Occidental Petroleum

Berkshire   Hathaway’s energy investments are an integral part of its top four asset   business operations – which is comprised of railways, insurances and   portfolio investments (primarily in quoted stocks).

The groups’   energy division has been operative since the early 1990s, and includes power   distribution in the US, UK and Canada, as well as gas pipelines in North   America.

Confidence   in the long-term future of the oil price had already manifested itself, with   the additional purchases of Chevron shares by Berkshire (in the past two   quarters of 2021) and are currently worth approximately $4.5 billion, ranking   it as the ninth largest quoted investment holding.

Berkshire   recently announced a purchase of over 100 million Occidental Petroleum shares,   resulting in its stake in the company increasing to over 14% (and worth in   excess of $7.7 billion).

This   follows an initial investment of $10 billion in 2019, in preferred Occidental   stock (yielding 8%), and linked to warrants enabling Berkshire to buy an   additional 84m shares at a specified price far below that of the prevailing   market price.

A strong set of results announced in February, with good management delivery robust   cash flows, as well as sound operational efficiencies, were some of the   investment criteria for the purchase. Berkshire also highlighted the increase   in the quarterly dividend, debt reduction and the share repurchase scheme as   positive factors.

Warren   Buffet appears to be confident about the long-term future of oil prices, with   Goldman Sachs estimating that Occidental to have the second highest cash flow   sensitivity to oil prices in the oil majors.

Berkshire   Hathaway’s philosophy favors investments generating robust free cash flows,   which seems to fit with the Occidental business model. The share is on a   potential free cash flow yield of 37% in 2022, and accompanies other   attractive and sound financial metrics.

If Berkshire were to exercise the warrants to buy additional shares, the   investment could escalate to a 20% shareholding. And in due course, Berkshire   could buy out the minorities.

The Warren Buffet strategy has been a winning formula in the past, with sound   capital allocation yielding outstanding long term returns for patient   investors. We are holders of Berkshire Hathaway for managed portfolios.

Occidental Petroleum