Berkshire Hathaway Makes Investment In North American Oil Production As Oil Sinks

Berkshire Hathaway Makes Investment In North American Oil Production As Oil Sinks
By Mark Hirschey (Work of Mark Hirschey) [CC BY-SA 2.0], via Wikimedia Commons

Is Warren Buffett diving deeper into the North American oil market, adding to his exposure, when blood is on the street and the price of oil is making lows not witnessed since 2009?

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Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B)’s Lubrizol Corporation, a manufacturer of lubricant additives for engine oils, driveline and other transportation-related fluids and industrial lubricants, announced the purchase of Weatherford International Plc (NYSE:WFT)’s oilfield chemicals business, known as Engineered Chemistry and its drilling fluids business, Integrity Industries. The deal represents a play on North American oil drilling at a sensitive time when the opening of new North American oil wells is in question with the sagging price of oil worldwide.

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Lubrizol Chairman on Berkshire Hathaway’s acquisition

This proposed acquisition provides us a new growth platform as we build out a multi-billion business in specialty chemicals and drilling fluids for the oilfield space,” James L. Hambrick, Lubrizol chairman, president and chief executive officer said in a statement. “With the addition of the companies’ technologies, combined with improved fluid formulation and applications knowledge, Lubrizol will be better positioned to innovate more quickly and become a solutions provider for both multinational oilfield service companies as well as more regional customers which have a significant share of the North American market.”

The acquisition is represents a heavy investment in the North American oil drilling industry by Warren Buffett’s Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) as the sinking price of oil is placing a question mark on new drilling in the region. The price of oil hit $66 in early morning trading.

Berkshire Hathaway’s investment time frame not affected by declining oil prices

Buffett is already invested in the transportation of oil in North America through his Burlington Northern railroad investment, as previously reported in ValueWalk. Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B)’s investment time frame in the acquisition is likely not to be concerned is if the price of oil continues to decline as Warren Buffett’s time frame is known to be long term. “When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever,” he once said. Analysts have indicated that the price of oil is going to be worth more into the future, with some analysts noting an $80 price target in 2015.

Engineered Chemistry operates primarily in North America and supplies additives and fluids for a range of oilfield activities, including cementing, drilling, flow assurance and fracturing. The business consists of a core manufacturing and research organization which supports a global field distribution network. Engineered Chemistry was built through a series of acquisitions over the past 12 years and is headquartered in Houston, TX. Along with Integrity Industries, a related organization involved in the acquisition, it operates 24 sites and produces drilling fluid systems, including diesel, mineral oil and synthetic oil based fluids.

The deal is expected to close at the end of the year subject to regulatory approvals. Once the takeover is complete, all the business segments will become a subsidiary of Lubrizol.

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Mani is a Senior Financial Consultant. He has worked in Senior Management role in large banking, financial and information technology organizations. He has provided solutions for major banking and securities firms across the globe in the area of retail, corporate and investment banking. He holds MBA (Finance) and Professional Management Accounting Qualifications. His hobbies are tracking global financial developments and watching sports
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