Warren Buffett's $13 billion bet on Occidental Petroleum turns sour as oil prices hit a 3-year low
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- Occidental Petroleum shares have dropped 29% since mid-April, impacting Warren Buffett's stake in the company.
- The decline aligns with a 23% drop in crude oil prices on concerns about demand and excess supply.
- Berkshire Hathaway's $13 billion stake in Occidental Petroleum may be underwater, based on estimates.
A steady decline in oil prices this year has led to one of Warren Buffett's big stock bets to turn sour.
Shares of Occidental Petroleum have plunged 29% since mid-April and are down 15% year-to-date, trading just above the $50 level on Thursday at 10:04 a.m.
The price decline in Occidental shares has coincided with a 23% decline in crude oil prices since mid-April.
Oil has been under pressure due to demand concerns tied to a cooling US economy and excess supply thanks to record production by US oil firms.
The sharp decline in Occidental Petroleum stock is a blow to Warren Buffett's Berkshire Hathaway, which has been amassing a stake in the oil producer since early 2022.
Buffett went on a buying streak of Occidental Petroleum in June, purchasing millions of shares around the $60 level. The conglomerate owns a 29% stake in the oil company, worth about $13 billion.
The $55-$60 level has acted as a floor for Occidental Petroleum stock since Buffett started buying it in 2022, but for the first time in more than two years, that floor has been taken out.
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The hedge fund tracking website HedgeFollowe estimates that Berkshire Hathaway paid an average price of $51.22 for its stake, which is about 1% above the stock's current price.
To be clear, the average price Berkshire Hathaway paid for its Occidental Petroleum stake is only known by Berkshire Hathaway itself.
Another sign that Berkshire Hathaway's Occidental Petroleum bet is souring is based on the warrants it owns to purchase additional shares.
Chris Bloomstran, fund manager of Semper Augustus and longtime investor in Berkshire Hathaway, told Business Insider that Buffett owns warrants to buy another 83.5 million shares of Occidental Petroleum at a strike price of $59.62, which is nearly 20% above the current price.
As to whether Buffett will take advantage of the recent dip in Occidental Petroleum shares and buy, it's possible, according to Bloomstran, but he won't take over the company.
"I wouldn't rule out a purchase of additional shares," Bloomstran said, highlighting that the conglomerate has plenty of "firepower" given its recent sales of Apple and Bank of America stock.
"Warren has said he won't buy the whole company and I don't think he'll change his mind on that," Bloomstran added.
Buffett likely wants to see Occidental Petroleum initiate a stock buyback program of its shares, according to Bloomstran, but Occidental CEO, Vicki Hollub, said the company wouldn't do that until it's paid down a big chunk of its outstanding debt.
On Occidental Petroleum's latest earnings call, Hollub said the firms wants to pay down its debt to $15 billion before initiating a stock buyback, which could be "doable by the end of 2026 or first of 2027."