Shares of Chevron Corporation CVX traded lower after the oil major announced a long-term agreement with Microsoft Corporation to supply electricity to a massive artificial intelligence data center in West Texas.
Under the agreement, Chevron’s unit, Energy Forge One LLC, will build a 2.67-gigawatt natural gas power plant under Project Kilby, a development expected to deliver electricity directly to a Microsoft-operated data center under a 20-year contract.
The first power deliveries are expected in 2028, while a final investment decision is anticipated by the end of 2026.
Project Kilby targets AI-driven power demand
Chevron is developing Project Kilby in partnership with Joulent, an energy company launched by investment firm Engine No. 1.
The project will be located on more than 2,000 acres in Reeves County in the heart of the Permian Basin and will be powered by natural gas produced from Chevron’s nearby operations.
Most of the electricity will come from large turbines supplied by GE Vernova, with additional capacity from Solar Turbines, a subsidiary of Caterpillar Inc.
“Our agreement with Microsoft through Project Kilby represents Chevron’s unique ability to deliver power to AI customers with certainty, speed and at a competitive cost, leveraging Permian natural gas supply, infrastructure and our proven execution capabilities,” said Jeff Gustavson, president of Chevron’s New Energies unit.
The project is expected to create about 2,000 jobs and generate more than $10 billion in state and local tax revenue.
The facility will use non-potable, brackish groundwater instead of freshwater and include emissions control technology.
Data centers increasingly bring their own power
The project highlights a growing industry trend of data center operators securing dedicated power generation as electricity demand from AI infrastructure strains existing grids.
AI training requires massive amounts of electricity delivered continuously to a single site, while grid upgrades and transmission projects often take years to complete.
As a result, developers are increasingly adopting a “Bring Your Own Power” strategy to accelerate access to electricity.
Project Kilby will initially operate with its own on-site power plant and connect to the Texas grid at a later stage.
Excess generation is expected to be sold into the state’s power market.
“The ability to have a firm power resource for the Texas grid is something I think everyone would welcome,” said Chris James, founder and chief executive of Engine No. 1 and Joulent.
According to data provider Cleanview, developers of about one-quarter of all planned data center capacity intend to build on-site power generation, representing around 90 gigawatts of combined capacity.
Chevron expands beyond traditional energy markets
The project also strengthens Chevron’s position in the emerging market for AI-related power infrastructure.
Rival energy companies are pursuing similar opportunities, including Exxon Mobil’s partnership with NextEra Energy to develop a gas-fired power plant that could serve data center customers.
“AI and cloud are advancing at a pace that requires a new level of coordination between energy and infrastructure,” said Noelle Walsh, Microsoft’s president of cloud operations and innovation.
Project Kilby is expected to deliver mid-teen returns and generate cash flows that are independent of oil and gas price cycles.
The site could eventually incorporate solar generation and large-scale battery storage to enhance reliability as development continues into the 2030s.
“If we’re going to build the amount of compute that we need, this is going to have to be a very large part of the solution,” James said.
He added: “We think the Permian in particular is a place where we’re going to see growth for a very long time. This should be the Northern Virginia kind of equivalent for AI compute.”