Occidental Petroleum receives up to $650 million to accelerate its ability to capture this $5 trillion market opportunity

Occidental Petroleum (NYSE: OXY) has long been a leader in the use of carbon dioxide in its oil business. It injects the greenhouse gas into underground oil reservoirs in the Permian Basin to boost production from those legacy fields through a technique known as enhanced oil recovery (EOR). The oil company is now leveraging this experience to become an early leader in carbon capture and sequestration (CCS).

The oil company believes CCS could in the end to become a $3 to $5 trillion global market opportunity. It aims to capture some of this potentially lucrative market by building direct air capture (DAC) hubs. The US Department of Energy recently awarded the company up to $650 million to accelerate the development of future DAC facilities.

The funding accelerator

The U.S. Department of Energy’s Office of Clean Energy Demonstrations will provide Occidental Petroleum’s 1PointFive subsidiary with funding to help accelerate the development of its next DAC facility. It will provide up to $500 million to support the development of the company’s South Texas DAC center. It could increase the award by up to $650 million to develop an expanded regional carbon network in South Texas.

The Occidental Petroleum subsidiary will initially receive $50 million to advance ongoing work at the South Texas DAC Hub, which includes engineering, permitting, long-life equipment and community engagement. This site could eventually support a DAC facility with an initial capacity to remove 500,000 metric tons of carbon dioxide annually. The company plans to expand it to more than 1 million tons per year in the future. The site has room to support up to 30 million tons of carbon dioxide removal annually. It can store up to 3 billion metric tons greenhouse gas in underground saline formations.

The South Texas DAC hub is one of many the company aims to develop in the future. The government funding will help accelerate the development of that project, freeing up the company’s capital to pursue other opportunities.

It is already laying the groundwork for its carbon capture platform

The South Texas DAC hub would be the company’s second DAC project. It has already begun construction on its first industrial-scale facility, called STRATOS, in Texas. It will they have the ability to permanently capture and store up to 500,000 tonnes of carbon dioxide per year when it comes online mid-next year.

The company is funding this first facility with the support of its community risk partner, Blackrock, which is investing $550 million to advance its construction. Occidental has also made significant progress in commercializing the project. For example, it recently agreed to sell 500,000 metric tons credits for the elimination of carbon dioxide TO Microsoft in six years. This was the largest ever purchase of carbon credits for a DAC facility. Microsoft is one of several companies that have agreed to buy carbon credits backed by the project to help reduce their carbon footprint. These commercial agreements will allow Occidental and Blackrock to earn a return on their approximately $1.3 billion investment in this initial DAC facility.

The story continues

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 is also likely to seek additional investment partners, such as Blackrock, to help fund some of the development that the US government is not covering.

Accelerating its low-carbon ambitions

Occidental Petroleum is investing heavily in building a low-carbon energy business by building DAC facilities. It already has one project underway and is working on a second facility that the US government is helping to accelerate by providing the company with funding. for that project. These investments put the company in a strong position to capture the potentially massive carbon capture and storage opportunity. That deal could be a significant growth driver for Occidental and creates a lot of value for its investors for decades to come.

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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 $395 January 2026 Microsoft calls and short $405 January 2026 Microsoft calls. The Motley Fool has a disclosure policy.

Occidental Petroleum Gets Up to $650 Million to Accelerate Its Ability to Capture This Potentially $5 Trillion Market Opportunity was originally published by The Motley Fool