QuestionerThis is a question from Monroe Richardson. The Wall Street Journal reported in March that oil producers are producing less oil and may have reached their peak in the Permian Basin. Given the major positions of both Occidental Petroleum and Chevron in the Permian, would you please explain the rationale for Berkshire's significant holdings of both those companies, considering that future outlook for oil there?
WarrenWell, there's no question. It's really interesting about oil, and Charlie knows way more about oil. When did you buy that royalty in Terpaker's Field or wherever it is? But that was before I met you, right?
CharlieYes, no, it wasn't before. It was, but it was, yes, it was, it was just before. You're right.
WarrenAnd that kind of immoral is still paying me $70,000 a year. Would you pay for the... A thousand dollars? Yeah. Yeah. Now that's the opposite of the Permian. My dad bought... $1,000 or $1,500 worth of royalties, before he died. In 1964, he left him to my mother. My mother left him to her two daughters, and my older sister died, and my younger sister's here today, and she gets these checks every month, and she knows about all these different fields and what they're producing. And that's the reality of half of the oil production, or something around that. in the United States, and then the other half is shale. And, you know, if you've gone to the movies and never watched oil, you've never watched the things that are pumping on Charlie's royalties in California. You see these gushers of oil. Well, in the Permian, I'm like, this should sink in on you. And the first day, the first day when you bring in a well, You know, it may be 12,000 barrels, it may be 15,000 barrels, and it's even, it's dangerous. And Occidental had one come into, I think, in 19,000 barrels or something like that one day. And in a year, a year and a half, it becomes practically nothing. It's just, it's a different business in effect. And the United States, it's interesting, we use whatever we use. use maybe 11 or a fraction, well, we produce 11 a fraction million barrels of oil equivalent a day. But if shale stopped, I mean, it would drop to 6 million very fast. Well, just imagine taking 5 million barrels a day out of the production in the world. And then we're also taking down our Strategic Petroleum Reserve, strategic petroleum reserves the ultimate oil field. You don't have to drill. It's just we've got it. And it was supposed
[3:03]
Warrento be strategic, but it gets involved in politics. And so there's, there's all, when you're talking about the oil business, you're talking about different kinds of businesses, basically. And we like Occidental's position in the Permian, and we wouldn't like that position. Well, I got to minus one day. It got the minus $30 a barrel. That was quite. crazy, of course. But if oil sells at X, you know, you do very well, and it sells at half of X, your costs are the same, and it doesn't change the production, and it doesn't work as well. But it also brings down the oil production of the United States very fast. So we don't know what oil prices will be, but we do very much, like the Occidental position they have. And that's why we financed them a few years ago, and it looked like a lot of the it was a terrible mistake when the oil market just totally collapsed and then it changed around and we bought a lot of the common stock. Vicki Hollab is a, she's an extraordinary manager of Occidental. Her first job was with the city service. That was the first stock I bought in 1942. She knows what happens beneath the surface. I know the math of it, but I wouldn't know, I wouldn't have the faintest idea what to do if I was in an oil field. I mean, I don't, I can dig to the feet down, I can't, in my backyard, and I can, that's my, that's my understanding of subsoils in the world. You know, there's speculation about us buying control. We're not going to buy control. We don't want to, we've got the right management running it, and we can't, we wouldn't know what to do with it. Charlie wouldn't mind know what to do in the oil field, but we love the shares we have. We may or may not own more in the future, but we certainly have warrants on, on which we got as part of the original deal, on a very substantial amount of stock at around $59 a share. And those warrants last a long time, and I'm glad we have them.