Skip to main content

Berkshire Taking a Long View on Occidental


Occidental Petroleum - OXY - Stock Price & News | The Motley Fool

Occidental Petroleum has a fascinating corporate history.

It is not at the top rank of oil companies -- it is for example now only the 9th largest petroleum producer in Texas. But it once served as the corporate vessel of the late Armand Hammer and it has seen more than its share of drama. Hammer ran the company from 1957 until his death in 1990.

The latest drama with regard to Oxy happens to involve a contemporary businessman who is nearly as notorious as was Hammer in his prime: Warren Buffett, via Buffett's corporate vessel, Berkshire Hathaway.

Until the coronavirus started freezing everything up, Occidental was in the midst of the acquisition of a smaller petroleum company, Anadarko. Berkshire was financing that transaction. As part of this deal, Berkshire received a lot of warrants (in effect stock options -- there is a distinction between warrants and options but not one pertinent just now).  So, Berkshire receive these stock options, yet they are nearly worthless as things stand.

The options have a "strike price" of $62.50 per share. That is. if the value of Occidental stock should get above that strike price within the life of these options, then  Berkshire shall have a right to buy Occidental at the number. If OXY stock goes to, say $80 a share, then the value of holding a warrant with a $62.50 strike price will be at that moment $17.50. That isn't calculus, it's just arithmetic.

Likewise, if OXY stock is at $62.50 a share or anything less, and a warrant must be exercised at this moment or it will expire, then the value of the warrant is plainly $0.

What is the value of OXY stock right now? As of the last time I checked (while writing these words) it was below $14. So Berkshire's interest in OXY via these warrants is, in the relevant jargon, "deep underwater."  Prince Namor deep.

But Berkshire has more than a decade to exercise the option. So it is obviously betting that OXY's price has a major upward move ahead of it in that decade, and presumably it believes the acquisition of Anadarko will aid in that.

I have to say I admire this combination of strategic acumen, a long time horizon, and optimism.


Labels:

Comments

Post a Comment

Popular posts from this blog

A Story About Coleridge

This is a quote from a memoir by Dorothy Wordsworth, reflecting on a trip she took with two famous poets, her brother, William Wordsworth, and their similarly gifted companion, Samuel Taylor Coleridge.   We sat upon a bench, placed for the sake of one of these views, whence we looked down upon the waterfall, and over the open country ... A lady and gentleman, more expeditious tourists than ourselves, came to the spot; they left us at the seat, and we found them again at another station above the Falls. Coleridge, who is always good-natured enough to enter into conversation with anybody whom he meets in his way, began to talk with the gentleman, who observed that it was a majestic waterfall. Coleridge was delighted with the accuracy of the epithet, particularly as he had been settling in his own mind the precise meaning of the words grand, majestic, sublime, etc., and had discussed the subject with William at some length the day before. “Yes, sir,” says Coleridge, “it is a maj...
9 comments
Read more

Searle: The Chinese Room

John Searle has become the object of accusations of improper conduct. These accusations even have some people in the world of academic philosophy saying that instructors in that world should try to avoid teaching Searle's views. That is an odd contention, and has given rise to heated exchanges in certain corners of the blogosphere.  At Leiter Reports, I encountered a comment from someone describing himself as "grad student drop out." GSDO said: " This is a side question (and not at all an attempt to answer the question BL posed): How important is John Searle's work? Are people still working on speech act theory or is that just another dead end in the history of 20th century philosophy? My impression is that his reputation is somewhat inflated from all of his speaking engagements and NYRoB reviews. The Chinese room argument is a classic, but is there much more to his work than that?" I took it upon myself to answer that on LR. But here I'll tak...
17 comments
Read more

Recent Controversies Involving Nassim Taleb, Part I

I've written about Nassim Taleb on earlier occasions in this blog. I'll let you do the search yourself, dear reader, for the full background. The short answer to the question "who is Taleb?" is this: he is a 57 year old man born in Lebanon, educated in France, who has been both a hedge fund manager and a derivatives trader. He retired from active participation from the financial world sometime between 2004 and 2006, and has been a full-time writer and provocateur ever since. Taleb's writings for the general public began where one might expect -- in the field where he had made his money -- and he explained certain financial issues to a broad audiences in a very dramatic non-technical way. Since then, he has widened has fields of study, writing about just about everything, applying the intellectual tools he honed in that earlier work. As you might have gather from the above, I respect Taleb, though I have sometimes been critical of him when my own writing ab...
4 comments
Read more