After the Federal Energy Regulatory Commission (FERC) said that allowing Berkshire to increase its 20.2% stake was “consistent with the public interest”, Occidental’s share price rose by 9.9%, closing at $71.29 by $6.41.
Berkshire filed to increase its stake on July 11, saying it would not harm competition, undermine regulatory authority or increase costs for consumers. FERC regulates the distribution of electricity, natural gas, and oil.
Houston-based Occidental’s stock price has more than doubled this year following Russia’s February 24 invasion of Ukraine. Berkshire began buying Occidental shares four days later.
Buffett’s Omaha, Nebraska-based conglomerate owns $10 billion of Occidental’s preferred stock, which will finance the 2019 acquisition of Anadarko Petroleum Corp., and warrants to buy another 83.9 million common shares for $5 billion.
“Buffett is taking advantage of stock market participants who think the oil and gas industry is stupid and a dead business,” said Cole Smed, president of Smed Capital Management Inc. in Phoenix, which owns Occidental and Berkshire shares. “Buffett thinks he can make it rich.”
Berkshire did not immediately respond to an aide to Buffett for comment.
Emergency spokesman Eric Moses said the higher ownership limit is “necessary” because the company has assets protected by FERC regulation. He said the previous limit was 25%.
FERC’s approval does not require Berkshire to purchase any contingent shares.
But some investors and analysts say Berkshire could acquire Occidental by leveraging its energy portfolio, which includes multiple utilities, electricity distributors and renewable energy projects, including wind.
Buffett completed one of his biggest acquisitions since acquiring a 22.6% stake in Berkshire in 2010, the $26.5 billion purchase of BNSF Railroad.
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Morningstar analyst Gregory Warren said he likes Occidental as a wholly-owned subsidiary under the Berkshire umbrella because it lowers Occidental’s cost of raising capital and reduces exposure to volatility in commodity markets.
Independent oil analyst Paul Sankey added that Occidental could benefit from tax credits for carbon capture projects included in the inflation-reducing legislation signed into law by President Joe Biden this month.
“I see him taking the whole thing personally,” Sankey said of Buffett.
Smead, on the other hand, said Buffett is unlikely to buy all of Occidental anytime soon, and could instead buy more shares on the open market instead of taking full control.
“In the long run, he can, but if you’re planning for the next six months, you’re not going to submit something like this to FERC,” Smead said.
Berkshire ended June with $105.4 billion in cash and equivalents, even after buying back a net $45.2 billion of stock in the first half of the year.
Buffett has pledged to keep $30 billion on hand. The market value of the risk was about $66 billion after Friday’s close.
Berkshire owns more than 90 companies, including Geico auto insurance, Swords candies, Dairy Queen ice cream, and several manufacturing businesses.
At Berkshire’s annual meeting on April 30, Buffett said he began buying Occidental shares after reviewing analyst presentations.
He also expressed confidence in CEO Vicki Holub, 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 it made sense.
