Buffett's Berkshire Hathaway wins OK to buy 50% Occidental stake

© Reuters. FILE PHOTO: The Occidental Petroleum Corp headquarters is pictured in Los Angeles, California September 16, 2013. REUTERS/Mario Anzuoni

By Jonathan Stempel

(Reuters) -A U.S. energy regulator on Friday gave Berkshire Hathaway (NYSE:BRKa) Inc, the company controlled by billionaire Warren Buffett, permission to buy up to 50% of oil company Occidental Petroleum Corp (NYSE:OXY)'s common stock.

The Federal Energy Regulatory Commission (FERC) said its authorization was "consistent with the public interest," after Berkshire said a larger stake would not hurt competition, undermine regulatory authority, or boost costs for consumers.

Occidental shares soared as much as 11.7%, and in midafternoon trading were up $6.06, or 9.3%, at $70.94.

Berkshire did not immediately respond to a request for comment sent to Buffett's assistant. Occidental declined to comment.

Houston-based Occidental's share price has more than doubled this year, benefiting from rising oil prices following Russia's Feb. 24 invasion of Ukraine.

Berkshire began buying Occidental shares four days later, and by Aug. 8 had accumulated a 20.2% stake worth $11.3 billion.

Buffett's Omaha, Nebraska-based conglomerate also owns $10 billion of Occidental preferred stock, which helped finance the 2019 purchase of Anadarko Petroleum Corp (NYSE:APC), and has warrants to buy another 83.9 million common shares for $5 billion.

Berkshire also ended June with a $23.7 billion stake in a larger oil company, Chevron Corp. (NYSE:CVX)

"Buffett is taking advantage of stock market participants who are foolish about the oil and gas industry and consider it a dead business," said Cole Smead, president of Smead Capital Management Inc in Phoenix, which owns Occidental and Berkshire shares. "Buffett thinks it can make him wealthy."

The FERC authorization does not require Berkshire to amass a 50% Occidental stake, or even buy any shares.

TAKEOVER?

Some investors and analysts have said Berkshire could eventually buy Occidental, diversifying an energy portfolio that includes several utilities, electricity distributors, and renewable power projects including wind.

One of Buffett's biggest acquisitions, the $26.5 billion purchase of the BNSF railroad, was completed in 2010 after Berkshire had amassed a 22.6% stake.

"I can see him taking the whole thing private," said independent oil analyst Paul Sankey.

He added that Occidental could benefit from the expanded tax credit for carbon-capture projects included in the Inflation Reduction Act signed into law this month by President Joe Biden.

Smead, in contrast, said Buffett is unlikely to engineer a full takeover soon.

"In the long run, he may, but you don't file something like this with FERC if you're planning it in the next six months," he said. "If you bought shares at up to $75 or $80 (each), and ended up buying the whole company for $95 or 100, you save yourself a lot of money."

Berkshire ended June with $105.4 billion of cash and equivalents, and Buffett has pledged to keep $30 billion on hand. Occidental's market value exceeded $60 billion before Friday's run-up.

Buffett's company also owns more than 90 companies outright, including Geico car insurance, See's Candies, Dairy Queen ice cream, and several manufacturing businesses.

At Berkshire's annual meeting on April 30, Buffett said he began buying Occidental shares after reviewing an analyst presentation.

He also expressed confidence in Chief Executive Vicki Hollub, who has been reducing Occidental's debt.

"She says she doesn't know the price of oil next year. Nobody does," Buffett said. "But we decided it made sense."