Foreign media reported early this morning that Berkshire will acquire the natural gas assets of dominion company with a total transaction amount of 97 US dollars (about RMB 68.5 billion), of which 4 billion will be invested and the other 5.7 billion will be carried out in the form of debt.
However, the energy industry in the United States has not had a good time recently. Many companies have gone bankrupt, and even some market people think that the bankruptcy tide is coming. For this wave of operation of Buffett, there are also netizens calling cant understand.
Over 68 billion transactions
This is Berkshires first major investment since the market crash caused by the coronavirus pandemic in March.
We are very proud to be able to add such a large natural gas portfolio to our already strong energy business, Mr. Buffett said in a statement
Berkshire will make the acquisition through its Berkshire Hathaway energy company. According to public information, Berkshire Hathaway energy owns mid American energy, nvenergy and PacifiCorp in the UK and Canada, with business segments covering natural gas, wind and power. The division accounts for 12% of Berkshire Hathaways $23.97 billion operating profit in 2019, and Greg Abel, chairman of the board, is also vice chairman of Berkshire Hathaway.
Before the acquisition, Berkshire energys business accounted for 8% of all interstate gas transmission in the United States; after the acquisition, the proportion will rise to 18%.
The nearly $10 billion deal includes two parts: one is Berkshires $4 billion purchase of dominions assets, and the other is Berkshires investment in the form of 5.7 billion debt.
Dominion also plans to use about $3 billion of after tax earnings to buy back its shares later this year, CNBC said.
It includes more than 7700 miles (12390 kilometers) of gas transportation lines and 900 billion cubic feet of gas storage facilities, according to Reuters.
According to public information, dominion energy is a utility company headquartered in Richmond, Virginia, USA. its business covers power, natural gas, oil and other fields, and is one of the leading companies in the field of natural gas in the United States.
Under the terms of the deal, Berkshire Hathaway will acquire 100% of dominion energy transmission, Questar pipeline and Carolina gas transmission, and 50% of Iroquois Gastr ansmissionSystemuff09u3002
Berkshire will also acquire a 25% stake in covepointlng, one of the only six LNG export terminals in the United States, which specializes in the import, export and storage of liquefied natural gas.
It is understood that the deal still needs regulatory approval and is expected to be completed in the fourth quarter of this year.
Earlier, at the annual shareholders meeting in May, Mr. Buffett once said, we didnt do anything because we didnt see anything attractive.
Despite holding nearly a trillion yuan of cash, Berkshire has been relatively conservative in investment recently, and has not been greedy in scavenging.
For this move, some netizens said, its hard to spend $150 billion on $4 billion....
Some netizens agree with Mr. Buffett that after all, every family should use natural gas, but some netizens are puzzled by the investment.
American energy companies are having a hard time
Does dominion company have no choice but to sell assets to save itself?
In April this year, crude oil futures fell to an unprecedented negative value, which caused a major blow to the energy industry, especially the U.S. energy industry.
According to the report released by Fitch international on June 10, according to the default data of American energy enterprises in 2019, the default probability of American energy industry will reach 9.9% this year. JP Morgan Chase also analyzes that more energy companies will be in trouble and may reach the peak in the first and middle of June. The latest data released by Moodys also shows that US oil exploration and production companies have $86 billion in debt due between 2020 and 2024.
In order to deal with the debt crisis, American energy enterprises racked their brains to save themselves by means of debt restructuring and bankruptcy application. The rumor that dominion company divested its assets has also been circulating for a long time.
At present, due to huge debt and natural gas assets, dominion will need to consume 85% of its operating revenue to maintain its operation. But after the deal is completed, the companys goal is to keep the proportion around 65%, which is more consistent with the industry average.
In addition to selling its natural gas business, dominion also announced that it would cancel the Atlantic coast pipeline project with Duke energy.
CNBC said the move is one of a series of moves for dominion to transition to a pure operating utility that will focus on clean energy from wind, solar and natural gas in the future.
Dominion expects that 90% of its future revenue from the sale of the assets will come from its utility company, which provides electricity and other energy to 7 million customers in Virginia, North and South Carolina, Ohio and Utah.
Based on the current situation, dominion also warned that it expects operating profit of $3.37 to $3.63 per share in 2020, compared with its previous forecast of $4.25 to $4.60 per share.
Energy companies in the U.S. may be in bankruptcy
What is the logic of investing in energy companies?
Crude oil prices are gradually picking up, but many energy companies in the United States have fallen before dawn, including some of the giants.
At the end of June, Chesapeake energy, an old American shale oil company, filed for bankruptcy. At present, it is a foregone conclusion that the company should be delisted. The giant, once worth $37.5 billion, is now worth less than $200 million.
Before Chesapeake, whiting petroleum and diamond offshore drilling also went bankrupt this year. Energy companies have been the second-largest contributor to the wave of U.S. bankruptcies this year, according to Bloomberg.
As of July 3, more than 20 companies in the U.S. energy industry with more than $50 million in debt have filed for bankruptcy.
Analysts and legal professionals in the United States expect that, although WTI crude oil prices at the end of June more than doubled from Aprils average price to about $40 / barrel, the number of us shale oil companies going bankrupt will increase in the coming months.
John D. Cornwell of Munsch Hardt Kopf & Harr, a law firm, said: the number of companies filing for bankruptcy has increased and the general perception is that this trend is just beginning. Bankruptcy related to the oil and gas (O & G) industry accounts for a large part of Texass filings.
Chris Atherton, President of energynet, estimates that there are about 75 to 80 publicly listed oil and gas companies in the U.S. stock market, but unfortunately, in the next year or two, that number may be halved, companies that survive either through layoffs or asset sales.
At the moment when energy companies are at risk, there are also some positive signals. There is no reason for Warren Buffetts greed.
Recently, crude oil prices have rebounded rapidly, with New York crude oil futures soaring 92% in the past three months as of June 30.
Phil Flynn, an analyst at price futures group, marveled at the rise: oil prices wont rebound to $60 overnight, but its incredible to be able to move from the previous level to the current $40 range.
The pick-up in demand has also provided some support for crude oil prices. Recently, Amin Nasser, chief executive of Saudi Aramco, said in an interview with ihsmarkit, I am very optimistic about the demand outlook in the second half of this year. Now in China, its almost 90% of what it was before.
The worst is over, Amin Nasser said
Is Warren Buffett really old?
Berkshire made 280 billion in the second quarter
According to the first quarter results, Berkshire made a net loss of $49.7 billion, about 350 billion yuan, the largest quarterly investment loss in the companys history.
Recently, Rolfe, chief investment officer of Wedgewood partners, also said that he would sell tens of millions of dollars worth of shares in the company, believing that Mr. Buffett missed the investment opportunity.
DavidScottPortnoy, the US Internet pioneer, even falsified Buffetts retirement letter and teased the Berkshires worrying investment performance in the letter. The fake retirement letter, signed by Warren Buffet, has also spread rapidly on Chinese Internet media.
In terms of the second quarter performance, the performance of Buffetts portfolio is fair.
According to the rough statistics of securities times and data treasure, as of June 20, the investment income of the portfolio held by Mr. Buffett has exceeded 40 billion US dollars (280 billion yuan) in the second quarter.
Among them, as Warren Buffetts largest shareholding, apple contributed half of the return of Buffetts portfolio.
But Buffett still lost the market in the second quarter. At $40 billion, Mr. Buffetts portfolio realized an investment return of about 25% in the second quarter, while the NASDAQ index rose 29% in the same period.
Source: China Fund News Editor in charge: Yang Bin_ NF4368