Occidental Petroleum (OXY 0.37%) is one of the most popular oil stocks these days. Warren Buffett has a lot to do with that. His company, Berkshire Hathaway, has been buying shares of the oil giant hand over fist and now owns over a quarter of its outstanding stock.

Another big driver of Occidental Petroleum's popularity is its leading position in the prolific Permian Basin. However, it's not the only oil stock focused on that oil-rich region. Rival Diamondback Energy (FANG -1.48%) has quietly built up an impressive position in the Permian. That's one of the many reasons investors who are interested in Occidental should check out its regional rival.

Bolstering its already big position

Occidental Petroleum is the leading oil and gas producer in the prolific Permian. Last year, it produced 584,000 barrels of oil equivalent (BOE/d) from the region where it holds a massive 2.8 million net acres. That enormous land position gives it a large, untapped resource to grow its production in the future.

The oil giant is working to bolster its already robust position. It agreed to buy privately held CrownRock for $12 billion last year. The deal will add 170,000 BOE/d to its production. Meanwhile, it should boost its free cash flow by $1 billion annually, assuming oil averages $70 a barrel (it's currently over $80). The acquisition will also significantly increase Occidental's acreage position (CrownRock has 94,000 net acres), further extending its growth runway by adding over 1,700 undeveloped locations.

However, the deal adds some additional risk because Occidental is using debt to fund most of the transaction (it's assuming $1.2 billion of CrownRock's debt and issuing $9.1 billion of new debt). That's a concern since its debt-laden acquisition of rival Anadarko Petroleum in 2019 almost bankrupted the company when crude prices crashed the following year. While Occidental plans to quickly repay at least $4.5 billion of that debt within the next year through asset sales and cash flow (and has a very deep-pocketed investor in Warren Buffett), it's a risk to monitor.

Building a premier pure-play in the Permian

Diamondback Energy has a large-scale position in the Permian. It produces 463,000 BOE/d from the region across its 494,000 net acres. It focuses solely on this oil-rich area, whereas Occidental operates across several other areas and has midstream, chemicals, and lower carbon businesses.

Like its rival, Diamondback Energy is working to increase its scale in the region. It agreed to acquire privately held Endeavor Energy Resources in a $26 billion deal. The proposed transaction will create a premier pure-play Permian producer. The combined company will produce 816,000 BOE/d across 838,000 net acres.

Diamondback Energy also expects the transaction will be highly accretive. It anticipates capturing over $550 million in annual cost savings, driving its view that the deal will boost its free cash flow per share by about 10% next year. That significant per-share accretion comes even though Diamondback is issuing significant stock to fund the deal (It's paying about $18 billion in stock and $8 billion in cash) to preserve its financial strength. The company anticipates quickly repaying that debt by reducing its capital return (dividends and share repurchases) target from 75% to 50% of its annual free cash flow. It will use that additional retained cash to repay debt, ensuring it maintains a strong financial foundation after closing the deal.

In commenting on the transformational transaction, CEO Travis Stice stated: "This is a combination of two strong, established companies merging to create a 'must own' North American independent oil company. The combined company's inventory will have industry-leading depth and quality that will be converted into cash flow with the industry's lowest cost structure, creating a differentiated value proposition for our stockholders." That growing cash flow will enable the company to increase its capital returns once it hits its leverage target.

A potentially better option

Occidental Petroleum has caught Warren Buffett's attention in part because of its strong position in the Permian. That region should help fuel its growth in the coming years, especially following the boost it will get by acquiring CrownRock.

However, Diamondback Energy has also built a premier position in the Permian, which it's enhancing through its acquisition of Endeavor. It's taking less financial risk to complete that very accretive deal that will further fuel its growth. That makes it a potentially more appealing investment option for those currently contemplating whether they should follow Warren Buffett into Occidental.