Occidental petroleum (NYSE: OXY) has long been a leader in the use of carbon dioxide in its oil industry. It injects the greenhouse gas into underground oil reservoirs in the Permian Basin to boost production from those old fields through a technique known as enhanced oil recovery (EOR). The oil company is now leveraging that expertise to become an early leader in carbon capture and storage (CCS).
The oil company believes that CCS could possibly into a $3 to $5 trillion global market opportunity. The goal is to capture a share of that potentially lucrative market by building Direct Air Capture (DAC) hubs. The U.S. Department of Energy recently awarded the company up to $650 million to accelerate the development of future DAC facilities.
The financing accelerator
The U.S. Department of Energy’s Office of Clean Energy Demonstrations will provide Occidental Petroleum’s subsidiary 1PointFive with funding to accelerate development of its next DAC facility. It will provide up to $500 million to support development of the company’s South Texas DAC Hub. It could potentially increase the award by up to $650 million to develop a comprehensive regional carbon network in South Texas.
The Occidental Petroleum subsidiary will receive an initial $50 million to advance ongoing work at its South Texas DAC Hub, which includes engineering, permitting, long-lead equipment and community engagement. The site could eventually support a DAC facility with the initial capacity to remove 500,000 metric tons of carbon dioxide annually. The company plans to expand that to more than 1 million metric tons per year in the futureThe site has the capacity to remove up to 30 million metric tons of carbon dioxide annually. It can store up to 3 billion metric tons the greenhouse gas in underground salt formations.
The South Texas DAC hub is one of several the company plans to develop in the future. The government funding will accelerate development of that project, freeing up the company’s capital to pursue other opportunities.
Already laying the foundation for its carbon capture platform
The South Texas DAC hub would be the company’s second DAC project. It has already begun construction of its first industrial facility, called STRATOS, in Texas. It will have the capacity to capture and permanently store up to 500,000 tonnes of carbon dioxide per year when the plant comes online in the middle of next year.
The company is financing this initial facility with the support of its joint venture partner, Black rock, which is invested $550 million to advance construction. Occidental has also made significant progress in commercializing the project, recently agreeing to sell 500,000 metric tons carbon dioxide removal credits Unpleasant Microsoft more than six years. That was the largest purchase of carbon credits ever for a DAC facility. Microsoft is one of several companies that has agreed to purchase carbon credits supported by the project to reduce their carbon footprint. These commercial agreements allow Occidental and Blackrock to earn a return on their approximately $1.3 billion investment in this first DAC facility.
The sale of carbon credits helps lay the groundwork for the commercialization of future DAC facilities such as the South Texas DAC hub. Occidental can sell them to new and existing customers to generate revenue for that facility And offset the expected future investment. The company will also likely seek additional investment partners such as Blackrock to finance some of the development that the U.S. government does not cover.
Acceleration of ambitions for lower CO2 emissions
Occidental Petroleum is investing heavily in building a lower-carbon energy company by building DAC facilities. It already has one project underway and is working on a second facility that the U.S. government is helping accelerate by providing the company with financing for that projectThese investments brought the company into a strong position to exploit the potentially huge carbon capture and storage opportunity. That business could be a major growth driver for Occidental and a lot of to create value for its investors in the coming decades.
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Matt DiLallo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft. The Motley Fool recommends Occidental Petroleum and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
Occidental Petroleum Gets $650 Million to Accelerate Its Ability to Seize This Potential $5 Trillion Market Opportunity was originally published by The Motley Fool
