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Aug 19, 2022

Buffett's Berkshire wins approval to buy 50% of Occidental

Berkshire Hathaway boosts Occidental Petroleum stake

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Warren Buffett’s Berkshire Hathaway Inc. won approval from US regulators to buy as much as 50 per cent of Occidental Petroleum Corp. after spending months acquiring its shares. Occidental’s shares surged on news of the authorization.

Berkshire applied to the Federal Energy Regulatory Commission for the approval on July 11, according to a filing published Friday. “It is concluded that the proposed transaction is consistent with the public interest and is authorized” subject to conditions, Carlos D. Clay, the commission’s acting director for the division of electric power regulation for the west, said in the filing.

Representatives for Occidental and Berkshire didn’t immediately respond to requests for comment.

Berkshire has spent this year snapping up Occidental stock, digging even deeper into a bet on the Houston-based oil company that first started to play out years ago. Earlier this month, Berkshire reported a stake in Occidental that surpassed a key level that could entail new quarterly disclosures and a boost to the company’s earnings. The Omaha, Nebraska-based conglomerate reported in an Aug. 8 filing that it holds 188 million shares of Occidental’s common stock, a little more than 20 per cent of its 931 million shares outstanding.

“No question Buffett goes to 50 per cent from here,” said Bill Smead, who manages US$4.8 billion at Smead Capital Management Inc. and is a top 20 shareholder in Occidental. “This is looking more and more like the Burlington transaction where he ended up buying the whole shooting match.”

In 2019, Buffett aided Occidental Chief Executive Officer Vicki Hollub’s pursuit of Anadarko Petroleum Corp. by agreeing to invest US$10 billion in Occidental at the time, a pact that included both preferred shares and warrants. This year, Buffett praised Hollub’s leadership, a sign that the billionaire investor was all-in on Occidental. That stirred up speculation that Berkshire, with more than US$105 billion in cash on hand at the end of June, could seek to buy more stock.

On March 7, CNBC’s Becky Quick said on “Squawk Box” that Buffett had told her that Berkshire started buying on Feb. 28 “and we bought all we could.” Buffett decided to start making the purchases after reading a transcript of Occidental’s Feb. 25 earning conference call with analysts.

“I read every word, and said this is exactly what I would be doing,” Buffett told Quick. “She’s running the company the right way.”

Occidental is the best-performing stock in the S&P 500 this year by some margin, rising more than 140 per cent compared with the index’s 11 per cent decline, driven by Buffett’s steady buying and high oil prices. The company’s shares were up 9.2 per cent at 2:50 p.m. in New York after rising as much as 12 per cent earlier.

Hollub has made aggressive moves to boost returns to shareholders this year by reigning in capital-intensive production growth in favor of dividends and share buybacks for investors. She’s also eliminated much of the US$30 billion of debt the company took on buying Anadarko in 2019.

Occidental received a further boost this month with the passing of the Inflation Reduction Act, which boosted tax credits for carbon capture, a technology in which the company is a leading player. Hollub hailed the bill as “very positive.”

Occidental plans to make capturing carbon from the air a key part of meeting its ambition to be net zero by mid-century, one of the most aggressive plans of any US major oil company.