Warren Buffett’s $13 billion bet on Occidental Petroleum turns sour as oil hits three-year low

• Shares of Occidental Petroleum have fallen 29% since mid-April, impacting Warren Buffett’s stake in the company.

• The decline aligns with a 23% drop in the price of crude oil due to concerns about demand and oversupply.

• Berkshire Hathaway’s $13 billion stake in Occidental Petroleum could be underwater, according to estimates.

A steady decline in oil prices this year has caused one of Warren Buffett’s big stock bets to turn sour.

Occidental Petroleum shares have fallen 29% since mid-April and are down 15% year to date, trading just above the $50 level at 10:04 a.m. Thursday.

The drop in Occidental’s share price has coincided with a 23% drop in the price of crude oil since mid-April.

Oil has been under pressure due to demand concerns related to the cooling US economy and oversupply due to record production by US oil companies.

The sharp drop in Occidental Petroleum stock is a blow to Warren Buffett’s Berkshire Hathaway, which has been building up a stake in the oil producer since early 2022.

Buffett went on a buying spree in Occidental Petroleum in June, buying millions of shares around the $60 level. The conglomerate owns a 29% stake in the oil company, worth about $13 billion.

The $55-$60 level has acted as a ceiling for Occidental Petroleum shares since Buffett began buying it in 2022, but for the first time in more than two years, that level has been removed.

Hedge fund tracking site HedgeFollowe estimates that Berkshire Hathaway paid an average price of $51.22 for its stake, which is about 1% above the stock’s current price.

To be clear, the average price Berkshire Hathaway paid for its stake in Occidental Petroleum is known only to Berkshire Hathaway itself.

Another sign that Berkshire Hathaway’s bet on Occidental Petroleum is sour is based on the warrants it holds to buy additional shares.

Semper Augustus fund manager and longtime Berkshire Hathaway investor Chris Bloomstran told Business Insider that Buffett has warrants to buy an additional 83.5 million shares of Occidental Petroleum at an exercise price of $59.62. which is almost 20% above the current price.

As for whether Buffett will take advantage of the recent drop in Occidental Petroleum’s stock and buy, Bloomstran said, it’s possible, but he won’t take over the company.

“I wouldn’t rule out an additional stock purchase,” Bloomstran said, noting that the conglomerate has plenty of “firepower” given recent sales of shares in Apple and Bank of America.

“Warren said he’s not going to buy the whole company, and I don’t think he’s going to change his mind about that,” Bloomstran added.

The story continues

Buffett likely wants to see Occidental Petroleum start a share buyback program, according to Bloomstran, but Occidental CEO Vicki Hollub said the company won’t do that until it pays off much of its outstanding debt .

On Occidental Petroleum’s latest earnings call, Hollub said the firms want to pay down $15 billion in debt before initiating a share buyback, which could be “feasible by the end of 2026 or the first year of 2027.” .

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