For months, the “Oracle of Omaha,” Warren Buffett, has been uncharacteristically quiet. Giving few interviews, he has had little to say about the markets in general. It has been a marked departure from past form. In previous bear markets, Buffett was the first to tout the virtues of buying low when everyone else was panicking.
Not only that, but to the extent that Buffett has revealed what he’s been up to, his approach has been different. This year, Buffett has been a net seller of stocks — a first for his career. In past market crashes, Buffett responded by loading up on equities. This time around, he’s selling the dip. This has led to widespread criticism from investors, who see Buffett’s growing cash pile as money not put to good use.
Now, however, it seems Buffett is finally ready to pounce. This past weekend, it was announced that Buffett had agreed to acquire a collection of natural gas assets from Dominion Energy, a Virginia-based utility. The deal, worth $9.7 billion, is Buffett’s first aggressive move since the COVID-19 market crash. And it has major implications for Canadian investors.
Details of the deal
As part of Buffett’s Dominion Energy deal, Berkshire Hathaway will acquire Dominion’s natural gas and storage assets. That includes 7,700 miles of natural gas pipeline and 900 billion cubic tonnes of storage space. As part of the deal, Berkshire will pay $4 billion in cash and assume $5.7 billion in debt, bringing the total value to just under $10 billion.
You can’t directly copy this play
It’s important to note that you can’t directly copy Buffett’s Dominion Energy play. The deal is a direct acquisition in which Berkshire will acquire assets from Dominion. Buffett is not taking an equity position in Dominion itself. The closest you could get to directly investing in these natural gas assets would be to buy Berkshire shares, but these assets are only going to be a tiny sliver of Berkshire’s portfolio. However, if you’re a Canadian investor looking to emulate Buffett’s natural gas play, you may have one good option based right here in Canada.
A similar Canadian company
Enbridge (TSX:ENB)(NYSE:ENB) is an energy company whose business model is similar to Dominion Energy’s. Like Dominion, it operates as both a pipeline and a utility. Unlike Dominion, it’s not selling its natural gas business to Berkshire, so it still gives you considerable exposure to that sector.
Enbridge itself is not a “pure-play” natural gas company. But its exposure to the sector is significant. In the first quarter, it brought in $1.09 billion in adjusted EBITDA from natural gas and $1.9 billion from oil. So, about 36% of Enbridge’s earnings come from natural gas. This gives Enbridge much more proportional exposure to natural gas than Berkshire or Dominion. So, if you want to copy Buffett’s latest play without buying the whole Berkshire package, Enbridge could be a good investment to consider.