Buffett’s Berkshire Hathaway gets approval to buy up to half of Occidental

Berkshire Hathaway on Friday won approval from a US energy regulator to buy up to 50 percent of Occidental Petroleum, giving Warren Buffett’s company the option to significantly increase its stake in one of the producers. with the longest history of the US oil industry.

The Federal Energy Regulatory Commission said Berkshire’s proposal to increase its stake in the $60 billion oil company, filed last month, was “consistent with the public interest.” berkshire had requested “authorization to acquire up to 50 percent” of Occidental, Ferc said.

The regulator weighed in on the request because of its potential effects on Midwest electricity markets. Occidental’s shares rose 9.9 percent to $71.29 after the ferc file.

Buffett’s support was instrumental in Occidental’s $55 billion acquisition of Anadarko Petroleum in 2019. Occidental CEO Vicki Hollub flew to Berkshire’s headquarters in Omaha, Nebraska to secure a financing package. of $10 billion to close the deal. Berkshire acquired preferred shares as part of the deal and received warrants that now give it the right to purchase up to 83.9 million shares of Occidental common stock.

But the transaction closed just months before the coronavirus pandemic hit oil prices, mounting pressure on Occidental after it took on large debts to finance the Anadarko deal.

Line chart of stock price ($) showing Occidental's market value has recovered

This year, Berkshire has spent billions of dollars to buy Occidental shares on the open market. His position in the company recently eclipsed 20 percent, sparking speculation that Berkshire could buy the business outright.

Berkshire has moved more aggressively this year to increase investments as its cash pile has grown and its bets on the energy industry have stood out. In addition to buying tens of millions of Occidental shares, Berkshire has poured money into Chevron, which was among its largest public investments at the end of the second quarter, worth about $24 billion.

Line graph of Occidental shares owned by Berkshire (% outstanding) showing In just a few months, Berkshire amassed an outsized stake in Occidental

Jim Shanahan, an analyst at Edward Jones, estimated that Berkshire would soon exercise the warrants to buy the 83.9 million shares, saving him more than $900 million based on Occidental’s current share price.

Berkshire did not respond to a request for comment.

An Occidental spokesman said Ferc’s approval had been necessary for Berkshire to obtain 50 percent of the producer’s common stock because it owned assets subject to Ferc regulation. The pre-approval threshold was 25 percent, a level Berkshire was approaching.

Buffett has invested in energy companies, but for years he has focused primarily on utilities and pipelines. The deals have been seen as a natural way for Berkshire to deploy the cash it generates, given the large capital projects involved.

the anointing of greg abel as Buffett’s successor he has also stoked expectations of more energy investment, having risen through the ranks at Berkshire’s energy unit and worked on some of the company’s biggest deals in the sector.

While the 2020 oil slump hit Occidental hard, forcing it to cut its dividend and rein in drilling plans, it has been one of the stars of the recovery as months of capital discipline and rising oil prices have repaired the debt-laden balance sheet.

Occidental has also sought to reposition itself as an industry leader on climate, setting a goal of net-zero emissions by 2050, including from the products it sells, installing renewable energy facilities in Texas, and proposing to expand carbon capture technology.

Its net-zero strategy would also leave it in a “tax advantage” position due to the tax credits available for carbon capture techniques in the Inflation Reduction Law approved by Congress, said Paul Sankey, an oil analyst at Sankey Research.

“Buffett’s investment in Oxy has been a home run so far,” said Andrew Gillick, a strategist at consultancy Enverus. “Now he’s doubling down on a company that’s generating free cash flow from traditional oil and gas, and is poised to become a leader in the kind of carbon reduction technology the federal government supports.” .

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