U.S. oil and gas producer Occidental Petroleum Corp. will spend roughly 5% of its 2022 capital budget to start construction of an industrial-scale direct air carbon capture plant in the Permian Basin of Texas and New Mexico.

The company will combine decades of experience in using carbon dioxide to boost oil production with new technology and chemistry that will pluck carbon directly from the atmosphere and store it underground.

Occidental's 2022 capital budget is $4.1 billion at the midpoint, executives told analysts on a March 23 conference call. The company plans to spend between $100 million and $300 million this year on the plant, which it estimated will eventually cost roughly $800 million.

President and CEO Vicki Hollub told analysts that tax credits in the $1.2 trillion infrastructure bill that President Joe Biden signed Nov. 15, 2021, plus the evolution of voluntary and involuntary carbon offsets have created an opportunity for Occidental. The company expects the voluntary carbon reduction market to reach $50 billion by 2030.

Occidental already has customers, including aircraft-maker Airbus SE and e-commerce services provider Shopify Inc., lined up to buy carbon credits from the new plant when it begins operation.

"When is it going to happen and how is it going to happen? I think there's bipartisan support for that," Hollub said. "And for us to achieve the goals that President Biden has set out for our climate mitigation, it's going to require some acceleration."

The Permian Basin direct air capture plant will be hooked into Occidental's existing network of carbon dioxide pipes and storage caverns. This could establish a carbon removal hub that can be replicated across the world, executives said. The plant will initially be able to remove 500,000 tonnes of carbon per year from the atmosphere, with a planned expansion to 1 million tonnes per year.

While it is building the Permian plant, Occidental will be leasing land around the country for more carbon sequestration hubs, CFO Robert Peterson said. "Sequestration hubs, which will be located in the U.S., support our direct air capture and point source capture development by serving as an accessible location for the safe and economical storage of CO2 in saline formations."

Occidental is looking outside the Permian Basin for a location for its second carbon hub. It would like to build more than 70 direct air capture plants around the world, executives said.

"We're planning to develop multiple hubs in the U.S. and expect to have three online by 2025," said Richard Jackson, president of operations, U.S. onshore resources and carbon management. "In the near term, we expect to secure more than 100,000 net acres for these sites by the end of 2022 and to have filed multiple Class 6 permit applications for dedicated injection wells."

The advantage of the hub concept is that it would require little new technology from customers joining the system, Jackson said. "Rather than starting from scratch with individual capture and sequestration projects, participants can simply plug into a hub, making everything easier to develop and finance."

Prior to the call, Truist Securities Inc. analyst Neal Dingmann was optimistic about Occidental's foray into carbon reduction. "We see strong potential for Occidental to secure meaningful government funding for the project, particularly given the focus on carbon capture and storage initiatives and direct air capture specifically, in the recently passed infrastructure bill," Dingmann wrote in a note.

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