Warren Buffett Loves Occidental Petroleum for a Reason That's Not Showing Up in the Numbers -- Yet

If you own a stake in Occidental Petroleum (OXY -0.15%), then you probably already know Warren Buffett's also a fan. Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) owns nearly 244 million shares of the oil and gas giant... a position that's been steadily added to since 2019 and is now worth a total of $14.5 billion. Buffett even mentioned Occidental's "vast oil and gas holdings" in his recent annual letter to Berkshire shareholders, underscoring the idea that the company is making adequate investments in its future supply of crude and natural gas.

However, there's something else Buffett said about Occidental Petroleum in his recently penned letter that deserves a closer look. He added that Berkshire Hathaway's a fan of the company's "leadership in carbon-capture initiatives [even] though the economic feasibility of this technique has yet to be proven."

The comment begs a couple of questions, the first of which is simply: What the heck is carbon capture?

What's carbon capture?

You likely know that fossil fuels like oil, coal, and to some extent even natural gas aren't exactly environmentally friendly. Namely, using them creates by-products like carbon dioxide (or CO₂), which can contribute to global warming.

Just as the name suggests, carbon capture prevents these carbon-based molecules from floating freely in the atmosphere and/or onto the ground.

It's easier said than done. That's why it hasn't really been done to any meaningful commercial degree.

In that technology begets more technology, however, the ability to trap carbon dioxide is not only improving, but approaching the point of being cost-effective. That's important too, since many of the world's top polluters will soon be paying for solutions allowing them to keep their net carbon footprint under control.

And none too soon. The United States' federal government has set a goal of becoming a net-zero emissions country by 2050. That's ambitious to be sure. But it's not out of the realm of possibility if we push the proverbial envelope.

Enter Occidental Petroleum.

Occidental's carbon capture projects

Occidental Petroleum is one of the developers pushing that envelope. It may be pushing it more than any other organization, in fact.

Take its so-called STRATOS project in Ector County, Texas as an example. Although it's not yet up and running, BlackRock has committed $550 million of its own money to the joint venture that is expected to capture up to 500,000 tons of CO₂ directly from the atmosphere every year beginning in mid-2025. Amazon and Airbus are just a couple of the companies that have already signed up as eventual paying customers when they're required to reduce their carbon footprint.

That's just the beginning, though. CEO Vicki Hollub feels that this atmospheric carbon capture tech could be licensed out to as many as 1,000 paying customers needing such tools to meet carbon emission requirement mandates in the future.

Better still, this captured CO₂ doesn't simply need to be captured, but disposed of in a way that the world will never see it again. It can be utilized in a variety of ways. One of these ways is injecting into existing oil wells to extract more oil than would otherwise be drawn out using more typical pumping methods. This enhanced oil recovery (or EOR) technique can lower a well's overall emissions by roughly 70%.

This isn't mere theory based on a small-scale experiment, either. Occidental is already injecting CO₂ into about 6,000 wells.

The company is also tinkering with other ways to use this captured CO₂. For instance, it's working with a biotech firm to figure out ways to use it to create industrial chemicals and polymers that are not only needed, but ecologically sound. This work is still in its infancy, but it does hold promise.

Occidental Petroleum's opportunity is for you too

As for the scope of the opportunity, Global Market Insights believes the worldwide carbon capture and storage market will swell from around $6 billion in 2022 to more than $35 billion in 2032. That's an annualized growth rate of more than 20% between now and then, jibing with an outlook from Bloomberg New Energy Finance. Occidental won't win all of this business, but even just winning a healthy portion of it would still be a meaningful bump to its current yearly top line of just under $30 billion.

Perhaps just as important to Occidental Petroleum, however, is that these carbon capture initiatives promise to help crude oil remain far more marketable for far longer than many thought would be the case just a few years ago. Indeed, the energy sector could look forward to a few more decades of respectable demand, if only because the shift toward more renewable sources of energy is so slow-moving and expensive.

The hard part? Waiting. As Buffett also noted, "[T]he economic feasibility of this technique has yet to be proven." And to this end, Occidental doesn't have a revenue-bearing carbon capture business up and running yet.

Buffett's assessment arguably understates just how close this tech is to being economically viable, though. Occidental's developmental projections suggest that the current cost of around $500 to capture one ton of ambient carbon could be as much as halved within a decade with the development of better filters, ongoing design refinements, more scale, and the sociopolitical will to make it happen. Moreover, the prospect of de-carbonizing the fossil fuel that we're still going to desperately need for many more years seems like it's worth the wait. Warren Buffett certainly seems to think so, anyway.

And on a more philosophical note, kudos to the Oracle of Omaha for recognizing that doing something good for the planet can also be a good business opportunity.