What's the most important geographical hub for energy companies? It's Texas. The Lone Star State is home to many of the world's biggest oil and gas producers, pipeline operators, and more.
If you wanted to narrow the map even further, look around Houston, Texas. Several energy leaders are headquartered in the metropolitan area, including Occidental Petroleum (OXY 0.65%). No, Oxy doesn't boast the largest market cap among its peers. But is this Texas-based company a no-brainer buy for energy investors?
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Oxy's big pluses
Warren Buffett is arguably one of the best people to consult if you're looking for reasons to consider buying shares of Occidental Petroleum. He has led Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) in building a 27% stake in the oil company. Berkshire also owns warrants that allow it to add to that position.
Buffett wrote to Berkshire Hathaway shareholders last year that Occidental is one of only a handful of stocks that he expects the conglomerate to "maintain indefinitely." The legendary investor stated, "We particularly like its vast oil and gas holdings in the United States."
Oxy gets a lot of bang for the buck from those oil and gas assets, too. As a case in point, the company's average six-month cumulative oil production in the Delaware Basin was 45% higher than the average operator.
While Buffett focused on Occidental's importance to U.S. energy production, the company has significant operations outside the country as well. In May, Oxy signed a 15-year contract extension with Oman that will allow it to increase production in the Middle Eastern country.
NYSE: OXY
Key Data Points
A lottery ticket thrown in
In his letter to Berkshire shareholders, Buffett also highlighted Occidental Petroleum's pioneering work in carbon capture and storage (CCS) technology. He acknowledged, though, that "the economic feasibility of this technique has yet to be proven."
Buffett was right about Occidental's leadership in CCS. The company's Carbon Engineering subsidiary is at the forefront of direct air capture (DAC) technology that literally sucks carbon dioxide from the atmosphere. Its 1PointFive subsidiary is developing ways to use Carbon Engineering's DAC technology at industrial scale.
Oxy's Stratos DAC facility in the Midland-Odessa area of Texas is slated to begin operations by the end of this year. It will be able to extract roughly 500,000 metric tons of carbon dioxide from the air at full capacity. This carbon dioxide will then either be stored underground or used in enhanced oil recovery. Several major corporations have already purchased carbon credits that will be generated by Stratos, including Amazon (AMZN +0.38%), AT&T (T 2.18%), and Microsoft (MSFT 0.10%).
CCS is almost like a lottery ticket thrown in with the deal when you invest in Occidental. If the technology fulfills its potential, the company could have a huge new source of revenue. It could also help alleviate many of the climate concerns associated with oil and gas production.
No-brainer buy?
Does all of this make Occidental Petroleum stock a no-brainer buy? Not necessarily.
The company's fortunes still largely depend on oil prices. In early 2024, Occidental CEO Vicki Hollub predicted a supply shortage in the oil market by the end of 2025. She has since backpedaled from that position somewhat but still thinks that oil prices will rise beyond 2026.
Hollub said in the company's second-quarter earnings call, "We believe that carbon capture and DAC, in particular, will be instrumental in shaping the future energy landscape." It remains to be seen if she will be proven right.
Last, but not least, Occidental isn't the cheapest oil stock on the market. Its forward price-to-earnings ratio is higher than several of its peers, including two fellow companies in the Houston area -- ExxonMobil (XOM +1.23%) and ConocoPhillips (COP +1.49%).
When all factors are considered, I don't think Occidental stock is a no-brainer buy right now. However, I think the odds are more in its favor than against it. This Texas-based stock could be a winner for investors over the long run.
