Occidental Acquires Carbon Air Capture Technology Company for $1.1 Billion
Occidental Petroleum, a prominent U.S. oil and gas producer, announced on Tuesday its agreement to acquire Carbon Engineering Ltd, a technology supplier, for a sum of $1.1 billion. This strategic move aims to bolster Occidental's efforts in developing a series of carbon-capture facilities, positioning the company to address climate change challenges and potential opportunities.
The primary objective of Occidental's investment is to establish around 100 plants that utilize direct air capture (DAC) technology, designed to extract carbon dioxide (CO2) from the atmosphere.
The captured CO2 can then be stored underground or repurposed for various applications, including the production of materials like concrete and aviation fuel. Despite being in the early stages of commercialization, DAC technology holds promise in achieving environmental goals, but it requires substantial investments to demonstrate its economic viability and profitability.
While the acquisition represents a significant step for Occidental, analysts at Roth MKM brokerage firm suggest that it could impact the company's near-term financial dynamics and raise concerns about cash flow within its Low Carbon Ventures division.
The financial arrangement involves distributing payments over three roughly equivalent annual installments, with the initial payment scheduled at the closing of the deal, projected to take place before the close of 2023. Carbon dioxide, a greenhouse gas, has caught the attention of the Biden administration, which views DAC technology as a potential solution to achieving emissions neutrality by 2050, contingent on its successful commercialization and large-scale application.
It's worth noting that while carbon capture traditionally focuses on emissions from industrial operations, DAC goes a step further by actively extracting CO2 directly from the ambient air.
In related developments, the U.S. Department of Energy recently allocated over $1 billion in federal grants to sites in Texas and Louisiana, which will contribute to the establishment of Occidental's proposed 30 DAC plants in Kleberg County, Texas. These sites mark the initial beneficiaries of a $3.5 billion allocation from Congress aimed at regional DAC hubs as part of the bipartisan infrastructure bill.
Occidental's collaboration with Carbon Engineering dates back to 2019, and the acquisition is anticipated to strengthen their partnership even further. Occidental's CEO, Vicki Hollub, emphasized that this move will enable the company to foster broader collaborations for DAC deployment in a manner that is both capital-efficient and strategically valuable.