Monday, January 5, 2015

Buying When Others Are Selling

Not surprisingly, this Bloomberg headline was click-bait for me:

Canada’s Richest Grain Family Bets on Rebound in Oil

A decade after expanding its grain business during a slump in prices, the Richardson family of Winnipeg, one of the richest in Canada, is making a similar bet on oil.
With crude futures collapsing to the lowest in more than five years, the Richardson’s Tundra Oil & Gas unit last month agreed to buy 550 wells in Manitoba, part of a $410 million divestiture of Canadian assets by EOG Resources Inc. (EOG) Tundra’s biggest purchase ever will boost its output this year by one-third to 32,000 barrels a day, and Chief Executive Officer Ken Neufeld says he remains on the lookout for more deals...
As the oil slump forces some energy companies to cut spending, Tundra said it will expand drilling in a bet that prices will rally. To zig when others zag isn’t new for privately-held James Richardson & Sons Ltd., a company founded as a crop merchant more than 157 years ago, before Canada became a nation. Over the past decade, the family invested in grain facilities during a drought and expanded in financial services amid the worst economic crisis since the Great Depression. 
Those earlier bets paid off. In November, Canadian Business magazine ranked the Richardsons as the nation’s eighth-wealthiest family at C$5.05 billion ($4.3 billion), up 14 percent from 2013. The company, one of Canada’s largest grain handlers, is shared by nine fifth-generation relatives, including Hartley Richardson, the current president and chief executive officer, and Carolyn Hursh, its chairwoman.
While the family made its fortune selling grain, the company expanded into oil exploration in 1980 and became the largest producer in Manitoba’s slice of the resource-rich Bakken field. The reserves acquired from Houston-based EOG are located in the Williston Basin, where Tundra has been drilling for more than three decades.
The Richardsons have been there before. When crude fell close to $10 in 1998, making production unprofitable for many companies, the family expanded its investment in energy to 25 percent of assets from about 3 percent, Hartley Richardson said in a March interview. Tundra bought in Alberta, including a stake in Western Oil Sands Inc., a company with 20 percent interest in Athabasca Oil Sands Project that was later purchased by Marathon Oil Corp. (MRO) for C$5.8 billion.
Another payoff came in late 2004, when Tundra unearthed the biggest oil reserves in Manitoba in almost half a century, after drilling near Sinclair, Manitoba, a small community near the Saskatchewan border. The Richardsons became the province’s top producer, surpassing a Chevron Corp. (CVX) unit.
The Richardsons took a similar approach in grains a decade ago, when spring-wheat production fell to a 30-year low and some farmers abandoned fields that were too dry to plant. After an adviser warned there was no future in the business that James Richardson started in 1857, Hartley Richardson said the company began one of its biggest expansions, acquiring grain depots and loading facilities. In 2012, after the government had dismantled the marketing monopoly of the Canadian Wheat Board, the Richardsons paid C$900 million for parts of Viterra Inc., the nation’s largest grain handler, which had been acquired by Glencore Xstrata Plc (GLEN) for C$6.1 billion.
You know, that is a pretty damn impressive track record.  No matter what the crooks on Wall Street do short-term, I'd bet long term with these guys. It reminds me of this:

"Potter isn't selling, Potter's buying." If there's one thing you can learn from "It's A Wonderful Life," it's that succinct statement. The Richardsons may not be as mean as Old Man Potter, but they are buying when everybody else seems to be selling out their oil positions, on what will almost certainly be temporarily depressed prices. They've done it before, and it paid off massively. I think this will, too.

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