Chevron powers Microsoft AI with $370B energy deal in West Texas

Chevron has emerged as the unlikely energy powerhouse of the AI boom after signing a transformative 20-year deal with Microsoft to build and operate Project Kilby, a data center complex in rural Reeves County, West Texas. The project will supply 2.67 gigawatts of natural gas-fired electricity, with room to expand using solar and batteries, enough power in total to serve more than 2 million homes—though all of it will be dedicated to Microsoft's AI infrastructure. The facility is named after Jack Kilby, the Texas Instruments inventor of the integrated circuit and handheld calculator, early precursors of AI.

The project is slated to come online in 2028 and ramp up through 2031. It represents the first of potentially several massive deals Chevron expects to strike across gas-rich regions including the Permian Basin, the Rockies, Eagle Ford Shale in South Texas, and the western Midwest (Ohio, Illinois, and Indiana). Chevron New Energies president Jeff Gustavson told Fortune that after the June announcement, "everyone wants to talk to us"—not just hyperscalers but gas turbine manufacturers facing long equipment queues and third-party suppliers critical to the work. Chevron brings the scale, project management, land, natural gas resources, and financial heft that no single competitor can easily assemble alone.

The deal bundles Chevron's land and gas reserves, additional land and water services from Texas Pacific Land, financial backing from investment firm Engine No. 1, at least seven large GE Vernova turbines, and several smaller Caterpillar Solar Titan 350 turbines. Chevron's market cap of about $370 billion and its recently posted most profitable quarter ever underscore its ability to execute at scale. Gustavson emphasized that Chevron is "selective" precisely because of these unique capabilities: "There are not many companies that can do all the things a Chevron can, and we have just proven that we can actually make this real."

The path to this deal reflects a dramatic reversal in hyperscaler strategy. For roughly a decade, Chevron worked with Microsoft on cloud computing services but was sidelined when AI infrastructure planning began, because hyperscalers insisted on renewable power only. That changed about two years ago as AI power demand spiked globally and the U.S. grid proved unable to handle the loads required. Hyperscalers and policymakers, concerned about consumer electricity prices and grid stability, shifted focus to "reliable, affordable energy." Microsoft and others were willing to relax their climate goals to achieve AI speed and scale. Microsoft president of Cloud Operations + Innovation Noelle Walsh stated: "The rapid growth we're experiencing in AI and cloud, driven by customer demand, requires energy infrastructure that can scale quickly and reliably. Our agreement with Chevron helps ensure we'll have dedicated, large-scale power to support the evolution and reliability of advanced compute."

West Texas emerged as the ideal first location because it has massive natural gas resources, ample available land, a deregulated power market, and established stakeholder relationships. Chevron reserved equipment a year and a half before the announcement and assembled the project with speed. The facility also sidesteps Texas Gov. Greg Abbott's temporary freeze on new data center grid interconnections by building "behind the meter"—generating its own power independently. Gustavson noted that Texas and the Austin administration have made clear: "If you want to build data centers in this state, we need you to bring your own power. This cannot impact our consumers." For Chevron and Microsoft, that constraint is no obstacle; when the grid eventually catches up, the project can join it, but there is no current urgency to do so.

Chevron chairman and CEO Mike Wirth indicated on his July 31 earnings call that the Permian Basin could grow significantly if more Project Kilby equivalents materialize: "Could the Permian grow? One hundred percent. The Permian is one of many options we have into the next decade for growth." Gustavson said the company will be "customer-led" on geography but is actively scouting the Rockies, Eagle Ford Shale, and the western Midwest. Among other oil majors, only ExxonMobil has comparable scale and natural gas reserves, but Exxon has focused more on carbon capture solutions for data centers rather than leading on project development. Chevron is also planning carbon capture growth alongside its new power plants. Gustavson acknowledged the environmental stakes: "This is the big question. The world is faced with this challenge. We're always trying to balance reliability and affordability with ever-cleaner energy," and pledged that Chevron and Microsoft would continue working together to integrate carbon capture, renewable energy, and eventually clean geothermal power into the infrastructure. Meanwhile, other ambitious AI campuses in Texas—including OpenAI's Stargate, Fermi's Project Matador, Pacifico Energy's GW Ranch, and Energy Abundance's Data City, Texas—remain on the drawing board and lack committed hyperscaler customers, leaving Chevron and Microsoft's deal as the most concrete and scaled AI energy project announced to date.