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Chevron just made a massive bet that the AI boom’s biggest bottleneck isn’t chips. It’s electricity.
The energy giant announced a 20-year power purchase agreement with Microsoft to develop a dedicated natural gas-fired power facility in Reeves County, West Texas. The project, called Project Kilby, targets approximately 2.67 GW of capacity, enough to power roughly 2 million homes at full build-out. First power delivery is expected in late 2028, with phased development continuing into the 2030s.
What Chevron is actually building
Project Kilby will sit on over 2,000 acres in West Texas, drawing on Chevron’s low-cost natural gas supply from the Permian Basin. The facility will use turbines from GE Vernova and Solar Turbines, a subsidiary of Caterpillar, to generate electricity that flows directly to a Microsoft-operated data center campus on the same site.
The entire setup operates behind the meter, meaning the power generation exists solely to feed Microsoft’s data centers without touching the public electrical infrastructure. By co-locating the power source with the data center, both companies skip the lengthy queue for grid connection approvals and transmission upgrades.
Chevron is executing the deal through a subsidiary called Energy Forge One LLC, and the project involves collaborations with Caterpillar’s Solar Turbines division along with possible involvement from Engine No. 1, the activist investment firm that famously won board seats at ExxonMobil back in 2021.
Jeff Gustavson, Chevron’s president of New Energies, framed the project around the AI sector’s urgent need for power, emphasizing the ability to deliver electricity with speed, certainty, and competitive cost.
Why Big Tech is going straight to oil companies
Natural gas provides baseload power, meaning it runs continuously and predictably. The Permian Basin happens to be one of the cheapest places in the world to source natural gas, which makes the economics particularly attractive for a project of this scale.
This deal makes Chevron one of the first traditional oil and gas majors to establish a direct, long-term power supply relationship with a hyperscale cloud provider. Microsoft signed a deal to restart the Three Mile Island nuclear plant for data center power, and has explored geothermal and small modular reactor technologies. Adding a 2.67 GW natural gas facility to the portfolio suggests Microsoft is taking an all-of-the-above approach to its energy strategy.
What this means for investors
At roughly 2.67 GW, Project Kilby would rank among the largest co-located natural gas power and data center projects in the US. For Chevron shareholders, the deal represents a 20-year revenue stream tied to Microsoft, whose market cap hovers in the multi-trillion dollar range. The agreement also gives Chevron a foothold in the power generation business without requiring it to compete in wholesale electricity markets or navigate the regulatory complexity of utility-scale grid projects.
GE Vernova and Caterpillar both stand to benefit from equipment orders on the project. The phased build-out, with development extending into the 2030s, gives both companies some flexibility to adjust scope if market conditions change.
A 20-year natural gas commitment locks both parties into fossil fuel infrastructure at a time when carbon regulations could tighten significantly. Chevron and Microsoft are presumably betting that natural gas remains politically viable as a transition fuel for at least the next two decades.
Disclosure: This article was edited by Editorial Team. For more information on how we create and review content, see our Editorial Policy.
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