PetroChina Investors Shrug Off Buffett Sale

The investing wizard sells 28 million shares of the Chinese oil company criticized for links to Sudan, but his remaining 9% stake rakes it in

by Brian Hindo

Warren Buffett , long celebrated for his investing skill, more recently has won renown for his philanthropy, especially his gift of billions of dollars to the Bill and Melinda Gates Foundation. That hasn't stopped critics from denouncing him for being a major shareholder in PetroChina (PTR), the Chinese state-owned oil company that is a big investor in Sudan, where millions have died or become refugees because of the conflict that has wracked the Darfur region.

Critics have been calling for Buffett to sell his PetroChina stake in order to protest the company's support for the Sudanese regime. And on Sept. 20, Buffett's Berkshire Hathaway (BRK) sold 28 million shares in PetroChina. The sale was Buffett's third in the last two months.

Activists say that their message is finally getting through to investors. "This steady series of sales of PetroChina… is an increasingly clear demonstration of divestment by Berkshire Hathaway," Investors Against Genocide, a Boston-based group, said in a statement. " We hope that these sales by the largest single shareholder of PetroChina send a clear signal to PetroChina, the government of China, and the government of Sudan that large investors like Mr. Buffett, and hundreds of thousands of small investors, do not want their money to be complicit in genocide."

Shares Hit Record High

Nevertheless, most analysts in Hong Kong agree that Buffett's sell-off was motivated by profit-taking, not humanitarian concern. Even after the three sales, Berkshire still owns nearly 9% of China's largest oil company, making it the second-largest shareholder behind the government-backed China National Petroleum, which owns 88%.

And from an investor's standpoint, the shares have been rewarding. Despite the news of Buffett's latest sale, the company's Hong Kong-listed shares hit a record high Sept. 21, thanks largely to rising crude oil prices. PetroChina's ADRs have advanced more than 200% in New York Stock Exchange (NYX) trading over the past three years, well outpacing other major international energy players such as Exxon Mobil (XOM) (a 90% advance), Chevron (CVX) (80%), and BP (BP) (25%).

Like the international majors, the big three China oil companies—PetroChina, Sinopec (SNP), and CNOOC (CEO)—are making enormous profits, given persistently high energy prices. In 2006, PetroChina posted net income of nearly $20 billion on revenues of about $92 billion, and its market cap runs currently at about $283 billion, behind Exxon Mobil, but ahead of nearly everyone else.

In terms of strategy, what distinguishes the Chinese companies most from the majors is that they are plowing much larger sums, relatively speaking, back into actually finding and producing more oil and gas.

Keeping Expenses Down

In the U.S., the bigs, such as Exxon Mobil and Chevron, have faced criticism for what's viewed as an overly conservative posture given their earnings bonanza. For example, in the first half of 2007, Exxon Mobil spent $9.3 billion on capital expenditures (much of which went to exploration), representing about 34% of its cash flow. For the same period, the company spent $16 billion on share buybacks. Meanwhile, overall production declined 2% in the first half.