Occidental's Low-Carbon Projects Face Inflationary Headwinds

Researched by Industrial Info Resources (Sugar Land, Texas)--Occidental Petroleum Corporation (NYSE:OXY) (Houston, Texas) has been enjoying plenty of attention as one of the leading developers of carbon capture and sequestration (CCS) technology, with ambitious, multi-phase projects planned along the U.S. Gulf Coast. But executives acknowledge the company can't hide from inflationary pressures, with costs rising for their major endeavors. Industrial Info is tracking $1.7 billion worth of projects owned or co-owned by Occidental, in addition to those for which it is performing services.

Click on the image at right for a graph detailing active projects owned or co-owned by Occidental, by industry sector.

During the third quarter, Occidental's Oxy Low Carbon Ventures (OLCV) and 1PointFive subsidiaries started site preparation on the first in a series of direct air capture (DAC) projects planned for Ector County, Texas. The $125 million DAC 1 is designed to capture 500,000 metric tons per year of CO2 directly from the atmosphere, so Occidental can use the CO2 for its enhanced oil recovery (EOR) in the Permian Basin. Construction is expected to begin in January. The proposed DAC 2, which would double the capacity, is under evaluation. Construction could begin in early 2024, if approved.

But the much-anticipated project was unable to escape the recent global surge in inflation. Rising cost pressures, especially for construction materials and labor, forced Occidental to hike its estimated investment in the full series of projects set for Ector County about 22%, to $1.1 billion. Schedules and details are not yet available for the remaining DAC units. Subscribers to Industrial Info's Global Market Intelligence (GMI) Oil & Gas Project Database can read detailed project reports for DAC 1 and DAC 2.

The Ector County project is the latest in a string of big-ticket low-carbon projects spearheaded by Occidental and its subsidiaries. Last year, OLCV agreed to the offtake and permanent geologic storage of CO2 captured from NextDecade Corporation's (NASDAQ:NEXT) (Houston) planned Rio Grande liquefied natural gas (LNG) project in the Port of Brownsville, Texas.

The CO2 will be transported via pipeline and permanently sequestered at OLCV's nearby CO2 Sequestration Hub, in an underground geologic formation in the Rio Grande Valley. Occidental says the area is ideal for vast CO2 storage capacity. Subscribers can read detailed project reports on the Rio Grande LNG project and CO2 Sequestration Hub.

Despite making strides in the carbon-capture arena, Occidental has been facing consistent pressure from investors to toughen its goals to reduce greenhouse gas emissions. For more information, see April 28, 2022, article - Valero, Occidental Face New Pressure on Carbon Emissions, CCS.

OxyChem, Occidental's chemicals-focused subsidiary, outperformed expectations during the third quarter as chlor-alkali prices and conditions in the caustic soda market continued to strengthen, and an expected softening in the PVC markets failed to materialize. OxyChem is planning a conversion and expansion of its Battleground Chlor-Alkali Plant in La Porte, Texas, to boost its production of chlorine and caustic soda, which currently stand at 527,800 and 580,000 metric tons per year, respectively. One executive said that converting the facility from diaphragm-cell to membrane-cell technology could boost production by as much as 80%. Subscribers can learn more from Industrial Info's project report.

Occidental's capital expenditures totaled about $1.15 billion during the third quarter, nearly double the $656 million invested in third-quarter 2021, and a steady increase from the first and second quarters of 2022. This corresponds with a steady increase in production for each quarter this year, a trend the company expects to continue into the fourth quarter, when production is expected to exceed 1.2 million barrels of oil equivalent (BOE) per day.

"As our 2022 plan anticipated increased activity throughout the year, our fourth-quarter capital spend is expected to be higher than prior quarters this year," said Rob Peterson, the chief financial officer of Occidental, in a quarterly earnings-related conference call. "The activity added in the second half of this year will place us in a strong position for 2023, as our Permian production grew by over 100,000 BOE per day in the first quarter."

Peterson said Occidental's fourth-quarter production is expected to grow about 18% from the fourth quarter of last year, which stood at 1.19 billion BOE.

Subscribers to Industrial Info's GMI Project Database can click here for a full list of detailed reports for projects mentioned in this article, and click here for a full list of related plant profiles.

Subscribers can click here for a full list of reports on projects owned or co-owned by Occidental and its subsidiaries.

Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) platform helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking more than 200,000 current and future projects worth $17.8 trillion (USD).