Buffett: ‘No Interest’ in Occidental Takeover, Praises 'Hallelujah!' Shale

Berkshire Hathaway “has no interest in purchasing or managing” Occidental Petroleum, though “we very much like our ownership, as well as the option,” Warren Buffett told shareholders on Feb. 24.

The conglomerate owns 27.8% of $53 billion market cap oil and gas producer Occidental, he noted in his annual letter to shareholders, and has warrants that “give us the option to materially increase our ownership at a fixed price.”

That price is $59.62/share, derived from a $10 billion cash investment in Occidental in 2018 that helped Occidental fund its purchase of Anadarko Petroleum Corp.

Shares were trading at $60.67 on the afternoon of Feb. 26. The stock was about $85 at the time of the 2018 deal announcement — falling after to as little as $10 during the 2020 pandemic — and settling in the $55 to $75 range since early 2022.

‘Hallelujah!’

Buffett also made a shout-out to U.S. shale oil and gas explorers, who “Hallelujah!,” he wrote, made producing oil and gas from super-tight rock profitable this century. The result: “Our energy dependency ended,” he wrote.

“Now, U.S. production is more than 13 MMBoe/d and OPEC no longer has the upper hand.”

Occidental alone produced 1.2 MMboe/d in December. The annualized rate of just the oil component is nearly as much as the U.S. has in the Strategic Petroleum Reserve, Buffett said.

The SPR’s year-end 2023 oil in storage was 354 MMbbl, according to the U.S. Department of Energy.

“Under [President and CEO] Vicki Hollub’s leadership, Occidental is doing the right things for both its country and its owners,” Buffett wrote. “No one knows what oil prices will do over the next month, year or decade.

“But Vicki does know how to separate oil from rock and that’s an uncommon talent valuable to her shareholders and to her country.”

Buffett added in his letter that Berkshire Hathaway likes Occidental’s “leadership in carbon-capture initiatives,” but that “the economic feasibility of this technique has yet to be proven.”

Berkshire Hathaway holds 244 million Occidental shares, according to its 13F-HR report filed Feb. 14 for year-end 2023. At that time, it also owned 126 million Chevron Corp. shares, it reported.

In contrast, at year-end 2014, Berkshire Hathaway held shares of ConocoPhillips (11 million), Exxon Mobil (41 million), National Oilwell Varco (9 million), Phillips 66 (27 million; spun out of the 2002 combination of Conoco and Phillips Petroleum) and Suncor Energy (13 million).

‘Ominous’ power future

As for the Berkshire Hathaway Energy (BHE) business unit, he wrote he “erred … in my expectations” for 2023.

Besides an earnings disappointment in its railroad holding, an “even more severe earnings disappointment last year occurred at BHE.”

The unit performed as expected, “but the regulatory climate in a few states has raised the specter of zero profitability or even bankruptcy—an actual outcome at California’s largest utility and a current threat in Hawaii.”

He has an “ominous” outlook for future electric-power supply.

“When the dust settles, America’s power needs and the consequent capital expenditure will be staggering.”

Across 11 U.S. states, BHE utilities have 5.3 million power and natural gas accounts. Generating capacity, including in the U.K. and Canada, in 2023 was 36,000 megawatts, including capacity under construction.

BHE also operates some 21,000 miles of pipe, carrying 21 Bcf/d, along with 22 gas storage caverns with working capacity of 516 Bcf, plus the Cove Point, Maryland, LNG import, export and storage facility.