One of Warren Buffett’s last investments isn’t doing so hot. How will that affect Berkshire?
Warren Buffett thought he was finding another cash machine when he loaded on Occidental Petroleum Stock in 2022. Berkshire Hathaway went deep, collecting adequate shares with the owner of 28% of the oil company. That made Berkshire Occidental's largest shareholder.
But oil prices in the US are now slipping below $ 60 a barrel, and Occidental stock has fallen to its lowest level for three years. Most of Warren's purchases cost more than $ 50 a part. The stock was closed at $ 39 on Friday.
The Berkshire position costs nearly $ 6.4 billion since its peak last year, based on factset data. The whole thing now tests how far Warren convinces it – and how long his company is willing to sit in a bleeding investment.
Greg Abel has to decide what to do with falling stock
According to The Wall Street JournalInvestors watching Greg Abel, the man Warren chose to take over. Nothing really hopes he'll throw away the stock. Berkshire does not usually act quickly under pressure. But the questions build: Does Greg reduce the position, wait for a rebound, or buy the rest of the company while the price is low?
Cole Smead, CEO at SMEAD Capital Management, who owns stock in both Berkshire and Occidental, said, “She looks stupid now. But I don't think she'll be wrong.” Cole believes the company still has strong drilling prospects, and a lot of oil left to pull from the ground.
Vicki Hollub, CEO of Occidental, has not seen any change in Berkshire's behavior. He still makes travel to Omaha with his team to talk to the shop. He said Warren didn't try to run the company, but he wanted to hear how the business works. “He would say things like, 'You know, I might not get it and maybe not understand it, but I want to talk about it, listen to it,'” he told the journal.
Occidental said on Wednesday it plans to cure spending this year by almost 3%, which will credit better efficiency. One day later, its stock jumped 6.2%. However, the mood has changed around the investment.
Warren used Occidental at every annual Berkshire meeting. This year, on what was his last CEO, he did not say a word about it. Vicki was sitting in the crowd.
Debt, oil prices, and cuts on clean energy are all closing
This is not Warren's first stint with oil. In 2008, he poured billions – billions in Conocophillips – then the financial crisis hit, and the oil tank. He eventually invested in Exxon Mobil but bail in 2014. He returned to Pandmia, bought a 7% stake at Chevron and around 10% of Occidental – and then continued to buy more.
He already knows Occidental well. In 2019, in a fight with Chevron who would buy Anadarko Petroleum, Vicki cut off a deal with Warren: $ 10 billion in preferred stock paying 8% in the annual dividends – of $ 800 million per year. Warren said he liked how Vicki laid out his approach to the analysts: “Vicki Hollub says nothing but the meaning.”
But since then, things have become messy. Vicki all went to get carbon even though the tech was still unstoppable. Warren did not object. Occidental eventually dropped $ 11 billion in Crownrock, a Permian driller. That deal was added to the company's debt, now standing at $ 24 billion.
Now, oil demand is expected to hit. President Trump's tariffs are raising fear of a global slowing down. Meanwhile, OPEC and its partners are bombing more oil, increasing the supply and dragging prices even lower.
And there is another threat. The Energy Department is preparing major reductions in funding clean energy. That could hinder nearly $ 10 billion in support for projects such as Occidental's carbon acquisition facility in South Texas.
Even with all that pressure, some investors do not walk away. They said Occidental had other drillers that were not: inventory. Recent acquisitions of the company have developed great supply as competitors are running dry. That will help you back back if prices rise. “They just have a lot of oil to go out and make a very long time,” Cole said.
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