Matt DiLallo, The Motley Fool
5 min read
In This Article:
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Chevron is acquiring land to produce lithium.
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It's following in the footsteps of Exxon in developing a lithium business.
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The oil companies are slowly building out lower-carbon energy businesses.
Oil giants Chevron (NYSE: CVX) and ExxonMobil (NYSE: XOM) can read the writing on the wall: They can see that fossil fuels will eventually go extinct. That's leading these energy giants to invest in expanding into lower-carbon energy.
One area both oil stocks are expanding into is lithium, a key ingredient for making batteries for electric vehicles (EVs). Exxon entered the sector in 2023 by acquiring land in Arkansas' Smackover Formation, which is rich in lithium brine. Chevron is now following in Exxon's footsteps by acquiring land in the region to produce lithium.
Chevron has signed two deals to buy leasehold acreage related to the Smackover Formation. It's buying 125,000 net acres across Northeast Texas and Southwest Arkansas from two sellers. The energy company noted that the Smackover Formation underneath this land has high lithium content. The land acquisitions mark Chevron's first step toward establishing a commercial-scale U.S. lithium business.
The energy company would utilize a direct lithium extraction (DLE) process to develop the acreage. DLE is a set of advanced technologies that extract lithium from brines produced from subsurface formations like the Smackover.
While Chevron doesn't have experience producing lithium, the DLE process would enable the company to leverage its subsurface, drilling, and resource extraction capabilities and strengths. That makes lithium production a strong strategic fit for oil companies like Chevron and Exxon.
Chevron's move into the Smackover follows Exxon's prior entry into the lithium supply sector. In 2023, the oil giant reportedly paid around $100 million for more than 120,000 total acres in Arkansas above the Smackover Formation. Exxon drilled its first well in the region that year and aims to begin commercially producing lithium by 2027. It set a bold goal of producing enough lithium by 2030 to supply the auto industry with the metal to meet the manufacturing needs of over 1 million EVs per year. That would make it one of the world's top producers in a very short period.
Exxon has already started signing lithium supply deals with potential customers for its branded product, Mobil Lithium. Last year, it inked a nonbinding agreement with battery parts maker LG Chem to potentially supply 100,000 metric tons of lithium carbonate over several years. LG Chem would use it at its cathode plant in Tennessee, which it expects to complete this year.
