Occidental Pays $1.1 Billion to Make Direct Air Capture a 'Preferred Solution'

Occidental agreed in August 2023 to pay $1.1 billion for Carbon Engineering, the Canadian company behind its direct air capture technology. Three months later, it brought in BlackRock to put $550 million into STRATOS, the large Texas plant its subsidiary 1PointFive was building. One deal bought the know-how. The other shared the cost of using it.

Key takeaways

• Occidental Petroleum agreed on 15 August 2023 to acquire all the outstanding equity of Carbon Engineering, a direct air capture technology company, for $1.1 billion in cash, payable in three annual instalments.
• Carbon Engineering becomes a wholly owned subsidiary of Oxy Low Carbon Ventures, and its research and development continues from its Innovation Center in British Columbia.
• Occidental and Carbon Engineering had worked together on direct air capture since 2019, and in June 2022 Occidental's subsidiary 1PointFive partnered with Carbon Engineering to deploy direct air capture plants worldwide.
• In November 2023, BlackRock agreed to invest $550 million in the STRATOS direct air capture facility in Ector County, Texas, which is designed to capture 500,000 tonnes of CO2 a year.
• Of 165 carbon capture and storage transactions Enerdatics records from 2022 to 2024, 23 carry a disclosed value, and the $1.1 billion Carbon Engineering deal is the second largest of them.

What is direct air capture, and what did Occidental buy?

Direct air capture, or DAC, pulls carbon dioxide out of ordinary air rather than from a smokestack. It can remove CO2 that is already in the atmosphere, not just prevent new emissions. The captured gas is then stored underground or used in products.

Occidental bought the company that designs the process. Carbon Engineering works on large-scale DAC and on Air to Fuels technology, which turns captured CO2 into fuel. Its approach uses standardised processes and proven industrial equipment, which is meant to make plants easier to copy at scale.

The deal moves the technology in-house. Before it, Occidental relied on Carbon Engineering as a partner. Under the 2022 arrangement, Carbon Engineering supplied the DAC technology and 1PointFive built and deployed the plants, with local partners bringing regional experience. After the deal, Occidental owns both halves.

Why pay $1.1 billion for a technology partner?

Because licensing the technology to others is part of the plan. Occidental said it expects the acquisition to drive technology innovation, reduce DAC costs and create new revenue streams through technology licensing and royalties. Owning the intellectual property lets it earn from DAC plants it does not build itself.

Scale is the other reason. In 2022, 1PointFive set out a scenario of deploying 70 DAC facilities by 2035, each with capacity of up to 1 million tonnes a year. It estimated that up to 135 could be deployed with stronger policy support and more demand from voluntary carbon markets. A company planning that many plants has a strong reason to own the design rather than pay for it each time.

Occidental framed the purchase around its net-zero strategy. It wants to make DAC technology a preferred solution for businesses trying to address hard-to-abate emissions, meaning emissions that are difficult to cut at the source.

How is Occidental paying for it?

In instalments, which spreads the cost over three years. The $1.1 billion is due in three annual cash payments rather than at closing.

Enerdatics estimates that the transaction will be financed through a combination of cash on hand and debt. That estimate rests on two facts. Occidental held $984 million of cash as of 31 December 2022, less than the full price. It also had a $4 billion credit agreement, signed in December 2021, maturing on 30 June 2025.

The plant itself is being funded differently. BlackRock's $550 million, invested through a fund managed by its Diversified Infrastructure business, goes into a joint venture with 1PointFive that will own STRATOS. If Enerdatics' financing estimate holds, Occidental is paying for the technology from its own balance sheet while bringing outside capital into the first large asset.

STRATOS was about 30% complete when BlackRock signed and was expected to start commercial operation by mid-2025. 1PointFive had already signed CO2 credit purchase agreements with Amazon, Airbus, ANA, TD Bank Group, the Houston Astros and the Houston Texans. Buyers of those credits pay for verified tonnes of CO2 removed from the air.

How does the deal compare with other carbon capture transactions?

It is one of very few priced deals at this scale. Enerdatics' data shows that of 165 carbon capture and storage transactions recorded between 2022 and 2024, 126 are joint ventures or partnerships, 27 are corporate deals and 12 are asset deals. Only 23 carry a disclosed value.

Among those 23, the Carbon Engineering acquisition ranks second. The largest is the $1.8 billion business combination between AMCI Acquisition Corp. II and LanzaTech in March 2022. Below Occidental's deal sit Climeworks' $650 million funding round led by Partners Group and GIC in April 2022, Brookfield's $550 million investment in LanzaTech in October 2022, BlackRock's $550 million STRATOS investment, and Brookfield's $500 million initial capital commitment for 49% of California Resources Corporation's carbon capture projects in August 2022.

The pattern is clear. Most capital in carbon capture moves through partnerships with no disclosed price, and the priced deals are dominated by funding rounds and project investments. An outright purchase of a technology company for over $1 billion is rare in the data.

What does the deal signal for carbon removal?

It signals that Occidental would rather own the technology than rent it. Occidental already had a working partnership with Carbon Engineering and a plant under construction. It still chose to pay $1.1 billion to control the design, the research centre and the licensing rights.

It also shows how carbon removal projects will be financed. The pattern is to keep the intellectual property and the operating role, and to bring in infrastructure investors for the capital-heavy plants. The same split between owners and capital partners shows up in carbon storage, from supermajors sharing a stake in Texas's Bayou Bend CCS project to newer carbon storage joint ventures in Oklahoma.

The transaction was expected to close by the fourth quarter of 2023, subject to Canadian court review, Canadian and US regulatory approvals and customary conditions.

Frequently asked questions

How much did Occidental pay for Carbon Engineering?Occidental agreed to pay $1.1 billion in cash for all the outstanding equity of Carbon Engineering, in three annual instalments.

What is the STRATOS facility?STRATOS is a direct air capture plant in Ector County, Texas, being built by Occidental's subsidiary 1PointFive. It is designed to capture 500,000 tonnes of CO2 a year, and BlackRock agreed to invest $550 million in it in November 2023.

How is the Carbon Engineering acquisition being financed?Enerdatics estimates it will be funded through cash on hand and debt. Occidental had $984 million of cash at the end of 2022 and a $4 billion credit agreement maturing in June 2025.

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