Occidental's 50% stake can now be purchased by Buffett's Berkshire Hathaway

The business owned by billionaire Warren Buffett, Berkshire Hathaway Inc. (BRKa.N), was given authorization on Friday by a U.S. energy regulator to purchase up to 50% of the common shares of oil giant Occidental Petroleum Corp. (OXY.N).

Following the Federal Energy Regulatory Commission's (FERC) statement that allowing Berkshire to increase its 20.2 percent holding was "compatible with the public interest," Occidental's share price rocketed 9.9%, closing up $6.41 at $71.29.

On July 11, Berkshire submitted a request to increase its ownership, claiming that doing so would neither harm competition, jeopardise regulatory power, or raise consumer prices. The transfer of electricity, natural gas, and oil across state lines is governed by FERC.

Following Russia's invasion of Ukraine on February 24, the share price of Houston-based Occidental has more than doubled this year as a result of higher oil prices. Four days later, Berkshire started purchasing Occidental shares.

In addition, Buffett's Omaha, Nebraska-based conglomerate owns warrants to purchase an additional 83.9 million ordinary shares for $5 billion and $10 billion in Occidental preferred stock, which helped finance the 2019 acquisition of Anadarko Petroleum Corp.

Additionally, Berkshire concluded June owning a $23.7 billion interest in Chevron Corp., a larger oil business (CVX.N).

According to Cole Smead, president of Smead Capital Management Inc. in Phoenix, who holds shares of Occidental and Berkshire, "Buffett is taking advantage of stock market players who are stupid about the oil and gas industry and perceive it to be a dead business." "Buffett believes it will make him rich."

When Buffett's assistant was contacted for comment, Berkshire did not answer right away.

The greater ownership restriction was "essential," according to Occidental spokesman Eric Moses, because the business controlled assets that were subject to FERC jurisdiction. It stated that the previous cap was set at 25%.

The FERC's approval does not obligate Berkshire to purchase any Occidental stock.

Nevertheless, several investors and analysts have predicted that Berkshire would eventually purchase Occidental, broadening its energy portfolio, which already includes a number of utilities, electricity distributors, and wind energy projects.

After Berkshire had amassed a 22.6 percent share, Buffett completed one of his largest acquisitions, the $26.5 billion purchase of the BNSF railroad, in 2010.

TAKEOVER?

Greggory Warren, a Morningstar analyst, stated that he "liked Occidental more as a wholly-owned subsidiary under the Berkshire umbrella" since it would lower the expenses for Occidental to acquire financing and lessen its exposure to the volatility of the commodity markets.

The Inflation Reduction Act, which was signed last month by President Joe Biden, includes an enhanced tax credit for carbon-capture projects that Occidental can take advantage of, according to independent oil expert Paul Sankey.

Sankey remarked of Buffett, "I can see him taking the whole business private."

Smead disagreed, stating that Buffett is more likely to purchase additional shares in Occidental on the open market at lower prices than in a comprehensive takeover.

Long-term, he might, but if you're planning something in the next six months, you don't file something like this with FERC, Smead said.

Despite having purchased a net $45.2 billion worth of equities in the first half of the year, Berkshire concluded June with $105.4 billion in cash and equivalents.

Buffett has promised to hold onto $30 billion. After Friday's run-up, Occidental's market worth was almost $66 billion.

More than 90 enterprises are owned outright by Berkshire, including various manufacturing firms, Geico auto insurance, See's Candies, and Dairy Queen ice cream.

Buffett stated that he started purchasing Occidental shares after viewing an analyst presentation at Berkshire's annual meeting on April 30.

Vicki Hollub, the chief executive of Occidental, who has been working to reduce the company's debt, also received his support.

"She claims that she is uncertain of the price of oil in 2019. Neither does, "said Buffett. But we concluded that it made sense.