Warren Buffett's company, Berkshire Hathaway, owns lots of stocks. Two of its more notable holdings are oil giants Chevron (CVX 0.82%) and Occidental Petroleum (OXY 0.42%). While oil stocks have fallen out of favor for most investors, they rank as two of Buffett's top holdings (fifth- and sixth-largest, respectively), comprising nearly 10% of its investment portfolio.

Given Buffett's success as an investor, many of his followers are likely considering adding one of these oil stocks to their portfolio. Here are some factors that make one of these Buffett oil stocks stand out as a potentially better option for many investors.

Drilling down into the oil giants

Chevron and Occidental are two of the largest oil companies in the country. However, Chevron is by far the largest, with a nearly $320 billion enterprise value compared to Occidental's at over $80 billion.

Chevron has a much higher production rate (3.35 million barrels of oil equivalent per day in the first quarter compared to 1.17 million barrels of oil equivalent per day for Occidental) and a much more diversified business (it's a globally integrated energy company, while Occidental Petroleum is mainly a U.S.-focused independent producer).

Both energy companies are investing heavily to grow even bigger. Occidental agreed to buy CrownRock in a $12 billion deal last year to strengthen its already top-tier position in the Permian Basin. That acquisition will increase its production by 170,000 barrels of oil equivalent per day and its annual free cash flow by $1 billion, assuming oil averages $70 per barrel (it's currently closer to $80).

Occidental is also investing money to expand its chemicals businesses and build a leading carbon capture and storage platform. The company's investments will grow its non-oil earnings by over $1 billion by 2026. Meanwhile, the CrownRock deal and its oil and gas investments should grow the earnings of its legacy oil business in the coming years as long as commodity prices cooperate.

Chevron has also agreed to a needle-moving deal. It's working to buy Hess (HES 0.44%) for nearly $60 billion. That acquisition would boost its free cash flow per share starting next year and extend its production and free-cash-flow growth outlook into the 2030s. However, the deal faces some obstacles, though the company remains confident it will close the transaction.

Chevron is also investing heavily in growing its traditional energy business and lower carbon energy platforms (carbon capture, hydrogen, and biofuels). Chevron can grow its free cash flow at a more than 10% annual rate through 2027 without Hess while doubling its free cash flow if it closes that needle-moving deal (assuming oil averages around $70 a barrel).

The great separator

Chevron is bigger and more diversified than Occidental, which lowers its risk profile. The oil behemoth further reduces risk by having a fortress-like balance sheet. The company ended the first quarter with $6.3 billion of cash and equivalents on its balance sheet against $21.8 billion of debt. That put its leverage ratio at 12%, or 8.8% on a net basis after adjusting for its cash. That's significantly below its long-term target range of 20%-25%.

On the other hand, Occidental ended the first quarter with $18.5 billion of debt and about $1.2 billion of cash. That exceeded the company's long-term target to get debt below $15 billion.

The company's debt will balloon once it closes its CrownRock deal. Occidental intends to issue $9.1 billion of new debt to fund the transaction, in addition to assuming $1.2 billion of CrownRock's existing debt. The oil company plans to sell $4.5 billion-$6 billion in assets following the deal to help reduce debt and maintain its investment-grade credit rating. The company's strategy of using debt to fund a deal is worth noting because it has backfired in the past.

Contrast that with Chevron's approach. Its proposed Hess acquisition is an all-stock deal valued at $53 billion (plus the assumption of Hess's roughly $7 billion debt). Chevron will preserve its fortress-like balance sheet by using its stock to fund the deal. The company's approach will allow it to continue growing its dividend and repurchase shares, even if oil prices slump.

A lower-risk oil stock

Warren Buffett loves Occidental Petroleum, which he's likened to other "forever stocks" in his portfolio. However, that doesn't necessarily mean it's the right oil stock for you. It has a higher risk profile than Chevron, which will only increase after it closes its debt-funded deal for CrownRock. Because of that, Chevron is the better oil stock for those seeking a lower-risk way to follow Buffett and invest in the oil patch.