Warren Buffett’s Berkshire Hathaway has increased its stake in Occidental Petroleum to 28.8% over nine consecutive trading sessions, solidifying its position as the energy company’s biggest institutional investor. The move, which comes amidst a wave of consolidation in the U.S. energy sector, may be seen as Buffett’s vote of confidence in traditional energy companies attempting to diversify their portfolios. The billionaire investor has been increasing his holdings in Occidental for the past five years, and in 2019, committed $10 billion to the company’s bid for rival petroleum company Anadarko.
Buffett’s continued choice of Occidental as a vehicle to make his point to the market may not be entirely obvious, given the uncertain global oil demand picture and challenges in the energy sector. Crude prices, using Brent futures for benchmarking, have been hovering in the mid-$80s range, with conflicting forecasts on oil demand growth for 2024 from the IEA and OPEC. Occidental’s planned acquisition of shale oil and gas producer CrownRock has been slow going, with hopes to complete the transaction by August. Despite Buffett’s endorsement, the market’s eyes remain on the company’s July 30 earnings update, as the billionaire investor’s backing does not guarantee a rosier outlook.
In addition to its increased stake in Occidental, Berkshire holds $10 billion of Occidental’s preferred stock and has warrants to buy another 83.9 million common shares for $5 billion, at an average share price of under $60. Occidental is Berkshire’s sixth-largest stock portfolio holding, and while the company also owns about 7% of Chevron, it actually cut its stake earlier this year. The relationship between Buffett and Occidental has been growing for five years, with Berkshire winning regulatory approval to buy up to 50% of the company in 2022. Buffett has indicated that he does not wish to take full control of Occidental and has praised the company for being run “the right way.”
Despite an annualized gain of 7% and a dividend yield of just under 1.3%, Occidental’s share price has been relatively stagnant over the past year, hovering just above $60. Buffett’s increased stake in the company may signal his confidence in traditional energy companies, but the outlook for Occidental remains challenging. The market will be closely watching the company’s next earnings update on July 30, as Buffett’s backing, while significant, is not a guarantee of future success. Amidst uncertainty in the energy sector and fluctuating crude prices, Buffett’s continued investment in Occidental may be seen as a strategic move amidst a changing landscape.
