Occidental Weighs Berkshire Redemption Pause on Oil Prices

(Bloomberg) -- Occidental Petroleum Corp. may pause redeeming Berkshire Hathaway Inc.’s preferred equity in the third quarter as lower oil prices limit its ability to return money to shareholders. 

Occidental’s dividends and buybacks to ordinary shareholders may fall below the $4-a-share trigger required to repurchase Berkshire’s preferred equity in the current quarter, Chief Financial Officer Rob Peterson said on a call with analysts. 

The Houston-based oil company has this year redeemed about 12% of Warren Buffett’s initial $10 billion investment, which helped fund the producer’s acquisition of Anadarko Petroleum Corp. in 2019. Chief Executive Officer Vicki Hollub is keen to pay back the investment as soon as possible because it carries an 8% annual dividend, making it an expensive part of Occidental’s capital structure. 

“In the last few months, they’ve reduced our preferred, which we don’t like obviously,” Buffett said at Berkshire’s annual meeting in May. “We’d be disappointed in them if they didn’t reduce it, it’s intelligent from their standpoint.”

Redemptions would continue later this year or in 2024 if oil prices stay consistently above $75 a barrel, Hollub said Thursday in an earnings call. West Texas Intermediate futures settled at $81.55 a barrel on Thursday.

Separately, Berkshire owns 25% of Occidental’s common stock and is the company’s largest shareholder, according to data compiled by Bloomberg. Berkshire is willing to buy more Occidental common stock, but has ruled out buying the oil producer in its entirety.

Occidental shares climbed 1.2% on Thursday.

(Updates with context in third paragraph, Buffett comment in fourth.)

©2023 Bloomberg L.P.