Occidental’s share price rose 9.9% to close $6.41 at $71.29 after the Federal Energy Regulatory Commission (FERC) said it was “compatible with the public interest” for Berkshire to buy its 20 .2% increase.
Berkshire requested an increase in its stake on July 11, saying it wouldn’t hurt competition, undermine regulators, or increase costs to consumers. FERC regulates the interstate transmission of electricity, natural gas, and oil.
Houston-based company Occidental’s share price has more than doubled this year, benefiting from rising oil prices following Russia’s February 24 invasion of Ukraine. Berkshire began buying Occidental stock four days later.
Buffett’s Omaha, Nebraska-based conglomerate also owns $10 billion in Occidental preferred stock, which it used to fund its purchase of Anadarko Petroleum Corp. in 2019, and has warrants to purchase an additional 83.9 million common shares for $5 billion.
Berkshire also ended June with a $23.7 billion stake in a larger oil company, Chevron (CVX).
“Buffett takes advantage of stock market participants who are stupid about the oil and gas industry and think it’s dead business,” said Cole Smead, president of Phoenix-based Smead Capital Management Inc, which owns shares in Occidental and Berkshire. “Buffett thinks it can make him rich.”
Berkshire didn’t immediately respond to a request for comment that was sent to Buffett’s assistant.
Occidental spokesman Eric Moses said the higher ownership limit was “necessary” because the company owns assets subject to FERC regulation. It said the previous limit was 25%.
FERC’s approval does not oblige Berkshire to purchase Occidental stock.
Still, some investors and analysts have said that Berkshire could eventually buy Occidental, thereby diversifying an energy portfolio that includes multiple utilities, power distributors, and renewable energy projects, including wind.
Buffett completed one of his largest acquisitions in 2010, buying the BNSF railroad for $26.5 billion after Berkshire acquired a 22.6% stake.
Take over?
Morningstar analyst Greggory Warren said he “liked Occidental more than a wholly owned subsidiary under the Berkshire umbrella” because it would lower the cost of Occidental’s access to capital and reduce the risk of volatility in commodity markets.
Independent oil analyst Paul Sankey added that Occidental can benefit from the expanded tax credit for carbon capture projects included in the Inflation Reduction Act signed into law by President Joe Biden this month.
“I imagine he’s taking the whole thing private,” Sankey said, referring to Buffett.
Smead, on the other hand, said Buffett likely won’t buy Occidental outright any time soon, instead buying more shares in the open market at lower prices than in an outright acquisition.
“He likes it in the long run, but you don’t submit something like that to FERC if you’re planning on doing it in the next six months,” Smead said.
Berkshire ended June with $105.4 billion in cash and equivalents, even after purchasing a net $45.2 billion of stock in the first half.
Buffett has pledged to have $30 billion ready. Occidental’s market value after Friday’s ramp-up was about $66 billion.
Berkshire directly owns more than 90 companies, including auto insurance company Geico, 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 stock after reading an analyst presentation.
He also expressed his confidence in Chief Executive Vicki Hollub, who has reduced Occidental’s debt.
“She says she doesn’t know the price of oil next year. Nobody knows,” Buffett said. “But we decided it made sense.”