Famed investor Warren Buffett recently made a billion-dollar bet that the market for oil production equipment and related infrastructure will remain strong. Specifically, his company, Berkshire Hathaway, made a deal to purchase a chemical business from Phillips 66.
The soon-to-be-acquired company produces chemicals that are used to improve the carrying capacity of pipelines. Rather than paying for the business in cash, Berkshire will reportedly use up to 19 million shares of Phillips 66 stock, which it already owns. According to Reuters, the shares are worth approximately $1.4 billion. The exact number that will be traded will be determined based on Phillips 66's share price at the time the deal closes, which is expected to be in the first half of 2014.
All parties seem to be satisfied with the arrangement. In a press release, Buffett highlighted the solid fundamentals of the chemicals business, Phillips Specialty Products.
"I have long been impressed by the strength of the Phillips 66 business portfolio," Buffett said. "The flow improver business is a high-quality business with consistently strong financial performance."
Greg Garland, CEO of Phillips 66, said that the offer from Berkshire was strong and that his company would focus on its other chemical products and hydrocarbon transportation and processing businesses.
The integration of Phillips Specialty Products will be handled by James Hambrick, head of Berkshire's existing chemicals unit. The company also recently paid $5.6 billion to acquire a an energy utility based in Nevada. Buffett's apparent confidence in the energy sector indicates that 2014 could be another banner year for oil and gas companies.