Occidental Petroleum’s 2025 Direct Air Capture Strategy: Projects, Investments, and Market Outlook

Occidental’s Commercial-Scale DAC Projects Signal a Strategic Shift

Occidental Petroleum has decisively transitioned its Direct Air Capture (DAC) strategy from early-stage development to building a commercial-scale, vertically integrated business aimed directly at the technology sector’s growing carbon footprint. This shift positions Occidental not just as an energy producer, but as a critical carbon management service provider for the AI-driven economy.

• Between 2021 and 2024, Occidental’s strategy focused on establishing foundational partnerships and securing early market validation. This included the $1.1 billion acquisition of technology developer Carbon Engineering and an initial offtake agreement with Airbus for 400,000 metric tons of carbon removal credits.
• The year 2025 marks a pivot to execution and scale, with the STRATOS DAC plant in Texas scheduled to begin commercial operations. This project, designed to capture 500,000 metric tons of CO₂ annually, moves Occidental’s DAC ambitions from planning to physical asset operation.
• The commercial model was solidified in 2025 through a landmark offtake agreement with Microsoft to sell 500,000 metric tons of carbon removal credits. This deal directly links Occidental’s carbon management services to the emissions generated by the energy-intensive AI industry.
• The establishment of an AI Center of Excellence in early 2025 formalizes a corporate-wide commitment to using AI to optimize DAC operations. This initiative is critical for driving down the high operational costs that executives admit currently challenge the business model’s “bankability”.

Analyzing Occidental’s Capital Strategy for DAC Investment

Occidental is funding its capital-intensive DAC projects by reallocating capital from legacy assets, securing major partner investments, and leveraging government support, signaling a clear strategic commitment to its low-carbon business unit.

• The October 2025 sale of the OxyChem division to Berkshire Hathaway for $9.7 billion is a pivotal transaction. It provides a massive capital infusion that allows Occidental to reduce debt and channel significant funds toward its high-growth DAC ventures.
• Investment from financial institutions provides strong market validation, highlighted by BlackRock’s commitment of $550 million in May 2025 to co-invest in the construction of the STRATOS project.
• The strategy is attracting capital from other major energy players, demonstrated by a potential joint venture with ADNOC announced in May 2025. ADNOC is evaluating an investment of up to $500 million for a new DAC facility in Texas.
• Government incentives are a key component of the funding model. The U.S. Department of Energy has awarded Occidental up to $650 million to support the development of future large-scale DAC hubs, helping to de-risk the new technology.

Table: Occidental’s Key DAC-Related Investments and Divestitures (2025)

Occidental’s Partnership Ecosystem for DAC Commercialization

Occidental has assembled a strategic network of financial, technology, and customer partners to de-risk its DAC business, securing capital for construction, technology for future efficiency, and guaranteed revenue from offtake agreements.

• Customer partnerships are foundational to proving the DAC business model, led by the August 2025 offtake agreement with Microsoft for 500,000 metric tons of carbon removal credits. This locks in demand from a key target market.
• The August 2025 partnership with fusion energy startup TAE Technologies demonstrates a long-term strategy to address the high energy requirements of DAC. The collaboration will explore using clean, reliable fusion power for future facilities.
• The vertical integration achieved through the $1.1 billion acquisition of Carbon Engineering in 2023 was a critical strategic move. It gives Occidental direct control over the core DAC technology, enabling faster innovation and creating a new revenue stream from technology licensing.

Table: Occidental’s Key Strategic DAC Partnerships (2025)

Occidental’s Geographic Focus: Texas as the Epicenter for DAC Growth

Occidental’s Direct Air Capture development is heavily concentrated in the United States, specifically Texas, which serves as the strategic hub for its commercial-scale projects due to favorable geology and established energy infrastructure.

• Between 2021 and 2024, Occidental’s geographic focus was on planning and site selection within the Permian Basin. Ector County, Texas, was chosen for the flagship STRATOS project because of its proximity to CO₂ pipelines and geology suitable for sequestration.
• In 2025, this focus materializes with STRATOS moving toward commercial operations. Future expansion plans, including a potential joint venture with ADNOC for a second large-scale facility, are also centered in Texas.
• While Occidental maintains international partnerships for carbon management, such as with ADNOC in the UAE, its most advanced, commercial-scale DAC deployments remain exclusively in the U.S. to capitalize on domestic policies like the 45Q tax credit.

Occidental’s DAC Technology Maturity: From Pilot to First Commercial Scale

Occidental is driving Direct Air Capture technology from the design and pilot phase toward its first full-scale commercial deployment, with 2025 representing the critical transition from theoretical plans to a tangible, operational asset.

• From 2021-2024, DAC was in a pre-commercial stage for Occidental, defined by the acquisition of the underlying technology from Carbon Engineering and the engineering and design work for STRATOS.
• The year 2025 marks a major inflection point as STRATOS begins commercial operations. This is the first major test of the technology’s operational performance and economics at a significant scale for Occidental and the industry.
• Despite this milestone, an Occidental executive stated in September 2025 that the DAC model is not yet “bankable,” indicating that while technically viable, the technology is not economically self-sustaining without subsidies and significant cost reductions.
• The deployment of AI through the company’s new Center of Excellence is Occidental’s core strategy to accelerate the technology’s journey down the cost curve by optimizing the plant’s chemical processes and high energy consumption.

SWOT Analysis: Occidental Petroleum’s Position in the DAC Market

Occidental’s primary competitive advantage is its first-mover position and integrated model in the U.S. DAC market, though this strength is currently challenged by the technology’s high costs and reliance on government policy and premium-paying customers.

• Strength: Occidental’s integrated model, combining proprietary technology with large-scale project execution and subsurface expertise, creates a significant barrier to entry.
• Weakness: The high cost and energy intensity of DAC technology make the business model’s profitability dependent on tax credits and high-priced carbon removal agreements.
• Opportunity: The surging energy demand and carbon footprint of the AI industry create a massive, addressable market for Occidental’s carbon removal services.
• Threat: Growing competition from other DAC developers like Climeworks and CarbonCapture Inc., who are also scaling their own projects, could increase pressure on pricing and market share.

Table: SWOT Analysis for Occidental Petroleum’s DAC Strategy

Future Outlook: Cost Reduction at STRATOS is the Critical Next Step

Occidental’s success in 2026 will be defined by its ability to prove that its AI-driven optimization strategies can deliver significant operational cost reductions at the STRATOS DAC plant and make the carbon capture business model economically viable.

• With the admission in late 2025 that the DAC model is not yet “bankable,” all focus now shifts to the operational performance data from STRATOS. Proving a clear path to profitability is paramount.
• The $9.7 billion in capital from the OxyChem divestiture must be deployed effectively to fund the DAC business until it can generate positive free cash flow, a milestone some analysts believe is a “2027 story” or later.
• Future growth depends on replicating the success of the Microsoft deal. The market will closely watch whether other technology companies sign similar large-scale, premium-priced offtake agreements for permanent carbon removal.
• The forward-looking partnership with TAE Technologies for fusion energy, while long-term, signals that Occidental recognizes that solving the DAC cost problem is fundamentally linked to solving the clean and low-cost energy input problem.

Frequently Asked Questions

What is Occidental’s flagship Direct Air Capture (DAC) project and when will it be operational?
Occidental’s flagship project is the STRATOS DAC plant located in Texas. It is designed to capture 500,000 metric tons of CO₂ annually and is scheduled to begin commercial operations in 2025.

How is Occidental funding its expensive DAC strategy?
Occidental is funding its DAC projects through a three-pronged capital strategy: 1) Reallocating capital from legacy assets, highlighted by the $9.7 billion sale of its OxyChem division; 2) Securing major partner investments, such as $550 million from BlackRock; and 3) Leveraging government support, including up to $650 million from the U.S. Department of Energy.

Why is Occidental targeting the AI and technology industry with its carbon removal services?
Occidental is targeting the AI industry because its rapid growth and high energy consumption create a massive, addressable market for carbon removal services. This strategy was validated by a landmark 2025 offtake agreement with Microsoft to purchase 500,000 metric tons of carbon removal credits, directly linking Occidental’s DAC services to Big Tech’s carbon footprint.

Is Occidental’s DAC business profitable yet?
No, it is not. According to the report, an Occidental executive stated in late 2025 that the DAC model is not yet “bankable,” meaning it is not economically self-sustaining. Its current financial viability depends on government tax credits and securing premium-priced offtake agreements, while the company focuses on using AI to drive down high operational costs.

Who are Occidental’s key partners in its 2025 DAC commercialization plan?
Occidental’s key partners include: Microsoft as a foundational customer with a large offtake agreement; BlackRock and ADNOC as major financial and strategic investors providing capital and project validation; and TAE Technologies for a long-term collaboration to explore using fusion energy to power future DAC plants.