Why Warren Buffett Continues to Dump His Exposure to Oil and Oil Stocks

August 15, 2015 by Jon C. Ogg

Being the richest man in the world and being able to have a long-term investing horizon of 20 to 100 years must come with some privilege. It is no wonder that Warren Buffett is so widely followed, particularly when it comes to also having the title of being the best investor of modern times. Each quarter brings a new “whale watching” when the Berkshire Hathaway Inc. (NYSE: BRK-A) public equity holdings are released.

There are often some key changes made here and there, and sometimes there are patterns. What stood out the most about the second quarter of 2015 was that Buffett and his portfolio managers have taken even more steps than in prior quarters to run for the hills in their oil and gas stocks.

Buffett has a very mixed history when it comes to betting on energy. After all, even the greatest oil executives and the greatest commodity mangers around often admit that the next move or direction in the price of oil is simply beyond their ability to master. That is why it is important to consider the longer-term horizon, above and beyond the next week, month or even year, when it comes to oil and gas — or any commodity for that matter.

Again, the trend that has stood out in the past was a reduction to Buffett’s exposure in the oil patch. That trend has now been magnified. It is almost as if he is worried that oil could be in the dog house for years and years.

ALSO READ: 4 Oil and Gas MLPs Still Raising Their Payouts to Holders

National Oilwell Varco Inc. (NYSE: NOV) used to be a fairly large position, at 7.3 million shares in the first half of 2014. Buffett had been trimming this stake, but now it has been eliminated entirely. The March quarter stake had been reduced to 1.978 million shares, from 5.258 million shares at the end of 2014 and 7.302 million shares last June. This is one of the top oilfield equipment players.

Phillips 66 (NYSE: PSX) was the other oil patch play that has been eliminated entirely. What is interesting here is that the refining components in oil and gas are expected to do well with lower oil, but Buffett continued his march out of the stake. Here is why this is also very interesting: the Phillips 66 stake was 7.499 million shares in March, higher than the 6.567 million shares at the end of 2014. While it dates back to Buffett’s big bet in ConocoPhillips (NYSE: COP), this stake has fluctuated and used to be above 27 million shares. If it is gone entirely, chances are high that it is not coming back. And ConocoPhillips was dumped over the past three or four quarters as well to a zero position.

Suncor Energy Inc. (NYSE: SU) remains the one oil bet that is static for Buffett and his portfolio managers. Suncor’s weight inside Berkshire Hathaway was the same stake at 22.35 million shares. Suncor also had been increased as a stake in late 2014 and it had grown each quarter from the 13 million shares in March of 2014. Suncor is one of the top dogs when it comes to Canada’s oil sands. Still, the value of $635 million or so today is far lower than it would have been a year ago when shares were 30% higher.

ALSO READ: 3 Drilling Stocks to Buy Ahead of 2016 Recovery

The biggest change of all was Buffett’s historical trade into, and then rapidly out of, Exxon Mobil Corp. (NYSE: XOM). If there is one company that he can put as much money to work in as he wants without really influencing the share price and the market too much it is Exxon Mobil. It was in late 2013 that Exxon Mobil was listed as a new massive stake in Berkshire Hathaway, to the point that it could have become one of his top four positions. It was 40 million shares or so, valued at close to $3.5 billion at the time. Then Buffett began to raise the stake. By the end of the fourth quarter of 2014, Team Buffett had hit the sell buttons and exited it entirely.

Again, Buffett does not normally invest here and there for a trade. He and his new portfolio managers like to look out sometimes through the next business cycle or sometimes even farther out than that. It seems as though Team Buffett is looking more scared about oil’s prospects, more than they are thinking about how to be opportunistic and looking for bargains in the oil patch.

With oil prices having hit six-year lows in the past week, and with more supply coming than demand, maybe there is a silver lining here — at least Buffett hasn’t shorted the oil patch (at least not that we are aware of). It isn’t exactly as though we all expected Buffett to become a wildcatter.

ALSO READ: Key Changes in Warren Buffett and Berkshire Hathaway Stock Holdings