Pulling carbon emissions from the atmosphere using direct air capture (DAC) is a golden opportunity for oil and natural gas operators, and is likely going to play a bigger role in Occidental Petroleum Corp.’s future, according to CEO Vicki Hollub.
The Houston-based independent, better known as Oxy, has won substantial financial support for the move to net-zero carbon, with the DAC-related business set to advance worldwide, Hollub said during the recent third quarter conference call.
Berkshire Hathaway Inc., controlled by Warren Buffett, owns more than 25% of the company following a series of savvy investments. Meanwhile, Oxy’s 1PointFive subsidiary has landed a $550 million investment with private equity giant BlackRock Inc.
Up first is Oxy’s Permian Basin-focused Stratos DAC project in Ector County, TX. The West Texas project, about one-third complete, could capture up to 500,000 metric tons/year of carbon dioxide (CO2).
Stratos, set to begin operations in mid-2025, will be a “transformative facility,” Hollub said. The facility “will provide a solution to help the world reach net zero.” The investment from BlackRock “demonstrates that direct air capture is becoming an investable technology” with a commitment underscoring Stratos’ “importance and potential for the world.”
BlackRock CEO Larry Fink, who since 2021 has pushed for companies to strive for net-zero emissions by 2050, said Stratos “represents an incredible investment opportunity for BlackRock’s clients to invest in this unique energy infrastructure project and underscores the critical role of American energy companies in climate technology innovation.”
In fact, while Oxy reported strong oil and natural gas production during 3Q2023 from the Lower 48 and Gulf of Mexico operations, the Oxy Low Carbon Ventures (OLCV) business was the focus of the quarterly conference call.
The Oxy executive team is so sure of the opportunities ahead from advancing the DAC technology that during the third quarter, it paid $1.1 billion to buy out the pioneer, Carbon Engineering Inc. (CE). Oxy’s 1PointFive had a development license with the Calgary-based company to advance the DAC hub in the Permian.
CE is to become a subsidiary of OLCV when the transaction is completed, now set by year’s end. CE personnel would “continue to drive ongoing DAC technology development efforts” and work to bring solutions to market.
‘Critical Momentum’ To Remove Carbon
DAC is where it’s at, Hollub told investors. The emerging opportunities are going to “play an increasingly important role in our portfolio over time.”
The ambition is to “broaden our pathway to carbon neutrality and help others to achieve the same.” BlackRock’s support, said Hollub, “is a huge signal to the marketplace that we are attracting capital, as well as customers, to this exciting technology.”
Oxy’s Richard Jackson, president of Operations, said in the near term, the technology would provide the company with CO2 removal credits (CDR) “at a lower cost and a large scale than other product solutions, especially for businesses in the heavy-duty transportation sector…”
To date, 1PointFive has clinched CDR purchase agreements with customers that include Amazon, Airbus, All Nippon Airways, TD Bank Group, the Houston Astros and the Houston Texans.
“Carbon removal has reached critical momentum, both early voluntary market leaders like Airbus purchasing CDRs, and through new policy support measures like the Bipartisan Infrastructure Investment and Jobs Act,” Jackson said. “We believe the DAC-generated CDRs will play a significant role in corporate emissions reduction strategies and specifically for several hard-to-abate sectors like aviation and marine, and markets like low-carbon fuels.”
In a scenario “where the cost-of-capital remains at $450/ton, we still expect the market for DAC-generated CDRs to be significantly undersupplied,” he told analysts. “The pace at which we will develop DAC facilities will be driven by market demand and our ability to reduce costs.”
Another DAC hub is on the drawing board that would be on the King Ranch in South Texas. Front-end engineering design and stratigraphic well testing is underway.
Oxy also is a big investor in NET Power Inc., whose technology is being used for the Stratos hub. The zero-emission utility-scale plants use an estimated 50 MMcf/d of natural gas, combined with pure oxygen, to produce 300 MWe and 820,000 tons/year of pure CO2 that may then be transported or permanently stored.
Still Driving Revenue: Fossil Fuels
While the enthusiasm is high for the low-to-no carbon projects, oil and natural gas production remains the revenue driver. The global producer controls U.S. assets in the Denver-Julesburg (DJ) and Permian basins, as well as the Gulf of Mexico (GOM).
The operational performance by the production unit during 3Q2023 “exceeded the midpoint of guidance by 34,000 boe/d,” Hollub said. The solid performance led Oxy to boost full-year 2023 guidance by 11,000 boe/d.
Worldwide, production averaged 1.22 million boe/d in the latest quarter, led by the Permian with 588,000 boe/d. DJ output was 263,000 boe/d on average, while the GOM produced 146,000 boe/d. International volumes over the three-month period averaged 223,000 boe/d.
U.S. natural gas production improved slightly year/year to 1.27 Bcf/d from 1.22 Bcf/d. However, it was Permian gas that delivered the positive results, rising to 625 MMcf/d from 590 MMcf/d. Gas output from the Rockies/Other Lower 48 fell to 565 MMcf/d from 572 MMcf/d. GOM gas production dipped to 77 MMcf/d from 84 MMcf/d.
Realized U.S. natural gas prices averaged $1.92/Mcf in 3Q2023, compared with $7.06 in 3Q2022. For West Texas Intermediate oil, the average realized price was $82.26/bbl, from $91.55 a year ago.
Net income was $1.2 billion ($1.20/share), versus year-ago profits of $2.6 billion ($2.52). Operating cash flow fell to $3.7 billion from $4.3 billion.
Don’t look for much change to the activity levels in 2024, CFO Rob Peterson said. The domestic upstream business should see “similar” onshore activity levels, with no material change in spending for the international assets.
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