Warren Buffett’s $13 billion bet on Occidental Petroleum turns sour as oil prices hit a 3-year low

• Occidental Petroleum shares have fallen 29% since mid-April, weighing on Warren Buffett’s stake in the company.

• This decline is in line with a 23% drop in crude oil prices due to concerns about demand and excess supply.

• Berkshire Hathaway’s $13 billion stake in Occidental Petroleum may be underwater, according to estimates.

The continued decline in oil prices this year has led to one of Warren Buffett’s biggest bets in stocks failing.

Shares of Occidental Petroleum Crude oil prices have fallen 29% since mid-April, are down 15% since the start of the year, and were trading just above $50 on Thursday at 10:04 a.m.

Occidental shares fell. This coincided with a 23% drop in crude oil prices. Since mid-April.

Oil has been under pressure due to demand concerns linked to a slowing US economy and excess supplies thanks to Record production for US oil companies.

Sharp Drop in Occidental Petroleum Shares Deals Blow to Warren Buffett Berkshire Hathawaywhich was Accumulating a stake in the oil producer since early 2022.

In June, Buffett began buying up shares of Occidental Petroleum, buying millions of shares at around $60 a share. The group owns a 29% stake in the oil company, worth about $13 billion.

The $55-60 level has been a floor for Occidental Petroleum stock since Buffett started buying it in 2022, but for the first time in more than two years, that level has been broken.

Hedge fund tracker HedgeFollowe estimates that Berkshire Hathaway paid an average price of $51.22 for its stake, which is about 1% above the current stock price.

To be clear, the average price Berkshire Hathaway paid for its stake in Occidental Petroleum is known only to Berkshire Hathaway itself.

Another sign that Berkshire Hathaway’s bet on Occidental Petroleum is going south is based on the warrants the company has to buy additional shares.

Chris Blomstran, manager of the Semper Augustus Fund and a longtime Berkshire Hathaway investor, told Business Insider that Buffett has warrants to buy another 83.5 million shares of Occidental Petroleum at a strike price of $59.62, which is about 20% above the current price.

As for whether Buffett would take advantage of the recent drop in Occidental Petroleum shares and buy, Blomsteren said it’s possible, but he wouldn’t take over the company.

“I don’t rule out buying additional shares,” Blomstran said, highlighting that the group has a lot of “firepower” given Her recent sales of Apple and Bank of America shares.

“Warren has said he’s not going to buy the whole company and I don’t think he’s going to change his mind about that,” Blomstran added.

The story continues

Buffett would likely want to see Occidental Petroleum initiate a share buyback program, according to Blomstran, but Occidental CEO Vicki Hollub has said the company won’t do so until it pays off a significant portion of its outstanding debt.

In Occidental Petroleum’s latest earnings call, Hollub said the companies want to pay down $15 billion in debt before embarking on share buybacks, which could be “executable by the end of 2026 or early 2027.”

Read the original article on Business Insider