ExxonMobil (XOM +0.30%) has a long history of scavenging the earth in search of new energy sources. Its primary focus is on finding new oil and gas deposits to sustain and grow its fossil-fuel output.
However, the company recently bought drilling rights to land that might hold another important power source: lithium. The mineral is a key input in making electric-vehicle (EV) batteries. Because of that, it could help drive growth for the oil company as the world transitions to lower-carbon energy sources.
NYSE: XOM
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Drilling down into Exxon's lithium investment
According to a report by the Wall Street Journal, Exxon bought 120,000 gross acres in southern Arkansas for more than $100 million from exploration company Galvanic Energy. The land sits on top of the Smackover formation, which could contain sizable lithium deposits.
Galvanic Energy hired a third-party consultant, which estimated that the land could hold 4 million tons of lithium carbonate equivalent. That's enough to power the batteries of about 50 million EVs.
The lithium potential of the Smackover formation was recently further confirmed by Standard Lithium (SLI +2.50%). The company reported that resource definition work at its South West Arkansas Project sample contained "the highest confirmed lithium grade brine in Arkansas." The company's COO, Dr. Andy Robertson, commented in the press release unveiling the results that it "continue[s] to be very pleasantly surprised by the lithium grades sampled from our projects in Arkansas and Texas."
Exxon expects to begin exploration drilling on its land soon. It could start developing the resource if it finds a commercially viable deposit.
How does lithium fit into Exxon's strategy?
Oil companies like Exxon are seeking ways to leverage their existing knowledge to capitalize on the transition to lower-carbon energy. Exxon's initial focus has been on hydrogen, biofuels, and carbon capture and storage because it can bring expertise in refining and petrochemical production, underground reservoirs, enhanced oil recovery (EOR), and project development to those emerging technologies.
Others in the sector are following a similar approach as they seek to chart out a pathway to grow in a lower-carbon world. For example, Devon Energy (DVN 0.04%) recently invested in a geothermal energy company that uses horizontal drilling to produce that emissions-free energy. As a leader in horizontal drilling, it's a potentially complementary fit for Devon.
Occidental Petroleum (OXY +1.82%) is investing heavily in carbon capture to leverage its leadership in using that greenhouse gas in EOR to develop carbon capture, sequestration, and utilization solutions. The company believes carbon capture could be a major growth driver.
NYSE: DVN
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There are lots of similarities between lithium production and oil and gas extraction. Lithium producers extract the mineral by drilling into underground formations to produce brine, a rich mixture of saltwater and minerals. They pipe the brine to a processing facility to extract the lithium.
It's similar to producing oil and gas, which involves drilling, piping, and processing to extract the hydrocarbons from a mixture that often contains saltwater. That makes it a potentially solid strategic fit for Exxon.
That doesn't mean Exxon is about to become a major lithium producer. It only recently bought the exploration land, which might not contain commercially viable resources. However, it provides the company with another potential lower-carbon growth driver.
An intriguing investment
Exxon believes fossil fuels will continue to power the economy for years to come. However, it also understands that they're part of the problem of climate change.
That's leading it to invest in potential lower-carbon solutions like carbon capture, hydrogen, and now lithium. These investments position the company to transition along with the economy so that it doesn't become extinct if the world eventually shifts entirely away from fossil fuels.
