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August 2008

Vol. 13, No. 35 Week of August 31, 2008

Buffett bides his time on oil sands

Gary Park

For Petroleum News

Warren Buffett didn’t scale the money mountain by making ill-considered, spur-of-the-moment investment decisions and he’s not about to change that approach by sinking any of his wealth into the Alberta oil sands.

A one-day flying visit to northern Alberta, with his pal Bill Gates in tow, won’t see the so-called Oracle of Omaha loosen his purse strings and dump some of Berkshire Hathaway’s US$31.6 billion in loose cash into the oil sands.

Buffett told CNBC’s Squawk Box show that he has yet to put out any “buy orders” on oil sands shares.

“No, no. I go to the movies, but I don’t buy movie companies,” Buffett said. “I mean, I’m always interested in understanding the math of things and understanding as much as I can about all aspects of business.

“And what I learn today may be useful to me two years from now. I mean, if I understand the tar sands today and oil prices change or whatever may happen, I’ve got that filed away and I can use it at some later date.”

Visit to Horizon mine

Buffett and Gates spent time at Canadian Natural Resources’ Horizon oil sands mine and upgrader as well as touring a thermal development, where steam is injected under high pressure to melt deeply buried bitumen deposits, forcing them to the surface.

He described the oil sands as a tricky investment because oil prices must remain high for the crude to be extract economically.

That, he suggested, necessitates an accurate, while challenging long-term call on world oil prices.

“You could be the world’s greatest mining engineer, but if you were wrong about the price of oil in a big way, it would negate all of that knowledge,” Buffett said.

“If you had $120 oil from now until 50 years from now, the tar sands would work out very well. But I don’t know the answer to that.”

Shares of Canadian oil companies with stakes in the oil sands climbed after word of the Buffett-Gates trip and dropped just as quickly Aug. 22 after Buffett’s comments on CNBC.






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