Carbon Capture Stocks Leading the Way in 2024

The urgency to combat climate change is driving the oil and gas industry to step up its adoption of carbon capture technologies. With an increasing number of companies committing to net zero emissions, carbon capture has emerged as a pivotal solution in the renewable-energy transition.

The technology involves capturing carbon dioxide emissions from various sources, like power plants and industrial facilities, and either storing or repurposing them to mitigate their environmental impact. The Bipartisan Infrastructure Law has earmarked over US$12 billion for carbon management initiatives in the U.S., as part of the Biden administration’s efforts to achieve net-zero emissions by 2050.

The following companies are leading the global effort for carbon removal as they try to demonstrate that carbon capture and storage is a viable tool in the global transition to net-zero emissions.

World’s largest oilfield service firm, SLB specializes in reservoir performance, well construction, production enhancement, and more recently, digital solutions. As one of the industry’s leading innovators, the firm has captured leading share in several end markets.

The oilfield services major, formerly known as Schlumberger, is making a big push into carbon capture and storage with large strategic investments, such as the acquisition of Aker Carbon Capture, a pure-play carbon capture company in Norway.

CEO Olivier Le Peuch is reported to have said carbon capture and storage will play a pivotal role in the company’s revenue and will contribute significantly to the company’s target of US$3 billion by 2030 and US$10 billion by 2040 for its new energy portfolio.

“We see narrow-moat-rated SLB’s agreement to combine its carbon capture business with Aker Carbon Capture and own 80% of the combined entity as a prudent step toward building a sizable presence in the carbon capture and storage (CCS) market,” says a Morningstar equity report.

The acquisition aligns with the firm’s goal to enter the carbon capture and storage sector in response to regulatory pressure to achieve net-zero greenhouse gas emissions.

In addition, investors may be particularly enthused by the technology’s ability to optimize oil extraction, “as captured carbon can be used to derive more oil from a given well,” says Morningstar equity analyst Stephen Ellis, who pegs the stock’s fair value at US$62.

Baker Hughes BKR is a global leader in oilfield services, specializing in artificial lift, specialty chemicals, and completions markets. The company has modest exposure to offshore oil and gas production. The other half of its business focuses on industrial power generation, process solutions, and industrial asset management, with high exposure to the liquid natural gas market.

Baker Hughes represents one of the “big three” oilfield service firms, in league with industry heavyweights Schlumberger and Halliburton. The firm is committed to reducing its emissions by 50% by 2030 and net zero by 2050.

Further, Baker Hughes aims for up to US$7 billion in orders by 2030 for its new energy portfolio, incorporating carbon capture and storage tech. The company CEO Lorenzo Simonelli says the company aims to capture 10% of the total US$60 billion to US$70 billion carbon capture, utilization and storage market by 2030.

“The majority of Baker Hughes’ revenue comes from international (non-U.S.) markets, which tend to be less volatile,” says Morningstar equity report, but adds challenges associated with the inherent cyclicality of oil and gas markets persist.

Yet, “demand for oil and gas will remain high over the next few years, presenting ample growth opportunities in Baker Hughes’ core market,” assures Morningstar equity analyst Joshua Aguilar, who recently raised the stock’s fair value estimate to US$39 from US$36, and projected resilient demand for the firm’s gas technology solutions over the next several years.

Oil and gas giant ExxonMobil XOM explores for, produces, and refines oil around the world. The company is one of the world’s largest refiners and one of the largest manufacturers of commodity and specialty chemicals.

Exxon aims to invest over US$20 billion in emission-reducing technologies, including carbon capture and storage, in significant projects along the Gulf Coast. The country’s largest oil company has signed big carbon capture deals with ammonia and fertilizer producer CF Industries, and steelmaker Nucor, as well as industrial gas producer Linde.

Dan Ammann, president of low carbon solutions at Exxon, stated that the three contracts together pledge to eliminate 5 million tons of emissions per year — the equivalent to converting two million gas-powered cars to electric vehicles.

Although ExxonMobil is investing in low-carbon technologies, it remains committed to oil and gas production. “While this strategy is unlikely to win praise from environmentally oriented investors, it’s more likely to be more successful and probably holds less risk,” says a Morningstar equity report.

Despite the global pivot towards renewables, the end of oil and gas is not likely to occur anytime soon due to the need to supplement intermittent renewable power. “These trends and growing demand for chemicals are what drive Exxon’s investment strategy and will likely deliver superior returns,” says Morningstar equity analyst Allen Good, who recently increased the stock’s fair value to US$133 from US$123, prompted by the strong financial results and commodity prices.

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