How Did Berkshire’s Energy Investments Fare?
Sluggish oil prices
Berkshire Hathaway (BRK.B) manages its energy holdings and investments through its Berkshire Hathaway Energy or BHE subsidiary, in which it holds a 90.2% stake. BHE has investments in upstream and downstream companies, utilities, and transmission companies. Its major subsidiary holdings include PacifiCorp, MidAmerican Energy, and NV Energy.
Oil prices (USO) have hovered around $45–$55 in 2Q17, with a bias toward the downside as output rises in spite of production cuts.
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In 2Q17, BHE managed revenues of $4.62 billion, compared with $4.30 billion in 2Q16. This growth came from higher revenues from PacifiCorp, MidAmerican, NV Energy, Other energy businesses, and real estate brokerages but was partially offset by a subdued performance from Northern Powergrid.
Berkshire’s last major investment in the energy space was in Kinder Morgan (KMI) at a lower valuation, which has resulted in higher profits.
Transmission and utilities see stable growth
Berkshire’s diversified energy deployments have resulted in hedged revenues for the company amid highly volatile oil prices. In 2Q17, BHE’s EBT (earnings before tax) rose to ~$670 million compared with ~$666 million in 2Q16. Operating earnings increased for NV Energy, and real estate brokerage was partially offset by a decline in MidAmerican, Northern Powergrid, natural gas pipelines, and other energy businesses.
Notably, Berkshire Hathaway faces competition from utilities and alternative managers such as Blackstone Group (BX), Carlyle Group (CG), KKR (KKR), and other traditional asset managers in the Utilities Select Sector SPDR ETF (XLU).