PetroChina
Company Overview
PetroChina is China's largest oil and gas producer, one of the world's largest energy companies by revenue, and a subsidiary of the state-owned China National Petroleum Corporation. Berkshire's PetroChina investment is notable as one of the first significant international investments in Berkshire's history and for its spectacular exit timing.
Investment Story
2002–2003: Accumulation. Berkshire purchased PetroChina shares on the Hong Kong Stock Exchange in 2002-2003, spending approximately $488 million for a roughly 1.3% stake. The investment was made after Buffett spent a weekend reading PetroChina's annual report — an unusually simple due diligence process — concluding that the company was generating cash flows that warranted a market capitalization of roughly $100 billion, while the stock market was pricing it at approximately $35 billion.
The investment thesis. PetroChina had some of China's largest oil and natural gas reserves, operated by competent management, and was generating significant cash flows that the 2002-03 price implied were unsustainably high. Buffett's calculation: even at conservative oil price assumptions, PetroChina was worth substantially more than its market price implied.
2007: Exit near the peak. In 2007, as China's commodity markets boomed and PetroChina's stock rose dramatically, Berkshire sold its entire position. The timing proved exceptional: Berkshire received approximately $3.5 billion — more than a 7-fold increase on its $488 million investment. PetroChina's stock subsequently declined significantly.
The discipline in selling. The PetroChina exit demonstrated that Berkshire can sell positions that have reached full valuation — this isn't a universal 'hold forever' operation. When Buffett's calculation indicated that PetroChina had reached its intrinsic value estimate, selling the position was the rational capital allocation decision.
Buffett's Own Words
Moody’s Corporation ........................... 16.1 1,453 2,338,961,000 PetroChina Company Limited.............. 1.3 1,340 1,727,765 The Washington Post Company ........... 18.1 1,367 56,448,380 Wells Fargo & Company...................... 3.3 3,324 Others ................................................... 2,863 4,682 Total Common Stocks .......................... $ 8,515 $35,287 We bought some Wells Fargo shares last year. Otherwise, among our six largest holdings, we last changed our position in Coca-C
Moody’s Corporation ........................... 16.1 1,453 2,338,961,000 PetroChina Company Limited.............. 1.3 1,340 1,727,765 The Washington Post Company ........... 18.1 1,367 56,448,380 Wells Fargo & Company...................... 3.3 3,324 Others ................................................... 2,863 4,682 Total Common Stocks.......................... $ 8,515 $35,287 We bought some Wells Fargo shares last year. Otherwise, among our six largest holdings, we last changed our position in Coca-Co
*Moody’s Corporation .............................. 16.2 2,084 2,338,961,000 PetroChina “H” shares (or equivalents)... 1.3 1,249 1,727,765 The Washington Post Company .............. 18.1 1,698 56,448,380 Wells Fargo & Company......................... 3.3 3,508 1,724,200 White Mountains Insurance..................... 16.0 1,114 Others ...................................................... 3,531 5,465 Total Common Stocks............................. $9,056 $37,717 This is our actual purchase price and also
*Moody’s Corporation .............................. 16.2 2,948 2,338,961,000 PetroChina “H” shares (or equivalents)... 1.3 1,915 100,000,000 The Procter & Gamble Company .......... 3.0 5,788 19,944,300 Wal-Mart Stores, Inc. ......................... 0.5 1,727,765 The Washington Post Company .............. 18.0 1,322 95,092,200 Wells Fargo & Company......................... 5.7 2,754 5,975 1,724,200 White Mountains Insurance..................... 16.0 Others ...................................................... *
Moody’s Corporation .............................. 17.2 3,315 2,338,961,000 PetroChina “H” shares (or equivalents)... 1.3 3,313 3,486,006 POSCO.................................................... 4.0 1,158 100,000,000 The Procter & Gamble Company ............ 3.2 6,427 229,707,000 Tesco ....................................................... 2.9 1,340 1,820 31,033,800 US Bancorp ............................................. 1.8 1,123 17,072,192 USG Corp................................................ 19.0 19,944,30
Investment Lessons
Emerging market investments can be outstanding when price is sufficiently attractive. PetroChina's Hong Kong listing in 2002-03 reflected a discount that Buffett identified by simply reading the annual report. The information was public; the analytical framework (comparing market cap to conservatively estimated intrinsic value) was straightforward. The gap between price and value was large enough that the investment was attractive even accounting for China's unique political and regulatory risks.
The exit discipline of 'sell when intrinsic value is reached' is as important as the buy discipline. Buffett's PetroChina exit at roughly 7x the entry price was not luck — it was the application of the same valuation framework used at entry. When market price reaches or exceeds intrinsic value, capital should be redeployed elsewhere. The discipline to sell at full value (not to speculate on continued upside) is essential to long-run capital allocation performance.