Occidental Petroleum Co. (NYSE: OXY) stock and Warrant Buffett are often used in the same sentence these days. Even as Warren Buffett has raised his cash holdings in Berkshire Hathaway Inc. (NYSE: BRK.A) (NYSE: BRK.B), Occidental was one of the few stocks he has upped his stakes in.
As Occidental shares fell 30% off their highs, Buffett acquired 763,017 more shares on Feb. 7, 2025, upping its stake to 28.2% of the company, marking the sixth highest weighting of 4.63% in Berkshire’s portfolio.
That is a $12.3 billion stake in 265 million shares. The oil and energy sector has been recovering in the wake of the S&P 500 sell-off and is faring better, as tracked by the Energy Select Sector SPDR ETF (NYSEARCA: XLE), trading down just 1% as of March 28, 2025. Here are some reasons for his inclination to buy shares on the dips.
Buffett Believes Occidental Is a Long-Term High Margin and Cash Generating Oil Play
Berkshire Hathaway has been accumulating shares of Occidental since 2019. The Oracle of Omaha clearly sees a fundamentally strong business with high net margins of 11.6% and 13.7% free cash flow generated from Occidental's upstream drilling operations.
Earnings have also compounded 35% annually for the past five years. This factor aligns with Buffett’s proclivity for cash-generating businesses with reliable revenue streams.
Buffett also took on a $10 billion preferred stock deal in 2019 with Occidental that helped fund its $55 billion acquisition of Anadarko (which includes the assumption of its debt) in 2019.
While the stock pays a 1.97% annual dividend, the preferred stock pays an 8% annual dividend and also has warrants to buy up to 83.9 million shares at $59.62 per share.
Warren Buffett Has High Confidence in Management
[content-module:Forecast|NYSE:OXY]Warren Buffett has gone on record and on TV praising CEO Vicki Hollub. In many instances during TV interviews, he has said, “We like Vicki Hollub” in a 2023 CNBC interview and “She’s running the company the right way” in a 2022 CNBC interview. Buffett has praised her leadership and solid strategic moves, like the Anadarko acquisition. Hollub is the first woman to helm a United States oil and gas company.
Buffett also likes that Occidental has been paying down debt.
While Occidental aggressively bought back shares with its $3 billion stock buyback program from 2022 through 2023, it has toned down the repurchasing to further prioritize paying down its debt, especially after its $12 billion Crown Rock acquisition.
Vicki Hollub: Environmentalist and CEO Drills Carbon Capture Profit Opportunity
Vicki Hollub has stated that she's an environmentalist who happens to be the CEO of an oil and gas company. They embarked on capturing carbon emissions from their drilling sites before they entered the atmosphere as their sustainability plan, which led to the formation of their carbon capture business.
The company has invested in carbon capture, utilization and storage (CCUS) with its direct air capture (DAC) technology and the $1.1 billion acquisition of Carbon Engineering.
Proof of Concept Comes to Life in 2025: Stratos
Occidental started construction of its first DAC plan, Stratos, in 2023. There has been so much enthusiasm that they’ve been signing deals even before construction is completed. It is finally set to launch in 2025 to generate carbon dioxide removal (CDR) credits, which are a type of carbon credit that can be earned for removing carbon dioxide (CO2) per one metric ton of CO2 equivalent.
This serves two-fold: to maintain their sustainability initiatives and to generate a new income stream by selling carbon credits in private deals and voluntary markets. Occidental’s carbon credit deals are already in place through its 1PointFive subsidiary with Microsoft Co. (NASDAQ: MSFT), Airbus SE (OTCMKTS: EADSY) and Amazon.com Inc. (NASDAQ: AMZN) with locked-in six- to 10-year CDR contracts generating over a billion dollars. Occidental plans to open 100 more DAC plants in the next decade.
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