More shares of Occidental Petroleum Corp were purchased by Warren Buffett’s Berkshire Hathaway Inc, surpassing the 20 percent ownership required to record a portion of the oil company’s earnings alongside its own and potentially generating billions of dollars in profit.
6.7 million Occidental shares were purchased by Berkshire for around $391 million between August 4 and August 8 according to a regulatory filing made on Monday night. With the acquisitions, Berkshire now owns 188.4 million Occidental shares, or 20.2% of the reported shares outstanding, for a total market value of $11.3 billion.
With a 20% ownership, Berkshire would be able to use the so-called equity method of accounting to report its proportionate part of Houston-based Occidental’s earnings together with operating results. However, Berkshire may argue that because its ownership in Occidental is passive, its accounting for the company should not alter.
Refinitiv I/B/E/S estimates that analysts anticipate Occidental to earn $10.5 billion in profit this year. Of addition, Buffett’s company holds warrants to purchase an additional 83.9 million common shares for $5 billion, as well as $10 billion in Occidental preferred stock, which was used to help finance the 2019 acquisition of Anadarko Petroleum.
According to some analysts, Omaha, Nebraska-based Berkshire may eventually make a bid for the entirety of Occidental. An inquiry for comment made outside of market hours was not immediately answered by Occidental or Buffett’s assistant.
In the first half of this year, Berkshire had an operating profit of $16.3 billion. For the food firm Kraft Heinz Co, in which it has a 26.6 percent share, and the operator of truck stops Pilot Travel Centers, in which its 38.6 percent investment is anticipated to reach 80 percent next year, it applies the equity method of accounting.
The 20.2 percent investment Berkshire holds in American Express Co., in contrast, is generally accounted for, which limits Berkshire’s ability to wield significant influence. On Monday, Occidental’s stock price reached $60.04. In this year, the share price has more than doubled because of increased oil prices as a result of Russia’s invasion of Ukraine.
Berkshire owns a large number of firms, including the BNSF railroad, Geico auto insurance, and various energy companies. It also holds stock in Chevron Corp., an oil corporation in which it held a $23.7 billion holding as of the end of June.
(With Reuters inputs)
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