In a regulatory filing on Friday, the Federal Energy Regulatory Commission said that Berkshire Hathaway has applied for and received permission to purchase up to 50% of the drilling company’s stock. Berkshire has been adding to Occidental’s stock this year, amassing about 20% of the company’s stock, public filings show, prompting many analysts to speculate whether Mr. Buffett would seek control of the company, one of the largest U.S. oil producers .
Shares of Occidental surged in the S&P 500 on Friday, rising 9.9% after the ruling was released. The company’s stock is up about 146% this year, easily topping the S&P 500 stock index, which is down 11% this year.
Berkshire filed for approval on July 11, and at the time said it owned approximately 18.72% of Occidental’s outstanding common stock under the federal order. Berkshire has since added shares, saying in a securities filing earlier this month that it owns about 20% of Occidental’s common stock. Berkshire also owns warrants to purchase another large chunk of Occidental’s common stock and $10 billion in preferred stock, bringing Berkshire about $800 million annually, the filings show.
“It is concluded that the proposed transaction is in the public interest,” wrote Carlos D. Clay of FERC’s Office of Energy Market Regulation in the filing.
A spokesman for Occidental confirmed that Berkshire could now buy up to 50% of its common stock and didn’t comment further. A Berkshire Hathaway representative did not respond to a request for comment.
Mr. Buffett has invested billions in renewable energy like wind farm projects through Berkshire’s energy unit, and has also added oil companies to the holding company’s portfolio in recent years. chevron corp is one of Berkshire’s largest stock investments today.
Occidental has reaped big gains from higher oil prices, posting $3.7 billion in the second quarter. The gains mark a dramatic turnaround for the company, which lost about $14.8 billion in 2020 after the global pandemic paralyzed oil demand. Berkshire’s stock purchases, as well as those of the many investors following Mr. Buffett’s footsteps, have helped propel Occidental shares to the forefront of the broad rally in energy stocks.
Occidental’s ill-timed $38 billion deal to acquire rival Anadarko Corp. in 2019 burdened the company with debt and put it in a dangerous position as oil prices plummeted during the pandemic. Chief Executive Vicki Hollub has slashed spending, curbed growth and focused on using cash to pay down debt over the past two years.
The company has repaid $8 billion in debt to $22 billion this year, up from nearly $36 billion a year ago, the company and analysts said. Occidental’s drive to achieve investment-grade status and its cash-generating capabilities have made it an attractive target for Mr. Buffett, said Neal Dingmann, an analyst at Truist Securities. “It’s a great way of hedging against a lot of his other companies to own such a high free cash flow business,” he said.
Occidental has reaped big gains from higher oil prices, posting $3.7 billion in the second quarter.
Photo: Portal Staff/Portal
Mr. Buffett has made no secret of his admiration for Ms. Hollub, describing her as one of the best executives in the industry. In 2019, he purchased $10 billion worth of preferred stock to help the company pay for the Anadarko deal.
“What Vicki Hollub said just made sense,” Mr. Buffett said at Berkshire’s annual shareholder meeting in April. Occidental “seems like a good place to put Berkshire’s money,” he added.
Mr. Buffett had to show his hand to the market because power plants controlled by both Occidental and Berkshire Hathaway feed the same grid in Louisiana. Occidental owns a power plant in Taft, La. that feeds its chemical plant next door. Excess electricity is sold to the local grid, which is also fed by Berkshire Hathaway Energy’s assets.
FERC ruled that since Occidental’s facility accounts for just 0.48% of the region’s grid-connected capacity, a merger with Berkshire will have “no adverse impact on competition” in the local electricity market. However, Mr. Buffett had to ask before adding to Berkshire’s Occidental stake.
In recent years, Occidental has ventured into renewable energy through its Oxy Low Carbon Ventures unit. This new focus aligns with Berkshire’s own investments in renewable energy and positions Mr. Buffett’s company to take advantage of tax breaks, said Bill Smead, chief investment officer at Smead Capital Management.
“We view Berkshire’s proposal as a vote of confidence in the oil macro and the value proposition of energy stocks,” said Kevin MacCurdy, managing director of investment firm Pickering Energy Partners.
write to Benoît Morenne at [email protected] and Ryan December at [email protected]
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