By Avi Salzman
The world's largest oil-services company is betting that it can make money by capturing carbon emissions from industrial projects and storing them underground instead of letting them leak into the atmosphere. The investment shows that big fossil-fuel companies are finally putting real money into technologies that have largely existed on a pilot-project basis.
SLB, formerly known as Schlumberger, says it will pay 4.12 billion Norwegian kroner, or about $380 million, to buy an 80% stake in Aker Carbon Capture, the largest publicly listed pure-play carbon capture company in the world. SLB had already been working on carbon capture, but the investment jump-starts its efforts. It could eventually turn the technology into a significant contributor to results, or help to drag them lower.
SLB says it wants to make $3 billion in revenue from carbon capture and other "new energy" technologies by 2030. Today, the company gets nearly all its roughly $30 billion in annual revenue from helping oil and gas producers pump fossil fuels.
Aker has developed a proprietary process to capture carbon emitted from industrial plants by treating it with water and solvents and then compressing and liquefying it. The company is working on several projects in Europe, and says it is being paid for work on projects that will capture 40 million tons of carbon a year.
Analysts expect Aker's revenue to double between 2023 and 2025 to 3.2 billion kroner, or $176 million, though they don't see the company turning a profit until 2026. SLB could help expand those operations after it merges its own carbon-capture division with Aker's. Citi analyst Scott Gruber wrote that the deal "should position the joint venture for carbon capture growth particularly in the US."
SLB CEO Olivier le Peuch seems keen on growing the business.
"For CCUS to have the expected impact on supporting global net-zero ambitions, it will need to scale up 100-200 times in less than three decades," he said in a statement, referring to carbon capture, usage, and storage. SLB says it could pay Aker another 1.36 billion kroner, or $125 million, over the next three years based on certain performance metrics.
SLB didn't immediately respond to requests for the company's current financial results from carbon capture. It doesn't break them out in its quarterly earnings statements.
This SLB investment and announcements of carbon capture projects from big oil players like Exxon Mobil show that executives are starting to see a business case for the industry. Exxon has announced projects capturing millions of tons of carbon from factories that make things such as ammonia for fertilizer.
Still, carbon capture remains a controversial method of slowing climate change. Environmentalists say that investing in the area is a way for oil companies to appear to be taking action while they continue to produce fossil fuels.
A Congressional Budget Office report last year called the future of carbon capture "highly uncertain." The infrastructure to transport and store the carbon has struggled to win approval so far. Some communities have rejected carbon pipelines out of safety concerns.
Much of the financial rationale for these investments comes from government subsidies. Under the Inflation Reduction Act, the U.S., for instance, will pay as much as $85 a ton in tax incentives to companies that can capture and store carbon. In theory that could turn carbon capture into a multibillion-dollar industry by the end of the decade.
For that to happen, these projects will have to show that they can work on an industrial scale, and actually keep carbon from leaking into the atmosphere.
Carbon capture technology has been used for decades for business purposes. Fossil-fuel companies capture and liquefy carbon and then pump it back into the ground to force oil and gas out.
The technology can also play a role in slowing climate change if the emissions are stored permanently underground in rock deposits. According to the International Energy Agency, the world will have to capture as much as 840 million metric tons of carbon a year by 2030 and 5.6 billion by 2050 to make a serious dent in climate change.
Today, about 45 million tons are captured. Companies have announced projects that could capture as much as 430 million tons by 2030, putting the total about halfway to the interim goal.
But with real dollars on the line now, companies have an incentive to ramp up. Investors will want to see soon if the big players can actually capitalize.
Write to Avi Salzman at avi.salzman@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
March 28, 2024 15:33 ET (19:33 GMT)
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