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ExxonMobil Partners With ADNOC on Low-Carbon Hydrogen Project

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ExxonMobil Corporation (XOM - Free Report) has inked an agreement with Abu Dhabi National Oil Company (“ADNOC”) for the former’s proposed low-carbon hydrogen and ammonia production facility in Baytown, TX. Per the terms of the deal, ADNOC will acquire a 35% stake in the project. However, the value of the deal has not yet been disclosed yet. The agreement should boost the production of low-carbon fuels (to meet their rising demand) and facilitate the reduction of greenhouse gas emissions.

The deal should allow both companies to advance toward their net-zero target and contribute to decarbonization in the energy sector. The project should help implement carbon capture and storage technologies to reduce carbon emissions from the facility.  However, the companies have announced a one-year delay in the project’s initiation.

Government Incentives

ExxonMobil, in 2022, had announced its plans to develop the largest low-carbon hydrogen facility in the world. However, the project is contingent upon receiving necessary regulatory approvals and government support. Under President Joe Biden, the U.S. government had proposed certain tax incentives for clean energy initiatives. ExxonMobil mentioned that it may choose to scrap the project if the U.S. government places any restriction on the announced tax credits.

XOM’s low-carbon hydrogen project is aimed at utilizing natural gas to power the facility. Since the facility is utilizing carbon capture and storage technology, it should enable XOM to capture and store the emissions from the project underground.

However, the U.S. government has placed restrictions on the tax incentives that can be claimed by hydrogen projects using natural gas as a source of energy. ExxonMobil has highlighted that the project may be canceled entirely if they do not receive tax credits akin to hydrogen projects that use renewable energy sources.

Details of the Project

ExxonMobil has mentioned that this hydrogen project in Baytown is anticipated to be one of the largest production facilities of its kind globally. The facility has the capacity to produce approximately 1 billion cubic feet (bcf) of low-carbon hydrogen per day. Moreover, 98% of the carbon emissions during production are expected to be removed. The production also includes 1 million tons of low-carbon ammonia per annum.

Ammonia is an important chemical in the fertilizer industry and acts as a carrier for hydrogen by allowing it to be shipped and exported in the liquid state. The project is targeting a final investment decision in 2025, and the start-up of the facility is expected in 2029.

ADNOC has stated that its investment in the low-carbon hydrogen project aligns with its international growth strategy. The deal should also allow the company to expand its portfolio of lower-carbon energy sources and contribute to the decarbonization of sectors that have a particularly high level of emission.

XOM’s Zacks Rank and Key Picks

Currently, XOM carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the energy sector are PEDEVCO Corp. (PED - Free Report) , MPLX LP (MPLX - Free Report) and VAALCO Energy (EGY - Free Report) . PEDEVCO and MPLX presently sport a Zacks Rank #1 (Strong Buy) each, while VAALCO Energy carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

PEDEVCO is engaged in the acquisition and development of energy assets in the United States and Pacific Rim countries. The company stands to benefit significantly from its holdings in the Permian Basin, one of the most prolific oil-producing regions in the United States, as well as in the D-J Basin in Colorado, which includes more than 150 high-quality drilling locations. Combined with bullish oil prices, this is expected to boost the company's production and overall profitability.

MPLX LP owns and operates a wide range of midstream assets. The partnership's midstream assets include oil and natural gas gathering systems and transportation pipelines for crude, natural gas and refined petroleum products. MPLX is least exposed to commodity price fluctuations as it generates stable fee-based revenues. Furthermore, it surpasses its industry peers in terms of distribution yield, reflecting its commitment to returning capital to its unitholders.

VAALCO Energy is an independent energy company involved in upstream business operationswith a diversified presence in Africa and Canada. Having a large inventory of drilling locations in premium Canadian Acreage, the company’s production outlook seems bright.


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