Energy Business

What Warren Buffett Sees in Phillips 66 That You Don't

Investing in energy has been tricky of late. Almost all aspects of the energy patch have traded handily lower. One group that has held up in the panic has been the refining and marketing portion of the energy sector. After all, lower oil prices often help them with their margins. It was just in recent weeks that we discussed why Warren Buffett had been exiting his big oil bets. Before thinking that Buffett and his team have become schizophrenic on their views on oil and gas here, there is more to this story than just a short-term bet on oil.

Now it turns out that the “confidential information” that was withheld in the latest Berkshire Hathaway Inc. (NYSE: BRK-A) full holdings was that Buffett had really become much more selective. He and his managers decided to take on a very large stake in shares of Phillips 66 (NYSE: PSX) worth roughly $4.5 billion.

24/7 Wall St. would point out that this likely means something you may have already guessed — there is going to be more oil than there is going to be demand, likely for an extended period. Still, moving that oil and refining it, as well as marketing it, may remain very profitable. Buffett also owns this stake at roughly 11 or 12 times expected normalized earnings.

What was so interesting about the latest full Buffett holdings was that it showed that Phillips 66 as a position was eliminated entirely, but that was not the case as it was in the “confidential information.” We noted just two weeks ago that this drop of Phillips 66 looked very surprising at the time. After all, the Phillips 66 stake had been listed as 7.499 million shares in March, and it had been 6.567 million shares at the end of 2014. Another issue is that this stake fluctuated in the past and had at one point been above 27 million shares.

ALSO READ: 5 Stocks Warren Buffett Likely Bought More of During the Sell-Off

The new position was after a gain of 3.17 million shares, up to a new total of 57.975 million in indirect shares in Phillips 66. We noted in our view on the full holdings two weeks ago:

Another issue which was seen in this 13F filing was that the public equities value of the portfolio was $107.18 billion, while the last earnings report showed a value of $110.776 billion. The 13F filing showed that “confidential information has been omitted from the public Form 13F report and filed separately with the U.S. Securities and Exchange Commission,” which means that what you see here may be different in reality.

Now we know where the discrepancy was. Still, does this mean something to the oil and gas sector as a whole?

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