Buffett's Berkshire Hathaway Wins OK to Buy 50% Occidental Stake

Buffett’s Berkshire Hathaway Wins OK to Buy 50% Occidental Stake

Occidental’s stock price shot up 9.9%, closing $6.41 at $71.29, after the Federal Energy Regulatory Commission (FERC) said letting Berkshire add to its 20.2% stake “was consistent.” with the public interest”.

Berkshire had filed to increase its stake on July 11, saying it would not harm competition, undermine the regulatory authority or increase costs for consumers. FERC regulates the interstate transport of electricity, natural gas and oil.

The share price of Houston-based Occidental has more than doubled this year, benefiting from soaring oil prices following the February 24 Russian invasion of Ukraine. Berkshire began buying Occidental stock four days later.

Buffett’s Omaha, Nebraska-based conglomerate also owns $10 billion in Occidental preferred stock, which helped fund the 2019 Anadarko Petroleum Corp. purchase, and has warrants to purchase an additional 83.9 million common stock for $5 billion.

Berkshire also ended June with a $23.7 billion stake in a larger oil company, Chevron (CVX).

“Buffett takes advantage of stock participants who are foolish about the oil and gas industry and view it as a dead company,” said Cole Smead, president of Phoenix-based Smead Capital Management Inc, which owns Occidental and Berkshire stock. “Buffett thinks it could make him rich.”

Berkshire did not immediately respond to a request for comment sent to Buffett’s assistant.

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Occidental spokesman Eric Moses said the higher ownership limit was “necessary” because the company owned assets subject to FERC regulations. It said the previous limit was 25%.

FERC’s approval does not require Berkshire to purchase any Occidental stock.

Some investors and analysts have nevertheless said that Berkshire could eventually buy Occidental, diversifying an energy portfolio to include several utilities, electricity distributors and renewable energy projects, including wind.

Buffett completed one of his largest acquisitions, the purchase of the $26.5 billion BNSF railroad, in 2010, after Berkshire garnered a 22.6% stake.

Taking over?

Morningstar analyst Greggory Warren said he “loved Occidental more as a wholly owned subsidiary under the Berkshire umbrella” because it would reduce Occidental’s cost of accessing capital and reduce its exposure to volatility in commodity markets.

Independent oil analyst Paul Sankey added that Occidental can take advantage of the expanded tax credit for carbon capture projects included in the Inflation Reduction Act signed by President Joe Biden this month.

“I see he’s taking the whole thing private,” Sankey said, referring to Buffett.

Smead, on the other hand, said it’s unlikely Buffett will buy all of Occidental anytime soon, instead buying more shares in the open market at lower prices than a full-scale takeover.

“In the long run maybe, but you don’t file something like that with FERC if you plan to do it in the next six months,” Smead said.

Berkshire ended June with $105.4 billion in cash and equivalents, even after buying a net $45.2 billion in shares in the first half of the year.

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Buffett has promised to keep $30 billion in reserve. Occidental’s market value was about $66 billion after Friday’s run-up.

Berkshire owns more than 90 companies, including Geico auto insurance, See’s Candies, Dairy Queen ice cream, and several manufacturing companies.

At Berkshire’s April 30 meeting, Buffett said he began buying Occidental stock after watching an analyst presentation.

He also expressed confidence in Chief Executive Vicki Hollub, who has reduced Occidental’s debt.

“She says she doesn’t know the price of oil next year. Nobody knows,” Buffett said. “But we decided it made sense.”

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