Warren Buffett, CEO of Berkshire Hathaway, said the conglomerate does not plan to acquire more shares of Occidental Petroleum to take full control of the energy producer.
Berkshire Hathaway (BRK.A) currently owns 23.5% of Occidental Petroleum (OXY), a Houston-based oil company.
The Oracle of Omaha said on May 6 at Berkshire Hathaway's annual shareholder meeting in Omaha, Neb., that the conglomerate does not want to acquire enough shares to take control of the energy company.
“There’s speculation about us buying control, we’re not going to buy control,” Buffett said. “We wouldn’t know what to do with it.”
Berkshire received regulatory approval to buy up to a 50% stake in Occidental Petroleum last August.
The company prefers to own 100% in Geico, an auto insurer; BNSF Railway, a railroad operator; NetJetds, a luxury plane company and retailers such as confectioner See's Candies and fast food operator Dairy Queen.
While Buffett has slowly increased the stake in Occidental Petroleum, increasing speculation that Berkshire could own a controlling interest, the 92-year old billionaire voluntarily addressed the ownership issue during the investor meeting, dubbed "Woodstock for Capitalists."
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Buffett Dispells Rumors
Buffett dispelled any rumors on Wall Street that Berkshire would purchase enough shares to control the oil company. He began buying up shares in February 2022, shortly after Russia invaded Ukraine.
“We will not be making any offer for control of Occidental, but we love the shares we have,” he said. “We may or may not own more in the future but we certainly have warrants on what we got on the original deal on a very substantial amount of stock around $59 a share, and warrants last a long time, and I’m glad we have them.”
Berkshire currently owns $10 billion of Occidental preferred stock as well as warrants to purchase an additional 83.9 million common shares for $59.62 each or $5 billion total.
Shares of Occidental doubled in 2022 as the economy rebounded from pandemic shutdowns, supply chain woes and a decline in travel and commuting to workplaces and was the best performer in the S&P 500 in 2022.
Occidental's shares are down by 20.11% during the past six months, but only down by 0.59% year-to-date as oil prices have recently declined.
Bullish on Energy
Buffett remains somewhat bullish on energy companies.
Berkshire's stake in Chevron (CVX) declined by 28% to $21.6 billion even thought the oil producer's shares only fell by 9%. During the first quarter, the company divested $6 billion of Chevron stock or 35 million shares, which is equal to 20% of its stake in the oil giant.
The company divested $13.3 billion of stocks and purchased only $2.9 billion. Berkshire increased its share in Pilot Travel Centers, a truck stop operator, to 80% from 38.6%, spending $8.2 billion on the investment.
Berkshire's Class A shares increased by 4.9% so far in 2023, falling behind the S&P 500's increase of 7.7%, but in 2022, the benchmark index trailed Berkshire by 23.4 percentage points, not including dividends.
The company reported its operating earnings rose by 12% during the first quarter as its cash levels jumped to $130 billion and insurance profits rebounded.
The conglomerate's fully-owned businesses, generated $8.065 billion during the first quarter, an increase of 12.6% from $7.16 billion compared to last year.
"Their earnings show the strength of the Berkshire family of companies as well as the resiliency of the U.S. economy," Robert Johnson, a professor at the Heider College of Business at Creighton University, told TheStreet.
The core businesses of Berkshire have focused on businesses like insurance and railroad companies. During the first quarter, the insurance underwriting business reported a profit of $911 million, an increase from $167 million a year prior.
Insurance investment income rose by 68% to $1.969 billion from $1.17 billion.
Geico reported a large rebound with an underwriting profit of $703 million. Last year, the company lost customers to its competitors like Progressive (PGR) and reported a $1.9 billion pretax underwriting loss.
"For all the worries that Geico was under existential threat from Progressive, first quarter earnings showed the world they are still firing on all cylinders," Thomas Hayes, chairman of Great Hill Capital in New York, told TheStreet. "This was a major turnaround from last year and contributor to Berkshire earnings this quarter."
BNSF railroad reported its profit declined by 9% to $1.25 billion, impacted by a decline in shipping volumes and a rise in fuel prices.
Berkshire Hathaway Energy, which has reported steady earnings in the past, reported a decline in its profit by 46% since it stashed $359 million to pay for legal services and other costs due to wildfires in Oregon and Northern California.
Berkshire’s cash levels, which have always been large, jumped to $130.616 billion from $128 billion in the fourth quarter of 2022.
"The company still has a huge cash hoard, but cash drag is lessened because yield on short term Treasuries has risen markedly," Johnson said. "Warren Buffett emphasized that very point when delivering the earnings news in the arena."
The company repurchased $4.4 billion worth of stock, the largest level since the first quarter of 2021. At the end of 2022, repurchases totaled $2.8 billion.
The net earnings of Berkshire, which includes profits from their investments such as Apple (AAPL), Bank of America (BACXL) and American Express (AXP), rose to $35.5 billion during the quarter from $5.6 billion in the same period a year ago.
