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What Buffett Misjudged in ConocoPhillips

  • Investing
  • Buffett
  • Case Studies
  • Investment Failures

Buffett increased Berkshire’s ConocoPhillips position near the peak in energy prices in 2008 without anticipating the sharp second-half decline. He subsequently acknowledged in the shareholder letter that his timing cost Berkshire several billion dollars.

Source dates and applicability

The case concerns 2008 and uses that reporting year’s company annual report and Berkshire letter signed February 27, 2009. Oil figures use the EIA monthly first-purchase-price series cited below. As of October 2026, the case illustrates cyclical earnings and entry-price risk. The historical integrated business structure does not describe today’s ConocoPhillips, and historical oil prices do not predict current returns.

Investment Outcome

After making money on PetroChina, Buffett bought ConocoPhillips, but he did not anticipate the steep decline in energy prices in the second half of 2008, and the investment cost Berkshire billions of dollars.

1. Why ConocoPhillips Caught Buffett’s Attention

ConocoPhillips was then a large integrated energy company, with upstream exploration and production as well as refining and marketing operations. The fortunes of its upstream business were therefore closely tied to crude oil and natural gas prices.

Many people also naturally assumed that an integrated oil company, with both upstream and downstream operations, would be better able to offset risks than a pure upstream producer.

2. Why It Looked Like a Good Investment

Even Buffett could be led astray by impressive current earnings. Viewed from the first half of 2008, ConocoPhillips looked very much like a leading energy company that was large, profitable, and not yet absurdly priced.

ConocoPhillips’ net income rose 17% year over year to $4.14 billion in the first quarter of 2008. In the second quarter, it reported what was then its highest quarterly profit, with net income of $5.44 billion. Oil prices briefly rose above $140 at the time.

For many investors, this combination readily suggested a traditional value stock: a high-quality large company at a reasonable valuation. Profits, cash flow, and oil and gas assets all looked strong. Meanwhile, discussions of global demand, supply constraints, inflation, and a weakening dollar formed a coherent investment narrative.

3. What Happened to Buffett’s Investment

The problem was that oil prices were the central variable in this judgment, and they fell sharply in the second half of 2008.

The U.S. crude oil first purchase price reached $127.47 per barrel in June 2008, then fell to $36.80 in December. Buffett later acknowledged that he had bought when oil and gas prices were near their peak, and that he had not anticipated the collapse in the second half of the year.

ConocoPhillips’ refining operations did not sufficiently offset the fluctuations in its upstream business either. Net income from refining and marketing fell 61% year over year in 2008. In that extreme year, the assumption that an integrated energy company’s upstream and downstream businesses could offset each other’s risks did not hold.

ConocoPhillips also became more conservative in assessing the economically recoverable value of its assets. Its downward revision to Alaskan reserves was mainly due to prices at the end of 2008 being lower than at the end of 2007. The company’s year-end proved reserves also fell from 8.72 billion to 8.08 billion barrels of oil equivalent. These figures use the annual report’s E&P scope, excluding the LUKOIL investment segment and Syncrude oil sands mining reserves.

Buffett was subsequently arranging fixed-income investments involving Mars–Wrigley, Goldman Sachs, and General Electric, totaling $14.5 billion. To free up cash for these investments while maintaining a certain level of cash reserves at Berkshire, he simply sold part of the ConocoPhillips stake.

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