Can Occidental Petroleum Achieve Carbon Neutrality?

Occidental Petroleum Corporation OXY CEO Vicki Hollub has announced the company's goal of becoming fully carbon-neutral.

This is not just an ambitious goal: it's a first among U.S. oil and gas producers, and one that has a very distant time horizon, according to Raymond James. 

The sell-side firm dissected the goal in a Tuesday note from the perspective of Occidental's decarbonization strategy, which revolves around carbon capture for Permian enhanced oil recovery. 

The Analyst

Raymond James’ Pavel Molchanov maintains a Strong Buy on Occidental Petroleum.

The Thesis

Economic considerations, green PR advantages and shareholder pressure are driving many corporate initiatives to reduce and even eliminate carbon footprint, Molchanov said in the Tuesday note. 

In the oil and gas industry, such moves are largely unheard of, the analyst said.

This is because an oil-producing company’s carbon footprint is comprised of two aspects, Molchanov said: direct CO2 emissions from underlying operations like rigs, trucks, pipelines and CO2 injection at mature oilfields and indirect emissions when the petroleum is burned by cars and trucks.

Occidental's carbon-neutrality goal envelopes both these aspects, although management has given no indications of a timeline, the analyst said.

The company would not be able to achieve the goal before at least 2030, Molchanov said. In the meantime, the oil company could pursue the simpler target of offsetting direct emissions, he said. 

The company’s Permian holdings use more CO2 than any other North American basin, according to Raymond James.

To achieve carbon-neutrality, the long-term aim is to meet the Permian needs with captured CO2, Molchanov said. This will involve an escalation in costs, but tax credits will significantly reduce the cost impact, he said. 

If Occidental Petroleum is able to reach 100-percent captured CO2 in the Permian, it will record operating cost savings of $450 million, boosting its earnings by up to 45 cents per share, according to Raymond James. 

Price Action

Occidental Petroleum shares were down 0.8 percent at $66.64 at the time of publication Tuesday. 

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