In the Permian Basin of Texas and New Mexico, the racing heart of the U.S. shale oil boom, there is generally not too much soul-searching about the implications for the climate of their production. The availability of truck drivers and pipeline capacity for transporting the oil to market are much more pressing concerns.

Occidental Petroleum Corp., the fifth-largest U.S. oil group by market capitalization and the holder of the largest net acreage of drilling rights in the Permian Basin, is an exception.

Vicki Hollub, president and CEO of Occidental. (Source: Occidental Petroleum Corp.)
“We want to be the
company that’s
producing the last barrel
of oil,” says Vicki Hollub,
president and CEO of
Occidental. (Source:
Occidental Petroleum
Corp.)

Like its rivals including Exxon Mobil Corp. and Chevron Corp., Occidental is one of the key participants in that production boom. In the past three years, it has more than doubled its Permian shale output, and it expects to double it again to 600,000 barrels of oil equivalent a day in the next five years. But at the same time, the company is committed to reducing its carbon footprint.

“I’m thinking about the long term for our shareholders,” Vicki Hollub, Occidental CEO, told the Financial Times in Houston.

“We believe if you’re not addressing these [climate] issues today, you’re going to be behind the game.”

Ultimately, she wants Occidental to be “carbon neutral”: capturing greenhouse gases equivalent to all the emissions arising from its operations, its supply chain and the use of the oil and gas that it produces.

“We feel like that’s the key to sustainability of our business over time,” she said. “If you don’t have that, you almost don’t need to be in operation.”

The way Hollub plans to square that circle is by using CO₂ that would otherwise be released into the atmosphere from factories and power plants. Injecting the gas into oil reservoirs helps squeeze out more crude, a practice known as EOR, and it leaves the CO₂ underground rather than in the atmosphere.

The technique is already well-established for “conventional” oil produced from vertical wells. Occidental has been running pilots of EOR in horizontal shale wells, and Hollub describes them as “technically successful.”

Now the company is working on a plan for a full-field development using EOR for shale in the Midland Basin, on the eastern side of the Permian, which could start production in 2021.

The basic arithmetic looks appealing, in terms of both production and emissions. Occidental estimates that today it is extracting about 11% of the oil in place in its shale reserves; Hollub hopes EOR can raise that to 17% or 18%. At the same time, each molecule of oil produced releases less CO₂ when burnt than was injected into the reservoir to extract.

The company still faces some formidable challenges, however, in scaling those successful pilots up to a full oilfield. “There is a vast amount of shale,” Hollub said. “To make it work, [being] able to design the surface facilities and infrastructure needed to do that is key.”

Standard EOR uses CO₂ from natural sources, extracted by drilling wells. To have a positive impact on emissions, Occidental needs to use CO₂ created by human activity. In November, it invested in a company called Net Power, which is developing an innovative gas-fired power generator that emits a pure stream of CO₂ suitable for EOR. It is also exploring plans for sourcing CO₂ from industrial facilities including ethanol and steel plants.

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A big problem is that centers of industry and population with factories and power plants tend to be a long way from the oil fields in the wide-open spaces of West Texas. As Hollub admits: “A very long pipeline is going to be needed.”

Occidental Petroleum Permian Basin Acreage Map
Source: Occidental Petroleum Fourth-Quarter
2018 Earnings Presentation February 2019

However, carbon capture, use and storage is one of the few climate-related technologies that has been able to win support from Republicans in Congress and the Trump administration, and government support could make Occidental’s plans viable.

Reform of a tax credit known as 45Q last year created a benefit of $35 per tonne for CO₂ captured and used for applications including EOR. “That really made it possible for us to start to put this strategy together here in the United States,” Hollub said.

Further legislation, called the “Use It” act, which includes a range of measures intended to expedite the construction of carbon-dioxide pipelines, has been making progress in Congress with bipartisan support.

Hollub said: “With the combination of those two things, this becomes certainly an economic venture for us.”

As she acknowledges, using CO₂ for EOR “can’t be the whole solution” for the climate threat. The world simply does not have enough suitable oil reservoirs for all the greenhouse gases that it emits.

Still, Hollub argues that to achieve the Paris climate agreement goal of keeping the rise in global temperatures to “well below” 2C, using CO₂ for EOR is one of the technologies that “has to happen.”

It is also, she adds, essential for the future of Occidental. “We’re here for the long term,” she said. “We want to be the company that’s producing the last barrel of oil. And that barrel of oil has to be from CO₂-enhanced oil recovery, because that’s the lowest emission barrel possible.”