Buffett, Gates Help Bid Up Canadian Natural Resources

Warren Buffett and Bill Gates, ranked #1 and #3 richest in Forbes [respectively], took an unusual summer trip together - to northern Alberta on Wednesday to explore Canadian Natural Resources' (CNQ) multi-billion dollar oil-sands project.

The Horizon project is an “open pit mining strategy [which] will consist of mobile equipment and bitumen extraction facilities to mine and separate the raw bitumen from the oil sands. Canadian Natural will further upgrade the bitumen to a sweet synthetic crude oil using proven delayed coking and hydro-treating technologies” (CNRL).

The project comes with some drawbacks: Budgeted costs have risen to (est.) $8.5 billion and drilling in the oil sands is not as environmentally clean as the likes of Transocean’s (RIG) deep-water drilling. CNQ projects that the costs will be easily covered, though, with the 40 year project life-span. Drilling technology over the next few decades will undoubtedly advance, as well.

In all, the oil sands of Canada are the second largest such reserve for crude oil production – an estimated 175 Billion barrels- not a bad output to help curb the supply-curve while alternatives to fossil fuels are explored.

I think it is unlikely that Buffett and Gates will invest in CNQ or one of its competitors – a lot of investors, politicians, journalists and government officials take trips to explore the future of energy in North America and the world. "We were asked to come up and give a general overview on the oilsands and Canada's role in the world of energy in general, which we did," said Greg Stringham, CAPP's [Canadian Association of Petroleum Producers] vice-president. "They were exercising curiosity, basically saying, 'Wow, this is neat.' " (Calgary Herald)

Even if Buffett has a desire to invest here, history says he is always highly educated on both the sector and company he invests in (i.e. no tech companies). I’m sure the idea has crossed his mind, but unless he’s seen more than a small presentation about how the industry operates, I would not expect anything more than a flicker of hope for CNQ longs (who, not to mention, have had a nice ride with CNQ already).

So, whether it be an investing trip, sightseeing trip or both- one thing is certain: Both institutions and individuals follow every footstep of Buffett. If there is a remote chance he will put capital towards this form of oil harvesting, you bet your house that the money will follow.

Edward Jones analyst Lanny Pendil apparently did not get the memo that these billionaires really do move stocks: “The fact that people were up there kicking the tires means nothing from a financial standpoint and therefore really shouldn´t really play into what the price of these stocks is doing today.”

So, why did CNQ jumping the highest since 2005 on the day of the visit? Hmm. I’m still amazed how Buffett can materially move stocks, especially from my point of view as a young investor who has not had the privilege of following Buffett.

CNQ added 7% on Wednesday on the speculation and another 3% Thursday on higher oil.

Disclosure: None

Comments

[erniem:]

One might also consider that Buffet and Gates are relatively green, and their visit might just affirm that the environmental degradation from oilsands crude production is not worth the cost.

2008 Aug 22 08:46 AM

[Steven Ward:]

I think Ernie could be right on this one. However, there is one caveat: Buffet may come tothe conclusion that there is no viable alternative for transportation fue for decadesl and go ahead and invest in an oil sands project or projects.

2008 Aug 22 10:23 AM

[SHARK&PAUL:]

I have read 10-13 words of it,maybe you are right.
Buffett or Gates are no angels and also can make mistakes just like any other long only investor.
Once Buffett bought cash Silver at about 10$ an once more that 10 years ago then sold t all at the lowest possible price aroun 5$.
While tar sands are good long term investment I agree,but being too late into the game is like waiting too long after.Timing is everything for Buffett,for me,and for everybody.
Wish Buffett is right,I wouldn't bet against him as have my money in Nat Gas futures today,let's hope he is really right long term but I want to sell today for 1000-2000$ profit and go to sleep without thinking about the future today.

2008 Aug 22 10:55 AM

[Cole Bene':]

Buffet and Gates have the cash like the yellow brick road. Look at how the other cronies are doing.

2008 Aug 24 01:29 PM