Warren Buffett buys oil stocks through Occidental, reflecting Berkshire Hathaway’s grand strategy
The Oracle of Omaha has its own interests in the oil industry. Berkshire Hathaway, the holding company helped by investing titan Warren Buffett, has increased its stake in Houston-based Occidental Petroleum, buying shares in the past nine trading days to bring its holdings to about 29% of the company, according to an SEC filing .
The latest acquisition has been years in the making for Berkshire, which worked with Occidental to finance the acquisition in 2019 and received regulatory approval to buy up to 50% of Occidental by August 2022, when it holds about 20%. At the time, financial experts predicted a possible acquisition, although Buffett told the annual meeting of Berkshire shareholders in May 2023 that it would not be controlled. “We wouldn’t know what to do with it,” she said.
Although Berkshire hasn’t fully absorbed oil and gas, it has amassed about 7.3 million shares, with the stock price rising from under $60 on June 5—the first day of a nine-day buying spree—to about $61.20 at the time of the buyout. publication. In a previous interview with CNBC, Buffett said he became interested in Occidental after reading the transcript of the company’s earnings call. “I read every word, and that’s exactly what I was going to do,” he said.
The reasons for Berkshire’s interest are not apparent outside of its existing relationship with Occidental. “That’s been a question people have been asking for a long time,” said Leo Mariani, senior energy analyst at brokerage firm Roth Capital. “I’m not sure anyone has the perfect answer.”
‘They have history there’
Occidental may not seem like a natural target for Berkshire, which is famous for its large positions in buzzier stocks like Apple and Coca-Cola. However, Occidental is far from its only holding in the energy sector, as it owns about 7% of Chevron, although the investment giant reduced its stake earlier this year. Berkshire also reduced its stake in Chinese electric car company BYD, holding about 7% of the manufacturer and selling about 1% of the remaining shares since October.
Gregory Warren, senior stock analyst for Morningstar including Berkshire Hathaway, said that Buffett’s recent purchase of Occidental is probably not indicative of a broader strategy in the energy sector, and that the company has been wary of BYD over concerns about the Chinese market. .
Founded in 1920 and later led by the legendary businessman Armand Hammer, Occidental expanded 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 American oil company. His early years were marked by a slump in crude prices, and Hollub was forced to cut costs and exit non-core areas in the Middle East and North Africa. In Buffett’s interview with CNBC, he said Hollub is “running the company the right way.”
Berkshire Hathaway’s relationship with Occidental began in 2019, when it made a $10 billion bid for the company in cash and stock for rival oil company Anadarko, and received the right to buy Occidental’s shares. Three years later, Berkshire Hathaway received regulatory approval to buy up to 50% of the company.
Mariani guessed that Berkshire Hathaway wanted more oil exposure and went with the company it knew. “I will tell you they have a long history there and they know the company,” Mariani said. Good luck.
He added that Occidental’s differentiation from other oil and gas companies comes from its investment in carbon capture, or removing carbon dioxide from the environment, and specifically direct air capture. While Mariani said decarbonization is an expensive process that will likely lose money in the next few years, Occidental could gain a customer base with companies such as airlines that are trying to become “corporate citizens.”
Warren, the Morningstar analyst, said Occidental’s appeal is instead driven by Buffett’s desire to diversify his portfolio, and the fact that Berkshire Hathaway already has regulatory approval to pick up more Occidental shares. “The things that Berkshire buys at a rate like this is a function of what they can buy as opposed to the big favorites in some ways,” he said. Good luck. “Their opportunity set is limited by the size of their portfolio.”
Despite Buffett’s interest in Occidental, its outlook is far from ideal. In early May, Morningstar published a research note lowering its fair value estimate for Occidental stock by 7% to $53 per share, reflecting lower oil prices. Analysts also pointed to the slow progress of Occidental’s planned acquisition of shale oil producer CrownRock, which it hopes to complete by August.
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