Warren Buffett's Berkshire Hathaway buys another $700 million of Occidental Petroleum stock — and now commands a $11 billion stake in the energy giant

• Warren Buffett's Berkshire Hathaway plowed another $700 million into Occidental Petroleum this week.
• Buffett's company now commands a 18.7% stake valued at nearly $11 billion.

Warren Buffett's Berkshire Hathaway piped about $700 million into Occidental Petroleum this week, bolstering its stake in the energy company to almost $11 billion.

The venerable investor's conglomerate bought around 12 million shares, paying just under $58 on average, a SEC filing revealed on Thursday. The purchases increased its holding to 175 million shares, or 18.7% of the oil-and-gas explorer and producer's outstanding shares.

Berkshire built that position from scratch this year. It amassed 30 million shares by March 1, spent about $7 billion to more than quadruple its stake by March 16, bought additional shares in May, and has invested nearly $2 billion more over the past three weeks.

Along with its common shares, Berkshire owns $10 billion worth of preferred shares, and stock warrants it can use to buy another 83.9 million common shares at a fixed cost of $5 billion. It received the preferred stock and warrants in return for providing $10 billion of financing for Occidental's merger with Anadarko Petroleum in 2019.

Occidental stock closed at $61.47 on Thursday, a premium to the warrants' exercise price of $59.62. If Berkshire opted to exercise all of its warrants, then sold the resulting shares at the current market price, it would make about $155 million in profit.

On the other hand, if Berkshire kept the warrant shares, its ownership of Occidental would jump to 25.4%. That would be a big step towards acquiring the company, as an analyst at Truist Securities recently suggested might be the plan.

Occidental's stock price more than doubled in the first five months of this year, benefiting from the surge in crude prices fueled by Russia's invasion of Ukraine. However, the energy company's shares have slumped by 11% over the past month. Buffett and his team may have resumed buying because they saw the stock as a bargain again.

Buffett's renewed interest in Occidental this year was sparked by CEO Vicki Hollub's comments during a February earnings call. She outlined her plans to optimize production, cut debt, raise dividends, restart stock buybacks, and maximize free cash flow over the long term.

"What Vicki Hollub was saying made nothing but sense," Buffett gushed during Berkshire's annual shareholders' meeting in April. "I decided that it was a good place to put Berkshire's money," he said about Occidental.

Buffett noted Berkshire was able to build its stake so quickly because of frenzied trading of Occidental shares in the spring. Investors were treating the stock market like a casino, and blue-chip companies like poker chips, he remarked.

"The whole country in March of this year was sitting around trading Occidental in some crazy way," Buffett said. "It defies anything that Charlie and I have seen, and we've seen a lot," he added, referring to Berkshire's vice-chairman and his right-hand man, Charlie Munger.

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