I havenāt calculated the exact cost basis of OXY, but it is approximately $8.2 Billion spent to acquire 143,162,392 shares of stock - somewhere in neighborhood of 57.5/sh average cost (estimated - this could be off by a couple bucks). Plus $5 Billion notional cost basis of warrants to acquire 83.859m shares at 59.624/sh.
So total notional exposure to OXY is 227,021,241 shares at something like a 58.3/sh. avg cost - or about $13.25 Billion ācost basisā if they warrants were exercised.
At $70/share the position would be worth $15.89 Billion if the warrants were fully exercised (which would cost $5 Billion). Iām not sure what the fully diluted share count of OXY would be at that point since there are the Berkshire warrants, the Icahn-induced publicly traded warrants and some hypothetical future buyback. I think itās over 20% notional of OXY.
Of course Berkshire also has the $10 Billion of 8% preferred that would need get a 10% premium to redeem.
Thanks for that recap. Weāll see if there are some additional purchases, with a week in May (May 8 to 12) where the price stayed between $58 and $60, so if Buffett intended to add another big chunk, that was a good chance to do so.
The other point I would make about this investment is that there are really 3 qualitatively different components that you have mentioned: the preferred shares and the warrants, purchased in 2019, and the recently purchased shares.
Of course the preferred shares are extremely valuable, particularly now that Occidentalās finances have been rectified by a couple of very profitable years. The wrath of Icahn, when the deal was made, is pretty good evidence of what a great deal this was.
As for the shares, it is not quite right to combine the warrants (allowing for purchase of shares at about $60) with the shares (purchased at around $58). Itās even a bit better than that, because Berkshire has the right but not the obligation to buy the shares at that price. Of course we hope that the investment works out, and that the warrants get exercised. But there is an alternative future, where oil prices drop fast, either from increased production or because the world goes into recession, and oil companies like Occidental see falling share prices, perhaps well below $60 in Occidentalās case. In that scenario, there would be a loss from the recently purchased shares but not from the warrants. Owning $60 warrants is sort of liking owning shares plus a put option so their value canāt go below $60. You could estimate that additional value by looking at how much long-term $60 put options are trading at (although the term is not identical), and it looks to me like that would be an additional $12 per share, on top of the roughly $10 per share gains that this investment has already generated, at least on paper.
Regards, dtb