“As to Warren’s purchases of CVX and OXY, Warren must feel that value will rise over the next 20-30 years despite declining production.”
I think both OXY and Chevron could keep production flat for a decade or more. Then very low declines after that. Both have a large inventory of undrilled locations in the Permian. As they drill secondary reservoir targets, more and more economic drilling locations will be added to their inventory. EOR will help stem the declines of existing wells.
At the 2022 meeting, in response to Glenn Tongue’s question on share repurchases, Warren spoke of his 2nd ever stock purchase, Texas Pacific Land Trust (TPLT):
"The second stock I bought was a company called “Texas Pacific Land Trust.” And that came out of the bankruptcy of the Texas and Pacific Railroad back in the 1880s, or something like that.
And they had three million-some acres, and they owned the minerals, and they owned the surface, and everything else. But it was terrible land in the 1880s. But they had some kind of a charter that said that they could use the proceeds from land sales, whatever it was they were going to buy in stock every year.
And, you know, I sat there, when I was 13 or 14, and I figured, “If I live to be a hundred, I would own the whole place.” Well, I haven’t lived to be 100 yet, and I wouldn’t have bought the whole place. So both calculations are, so far, imperfect. But it’s been a remarkable company, just plain remarkable. Because they would talk about grazing fees of $6,000 a year, or something like that, you know, maybe, when they had three million acres.
And then they kept finding oil, and more oil, and more oil. And they’ve changed the form, and all kinds of things, but they bought stock week after week after week. And I sat there and figured out how long it would take until I owned the whole company. And I obviously made some improper (Laughs) calculations because it wouldn’t have worked that way.
But it still was apparent to me that it would be a very good idea, if they had three million acres down there, that if they got all through with it, and they kept their mineral rights, and all kinds of things, which they were doing, you know, at a very cheap price it ought to work out well for anybody that sat around for a long time.
And it has worked out extremely well for anybody who sat around a long time. But nobody knew that they were going to find a lot of oil, and that eventually El Paso would grow out far enough so that the surface lands became worth some money, that were somewhat near El Paso. And you had to go a couple hundred more miles to find the next person, but (Laughs) that was another problem.
So, some of this stuff is so simple, you know? But, you know, if people want to get their Ph.D. or something, so they work out hundreds of pages, and have lots of Greek letters in it, and all that soft of thing, and either you’re buying out your partner at an attractive price, or you’re not buying him out at an attractive price."
So Buffett buys TPLT at age 13. They find oil under TPLT acreage soon after. Guess what, 70 years later oil is still being produced under TPLT lands. According to their most recent investor presentation, TPLT’s royalty production has doubled since 2018. New technology (horizontal drilling in combination with hydraulic fracturing) has reversed their production decline decades after oil was first discovered.
Maybe, just maybe, Buffett and Munger see parallels between Warren’s second ever investment in TPL and the recent sizable investments in OXY and CVX.
Oxy has ~ 2.8 million net acres in the Permian Basin
Chevron has ~ 2 million acres
Permian has multiple stacked pay intervals, more and more oil will be found.
Perhaps some new technology such as unconventional enhanced oil recovery (using captured CO2 ) will help stem the declines for decades to come.
Both companies using excess cash to buy back shares.