Warren Buffett’s $13 billion investment in Occidental Petroleum has taken a hit as shares have dropped 29% since mid-April. This decline aligns with a 23% drop in crude oil prices, driven by concerns about demand and excess supply. Based on recent estimates, Berkshire Hathaway’s stake in Occidental Petroleum is now considered underwater.
This year’s steady decline in oil prices has led this major stock bet to face significant losses. Occidental Petroleum shares are down 15% year-to-date, trading just above the $50 level. The sharp decline in the company’s stock is a notable setback for Warren Buffett, who had been buying millions of Occidental shares around the $60 level since June 2022.
Berkshire Hathaway currently owns a 29% stake in the oil company. For the first time in over two years, the $55-$60 level, which had acted as a floor for Occidental Petroleum stock since Buffett began his purchases, has been breached. It is estimated that Berkshire Hathaway paid an average price of $51.22 per share, which is now about 1% above the stock’s current price.
Berkshire Hathaway also owns warrants to buy an additional 83.5 million shares of Occidental Petroleum at a strike price of $59.62, nearly 20% above the current price.
Buffett’s Occidental investment struggles
Despite the recent dip, it is possible that Buffett may purchase additional shares, although he has stated he does not intend to take over the company.
Chris Bloomstran, fund manager of Semper Augustus and longtime investor in Berkshire Hathaway, mentioned that Buffett likely wants to see Occidental Petroleum initiate a stock buyback program. However, Occidental CEO Vicki Hollub has indicated that the company would not initiate a buyback until it significantly reduces its outstanding debt. Hollub mentioned that the firm aims to pay down its debt to $15 billion before considering a stock buyback, a milestone that could be achieved by the end of 2026 or early 2027.
Buffett’s setback comes amid broader market movements. Recently, Bank of America’s Brian Moynihan commented on Buffett’s reduction of his stake in the bank, noting that Buffett has been a stabilizing force but has sold nearly $7 billion in shares since mid-July. Despite these challenges, Buffett’s investment acumen remains highly regarded.
Reflecting on past decisions, even Buffett has admitted mistakes, such as his late investment in Amazon.com Inc. Buffett had the chance to invest in Amazon during its early days and IPO in 1997, but he did not seize the opportunity. Occidental Petroleum’s stock is currently trading at $50.99, up 0.65% on Thursday.
However, year to date, the stock has dropped by 15.09%.
