Warren Buffett has been buying shares of oil giant Occidental Petroleum (OXY -0.27%) hand over fist these days. His company, Berkshire Hathaway (BRK.A -0.27%) (BRK.B -0.46%), recently bought another 5.99 million shares, boosting its stake to 20.9%. Buffett took advantage of the recent slide in oil prices and Occidental Petroleum's stock to increase Berkshire's position in one of its top 10 holdings in late September. 

While oil is the primary focus of Buffett's bold bet on Occidental Petroleum, it's likely not the only thing he sees in the company. Most investors have overlooked that Occidental is a leader in carbon capture and sequestration (CCS), a process that captures carbon dioxide and sequesters the greenhouse gas underground. Occidental sees it as a $3 trillion to $5 trillion future global market opportunity. It could one day supply the company with as much earnings and cash flow as its current oil and gas business. 

That potentially massive market opportunity is leading the company to continue taking strides to capitalize on the upside it sees ahead. This strategy could give the oil stock the fuel to deliver big-time returns for Buffett in the coming years.

Securing another potential partnership

Occidental Petroleum has been securing partners to pursue a wide array of CCS opportunities. Its latest one is with Western Midstream Partners (WES 2.58%), a master limited partnership (MLP) it used to control. The partners signed a letter of intent to pursue opportunities to produce and deliver low-carbon intensity oil and gas products. 

Occidental will explore installing carbon capture facilities on its upstream oil and gas activities in the Texas Delaware and Colorado DJ Basins. Meanwhile, Western Midstream will explore installing carbon capture facilities on its natural gas plants and other major gathering and treating facilities. Western would also explore providing carbon dioxide transportation services from those capture facilities to Occidental's carbon dioxide delivery facilities. The companies intend to consider providing carbon management services to other emitters interested in reducing their emissions.

This partnership can potentially reduce the emissions of Occidental Petroleum's oil and gas production in the Delaware and DJ Basins, enabling it to market net-zero output. Meanwhile, it could supply Western Midstream with a stable source of cash flow as it transports carbon dioxide to Occidental's facilities.   

Building out a robust solution

That partnership is the latest in a string of agreements Occidental has signed this year to build its CCS business. It's creating an end-to-end solution that can manage the entire lifecycle of carbon.

In late August, the company started construction on the world's largest direct air capture (DAC) plant in Texas' Permian Basin. Once operational in 2024, the plant can capture up to 500,000 metric tons of carbon dioxide per year, with the potential to scale up to 1 million metric tons in the future. That's one of 70 DAC facilities the company intends to deploy worldwide by 2035. 

Occidental has already signed commercial contracts to support that first facility. Aerospace leader Airbus has agreed to purchase 400,000 tons of carbon removal credits over four years with an option to secure more volume in the future. Meanwhile, SK Trading will buy up to 200,000 barrels of net-zero oil for five years, supported by the carbon dioxide removed from the atmosphere in Occidental's first DAC. 

The company has also secured several other midstream partners to help it transport captured carbon to sequestration and utilization sites. It signed a deal with Enterprise Products Partners (EPD -0.08%) to explore a potential carbon dioxide transportation and sequestration solution for the Texas Gulf Coast. Enterprise would use a combination of new and existing pipelines to support the project. Meanwhile, Occidental signed a similar agreement with EnLink Midstream (ENLC -0.30%), focusing on the Mississippi River corridor from Waggaman to Baton Rouge, Louisiana. EnLink would also use new and existing pipelines to transport the captured carbon. 

Finally, the company has been locking up underground pore space suitable to sequester carbon. It has leased more than 30,000 acres of subsurface pore space from leading timberland REIT Weyerhaeuser (WY -0.83%) in Louisiana. Weyerhaeuser will continue to manage the forest while receiving fees for leasing the pore space to Occidental. The company signed a similar deal with Manulife Investment Management to lease 27,000 acres of timberland in Western Louisiana for a potential carbon sequestration hub. 

The overlooked upside potential of Buffett's top oil pick

Most investors see Buffett's continued buying of Occidental Petroleum stock as a bet on oil prices. While that's certainly the case, investors shouldn't overlook the enormous upside potential of the company's emerging CCS business. It could provide a big boost for Buffett's investment in the coming years if the market develops as Occidental anticipates.