US independent oil and gas producer Occidental Petroleum Corp. is buying one of its partners in the nascent field of direct air carbon capture for $1.1 billion, further advancing the efforts of Occidental's low-carbon unit.
Occidental and Carbon Engineering Ltd. are working at developing a large direct air capture (DAC) hub on the King Ranch in Kleberg County, Texas, about an hour south of Corpus Christi.
Occidental's 1PointFive Inc. unit is already building Stratos, the largest DAC plant in the world, near Odessa in Ector County, Texas. Carbon Engineering and Occidental will be adapting Stratos' engineering and technology for use in the South Texas hub, a project that has been awarded a grant from the US Energy Department.
Tech will go to build even larger DAC plants
The Stratos plant in the Permian Basin is being designed to capture 500,000 metric tons of carbon dioxide per year, and the South Texas hub will be even larger, according to Occidental. The company said the South Texas hub is slated to capture 30 million metric tons per year with a storage capacity of 3 billion metric tons.
"While the purchase price is not terribly material for [Occidental], the purchase price is large enough to understand the company's future DAC focus," Truist analyst Neal Dingmann told clients after the deal was announced late Aug. 15. "While we would have likely preferred [Occidental] to use the $1.1B for debt repayment first, we understand the need to strengthen [while] the DAC iron is hot."
Dingmann and other analysts expect that the acquisition of Carbon Engineering should soon generate revenue from technology licensing and royalties. "Having worked in partnership with Carbon Engineering for the past ~8 years, the acquisition not only brings the [intellectual property] rights and expertise under the [Occidental] umbrella, but it also creates a new technology-based revenue stream through licensing and royalties agreements," Dingmann said.
The $1.1 billion price tag will be paid in three installments with the first at closing, expected by the end of this year, Occidental said. Carbon Engineering will become a wholly owned subsidiary of Oxy Low Carbon Ventures LLC.
Carbon Engineering's earlier investors include supermajor Chevron Corp.'s venture capital unit, Chevron Technology Ventures LLC, according to S&P Global Market Intelligence data.
How will it fit with Occidental's low-carbon efforts?
Matt Portillo, head of research for Tudor Pickering Holt & Co., said he is looking forward to Occidental explaining how Carbon Engineering fits in with the low-carbon unit when the company provides updates on that business line for analysts in November.
"We'd expect most of the focus near term to continue to be on better understanding capital draw for the Stratos buildout, the potential for partnerships to offset capital needs, and how the DOE grant program will impact spending going forward," Portillo told clients Aug. 16. "Overall, we see the market as ascribing limited value to the low-carbon business and will likely need to be closer to active operations in 2025 to better understand the long term value of the segment."
Occidental CEO Vicki Hollub said combining Carbon Engineering with Occidental's 1PointFive unit will allow Occidental to build large carbon capture plants that make an impact on a global climate scale.
Carbon Engineering's research and development center will remain in British Columbia, Occidental said.
Occidental investors showed little reaction to the news Aug. 16. Occidental shares were off less than 1% in light trading by midafternoon.
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