Against a modestly negative backdrop on Wall Street, shares of Occidental Petroleum (NYSE:OXY) — a hydrocarbon exploration specialist — moved conspicuously higher. Undergirding sentiment is BlackRock (NYSE:BLK), which will invest $550 million into Occidental’s carbon capture project called Stratos. Subsequently, OXY stock gained on the potential of a massive total addressable market.
According to The Wall Street Journal, Occidental disclosed after its third-quarter earnings report that the multinational investment firm would invest more than half a billion dollars in the energy firm’s first major project to remove carbon dioxide directly from the atmosphere. Also, the news agency states that the investment is one of the largest in the nascent carbon removal industry.
Just as importantly, the deal coincides with significant government cash infusion into carbon capture ventures. Per Morgan Stanley, the broader voluntary carbon offset market reached a valuation of $2 billion in 2020. Moreover, experts project that by 2050, this sector could hit $250 billion.
Notably, the BlackRock investment represents about 40% of the Stratos project’s $1.3 billion total cost, according to Bloomberg. Further, a key benefit for OXY stock is that the underlying company’s share of the cost is reduced. This frees up capital for Occidental’s Permian Basin oil and gas operations.
OXY Stock Gains on Positive Implications
Naturally, investor enthusiasm centered on the upside implications for OXY stock. While it hasn’t performed well this year in the market, the core hydrocarbon business is relevant amid broader social normalization trends. Cynically, electric vehicle (EV) demand has also stagnated. However, the direct-air capture sector could be the catalyst to break Occidental out of its current consolidation pattern.
Per Bloomberg, Stratos will feature the capacity to pull 500,000 tons of carbon dioxide out of the air each year. That’s roughly the equivalent of emissions from 1 million barrels of oil. Later, Stratos will bury the gas underground, thus generating carbon removal credits. Enticingly for stakeholders of OXY stock, Amazon (NASDAQ:AMZN) and Airbus (OTCMKTS:EADSY) have already agreed to buy some of these credits.
Currently under construction in Ector County in West Texas, Stratos should go live in 2025. Today, it’s about 30% complete.
Interestingly, even BLK gained about half a percent in the charts, likely on the direct-air capture market’s potential. Data compiled by the Boston Consulting Group estimates that the annual demand for carbon removal should amount to around 40 to 200 million metric tons (MT) of carbon dioxide in 2030. And this figure may grow to 80 to 900 MT in 2040.
In financial terms, carbon removal may have a $10 billion to $40 billion market opportunity in 2030. This range jumps to $20 billion to possibly $135 billion in 2040.
Why It Matters
Adding to enthusiasm for OXY stock, Occidental posted earnings per share of $1.18, beating the consensus estimate of 89 cents. On the top line, the company rang up sales of $7.4 billion, also beating the analyst view, which landed at $7.2 billion. Overall, OXY carries a moderate buy rating with a $70.50 per-share price target.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
