Warren Buffet It never stops making huge profits. The investment he made in an oil company in 2019 is giving him large dividends after a strong rise in his shares.
This comes against a favorable backdrop for Occidental Petroleum (OXY), which beat second-quarter adjusted earnings and revenue estimates this week, benefiting from higher crude oil prices.. In this way, the company announces a resumption of a share buyback program.
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According to information from the same balance, The oil company posted a net income attributable to common shareholders for the second quarter of 2022 of $3.56 billion or $3.47 per share compared to a loss of $97 million or $0.10 per share. in the previous year.
In turn, total sales for the quarter were $10.7 billion above the US$6.01 billion of the previous year. Analysts had expected revenue of $10.26 billion for the quarter.
HOW MUCH WAS EARNED AND HOW WARREN BUFFETT HAD INVESTED
It so happens that Berkshire Hathaway, the company that has run the “Oracle of Omaha” for almost 60 years, Earlier this year, it acquired 91.2 million shares of oil giant Occidental Petroleum (NYSE:OXY), worth $5.1 billion.
After occupying a marginal place in Berkshire’s public stock portfolio, Occidental is in seventh place. in the list of companies ordered according to market valuation.
Berkshire Hathaway now has a 19.5% stake in the oil company. In the case of increasing this holding by 0.5%, Buffett’s company could potentially report its proportional share of Occidental’s profits. This would imply that, through the equity method of accounting, the finance company’s annual earnings could add billions of dollars more to its balance sheet.
BUFFETT AND A LONG-TERM BET
It should be noted that this new victory for buffett does not take place in the traditional way of doing business -which consists of buying shares of companies with high revaluation capacity and retain them until you get an interesting profit.
In the case of Western Petroleumthe agreement for the purchase of shares was carried out through the delivery of a loan for $10 billion that the company used to acquire Anadarko -a hydrocarbon company- in 2019 for $38 billion.
The agreement to lend the money included a Berkshire preferred stock purchase clause that required Occidental pay dividends of 8% per year -which is equivalent to $200 million each quarter based on borrowed money-.
And while at the time it seemed like an absurd long-term gamble –mainly because the world seemed to be going towards the disuse of oil in pursuit of more sustainable energies-, Buffett assured that he trusted more in the oil market of the future than the current one.
The weather, as on many other occasions, ended up proving him right, with oil falling to record levels in 2020 after the start of the coronavirus pandemic, slowly rising during 2021 and rising again in 2022 with the crisis represented by the war in Europe.