I think oil and gas stocks may be persistently underpriced because ESG investors underweight them. With the online broker Merrill Edge you get access to BoA research reports, and with Charles Schwab you get the reports of Credit Suisse and Morningstar. BoA and Credit Suisse analysts publish weekly reports on oil and gas stocks with price targets (and thus total return forecasts). I have used them to make some investments.
Yep, ESG investing causes distasteful companies to be underpriced, which creates a sort of morality arbitrage. If you're okay with funding climate change, you can make a quick buck or two.
"Yes, the planet got destroyed. But for a beautiful moment in time we created a lot of value for shareholders"
From dinosaurs it came, to dinosaurs it will return. Buffett buys up oil companies for cheap and gets to pretend he's Rockefeller. It doesn't matter that they're bad investments, or that he's funding the poisoning of the earth, cause his clock is about to strike anyway. Kinda like make-a-wish, but for old scumbags instead of kids with cancer.
What a strange take. Buffett thinks of things in terms of ROI and certainly this will provide a ROI to him and shareholders.
I can agree with you that we should be moving off oil as soon and as much as possible, but we will never be completely off oil. Oil has led to the rapid progress of humanity, but at a terrible cost for the environment. And like it or not the oil companies will have to play a large part in the shift to renewables.
I just don't understand how people can believe in climate change and also believe that "ROI for me and my shareholders" is still a good way to make decisions. Buffett certainly isn't going to be an activist investor, because pushing oil companies to change will provide worse ROI than just staying the course. We need to be doing more to combat climate change, including a carbon tax. If that happens, oil companies will be much less profitable, so it seems like Buffett is betting that won't happen, which seems like a very cynical and coldhearted move.
Also, let's not forget that us humans have to live in the environment, so "a terrible cost for the environment" is a terrible cost for humans. Unfortunately, that cost is externalized so it doesn't affect Buffetts precious ROI.
That's all fine and well, I'm not saying you should give away all your money. I'm just saying that there are lots of things to invest in that aren't fossil fuels!
Your money isn't the only thing you leave to your children - you also leave this planet. Do you want to give your children a planet that is more impoverished and conflict-ridden?
> ... it seems like Buffett is betting that won't happen ...
At the end of 2021, Berkshire owned about $4.5 billion of Chevron shares. In that same year, Berkshire Hathaway Energy, which has made huge investments in wind and solar, had $4 billion in earnings [0]. BHE is investing $18 billion (starting in 2006 and continuing through 2030) to modernize the electrical grid to improve transmission from the remote areas that are the best sources of wind and solar energy (as opposed to near coal plants). BNSF, Berkshire's railroad, which is a far more carbon-efficient way to move freight than roads and trucking, invested $41 billion in fixed assets between 2010 and 2020 [1].
It is possible for someone's approach to energy investing to be multi-faceted.
>so "a terrible cost for the environment" is a terrible cost for humans.
In fact that's the only meaningful/sensible way to interpret the phrase "terrible cost for the environment". For most of the planet's history even while supporting all sorts of weird and wonderful lifeforms, the environment would have been pretty hostile to humans, and almost certainly unable to support 9+ billion of us. In principle with enough tech some of humanity could survive even without a hospitable natural environment, but it's not an existence many would choose.
Oil and Gas has lots of physical installations, equipment, sometimes ships,... Even if the value dipped too much, selling every asset, supposing there's a buyer available, makes some value. I remember Buffett began buying companies that the assets were valued more than the company perceptual market value and selling everything to recoup the investments. Maybe it's the way to think on these actions?
Selling is not the point. It's a basic strategy pointed out by Ben Graham, that if the company is worth less on the stock market than its actual assets minus debt, it's s no brainer to invest even if the stock is unpopular.
It is a signal that oil and gas are not going anywhere for a long time. Even if they were buying it for the sale of its assets, those assets would not be worth very much if oil and gas industry were in terminal decline. He is making massive investments in the field because of the prospects of future growth in the long term. He's probably entirely right too, since oil is embedded in virtually everything we do. A thriving economy depends on access to cheap and abundant energy.
Oil and gas companies get a lot of bad press and maybe rightfully so, but the sad thing is that the politicians and the users of oil and gas are the main ones to blame. If no-one used oil and gas then there would be no oil companies anymore.
Politicians have known for 20-30 years or more that CO2 causes global warming, but they have done nothing to limit the use of oil and gas. Absolutely nothing. Instead they want to blame the oil companies and bring them to court.
At the same time they blame oil companies, they start to reduce taxes on oil/gas, they ask producing countries to produce more etc. It's nuts.
There have been no major incentives for consumers to move away from big cars with big powerful engines, no incentives for car producers to build more fuel efficient cars.
We could easily have had a car fleet today which consumed 20-30% less than it actually does and that without any major drawbacks in comfort and performance. And that without even transitioning to electric cars.
> the politicians and the users of oil and gas are the main ones to blame. If no-one used oil and gas then there would be no oil companies anymore.
Sure we can blame politicians as they're supposed to legislate, but people have had no choices.
The O&G companies are not blameless, they've been hoarding money and absolving themselves of any responsibility whenever there was a spill or any other catastrophic incident, they did nothing and continue to do nothing, and if they did it was the bare minimum.
Oil and Gas companies would deserve a lot less blame if they didn't spend so much money on disinformation campaigns and lobbying to delay more ambitions climate goals.
Exactly. It’s not as simple as them just serving an already existing demand. They use their very considerable resources to create and maintain that demand, to the furthest extent and for as long as possible.
> I cannot blame them for investing in oil and gas.
I can.
As long as we treat money as paramount, and self-interest as the only valuable rationality, we will, as a society, continue down this road of self-destruction.
We must rediscover our sense of collective responsibility if we are to avoid serious calamities within our lifetimes (at least, for those of us who are still no more than about middle-aged).
Why isn’t that responsibility on consumers who pay the oil companies? People blame the oil companies at the same time they clamour over it’s products and hand over vast sums of cash. How much money do consumers give oil companies per year compared to investors like Warren Buffett?
First: This is a common tactic nowadays, attempting to deflect blame from the corporate behemoths who have drastically outsized control over our world by appealing to a sense of "individual responsibility". It is, unfortunately, a pretty easy sell in America, steeped as it is in Protestant ideals of exactly that.
Now, the reason it's a problem—and the answer to your question—is that oil companies, among others (and more generally, the mega-wealthy and mega-corporations) have a massive amount of power in our world today. To pick a single example, Exxon-Mobil could, by making just a few carefully calculated decisions, reduce the total carbon footprint of our society by an appreciable fraction. The reason they don't is because, in the short term, that would mean giving up some degree of profit, in a system designed to encourage and reward maximizing profit at all costs, and in the long term, unless companies like them are able to completely replace their fossil-fuel operations with some other source of income, they will have to be closed down entirely (or almost entirely) in order to avoid a genuine climate catastrophe.
But their power doesn't stop there. They have enough money to spend that they run massive advertising campaigns promoting bullshit things like "clean coal". They spend absurd amounts every year on lobbying, and on top of that, even if they stopped spending on lobbying tomorrow, they have enough politicians in their pockets in one way or another that they would still be able to effectively dictate their policy positions for years to come, regardless of the desires of their constituents.
Again: that's all looking at one oil company, which, to a certain extent, acts as a single unit as far as decision-making goes—and though there are multiple actual human beings making those decisions, it's still only a small handful compared to the number of people their decisions affect.
Let's contrast that with individuals.
Any one individual can't make enough of a difference to the big oil companies by any of their actions to get them to change, nor can their decisions have remotely the same kind of impact on our overall carbon footprint.
Furthermore, given the state of our society and economy today, for most people to be able to stop supporting fossil fuel companies entirely would mean effectively destroying their livelihoods.
There are three big ways that most Americans today rely on fossil fuels (there are others, of course, but we'll look at these for simplicity's sake): Their car, their heat, and their power.
Electric cars are still significantly more expensive than ICE cars, and even if every car owner in America were able to afford to replace theirs with a pure electric, there simply aren't enough such cars available to make that replacement overnight.
Some houses are already fully heated purely electrically, and "geothermal"/heat pump systems are becoming much more affordable and widely available, but the cost of switching over is still fairly steep...and at least for now, "regular" electric heat costs significantly more in most areas than heating the same house the same amount with oil or gas.
There are places in America where green power is more readily available than others—I'm fortunate enough to live in one; most of my power comes from hydroelectric sources, though there's still some fossil fuel in there. Most don't have that option, and don't have any obvious means of causing such options to become available.
Most importantly, what all of this is sort of glossing over is that even if they had the options technically available to them, for most people, it would be deeply personally irresponsible of them to make the expenditures necessary to minimize their personal carbon footprints, because they would then be in vastly worse financial state (again, if they had the means to do so in the firs...
You say, "Exxon-Mobil could, by making just a few carefully calculated decisions, reduce the total carbon footprint of our society by an appreciable fraction".
What decisions are you referring to? If you are referring to extracting oil as efficiently and environmentally friendly as possible, then my answer is I'm sure they are trying (due to consumer demand by the way) but operation efficiency is a drop in the bucket to the consumer burning the end product.
Now discussing oil consumption, you say "Consumers support the fossil fuel industry because there's effectively no choice" and "it would be deeply personally irresponsible of them to make the expenditures necessary to minimize their personal carbon footprints, because they would then be in vastly worse financial state".
My response is: crushing the companies that produce the goods that consumers rely on just hurts consumers. Look at what trying to cut of Russian oil is doing to gasoline prices at the pump. How can you demand oil companies to stop producing oil, when you also want oil companies to produce more oil to help consumers.
The solution is, as you alluded to, is to provide consumers with more choice, more alternatives... and that is at the consumer level. Consumers have to make the change. It's consumer demand that companies are trying to fulfill.
If governments would tax gasoline and oil more than they do today then people would drive less and buy more fuel efficient cars.
Car manufacturers would build more fuel efficient cars as that is then what consumers want.
The oil companies would sell less oil and less CO2 is released.
The government could invest the extra tax income on subsidizing electric cars, and fuel efficient cars (and penalize and tax cars that consume a lot), solar panel installations, wind power etc.
More fuel efficient and electric cars come to market. Even less oil is used.
Oil companies will start to put their huge yearly investments into renewable energy instead of oil exploration as it will be more profitable (or at least as profitable as oil used to be).
And we have a positive feedback loop.
Governments just need to give more incentives to consumers, and indirectly to car manufacturers and oil companies, to make the right choices.
Thanks to the war (as unfortunate as the war is) we are going in the right direction. Unless the politicians screw up again and reduce the taxes on oil.
Don't really like the thesis offered in the actual link. The idea is the divergence between the equity price and the price of oil. This is the spot price of oil today. The equity is discounting future cashflows throughout the future. One explanation for the divergence is simply the market believes the price of oil will be significantly lower in future years.
I don't get the sports metaphor at all... I don't watch sportsball.
What I do know is that the amount of energy and material resources required to extract a barrel of oil out of ground has been slowly rising towards parity with the energy contained in that oil.
I'm now of the mind that politics, the environment, and everything else is a back burner issue until this is solved. I'm starting to use the phrase "I don't give a shit about global warning" (though, actually I do), just to diffuse the politics of it, and stay on topic.
There have been decades of decisions made with a total blindness to the fact that the oil we're burning is priced orders of magnitude cheaper than it should have been. As a society, we're acting like the trust fund kids spending our Earth's energy inheritance with no mind towards the future.
27 comments
[ 3.6 ms ] story [ 71.0 ms ] thread"Yes, the planet got destroyed. But for a beautiful moment in time we created a lot of value for shareholders"
http://tomtoro.com/wp-content/uploads/2015/07/1-tom-toro-yes...
I can agree with you that we should be moving off oil as soon and as much as possible, but we will never be completely off oil. Oil has led to the rapid progress of humanity, but at a terrible cost for the environment. And like it or not the oil companies will have to play a large part in the shift to renewables.
Also, let's not forget that us humans have to live in the environment, so "a terrible cost for the environment" is a terrible cost for humans. Unfortunately, that cost is externalized so it doesn't affect Buffetts precious ROI.
both made fortunes, but one thought it was a good idea to give it all away
I prefer to live like Dalí, the fruits of my labor are for my children
Your money isn't the only thing you leave to your children - you also leave this planet. Do you want to give your children a planet that is more impoverished and conflict-ridden?
https://www.ipcc.ch/report/ar6/wg2/about/frequently-asked-qu...
At the end of 2021, Berkshire owned about $4.5 billion of Chevron shares. In that same year, Berkshire Hathaway Energy, which has made huge investments in wind and solar, had $4 billion in earnings [0]. BHE is investing $18 billion (starting in 2006 and continuing through 2030) to modernize the electrical grid to improve transmission from the remote areas that are the best sources of wind and solar energy (as opposed to near coal plants). BNSF, Berkshire's railroad, which is a far more carbon-efficient way to move freight than roads and trucking, invested $41 billion in fixed assets between 2010 and 2020 [1].
It is possible for someone's approach to energy investing to be multi-faceted.
[0] https://www.berkshirehathaway.com/letters/2021ltr.pdf [1] https://www.berkshirehathaway.com/letters/2020ltr.pdf
In fact that's the only meaningful/sensible way to interpret the phrase "terrible cost for the environment". For most of the planet's history even while supporting all sorts of weird and wonderful lifeforms, the environment would have been pretty hostile to humans, and almost certainly unable to support 9+ billion of us. In principle with enough tech some of humanity could survive even without a hospitable natural environment, but it's not an existence many would choose.
Oil and gas companies get a lot of bad press and maybe rightfully so, but the sad thing is that the politicians and the users of oil and gas are the main ones to blame. If no-one used oil and gas then there would be no oil companies anymore.
Politicians have known for 20-30 years or more that CO2 causes global warming, but they have done nothing to limit the use of oil and gas. Absolutely nothing. Instead they want to blame the oil companies and bring them to court.
At the same time they blame oil companies, they start to reduce taxes on oil/gas, they ask producing countries to produce more etc. It's nuts.
There have been no major incentives for consumers to move away from big cars with big powerful engines, no incentives for car producers to build more fuel efficient cars.
We could easily have had a car fleet today which consumed 20-30% less than it actually does and that without any major drawbacks in comfort and performance. And that without even transitioning to electric cars.
Sure we can blame politicians as they're supposed to legislate, but people have had no choices. The O&G companies are not blameless, they've been hoarding money and absolving themselves of any responsibility whenever there was a spill or any other catastrophic incident, they did nothing and continue to do nothing, and if they did it was the bare minimum.
I can.
As long as we treat money as paramount, and self-interest as the only valuable rationality, we will, as a society, continue down this road of self-destruction.
We must rediscover our sense of collective responsibility if we are to avoid serious calamities within our lifetimes (at least, for those of us who are still no more than about middle-aged).
Why isn’t that responsibility on consumers who pay the oil companies? People blame the oil companies at the same time they clamour over it’s products and hand over vast sums of cash. How much money do consumers give oil companies per year compared to investors like Warren Buffett?
Now, the reason it's a problem—and the answer to your question—is that oil companies, among others (and more generally, the mega-wealthy and mega-corporations) have a massive amount of power in our world today. To pick a single example, Exxon-Mobil could, by making just a few carefully calculated decisions, reduce the total carbon footprint of our society by an appreciable fraction. The reason they don't is because, in the short term, that would mean giving up some degree of profit, in a system designed to encourage and reward maximizing profit at all costs, and in the long term, unless companies like them are able to completely replace their fossil-fuel operations with some other source of income, they will have to be closed down entirely (or almost entirely) in order to avoid a genuine climate catastrophe.
But their power doesn't stop there. They have enough money to spend that they run massive advertising campaigns promoting bullshit things like "clean coal". They spend absurd amounts every year on lobbying, and on top of that, even if they stopped spending on lobbying tomorrow, they have enough politicians in their pockets in one way or another that they would still be able to effectively dictate their policy positions for years to come, regardless of the desires of their constituents.
Again: that's all looking at one oil company, which, to a certain extent, acts as a single unit as far as decision-making goes—and though there are multiple actual human beings making those decisions, it's still only a small handful compared to the number of people their decisions affect.
Let's contrast that with individuals.
Any one individual can't make enough of a difference to the big oil companies by any of their actions to get them to change, nor can their decisions have remotely the same kind of impact on our overall carbon footprint.
Furthermore, given the state of our society and economy today, for most people to be able to stop supporting fossil fuel companies entirely would mean effectively destroying their livelihoods.
There are three big ways that most Americans today rely on fossil fuels (there are others, of course, but we'll look at these for simplicity's sake): Their car, their heat, and their power.
Electric cars are still significantly more expensive than ICE cars, and even if every car owner in America were able to afford to replace theirs with a pure electric, there simply aren't enough such cars available to make that replacement overnight.
Some houses are already fully heated purely electrically, and "geothermal"/heat pump systems are becoming much more affordable and widely available, but the cost of switching over is still fairly steep...and at least for now, "regular" electric heat costs significantly more in most areas than heating the same house the same amount with oil or gas.
There are places in America where green power is more readily available than others—I'm fortunate enough to live in one; most of my power comes from hydroelectric sources, though there's still some fossil fuel in there. Most don't have that option, and don't have any obvious means of causing such options to become available.
Most importantly, what all of this is sort of glossing over is that even if they had the options technically available to them, for most people, it would be deeply personally irresponsible of them to make the expenditures necessary to minimize their personal carbon footprints, because they would then be in vastly worse financial state (again, if they had the means to do so in the firs...
You say, "Exxon-Mobil could, by making just a few carefully calculated decisions, reduce the total carbon footprint of our society by an appreciable fraction".
What decisions are you referring to? If you are referring to extracting oil as efficiently and environmentally friendly as possible, then my answer is I'm sure they are trying (due to consumer demand by the way) but operation efficiency is a drop in the bucket to the consumer burning the end product.
Now discussing oil consumption, you say "Consumers support the fossil fuel industry because there's effectively no choice" and "it would be deeply personally irresponsible of them to make the expenditures necessary to minimize their personal carbon footprints, because they would then be in vastly worse financial state".
My response is: crushing the companies that produce the goods that consumers rely on just hurts consumers. Look at what trying to cut of Russian oil is doing to gasoline prices at the pump. How can you demand oil companies to stop producing oil, when you also want oil companies to produce more oil to help consumers.
The solution is, as you alluded to, is to provide consumers with more choice, more alternatives... and that is at the consumer level. Consumers have to make the change. It's consumer demand that companies are trying to fulfill.
Car manufacturers would build more fuel efficient cars as that is then what consumers want.
The oil companies would sell less oil and less CO2 is released.
The government could invest the extra tax income on subsidizing electric cars, and fuel efficient cars (and penalize and tax cars that consume a lot), solar panel installations, wind power etc.
More fuel efficient and electric cars come to market. Even less oil is used.
Oil companies will start to put their huge yearly investments into renewable energy instead of oil exploration as it will be more profitable (or at least as profitable as oil used to be).
And we have a positive feedback loop.
Governments just need to give more incentives to consumers, and indirectly to car manufacturers and oil companies, to make the right choices.
Thanks to the war (as unfortunate as the war is) we are going in the right direction. Unless the politicians screw up again and reduce the taxes on oil.
What I do know is that the amount of energy and material resources required to extract a barrel of oil out of ground has been slowly rising towards parity with the energy contained in that oil.
I'm now of the mind that politics, the environment, and everything else is a back burner issue until this is solved. I'm starting to use the phrase "I don't give a shit about global warning" (though, actually I do), just to diffuse the politics of it, and stay on topic.
There have been decades of decisions made with a total blindness to the fact that the oil we're burning is priced orders of magnitude cheaper than it should have been. As a society, we're acting like the trust fund kids spending our Earth's energy inheritance with no mind towards the future.