Buffett Bets Big On Occidental

Buffett Bets Big On Occidental

Warren Buffett has been snapping up stock in Occidental Petroleum since 2019, garnering a 20% stake in the company that’s worth about $180 million. The move has made some wonder if Buffett plans to buy Occidental outright as he did with the Burlington Northern Santa Fe railway corporation, but others believe it could instead be a very smart investment in renewable energies, contends an article in Forbes.

While Occidental has produced oil and gas in the Permian Basin in Texas for many years, they now have plans to establish at least 70 carbon capture and storage (CCS) ventures there by 2035—a lofty goal, the article reports. One of Occidental’s spinoff companies, 1PointFive, is partnering with Canadian company Carbon Engineering to build a direct-air-capture facility in the Permian basin with the ability to suck about 1 million tonnes of carbon dioxide every year, and then inject that carbon dioxide into the ground to draw out residual oil from old oilfields. That residual oil would be considered carbon-neutral since much of the injected CO2 would stay underground. Construction is due to begin this year, and Occidental is aiming for as many as 135 projects in the basin if the economy allows. While the 70 million tonnes of CO2 that would produce is only a tiny drop in the bucket of about 10 billion tonnes needed every year in order to get to net-zero emissions by 2050, it’s a step in the right direction. Buffett’s move into Occidental could be an investment in CCS because he believes it’s a vital component of climate correction, or he could be hedging for the hefty government subsidies that will be given to companies like Occidental if they opt to move towards CCS.

Exxon Mobil, along with 10 other companies, also has massive plans to capture CO2 emissions in the Houston area and store them offshore along the Gulf Coast, in hopes to create a CCS hub in Houston, which still reigns supreme as the oil and gas capital of America.  The project’s goal is to store 50 million tonnes a year by 2030, and 100 million tonnes by 2040, the article details.

But while the world has enormous, long-term storage capacity for CCS, it’s an expensive undertaking, and it’s still running far behind the overproduction of oil, gas, and coal from fossil fuel companies.  Combining the two industries would be unwieldy; it’s much more logical for fossil fuel companies to simply reduce their production and shift toward renewable energies instead.

Of course, Buffett may be taking up his position in Occidental because he sees the chance for growth in the CCS industry, especially with a slew of initiatives coming down the pike from the US Department of Energy. That will make Occidental even more profitable, particularly in the short-term. But the size and scale of CCS may make it too expensive to generate a profit in the long run, the article concludes.

See how Occidental Petroleum Corporation scores on Validea’s Factor Report and through our Guru Models.