Chevron Corporation has announced a 20-year power purchase agreement with Microsoft to develop a co-located power facility in West Texas, marking one of the largest natural gas power and data center projects in the United States and representing a significant step in the energy industry's pivot toward serving the surging electricity demands of artificial intelligence infrastructure.

Project Kilby Takes Shape in the Permian Basin

The project, known as Project Kilby, will be developed through Energy Forge One LLC, a wholly owned Chevron subsidiary.

Chevron and Engine No. 1 have been collaborating on the development, which is designed to provide dedicated electricity to a Microsoft-operated data center.

The announcement was made on June 22, 2026, from Houston. Kilby is expected to deliver approximately 2.67 gigawatts of capacity, constructed through a phased, modular approach intended to enable incremental expansion over time.

A majority of the generation will come from large GE Vernova turbines and associated electrical infrastructure, with additional capacity provided by Solar Turbines, a wholly owned subsidiary of Caterpillar Inc.

The combination of scale and design positions Kilby among the largest co-located natural gas power and data center developments in the country.

First power delivery is anticipated in 2028, with Chevron's Final Investment Decision expected by the end of 2026, subject to the completion of other necessary conditions.

The Economics Behind the Agreement

Chevron has described the project as targeting mid-teen returns. According to the company, Kilby is expected to generate diversified cash flow that is independent of oil and gas price cycles, which Chevron characterized as further supporting resilient shareholder returns.

The agreement represents what the company called an important milestone toward its Final Investment Decision.

The project is also projected to deliver substantial economic benefits to the surrounding region.

Chevron stated that Kilby is expected to generate more than USD 10 billion in state and local tax revenue, support almost 2,000 jobs, and drive broader economic growth in West Texas.

What Both Companies Are Saying

Jeff Gustavson, Chevron's president of New Energies, framed the deal as a direct link between the company's existing strengths in Permian natural gas production and the accelerating demand from the technology sector.

"AI is reshaping the global economy, and abundant, affordable, reliable energy is essential to fueling that transformation," Gustavson said. "Chevron is uniquely positioned to deliver power to customers with certainty, speed, and at a competitive cost, leveraging Permian natural gas and our proven execution capabilities."

Noelle Walsh, Microsoft's president of Cloud Operations and Innovation, pointed to the scale of growth Microsoft is experiencing in AI and cloud services as the driver behind the agreement. "The rapid growth we're experiencing in AI and cloud, driven by customer demand, requires energy infrastructure that can scale quickly and reliably," Walsh said.

"Our agreement with Chevron helps ensure we'll have dedicated, large-scale power to support the evolution and reliability of advanced compute." Walsh also noted that through the partnership, Microsoft intends to become a deeper part of the West Texas community.

Grid Independence and Environmental Design

A central feature of Project Kilby's design is its co-location model, in which new, large-scale power generation is built directly alongside the data center it serves.

Chevron stated this approach is intended to deliver reliable, dispatchable electricity directly to Microsoft while aiming to mitigate impacts on the regional grid that consumers rely on.

By generating power on-site and dedicating it to a single large customer, the project is structured to avoid drawing additional load from the broader regional transmission system.

On the environmental side, the plant design will incorporate advanced air emissions control technologies, including Selective Catalytic Reduction systems designed to reduce nitrogen oxide emissions.

Chevron also indicated that measures to minimize noise and light impacts on surrounding communities are included in the design.

Water use was also addressed in the announcement.

Rather than drawing on freshwater supplies, Kilby plans to use non-potable, brackish groundwater sources for power plant operations.

Chevron noted it is also working to advance solutions for the reuse of produced water from its oil and gas operations, though no specific details on those programs were provided in the announcement.

A Strategic Shift Toward Digital Infrastructure

The deal reflects a broader strategic repositioning for Chevron, which has described its New Energies division as an avenue for growth beyond traditional oil and gas cycles.

By securing a 20-year offtake agreement with one of the world's largest technology companies, Chevron is locking in a long-duration revenue stream tied to the expansion of AI compute infrastructure rather than commodity price movements.

The scale of the project underscores the electricity demands that large-scale AI data center development is placing on energy markets.

Microsoft's involvement as the offtaker for 2.67 gigawatts of dedicated capacity signals the extent to which major technology firms are pursuing direct power agreements with energy producers to secure the volume and reliability of electricity their operations require.