Warren Buffett’s hefty investment in Occidental Petroleum, valued at around $13 billion, is facing significant challenges as the company’s stock plummets amidst declining oil prices. Since mid-April, Occidental shares have seen a staggering drop of 29%, coinciding with a broader 23% reduction in crude oil prices. This troubling trend raises important questions about demand and the surplus of oil supply, particularly influenced by a slowing U.S. economy and record-high production levels from domestic oil companies.
As of Thursday morning, Occidental’s stock was hovering just above the $50 mark, drawing concern for Berkshire Hathaway, which has been steadily increasing its holdings in the oil firm since early 2022. On the heels of a buying spree in June, Buffett managed to acquire millions of shares at approximately $60 each. However, this latest downturn has broken the stock floor that had previously maintained its value around the $55-$60 range— a limit that had stood firm for over two years.
According to estimates from HedgeFollow, Berkshire Hathaway’s average purchase price for its Occidental shares is around $51.22—only slightly above the current trading price. The exact average price is known exclusively to Berkshire Hathaway, but this figure underscores the precarious position of Buffett’s investment.
Adding to the complexity of Buffett’s stake are the warrants he holds, allowing him to buy an additional 83.5 million shares at a strike price of $59.62—almost 20% higher than current levels. While speculation arises about whether Buffett might capitalize on this dip to further invest in Occidental, experts suggest that he is unlikely to pursue acquiring the entire company. Fund manager Chris Bloomstran believes Buffett’s strategy will focus more on accumulating additional shares rather than a full takeover.
Bloomstran further elucidates that Buffett likely hopes for Occidental to initiate a stock buyback program. However, CEO Vicki Hollub has indicated that the company will prioritize reducing its substantial debt before considering a buyback, with plans to decrease debt levels to $15 billion by late 2026 or early 2027.
This turn of events is not just a setback for Buffett; it represents a broader narrative of volatility within the energy sector, placating concerns across the market about future demand and pricing strategies in a fluctuating global economy. Investors keenly watch how this will affect not just Buffett’s reputation as a savvy investor, but also the state of Berkshire Hathaway’s portfolio as they navigate these stormy waters in the energy market.
In summary, as Occidental Petroleum grapples with falling valuations and an uncertain market outlook, Warren Buffett’s $13 billion investment now stands at a critical juncture, prompting reflections on the intricacies of energy investments and strategies in today’s economic climate.