(Reuters) - Warren Buffett's Berkshire Hathaway (NYSE:BRKa) Inc will put $10 billion (£7.7 billion) behind Occidental (NYSE:OXY) Petroleum Corp's bid as it tries to see off competition from Chevron Corp (NYSE:CVX) to buy smaller rival Anadarko Petroleum Corp (NYSE:APC).
Occidental and Chevron Corp are locked in the biggest oil-industry takeover in years as they eye Anadarko's prized assets in West Texas' huge Permian shale oil field.
Anadarko on Monday agreed to start negotiations with Occidental on its $38 billion cash-and-stock bid, compared with Chevron's offer of $33 billion.
Analysts said Buffett's seal of approval supports Occidental's push to get the deal done but comes at a high cost.
Berkshire's preferred stock will accrue dividends at 8 percent per annum, compared with about 5 percent yield on common equity and 4 percent on term debt, Tudor Pickering Holt analyst Matthew Portillo said.
Berkshire Hathaway will get 100,000 preferred shares and a warrant to purchase up to 80 million shares of Occidental at $62.50 apiece in a private offering.
"For Occidental shareholder, our view is this is a fairly expensive cost of financing for the transaction even though it carries a kind of nice headline of having Berkshire Hathaway participate in the potential financing here."
Shares of Occidental were down 3.9 percent at $57.76, while those in Anadarko were down about 1.6 percent at $71.71. Chevron shares were up 3.5 percent at $121.81.
Under the terms of the merger agreement, Chevron has four days after being notified by Anadarko's board to respond with a counter-offer. If Anadarko proceeds with a sale to Occidental, it will have to pay Chevron a $1 billion deal breakup fee.
Occidental and Chevron, two of the largest oil and gas producers in the Permian by production volumes, argue they can best squeeze more oil from Anadarko's 240,000 acres in the area.
The two companies control land adjacent to Anadarko's properties and expect a deal will add deposits that can produce supplies for decades using low-cost drilling techniques.
Berkshire's backing for Occidental's bid comes after analysts' and investors widely perceived Anadarko's return to negotiation as a breakthrough in Occidental Chief Executive Vicki Hollub's two-year effort to buy the company.
Berkshire's investment is contingent upon Occidental entering into a deal with Anadarko and completing the proposed acquisition.