Subject: Pabrai: Berkshire Oxy Investment
More on the OXY "story"...

Mohnish Pabrai's Talk and Q&A session with students at the University of Texas on February 28, 2023
(video posted yesterday)

(57:11 min)
Question regarding Berkshire's foray into OXY

Q: (paraphrasing)"Could we get your thoughts on what you understand about Charlie Munger and Warren Bufffet's foray into Occidental? Because for the longest time they had avoided materials and very cyclical commodities. And then now they enter into Occidental and keep increasing their stakes. What do you think of that (OXY) as an investment?"

Pabrai:" Yeah, so I think both of them have been investors in oil and gas for a very long time. Munger made an investment into what eventually became one of his biggest mistakes, because he didn't buy enough, Belridge Oil in 1977. So, you know that's like 46 years back. Charlie will tell me things. You know I have a good friendship with Charlie. I usually see him four or five times a year for dinner and I used to play a lot of bridge with him. You know some times I be at his place and he'd tell me...and you know he's living in you know Hancock Park in L.A...he's says that "you know we are sitting on top of an oil field." Then he explained to me that whole area actually was an oil field. But because so many humans moved in and the real estate prices became more expensive, it became more attractive to build homes and sell the real estate that way, than it did to drill for oil. L.A. basically developed without extracting the oil so to speak. So it still sits there.

One time I was talking to him and he (Charlie) mentioned that he would like to have an investment in Exxon and be able to get a commitment from the management that they would do no more Capex, and they would simply run all the fields with the cashflow going to shareholders. And he had calculated it would be a tremendous investment. And of course oil companies don't think that way. But OXY thinks that way. So, I think the OXY investment...if you study Occidental what you'll find is they really don't have exploration going on.

So, if we look at the whole fracking business, you know the Permian Basin and all of that, basically when you drill a well you've got a 90% plus shot of what's going to come out. The probabilities (of success) are really high. And it's not like what used to be conventional oil and gas. So here you've got very definitive metrics going on. And so OXY basically has no...almost no...speculative drilling going on. And so, in effect, it looks like a CD. They're clipping the coupons. What OXY is doing is they got a huge gusher of cashflows coming out. And that huge gusher of cashflows is only going into buybacks and dividends. So it's all being pumped out to shareholders. And he loves that.

And then they've made an investment in Chevron. I think the reason they made the investment in Chevron is also because Chevron also has a very large position in the Permian Basin. And if OXY had been large enough he wouldn't have gone to Chevron. Just like bought all the U.S. airlines. You know a while back he bought all...because he couldn't make one bet because the size of the capital is so large.....So, I think the Chevron bet is heavily a bet based on this non-exploration risk (high probability of success). You know the oil business lately, and of course UT Austin knows this really well, with the $8 billion every year that's coming into the UT endowment, bigger than Harvard's.......

So the bet with Chevron and OXY is a coupon clipping bet. And so I think Buffett looked at what U.S. Treasuries were paying him and he doesn't want downside. So he looked at OXY as U.S. treasuries on steroids. And I think that's why he went with that bet."

(OXY question starts at 57:11 min)
https://www.youtube.com/watch?...