“Warren Buffett is still buying Occidental Petroleum, adding shares worth $1.5 billion. An SEC filing late Friday revealed the purchases were made on Wednesday, Thursday and Friday at prices between $51.03 and $58.58. The weighted average of the buys is around $56.60.”
https://www.cnbc.com/2022/03/12/warren-buffett-is-still-buyi…
With warrants he’s around 20%. Big statement by Buffett.
Perhaps he is buying natural gas for mid American and oil for BNSF. The entire company,or a portion to hedge higher energy costs.
JK
On a cold wintery day yesterday I spent a little under two hours listening to the OXY 4Q earnings webcast, including Q&A. This is the one that caused WEB to suddenly buy a bunch more OXY after he read the transcript - according to his interview with Becky.
I’ll be damned if I heard anything that would cause him to prefer OXY over CVX and XOM with one exception. That exception would be betting on oil prices going forward.
Here’s what I took from the presentation.
o OXY plans to sustain their dividend at a yield comparable to the S&P
o OXY plans to hold O&G production basically flat in 2022
o OXY plans to grow O&G production between 0-5% annually thereafter
o OXY plans to continue reducing debt until they return credit to investment grade. Now 1 step below.
o OXY plans to spend $3 billion on buybacks after reaching debt goals. 2022 2H possible if prices stay up.
o OXY claims leadership in Permian delivery per well as well as resource recovery
o So does XOM. And others.
o OXY provides little details on specifics. XOM provides a lot. CVX some.
o OXY breakeven point is $40. XOM says $41 in 2021 heading to $30 by 2027.
o XOM says >10% return in Permian at $35 crude. Plus same for Guyana & Brazil going forward. This is sustained $35, not cyclic.
o OXY and XOM have different business mixes. OXY is primarily an oil play. Their chemicals business is not petrochemicals. It is caustic soda, potash, chlorine, vinyl monomers, and some PVC. More related to GDP and homebuilding than petrochemicals. XOM much stronger in petrochemicals including premium products. Expected to grow faster than O&G going forward. CVX smaller than XOM but still petrochemicals, primarily commodity.
Buffett says OXY CEO is doing exactly what he would be doing.
I can’t see why the OXY presentation would excite Buffett. The exception is that OXY is “oilier” than CVX, which - in turn - is more so than XOM. XOM heavier in downstream, especially petrochemicals.
Two major factors are driving oil prices now. One is the lack of capex the past several years due to first the oil price war between Saudi and Russia (with shale oil a secondary target) followed by the demand collapse due to the pandemic. As demand recovers from the pandemic, supply is starting to fall behind demand due to the decline of oil fields output during these years not being replaced by new production because of capex cutbacks. The second is, obviously, the Ukrainian invasion and the threat of Russian oil being taken off the market.
So a bet on oil prices staying up bodes well for O&G producers, particularly the “oilier” ones like OXY, and especially in the near term. If there is a threat, it is more from political action (“windfall profit” taxes) than supply demand.
Otherwise I saw nothing I can understand as to why the OXY transcript would excite Buffett over other choices that could soak up a lot more idle capital. And are much stronger to endure a recession than OXY.
Doesn’t feel like a long term commitment.
Of course, he’s a genius at investing, and I’m a grunt. Who knows what he’s seeing that I’m missing? It just isn’t clear to an old guy with oil patch experience.
“Of course, he’s a genius at investing, and I’m a grunt. Who knows what he’s seeing that I’m missing? It just isn’t clear to an old guy with oil patch experience.”
Here’s what jumped out at this old guy with oil patch experience during the Q&A:
OXY’s future oil and gas volumes are now completely unhedged.
Vicky Holub (CEO)
"The oil and gas hedges we had in place rolled off at the end of the fourth quarter, and we are now positioned to take full advantage of the current commodity price environment. We recognize the possibility of a swoop change in commodity prices always exist. "
https://seekingalpha.com/article/4490760-occidental-petroleu…
This further supports your thesis that Buffett is bullish oil and natural gas.
“The oil and gas hedges we had in place rolled off at the end of the fourth quarter, and we are now positioned to take full advantage of the current commodity price environment. We recognize the possibility of a swoop change in commodity prices always exist. This further supports your thesis that Buffett is bullish oil and natural gas.”.
Great catch!! Thanks.
I’ve invested along Buffett since 1996. Don’t ever recall him investing before in anticipated near term price movements. Always seemed to be more long term based on past performance.
But there’s always a first time. Lots of capital that needs to find better uses.
<<I’ve invested along Buffett since 1996. Don’t ever recall him investing before in anticipated near term price movements. Always seemed to be more long term based on past performance.>>
That’s what I don’t understand, why didn’t Buffett buy stocks of oil companies in the past two years when prices were much lower.
I guess he didn’t expect such a huge jump in oil prices two years ago. When he saw the price jump due to the war, he pounced.
This is the one that caused WEB to suddenly buy a bunch more OXY after he read the transcript - according to his interview with Becky.
Which interview you are referring to?
I think you should watch pioneer oil, Devon oil CEO’s interviews and their plans. The oil sector has learned their lessons very well. In the past it is boom or bust, during boom times they invest heavily and increase capacity and then supply overwhelms demand and crashes the price. Essentially this cycle made Oil stocks as “rent only” not to “own”.
Now, most CEO’s are talking about sticking to their cap-ex plans, returning cash, steady dividend, buyback etc. Of course this discipline could change, but that’s what the industry is talking about.
WEB may have a better understanding of OXY and if OXY decided to reduce the debt, return the cash, sustain the dividend model, then it may very well be a long-term play.
Again all opinions are speculation and we don’t know what are the real drivers behind Buffett’s action.
“Again all opinions are speculation and we don’t know what are the real drivers behind Buffett’s action.”
He likes to make money for his partners like Hyman Roth
Flashback from May 2019:
"Occidental revealed on Tuesday that Berkshire had committed to invest $10 billion in the company to help fund its proposed acquisition of Anadarko Petroleum. Berkshire would make the investment by purchasing 100,000 shares of preferred stock, which pays out an 8% annual dividend.
Buffett was willing to invest $20 billion to help Occidental seal the deal, sources told CNBC’s David Faber. Occidental revised its bid to purchase Anadarko after the international oil and gas driller agreed to sell its business to Chevron last month for $65 a share in a 75% stock and 25% cash deal worth $50 billion including debt.
Asked why Berkshire wouldn’t just buy Anadarko itself, Buffett said, “That might have happened if Anadarko came to us, but we wouldn’t jump into some other deal that we heard about from somebody else coming to us seeking financing.”
Billionaire investor Warren Buffett said Monday that Berkshire Hathaway’s $10 billion investment in Occidental Petroleum is a bet on oil prices over the long term.
“It’s also a bet on the fact that the Permian Basin is what it is cracked up to be,” the chairman and CEO Berkshire told CNBC’s Becky Quick. But “oil prices will determine whether almost any oil stock is a good investment over time.”
“If [oil] goes way up, you make a lot of money,” he added.
https://www.cnbc.com/2019/05/06/buffett-says-occidental-petr…
He reveals above that he might have considered buying Anadarko outright… if they had approach him.
Hmmm…is he now considering buying the whole enchilada (OXY)?
Warren Buffett Bought a Big Chunk of Occidental Petroleum Stock. Will He Buy the Rest?
Bary, Andrew.
Barron’s (Online); New York (Mar 14, 2022).
"Warren Buffett has been buying bunches of Occidental Petroleum stock. Will he buy the whole thing?
That is the question that some investors are asking after the aggressive purchases by Berkshire Hathaway (Ticker: BRK/B) during the past two weeks of Occidental Petroleum (OXY) stock.
Why would Occidental potentially appeal to Buffett?
He knows the company well after having invested $10 billion in Occidental preferred stock, which pays a lush 8% dividend yield, in 2019 when Occidental CEO Vicki Holub was seeking quick financing in a bidding war with Chevron for Anadarko Petroleum, which Occidental won thanks in part to the Berkshire investment . Berkshire also got 83.9 million Occidental warrants for free as part of that deal, which are struck at $59.62 a share.
Occidental is also the right size. The company is now valued at $54 billion which makes it very digestible for Berkshire, given its nearly $150 billion in cash."
https://www.barrons.com/articles/oxy-stock-occidental-petrol…
OXY had $2.9b free cash flow in 4Q 2021 when oil price was around $75. With breakeven cost at about $40 and oil price around $105, free cash flow would be %5.3b in one quarter and $21b in one year. Current market cap is about $50.5b, Buffett would pay $60b for it.
Berkshire would make the investment by purchasing 100,000 shares of preferred stock, which pays out an 8% annual dividend.
I’d throw every dollar in my portfolio at that for a guaranteed 8% annual dividend. Unfortunately, no one invited me to that party 
'38Packard
One way to get an insight into why Mr Buffett is buying a lot of Occidental is to listen to the reason he gives.
He says he decided to buy after reading their most recent report. Presumably there is some interesting stuff in it.
So those who are curious should probably start by doing that same bit of reading.
When it comes to oil and gas, I always get my head handed to me on a platter, so I will delegate this decision to him.
Means I also don’t have to read the report!
Jim
Another billion spent in last couple of days to buy more. He loves buybacks. OXY signaled $3 billion this year.
Debt going down, share count going down and at around 10 times earnings. No hedges either.
He loves buybacks.
I wish he had discovered his love for Berky buybacks bit earlier…