Chevron partners with Microsoft for 20-year power production deal to fuel AI data centers

Chevron just made its biggest bet yet that the AI boom needs fossil fuels to survive. The oil major signed a 20-year power purchase agreement with Microsoft to supply natural gas-fired electricity to a massive new data center complex in West Texas, a project dubbed “Kilby.”

The deal, announced on June 22, positions Chevron as a direct power provider to one of the world’s largest AI infrastructure buildouts. Through its subsidiary Energy Forge One LLC, Chevron plans to deliver up to 2.67 gigawatts of electricity, enough to power roughly 2 million homes, using natural gas pulled from its existing Permian Basin operations.

What Project Kilby actually looks like

The facility will follow a phased modular development approach, with first power generation expected by 2028. A final investment decision is projected by the end of 2026.

The project builds on a proposed $7 billion natural gas power plant initiative and an exclusivity agreement reached in late March or early April 2026 between Chevron, Microsoft, and investment firm Engine No. 1. That three-way pact laid the groundwork for what became the formal 20-year commitment.

Project Kilby is projected to generate over $10 billion in tax revenue and create close to 2,000 jobs in the West Texas region.

Why an oil company is becoming a power utility

Chevron’s pivot here is worth understanding clearly. This isn’t the company selling natural gas to a utility, which then sells electricity to Microsoft. Chevron is cutting out the middleman entirely, generating and delivering power directly to a hyperscale tech customer.

What this means for investors

A 20-year power purchase agreement with Microsoft provides something oil companies rarely enjoy: revenue predictability. Long-term contracts with investment-grade counterparties like Microsoft essentially de-risk a significant chunk of future cash flows.

The involvement of Engine No. 1 is also notable. The activist investment firm, which famously won board seats at ExxonMobil in 2021 by arguing for better energy transition planning, is now backing a natural gas power project.

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