In a regulatory filing Friday, the Federal Energy Regulatory Commission said Berkshire Hathaway had asked for and received its permission to buy up to 50% of the driller’s shares. Berkshire has loaded up on Occidental’s stock this year, amassing about 20% of the company’s shares, public filings show, leaving many analysts to speculate whether Mr. Buffett would seek control of the company, one of the largest US oil producers.
Occidental’s shares jumped to lead stock gains among the S&P 500 on Friday, rising 9.9% after the ruling was announced. The company’s stock is up about 146% this year, and is far from the top of the S&P 500 stock index, which is down 11% this year.
Berkshire requested the authorization on July 11, saying at the time it owned approximately 18.72% of the outstanding common stock of Occidental, according to the federal ruling. Berkshire has since added shares and said earlier this month in a securities filing that it owned about 20% of Occidental’s common stock. Berkshire also owns warrants to buy another large swath of Occidental’s common stock as well as $10 billion in preferred stock that pays Berkshire about $800 million annually, filings show.
“It is concluded that the proposed transaction is consistent with the public interest,” Carlos D. Clay of FERC’s Office of Energy Market Regulation wrote in the filing.
An Occidental spokesman confirmed that Berkshire could now buy up to 50% of common stock and did not comment further. A Berkshire Hathaway representative did not respond to a request for comment.
Mr. Buffett has invested billions in renewable energy such as wind projects through Berkshire’s energy unit and has also added oil companies to the holding company’s portfolio in recent years. Chevron corp.
is now one of Berkshire’s largest equity investments.
Occidental has reaped high profits from higher oil prices, bringing in $3.7 billion in the second quarter. The profit is a dramatic turnaround for the company, which lost about $14.8 billion in 2020 following the global pandemic, which is demanding oil. Berkshire’s stock purchases, as well as the many investors following Mr. Buffett’s moves, have helped lift Occidental’s shares at the head of the broad rally in energy stocks.
Occidental’s unprecedented $38 billion deal to take over rival Anadarko Corp. in 2019, the company loaded up with debt, leaving it in a perilous position as oil prices tumbled during the pandemic. CEO Vicki Hollub has made deep spending cuts over the past two years, moved to rein in growth and focused on using cash to pay down debt.
The company has repaid $8 billion in debt this year to bring it to $22 billion, down from nearly $36 billion a year ago, according to the company and analysts. Occidental’s efforts to reach investment grade status and its cash flow generating capabilities have made it an attractive target for Mr. Buffett, said Neal Dingmann, an analyst at Truist Securities. “It’s kind of a big hedge against a lot of his other businesses to own such a high free-cash-flow business,” he said.
Mr. Buffett has made no secret of his admiration for Ms. Hollub, describing her as one of the best managers in the industry. In 2019, he acquired $10 billion in preferred stock to help the company pay for the Anadarko deal.
“What Vicki Hollub said made nothing but sense,” said Mr. Buffett at Berkshire’s annual shareholder meeting in April. Occidental looked like “a good place to put Berkshire’s money,” he added.
Mr. Buffett had to show his hand to the market because power plants controlled by both Occidental and Berkshire Hathaway supply the same grid in Louisiana. Occidental owns a power plant in Taft, La., that supplies its chemical plant next door. Excess power is sold on the local grid, which Berkshire Hathaway Energy plants also supply.
FERC determined that since Occidental’s facilities account for only 0.48% of the capacity connected to the region’s grid, a combination with Berkshire “would not adversely affect competition” in the local electricity market. Mr. However, Buffett had to ask before increasing Berkshire’s Occidental stake.
In recent years, Occidental has ventured into renewable energy through its Oxy Low Carbon Ventures unit. This new focus coincides with Berkshire’s own investments in renewable energy and puts Mr. Buffett’s company could benefit from tax cuts, said Bill Smead, chief investment officer at Smead Capital Management.
“We see Berkshire’s filing as a vote of confidence in the oil macro and the value proposition in energy stocks,” said Kevin MacCurdy, a managing director at investment firm Pickering Energy Partners.
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