Project Kilby: Chevron & Microsoft's Data Centre Power Deal

Chevron has signed a 20-year power purchase agreement with Microsoft to build a dedicated gas-fired generation facility in West Texas.

The development is named Project Kilby and it will be built and operated by Energy Forge One, a subsidiary of Chevron.

The purpose of the project is to supply electricity directly to a Microsoft data centre, thereby reducing its reliance on the regional grid.

Chevron has been working on the project alongside Engine No. 1, an investment firm best known for its 2021 boardroom campaign that pushed ExxonMobil toward emissions reduction targets.

The view from the boardroom

Jeff Gustavson, Chevron's President of New Energies, says that companies like Chevron are key to enabling the AI boom.

"AI is reshaping the global economy, and abundant, affordable, reliable energy is essential to fuelling that transformation," he explains.

"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.

"This project links Chevron's traditional strengths to emerging demand, creating differentiated value for our shareholders and the communities where we operate."

On the other side of the deal, Noelle Walsh, Microsoft's President of Cloud Operations and Innovation, says that these kinds of deals will help Microsoft to fulfil its ambitious expansion plans while also benefitting local communities.

"The rapid growth we're experiencing in AI and cloud, driven by customer demand, requires energy infrastructure that can scale quickly and reliably," she says.

"Our agreement with Chevron helps ensure we'll have dedicated, large-scale power to support the evolution and reliability of advanced compute.

"Through this partnership, we're delighted to grow with and become a deeper part of the West Texas community."

The timeline for the project

The agreement marks a step toward Chevron's Final Investment Decision on the project. That decision is expected by the end of 2026, subject to further conditions being met.

Chevron is targeting mid-teen returns on the development, with the company expecting Kilby to generate cash flow that is largely insulated from oil and gas price cycles. It is expected to go live by 2028.

All in, Chevron believes that the power plant will be capable of generating more than US$10bn in state and local tax revenues, while it also anticipates that the project will create almost 2,000 jobs in the area.

In terms of inputs and outputs, the plant will draw on non-potable brackish groundwater rather than freshwater for its operations.

Chevron says it is also exploring reuse of produced water from its existing oil and gas operations.

The design includes Selective Catalytic Reduction systems intended to cut nitrogen oxide emissions, while the firm has also committed to limiting noise and light impacts on nearby communities.

A wider pattern emerging in the power sector

Kilby fits a growing trend of hyperscalers securing dedicated, off-grid generation to meet data centre power needs.

That approach allows companies like Microsoft to sidestep lengthy grid interconnection queues that have slowed other large projects.

It also raises a familiar tension for an industry simultaneously promising decarbonisation while expanding gas-fired capacity to meet AI-driven demand.

Whether Kilby ultimately proceeds depends on Chevron clearing its Final Investment Decision later this year.