Main menu

Pages

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

featured image

On Friday, the U.S. energy regulator granted billionaire Warren Buffett-controlled Berkshire Hathaway (BRKA) permission to buy up to 50% of the common stock of oil company Occidental Petroleum (OXY). .

Occidental shares surge 9.9% to trade at $71.29, up $6.41 after the Federal Energy Regulatory Commission (FERC) said adding Berkshire’s 20.2% stake was “in the public interest” finished.

Berkshire filed for a share increase on July 11, saying it would not stifle competition, undermine regulators or drive up costs for consumers. FERC regulates interstate transmission of electricity, natural gas, and oil.

Houston-based Occidental’s stock has more than doubled this year, benefiting from rising oil prices after Russia’s February 24 invasion of Ukraine. Berkshire began buying Occidental shares four days later.

Buffett’s conglomerate, based in Omaha, Nebraska, also owns $10 billion of Occidental preferred stock, which funded the 2019 purchase of Anadarko Petroleum Corporation and an additional 83.9 million shares of common stock. I have warrants to buy for $5 billion.

Berkshire took a $23.7 billion stake in Chevron (CVX), a larger oil company, at the end of June.

“Buffett is taking advantage of stock market participants who think the oil and gas industry is stupid and a dead business,” said Cole Smead, president of Smeed Capital Management in Phoenix, which owns Occidental and Berkshire shares. “Buffett thinks it can make him wealthy.”

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

Occidental spokesman Eric Moses said the increase was “necessary” because the company owns assets subject to FERC regulations. The previous limit was 25%.

The FERC approval does not require Berkshire to purchase Occidental shares.

Nonetheless, some investors and analysts believe Berkshire could eventually acquire Occidental and diversify its energy portfolio to include several utilities, distribution companies and renewable energy projects, including wind. said to be sexual.

Buffett completed one of his biggest acquisitions in 2010, the $26.5 billion purchase of BNSF Railroad, after Berkshire acquired a 22.6% stake.

“We liked it better that Occidental was a wholly owned subsidiary of Berkshire,” said Morningstar analyst Gregory Warren. This reduces Occidental’s cost of accessing capital and reduces its exposure to commodity market volatility.

Independent oil analyst Paul Sankey added that Occidental could benefit from expanded tax credits for carbon capture projects included in the Inflation Reduction Act signed into law by President Joe Biden earlier this month.

“I see him keeping everything private,” Sankey said, referring to Buffett.

By contrast, Smede said Buffett is unlikely to buy all of Occidental anytime soon and instead could buy more shares on the public market for a lower price than a full buyout.

“In the long run, that may be the case, but if you are planning within the next six months, you don’t need to submit this to the FERC,” Smead said.

Berkshire ended June with $105.4 billion in cash and equivalents, even after netting $45.2 billion in stock purchases in the first half of the year.

Buffett promised to keep $30 billion on hand. Occidental’s market value was around $66 billion after Friday’s gains.

Berkshire wholly owns over 90 companies, including Geico Auto Insurance, See’s Candies, Dairy Queen Ice Cream, and several manufacturing businesses.

At Berkshire’s annual shareholder meeting on April 30, Buffett said he had begun buying Occidental shares after reviewing analyst presentations.

He also expressed confidence in CEO Vicky Holb, who has been reducing Occidental’s debt.

“She says we don’t know what oil prices will be next year. No one does,” Buffett said. “But we decided it made sense.”

.