Warren Buffett made headlines last week after winning regulatory approval to buy up to half of Occidental Petroleum's (OXY -0.36%) stock. Buffett's company, Berkshire Hathaway (BRK.A -1.39%) (BRK.B -1.07%), has already amassed a more than 20% stake in the oil giant. 

However, Occidental Petroleum isn't the only oil stock Buffett is buying these days. Berkshire Hathaway is also gobbling up shares of Chevron (CVX -1.81%). Here's a look at Buffett's other favorite oil stock.

Dual oil bets

Warren Buffett's Berkshire Hathaway has been buying shares of Chevron hand over fist this year. The company more than quadrupled its position in the oil giant in the first quarter as oil prices soared following Russia's invasion of Ukraine. Berkshire continued to purchase shares in the second quarter, buying another 2.3 million, lifting the total to 161 million. That's about 8.2% of the oil giant's outstanding shares, worth over $25 billion at the recent stock price. 

That rivals Buffett's headline-grabbing investment in Occidental. Berkshire bought another 22 million Occidental shares in the second quarter, boosting its total to 188 million, or about 20.2% of its outstanding stock. Berkshire's Occidental position is currently worth more than $13.4 billion. In addition, Berkshire has a $10 billion preferred stock investment and stock warrants to buy another $5 billion in Occidental stock, which it acquired in 2019 to help fund the oil company's purchase of Anadarko Petroleum. 

What Chevron brings to the table

While Chevron and Occidental Petroleum are both oil companies, they differ considerably. Chevron is a globally integrated energy company, meaning it operates an upstream oil and gas production business, midstream pipeline assets, and downstream refining and chemicals operations. Meanwhile, Occidental Petroleum is primarily a U.S.-focused oil and gas producer with some midstream and marketing operations and a chemicals business. Thus, with Chevron, Buffett gains a more well-rounded energy company.

Another big difference is that Chevron has a much stronger balance sheet. Occidental Petroleum is still working to pay off the debt it took to acquire Anadarko Petroleum with Buffett's help in 2019. That's limiting its ability to return cash to shareholders in the near term. The other limiting factor is Buffett's preferred stock, which Occidental must start redeeming if it wants to return more than $4 per share in cash a year to shareholders via dividends and share repurchases. 

Conversely, Chevron has a low leverage ratio, giving it lots of flexibility to invest in its business and return cash to shareholders. It has increased its dividend for 35 straight years and plans to buy back up to $15 billion of its stock this year, which works out to about 1% of its shares outstanding each quarter. Thanks to its low leverage ratio, it can maintain that share buyback pace even if oil prices cool off. 

Finally, while both oil companies are making lower carbon investments, Chevron is taking a broader approach to the future of energy. Occidental's primary focus is carbon capture and storage (CCS), enabling it to produce lower-carbon oil. Chevron is also investing in CCS. In addition, it set targets to grow its renewable fuels business, renewable natural gas output, and green hydrogen production. Chevron spent more than $3 billion this year to acquire Renewable Energy Group, making it one of the country's leading producers of renewable fuels. These investments position Chevron to deliver the cleaner fuels the economy will need in the future. 

An excellent oil stock

It's easy to see why Buffett is buying up shares of Chevron. In many ways, it's an even better oil company than Occidental Petroleum because of its more diversified operations, stronger financial profile, and broader investments in lower carbon fuels. So, if you're considering following Buffett into the oil patch, don't overlook his other favorite oil stock because Chevron offers the same upside to oil prices with less risk than Occidental.