Warren Buffett hasn't said much about Occidental Petroleum (OXY) in recent months.
And when the "Oracle of Omaha" takes the stage to address shareholders at Berkshire's annual meeting on Saturday, investors will be focused on not only what he says about energy, but also on whether Occidental will become the company's latest outright purchase.
Asked about his investment at last year's meeting, Buffett said, "What [Occidental CEO] Vicki Hollub was saying made nothing but sense... And I decided that it was a good place to put Berkshire's money."
Buying an oil stock isn't an outlier for Buffett and his team. According to Berkshire's most recent 13F filing, Chevron (CVX) was Berkshire's third largest holding at the end of last year, with the company's position valued at more than $29 billion at today's prices.
Occidental has quickly risen into the top 10 on that list, too, with Berkshire's stake valued at $12.7 billion.
“There are some characteristics of this [Occidental] investment that are consistent with what we've seen historically from Warren Buffett. That it's a value name,” James Shanahan, equity analyst at Edward Jones, told Yahoo Finance.
"It fits this other criteria too, where he likes that the business generates a lot of cash flow and that they buy back stock," he added.
How far Buffett takes this investment is one of the big questions hanging over the company ahead of this weekend's shareholder meeting.
In August of last year, the company received regulatory approval to purchase up to 50% of Occidental common stock. A play for the entire company isn't out of the realm of possibility Shanahan said.
Berkshire executive Greg Abel, heir apparent to Warren Buffett, is also chair of subsidiary Berkshire Energy Holdings. "If [Buffett] were to ultimately acquire OXY, which he may do, it would be complementary to his other activities of Berkshire Hathaway Energy," said Shanahan.
"And I think that potentially with Greg Abel taking over as CEO of Berkshire, [Hollub] could be a candidate to run Berkshire Hathaway Energy at some point."
Buffett's influence on energy markets
Shanahan, one of the few Wall Street analysts who covers the sprawling Berkshire Hathaway empire, calculates Berkshire's energy investments account for about 13% – or $48 billion — of Berkshire’s roughly $360 billion equity portfolio. Shanahan maintains a Buy rating on the stock.
The conglomerate's entire balance sheet holds a total of about $950 billion in assets, including its insurance operations, wholly-owned subsidiaries, and fixed-income investments.
And Buffett's bets in the oil and gas industry have brought additional confidence to bulls in the space.
"I was sort of bolstered, as somebody who thinks we have at least 15 or 20 years of fossil fuels being widely dominant," Iaccino told Yahoo Finance. "I thought his midstream infrastructure investments were some of the things that were more influential."
Berkshire has since closed both of these positions.
The ties between Buffett and Occidental Petroleum go back to April 2019, when Berkshire Hathaway backed Occidental's proposed bid for Anadarko Petroleum with a $10 billion commitment. The deal was pivotal in the company winning its pursuit of Anadarko against Chevron's rival offer.
Buffett's cash infusion gave Berkshire 100,000 preferred shares and the right to buy up to 80 million common shares of the company at $62.50. At the time, Occidental shares were trading just shy of $60.
The stock tanked at the onset of the pandemic, however, as oil prices collapsed amid fears about the global economy. Occidental stock rallied massively last year as oil prices surged and Berkshire has continued buying.
"They've been pretty disciplined that if you look at all the data Berkshire doesn't seem to have a lot of interest in buying the stock above $60 per share," said Shanahan, who calculates the cost basis comes in around $54.90.
"What they're going to be able to do is sell carbon capture credits — ultimately sell oil, like net zero oil, at a premium to the market," Shanahan said.
In March, Berkshire scooped up another 3.7 million shares of Occidental. Berkshire's ownership percentage also continues to go up each time Occidental buys back its own shares.
Last year's elevated oil prices were a boon for energy companies.
Occidental soared a whopping 117% in 2022 amid historically elevated energy prices, closing at a 52-week high of $75.97 on November 7. The Energy sector (XLE) rose more than 50% in 2022 amid the stock market's worst year since 2008.
Shares have since come off those levels as oil trends lower amid growing banking and recession concerns. Occidental shares are down roughly 5% year-to-date, compared to the S&P 500 index’s 1% gain.
In February, Occidental Petroleum announced record net income for 2022 and a new $3 billion share repurchase authorization along with a 38% dividend hike.
Josh and Ines are reporters for Yahoo Finance.