Occidental Petroleum's Bold $1.1B Move Into DAC: Analyst Deciphers The Future Impact On Revenue And Debt

Truist Securities analyst Neal Dingmann reiterated a Buy rating on the shares of Occidental Petroleum Corp OXY with a price target of $80.00.

Occidental announced the $1.1 billion acquisition of existing technology provider Carbon Engineering Ltd in order to expedite future direct air recapture (DAC) projects.

While the purchase price is not terribly material for OXY, the purchase price is large enough to understand the company’s future DAC focus, noted the analyst.

While the analyst would have likely preferred OXY to use the $1.1 billion for debt repayment first, the analyst understands the need to strengthen the DAC iron is hot. 

The analyst believes the new company should soon generate incremental revenue from technology licensing and royalties, among other things.

Following last week’s DOE announcement of OXY’s IRA-funded award regarding the South Texas DAC Hub, today’s acquisition reinforces OXY’s long-term commitment towards DAC technology playing a key role in the company’s low carbon ventures, said the analyst.

The deal, according to the analyst, not only brings the IP rights and expertise under the OXY umbrella through its 1PointFive subsidiary, but it also creates a new technology based revenue stream through licensing and royalties agreements of Carbon Engineering’s technology.

OXY has a DAC specific construction partnership with global engineer and constructor, Worley Ltd WYGPF that will likely continue to grow alongside the DAC program, added the analyst.

Related: Occidental Subsidiary 1PointFive Bags US DoE Grant To Develop South Texas Direct Air Capture Hub

Price Action: OXY shares are trading higher by 0.81% at $63.03 on the last check Wednesday.