Carl Icahn Selling into Warren Buffet’s Buying, Can they Both be Right?

 

“We started buying on Monday, and we bought all we could,” Warren Buffett told CNBC. The Berkshire Hathaway CEO was discussing a new 91.2 million share stake his company took in Occidental Petroleum (OXY). At the same time, Carl Icahn, another renowned investor, has been selling shares of OXY. Can they both be right?

 

Warren Buffet on OXY

Buffett pulled the trigger on $4.5 billion of Occidental, an energy exploration and production company, last week.  This gives Berkshire close to a 10% stake in the company. This is an increase in exposure for Berkshire as it also has positions worth $10 billion of preferred shares, along with warrants to buy 83.9 million common shares exercisable at $59.62.

Berkshires 2021 annual report showed they held $144 billion in cash and equivalents.

Carl Icahn on OXY

Billionaire investor Carl Icahn, sold his remaining lot of OXY last week. According to The Wall Street Journal, Icahn made about $1 billion on Occidental stock and still holds about 15 million in warrants (OXY WS). The warrants, which trade at around $34, have an exercise price of $22 a share (current level $57-$58).

Icahn still continues to have exposure to the energy sector through a roughly 6.4% stake worth $2 billion in Cheniere Energy (LNG), a liquefied natural gas producer, and a controlling interest worth $1 billion in CVR Energy (CVI), a petroleum refiner.

The activist investor became involved with Occidental in 2019 around the same time as Buffett. He urged the company to not pursue the debt-financed deal for Anadarko, which Buffett was for and helped enable with loans. Berkshire’s warrants and preferred shares were part of financing the arrangement.

 

Buffett vs Icahn

When you find two legendary investors taking opposite sides of the same trade at the same time, in a sector that is moving quickly, it’s worth stopping to try to understand why. Berkshire Hathaway’s Buffet, who is 91, was a heavy buyer of OXY while Carl Icahn, 86, was selling a huge position put on in 2019.

Description:
Since March 2019 OXY has consistently performed below the energy sector and S&P 500

 

There have been other times when one of these two was buying into the other’s selling. In 2016, Icahn exited a position in Apple (AAPL) he had held for about three years. Also, in 2016 Buffett began scaling into Apple. Icahn made a reported $2 billion profit on 180 million shares of Apple. It is unclear if the redeployment of the proceeds of this sale outpaced the earnings that would have occurred if he held Apple, which has grown 500% since.

Apple has been Buffett’s biggest public market win in the past decade. Berkshire holds about 900 million shares worth $145 billion, more than four times its cost.

Investment Styles

As an activist investor, Icahn’s primary methodology is to own a significant enough amount of a company to influence how the company is run. If a profit presents itself, he is likely to take it. Such was the case with the doubling of OXY in two months’ time this year.

Berkshire’s portfolio is mostly non-public companies it owns outright. As for publicly traded stocks, Buffett’s style is to be patient waiting for value in terms of price and potential.  Buffett has described his favorite holding period as “forever.”

Berkshire is also cash-heavy and should like to deploy $80 billion, but has been priced out of stocks and acquisitions for several years now. With recent market weakness, there may be some big purchases on the horizon.

Take-Away

Investors have different time frames and risk tolerance. More active traders like Icahn may sell if they see other opportunities where they believe the capital could produce a better return, whereas Berkshire’s longer-term view and huge cash position, could make their transactions based on a totally different set of factors. For Berkshire, this purchase may be as easy to understand as asking “do we expect OXY to perform better than cash.”

 

Paul Hoffman

Managing Editor, Channelchek

 

Suggested Reading

Using Warren Buffett’s SEC Filing as an Oracle

Cathie Wood Says Benchmark Funds are Where the Risk Is

Michael Burry vs Cathie Wood is Not an Even Competition

Warren Buffett vs Elon Musk, Who’s Right

 

Sources

https://channelchek.vercel.app/news-channel/Pros_and_Cons_of_a_Company_Like_Berkshire_Hathaway_in_your_Portfolio

https://www.cnbc.com/2022/03/05/berkshire-hathaway-reveals-5-billion-stake-in-oil-giant-occidental-petroleum.html

https://www.sec.gov/Archives/edgar/data/315090/000089924322009579/xslF345X03/doc4.xml

https://www.barrons.com/articles/warren-buffett-was-buying-occidental-carl-icahn-was-selling-who-will-be-right-51646672487?mod=hp_columnists

 

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Alvopetro Announces 2021 Year End Reserves With a 52% Increase In 2P NPV Before Tax

News, and Market Data on Alvopetro Energy

 

CALGARY, AB, March 8, 2022 /CNW/ – Alvopetro Energy Ltd. (TSXV:ALV) (OTCQX: ALVOF) announces our reserves as at December 31, 2021 with total proved plus probable (“2P”) reserves of 8.7 mmboe and a before tax net present value discounted at 10% of $297.0 million.  The before tax net present value of our 2P reserves (discounted at 10%) increased by 52% from December 31, 2020, primarily due to increases in forecasted natural gas prices. 2P reserve volumes decreased by 9% due to 2021 production. In addition, Alvopetro announces the December 31, 2021 assessment of the Company’s Murucututu natural gas resource (previously referred to as the Gomo natural gas resource) with risked best estimate contingent resource of 3.5 mmboe and risked best estimate prospective resource of 12.1 mmboe, both of which are virtually unchanged from December 31, 2020.  The Murucututu natural gas contingent and prospective resource values (risked best estimate net present value before tax, discounted at 10%) increased by 61% to $60.7 million and by 44% to $208.7 million, respectively.  The reserves and resources data set forth herein is based on an independent reserves and resources assessment and evaluation prepared by GLJ Ltd. (“GLJ”) dated March 7, 2022 with an effective date of December 31, 2021 (the “GLJ Reserves and Resources Report”).  

All references herein to $ refer to United States dollars, unless otherwise stated.

December 31, 2021 GLJ Reserves and Resource Report Highlights

• 2P net present value before tax discounted at 10% increased 52% to $297.0 million primarily due to higher forecasted commodity prices.
• Proved reserves (“1P”) and 2P reserves decreased to 4.4 mmboe (-13%) and 8.7 mmboe (-9%) respectively, due to 2021 production volumes.
• This represents a 2P Net Asset Value of CAD$11.20/share ($8.77/share).
• Risked best estimate contingent and risked best estimate prospective resource of 3.5 mmboe and 12.1 mmboe, respectively were consistent with prior year with an increase of 61% and 44% respectively on risked best estimate before tax net present value discounted at 10%, due primarily to higher forecasted commodity prices.

Corey Ruttan, President and Chief Executive Officer, commented:

“Our 2021 year-end reserves and resource evaluations highlight the strong profitability from our Caburé natural gas field and the long-term potential of our Murucututu project. The increase in forecasted cash flows reflects the impact of global commodity prices on our forecasted natural gas prices under our long-term gas sales agreement and our most recent price increase effective February 1, 2022. Our 2022 capital program is focused on natural gas exploration and development aimed at expanding our production and reserve base and maximizing the utilization of our strategic midstream infrastructure that is concurrently being expanded to a capacity of at least 500,000 m3/d (17.7 mmcfpd).”

SUMMARY

December 31, 2021 Gross Reserve and Gross Resource Volumes: ^{(1)(5)(6)(7)(8)(9)(10)(11)(14)}

Net present value before tax discounted at 10%:^{(2)(5)(6)(7)(8)(9)(10)(11)(12)(13)}

NET ASSET VALUE

Following the December 31, 2021 reserves evaluation, based on the before tax net present value of Alvopetro’s 2P reserves (discounted at 10%), our total net asset value is $297.3 million; CAD$11.20 per common share outstanding.  Our 2P net asset value of $297.3 million is before including the before tax net present value (discounted at 10%) of our risked best estimate risked contingent resource of $60.7 million and our risked prospective resource of $208.7 million from the Murucututu natural gas field.

PRICING ASSUMPTIONS – FORECAST PRICES AND COSTS 

GLJ employed the following pricing and inflation rate assumptions as of January 1, 2022 in the GLJ Reserves and Resources Report in estimating reserves and resources data using forecast prices and costs.

As of February 1, 2022, Alvopetro’s contracted natural gas price under the terms of our long-term gas sales agreement is based on the ceiling price within the contract and is forecasted to remain at the ceiling price until 2024. The forecasted prices in the GLJ Reserves and Resource Report do not reflect the most recent increase in global commodity prices which further extends the period under which Alvopetro’s contracted price will be at the ceiling in the contract.  The ceiling price incorporates assumed US inflation of 5% in 2022, 3% in 2023 and 2% thereafter.

GLJ RESERVES AND RESOURCES REPORT 

The GLJ Reserves and Resources Report has been prepared in accordance with the standards contained in the Canadian Oil and Gas Evaluation Handbook (“COGEH”) that are consistent with the standards of National Instrument 51-101 (“NI 51-101”). GLJ is a qualified reserves evaluator as defined in NI 51-101. The GLJ Reserves and Resources Report was an evaluation of all reserves of Alvopetro including our Caburé and Caburé Leste natural gas fields (collectively referred to as our Caburé natural gas field), our Murucututu natural gas project (previously referred to as Gomo), as well as our Bom Lugar and Mãe-da-lua oil fields. The GLJ Reserves and Resources Report also includes an evaluation of the gas resources of our Murucututu natural gas.  In addition to the reserves assigned to our two existing Murucututu wells (197-1 and 183-1) and two additional development locations, contingent resource was assigned to the area in proximity to our existing Murucututu reserves, deemed to be discovered.  The area mapped by 3D seismic west and north of the area defined as contingent was assigned prospective resource. Additional reserves and resources information as required under NI 51-101 will be included in the Company’s Annual Information Form for the 2021 fiscal year which will be filed on SEDAR by April 30, 2022.

December 31, 2021 Reserves Information:

Summary of Reserves ^{(1)(3)(4)(5)(7)(8)}

Summary of Before Tax Net Present Value of Future Net Revenue – MUS ^{(2)(5)(7)(8)(12)(13)}

Summary of After Tax Net Present Value of Future Net Revenue – MUS ^{(2)(5)(7)(8)(12)(13)}

Future Development Costs ^{(2)(5)(7)(8)(12)(13)}

The table below sets out the total development costs deducted in the estimation in the GLJ Reserves and Resources Report of future net revenue attributable to proved reserves, proved plus probable reserves and proved plus probable plus possible reserves (using forecast prices and costs), by field. Total development costs include capital costs for drilling and facility and pipeline expenditures but excludes abandonment and reclamation costs.

Under each reserve category, Alvopetro has elected to reflect 100% of the contractual obligations pursuant to our Gas Treatment Agreement with Enerflex, including all operating, capital, and related financing costs for the full duration of the agreement. These costs are mainly attributable to the Caburé field and also represent the majority of the future development costs for the Caburé field in the table below. The future costs associated with equipment rental are also reflected as a capital lease obligation on our financial statements other than future anticipated equipment rental costs associated with the facility expansion, which will be reflected once completed.

The future development costs for the Murucututu field in the proved category are for the remaining costs anticipated in 2022 for the pipeline and field facility development to tie-in the 183(1) well to Alvopetro’s midstream assets, as well as a development location. In the probable and possible categories, there are future development costs for an additional development location and the stimulation and tie-in of the 197(1) well. Also included in the Murucututu future development costs for all reserve categories are a portion of the anticipated contractual obligations associated with the expansion of the gas treatment facility. The future development costs for Bom Lugar in the proved category include costs for a directional wellbore and facilities upgrade. A second directional well is included in the future development costs for the possible category for Bom Lugar. Future development costs at the Mãe-da-lua field relate to a stimulation of the existing producing well.

Reconciliation of Alvopetro’s Gross Reserves (Before Royalty) ^{(1)(5)(7)(8)(13)}

December 31, 2021 Murucututu Contingent Resources Information:

Summary of Unrisked Company Gross Contingent Resources ^{(1)(3)(4)(5)(7)(10)(11)}

Summary of Before Tax Net Present Value of Future Net Revenue of Unrisked Contingent Resources- MUS ^{(2)(5)(10)(11)(12)(13)}

The GLJ Contingent Resource Report for Murucututu assumes capital deployment during 2023 for the drilling of wells and expansion of facilities, with total project costs of $23.9 million and first commercial production in 2023. There can be no certainty that the project will developed on the timelines discussed herein. Development of the project is dependent on several contingencies as further described in this news release.  The information presented herein is based on company net project development costs.

Summary of Development Pending Risked Company Gross Contingent Resources^{(1)(3)(4)(5)(7)(10)(11)}

The GLJ Reserves and Resources Report estimates the Chance of Development as the product of two main contingencies associated with the project development, which are: 1) the probability of corporate sanctioning, which GLJ estimates at 95%; 2) the probability finalization of a development plan, which GLJ estimates at 95%. The product of these two contingencies is 90%.   As there is no risk related to discovery, the Chance of Commerciality for the contingent resource is therefore 90% which is the risk factor that has been applied to the Development Risked company gross contingent resources and the net present value figures reported below.

Summary of Development Pending Risked Before Tax Net Present Value of Future Net Revenue of Contingent Resources- MUS^{(2)(5)(10)(11)(12)(13)}

December 31, 2021 Murucututu Prospective Resources Information:

Summary of Unrisked Company Gross Prospective Resources ^{(1)(3)(4)(5)(7)(9)(11)}

Summary of Before Tax Net Present Value of Future Net Revenue of Unrisked Prospective Resources- MUS ^{(2)(5)(9)(11)(12)(13)}

The GLJ Prospective Resource Report for Murucututu assumes capital deployment starting 2024 for the drilling of wells, expansion of field facilities, and additional pipeline capacity, with total project costs of $66.1 million and first commercial production in 2024. There can be no certainty that the project will developed on the timelines discussed herein. Development of the project is dependent on several contingencies as further described in this news release.  The information presented herein is based on company project development costs.

The GLJ Reserves and Resources Report estimates the Chance of Commerciality as the product between the Chance of Discovery and the Chance of Development. The Chance of Discovery of the prospective resources has been assessed at 90%, while the Chance of Development has been assessed as the same as for the Contingent Resources described above at 90%. The resulting Chance of Commerciality is 81%, which has been applied to the company gross unrisked prospective resources and the net present value figures reported below.   

Summary of Development Risked Company Gross Prospective Resources^{(1)(3)(4)(5)(7)(9)(11)}

The GLJ Reserves and Resources Report estimates the Chance of Commerciality as the product between the Chance of Discovery and the Chance of Development. The Chance of Discovery of the prospective resources has been assessed at 90%, while the Chance of Development has been assessed as the same as for the Contingent Resources described above at 90%. The resulting Chance of Commerciality is 81%, which has been applied to the company gross unrisked prospective resources and the net present value figures reported below.   

Summary of Development Risked Before Tax Net Present Value of Future Net Revenue of Prospective Resources- MUS^{(2)(5)(9)(11)(12)(13)}

Upcoming 2021 Results and Live Webcast

Alvopetro anticipates announcing its 2021 fourth quarter and year-end results on March 17, 2022 after markets close and will host a live webcast to discuss the results at 8:00 am Mountain time, on the March 18, 2022. Details for joining the event are as follows:

DATE: March 18, 2022TIME: 8:00 AM Mountain/10:00 AM EasternLINK: https://zoom.us/j/99386897923  DIAL-IN NUMBERS: https://zoom.us/u/aixrWbAbO  WEBINAR ID: 993 8689 7923

The webcast will include a question and answer period. Online participants will be able to ask questions through the Zoom portal. Dial-in participants can email questions directly to socialmedia@alvopetro.com.

Corporate Presentation

Alvopetro’s updated corporate presentation is available on our website at:

http://www.alvopetro.com/corporate-presentation. 

FOOTNOTES

Alvopetro Energy Ltd.’s vision is to become a leading independent upstream and midstream operator in Brazil. Our strategy is to unlock the on-shore natural gas potential in the state of Bahia in Brazil, building off the development of our Caburé natural gas field and our strategic midstream infrastructure.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this news release.

All amounts contained in this news release are in United States dollars, except as otherwise noted.

Oil and Natural Gas Reserves. The disclosure in this news release summarizes certain information contained in the GLJ Reserves and Resources Report but represents only a portion of the disclosure required under NI 51-101. Full disclosure with respect to the Company’s reserves as at December 31, 2021 will be contained in the Company’s annual information form for the year ended December 31, 2021 which will be filed on SEDAR (www.sedar.com) on or before April 30, 2022. All net present values in this press release are based on estimates of future operating and capital costs and GLJ’s forecast prices as of December 31, 2021. The reserves definitions used in this evaluation are the standards defined by COGEH reserve definitions and are consistent with NI 51-101 and used by GLJ. The net present values of future net revenue attributable to the Alvopetro’s reserves estimated by GLJ do not represent the fair market value of those reserves. Other assumptions and qualifications relating to costs, prices for future production and other matters are summarized herein. The recovery and reserve estimates of the Company’s reserves provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered. Actual reserves may be greater than or less than the estimates provided herein. Possible reserves are those additional reserves that are less certain to be recovered than probable reserves. There is a 10% probability that the quantities actually recovered will equal or exceed the sum of proved plus probable plus possible reserves.

Contingent Resources. This news release discloses estimates of Alvopetro’s contingent resources and the net present value associated with net revenues associated with the production of such contingent resources as included in the GLJ Reserves and Resources Report. There is no certainty that it will be commercially viable to produce any portion of such contingent resources and the estimated future net revenues do not necessarily represent the fair market value of such contingent resources. Estimates of contingent resources involve additional risks over estimates of reserves. Full disclosure with respect to the Company’s contingent resources as at December 31, 2021 will be contained in the Company’s annual information form for the year ended December 31, 2021 which will be filed on SEDAR (www.sedar.com) on or before April 30, 2022.

Prospective Resources – This news release discloses estimates of Alvopetro’s prospective resources included in the GLJ Reserves and Resources Report. There is no certainty that any portion of the prospective resources will be discovered and even if discovered, there is no certainty that it will be commercially viable to produce any portion. Estimates of prospective resources involve additional risks over estimates of reserves. The accuracy of any resources estimate is a function of the quality and quantity of available data and of engineering interpretation and judgment. While resources presented herein are considered reasonable, the estimates should be accepted with the understanding that reservoir performance subsequent to the date of the estimate may justify revision, either upward or downward. Full disclosure with respect to the Company’s prospective resources as at December 31, 2021 will be contained in the Company’s annual information form for the year ended December 31, 2021 which will be filed on SEDAR (www.sedar.com) on or before April 30, 2022.

 

BOE Disclosure. The term barrels of oil equivalent (“boe”) may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet per barrel (6Mcf/bbl) of natural gas to barrels of oil equivalence is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. All boe conversions in this news release are derived from converting gas to oil in the ratio mix of six thousand cubic feet of gas to one barrel of oil.

Forward-Looking Statements and Cautionary Language. This news release contains “forward-looking information” within the meaning of applicable securities laws. The use of any of the words “will”, “expect”, “intend” and other similar words or expressions are intended to identify forward-looking information. Forward–looking statements involve significant risks and uncertainties, should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether or not such results will be achieved. A number of factors could cause actual results to vary significantly from the expectations discussed in the forward-looking statements. These forward-looking statements reflect current assumptions and expectations regarding future events. Accordingly, when relying on forward-looking statements to make decisions, Alvopetro cautions readers not to place undue reliance on these statements, as forward-looking statements involve significant risks and uncertainties. More particularly and without limitation, this news release contains forward-looking information concerning the plans relating to the Company’s operational activities and the expected natural gas price, gas sales and gas deliveries under Alvopetro’s long-term gas sales agreement. The forward–looking statements are based on certain key expectations and assumptions made by Alvopetro, including but not limited to equipment availability, the timing of regulatory licenses and approvals, the success of future drilling, completion, testing, recompletion and development activities, the outlook for commodity markets and ability to access capital markets, the impact of the COVID-19 pandemic, the performance of producing wells and reservoirs, well development and operating performance, foreign exchange rates, general economic and business conditions, weather and access to drilling locations, the availability and cost of labour and services, environmental regulation, including regulation relating to hydraulic fracturing and stimulation, the ability to monetize hydrocarbons discovered, the regulatory and legal environment and other risks associated with oil and gas operations. The reader is cautioned that assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be incorrect. Actual results achieved during the forecast period will vary from the information provided herein as a result of numerous known and unknown risks and uncertainties and other factors.  Although Alvopetro believes that the expectations and assumptions on which such forward-looking information is based are reasonable, undue reliance should not be placed on the forward-looking information because Alvopetro can give no assurance that it will prove to be correct. Readers are cautioned that the foregoing list of factors is not exhaustive. Additional information on factors that could affect the operations or financial results of Alvopetro are included in our annual information form which may be accessed on Alvopetro’s SEDAR profile at www.sedar.com. The forward-looking information contained in this news release is made as of the date hereof and Alvopetro undertakes no obligation to update publicly or revise any forward-looking information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.

Non-GAAP Measures. This news release contains financial terms that are not considered measures under International Financial Reporting Standards (“IFRS”), such as working capital net of debt and net asset value. Working capital net of debt is computed as current assets less the sum of current liabilities and the carrying amount of the Company’s credit facility. Net asset value is computed based on the before-tax net present value of the Company’s proved plus probable reserves, discounted at 10%, increased by the Company’s working capital net of debt.  The non-GAAP measures do not have standardized meanings under IFRS and therefore are unlikely to be comparable to similar measures presented by other issuers. While these measures may be common in the oil and gas industry, the Company’s use of these terms may not be comparable to similarly defined measures presented by other companies. The non-GAAP measures referred to in this report should not be considered an alternative to, or more meaningful than measures prescribed by IFRS and they are not meant to enhance the Company’s reported financial performance or position.  For more information with respect to financial measures which have not been defined by GAAP, including reconciliations to the closest comparable GAAP measure, see the “Non-GAAP Measures” section of the Company’s most recent MD&A which may be accessed through the SEDAR website at www.sedar.com.

SOURCE Alvopetro Energy Ltd.