Occidental’s share price soared 9.9%, closing at $6.41 at $71.29, after the Federal Energy Regulatory Commission (FERC) said letting Berkshire add to its 20-year stake. .2% was “consistent with the public interest”.
Berkshire had applied to increase its stake on July 11, saying it would not harm competition, weaken regulatory authority or increase costs for consumers. FERC regulates the interstate transmission of electricity, natural gas and oil.
Houston-based Occidental’s share price has more than doubled this year, benefiting from higher oil prices following Russia’s February 24 invasion of Ukraine. Berkshire began buying Occidental shares four days later.
Buffett’s Omaha, Nebraska-based conglomerate also owns $10 billion of Occidental preferred stock, which helped fund the purchase of Anadarko Petroleum Corp in 2019, and has warrants to buy 83, 9 million additional common shares for $5 billion.
“Buffett takes advantage of stock market players who are crazy about the oil and gas industry and view it as a dead business,” said Cole Smead, president of Smead Capital Management Inc in Phoenix, which owns shares of Occidental and Berkshire. “Buffett thinks it can make him rich.”
Berkshire did not immediately respond to a request for comment sent to Buffett’s aide.
Occidental spokesman Eric Moses said the higher property limit was “necessary” because the company had assets subject to FERC regulation. He said the previous limit was 25%.
The FERC clearance does not obligate Berkshire to buy Occidental stock.
Still, some investors and analysts have said Berkshire could eventually buy Occidental, diversifying an energy portfolio that includes multiple utilities, power distributors and renewable energy projects, including wind.
Buffett made one of his biggest acquisitions, the $26.5 billion purchase of BNSF Railroad, in 2010 after Berkshire amassed a 22.6% stake.
To resume?
Morningstar analyst Greggory Warren said he “liked Occidental more as a wholly-owned subsidiary under the Berkshire umbrella” because it would lower Occidental’s costs to access capital and reduce exposure to the volatility of commodity markets.
Independent oil analyst Paul Sankey added that Occidental can benefit from the expanded tax credit for carbon capture projects included in the Cut Inflation Act signed this month by President Joe Biden.
“I can see him taking all of this privately,” Sankey said, referring to Buffett.
Smead, on the other hand, said Buffett is unlikely to buy all of Occidental anytime soon and may instead buy more shares on the open market at prices below a full takeover.
“Long term it can, but you don’t file something like that with FERC if you plan to do so within the next six months,” Smead said.
Berkshire ended June with $105.4 billion in cash and cash equivalents, even after buying $45.2 billion net of stock in the first half of the year.
Buffett has pledged to keep $30 billion on hand. Occidental’s market value was around $66 billion after Friday’s rise.
Berkshire owns more than 90 companies, including Geico auto insurance, See’s Candies, Dairy Queen ice cream, and several manufacturing companies.
At Berkshire’s annual meeting on April 30, Buffett said he started buying Occidental shares after reviewing an analyst presentation.
He also expressed confidence in chief executive Vicki Hollub, who reduced Occidental’s debt.
“She says she doesn’t know the price of oil next year. Nobody does,” Buffett said. “But we decided it made sense.”