Oil giant Occidental Petroleum (OXY -1.59%) has caught the eye of Warren Buffett. His company, Berkshire Hathaway (BRK.A 0.50%) (BRK.B 0.29%), has already purchased a more than 20% stake in Occidental. Meanwhile, it recently received regulatory approval to buy up to half of the oil company's outstanding shares. 

Occidental isn't Buffett's first foray into the oil patch. He once held a sizable position in ConocoPhillips (COP -0.93%). However, instead of going back to the well and buying an oil company he already knew quite well, Buffett has opted for Occidental this time around to play the boom in oil prices. Here's a look at what it has that's missing at ConocoPhillips. 

A head-to-head comparison

ConocoPhillips is one of the world's largest exploration and production (E&P) companies based on output and reserves. It operates in 13 countries and has a diversified asset portfolio. It produced an average of 1.72 million barrels of oil equivalent per day (BOE/D) in the second quarter. 

Occidental Petroleum is also an international energy company with assets in the U.S., the Middle East, and North Africa. It's one of the largest producers in the U.S., with leading positions in the Permian and DJ Basins and the offshore Gulf of Mexico. It produced 1.15 million BOE/D during the second quarter. Occidental also has a midstream and marketing segment and a chemicals subsidiary. The company also formed a low carbon ventures unit to advance leading-edge technologies to grow its business and reduce emissions. 

The missing pieces

The big difference is that Occidental Petroleum has more business diversity. ConocoPhillips used to be an integrated energy company. However, it spun off its refining, midstream, marketing, and chemicals assets into Phillips 66 in 2012 to focus on growing its E&P business. Now its fortunes rise and fall with oil and gas prices.

While Occidental Petroleum isn't a truly integrated oil company since it doesn't own refining assets, it does capture more of the energy value chain than ConocoPhillips. Its midstream segment provides flow assurance for its volumes and helps maximize the value of its oil and gas. Meanwhile, its chemicals subsidiary uses products derived from oil and gas to create higher-valued products. These operations also provide Occidental with lower volatile earnings that can help mute some of the sting from oil price volatility.

Another major differentiator is Occidental's low carbon ventures subsidiary. The company formed the dedicated business unit in 2018 and has made several investments to develop and commercialize carbon capture and storage technology, develop new products derived from captured carbon, and reduce its carbon emissions profile. As part of its investments, the company formed 1PointFive to commercialize and deploy large-scale direct air capture (DAC) technology. Occidental is investing upwards of $1 billion to build a large-scale DAC system in the Permian Basin.

Occidental sees enormous market potential in carbon capture. The company estimates it could eventually become a $3 trillion to $5 trillion global market. Furthermore, the company believes it could generate a similar amount of earnings and cash flow from carbon capture as it currently does from producing oil and gas. It has already started to monetize its investment. Airbus purchased 400,000 tons of carbon removal credits with the option for more in the future. Occidental also agreed to sell 200,000 barrels of net zero oil per year to SK Trading International.    

While ConocoPhillips is making investments to reduce its emissions and develop future low-carbon energy businesses, including carbon capture and hydrogen, it's not as far along as Occidental, and it could fall behind Occidental, which is emerging as a leader in carbon capture. 

Buffett's bet on Occidental appears to be on more than oil prices

Warren Buffett could have picked any oil stock to make a wager on higher oil prices, including going back to the well with ConocoPhillips. Instead, he selected Occidental Petroleum, which offers upside to crude prices and the future of the energy market via its carbon capture investments. That makes it stand out as a potentially better option for investors seeking exposure to the upside of oil prices from a company with a more visible path to sustainability.