As the global push for net-zero emissions gathers momentum, the carbon capture industry is seeing a flurry of activities. From business pivots to strategic acquisitions and large investments, the market for carbon capture is experiencing unprecedented growth and innovation.
Carbon capture is a process that collects harmful carbon dioxide gas produced by factories and power plants and stores it or uses it in other ways to help combat climate change. Governments are pouring billions of dollars into the carbon dioxide removal industry. The Biden administration, for instance, recently pledged US$1.2 billion to help two U.S. companies remove carbon emissions from the air.
Investors seeking to profit from the fight against climate change may want to look at the followings stocks. These companies are deeply invested in carbon capture and are putting their money where their mouth is.
An independent exploration and production company, Occidental Petroleum (OXY) operates in the United States, Latin America, and the Middle East.
Occidental Petroleum has positioned itself as a net-zero champion within the industry. Its midstream segment also includes Oxy Low Carbon Ventures, which partners with third parties to implement carbon capture, storage, and utilization projects. The unit has ambitious plans to construct between 70 and 135 direct air capture, or DAC, plants in the areas in which it operates, the first of which comes online next year.
“This activity differentiates Oxy from most peers, which merely focus on curtailing their own emissions,” says a Morningstar equity report.
Oxy's extensive experience in sequestering CO2 for enhanced oil recovery positions it to take even more ambitious steps. The company's management has bold plans to establish a network of point-source and direct air capture facilities, initiatives that “should help Oxy get to net zero by 2050, and generate incremental revenue, too,” says Morningstar sector strategist Stephen Ellis, who pegs the stock’s fair value at US$61.
Notably, Oxy recently reached a deal to acquire a Canadian direct air capture startup Carbon Engineering Ltd for US$1.1 billion.
Yet, greenhouse gas emissions will remain an overhang. “While Oxy can reasonably claim it is aiming to be a better corporate citizen than most, given its extensive carbon capture plans, the resulting impact of such interventions on oil prices would be equally painful,” cautions Ellis.
ExxonMobil (XOM) is an integrated oil and gas company that explores, produces, and refines oil.
While the world's largest refiner isn’t pivoting to renewables the same way as its peers, the company has been investing in low-carbon technologies. More recently, XOM pushed into carbon capture by buying oil recovery specialist Denbury for US$4.9 billion. The deal brings Denbury’s carbon capture and storage assets (1,300 miles of CO2 pipelines and 10 onshore sequestration sites) along the Gulf Coast which has an abundance of refineries, chemical plants, and other hydrocarbon-related infrastructure and processing. The region offers ample opportunities for decarbonization investment, particularly carbon capture and storage.
“We view positively Exxon’s break with peers in avoiding investment in renewable power generation, where it lacks expertise and it is difficult to carve out a competitive advantage,” says a Morningstar equity report.
In 2021, ExxonMobil launched Low Carbon Solutions business where it was able to grow emission-reduction opportunities in carbon capture and storage, hydrogen, and lower-emission fuels. The company’s investment in low-carbon solutions focuses “on carbon capture where it's already a leader and where an innovation could ultimately improve the competitive position of its existing operations by reducing emissions in specific projects,” says Morningstar director Allen Good, who recently raised the stock’s fair value to US$118 from US$102, incorporating the latest strategic guidance, financial results, and commodity prices.
Equinor (EQNR) is a Norway-based integrated oil and gas company, of which 67% stake is owned by government. It operates primarily on the Norwegian Continental Shelf with its business footprint including offshore wind, solar, oil refineries and natural gas processing, marketing, and trading.
Equinor recently acquired a 25% stake in Bayou Bend CCS, a carbon capture and storage project on the Texas Gulf coast. The location of the project aligns with Equinor’s goal to process and store between 15 to 30 million metric tons of carbon dioxide annually by the year 2035.
Equinor is also accelerating its push into renewable energy in pursuit of its 2050 net-zero goal. To that end, it plans to boost renewable spending from 12% of total capital investment to over 50% by 2030, a gross US$23 billion spending over the next five years, per a Morningstar equity report.
Capital will also go toward carbon transportation and storage and clean hydrogen projects where Equinor plans to leverage its experience in each area.
“Carbon capture and hydrogen production might also provide an opportunity to form a moat around cost and experience,” says Good, but adds it remains far too early to determine winners in those sectors.
Beyond Norway, Equinor is aiming to maximize free cash flow from its operations by prioritizing key offshore projects such as the Gulf of Mexico, Canada, and Brazil, where the returns are expected to be over 20%.
:quality(80)/cloudfront-us-east-1.images.arcpublishing.com/morningstar/FH5BNWHBTRGKFEK3BXMD5SM3OM.jpg)
:quality(80)/cloudfront-us-east-1.images.arcpublishing.com/morningstar/FGC25JIKZ5EATCXF265D56SZTE.jpg)
:quality(80)/cloudfront-us-east-1.images.arcpublishing.com/morningstar/5WSHPTEQ6BADZPVPXVVDYIKL5M.png)
:quality(80)/cloudfront-us-east-1.images.arcpublishing.com/morningstar/Q3KIND5VXRCNHHH6JQHCCYBSSA.png)
