(Reuters) – Warren Buffett’s Berkshire Hathaway Inc could soon see a lift to its bottom line after changing its accounting for its big stake in Occidental Petroleum Corp.
In its quarterly report on Saturday, Berkshire said it adopted the equity approach to accounting for its 20.9% stake in Occidental, which is price greater than $14 billion.
Berkshire plans, starting within the fourth quarter, to report its share of the Houston-based company’s results with its own, with a one-quarter lag.
Accounting rules normally require the equity method when one company’s stake in one other reaches 20%, reflecting an assumption that the primary company might exert significant influence.
Berkshire has signaled no intention to do this at Occidental, but in August won U.S. Federal Energy Regulatory Commission permission to purchase as much as 50% of the oil company’s common stock.
The regulator called the rise “consistent with the general public interest,” after Omaha, Nebraska-based Berkshire said it will not undermine competition or boost consumer costs.
Analysts on average expect Occidental to post greater than $10 billion of profit this yr based on Refinitiv I/B/E/S, after oil prices rose following Russia’s invasion of Ukraine.
Occidental’s stock price has greater than doubled in 2022.
Berkshire also owns $10 billion of Occidental preferred stock and has warrants to purchase 83.9 million common shares for $5 billion, or $59.62 each, which is 23% below the present $73.27 stock price. The 20.9% stake doesn’t include these holdings.
“Reporting its proportional share of earnings will reduce Berkshire’s price-earnings multiple, making its stock look cheaper,” said Jim Shanahan, an analyst covering Berkshire at Edward Jones & Co.
Berkshire uses the equity method for its 26.5% stake in packaged food company Kraft Heinz Co and 38.6% stake in truck stop operator Pilot Travel Centers.
Kraft Heinz is controlled by Berkshire and Brazil’s 3G Capital, and its board includes three directors from Berkshire. The Pilot stake is anticipated to grow to 80% early next yr.
Berkshire doesn’t use the equity method for its 20.3% stake in American Express Co, reflecting its 1995 agreement with the Federal Reserve board of governors to maintain the stake passive.
Some investors and analysts have said Berkshire could eventually buy Occidental, diversifying its energy portfolio.
Berkshire paid $26.5 billion in 2010 for the BNSF railroad, after earlier amassing a 22.6% stake.
(Reporting by Jonathan Stempel in Recent York; editing by Diane Craft)
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