Special Report: Is Berkshire Hathaway About to Strike it Rich in Natural Gas?

(BRK.A), (BRK.B)

With natural gas prices tumbling to prices not seen since January of 2002, a big natural gas field would not seem to be the hottest news, but Berkshire Hathaway’s success has often been based on running counter to the herd. They are patient enough to know that energy prices will be higher in the future, and they have the money to drill now when others are strapped for cash.

In mid-November, Berkshire Hathaway Energy’s Australian subsidiary, CalEnergy Resources,  drilled a test well in Western Australia for what could be what the company is calling modestly a “significant gas field.”

How Significant?

Four trillion cubic feet of gas-in-place significant.

Exploration permit EP 408 is located approximately 280 kilometers south of Perth, and covers both the Whicher Range and Wonnerup gas fields.

The gas fields were first discovered in 1968 and 1971, respectively, and are located in ancient sandstone reservoirs nearly four kilometers underground.

The fields contain an estimated four trillion cubic feet gas-in-place, and Berkshire’s share currently stands at approximately 84%. Other partners include Which Range Energy.

CalEnergy Resources is the operator, with Farley Riggs, Australia’s largest well testing and data acquisition service provider, running the testing program.

Currently, down hole gauges are being used on Whicher Range-1 and Whicher Range-4/ST1 to test the interconnectivity of the reservoir before a three-month well test commences, The test will hopefully demonstrate flow rates in excess of four million cubic feet per day.

Not About Fracking

While the excitement in the oil and gas business in recent years has been all about fracking, the tumble in energy prices has hurt the fracking business due to its relatively high cost of energy recovery.

Fortunately, the Whicher Range and Wonnerup gas fields are conventional gas fields, and are neither shale gas nor coal seam gas. The cost of recovery should be much lower than gas produced by fracking.

Natural Gas for Western Australia

The natural gas will support the growing energy needs of Perth’s 1.8 million people. The fields are located on the southern edge of the State’s current gas pipeline network, and are roughly 20 kilometers south of Busselton. The cost of connecting to the pipeline is estimated to be in the range of $10 million Australian dollars.

Berkshire Hathaway and Energy Exploration

While Berkshire has built up one of the largest renewable energy portfolios in the world, with solar and wind power leading the way, it’s not a company people think of when it comes to fossil fuel exploration.

As always, Berkshire is full of surprises.

(This article has been updated since it was first published.)

© 2015-2016 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.