Subject: Re: Pabrai: Berkshire Oxy Investment
Q: "Are you aware of other oil and gas companies in the Permian that have a non-investment orientation (or an orientation in favour of 'coupon-clipping', as Pabrai reports Munger to have said?)"

A:"Both Oil companies owned by Biglari Holdings pursue a near-zero investment philosophy for exploration and development. These companies are called Southern Oil of Louisiana (wholly owned, not in the Permian - shallow water GoM) and Abraxas Petroleum (90% owned, all operations in the Permian)."

It's somewhat misleading to use the term "near-zero" investment when describing these companies. You refer to Abraxas Petroleum" as having a "near-zero investment philosophy."

Production declines on shale wells are steep. Abraxas will have to drill additional wells just to keep their Permain production flat. Those additional wells require significant capital expenditures.

From Abraxas' 2022 10-K:

"Exploration and Development Activity. At December 31, 2022, we operated properties comprising approximately 97% of the Boe's of our estimated net proved reserves, giving us substantial control over the timing and incurrence of operating and capital expenditures. We have identified numerous additional drilling locations on our existing leaseholds.

The rate of production from our oil and gas properties and our proved reserves will decline as our reserves are produced unless we acquire additional properties containing proved reserves, conduct successful development and exploration activities or, through engineering studies identify additional behind-pipe zones or secondary recovery reserves."

https://seekingalpha.com/filin...

Doesn't sound like a "near-zero" investment policy to me.

Couldn't find any information on Southern Oil of Louisiana (are they even public?).

OXY state they have an inventory of nearly 7,000 onshore drilling locations identified that would "break even"* at >$60/bbl. In the next decade a significant portion of those locations will have to be drilled in order for OXY to maintain production at current levels. If we assume a cost of a completed 10,000 ft horizontal Permian well at +/-$6 million (use your own number), we are looking at tens of billions in well development Capex required over the next several years.

*BREAKEVEN DEFINED AS POSITIVE NPV 10, WELL COSTS USED IN ANALYSIS BASED ON 2022 BUDGET AND INCLUDE DRILLING, COMPLETION, HOOK-UP AND FIRST LIFT

(slide 31)
https://www.oxy.com/globalasse...