Warren Buffett's Berkshire Hathaway plows another $529 million into Occidental Petroleum, boosting its bet on the energy stock to $8.5 billion
- Warren Buffett's Berkshire Hathaway spent another $529 million on Occidental Petroleum stock.
- Berkshire now commands a roughly 16% stake worth about $8.5 billion.
Warren Buffett's Berkshire Hathaway capitalized on the recent slump in Occidental Petroleum shares, spending $529 million to lift its stake in the oil-and-gas company to over 16%.
The famed investor's conglomerate scooped up 9.6 million shares in the space of two days this month, paying around $55 to $56 a share, SEC filings show. The purchases boosted its position by about 7% to nearly 153 million shares, worth $8.5 billion as of Wednesday's market close.
Buffett likely pounced because Occidental shares, which soared by more than 150% in the first five months of this year, have tumbled by a quarter since then. Occidental and other energy stocks have benefited from Russia's ongoing invasion of Ukraine, which has disrupted global energy supplies and driven oil and gas prices skyward.
Berkshire plowed about $7 billion into Occidental between February 28 and March 16, then invested another $390 million or so in May. The first 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.
On top of its common shares, Berkshire owns $10 billion worth of Occidental preferred shares paying a hefty 8% dividend, and 84 million stock warrants. It received those in exchange for providing $10 billion of financing for Occidental's merger with Anadarko Petroleum in 2019.
The warrants have an exercise price of $59.62, which exceeds Occidental's current stock price by almost $4. If Occidental shares rise above the exercise price, Berkshire can use its warrants to buy more shares at a discount to the market price, then either retain them or sell them for a profit.
Buffett doubled down on Occidental this year after reading a transcript of CEO Vicki Hollub's comments during an earnings call in late February. Hollub emphasized her focus was on improving the energy explorer and producer's operations, repaying debt, raising dividends, restarting stock buybacks, and generating robust, sustainable free cash flows over the long term.
"What Vicki Hollub was saying made nothing but sense," Buffett proclaimed during Berkshire's annual shareholders' meeting in April. "I decided that it was a good place to put Berkshire's money."
Buffett noted that frenzied trading of Occidental shares allowed Berkshire to build a 14% stake in about two weeks. He remarked that retail investors treated the stock market like a casino, and large 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.