Oxy is expanding via acquisition as it looks to bulk up to compete with energy industry giants like Exxon. Does it stand a chance?

Occidental Petroleum (OXY 0.35%), which normally just goes by its ticker Oxy, is a big player in the energy sector. But when you compare it to the industry giants, well, it is still kind of small. However, it is working to expand its diversified portfolio. It looks like it wants to take on the big players, like ExxonMobil (NYSE: XOM). Is that realistic?

Occidental Petroleum is an integrated energy company. That means that it owns assets in the upstream (oil and natural gas production), midstream (pipelines), and downstream (chemicals and refining) segments. This is the same model used by some of the largest energy companies in the world, including U.S. energy giants ExxonMobil and Chevron (NYSE: CVX). Having this diversification across the sector helps to soften the ups and downs in what is a rather volatile industry.

Meanwhile, Occidental Petroleum's portfolio of assets is spread across the United States, the Middle East, and North Africa. That's not as diversified as some of its larger brethren, but you have to start somewhere when you are looking to expand internationally. And, at the end of the day, Oxy really does still have an international reach. In some ways, it is like a tiny Exxon or Chevron. Market cap shows just how "small" Oxy is, with its still sizable $50 billion market cap dwarfed by $550 billion Exxon and $270 billion Chevron.

That said, Oxy has shown a great willingness to take on the industry giants. Notably it outbid Chevron to buy Anadarko Petroleum, eventually teaming up with Warren Buffett's Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) to fund the deal. Unfortunately, Oxy bit off more than it could chew there, and it ended up cutting its dividend when energy prices tumbled in the early days of the coronavirus pandemic. It has since paid down debt and made a more explicit commitment to financial prudence. Debt reduction was a big discussion point in its most recent, and much smaller, acquisition of Crown Rock.

So Oxy's business model is similar to that of giants like Exxon and Chevron. It is buying assets out from under the giants. And when it isn't stealing deals, it is buying assets similar to those the giants are eyeing. Crown Rock, for example, operates in the U.S. market, where both Exxon and Chevron have been expanding their reach. Oxy basically wants to grow to become one of the energy industry's top dogs.

There's probably room for it to do so. The energy industry is in an interesting position today because the world is increasingly using cleaner energy sources, like solar and wind power. But most industry watchers expect oil and natural gas to remain important to the global energy picture for decades to come.

But material growth from this point probably isn't in the cards, which suggests that energy industry winners are going to be large and efficient operators. That's basically what Exxon and Chevron are.

Occidental Petroleum is no schlub, either, but there's clearly room for it to expand its operating scale. Acquisitions in an industry that seems ripe for consolidation should help it do that, which is why it is acting as an industry consolidator. In fact, it probably has more opportunity than its larger peers because smaller deals are more meaningful to its business.

To be fair, it seems unlikely that Oxy will ever catch up to an industry giant like Exxon, noting that Exxon is also growing via acquisition. But that doesn't diminish the long-term opportunity that an acquisition-focused growth plan can achieve with Oxy. That said, there are risks to consider, noting that the energy giant has overstepped in the past and investors ended up suffering for it (thanks to the subsequent dividend cut).

Conservative investors should probably stick with existing giants like Exxon or Chevron, but if you are a growth-minded investor willing to take on a little extra risk, Oxy might be worth a deep dive as it attempts to compete with the big boys.