Occidental Petroleum’s DAC Strategy 2025: AI and Alliances Build a Carbon Capture Business

Occidental Petroleum’s DAC Projects: From R&D to Commercial Scale

Occidental Petroleum has transitioned its Direct Air Capture (DAC) strategy from technology acquisition and pilot planning to full-scale commercial execution, a shift validated by major external capital injections and high-volume carbon credit sales.

• Between 2021 and 2024, the company laid the foundation by acquiring DAC innovator Carbon Engineering for $1.1 billion and securing pre-construction offtake agreements with buyers like Airbus, signaling market interest in future carbon removal capacity.
• In 2025, the strategy materialized with the construction of the $1.3 billion Stratos plant in Texas, which is designed to capture 500,000 metric tons of CO₂ per year and is nearing operational status.
• The commercial model was validated in 2025 through a multi-year deal with Microsoft to sell credits from 500,000 metric tons of captured CO₂, directly linking DAC technology to offsetting the emissions of the power-intensive AI industry.
• Expansion is already being planned, with a 2025 agreement to evaluate a joint venture with ADNOC for a second DAC facility, backed by a potential $500 million investment, demonstrating a repeatable model for scaling with partners.

Investment Analysis: How Occidental Petroleum is Funding its DAC Ambitions

Occidental Petroleum is de-risking its capital-intensive DAC business by securing over $1 billion in third-party financing from major financial institutions and state-backed entities, supplementing the strong cash flow from its legacy energy operations.

• The $550 million investment from BlackRock in the Stratos project in November 2023 provided critical financial validation from a mainstream asset manager, signaling confidence in the long-term economic viability of large-scale DAC.
• An agreement in May 2025 to evaluate a joint venture with ADNOC’s investment firm for a potential $500 million investment in a second DAC hub demonstrates a clear strategy to use international capital to fund its U.S.-based expansion.
• The company’s own foundational $1.1 billion acquisition of Carbon Engineering in August 2023 was a strategic capital allocation decision to vertically integrate and control the core technology essential for its low-carbon ventures.
• This external funding is made possible by Occidental’s robust internal financial performance, including generating $3.2 billion in operating cash flow in Q3 2025, which provides the underlying capital to launch these new growth initiatives.

Table: Key Investments in Occidental Petroleum’s Direct Air Capture Strategy

Strategic Partnerships: Occidental Petroleum’s Alliances for DAC Commercialization

Occidental Petroleum has constructed a purpose-built partnership ecosystem designed to secure technology, capital, and market demand to accelerate the commercialization of its Direct Air Capture business.

• The partnership with Microsoft, formalized in a 2025 carbon removal deal, establishes a crucial commercial loop where Occidental directly monetizes its DAC technology by helping the tech sector manage its growing AI-related carbon footprint.
• The 2025 agreement with ADNOC serves a dual strategic purpose by securing a potential major investor for U.S. projects while simultaneously creating a pathway to deploy DAC technology internationally in the UAE.
• A forward-looking partnership with fusion energy company TAE Technologies, announced in August 2025, addresses the long-term challenge of powering energy-intensive DAC facilities with a clean energy source, aiming for a fully decarbonized value chain.
• The acquisition of carbon removal startup Holocene in April 2025 strengthens Occidental’s internal research and development capabilities, ensuring it remains at the forefront of DAC technology innovation.

Table: Key Partnerships in Occidental Petroleum’s DAC and Clean Tech Ecosystem

Geographic Focus: Occidental Petroleum’s Texas Hub and Global DAC Expansion

Occidental Petroleum’s Direct Air Capture strategy is anchored in Texas, where it leverages existing operational expertise and favorable geology for CO₂ sequestration, while simultaneously executing a clear plan for global expansion into the Middle East.

• From 2021 to 2024, activities were concentrated in Texas, focusing on project development for the Stratos plant in Ector County and receiving potential U.S. Department of Energy funding for a future South Texas DAC Hub.
• In 2025, Texas remains the primary execution hub, with the Stratos plant nearing completion and a second potential facility in Kleberg County being evaluated with partner ADNOC.
• The company’s global ambitions became concrete in 2025 through its partnership with ADNOC to evaluate a DAC deployment in the UAE, marking its first major step to replicate the business model internationally.
• The securing of a final EPA permit in April 2025 for the Bluebonnet CO₂ sequestration site in Texas further cements the region as the critical operational backbone for the company’s end-to-end carbon management value chain.

DAC Technology Maturity: Occidental’s Path from Acquisition to Commercial Operation

Occidental Petroleum has systematically advanced its Direct Air Capture technology from an acquired, pre-commercial asset to a fully operational system at commercial scale, with progress now centered on AI-driven optimization and proving the economic model.

• In the 2021-2024 period, the technology was in a development phase, defined by the $1.1 billion acquisition of Carbon Engineering in 2023 to own the core IP and the signing of offtake agreements based on future, unbuilt capacity.
• By 2025, the technology has reached commercial demonstration with the near-completion of the Stratos plant, a facility designed to prove the technology’s viability at a scale of 500,000 metric tons per year.
• The integration of AI in 2025 to create a “digital twin” of the Stratos plant for operational optimization signals a strategic shift toward creating a standardized, repeatable, and efficient deployment model for future facilities.
• However, the company’s acknowledgement in September 2025 that the DAC model currently “lacks bankability” indicates that while technologically advancing, its economic viability is still maturing and remains dependent on strategic financing and premium carbon credit pricing.

SWOT Analysis: Occidental Petroleum’s Competitive Position in Carbon Capture

Occidental Profit Surpasses Estimates Amid Price Surge

This Reuters chart shows Occidental’s profit topping estimates, a result attributed to soaring oil prices. This financial result is a key indicator of the company’s underlying strength.

(Source: Reuters)

Occidental Petroleum’s most significant competitive advantage is its integrated, first-mover strategy in large-scale DAC, but this is counterbalanced by the considerable threat posed by the technology’s high costs and deep reliance on external financing and favorable policy.

• The company’s key strength has evolved from its historical expertise in CO₂ handling for EOR to direct ownership and commercial validation of a complete DAC-to-sequestration value chain.
• Its primary weakness is the explicit financial risk of the DAC business model, which transforms the need for partners and subsidies from a choice into a core strategic dependency.
• The opportunity has crystallized from a general belief in carbon markets to a specific, multi-trillion-dollar market opportunity focused on decarbonizing high-growth sectors like AI.
• The competitive threat has sharpened, with peers focusing AI on optimizing already-profitable core assets, presenting a lower-risk, higher-return alternative to Occidental’s capital-intensive venture into a nascent industry.

Table: SWOT Analysis for Occidental Petroleum’s DAC Strategy

2026 Outlook: Scaling DAC Operations and Monetizing Carbon Credits

Visualizing Occidental’s Projected 2025 Financial Outlook

According to GuruFocus, this chart projects Occidental Petroleum’s financial outlook for the 2025 fiscal year. These projections offer a data-driven view of the company’s expected future performance.

(Source: GuruFocus)

Occidental Petroleum’s primary objective for the year ahead is the successful commissioning of its Stratos plant and securing the final investment decision for its second DAC facility, actions that are essential to prove the scalability and economic viability of its carbon management business.

• The company’s projection that non-oil and gas projects will add approximately $1 billion in free cash flow improvement in 2026 will be a critical financial metric to watch, as it represents the first major return on its low-carbon investments.
• A final decision on the joint venture with ADNOC for the South Texas DAC Hub will be the next major validation point, proving the model can be replicated and scaled with international capital.
• The operational performance of the Stratos plant after it starts up in late 2025 will be heavily scrutinized to determine if AI-driven optimizations can deliver the cost and efficiency gains needed to make the DAC model profitable.
• Securing additional large-scale carbon removal offtake agreements, similar to the Microsoft deal, will be necessary to underwrite the financing of future plants and demonstrate sustained market demand for premium DAC credits.

Frequently Asked Questions

What is Occidental’s primary Direct Air Capture (DAC) project and what is its capacity?
Occidental’s primary project is the Stratos plant, a $1.3 billion facility located in Texas. It is designed to capture 500,000 metric tons of CO₂ per year and is nearing operational status as of 2025.

How is Occidental financing its expensive DAC strategy?
Occidental is using a multi-faceted funding strategy. It secured a $550 million investment from BlackRock for the Stratos project, is evaluating a potential $500 million investment from ADNOC for a second facility, and supplements this external capital with strong cash flow from its legacy energy operations, which generated $3.2 billion in Q3 2025.

Who is buying the carbon removal credits from Occidental’s DAC plants?
Occidental has secured a multi-year deal with Microsoft in 2025. Microsoft will purchase carbon removal credits corresponding to 500,000 metric tons of captured CO₂ to help offset the emissions from its power-intensive AI operations.

What is the core technology Occidental is using for DAC, and how did it acquire it?
The core technology comes from the innovator Carbon Engineering. Occidental vertically integrated this technology by acquiring Carbon Engineering for $1.1 billion in August 2023, giving it direct control over the technology’s development and deployment.

What is the biggest risk or weakness in Occidental’s DAC business model?
The primary weakness is the financial risk and high cost. The company itself acknowledged in September 2025 that the DAC model currently “lacks bankability.” This makes the strategy highly dependent on securing external financing from partners like BlackRock and ADNOC, as well as on favorable government policies and premium pricing for carbon credits.