Warren Buffett made headlines in late 2023 with Berkshire Hathaway’s partial sale of Apple stock. While some viewed it as a sign of waning enthusiasm, seasoned investors know Buffett’s moves often defy conventional wisdom. Berkshire still holds a massive Apple stake, and Buffett himself reaffirmed the iconic company’s excellent business model in 2023. The Apple maneuver suggests a redirection of focus, not a lack of confidence.
This redirection appears to be centered on Occidental Petroleum (OXY). Since 2019, Buffet has amassed a holding worth nearly $15 billion, making it a substantial player in Berkshire’s portfolio. This aggressive accumulation of an oil and gas giant might puzzle those focused squarely on the global push for renewable energy – but that’s precisely where the legendary investor finds an edge.
Betting Against the Tide
While conventional wisdom points to a declining global appetite for fossil fuels, Buffett often makes bold moves when others see danger. In an interview with CNBC, he asserted his belief that oil production will either remain stable or even increase over the next five years. This confidence reflects a deeper understanding of energy markets and a potential ace up Occidental’s sleeve.
Occidental’s Carbon Capture Gamble
What Buffet might find compelling in Occidental is the company’s ambitious foray into direct air capture (DAC). In 2023, Occidental made a significant investment by acquiring the carbon capture technology leader Carbon Engineering. The company also initiated construction on its massive “Stratos” plant, poised to become the world’s largest DAC facility.
DAC might hold the key to a seismic shift in the industry as it promises the ability to scrub carbon dioxide from the atmosphere. This technology aligns with growing commitments from industries and nations to reduce their carbon footprints. ExxonMobil estimates that the carbon capture market could soar to $4 trillion by 2050. Occidental CEO Vicki Hollub envisions a reality where oil and gas remain viable indefinitely if carbon capture achieves its full potential.
Industry Experts Weigh In
The potential for carbon capture in reshaping the energy industry has attracted attention from analysts:
Mark Dyson, Analyst, Carbon Tracker Initiative: “Carbon capture technology is still developing, and costs remain high. Yet, if these challenges are overcome, it could be a significant part of the energy transition, especially for hard-to-abate industries like cement and steel.”
Sarah Emerson, Managing Director, ESAI Energy: “Occidental’s early investment in DAC could yield significant dividends, especially if government incentives and carbon pricing frameworks evolve as projected.”
Buffett’s Seal of Approval
Buffett’s unwavering support of Occidental is evident. In 2023, he praised Hollub’s business acumen and astute understanding of the complex energy landscape. Berkshire Hathaway obtained regulatory permission in 2022 to acquire up to 50% of Occidental, and there is room for further stake increases.
While investors shouldn’t expect Buffet to suddenly pivot away from tech giants like Apple, his calculated investment in Occidental suggests a belief that the strategic embrace of carbon capture could revitalize the oil and gas industry and drive new growth over the long term.
Should You Follow Buffett’s Lead?
Occidental’s commitment to DAC is a risky yet high-potential strategy. Before investing, consider these factors:
DAC’s feasibility: Carbon capture technologies remain in their relatively early stages. Full-scale commercialization could face technical and economic hurdles.
ESG Impact: Some ESG-focused investors might be wary of traditional oil and gas companies, regardless of carbon capture initiatives.
Regulatory Landscapes: Evolving regulations and carbon pricing policies will heavily shape the financial viability of DAC for energy companies.
Bottom Line: Warren Buffett’s substantial investment in Occidental Petroleum isn’t merely a bet on oil prices. It reflects a calculated belief in the transformative potential of carbon capture to reshape the energy sector and create new avenues for growth. As always, investors should conduct their own research and align potential risks with personal investment strategies.
