Oxy Eyes Potential Partners for DAC Plans

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Occidental Petroleum is considering bringing in an additional partner to help finance at least the initial stage of its ambitious plan to build potentially scores of direct air capture (DAC) plants, according to CEO Vicki Hollub.

Speaking last week at the Energy Intelligence Forum in London, Hollub said partnerships will be critical in getting the first plant built, after fresh policy support in the US enabled the company to accelerate its build-out plans.

“Certainly the first one is likely to be a combination of our cash plus, potentially, a partner coming in on that,” Hollub said when asked how Oxy intends to finance construction of the planned facilities.

Oxy estimates the first one, due to break ground next month, will cost $800 million-$1 billion and will ultimately be able to capture 1 million tons per year of CO2.

Longer-term, Oxy is understood to be weighing the possibility of bringing in an equity partner to help carry some of the financial burden of building what the company now says could be 135 DAC plants globally by 2035, up from the 70 plants previously signaled.

“It's … going to take partnerships,” Hollub said. “It's going to take having others become a part of the projects and help to finance and build these. So there's going to be a lot of collaboration that needs to happen.”

It was not clear when a new partner might be announced or what stage of discussions Oxy is currently engaged in, if any. DAC 1 in the Permian Basin is due to start up in late 2024.

Incentive to Invest

Incentives provided by the recently passed Inflation Reduction Act (IRA) have provided Oxy and other carbon-capture developers with a strong tailwind to push projects forward. With those incentives all but assured well into next decade, a sense of certainty has allowed companies to justify the tens of billions of dollars of investment that will be needed to scale the emerging technologies.

Oxy, through its low-carbon ventures unit, partnered with private equity player Rusheen Capital Management in 2020 to jointly form 1PointFive, a development company that will finance and deploy DAC plants and is the formal designated developer of Oxy’s first DAC plant in the Permian.

1PointFive has licensed DAC technology owned by Carbon Engineering, a Canada-based firm in which Oxy is also an equity investor. Chevron, through its own technology venture arm, and Australian mining giant BHP are also investors in Carbon Engineering.

Other companies involved in DAC 1 mainly comprise contractors, such as Australian engineering giant Worley, and “net zero oil” offtakers such as SK Trading International of South Korea.

Selling Offsets

Beyond any potential equity investments, Hollub says provisions in the IRA will allow Oxy to leverage CO2 offset credits to help finance the DAC projects.

Oxy is “getting a lot of interest” from potential CO2 credit purchasers, she said, because there are not enough “certifiable” credits for the thousands of companies that have committed to net zero worldwide. Oxy has already signed CO2 credit deals with companies like Shopify and Airbus and says these offsets "are going to be in high demand."

“Once we prove the technology on the first one, we'll be able to access project financing going beyond [CO2 credits], and/or partnerships," Hollub says. "We expect that we will be getting sufficient revenues from the sale of the CO2 credits to help with the additional units that come after [the first one].”

Corporate Strategy , Emerging Technologies, Carbon Capture (CCS), Capital Spending, Carbon Markets , Independent E&Ps, ENERGY INTELLIGENCE FORUM 2022
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