Many investors aspire to purchase a single stock that generates substantial returns. Some stocks have indeed produced significant wealth for their investors. For instance, a $1,000 investment in Warren Buffett’s Berkshire Hathaway 45 years ago would now be valued at an impressive $2.7 million, representing a transformative amount for most individuals.
A fundamental component of Buffett’s success in transforming Berkshire into a wealth-generating enterprise has been investing in high-quality companies at reasonable prices. One stock favored by Buffett and his team is Occidental Petroleum. The question arises whether this oil stock can emulate Berkshire’s success and provide substantial returns for its investors.
Occidental Petroleum stands as one of Berkshire’s major holdings. The company owns nearly 265 million shares of this oil behemoth, equating to 28.2% of its outstanding shares and valued at $10.5 billion. This makes it Berkshire’s sixth largest holding, comprising 4% of its investment portfolio.
In his 2024 shareholder letter, Buffett described Occidental Petroleum as a long-term holding, akin to Coca-Cola and American Express. He outlined three main reasons for this perspective: its extensive oil and gas resources in the United States, its leadership in carbon capture initiatives, and the strength of its management team, headed by CEO Vicki Hollub.
Occidental Petroleum possesses a substantial amount of low-cost oil and gas resources across the United States. The firm holds drilling rights spanning 9.3 million net acres in regions such as the Rockies, Permian Basin, and the Gulf of Mexico. These resources are expected to support Occidental Petroleum’s production growth for many years.
The most significant question concerns the future viability of oil and gas as primary fuel sources, given the increasing focus on climate change. If demand continues to rise and prices remain favorable, Occidental’s oil and gas operations may continue to enhance shareholder value.
Additionally, Occidental Petroleum is endeavoring to mitigate the environmental impact of its operations by investing heavily in carbon capture and sequestration (CCS). The company is constructing the world’s largest direct air capture facility to extract carbon dioxide from the atmosphere and store it underground. There is potential for more such facilities and storage hubs in the future.
Occidental anticipates that CCS could evolve into a $3 trillion to $5 trillion global industry. CEO Vicki Hollub believes that earnings and cash flow from CCS could eventually match those from oil and gas production.
Moreover, Occidental is expanding its chemical business, OxyChem, with projects expected to generate about $325 million in annualized earnings from 2026 onward. The chemicals business could continue to expand, driven by increasing global demand for petrochemicals.
Occidental Petroleum’s ample oil and gas resources are likely to support its growth in fossil fuel production for a number of years, assuming demand persists. Furthermore, the company envisions substantial growth in its CCS business and expects to continue expanding OxyChem over the coming years.
These growth drivers suggest that Occidental has the potential to significantly enhance shareholder value in the future. Nevertheless, uncertainty about the longevity of oil and gas and the yet unproven nature of CCS technology imply that while Occidental Petroleum could be a strong investment, achieving life-changing returns would require everything to align perfectly.
