A Review of the Nigerian Energy Industry

ExxonMobil gains on Buffett buy

Warren Buffett17 November 2013 – US supermajor ExxonMobil surged in Friday-morning trading on news that famed US investor Warren Buffett had picked up shares in the company worth $3.44 billion.

Shares of the Irving, Texas-headquartered company closed at $95.27 in New York, up 2.20% up from Thursday’s close.

Moves by Buffett and his investment company Berkshire Hathaway, which disclosed the purchase of over 40 million shares in a securities filing late Thursday, are closely watched by investors.

The ExxonMobil purchase – which amounts to about 1% of total shares – is Buffett’s first big buy since picking up a $10.7 billion stake in International Business Machines in 2011, according to Dow Jones data.

Buffett has long held positions in other American stalwarts such as Coca-Cola, American Express, IBM and Wells Fargo. He has seen mixed results with energy companies, however. He has previously acknowledged a steep loss on a ConocoPhillips position shortly before oil prices crashed in 2008 amid a global market meltdown.

The Financial Times called the ExxonMobil buy a “vote of confidence” from Buffett after “years of underperformance” in the explorer’s share price. ExxonMobil’s stock price growth of 8% has lagged peers Chevron, with 17%, and ConocoPhillips, with 35%, according to the newspaper.

ExxonMobil “is undervalued, in (Buffett’s) opinion, and pretty much being ignored by the market,” David Kass, a professor at the University of Maryland’s Robert H. Smith School of Business, told Bloomberg.

“He knows the company. He knows it well.”

Another positive indicator: The company is “efficient” in its exploration, spending $19.27 on average to find a barrel of oil, according to Bloomberg data.

By contrast, Chevron has seen per-barrel costs of $21.48, with BP on $22.66, according to the news wire.

ExxonMobil last month reported its first quarter-on-quarter production increase since 2011, with output up 1.5% to 4 million barrels oil equivalent per day.

But the company saw an 18% decrease in net income as it battled higher capital and exploration expenses.
*Kathrine Schmidt

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