Billionaire Warren Buffett’s company bought nearly 2.14 million common units in Occidental Petroleum Corp. this week for an estimated $122.1 million.
The purchase, made in three days of transactions, has increased the stake of Berkshire Hathaway Inc. in the top U.S. oil producer at 224,129,192, according to a filing with the U.S. Securities and Exchange Commission (SEC) on Wednesday. Berkshire now owns more than 25 percent of Occidental’s basic shares, according to the 891,745,187 shares outstanding that the latter disclosed in its quarterly results presentation.
Occidental, which trades on the New York Stock Exchange (NYSE), has not dipped below $56 a share this week. Its highest trading price from Monday to Wednesday, when Berkshire bought the last stake in Occidental, was $57.895.
Berkshire posted $57.02 per unit in Wednesday’s buy transaction, $57.1694 in Tuesday’s trade and $57.0143 in Monday’s trade.
Occidental closed up 1.84 percent at $58.52 on Thursday. Berkshire, which also trades on the NYSE, also saw its Class A and Class B units rise 1.11 percent to $512,260 and 0.83 percent to $336.91 on Thursday, respectively.
Repurchase by Occidental
Berkshire also owns 91,964 preferred shares in Occidental. But the latter has activated its option to buy back Berkshire’s preferred stake under a deal in which the Buffet-led investor pledged $10 billion to help acquire Anadarko Petroleum Corp. for 55,000 million Occidental in 2019.
Occidental owes $712 million in preferred stock payable as of March 31, as disclosed in its first-quarter 2023 performance report, when it reported net income of $1.263 billion. Its available cash stood at $1.218 billion, while its liabilities stood at $7.44 billion in March.
Berkshire said Occidental notified the shareholder in March of the mandatory redemption, six years before the latter could voluntarily repurchase Berkshire’s preferred stock as specified in the agreement.
“As of March 31, 2023, our investment in Occidental preferred stock had an aggregate liquidation value of approximately $9.5 billion. During March 2023, Occidental issued mandatory redemption notices at a price of 110% of the of liquidation, plus accrued and unpaid dividends for $474 million of liquidation value of preferred stock due to Occidental’s excess distributions to its common stockholders, as defined in the agreement,” Berkshire said. in its quarterly filing with the SEC.
Occidental confirmed the move in its earnings report: “Of the $712 million of accumulated mandatory redemptions at March 31, 2023, $551 million of preferred stock redemptions, including a 10% premium, were settled in cash after but before March 31, 2023. the date of this filing [on May 9]”.
Occidental has assumed Anadarko’s debt obligations as the new owner.
Stakeholders sued Occidental in May 2020, claiming it had failed to disclose how the $40 billion in debt resulting from its Anadarko purchase undermined its profitability, Reuters reported on May 28, 2020.
Anadarko also has a court case in which defeat means “Occidental would have to pay approximately $400 million in federal taxes, $28 million in state taxes and $453 million in accrued interest,” as stated in the presentation of Occidental on May 9.
Occidental in its earnings report promised new rewards, to reassure investors amid $19.645 billion in long-term net debt as of the first quarter. Despite the weaker earnings, it has maintained its $3 billion common stock redemption program approved in February, the same value as last year’s completed redemption target for common units. It said it had bought back $752 million between January and March 2023.
Performance prospects
Occidental’s net profit for the first quarter of 2023 fell nearly fourfold from the first three months of 2022 as oil and gas prices fell. Occidental collected $4.876 billion in net income from January to March 2022, when energy prices soared after Russia’s invasion of Ukraine. It posted its highest quarterly cash before working capital in the period at more than $3.3 billion.
But as oil and gas prices have fallen since peaking in the middle of last year, Occidental’s January-March 2023 earnings fell both year-on-year and quarter-on-quarter. Profits slowed even as output rose to 1.22 million barrels of oil equivalent per day (MMboed) from 1.079 Mboed in the first quarter of 2022.
Occidental has increased its production projection for the full year to 1,195 Mboed.
It will announce second-quarter results on Aug. 2, it said in a media notice Thursday.
Occidental declared a dividend of $0.18 per share to common shareholders for the 2023Q1, up five cents from the previous quarter.
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