We're in the midst of a quiet revolution in North America. New technologies like hydraulic fracturing and horizontal drilling have unlocked vast quantities of hydrocarbons in massive oil finds like the North Dakota Bakken, the Texas Eagle Ford, and the Alberta oil sands. And according to some analysts, the continent could become energy self-sufficient by 2020.
It's no surprise that an opportunity this big has attracted the attention of legendary investor Warren Buffett. Over the past few years, Berkshire Hathaway (NYSE: BRK-B ) has been accumulating positions in some of the country's top energy names. Here's what the Oracle of Omaha is buying in the oil patch.
Servicing your portfolio
Legendary investor Peter Lynch once said, "During the Gold Rush most would-be miners lost money. But people who sold them picks, shovels, tents, and blue jeans made a nice profit." The same principle applies in investing. While some riverboat wildcatters will strike it rich, a far more reliable strategy is to invest in the companies that provide the products and services that keep the oil fields humming.
National Oilwell Varco (NYSE: NOV ) is one such example. The company provides a broad array of products and services for the oil patch. And because of its dominating market share, the company has one of the widest moats in the business.
The company is well positioned to profit in a big way as customers are both increasing the number of new drilling rigs and updating their aging offshore platforms. Best of all, National is poised to profit without the dry holes and volatile commodity prices that accompany an investment in your typical exploration company.
Bigger is better
As the largest independent oil and gas company, ConocoPhillips (NYSE: COP ) is a solid energy choice for any investor. The company is projected to grow production at a 3% to 5% annual clip over the next five years. That might not sound fast, but relative to big oil rivals like ExxonMobil and Chevron, it's lightspeed.
Even after investing billions of dollars to fund this expansion, ConocoPhillips still has plenty of funds left over to reward shareholders. The stock currently yields 3.9%. Not to mention that management has also repurchased 25% of the company's outstanding shares over the past five years.
Pumping profits into your portfolio
Phillips 66 (NYSE: PSX ) is a new refining company that was spun off of ConocoPhillips a few years ago. While Conoco kept all of the lucrative upstream assets, that doesn't mean Phillips 66 was left emptyhanded. The new company maintained control of a collection of valuable pipelines, chemical businesses, and refineries. Phillips 66 has a refining capacity of 2.2 million bpd and affiliation with over 7,100 branded retail outlets.
As Buffett describes, "In business, I look for economic castles protected by unbreachable moats." And Phillips 66 is no exception. The company's sheer size allows it to earn industry-leading returns for investors. Last year the company generated an industry-leading 16.5% return on invested capital.
Opportunities north of the border
This year, the Oracle of Omaha has started looking north of the border for investment opportunity. In August, Berkshire Hathaway disclosed that it had accumulated a 17.8 million share stake in Canada's largest oil producer Suncor Energy (NYSE: SU ) .
There's an impressive turnaround in the works at Suncor under the company's new CEO Steve Williams. Within one year of taking the helm, Williams has abandoned his predecessor's growth target, scrapped the Voyageur Upgrader, doubled the dividend, and pledged to buy back 10% of outstanding shares. Rather than bold new mining projects, Williams has pledged to increase production by 100,000 barrels per day through low-risk debottlenecking initiatives and refinery upgrades.
Additionally, new pipelines and trains are starting to erase the discount for oil sands bitumen. No wonder Mr. Buffett likes the stock.
Foolish bottom line
Buffett's investment in America's energy revolution isn't just limited to the oil patch. With crude being increasingly shipped by rail, Buffett is well positioned with Burlington Northern. Of course, this boom has led to a shortage of crude tanker cars, but Buffett owns the manufacturer Union Tank Car. It's a brilliant bet, and one that has rewarded Berkshire shareholders handsomely.
Now that you know what he owns, we discuss what he might want to
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