Chevron shares fall after 20-year Microsoft power deal

Chevron said its unit Energy Forge One LLC will build a 2.67-gigawatt natural gas power plant, Project Kilby, to supply electricity directly to a Microsoft-operated AI data center under a 20-year contract. The company expects first deliveries in 2028 and aims to make a final investment decision by the end of 2026. Shares of Chevron traded lower after the announcement.

Project Kilby will be developed on more than 2,000 acres in Reeves County in the Permian Basin. Chevron is partnering with Joulent, an energy company launched by Engine No. 1. The plant will be fueled largely by natural gas from Chevron’s nearby operations. GE Vernova is slated to supply the main turbines, with additional capacity from Solar Turbines, a unit of Caterpillar Inc.

The facility is planned to operate initially as an on-site power source for the data center and later connect to the Texas grid. Any excess generation would be sold into the state electricity market. The design calls for emissions control equipment and use of non-potable, brackish groundwater instead of fresh water.

Chevron projects the development will create about 2,000 jobs during construction and operation and generate more than $10 billion in state and local tax revenue. The company expects mid-teen returns and cash flows that are less dependent on oil and gas price swings.

“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,” Jeff Gustavson, president of Chevron’s New Energies unit, said. Chris James, founder and CEO of Engine No. 1 and Joulent, described the project as a firm power resource for the Texas grid and compared the Permian to Northern Virginia as a long-term hub for AI compute, saying, “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.”

Developers are increasingly adding on-site generation because AI training consumes large, continuous blocks of electricity. Data provider Cleanview estimates about one-quarter of planned data center capacity intends to include on-site power generation, representing roughly 90 gigawatts of combined planned capacity. Noelle Walsh, Microsoft’s president of cloud operations and innovation, noted that AI and cloud growth requires closer coordination between energy and infrastructure.

Other energy companies are pursuing similar opportunities. Exxon Mobil has announced a partnership with NextEra Energy to develop a gas-fired plant that could serve data center customers. Chevron and its partners expect Project Kilby could incorporate solar generation and large-scale battery storage over time to increase reliability as development continues into the 2030s.