in 2007 as he sold stock in PetroChina Co. after the shares rose more than eightfold since Berkshire’s $488 million investment in 2003.

In 2009, Berkshire posted its worst quarterly loss in at least two decades, fueled by a charge on the decline of oil producer ConocoPhillips. Berkshire cut its stake in ConocoPhillips by 44% in the three months ended Sept. 30 to 13.5 million shares, yesterday’s filing showed. Buffett’s company also reduced its holding in London-based drugmaker GlaxoSmithKline Plc by 77% to 345,819 American Depositary Receipts.

Buffett disclosed two years ago that he had spent more than $10 billion accumulating shares of IBM. He calls Berkshire’s investments in the computer-services company, Coca-Cola Co., Wells Fargo & Co. and American Express Co. his “big four.” Each is valued at more than $10 billion.

Buffett could have been drawn to Exxon because he hasn’t been able to find a big acquisition recently, causing cash to accumulate at his company, said the University of Maryland’s Kass. The investment also could be beneficial if it’s still in the portfolio after Buffett’s no longer leading the company.

Stock in the energy company “certainly does a lot better than sitting in U.S. Treasury bills,” Kass said. “This is a conservative, safe stock -- a nice position for whenever a successor takes over.”

11/15/2013

 

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