Newsletter No. 15
Hello everyone!
Hope you are getting ready for great times with your loved ones this summer. There are 14 weeks from Memorial Day through Labor Day.
As we here at King are not far from the recent shooting in Allen, Texas, and pray for the families of the victims of that senseless event, we hope you invest the time this summer with your loved ones. Be intentional!
Speaking of being intentional, how often do we look at what we’re doing and see where we can level up? Well, my team and I did that this week with this newsletter. Hope you like the adjustments and see them as improvements.
Either way, share your feedback (either by continuing to read weekly, or sending a note)! This whole thing is meant to deliver value to you.
Ok. Let’s get to it…
Today’s Headlines
Berkshire Hathaway Annual Meeting …an OG Perspective
Natural Gas Producers …They Just Keep Drilling
Oil Prices Last Week and This Week …Up or Down?
Well of the Week …Occidental Petroleum Drilled a Monster
Oil/Gas Deal of the Week …Kimbell Royalty Partners
Berkshire Hathaway Annual Meeting …an OG Perspective
A lot of my friends from Tiger 21 attend the Berkshire Hathaway Annual Meeting in Omaha every year. I have never personally attended, but I have heard it is one of the greatest events of the year. Most of the companies Berkshire has an ownership position in, are present, one way or another.
Also, very interesting but Warren Buffett (and his right-hand man), Vice Chairman Charlie Munger have been picking up approximately $40 billion worth of stock in Occidental Petroleum and its rival, Chevron since March 2022. Mr. Buffett does speak publicly about how he doesn’t see that the world is close to moving away from oil, entirely. It’s a relatively small percentage of their stock portfolio (14%) but they are optimistic prices will stay between $60-150 per barrel. I know that’s a big range, but have you seen pricing in the last 12 months?
Mr. Buffett reflected back on investments they made in railroad company, BNSF. “When you think about the railroad, 100 years from now, it’ll still be cranking.” He has the same perspective about his investments in oil.
“They aren’t going to chase the latest fad,” said Mohnish Pabrai, founder of Pabrai Investment Funds. “They’re, as much as possible, looking for no-brainers.”
Obviously, we like investing in OG. It’s reassuring to see people who invest billions in the open market also like it as a significant part of their strategy.
Natural Gas Producers …They Just Keep Drilling
As I mentioned in a recent past newsletter, companies have continued drilling for Natural Gas, even though prices are at their lowest point in a decade. A recent Wall Street Journal article (5/8/22) dug into the challenges of companies quitting drilling too abruptly.
Drilling for hydrocarbons is a hard business, even with all the technology and operational efficiencies in comparison to decades past. It takes the better part of a year to put a single well into production. Coordinating everything from land, to geology, to engineering, to operations…it is difficult to start back when demand comes back.
So, many operators continue drilling and selling through this dip. Do we see an end to the dip soon? Read on.
Oil Prices Last Week and This Week …Up or Down?
Prices were up for both Oil and Natural Gas. Natural Gas was way up, to the tune of 15% for the week. Futures speculators have NG trending up for multiple reasons, namely the Freeport LNG transfer station coming back into full utilization…reopening access to demand overseas.
These are two top reasons we are optimistic about the price of Oil and Natural Gas for the next few years:
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Too many investors see the supply and demand merits of it including the aforementioned Warren Buffett.
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Operating companies see the same supply and demand merits and continue with production efforts (albeit leaned down or paused like here at King).
Well of the Week …Occidental Petroleum Drilled a Monster
Occidental Petroleum has the best new well we could find this week. Oxy drilled a Wolfcamp (the name of the formation) well in the Permian Basin, and it reported an astonishing 6,500 barrels of oil per day for its first 30 days. This is 200,000 barrels generating nearly $14 million in gross revenue. WOW!
Oil/Gas Deal of the Week …Kimbell Royalty Partners
Kimbell is a Royalty company with assets central to the Permian Basin. They have expanded their holdings through an acquisition of MB Minerals for cash and stock. It’s an interesting deal because, from our perspective, they are making a move to increase consolidated value of their assets due to an expectation of continued drilling activity and even an increase in that activity.
Royalty companies own rights that Producers (Operators) harvest. Their value increases with increased production. The day after their acquisition announcement, they boosted their production outlook. Good in-market indicator for Producers.
Recommended Reads
Kimbell Royalty Partners Acquisition
Why AI is the Future of Offshore Drilling
There are some outstanding results developing in the current program… KOPX Program 4. If you are not in it, and you are accredited, it’s a good time to have a conversation! You can schedule a Zoom here.
All the best,
Jay
