Leveraged exposure to Occidental Petroleum through warrants — Watsa's bet on energy security, carbon capture leadership, and a Permian Basin powerhouse backed by Warren Buffett
Prem Watsa
Fairfax Financial Holdings
Est. ~1.8% of total portfolio
“Prem Watsa: 'We use warrants and options when we have high conviction in a business but want leveraged exposure. Occidental is a world-class energy company backed by Warren Buffett.'”
The Business
- Occidental Petroleum is a major US oil and gas producer with dominant operations in the Permian Basin, DJ Basin, and Gulf of Mexico
- The company also operates OxyChem (chemicals), Midstream (pipelines), and 1PointFive (carbon capture and sequestration)
- Occidental completed the acquisition of CrownRock in 2024, adding premium Permian Basin acreage
- FY2025: $21.6B revenue, $1.6B net income, $4.1B free cash flow with focus on debt reduction
Why They Own It
“Prem Watsa: 'We use warrants and options when we have high conviction in a business but want leveraged exposure. Occidental is a world-class energy company backed by Warren Buffett.'”
- Warrants provide leveraged exposure to Occidental Petroleum — amplified upside if OXY stock appreciates
- Occidental is a major Permian Basin producer with strong production growth and declining break-even costs
- Warren Buffett/Berkshire owns 28%+ of OXY — providing validation of the long-term value thesis
- Carbon capture through 1PointFive (STRATOS plant) positions OXY for the energy transition while maintaining oil production
- FY2025: $21.6B revenue, $1.6B net income, $4.1B free cash flow — generating strong cash flows at current oil prices
What the investor sees
OXY trades at approximately $54/share with a $53B market cap. The warrants provide leveraged exposure at a fraction of the stock price. Watsa's thesis is that oil prices will remain supportive ($70+/bbl) as OPEC+ manages supply and global demand remains robust. At current prices, OXY generates strong free cash flow ($4.1B) for debt reduction and shareholder returns. The carbon capture business provides long-term optionality as regulations around emissions tighten.
Financial Snapshot
$21.6B
revenue FY2025
$1.6B
net income
~$53B
market cap
$1.61
eps
$4.1B
free cash flow
28%+
berkshire stake
Growing
permian production
1PointFive STRATOS plant
carbon capture
The Moat
- Permian Basin acreage — low-cost, long-life production assets in the most prolific US oil basin
- Buffett backing — Berkshire's 28%+ stake provides validation, stability, and potential acquisition support
- Carbon capture leadership — 1PointFive's STRATOS is the world's largest direct air capture facility
- Vertical integration — OxyChem and midstream operations provide cost advantages and diversified revenue
- CrownRock acquisition added premium Permian acreage, extending the production runway
What Could Go Wrong
Oil price volatility — revenue and earnings are highly sensitive to oil and gas prices
High debt load — the CrownRock acquisition increased leverage, requiring continued deleveraging
Warrant time decay — warrants have expiration dates, adding time risk beyond normal equity exposure
Carbon capture economics uncertain — 1PointFive's commercial viability depends on regulatory support and carbon credit pricing
ESG divestment pressure — institutional investors increasingly avoiding fossil fuel exposure
Catalysts
- Debt reduction — using free cash flow to rapidly delever the balance sheet after CrownRock acquisition
- Permian production growth at declining break-even costs
- Carbon capture revenue — 1PointFive STRATOS generating revenue from carbon credits and commercial partnerships
- Potential Berkshire acquisition — Buffett has regulatory approval to buy up to 50% of OXY
- Share buybacks and dividend increases as debt reduction targets are met
In Their Own Words
“Prem Watsa: 'The energy transition will take decades. In the meantime, oil and gas production remains essential, and low-cost producers like Occidental will generate enormous cash flows.'”
“Prem Watsa: 'At Fairfax, we are comfortable being contrarian. Energy stocks are out of favor with ESG-focused investors, which creates value opportunities for those willing to look past the narrative.'”