Buffett’s Berkshire Hathaway gets clearance to buy 50% of Occidental

The headquarters of Occidental Petroleum Corp is pictured in Los Angeles, California, September 16, 2013. REUTERS/Mario Anzuoni

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  • FERC says greater participation is consistent with the public interest
  • Berkshire has a 20.2% stake in Occidental, plus preferred stock
  • Occidental shares rice with almost 10%

Aug 19 (Reuters) – A U.S. energy regulator on Friday awarded Berkshire Hathaway Inc. (BRKa.N)the company controlled by billionaire Warren Buffett, permission to buy up to 50% of the oil company Occidental Petroleum Corp’s (OXY.N) common actions

Occidental’s share price soared 9.9%, closing $6.41 to $71.29, after the Federal Energy Regulatory Commission (FERC) said letting Berkshire increase its 20.2% stake was “consistent with the public interest.”

Berkshire requested to increase its stake on July 11, saying it would not harm competition, undermine regulatory authority or increase costs for consumers. FERC regulates the interstate transmission of electricity, natural gas, and oil.

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Houston-based Occidental’s share price has more than doubled this year, benefiting from rising oil prices following the Russian invasion of Ukraine on February 24. Berkshire began buying shares of Occidental four days later. read more

Buffett’s Omaha, Nebraska-based conglomerate also owns $10 billion in Occidental preferred stock, which helped finance the purchase of Anadarko Petroleum Corp in 2019, and has warrants to buy another 83.9 million shares of common stock for $5 billion.

Berkshire also ended June with a $23.7 billion stake in a larger oil company, Chevron Corp. (CLC.N).

“Buffett is taking advantage of stock market participants who are foolish about the oil and gas industry and consider it a dead business,” said Cole Smead, president of Smead Capital Management Inc in Phoenix, which owns shares of Occidental and Berkshire. “Buffett thinks he can make him rich.”

Berkshire did not immediately respond to a request for comment sent to Buffett’s assistant.

Occidental spokesman Eric Moses said the higher ownership limit was “necessary” because the company owned assets subject to FERC regulation. He said that the previous limit was 25%.

The FERC authorization does not require Berkshire to purchase Occidental stock.

Still, some investors and analysts have said Berkshire could eventually buy Occidental, diversifying an energy portfolio that includes several utilities, electricity distributors and renewable energy projects, including wind.

Buffett completed one of his biggest acquisitions, the $26.5 billion purchase of the BNSF railroad, in 2010, after Berkshire amassed a 22.6% stake.

TAKE THE CONTROL?

Morningstar analyst Greggory Warren said he “liked Occidental better as a wholly owned subsidiary under the Berkshire umbrella” because it would lower Occidental’s costs of accessing capital and reduce exposure to 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 this month by President Joe Biden.

“I can see him taking everything in private,” Sankey said, referring to Buffett.

Smead, by contrast, said Buffett is unlikely to buy all of Occidental anytime soon and instead may buy more shares on the open market at lower prices than in an outright takeover.

“In the long run, it might, but you don’t bring something like this to FERC if you’re planning it for the next six months,” Smead said.

Berkshire ended June with $105.4 billion in cash and equivalents, even after buying a net $45.2 billion of stock in the first half of the year.

Buffett has pledged to keep $30 billion available. Occidental’s market value was about $66 billion after Friday’s rally.

Berkshire wholly owns more than 90 companies, including auto insurance companies 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 reviewing an analyst presentation.

He also expressed confidence in CEO Vicki Hollub, who has been reducing Occidental’s debt.

“She says she doesn’t know the price of oil next year. Nobody knows,” Buffett said. “But we decided that she made sense.”

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Reporting from Jonathan Stempel in New York; Additional reporting from Sabrina Valle in Houston; Edited by Jonathan Oatis and Diane Craft

Our standards: The Thomson Reuters Trust Principles.

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