Is Buffett eyeing Nexen?

Nexen Inc. is once again the subject of rumours – and this time the world’s richest man is involved. The Street is kicking around the idea that Warren Buffett’s company, Berkshire Hathaway Inc., wants a piece of the Calgary-based outfit.

Those trading gossip on Mr. Buffett are being extremely cautious, making sure to remind everyone it is just a rumour.

“Seems there is a rumor that Berkshire is interested in Nexen – no one can give me comfort that this is indeed the case – they haven’t bought into the E+P [exploration and production] names before... but stranger things have happened,” Scotia Capital wrote in a Tuesday morning e-mail blast to clients. “We are looking for a weak [quarter] when they [Nexen] report on Thursday – marketing division coming out with bad numbers/ they laid off a number of their [natural] gas guys,” the note said.

Another Street source who heard the rumour said it must be taken with a cowlick-sized chunk of salt.

With respect to the oil sands, Nexen controls 65% of the Long Lake steam-assisted gravity drainage project, and 7.23% of Syncrude. Mr. Buffett and his buddy Bill Gates visited the Athabasca oil sands region in August.

Nexen in December was the focus of another takeover rumour, with the Financial Times reporting Total SA, the French energy giant, was preparing to bid $38 a share for the company. The FT said a financing package was already in place, but Nexen, at the time, said it was unaware of a pending transaction.

So far, nothing has come of the Total rumour, and it made a hostile bid for UTS Energy Corp. last week.

When Mr. Buffett and Mr. Gates checked out the oil sands for themselves, they toured Canadian Natural Resources Ltd.’s Horizon project. Members from the Canadian Association of Petroleum Producers were also there.

At the time, Mr. Buffett told CNBC’s Squawk Box that he was just there for educational purposes. He is known to avoid businesses he doesn’t understand. He’s also famous for investing while others are fleeing.

“What I learn today may be useful to me two years from now,” he told the television show in August. “I mean, if I understand the tarsands today and oil prices change or whatever may happen, I’ve got that filed away and I can use it at some later date.”

Guessing the price of oil is key to investing in the oil sands, Mr. Buffett said in August.

“If you had $120 oil from now till, you know, 50 years from now, that the tarsands would work out very well. But I don’t know the answer to that,” said Mr. Buffett, as famous for his investing acumen as his folksiness.

Mr. Buffett, in a February, 2008 interview with the Financial Post, said the world’s demand for energy will make the oil sands – estimated to hold the second-largest reserves in the world, behind Saudi Arabia – valuable.

“The world will be using more oil 15 or 20 years from now,” Mr. Buffett said in the interview. “We are on a course that cannot be changed. It would surprise me if the world doesn’t want to use 100 million barrels a day in 15 or 20 years.” At the same time, supply remains elusive. “You need some ... elephant fields and we haven’t found any elephant fields in the last 15 or 20 years. So the sands are huge.”

Neither Mr. Buffett’s Omaha based company nor Nexen would comment.

Carrie Tait