Occidental Petroleum(NYSE: OXY) currently makes most of its money producing oil and gas. However, the energy company is working to build out a new growth platform that could be a major driver starting in 2025. That bodes well for Warren Buffett, whose Berkshire Hathaway(NYSE: BRK.A)(NYSE: BRK.B) owns a large position in the oil stock.
Here's a look at why 2025 could be a big year for this top Warren Buffett stock.
Nearing an inflection point
In August 2022, Occidental Petroleum subsidiary 1PointFive started constructing the world's largest direct air capture (DAC) plant in the Texas Permian Basin. The Stratos facility will directly capture 500,000 metric tons of carbon dioxide from the air each year. The company can then sequester it in underground saline formations or use it to make lower carbon products, including producing oil through enhanced oil recovery.
Occidental Petroleum has been working to monetize the project during its construction phase, which it expects to finish in 2025. For example, it recently signed a 10-year carbon removal credit purchase agreement with Amazon for a total of 250,000 metric tons. Occidental signed similar agreements with airlines, aerospace manufacturers, international energy companies, and professional sports teams.
Stratos is the first of many DAC plants Occidental Petroleum plans to build over the coming years. It's also working on point-source capture and sequestration technology, which would capture carbon dioxide directly from the emission source. It would also sequester or utilize this captured greenhouse gas.
The oil giant is currently de-risking the technology and working on innovations to commercialize projects and reduce costs. That sets the company up to switch to manufacturing mode in 2025:
Image source: Occidental Petroleum.
Getting ready to build
Occidental has been laying the groundwork to start building additional DAC facilities and point-source capture projects. The company has been busy securing land for DAC facilities and sequestration hubs. It has also signed up several midstream partners to transport the captured carbon to sequestration hubs.
One of its biggest potential projects is the South Texas DAC hub, where the company leased 106,000 acres of land from privately held agricultural production and resource management company King Ranch. That's enough land to support up to 30 future DAC plants and the underground pore space to permanently store 3 billion metric tons of carbon dioxide. The U.S. Department of Energy also selected Occidental's South Texas DAC hub to receive a grant to help fund the development of the first DAC designed to capture 1 million metric tons of carbon dioxide annually.
Occidental also signed a lease with timberland REITWeyerhaeuser for 30,000 acres of subsurface space in Louisiana and one with Manulife for 27,000 acres of timberland in that state. Meanwhile, the company has signed agreements with several midstream companies, including Enbridge and Enterprise Products Partners, on potential pipeline transportation solutions to move carbon dioxide from DACs or point-source capture sites to sequestration hubs along the Gulf Coast.
The company has lined up most of what it will need to start building out a large-scale carbon capture business. Occidental estimates it could eventually make as much money on carbon capture solutions as it currently earns from oil and gas production.
That bodes well for Warren Buffett's investment. His company currently owns more than a quarter of Occidental's outstanding shares. They're worth over $14 billion. That's over 4% of Berkshire's investment portfolio, making Occidental its sixth-largest holding. Buffett's company is in a strong position to profit from the potential upcoming acceleration in Occidental's business as it starts building out its carbon solutions platform, which could commence in 2025 after it finishes Stratos. Those investments could drive significant earnings growth for the oil company, potentially fueling strong stock price appreciation for investors like Buffett.
A major catalyst is on the horizon
Occidental Petroleum could reach a major inflection point in 2025. It could shift from de-risking its DAC facility to manufacturing many more. That could fuel significant earnings growth for the oil giant, which could boost shares for investors like Buffett. Given the upside potential, investors should watch Occidental's progress in monetizing its carbon solutions business closely because it would signal that it can be a major growth driver starting in 2025.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Matthew DiLallo has positions in Amazon.com, Berkshire Hathaway, Enbridge, Enterprise Products Partners, and Weyerhaeuser and has the following options: short October 2023 $36 calls on Weyerhaeuser. The Motley Fool has positions in and recommends Amazon.com, Berkshire Hathaway, and Enbridge. The Motley Fool recommends Enterprise Products Partners and Occidental Petroleum. The Motley Fool has a disclosure policy.
