Recently, I’ve been following Warren Buffett’s investments, and one of his latest moves caught everyone’s attention: Occidental Petroleum (NYSE: OXY).
Warren Buffett and His Love For Occidental Petroleum
Occidental Petroleum is a US-based oil and gas producer with a market cap of $43.77 billion at the current share price of $46.65. It currently represents 4.62% of Berkshire’s equity portfolio, making it their 6th largest holding, valued at $12.3 billion.
Here’s Occidental Petroleum’s performance overview:
- Current Stock Price: $46.65
- Market Cap: $12.13 billion
- Revenue CAGR Last 10 Years: 4.9%
- Cash: $1.73 billion
- Net Debt: $25.89 billion
- Free Cash Flow Margin: 15.9%
- No. of Common Stock: from 209 million in 2019 to 233 million in 2024.
What’s intriguing about Occidental is that it is a similar in size to Warren Buffett’s long standing investments in Coca-Cola and American Express.
Warren Buffett’s Enduring Commitment to Occidental:
In Berkshire Hathaway’s 2023 Annual Letter, Warren Buffett highlighted the company’s approach toward investments it intends to hold indefinitely. He stated:
This year I would like to describe two other investments that we expect to maintain indefinitely. Like Coke and AMEX, these commitments are not huge relative to our resources. They are worthwhile, however, and we were able to increase both positions during 2023.
At yearend, Berkshire owned 27.8% of Occidental Petroleum’s common shares and also owned warrants that, for more than five years, give us the option to materially increase our ownership at a fixed price. Though we very much like our ownership, as well as the option, Berkshire has no interest in purchasing or managing Occidental. We particularly like its vast oil and gas holdings in the United States, as well as its leadership in carbon-capture initiatives, though the economic feasibility of this technique has yet to be proven. Both of these activities are very much in our country’s interest.
But do Warren Buffett’s purchases really signal Occidental’s undervaluation? Let’s examine the timeline of Warren Buffett’s Occidental investment and explore why Buffett purchased more shares.
Timeline of Warren Buffett’s Entry into Occidental to the Present
2019 – Initial Investment
In 2019, Warren Buffett, through Berkshire Hathaway, made his initial investment in Occidental Petroleum by supporting the company’s $57 billion acquisition of Anadarko Petroleum. Here are the details of the transaction:
- Buffett committed $10 billion to the deal in exchange for preferred shares yielding an 8% annual dividend, amounting to roughly $200 million per quarter.
- Additionally, the investment included $5 billion worth of warrants, giving Berkshire the right to purchase Occidental shares at $62.50 per share.
2020 – Adjustments Amid COVID Challenges
In 2020, as the global pandemic put pressure on energy markets, Occidental took measures to conserve cash. This led to notable developments:
- In 2020, Warren Buffett decided to sell 18,933,054 shares in Occidental. Many believed this was Buffett’s plan to exit Occidental.
- Everyone was wondering, why did Buffett sell? A closer look reveals that Occidental actually paid Buffett’s $200 million preferred stock dividends in the form of common stock in 2020.
- Occidental did this to conserve cash during the COVID era, when energy prices were dropping. As a result, Occidental decided to pay its first and second-quarter loan payments to Berkshire in the form of common stock.
- For the first quarter of 2020, Berkshire received 17.2 million shares, then worth about $235 million, getting a premium for accepting stock instead of cash.
- Berkshire received an additional 11.6 million shares with its June 30 dividend, as Occidental wrote down the value of its energy properties by up to $9 billion and sought to restructure its large debt to avoid a potential default
2024 – Increasing the Stake as Prices Decline
Most recently, with Occidental’s share price falling to a 52-week low of $46.65, Buffett’s Berkshire Hathaway has increased its stake in the company. Currently, Berkshire holds 255,281,524 shares, equivalent to 27.8% of Occidental’s outstanding common shares. Notably, Buffett’s recent acquisitions have averaged around $46 per share.
- In 2024, Warren Buffett increased his stake in Occidental as share prices fell.
- Warren Buffett has been buying this stock multiple times even as the price fell. Berkshire currently owns 255,281,524 shares which is 27.8% of Occidental.
Just as Buffett mentioned in Berkshire’s 2023 Annual Letter,
No one knows what oil prices will do over the next month, year, or decade. But Vicki does know how to separate oil from rock, and that’s an uncommon talent, valuable to her shareholders and to her country.
As of February 3rd, Occidental is trading at $46.65 per share—its lowest level in the past 52 weeks. This has raised a key question in the market: Will Warren Buffett’s Berkshire Hathaway continue to buy more of Occidental Petroleum?
Berkshire Hathaway’s most recent purchase of Occidental common stock was at an average price of about $46 per share. Since the company is required to report purchases within two business days when holding more than 10% of a firm, investors can expect further clarity on Buffett’s next moves in the coming days.