Occidental Petroleum (OXY -0.15%) is a unique oil stock. It's not a fully integrated energy company like Exxon or Chevron since it doesn't operate refineries. However, it's not a pure-play independent producer, either, since it has three other business segments (chemicals, midstream, and lower carbon).

That diversification paid off in 2023 as the company's chemicals segment had a strong year. It showcases the company's differentiated strategy, which will become a more apparent growth catalyst in the coming years.

A strong year despite the turbulence

Occidental Petroleum recently reported its fourth-quarter and full-year results and ended last year on a strong note. Its production averaged over 1.2 million barrels of oil equivalent per day (BOE/d) and exceeded the midpoint of its guidance range, despite a third-party outage in the Gulf of Mexico. It also was its highest quarterly total in more than three years. This strong operational performance helped fuel solid operating cash flow of $3.2 billion and $1.1 billion in free cash flow in the period.

The company's oil and gas segment is its biggest moneymaker. Occidental reported $6.2 billion of income from oil and gas production last year (80% of its total segment earnings).

However, there's a downside to having so much exposure to volatile commodity prices. Due to lower prices last year, Occidental's oil and gas earnings were more than 50% below 2022's total.

While the company's oil and gas segment had a down year, its chemicals segment had a very strong one. That business generated over $1.5 billion in reported income, nearly tied for its second-best year. While this segment's earnings were also down from their peak in 2022 due to lower commodity prices, it helps provide the energy company with some earnings diversification while enhancing its growth profile.

Building a more sustainable business

Oil and gas production will continue to be the most meaningful contributor to Occidental's earnings and cash flow in the near term. That's especially true after the company agreed to buy fellow oil and gas producer CrownRock for $12 billion. That deal will increase the company's production by 170,000 BOE/d while boosting its free cash flow by $1 billion in the first year (assuming oil averages $70 per barrel).

However, oil and gas aren't the company's only growth drivers. Occidental is also investing heavily to expand its chemical operations.

The company spent $230 million on capital projects last year and anticipates investing another $450 million this year and $425 million in the 2025 to 2026 time frame. These investments to modernize and expand its plants will increase its cash flow through improved margins and higher product volumes.

Occidental anticipates an annual earnings uplift of $300 million to $400 million starting in 2026 as it completes its current slate of projects. That should make its chemicals business an even more important future contributor.

On top of that, the company is building a low-carbon energy platform. It's currently constructing its Stratos direct air capture (DAC) project in the Permian Basin, which should begin commercial operations in the middle of next year. It secured Blackrock as its joint venture partner on the project, which will capture carbon dioxide from the atmosphere.

Occidental also closed its acquisition of Carbon Engineering, the company behind the DAC technology. That deal will enhance its ability to develop additional DAC facilities, which should drive earnings and cash-flow growth as they come online. Occidental believes it could eventually make as much money by providing decarbonization services as it currently earns from producing oil and gas.

Not your average oil stock

While Occidental Petroleum currently makes the majority of its money producing oil and gas, that might not be the case in the future. The company is investing heavily to grow its already meaningful chemicals business and build a lower carbon energy platform.

These investments should start accelerating the company's earnings growth over the next few years. They could create a lot of value for Occidental investors in the future, making it a compelling oil stock investment.