Buffett’s Berkshire Hathaway gets clearance to buy up to half of Occidental

Berkshire Hathaway won approval from a US energy regulator on Friday to buy up to 50% of Occidental Petroleum, giving Warren Buffett’s company the chance to significantly increase its stake in one of the producers the most famous in the American oil industry.

The Federal Energy Regulatory Commission said Berkshire’s proposal to increase its stake in the oil company by $60 billion, filed last month, was “in the public interest”. Berkshire had requested “authorization to acquire up to 50%” of Occidental, Ferc said.

The regulator weighed on demand because of its potential effects on Midwestern power markets. Shares of Occidental jumped 9.9% to $71.29 after the Ferc deposit.

Buffett’s backing was instrumental in Occidental’s takeover of Anadarko Petroleum in 2019 for $55 billion. Berkshire took preferred stock as part of the deal and received warrants that now allow it to buy up to 83.9 million shares of Occidental common stock.

But the deal was completed just months before the coronavirus pandemic hit oil prices, putting pressure on Occidental after it incurred large debts to fund the Anadarko deal.

Line chart of stock price ($) showing Occidental's market value has rebounded

This year, Berkshire has spent billions of dollars buying shares of Occidental on the open market. Its position in the company recently eclipsed 20%, prompting speculation that Berkshire could buy the company outright.

Berkshire has moved more aggressively this year to step up investment as its cash flow swelled and its bets on the energy industry stood out. In addition to buying tens of millions of shares of Occidental, Berkshire poured money into Chevron, which ranked among its biggest public investments at the end of the second quarter, worth about 24 billions of dollars.

Line chart of Occidental shares held by Berkshire (% of outstanding) showing In just a few months, Berkshire amassed an outsized stake in Occidental

Edward Jones analyst Jim Shanahan estimated that Berkshire would soon exercise the warrants to buy the 83.9 million shares, saving it more than $900 million based on the current share price. Western action.

Berkshire did not respond to a request for comment.

A spokesperson for Occidental said Ferc’s approval was necessary for Berkshire to obtain 50% of the producer’s common stock because it owned assets subject to Ferc regulation. The pre-approval threshold was 25%, a level Berkshire was approaching.

Buffett has invested in energy companies, but for years he has primarily targeted electric utilities and pipelines. The ventures were seen as a natural way for Berkshire to deploy the cash it generates, given the large capital projects they entail.

The anointing of Greg Abel as Buffett’s successor, he also fueled expectations of additional energy investments as he progressed through Berkshire’s energy unit and worked on some of the company’s biggest deals in the sector.

As the 2020 oil crash hit Occidental hard, forcing it to cut its dividend and curb its drilling plans, it was one of the stars of the recovery, as months of capital discipline and rising oil prices have repaired the debt-laden balance sheet.

Occidental has also sought to reposition itself as an industry leader on climate, setting a goal of net zero emissions by 2050, including for the products it sells, installing renewable energy installations. in Texas and proposing to develop carbon capture technology.

Its net-zero strategy would also place it in a “tax-advantaged” position due to the tax credits available for carbon capture techniques in the Inflation Reduction Act passed by Congress, said Paul Sankey, oil analyst at Sankey Research.

“Buffett’s Oxy investment has been a home run so far,” said Andrew Gillick, strategist at consultancy Enverus. “Now he’s doubling down on a company that generates free cash flow from traditional oil and gas, and is poised to become a leader in the kind of carbon-reducing technology that the federal government supports.”

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