OXY Thought

I don’t know if OXY is a good value or not. Or where the reserves are principally located (foreign vs. domestic). Or the oil/natural gas mix of OXY’s reserves. Or the structure of OXY at all.

But!

  1. BRK owns BNSF. BNSF uses a refined product (diesel) to power it’s locomotives. And diesel is an important (exogenous!) variable cost for BNSF.

  2. BRK owns BHE. BHE uses natural gas in some of its power plants and to distribute to customers. That is also an important (exogenous!) variable cost for BHE.

The oil super majors (e.g. XOM) generally run unhedged. This is because of their vertical integration – when oil prices increase the production side for XOM “wins” while the refining side “loses.” And when oil prices decrease the production side “loses” while the refining side “wins.” So, instead of worrying too much about oil prices, XOM focuses on excellent operational execution. It seems to work for them and others.

I don’t know how BNSF or BHE approach the “problem” of variable oil/NG prices (do they have a hedge book? Do they enter into long term contracts?). But, one way to deal with the “problem” of variable oil/NG prices is to own an oil/NG well. Do we know anybody who has a spare $100B so I can buy that oil/NG well next door? Sure could make life easier for the management teams at BNSF and BHE…