While CVX is significant in the Permian, they have more outside the Permian plus a significant refining business and a JV venture in petrochemicals. So it would make more sense to be investing in other primarily Permian and shale oil companies. They are available and now have actually better dividend and buyback operations than OXY while OXY is concentrating on debt reduction.

This point also applies to buying all of OXY. Why pay a buyout premium for it when you can get comparable buys at market prices for very similar companies?


I think the insight Pabrai brings is not so much the certitude of getting oil in the Permian, but rather the degree of confidence one can have, as a minority investor, that management will juice earnings by NOT investing in discovery, but just exploit existing resources in a run-off mode, even if that run-off is over many decades. This is Munger's dream for Exxon, this non-investment orientation, and it may be something that Buffett knows that OXY and CVX's are buying into. Taking a controlling stake would be the way to cement this orientation in, and paying a premium on half the outstanding OXY shares may be a worthwhile investment to get that certainty.

And in the meantime, having 2 horses in this race may provide the advantage of improving Berkshire's negotiating strength with OXY: stick to the program of sending all profits back to the shareholders, or I might go with the other horse that is running better that way.

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?)

dtb