It’s no secret that massive corporations and billionaires invest heavily in energy…
The real secret is where and why they invest.
For example, until oil’s bear market, the likes of Exxon, Shell, and BP were piling money into shale drilling and exploration. Exxon bought XTO Energy for $25 billion in 2009 in the hopes that natural gas prices had hit bottom and were moving higher.
It didn’t quite work out…
The price difference for natural gas between when Exxon bought XTO and now is negligible.
Even George Soros, who publicly endorses environmental groups, has huge sums of money in energy companies. One of the biggest pieces of his portfolio is Pioneer Natural Resources, a huge producer in the Eagle Ford shale and Permian Basin.
Between 2012 and 2013, Soros purchased over 3.7 million shares of Pioneer.
Sometimes it can be pretty easy to spot where the billionaires and big corporations park their money. Most of them rush to the press to unveil their investment and watch the stock price go up when herd investors pile on.
We saw the same happen this week when Apple CEO Tim Cook announced that his company agreed to an $850 million deal with First Solar to power the company’s operations.
It’s savvy press moves like this that have pushed Apple’s market cap above $700 billion…
But enough about Apple. You can read about that anywhere.
Here’s the point I’m trying to make…
The “Why” is More Important
In another big-money deal last year, Shell sold 106,000 acres of Eagle Ford territory to Sanchez Energy for $639 million.
The deal took place in May, and Shell now looks genius for offloading oil assets that have been hurt by low prices. But the truth is, it likely had no idea oil was going down this far, this fast.
Shell just couldn’t keep up with the demanding margins of the shale oil industry and decided to sell its acreage and cut its losses. But hey, the deal’s timing still looks great on paper…
A similar deal that took place at the height of the recession had much, much worse timing.
If you recall, back in 2009, when things looked to be getting worse every day, Warren Buffett served as a hopeful talisman for investors scorched by the financial crisis.
In a famous op-ed in the New York Times, he wrote…
Fears regarding the long-term prosperity of the nation’s many sound companies makes no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10, and 20 years from now.
And it was only a short time after penning the piece, called “Buy American. I Am,” that Buffett made the largest investment of his career: a $44 billion bet on an American company that, like all other American companies at the time, was in dire straits.
The reason for the deal, at least in this case, is that when you have billions of dollars at your disposal and every company on the market loses a ton of share value, it’s just that much easier to buy.
The only problem for Buffett is that this huge buy is now blowing up in his face…
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Warren Buffett Takes a Haircut
His big buy was the BNSF railroad, a company he said he thought would be around (and profitable) for hundreds of years.
What he didn’t say — or maybe didn’t even realize at the time — was that the BNSF would end up being an incredible short-term oil play. As I’ve discussed several times in Energy and Capital editorials, railroads move more crude oil than any other type of transportation.
Trucks are too dangerous and too expensive, and, for a while at least, there hadn’t been enough pipelines.
Now, though, after years of growing oil and gas production, the U.S. is steadily growing the number of pipelines that can transport oil…
And soon enough, the BNSF will lose much of its oil business thanks to the growth in pipeline infrastructure, which is cheaper and safer than rail transportation.
The Fraser Institute, a non-partisan think tank in Canada, recently conducted a study that found that “oil transport by pipeline presents significantly lower safety risks,” and in some cases the risks could be 30 times lower when compared with rail transport.
But it wasn’t reports like this or new pipeline construction that turned Buffett’s biggest investment into his biggest blunder ever…
Instead, it was a much more violent and destructive event, and it could even derail his storied investment career.
You can see exactly what happened and how to play the pipeline trend Buffett missed right here.
Until next time,
Keith Kohl
Check us out on YouTube!A true insider in the technology and energy markets, Keith’s research has helped everyday investors capitalize from the rapid adoption of new technology trends and energy transitions. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital, as well as the investment director of Angel Publishing’s Energy Investor and Technology and Opportunity.
For nearly two decades, Keith has been providing in-depth coverage of the hottest investment trends before they go mainstream — from the shale oil and gas boom in the United States to the red-hot EV revolution currently underway. Keith and his readers have banked hundreds of winning trades on the 5G rollout and on key advancements in robotics and AI technology.
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