Warren Buffett's Berkshire Hathaway Inc. agreed to take Occidental Petroleum Corp. common shares in lieu of a first-quarter cash dividend, helping relieve the strain on the oil giant's balance sheet.
Berkshire can immediately sell the shares, according to a regulatory filing on April 15, but has not indicated its intent. A sale would bring in less than $230 million at Occidental's current price.
The conglomerate last year bought $10 billion worth of Occidental's preferred shares to help finance its $38 billion acquisition of Anadarko Petroleum.
The deal was a bet on rising shale oil prices months ahead of the worst price crash in decades, and saddled Occidental with a huge debt load at a time when there are few buyers for assets to offset the acquisition cost.
Global fuel demand has fallen as much as 30 million bbl/d, or 30%, this year as efforts to fight the coronavirus pandemic have grounded aircraft, reduced vehicle usage and pushed economies worldwide toward recession.
Representatives for Berkshire and Occidental declined to comment.
"They need to preserve cash in any and all ways possible. It's a dangerous time to be a levered E&P company," said Jennifer Rowland, an industry analyst with Edward Jones.
Last week, Occidental asked the U.S. government to consider providing liquidity to the oil industry.
Occidental shares were off 11% at $13.23 at midday and are down 68% from the start of the year. The company's market value is about $11.7 billion, a fraction of what it paid for Anadarko.
U.S. crude futures fell below $20/bbl on April 15 and the global benchmark tumbled nearly 6% to $27.89/bbl.
The oil price drop and Anadarko acquisition left Occidental with about $40 billion in debt and dwindling means of covering its costs. Last month it slashed its 2020 budget and cut its annual dividend to 44 cents a share from $3.16.
Berkshire companies hold around 4.7% of Occidental common shares, according to an April 15 filing.
Last month, Occidental agreed to take three directors nominated by activist investor Carl Icahn, who had opposed the deal and urged Occidental to sell itself rather than buy Anadarko.
Recommended Reading
Kissler: Gas Producers Should Still Hedge on Price
2025-03-27 - Recent price jumps and rising demand don’t negate the need to protect against future drops.
Plains All American President Pefanis to Retire
2025-03-27 - Current CEO Willie Chiang will take over as the next president of Plains All American Pipeline following co-founder Harry Pefanis’ retirement.
Japan’s JAPEX Backs Former TreadStone Execs’ New E&P Peoria
2025-03-26 - Japanese firm JAPEX U.S. Corp. made an equity investment in Peoria Resources, led by former executives from TreadStone Energy Partners.
CPP Wants to Invest Another $12.5B into Oil, Gas
2025-03-26 - The Canada Pension Plan’s CPP Investments is looking for more oil and gas stories—in addition to renewable and other energies.
Shell Raises Shareholder Distributions and LNG Sales Target, Trims Spending
2025-03-25 - Shell trimmed its annual investment budget to a $20 billion to $22 billion range through 2028 after spending $21.1 billion last year.