Warren Buffett’s Berkshire Hathaway plowed another $44 million into Occidental Petroleum last Thursday, boosting its bet on the oil-and-gas company to around $9 billion.
The billionaire investor’s conglomerate bought around 794,000 shares for about $55.40 each, a SEC filing revealed this week. It now holds around 153.5 million shares, giving it a 16.4% stake in the energy explorer and producer.
Berkshire piled about $7 billion into Occidental between February 28 and March 16, and has invested almost $1 billion more in the past two months. The initial outlay contributed to Berkshire spending a net $41 billion on equities in the first quarter — one of the most active buying periods in its history.
In addition to its common shares, Berkshire owns 100,000 preferred shares of Occidental, worth $10 billion, and 84 million stock warrants. It secured those in return for providing $10 billion of financing for Occidental’s merger with Anadarko Petroleum in 2019.
The warrants’ exercise price of $59.62 is less than $1 below Occidental’s closing stock price of $58.90 on Monday. If Occidental shares climb above the exercise price, Berkshire can use its warrants to buy more shares at a discount to the market price, then choose whether to keep them, or sell them for a profit.
Berkshire might even try to acquire Occidental once the company slashes its debt pile and its credit profile improves, Neal Dingamm, a managing director at Truist Securities, said in a recent note.
Occidental and other energy stocks have benefited from Russia’s ongoing invasion of Ukraine, which has disrupted global energy supplies and pushed oil and gas prices higher. Occidental’s stock price more than doubled in the first five months of this year, but it has slumped by more than one-fifth this month, which may explain why Berkshire has resumed buying it.
Buffett warmed to Occidental this year based on CEO Vicki Hollub’s comments during an earnings call in late February. Hollub outlined her plans to improving the company’s operations, reduce debt, raise dividends, restart stock buybacks, and generate robust, sustainable free cash flows over the long term.
“What Vicki Hollub was saying made nothing but sense,” Buffett said about Occidental during Berkshire’s annual shareholders’ meeting in April. “I decided that it was a good place to put Berkshire’s money.”
Buffett also noted that manic trading of Occidental shares allowed Berkshire to build a 14% stake in just two weeks. He called out investors for treating the stock market like a gambling parlor, and major US companies like poker chips.
“The whole country in March of this year was sitting around trading Occidental in some crazy way,” Buffett said. “It defies anything that Charlie and I have seen, and we’ve seen a lot,” he added, referring to his business partner and Berkshire’s vice-chairman, Charlie Munger.