Billionaire investor Warren Buffett's Berkshire Hathaway Inc. BRK BRK recently scooped up on another chunk of shares in oil exploration company Occidental Petroleum Corp. OXY.
What Happened: With the most recent purchase, valued at around $216 million, Berkshire's stake in the company swelled to 23.6%, according to reports.
See Also: Best Energy Stocks
Buffet's Occidental Bet: Berkshire bought $10 billion worth of Occidental preferred shares to help the latter fund the purchase of peer Anadarko Petroleum. Berkshire earns an 8% dividend on the preferred shares and it also gained possession of warrants to purchase 83.9 million Occidental shares at an exercise price of $59.62.
Berkshire opened a position in the common shares of the oil company amid the outbreak of the Russia-Ukraine war on March 1, 2022, when the price of the commodity began to rise on supply concerns. It bought 29.8 million Occidental Petroleum shares in early March 2022 and went on augmenting the position through a series of transactions.
In August 2022, Berkshire received Federal Energy Regulatory Commission approval for buying as much as 50% shares of Occidental. This sparked speculation about whether the Oracle of Omaha is planning to convert Occidental Petroleum from an investment bet to a portfolio company.
Buffett is said to have a good rapport with CEO Vicki Hollub.
Occidental, along with the rest of the oil giants, defied the broader market downturn in 2022, capitalizing on the surge in oil prices, especially in the first half of the year.
The WTI-grade crude oil futures touched a high of $123.68 in mid-June 2022 before pulling back and ending the year at $80.47 a barrel. The commodity has since then given back a bit more of its gains.
Wood Mackenzie, a global research, analytics and consultancy firm, forecasts that oil will be a big winner in 2023, thanks to China's reopening demand. The firm said it expects international oil companies to see a crescendo of quarterly profits throughout the year as oil prices surge.
In 2022, Occidental reported earnings of $12.51 billion, up notably from $1.52 billion a year earlier. Net sales climbed 41% to $36.63 billion.
Returns from Occidental: A $1,000 invested in Occidental when Buffett took a position in the company in early March would have fetched 21.6 shares.
The same shares would be worth about $1,290 now, a gain of about 29% over roughly a one-year period. In the same time frame, the S&P 500, a broader market gauge, has returned a negative 7.6% return.
Chart Courtesy Of Benzinga Pro
Price Action: Occidental closed Friday's session 2.53% higher at $59.65, according to Benzinga Pro data.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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