Berkshire Hathaway Sells Stake in Occidental Petroleum

Warren Buffett’s Berkshire Hathaway recently sold its stake at Occidental Petroleum (OXY) in the second quarter. This was revealed in a regulatory filing on Friday.

The filing also revealed that Buffett had been selling his common stock with the petroleum company. The moved heaped more pressure on Occidental Petroleum as it stands as one of the worst performers of the year, due to the impact of the coronavirus on the global economy and the oil and gas industry.

In 2019, Berkshire Hathaway helped Occidental Petroleum acquire a rival company, Anadarko Petroleum Corp., purchasing $10 billion in Occidental’s shares with an 8% dividend yield. In return, alongside other benefits, Occidental Petroleum agreed to pay Berkshire Hathaway a $200 million dividend in discounted stock. Of which Berkshire received in the most recent quarter.

According to the regulatory filing which carried Berkshire and Occidental’s agreement, Berkshire can immediately sell its shares. The deal was made with expectations that shale oil prices will increase in the coming months, on the contrary, the price of oil took a backslide in the months ahead. Occidental has since been burdened with a huge debt load, and there are very few buyers interested in purchasing its assets to offset the acquisition cost.

By paying out Berkshire’s dividend in common stock, Occidental would be able to maintain cash flow despite the ongoing market decline. While Berkshire’s investment in the oil company was supposed to boost its productivity, the turn of events has caused the company to decline in its performance.

“They need to preserve cash in any and all ways possible. It’s a dangerous time to be a levered E&P company,” said an Edward Jones industry analyst, Jennifer Rowland.

Occidental Petroleum's overall market performance has tumbled 64% this year. It is also the worst performer in the S&P 500 Energy Index.

The sharp oil price drop and the acquisition of Anadarko Petroleum has left Occidental with debt of nearly $40 billion, and limited options of recovering its costs. In March, the company slashed its 2020 budget and slashed its annual dividend to 44 cents a share from $3.16.

The demand for oil and gas on the global level has drastically dropped as much as 30 million barrels per day (bpd), or 30%, this year. This is as a result of the impact of the coronavirus on the economy. Thousands of aircrafts have been grounded, and vehicle usage has been reduced, with recession rocking many economies in the world.

Disclaimer:

Investingport does not own any of the stocks mentioned above. This post is for informational purposes only, you are to do your own due diligence before buying or selling any of the stocks mentioned in this post.