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PetroChina

PetroChina Company Limited is the listed arm of state-owned China National Petroleum Corporation (CNPC) and represents one of Buffett's most successful foreign stock investments.

Origin of Relationship

In 2003, Berkshire Hathaway invested $488 million to acquire a 1.3% stake in the company. Buffett discovered the opportunity entirely by reading the company's annual report, estimating its intrinsic value at $100 billion while it traded at a $37 billion market cap.

Major Milestones

  • 2003: Initial investment of $488 million.
  • 2004: [Valuation Defense] -> During the 2004 Meeting, Buffett defended the investment as "ridiculously cheap" compared to Western peers like ExxonMobil.
  • 2004: [Dividend Payout] -> He highlighted the company's commitment to a 45% payout ratio.
  • 2007: [Darfur Controversy] -> At the 2007 Meeting, Berkshire faced pressure to divest due to PetroChina's parent (CNPC) having operations in Sudan. Buffett refused, distinguishing between the subsidiary and state-controlled parent.
  • 2007: [The Exit] -> Sold the entire stake for $4 billion in the second half of 2007 purely on valuation (~$275B market cap).

Strategic Importance

PetroChina is a landmark case study in three dimensions:

  1. Investment Logic: Applying Circle of Competence to simple, commodity-based businesses.
  2. Global Scaling: Proving value principles are borderless.
  3. Ethical Boundaries: Demonstrating Buffett's refusal to engage in symbolic divestment if the business itself is unit-economically sound and legally distinct from a parent's political actions.

Primary Source Fidelity

"We are not in the business of telling the Chinese government how to run their country." — 2007 Meeting "We sold our holdings for $4 billion... we paid the IRS tax of $1.2 billion on our PetroChina gain. This sum paid all costs of the U.S. government... for about four hours." — 2007 Letter

🔗 Connections

📚 Historical Mentions & Citations (6)

Click a reference document below to expand and read the exact paragraph(s) containing this concept in the archive.

📜
2003 LetterExcerpt Available
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12/31/03 Shares Company Percentage of Company Owned Cost Market (in $ millions) 151,610,700 American Express Company 11.8 $ 1,470 $ 7,312 200,000,000 The Coca-Cola Company 8.2 1,299 10,150 96,000,000 The Gillette Company 9.5 600 3,526 14,610,900 H&R Block, Inc 8.2 227 809 15,476,500 HCA Inc. 3.1 492 665 6,708,760 M&T Bank Corporation 5.6 103 659 24,000,000 Moody’s Corporation 16.1 499 1,453 2,338,961,000 PetroChina Company Limited 1.3 488 1,340 1,727,765 The Washington Post Company 18.1 11 1,367 56,448,380 Wells Fargo & Company 3.3 463 3,324 Others 2,863 4,682 Total Common Stocks $ 8,515 $35,287
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📜
2004 LetterExcerpt Available
▼
12/31/04 Shares Company Percentage of Company Owned Cost Market (in $ millions) 151,610,700 American Express Company 12.1 $1,470 $ 8,546 200,000,000 The Coca-Cola Company 8.3 1,299 8,328 96,000,000 The Gillette Company 9.7 600 4,299 14,350,600 H&R Block, Inc 8.7 223 703 6,708,760 M&T Bank Corporation 5.8 103 723 24,000,000 Moody’s Corporation 16.2 499 2,084 2,338,961,000 PetroChina “H” shares (or equivalents) 1.3 488 1,249 1,727,765 The Washington Post Company 18.1 11 1,698 56,448,380 Wells Fargo & Company 3.3 463 3,508 1,724,200 White Mountains Insurance 16.0 369 1,114 Others 3,531 5,465 Total Common Stocks $9,056 $37,717
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🎙️
2004 MeetingExcerpt Available
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AUDIENCE MEMBER: Good afternoon, my name is Andy Peake, and I’m from Weston, Connecticut. As a keen China watcher, I was very interested in your PetroChina investment. Could you please tell us more about your thought process on investing in a complicated, opaque country like China, and PetroChina? WARREN BUFFETT: Yeah, PetroChina itself is not a complicated or opaque company. You know, the country, you know, has obviously, different characteristics in many respects than the United States. But the company is very similar to big oil companies in the world. I — and I — PetroChina may have been the fourth largest — fourth most profitable — oil company in the world last year. I may be wrong on that. But they produce 80 or 85 percent as much crude daily as Exxon does, as I remember. And it’s a big, big company. And it’s not complicated. I mean, you know, obviously, a company with half a million employees, and all of that. But a big integrated oil company, it’s fairly easy to get your mind around the economic characteristics that will exist in the business. And in terms of being opaque, actually their annual report may well tell you more about that business, you know, than you will find from reading the reports of other oil giants.
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📜
2005 LetterExcerpt Available
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12/31/05 Shares Company Percentage of Company Owned Cost Market (in $ millions) 151,610,700 American Express Company 12.2 $1,287 $ 7,802 30,322,137 Ameriprise Financial, Inc. 12.1 183 1,243 43,854,200 Anheuser-Busch Cos., Inc. 5.6 2,133 1,884 200,000,000 The Coca-Cola Company 8.4 1,299 8,062 6,708,760 M&T Bank Corporation 6.0 103 732 48,000,000 Moody’s Corporation 16.2 499 2,948 2,338,961,000 PetroChina “H” shares (or equivalents) 1.3 488 1,915 100,000,000 The Procter & Gamble Company 3.0 940 5,788 19,944,300 Wal-Mart Stores, Inc. 0.5 944 933 1,727,765 The Washington Post Company 18.0 11 1,322 95,092,200 Wells Fargo & Company 5.7 2,754 5,975 1,724,200 White Mountains Insurance 16.0 369 963 Others 4,937 7,154 Total Common Stocks $15,947 $46,721
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🎙️
2005 MeetingExcerpt Available
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AUDIENCE MEMBER: Good morning. My name is Molly Fanner (PH). I’m 11-years-old and I’m from Long Island, New York. I have two questions today and I have put them in the form of a poem. Mr. Buffett, Mr. Munger, to get here we had to fly. I came to hear your thoughts if PetroChina was at an all-time high. My second regards a job that I know is just right for me. To be a See’s Candy taster, my sisters and I would work for free. (Laughter) AUDIENCE MEMBER: Borsheims was for my mom. And my father loves his stock. I have a future tasting chocolate. This weekend has really rocked. Thank you very much. And really, what is your view on PetroChina? (Laughter)
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🎙️
2007 MeetingExcerpt Available
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WARREN BUFFETT: Now, today we’re going to follow the usual format. We have a number of microphones placed around this room and we have overflow rooms. We will go from one station to the other, keep going until about noon or thereabouts, and then we’ll break for 30 or 45 minutes for lunch. We’ll come back here, and we will then go until about 3 o’clock, continuing the same routine. We don’t prescreen the questions or the questioners. It’s whoever got in line first for the microphones. At 3 we will take a break for a few minutes. We will reconvene at 3:15 for the official business meeting. We have an item of business — normally we take care of business in about five minutes, reelect the directors. But today we have an item on the proxy relative to our holdings of PetroChina. We were not required to put that on the ballot. The SEC told us we didn’t have to, but we really thought it would be a good idea to do it so that all of you that are interested can hear about our reasoning and the reasoning of the people who disagree with us. AUDIENCE MEMBER: Good afternoon, ladies and gentlemen. My name is Ari Jahja. I’m a junior from Baruch College, New York City. And on behalf of the Portfolio Management Club, I would like to thank you, Mr. Buffett, for inviting us to this wonderful event. And my question is that, first of all, speaking about Berkshire’s portfolio, there’s an increasing exposure of your investments toward commodities, such as to oil through PetroChina, to steel through POSCO, and to coal and agriculture through the rail stocks that you recently purchased. So my question is that what is your long-term view on commodities, and how does it impact your view on the geopolitical state of the world in the future? Thank you.
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