Occidental Petroleum (OXY), a name synonymous with energy, chemicals, and increasingly, carbon management, recently held its Q1 2024 earnings call. While most analysts focused on the expected highlights – robust production, Delaware appraisal success, and the upcoming CrownRock acquisition – something else caught my attention. Something subtle, yet potentially transformative. It's the quiet emergence of Occidental's Permian EOR operations as a major force in their long-term strategy.

What's so remarkable about this seemingly "conventional" segment? It lies in the intersection of two seemingly disparate worlds – Occidental's legacy EOR expertise and their ambitious low-carbon ventures. Occidental is not just aiming to be a leader in oil and gas production, they're positioning themselves to become a dominant force in the **future of net-zero oil**.

This future hinges on the development of their Direct Air Capture (DAC) technology, spearheaded by their acquisition of <a href="https://carbonengineering.com/" alt="Carbon Engineering">Carbon Engineering</a>. Occidental envisions capturing atmospheric CO2 using DAC and utilizing it to enhance oil recovery in their vast Permian EOR fields. This isn't just a clever way to dispose of captured carbon, it's a revolutionary approach to producing oil with a **net-zero carbon footprint**.

Let's delve into the numbers. Occidental boasts a staggering 2 billion barrels of potentially recoverable oil remaining in their Permian EOR operations. Their current EOR production stands at roughly 110,000 BOE per day. While the 2024 plan focuses on modest production increases (around 4,000 BOE per day), the real impact comes later. Richard Jackson, President of U.S. Onshore Resources and Carbon Management, emphasized the "mid-cycle" nature of these investments. The production from EOR wells doubles in the second year and triples in the third year after initial investment. This means that the modest 4,000 BOE per day added in 2024 translates to a potential 12,000 BOE per day by 2027.

And this is just the beginning. Imagine the possibilities as Occidental scales up its DAC operations and starts injecting captured CO2 into their EOR fields. They can significantly increase production beyond those initial 2 billion barrels, extending the life of these fields potentially by decades. This is where <a href="https://www.berkshirehathaway.com/" alt="Warren Buffett">Warren Buffett</a>'s keen investment eye comes into play. His massive stake in Occidental reflects a bet not just on their current success, but on their **visionary long-term strategy**.

Occidental is strategically aligning its capital allocation to support this vision. While their unconventional Permian assets are undoubtedly attractive, they represent a short-cycle, high-decline segment. In contrast, EOR offers a low-decline, long-term source of production, perfect for leveraging the continuous CO2 supply from DAC.

Projected Permian EOR Production Growth

Reference: Based on data from Occidental Petroleum's Q1 2024 Earnings Call Transcript.

The financial implications are profound. As Occidental builds out its DAC and EOR infrastructure, they create a "virtuous cycle" where captured carbon drives sustainable oil production. This unlocks tremendous value, independent of commodity price cycles.

Here's a hypothetical scenario: Assuming Occidental can capture and inject 1 million tonnes of CO2 annually using DAC, and each tonne of CO2 produces roughly 3 barrels of oil, this translates to an additional 3 million barrels of oil produced annually. At $70 per barrel, that's $210 million in incremental revenue. As DAC technology matures and costs decrease, Occidental can further increase capture rates, amplifying these financial benefits.

Occidental Petroleum Key Financial Data

Occidental is not just adapting to the energy transition, they're shaping it. They're betting that the demand for oil will persist even as the world seeks to decarbonize. Their vision for net-zero oil could be the key to bridging this gap, positioning Occidental as a sustainable energy leader for decades to come. This quiet Permian powerhouse, fueled by captured carbon, is a force to be reckoned with. And it's something that, in my view, warrants closer attention from any astute analyst.

"Fun Fact: Occidental Petroleum is a major player in the Permian Basin, a region so rich in oil that it's often called "The Saudi Arabia of America." The Permian holds an estimated 75 billion barrels of recoverable oil, making it one of the most valuable oil fields in the world."