This article has been revised from its original version.

Long Beach-based oil and gas giant Califorina Resources Corp. is moving quickly on its carbon storage and injection business, signing yet another carbon-sequestration agreement and applying for federal approval to store an additional 17 million metric tons of carbon dioxide underground in Northern California.

Both announcements came as part of the company’s quarterly earnings release late last month, which included an update on its Carbon Terra Vault business. That unit was launched about 18 months ago and got its jump start last summer with the announcement of a joint venture with Toronto, Canada-based Brookfield Renewable, which has an extensive portfolio of renewable energy-generation projects. Brookfield, through its global transition fund, contributed $500 million upfront and could invest as much as $500 million more to the joint venture.

The carbon-sequestration agreement was reached with Houston-based Verde Clean Fuels Inc., which produces renewable low-carbon fuels derived from biomass and municipal solid waste. 

The deal calls for California Resources to lease 50 acres of land to Verde Clean Fuels at California Resources’ Net Zero Industrial Park next to its Elk Hills oil production field in Kern County. Verde Clean Fuels will then seek to build a renewable gas plant that would generate up to 7.5 million gallons of renewable fuel per year, primarily for the transportation sector. As part of the renewable fuel production process, carbon dioxide is generated.

California Resources has agreed to sequester up to 100,000 metric tons of that carbon dioxide permanently underground in a reservoir already established at the Net Zero Industrial Park for that purpose.

According to the July 31 announcement, a final investment decision is expected by 2025, with the plant scheduled to be operational in 2027.

“This new agreement between (Carbon Terra Vault) and Verde Clean Fuels provides an innovative approach to renewable fuels at the heart of energy development in the state, and further validates CRC’s decarbonization efforts by a publicly traded company looking to expand in California,” Francisco Leon, California Resources’ chief executive, said in the announcement.

“(O)ur new partnership with Verde Clean Energy further demonstrates the benefits CRC’s unique asset position and carbon management strategy can deliver to California’s energy transition goals,” Leon continued.

Deals galore

This is the fifth carbon-storage deal California Resources’ Carbon Terra Vault has inked. 

In December, the unit agreed to partner with Tulsa, Oklahoma-based Lone Cypress Energy Services to develop a hydrogen fuel plant that uses natural gas as its feedstock. As part of the plant’s operation, Carbon Terra Vault would take the carbon dioxide byproduct that is captured and sequester it in an underground storage vault. Initially, Carbon Terra Vault expected to sequester 100,000 metric tons of carbon dioxide a year, but in its July 31 update the unit doubled that expected amount to about 205,000 metric tons.

Then in May, Carbon Terra Vault announced two carbon storage agreements that would inject 140,000 metric tons of carbon dioxide into underground storage vaults – one at a new plant in Oroville and the other at a new plant, also located at the Net Zero Industrial Park in Kern County. The latter agreement, with Richland, Washington-based InEnTec Inc., involves a renewable dimethyl ether production facility; California Resources would initially store 100,000 metric tons of carbon dioxide a year from that facility in its underground reservoir.

Most preferred

California Resources’ decision to go all-in on carbon storage is part of the oil industry’s response to the broader push to get to carbon neutrality as fast as possible. In December, the state Air Resources Board laid out a path for the state to reach carbon neutrality by 2045, meaning that in a little more than two decades the state should be removing as much carbon dioxide from the air as its residents and businesses are putting into the air.

The strategic plan does include carbon sequestration projects like the ones California Resources has been lining up. But the plan also calls for a 94% reduction in the demand for oil and natural gas in the state by 2045. 

Several environmental groups and other activists have been pressuring state lawmakers to go even further and enact a complete statewide ban on oil and gas production – similar to the bans recently enacted in both the city and county of Los Angeles, as well as Culver City.

This of course does not sit well with the oil industry, which sees those bans and “phase downs” as an existential threat to their business.

“A phase-down of California oil and gas extraction is … problematic,” the industry’s main trade group, the Western States Petroleum Association, wrote in a letter to the air board in October, before the board’s December decision. “California has to import the majority of crude that is processed in the state; in 2020, only 31% of the 478 million barrels of crude supplied to California refineries was produced in the state.”

Instead, the trade group said its member oil and gas companies “strongly support the use of (carbon dioxide removal) and (carbon capture and sequestration) to achieve the state’s climate goals. Implementation of CDR/CCS at scale will be pivotal to the overall success of the (plan) to achieve carbon neutrality by 2045.”

Another advantage for California Resources to move as quickly as possible on carbon injection and storage deals is staying ahead of what is likely to be more intense state regulation of these projects. In September, Gov. Gavin Newsom signed SB 905, which will set state regulations on carbon capture and storage projects, including strict permitting procedures and ongoing monitoring requirements that would likely make these projects even more expensive to set up.

The bill sets a deadline of Jan. 1, 2025 for the regulations to be adopted; the regulations would likely be phased in over the months and years after that date. There’s a good chance that carbon injection and storage projects that are up and running before that time could be grandfathered in.

Of course, at this early stage in the process, California Resources is not generating any revenue from all these deals, a point that one analyst who tracks the company stressed.

“California Resources is making solid progress in expanding its opportunity set in carbon management,” said Pavel Molchanov, energy industry analyst with St. Petersburg, Florida-based Raymond James & Associates.

“To be clear,” Molchanov continued, “this is not yet a revenue-generating business for the company – the first revenue will probably come in 2026. But the business development roadmap is progressing well.” 

The other major announcement from Carbon Terra Vault was that it had submitted an application to the federal Environmental Protection Agency for a special permit – known as a Class VI permit – to allow the California Resources joint venture unit to store 17 million metric tons of carbon dioxide in a reservoir underneath the northern part of the Central Valley.

EPA permits

This is one of several similar applications that Carbon Terra Vault has submitted to the agency that, taken together, would allow for the storage of 191 million metric tons of carbon dioxide.

In the company’s earnings teleconference call with analysts, Leon said the company’s goal is to have permitted storage space for 200 million metric tons of carbon dioxide.

“We’re pretty much there in terms of the permit submission aspect of this,” he said.

As for whether the Environmental Protection Agency would approve all of these carbon storage applications, analyst Molchanov was optimistic.

“Federal environmental permitting is generally on the slow side,” Molchanov said. “But there is a potent political push in Washington for supporting clean energy projects broadly, including carbon capture specifically, so I am optimistic about a positive response from the EPA to this application.”

On a related front, on Aug. 11, Carbon Terra Vault announced that a partnership that it leads that’s called California Direct Air Capture Hub will receive nearly $12 million in funding from the federal Department of Energy for engineering and design related to the unit’s expanding collection of carbon storage agreements in Kern County. 

“We are thrilled with being awarded this DOE funding to create California DAC Hub and help California meet its ambitious climate goals,” Chris Gould, California Resources’ chief sustainability officer and Carbon Terra Vault managing director, said in the announcement.