Warren Buffett's decision to dump his stake in Exxon Mobil Corp. after oil prices plunged is pointing investors toward smaller, more nimble producers that will deliver higher returns during a market recovery. Mr. Buffett's Berkshire Hathaway Inc. sold its entire position in Exxon during the final three months of last year, according to a regulatory filing on Tuesday. The exit marks the end of a $3.7-billion (U.S.) investment in 2013 that at the time was Mr. Buffett's biggest single bet since he bought into International Business Machines Corp. two years earlier.
Berkshire is focusing energy investments on more-promising names, said Allen Good, an analyst at Morningstar Inc. in Chicago. The Omaha, Neb.-based company added to its holdings in Canadian oil sands miner Suncor Energy Inc. and crude refiner Phillips 66, according to the filing that detailed Mr. Buffett's portfolio as of Dec. 31.
Berkshire "thinks there's some value in the oil space but that there are other companies better positioned to benefit when prices recover," Mr. Good said in a telephone interview. The Suncor investment indicates "a favourable long-term outlook on oil prices."
Exxon put investors on notice last month that it's dialling back share repurchases to a level not seen since 2000 after cash flow tumbled 36 per cent during the fourth quarter. Oil and natural gas production from the company's wells fell to the lowest for that time of year since the Mobil Corp. merger in 1999.
Mr. Buffett's fourth-quarter divestments in the energy sector also included ConocoPhillips Co., the Houston-based crude and gas producer that spun off its oil-refining business in 2012.
The spinoff created Phillips 66, which comprised the second-largest energy holding in Mr. Buffett's portfolio on a dollar basis as of Dec. 31, after Suncor.
When the Oracle of Omaha, 84, was liquidating his Exxon investment in the fourth quarter, the shares averaged $93.25. Berkshire paid on average $90.86 a share in 2013, according to the company's most recent annual report. That would amount to a gain of about $98-million.
Despite the big splash Berkshire's Exxon foray made when it was disclosed in a late 2013 filing, Mr. Buffett has never spent much time publicly discussing the company's prospects, Mr. Good said. For that reason, there's little reason to see his exit as a broad judgment on the sector, he said. "You never saw a lot of conviction on this and he never talked about Exxon," Mr. Good said.