The Oracle of Omaha has its sights set on the oil industry. Berkshire Hathaway, the holding company run by investment titan Warren Buffett, has increased its stake in Houston-based Occidental Petroleum, purchasing shares over the past nine trading days to bring its holdings to nearly 29% of the company, according to… SEC filings.
The latest buying spree has been years in the making for Berkshire, which worked with Occidental to finance an acquisition in 2019 and Receive Obtaining regulatory approval to buy up to 50% of Occidental in August 2022, when it owned about 20%. At the time, financial experts speculated that a takeover was likely, although Buffett… Tell Berkshire's annual shareholder meeting in May 2023 announced that it would not assume control. “We won't know what to do with it,” he said.
While Berkshire has not yet swallowed the oil and gas giant entirely, it has acquired about 7.3 million shares, with the stock price rising from less than $60 on June 5 — the first day of nine buying days — to about $61.20 at the time of the purchase. Publishing. in Previous interview With CNBC, Buffett said he became interested in Occidental after reading a transcript of the company's earnings call. “I read every word, and that's exactly what I'm going to do,” he said.
The reasons for Berkshire's interest are not clear other than its current relationship with Occidental. “This has been a question people have been asking for some time,” said Leo Mariani, a senior energy analyst at brokerage Roth Capital. “I'm not sure anyone has a perfect answer.”
“They have a history there.”
Occidental may not seem like a natural target for Berkshire, which is known for its huge positions in more active stocks like Apple and Coca-Cola. But Occidental is not its only stake in the energy sector, as it owns about 7% of Chevron, although the giant investment company cut back share earlier this year. Berkshire also reduced its stake in Chinese electric car company BYD, where it owns about 7% of the manufacturer and has been selling about 1% of total outstanding shares since October.
Gregory Warren, a senior equity analyst at Morningstar who covers Berkshire Hathaway, said Buffett's recent buying spree for Occidental is likely not a reflection of a broader strategy toward the energy sector, and that the company has been wary of BYD because of concerns about the Chinese market. .
Founded in 1920 and later headed by legendary businessman Armand Hammer, Occidental expanded its operations around the world, from Venezuela to the North Sea. Occidental's current CEO is Vicki Hollub, who took over in 2016, becoming the first woman to lead a major US oil company. Its early years were marked by the collapse of crude oil prices, and Holub was forced to cut costs and exit non-core regions in the Middle East and North Africa. In Buffett's interview with CNBC, he said Holub is “running the company the right way.”
Berkshire Hathaway's relationship with Occidental seem In 2019, when it put up a $10 billion cash-and-stock offer for rival oil company Anadarko, it secured the right to buy Occidental shares. Three years later, Berkshire Hathaway received regulatory approval to buy up to 50% of the company.
Mariani speculated that Berkshire Hathaway wanted more exposure to oil and went with a company it knew. “I would chalk it up to the fact that they have a history there for a number of years and are familiar with the company,” Mariani said. luck.
He added that Occidental's distinction from other oil and gas companies comes from its investment in carbon capture, or removing carbon dioxide from the environment, specifically Direct air capture. While decarbonization is an expensive process and will likely lose money over the next few years, Occidental could find a customer base with companies like airlines that are trying to be “corporate citizens,” Mariani said.
Occidental's appeal is driven instead by Buffett's desire to diversify his investment portfolio, and the fact that Berkshire Hathaway already has regulatory approval to acquire more shares in Occidental, said Warren, the Morningstar analyst. “The things Berkshire buys on a large scale like this are more a function of what they can buy rather than huge preferences one way or another,” he said. luck. “Their range of opportunities is somewhat limited by the size of their investment portfolio.”
Despite Buffett's interest in Occidental, her outlook is not entirely rosy. In early May, Morningstar published A research note lowered its fair value estimate for Occidental stock by 7% to $53 per share, reflecting lower oil prices. Analysts also noted slow progress on Occidental's plans acquisition From shale oil producer CrownRock, which hopes to complete it by August.