Oxy Pref

[nwoodman]

1 hour ago, scorpioncapital said:

Amazing, although it seems he is buying very slowly despite it dipping below 60 on volatility. Truly wonder if he will go for the whole thing or if he's waiting for some macroeconomic signals.

 

I think they will eventually but will keep chipping away for a while.  If I was to put a time frame on it, proof that DAC works at scale then bingo.  I have thought for a while that his comments that what Hollub was doing “makes sense” is 60% capital allocation and 40% DAC.  High probability I have it wrong but BHE owning the rights to a functional and scaleable DAC technology for North America would be quite the competitive advantage.  

 

This interview always brings a smile

 

 

[ValueMaven]

Can anyone recall a time in Berkshires history when they have acquired so much common stock of a company so quickly????

[nwoodman]

3 minutes ago, ValueMaven said:

Can anyone recall a time in Berkshires history when they have acquired so much common stock of a company so quickly????

Nope.  It is a very obliging market that is serving it up to them.  Considering OXY is in the market for their own shares in the high 50’s too it is quite extraordinary. 

[CassiusKing1]

Charlie is a pimp.

[ValueMaven]

Berkshire's current 20.2% stake (188.5 million shares) in Occidental is valued at $11.3 billion. If it exercised its warrants at $59.62 it would receive 83.9 million shares valued at $5 billion. Adding its $10 billion of OXY preferred results in a total stake of $26.3 billion.

[Munger_Disciple]

 

6 minutes ago, ValueMaven said:

Berkshire's current 20.2% stake (188.5 million shares) in Occidental is valued at $11.3 billion. If it exercised its warrants at $59.62 it would receive 83.9 million shares valued at $5 billion. Adding its $10 billion of OXY preferred results in a total stake of $26.3 billion.

 

The warrants are in the money but not worth $5B (yet). The intrinsic value of the warrants is roughly $180mm based on current price. 

[adesigar]

18 hours ago, Munger_Disciple said:

 

 

The warrants are in the money but not worth $5B (yet). The intrinsic value of the warrants is roughly $180mm based on current price. 

He didn't say warrants are worth 5 billion. He said if Berkshire exercised the warrants the shares Berkshire would end up with would be worth 5 Billion.

[Dynamic]

Incidentally, my crude Black-Scholes warrant model estimates that with
OXY trading at $62.86 per share (was $57.44 at June 30th, 2022), the warrants, thanks to their time value, would be worth something around $33.37 per warrant (was $29.38 at June 30th, 2022).

That's now around $2.8bn for the whole OXY warrants position, up from $2.5bn at June 30th.

 

These are only ballpark accurate, and differ by maybe 10-20% from Berkshire's own modelled valuation for the 10-K, where there are significant unobserved inputs. In any case, Black-Scholes tends to ignore a lot of fundamental factors that will be important to the eventual worth of the warrants when they're finally exercised.

 

So called 'Intrinsic Value' in options/warrants terminology is just how much in-the-money they are right now, ignoring time-value, rather different from Buffett's meaning of Intrinsic Value.

Edited August 11, 2022 by Dynamic

[ValueMaven]

FERC document shows Berkshire requested and was approved to accumulate up to 50% stake in OXY (from current 18.72% stake) (Occidental Petroleum Corporation)

Edited August 19, 2022 by ValueMaven

[gfp]

1 hour ago, ValueMaven said:

FERC document shows Berkshire requested and was approved to accumulate up to 50% stake in OXY (from current 18.72% stake) (Occidental Petroleum Corporation)

 

This is interesting because Berkshire already had received FERC approval to go up to 25% ownership in OXY (they are a hair above 20% currently unless there is a filing tonight).  In case folks are wondering why FERC would even be involved, Occidental owns a company called Occidental Power Marketing LP that provides power to the Texas market and since Berkshire owns utilities it had to get various clearances from FERC (Federal Energy Regulatory Commission)

 

edit: also OXY owns a power plant and an intrastate pipeline:

"

Occidental Chemical Corporation (OxyChem), an indirect, wholly owned subsidiary of Occidental, owns and operates the 894 megawatt (MW) Taft cogeneration QF (Taft Facility) located in the Midcontinent Independent System Operator, Inc. (MISO) market. OxyChem has executed a power purchase agreement (PPA) with Entergy Louisiana, LLC (Entergy Louisiana) for the sale of capacity and associated energy from the Taft Facility for a term expiring May 31, 2028, and the remaining capacity of the Taft Facility serves host load at the company’s adjacent chemical complex with any excess available for sale at wholesale. OxyChem has been granted market-based rate authorization. Oxy Salt Creek Pipeline LLC, an affiliate of Occidental, owns approximately 38.6 miles of intrastate natural gas transportation pipeline located in Kent and Scurry counties, Texas."

Edited August 19, 2022 by gfp

[BiggieCheese]

@ValueMaven

@gfp

Do either of you have the link to the filing? I am unable to locate it.

 

[gfp]

26 minutes ago, BiggieCheese said:

@ValueMaven

@gfp

Do either of you have the link to the filing? I am unable to locate it.

 

I don't have the original FERC document but there is this

https://www.reuters.com/markets/us/us-regulator-says-berkshire-hathaway-can-buy-up-50-occidental-stock-2022-08-19/

 

 

edit - this is the file (attached)

20220819-3006.PDF

Edited August 19, 2022 by gfp

[yesman182]

32 minutes ago, gfp said:

 

This is interesting because Berkshire already had received FERC approval to go up to 25% ownership in OXY (they are a hair above 20% currently unless there is a filing tonight).  In case folks are wondering why FERC would even be involved, Occidental owns a company called Occidental Power Marketing LP that provides power to the Texas market and since Berkshire owns utilities it had to get various clearances from FERC (Federal Energy Regulatory Commission)

Could he have done this to ensure he has FERC's blessing when/if he exercises the warrants?

[gfp]

You can read the document I attached in the post above yours.  It is just an approval for going up to 50% ownership of OXY through secondary market transactions (open market purchases).  It keeps him from being capped at 25%, which is what he had prior FERC approval for.

 

It does not mean Warren is suddenly going to bid for a bunch of OXY stock or pay much more than $60 / share but you never know. 

 

It specifically is not an approval to purchase the entire company, although I'm sure they could get approval for something like that if given enough time.

 

I don't think Warren is in any hurry to exercise OXY warrants unless Occidental was going to pay some crazy high dividend on their common shares.  

 

 

(I took advantage of this opportunity to sell most of my OXY warrants (the 22 strike 2027s) over $48/warrant.)

Edited August 19, 2022 by gfp

[ander]

22 minutes ago, gfp said:

You can read the document I attached in the post above yours.  It is just an approval for going up to 50% ownership of OXY through secondary market transactions (open market purchases).  It keeps him from being capped at 25%, which is what he had prior FERC approval for.

 

It does not mean Warren is suddenly going to bid for a bunch of OXY stock or pay much more than $60 / share but you never know. 

 

It specifically is not an approval to purchase the entire company, although I'm sure they could get approval for something like that if given enough time.

 

I don't think Warren is in any hurry to exercise OXY warrants unless Occidental was going to pay some crazy high dividend on their common shares.  

 

 

(I took advantage of this opportunity to sell most of my OXY warrants (the 22 strike 2027s) over $48/warrant.)

 

I think that was a smart sale - I did something similar. I think he's just getting approval so no issue with caps and gives flexibility. I'm guessing the stock drifts back down as the "meme" traders / computers are done. I do think it's worth a lot more, but this reaction seems silly.

 

What is more important to me are the Form 4 filings.

Edited August 19, 2022 by ander

[gfp]

Yeah, weekly options have really juiced up Fridays since they were invented

[KPO]

Perusing some old filings and thinking about the CVX position that Berkshire has somewhat quietly built the last few years, which is 2X the OXY position, has me wondering if being the largest shareholder in a combined CVX/OXY is the end game. The Permian synergies and long term strategic value of controlling the largest domestic block of oil & natural gas would be an interesting final move for Buffett. 
 

https://www.sec.gov/Archives/edgar/data/773910/000095015719000475/form425.htm

 

https://chevroncorp.gcs-web.com/static-files/728b8ce6-1c60-4643-9e58-2d64f28e134e
 

 

Edited August 21, 2022 by KPO

[scorpioncapital]

16 hours ago, KPO said:

Perusing some old filings and thinking about the CVX position that Berkshire has somewhat quietly built the last few years, which is 2X the OXY position, has me wondering if being the largest shareholder in a combined CVX/OXY is the end game. The Permian synergies and long term strategic value of controlling the largest domestic block of oil & natural gas would be an interesting final move for Buffett. 
 

https://www.sec.gov/Archives/edgar/data/773910/000095015719000475/form425.htm

 

https://chevroncorp.gcs-web.com/static-files/728b8ce6-1c60-4643-9e58-2d64f28e134e
 

 

 

I see this too. Remember that Chevron wanted to buy Anadarko but lost out to Occidental. It woud be an interesting twist of fate that now they get it rolled up in Oxy if that were to happen. Seems like Berkshire becomes like the matchmaker and could own a very nice stable share in a diversified energy conglomerate at no doubt a very lucrative cost basis.

 

[MCR]

New WSJ piece on OXY and BRK...

https://www.wsj.com/articles/warren-buffett-not-expected-to-bid-for-control-of-occidental-following-stake-boost-11661099924?st=no06f5x1ogmv2n5&reflink=desktopwebshare_permalink

[ValueMaven]

Ok article.  Frankly - I could see Berkshire swapping out the Preferred for possibly Oxy's chemical business, or something similar to what they did with P&G and Duracell ... think about it - OXY would reduce its interest costs by ~$800M per year, and Buffett would get a trophy asset...with that said - this part caught my attention: 

 

 

People familiar with deliberations at Occidental said the company’s leadership believes Mr. Buffett might consider making an offer if oil prices fall, bringing down Occidental’s stock price. If Mr. Buffett made an offer the company viewed as fair, a majority of the Occidental’s board would likely approve presenting it to shareholders, one of the people said.

 

This is turning into a really nice investment for Berkshire

Edited August 21, 2022 by ValueMaven

[RVP]

Didn’t realize that Buffett’s infamous first investment in Cities Services went on to become part of Occidental. Great catch by the journalists, and full circle indeed.

[scorpioncapital]

I don't understand the quote that if the oil price fell and he made a fair offer. Why would he not make a fair offer now? Would the company sell at 80 if the oil price fell and the stock was at 50? But today oil price is high the stock is at 70 and they would not sell at 80? So they are saying in a point of economic weakness they would sell lower than now. Sounds like buy high, sell low! In a cyclical stock why would it matter selling the company at differing prices based on the oil price?

 

 

Edited August 22, 2022 by scorpioncapital

[rolling]

5 hours ago, scorpioncapital said:

I don't understand the quote that if the oil price fell and he made a fair offer. Why would he not make a fair offer now? Would the company sell at 80 if the oil price fell and the stock was at 50? But today oil price is high the stock is at 70 and they would not sell at 80? So they are saying in a point of economic weakness they would sell lower than now. Sounds like buy high, sell low! In a cyclical stock why would it matter selling the company at differing prices based on the oil price?

 

 

My guess is Buffett probably would pay a premium to stock market if the oil was low but will not if it is high. 

[Spekulatius]

On 8/21/2022 at 1:57 PM, scorpioncapital said:

 

I see this too. Remember that Chevron wanted to buy Anadarko but lost out to Occidental. It woud be an interesting twist of fate that now they get it rolled up in Oxy if that were to happen. Seems like Berkshire becomes like the matchmaker and could own a very nice stable share in a diversified energy conglomerate at no doubt a very lucrative cost basis.

 

CVX is very stingy.They won’t buy OXY. Warren knows better than to mettle  and sitting in both sides of the table in a self dealing manner could reflect very badly, if he were directly involved.

Edited August 22, 2022 by Spekulatius

[Xerxes]

Didnt Buffett already blew off CVX when he invested in the preferred in Occidental, (i.e. thereby giving Oxy firepower to take over Anadarko