Occidental Petroleum: A Hidden Gem in the AI-Driven Energy Transition

As the global energy landscape shifts toward sustainability, Occidental Petroleum (OXY) has quietly positioned itself at the intersection of two critical trends: lithium extraction and carbon management. Leveraging its underappreciated infrastructure and strategic partnerships, Occidental is building a diversified portfolio that could turn it into a leader in the AI energy boom. Its undervalued assets and synergies between legacy oil operations and emerging clean technologies make it a compelling investment opportunity.

Lithium Extraction: A Gold Rush in the Salton Sea

Occidental's joint venture with Berkshire Hathaway Energy (BHE), TerraLithium, is unlocking one of the world's most promising lithium deposits in California's Salton Sea. Using patented Direct Lithium Extraction (DLE) technology, TerraLithium extracts lithium from geothermal brines—a process that avoids the environmental pitfalls of traditional evaporation ponds. The Salton Sea's 18 million metric tons of lithium reserves could supply over 375 million electric vehicle (EV) batteries, rivaling global production.

The partnership with BHE provides a critical advantage: existing geothermal infrastructure. BHE's 10 power plants in the region generate 345 MW of renewable energy, powering the extraction process while minimizing carbon footprints. This reduces execution risks compared to competitors like EnergySource Minerals, which lack such established facilities.

Why It Matters: Lithium demand is projected to grow from $22.2 billion to $89.9 billion by 2030 (per the provided data). Occidental's DLE technology, with its fixed-cost structure insulated from lithium price fluctuations, positions it to profit even during market cycles. The venture's patents and licensing potential further amplify its value.

Carbon Management: Capturing the Future with AI

Occidental's carbon capture subsidiary, 1PointFive, is pioneering Direct Air Capture (DAC) technology to remove CO₂ directly from the atmosphere. Its Stratos facility in Texas, set to begin operations in 2026, will initially capture 500,000 metric tons annually. Unlike earlier projects reliant on industrial emitters, DAC eliminates this dependency, creating a standalone carbon removal business.

AI is central to optimizing these operations. For instance:
- Reservoir Modeling: AI analyzesPermian Basin geology to refine CO₂ injection, enhancing oil recovery while sequestering carbon.
- Process Efficiency: Machine learning optimizes chemical reactions in DAC, reducing energy use and costs.

While DAC's current cost of $600/ton (net of $180 tax credits) remains high, demand for premium carbon credits is rising. Contracts with Microsoft, Amazon, and Trafigura—already securing 70% of Stratos' first-phase capacity—suggest strong demand.

Synergies and Undervalued Infrastructure

Occidental's greatest strength lies in its operational synergies:
1. Permian Basin Integration: CO₂ captured via DAC can be injected into oil reservoirs for Enhanced Oil Recovery (EOR), boosting production while sequestering carbon.
2. Vertical Supply Chains: Occidental's potassium hydroxide and PVC diffuser production for DAC reduces external dependencies.
3. Regulatory Tailwinds: The IRS's 45Q tax credit ($180/ton) and California's lithium incentives provide financial stability.

Financially, Occidental's strong balance sheet ($3 billion Q2 2025 cash flow) and improved debt metrics (0.75x debt-to-equity) offer resilience. Institutional investors like Berkshire Hathaway (which owns 28% of OXY) and Vanguard are increasing stakes, signaling confidence in its dual-energy strategy.

Risks and Mitigants

• Oil Price Volatility: Permian efficiencies and diversified revenue streams (lithium, carbon credits) reduce exposure.
• Technological Hurdles: TerraLithium's DLE and DAC scalability are proven at pilot scale; partnerships with BHE and Holocene (acquired in 2025) bolster execution.
• Carbon Credit Pricing: Rising corporate net-zero commitments (e.g., aviation, tech) support demand, even as regulations evolve.

Investment Thesis

Occidental is undervalued relative to its growth potential. Its lithium projects and carbon capture initiatives align perfectly with the energy transition, while its Permian infrastructure and BHE's support provide a moat.

Recommendation:
- Buy: For investors seeking exposure to lithium and carbon credits, with a risk/reward tilted toward long-term gains.
- Hold: For those prioritizing stability—OXY's 3.2% dividend and low break-even costs ($40/barrel) offer downside protection.

Conclusion

Occidental Petroleum is no longer just an oil company. By marrying legacy infrastructure with AI-driven innovation in lithium and carbon management, it has carved a path to leadership in the energy transition. As EV adoption surges and corporations chase net-zero goals, OXY's undervalued assets could finally get their due.