Buffett Boosts Occidental Stake Above 20%

Last week, when energy companies tumbled on renewed recession fears, we predicted that Warren Buffett would take advantage of this latest price drop to load up on even more Oxy shares.

Buffett will be buying a ton of OXY today

— zerohedge (@zerohedge) August 4, 2022

We were right: Buffett’s Berkshire Hathaway raised its stake in Occidental Petroleum further, pushing it above 20 percent, Reuters reports, giving the investment company the opportunity to boost its paper profit by adding its share of Oxy profits.

Berkshire Hathaway began building its stake in Occidental earlier this year, suggesting it might be preparing to take over the oil major. This latest share purchase cost Berkshire $391 million, bringing the value of the total stake to $11.3 billion.

Three years ago, Berkshire Hathaway funded Oxy’s takeover of Anadarko with $10 billion in the form of equity. It was as part of this deal that the investment firm received the stock purchase warrants that could see it acquire 20 percent or more in Occidental.

Occidental bought Anadarko for $55 billion in 2019, making it one of the biggest M&A deals in energy over the past few years. In that, it outbid Chevron, which had earlier announced a bid for the energy company.

Berkshire Hathaway also holds $10 billion worth of preferred Oxy shares, which was part of the funding transaction for the acquisition of Anadarko. It also holds the right to purchase another 83.9 million common stock worth $5 billion at current prices.

Oxy booked an attributable profit of $3.2 billion for the second quarter of the year, up from $2.1 billion for the first quarter. It also reported the highest quarterly free cash flow in its history, at $4.2 billion, and debt of $4.8 billion. Oxy also booked $1.1 billion in share repurchases for the period. According to Refinitiv analysts, Oxy’s full-year profit for 2022 could come in at $10.5 billion.

The upbeat performance of the whole oil industry has been invariably attributed—sometimes with resentment—to the oil price rally that began last year as global supply started to tighten. Yet financial discipline has also had its part to play, especially in the shale patch where operators, after years of burning cash to grow production, switched to returning cash to shareholders.