Chevron Corporation announced that Energy Forge One LLC, a wholly owned subsidiary, has signed an agreement with Microsoft Corp. (NASDAQ: MSFT) to develop a co-located power facility in West Texas that will provide dedicated electricity to a Microsoft-operated data center under a 20-year power purchase agreement. Chevron and Engine No. 1 have been collaborating on the development, known as Project Kilby (“Kilby”).

Kilby is expected to deliver approximately 2.67 gigawatts of capacity, built through a phased, modular approach that enables incremental expansion over time. A majority of the generation will come from large GE Vernova (NYSE: GEV) turbines and associated electrical infrastructure, with additional capacity provided by Solar Turbines, a wholly owned subsidiary of Caterpillar Inc. (NYSE: CAT). This positions Kilby among the largest co-located natural gas power and data center developments in the U.S., supporting the next phase of American AI growth by leveraging America’s natural gas advantage.

“AI is reshaping the global economy, and abundant, affordable, reliable energy is essential to fueling that transformation,” said Jeff Gustavson, Chevron president of New Energies. “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.”

“The rapid growth we’re experiencing in AI and cloud, driven by customer demand, requires energy infrastructure that can scale quickly and reliably,” said Noelle Walsh, Microsoft president of Cloud Operations + Innovation. “Our agreement with Chevronhelps 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.”

By co-locating new, large-scale power generation with the data center, Kilby is designed to deliver reliable, dispatchable electricity directly to Microsoft while aiming to mitigate impacts on the regional grid that consumers rely on.

This agreement represents an important milestone toward Chevron’s Final Investment Decision (FID), which is expected by the end of 2026, subject to the completion of other necessary conditions. The project is targeting mid-teen returns. Kilby is expected to generate diversified cash flow that is independent of oil and gas price cycles, further supporting resilient shareholder returns. First power delivery is anticipated in 2028.

In addition to supporting digital infrastructure, Kilby is expected to generate significant economic benefits for the region, including more than $10 billion in state and local tax revenue, support almost 2,000 jobs, and drive broader economic growth. In lieu of freshwater, Kilby plans to use non-potable, brackish groundwater sources for power plant operations. Chevron is also working to advance solutions for reuse of produced water from oil and gas operations. The plant design will incorporate advanced air emissions control technologies, including Selective Catalytic Reduction systems designed to reduce NOx emissions, as well as measures to minimize noise and light impacts on surrounding communities.