Occidental Makes a Billion-Dollar Climate Moonshot—So It Can Keep Pumping Oil

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About fifty miles southwest of Midland, Texas, deep in the oil-saturated Permian Basin, more than 100 workers are busy laying out roads and water lines, preparing to build an elaborate complex of fans, each as large as a tennis court.

When they start running in 2024, the fans will suck massive amounts of carbon dioxide out of the air. The carbon will be funneled thousands of feet down deep wells into geological formations, where it should remain for centuries.

The company behind this environmental moonshot is Occidental Petroleum Corp., one of the country’s most successful oil-and-gas producers. It hopes the enterprise will give it license to keep operating as a driller decades into the future.

It is spending more than $1 billion to build the first in a planned fleet of plants using direct-air capture to pull the CO2 out of the air, a budding technology with fuzzy economics. Bolstering the move are generous tax incentives included in the climate package President Biden signed into law last year that cover up to 45% of Occidental’s expected initial costs per metric ton.

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Chief Executive Vicki Hollub, who has the blessing of the company’s largest investor, Warren Buffett, said the plan will help it reach net-zero emissions on all its operations, its own energy use and its customers’ use of its products, by 2050, and allow it to keep investing in oil extraction.

Ms. Hollub told investors last year she also expects the clean-energy efforts to eventually become more lucrative than the company’s chemical segment, which manufactures basic chemicals and petroleum-derived products such as vinyls, and is the next-biggest revenue generator after oil and gas. OxyChem’s revenue was $6.7 billion in 2022, roughly 19% of Occidental’s revenue that year, according to the company.

Removing CO2 from the atmosphere at this scale has never been done before, and the enterprise comes with abundant commercial and scientific uncertainties. It is unclear what the appetite for carbon removal will be, how much the service will eventually cost or how massive volumes of buried carbon dioxide will affect the subsurface in the long term.

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Occidental plans to make money with the CO2 removal plant by selling carbon-dioxide removal credits to companies such as airlines, trucking and marine companies that can’t currently switch to clean energy without breaking their business models.

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Many industry experts doubt that direct-air capture can be done economically because the amounts of air that need to be scrubbed are so large. Operating the plants themselves will require massive amounts of energy, which will need to be emission-free to avoid defeating the purpose of the effort, they say.

Occidental executives said it would power the Permian plant with solar energy and additional renewable power from the grid, and it has also looked into potentially powering its plants with mini-nuclear reactors, according to people familiar with the matter.

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Some environmental groups say carbon capture will prolong the world’s dependence on fossil fuel and divert investments that could be poured into renewable energy.

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Ms. Hollub told The Wall Street Journal in August that Occidental’s efforts on carbon capture and on becoming a net-zero emitter would allow it to keep up its investments in oil and gas. She warned that underinvestment in fossil fuels, which she says will be needed for years even amid the broader transition to clean energy, will lead to a scarcity of supplies. In contrast, she said, other oil majors such as BP PLC and Shell PLC have shrunk their oil segment and invested in renewables.

Oil companies will have to find ways to remove as much carbon dioxide as they emit “if they want to be the last producer standing in the world,” Ms. Hollub said.

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