CEO: Project costs grow for Occidental's first direct air capture plant in Permian Basin

Occidental Petroleum Corp.'s (NYSE: OXY) direct air capture project in the Permian Basin is turning out to be more expensive than originally expected.

The Houston-based company broke ground on its first commercial-scale DAC plant in Ector County during the third quarter. Site preparation and road work began in the first phase of construction in September, Oxy President and CEO Vicki Hollub said in an earnings call with analysts Nov. 9.

Oxy sees DAC as a major part of its Low Carbon Ventures business strategy. Hollub said Oxy's low-carbon strategy and the voluntary carbon reduction market will be accelerated by provisions passed under the Inflation Reduction Act in August, including enhanced tax credits for carbon capture and storage.

Under Oxy's current development scenario, the company now expects to have approximately 100 DAC plants online by 2035, up from the 70 previously forecasted. In late October, Oxy subsidiary 1PointFive and King Ranch Inc., an agricultural production and resource management company, entered into a lease agreement to support up to 30 DAC projects on 160,000 acres in Kleberg County, Texas.

Building a direct air capture plant isn't cheap. In March, Oxy said the capital cost for the first DAC project in the Permian would be between $800 million and $1 billion. But due to inflationary pressures, Oxy now expects the project's cost to be around $1.1 billion.

"The current inflationary environment will not last forever, and we will leverage our supply chain and major projects expertise wherever possible to lower the cost of our first direct air capture, as well as the ones to follow," Hollub said.

Oxy's first DAC project in the Permian Basin will give the company multiple options to maximize value for the captured carbon dioxide, including injecting it into a saline reservoir or using it for enhanced oil recovery, Hollub said. The Houston company also plans to develop several CCS hubs along the U.S. Gulf Coast to provide DAC and point-source emissions capturing and sequestration.

1PointFive's DAC project in the Permian has received investment from United Airlines (Nasdaq: UAL) to support the Chicago-based carrier's net-zero goals. Also, Netherlands-based jet-maker Airbus SE agreed to pre-purchase credits representing 400,000 metric tons of captured and stored CO2 from 1PointFive, with the option to buy more credits down the road.

Q4 and 2023

While reporting Q3 earnings this week, Oxy said it was raising its full-year guidance across all business segments. In the company's core oil and gas business, Oxy raised its full-year production guidance by 5,000 barrels of oil equivalent per day to 1.16 million boepd.

Oxy lowered its Q4 Permian guidance slightly after production was impacted by higher-than-expected third-party downtime during Q3. The firm expects production in the Gulf of Mexico and the Rockies to offset its lower Permian projection, Oxy CFO Rob Peterson said.

The Houston company also raised Q4 guidance for its chemicals business, OxyChem, citing supportive fundamentals in the caustic soda market and improved fourth-quarter expectations.

Looking ahead to next year, Hollub said Oxy is not going to try to grow its oil and gas production from 2022 to 2023 as the company remains focused on delivering value for its shareholders.

"We're going to hold that flat," Hollub said.

Oxy reported Q3 net income attributable to common stockholders of nearly $2.55 billion, or $2.52 per diluted share, and adjusted net income attributable to shareholders of nearly $2.47 billion, or adjusted earnings of $2.44 per share. Revenue for the quarter totaled $9.5 billion, down from $10.74 billion in Q2 and up from $6.82 billion in the year-ago period.