Occidental’s 2025 DAC Gambit: How Carbon Capture is Powering the AI Boom

Industry Adoption: Occidental Petroleum’s Pivot to Powering the AI Era with Direct Air Capture

Between 2021 and 2024, Occidental Petroleum (Oxy) laid the strategic groundwork to transform the burgeoning energy demand from AI and data centers from a climate challenge into a core business opportunity. The period was defined by foundational moves to establish a new carbon management ecosystem. This began with the sanctioning of its flagship STRATOS Direct Air Capture (DAC) plant in August 2022, a greater than $1 billion commitment to move the technology from pilot to commercial scale. To secure its technological leadership, Oxy acquired its DAC partner Carbon Engineering for $1.1 billion in August 2023, vertically integrating the core intellectual property. This phase was about building capacity and validating market interest. Early commercial signals emerged through carbon removal credit offtake agreements with companies like AT&T and TD Bank Group, proving that a tangible product—a verifiable ton of removed CO₂—had buyers. The strategy was clear: build the world’s largest DAC facility and secure the funding through government support, like the up to $600 million DOE grant for a future South Texas hub, and major private capital, such as BlackRock’s $550 million investment.

The period from 2025 to today marks a significant inflection point, shifting from construction and validation to operationalization and strategic expansion. The impending mid-2025 launch of the STRATOS facility is the pivotal event, transitioning the DAC venture from a project into an operating business. This new phase is characterized by deeper, more integrated commercial applications. The announcement that an Oxy-developed gas plant will provide behind-the-meter power for the massive 2 GW “Horizon” AI data center in Texas demonstrates a direct, symbiotic link between Oxy’s traditional energy assets and the AI boom. This is no longer just about selling offset credits; it’s about providing an integrated energy and decarbonization solution. The strategy is also going global, evidenced by the partnership with Abu Dhabi’s ADNOC to evaluate a second major DAC facility. Furthermore, Oxy’s acquisition of DAC startup Holocene in April 2025 signals a move beyond a single technology, indicating a new focus on building a portfolio of carbon capture solutions to drive down costs and improve efficiency, a crucial step for scaling the business to meet the projected demand from the tech sector.

Table: Occidental’s Strategic Investments in Direct Air Capture (DAC) and Enabling Assets

Table: Occidental’s Key Partnerships in Carbon Management and Data Center Enablement

Geographic Expansion: From Texas Hubs to Global Ambition in Carbon Capture

Between 2021 and 2024, Occidental’s DAC strategy was geographically anchored in Texas, specifically the Permian Basin and Gulf Coast regions. This focus was highly strategic, leveraging the company’s deep operational roots, vast natural gas reserves, and decades of experience handling CO₂ for enhanced oil recovery (EOR). The selection of Ector County for the STRATOS plant and the exploration of a hub in Kleberg County were driven by the co-location of favorable geology for sequestration and proximity to industrial emitters and emerging power consumers like data centers and bitcoin miners. This initial phase was about proving the DAC hub model in a controlled, familiar environment where Oxy held a distinct home-field advantage. The entire ecosystem, from CO₂ capture to pipeline transport (via partnerships like Enbridge) and sequestration, was envisioned within this Texas-centric framework.

From 2025 onwards, the geographic strategy has evolved from a localized proof-of-concept to a blueprint for global replication. While Texas remains the operational core—solidified by the direct power supply arrangement for the “Horizon” data center in West Texas—the partnerships forged in 2025 reveal a much broader ambition. The collaboration with Abu Dhabi’s ADNOC to evaluate a joint venture for a DAC plant in South Texas, with a potential follow-on facility in the UAE, is the most significant signal of this shift. It marks the first major step in exporting the Texas hub model to another key global energy center. This move not only brings in international capital and validation but also positions Oxy to serve multinational tech companies with data center footprints in the Middle East and beyond. The strategy is no longer just about a single location but about creating a network of DAC hubs in regions with the right geological and industrial characteristics.

Technology Maturity: Occidental’s Journey from Commercializing to Scaling DAC

In the 2021-2024 period, Occidental’s primary technological achievement was advancing DAC from a promising concept to a bankable, commercial-scale project. The key validation point was the August 2022 final investment decision on the STRATOS plant, which moved DAC out of the lab and into construction. The technology, acquired through Carbon Engineering, was solidified as a commercial offering. The “product” was also clearly defined: a high-integrity, verifiable carbon dioxide removal (CDR) credit. Market validation for this product came through the initial offtake agreements with corporate buyers like AT&T and financial institutions like TD Bank, and was cemented by the landmark deal with Microsoft in July 2024. This period proved that there was a paying market for DAC-based carbon removal, underwritten by both corporate ESG goals and supportive government policies like the 45Q tax credit.

The period from 2025 to today represents a shift in technological focus from *commercialization* to *operationalization and optimization*. The imminent mid-2025 launch of STRATOS will be the ultimate test of the technology’s performance at scale, with the market closely watching its operational costs and capture efficiency. Beyond this single-plant focus, Oxy is now building a technology portfolio to drive long-term cost reductions. The April 2025 acquisition of Holocene, a DAC startup with a different chemistry, is a critical move. It diversifies Oxy’s technological base and creates pathways for modular designs and lower energy consumption, addressing the key hurdle of DAC’s high cost (currently $400-$600/ton). This signals a more mature strategy focused on creating a technology “flywheel” to bring costs down toward the $100-$200/ton target. Furthermore, the concept of “net-zero oil” via EOR is becoming a more concrete product offering, demonstrating how the DAC technology platform can be leveraged for multiple revenue streams beyond just selling credits.

Table: SWOT Analysis of Occidental Petroleum’s Direct Air Capture Strategy

2026 Outlook: What to Expect from Occidental’s DAC and Data Center Strategy

The data from 2025 signals that Occidental is moving from a high-stakes bet to a structured, scalable business. The year ahead will be less about ambition and more about execution. The most critical signal to watch will be the operational performance of the STRATOS plant post-launch. Market actors should pay close attention to any disclosures on actual cost-per-ton and plant uptime, as this will determine the bankability of future projects and directly impact the company’s projection of adding ~$1 billion in free cash flow from low-carbon ventures by 2026.

Secondly, momentum in commercial offtake is paramount. While the Microsoft deal was a landmark, the business model requires a continuous pipeline of similar, large-scale agreements to underwrite the immense capital required for expansion. Watch for announcements of new carbon removal credit sales, particularly with other FAANG-level tech companies or airlines. A final investment decision on the South Texas DAC Hub, potentially co-financed by ADNOC, would be a major catalyst, confirming that the model is officially in its replication phase. Conversely, any delays in these milestones could signal headwinds. Finally, the potential sale of the OxyChem division for a reported $10 billion or more is a major wildcard. A successful divestiture would inject a massive amount of capital, potentially removing all financing constraints and allowing Oxy to dramatically accelerate its transformation into the energy and decarbonization backbone of the AI revolution.

Frequently Asked Questions

What is Occidental’s core strategy for connecting carbon capture with the AI boom?
Occidental’s strategy is to provide an integrated energy and decarbonization solution for the AI industry. This involves using its traditional assets, like natural gas plants, to supply the massive ‘behind-the-meter’ power required by new AI data centers (such as the 2 GW ‘Horizon’ project) while simultaneously using its Direct Air Capture (DAC) facilities, like STRATOS, to capture and sequester the associated carbon emissions. This moves beyond simply selling carbon credits to offering a combined energy and decarbonization package.

How is Occidental paying for its multi-billion dollar investment in Direct Air Capture (DAC)?
Occidental is funding its DAC ambitions through a multi-pronged financial strategy. This includes significant private capital, such as a $550 million investment from BlackRock; major government support, like an up to $650 million grant from the U.S. Department of Energy; dedicated internal capital allocation ($450 million net CAPEX for its Low Carbon Ventures division in 2025); and securing advance revenue through large-scale carbon removal credit sales to corporations like Microsoft.

Why did Occidental acquire both Carbon Engineering and the startup Holocene?
The acquisitions serve two distinct strategic purposes. The $1.1 billion purchase of Carbon Engineering in 2023 was a vertical integration move to gain full control over the core DAC technology used in the flagship STRATOS plant, allowing Oxy to accelerate deployment and manage costs. The 2025 acquisition of Holocene, which has a different DAC chemistry, diversifies Oxy’s technology portfolio. This move is aimed at creating a ‘technology flywheel’ to drive down the high costs of DAC and improve efficiency, which is crucial for long-term scaling.

What is the significance of the STRATOS DAC facility?
The STRATOS facility, set to launch in mid-2025, is the cornerstone of Occidental’s carbon capture business. As the world’s largest DAC plant with a price tag of over $1 billion, its launch marks the transition of Oxy’s DAC venture from a construction project into a fully operational business. The plant’s performance will be a critical validation of the technology’s commercial-scale viability, cost-effectiveness, and ability to remove 500,000 metric tons of CO₂ per year.

Is Occidental’s carbon capture strategy limited to Texas?
No, while Texas served as the initial proof-of-concept hub, Occidental’s strategy is now global. The period from 2025 onwards marks a shift to replicating its Texas ‘hub model’ in other parts of the world. The most significant evidence of this is the partnership with Abu Dhabi’s ADNOC to evaluate a joint venture for a DAC plant, with a potential follow-on facility in the UAE. This signals a clear ambition to build a global network of DAC hubs to serve multinational clients.