Warren Buffett's Berkshire Hathaway has bought a $5.1 billion stake in Occidental Petroleum. In fact, this well-known investor company does not have shares in the energy group at the end of December 2021, reported Business Insider, Sunday (6/3).
The company said it had 29.8 million shares of Occidental Petroleum as of March 1. The company then increased its holdings with about $3.1 billion in capital to double the size of that position to 91.2 million shares between March 2 and March 4.
Berkshire already owns $10 billion of preferred stock in Occidental, which it received in return for providing $10 billion of financing for the oil and gas company's takeover of Anadarko Petroleum in 2019. The preferred stock pays an 8% annual dividend, or $200 million. a year.
Buffett's company also holds warrants for 83.9 million common shares, at an exercise price of US$59.62, thanks to the financing deal. However, Occidental shares closed at $55.76 on Friday, meaning warrants are out of cash for now.
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If Occidental's share price rises above the exercise price, Berkshire can use its warrants to buy the stock at a discount, then sell it at market price and make a profit.
Carl Icahn, another billionaire investor and shareholder of Occidental, has denounced the preferred stock and warrant deals as too lucrative for Berkshire. "The Buffett deal is like taking candy from a baby and it's amazing he even thanked him openly for it," he said.
However, Buffett appeared concerned about his investment at Berkshire's annual shareholder meeting in 2020, when the price of West Texas Intermediate crude plunged to below $30 a barrel.
"If you were a shareholder of Oxy, or any shareholder in any oil-producing company, you would join me for making mistakes so far in terms of where the price of oil is going," he said.
WTI crude has surged more than 50% to a seven-year high of $115 this year, driven by concerns about Russia's invasion of Ukraine. Oxy shares have also rallied to a two-year high.
Buffett and his team, looking to spend about $80 billion in cash, clearly decided the stock was undervalued and ready to profit from rising energy prices, and decided to take some of it.
