By Jennifer Hiller and Collin Eaton
Chevron has struck a 20-year agreement to sell electricity to Microsoft, which plans to build what could become one of the country's largest artificial-intelligence data centers in West Texas.
The oil company is working with Joulent, an energy company launched by investment firm Engine No. 1, to build a massive power-generation complex that will supply the data center using natural-gas production produced from the company's fields in the area. The 2.7-gigawatt campus would be on more than 2,000 acres in Reeves County in the heart of the Permian Basin oil-and-gas field, according to Joulent.
The companies didn't disclose a cost estimate for what they call Project Kilby. Chevron expects to make a final investment decision on building a gas-fired power plant for the project after it acquires necessary permits later this year.
The collaboration between Chevron and Joulent is their first big AI data center project. It is also the latest example of energy companies capturing demand as tech giants move into natural-gas fields to fuel their AI ambitions, and of the tech industry's willingness to go it alone for power generation.
"Our agreement with Microsoft through Project Kilby represents Chevron's unique ability to deliver power to AI customers with certainty, speed and at a competitive cost, leveraging Permian natural gas supply, infrastructure and our proven execution capabilities," said Jeff Gustavson, president of Chevron's New Energies unit.
The deal cements Chevron's lead in the race among major oil companies to bank on the data-center boom. The other big contender, Exxon Mobil, late last year partnered with NextEra Energy to develop a 1.2-gigawatt gas-fired power plant that could come equipped with carbon-capture technology. At the time, NextEra said the companies were in talks with a potential data-center customer.
Rather than plugging into the Texas power grid, Project Kilby will have its own on-site power plant fueled by Chevron's local natural-gas production. It will connect to the power grid at a later date and plans to sell excess generation into the Texas power market.
"The ability to have a firm power resource for the Texas grid is something I think everyone would welcome," said Chris James, founder and chief executive of Engine No. 1 and Joulent.
The site is about 20 miles south of Pecos where Chevron has been producing oil and gas for years.
Joulent already had been working with GE Vernova, which builds gas turbines in high demand for power plants. Chevron teamed up with them last year and said the companies were in negotiations with a then-unnamed customer that was eventually revealed to be Microsoft.
"AI and cloud are advancing at a pace that requires a new level of coordination between energy and infrastructure," Noelle Walsh, Microsoft president of cloud operations and innovation, said in a statement.
Soaring electricity demand has revealed the limitations of the power grid and its supply chains.
AI training requires city-sized amounts of electricity delivered to a single site, with a high rate of consumption around the clock. That requires complex engineering studies and upgrades in transmission equipment that take years to build and deliver. Wait times for electric service have stretched beyond five to seven years in many places.
The idea that data centers must BYOP, or "Bring Your Own Power," if they want quicker access to electricity, has taken hold across the industry, though it is a costly and challenging workaround to a grid connection, which is considered more reliable.
Developers of about a quarter of all data center capacity in the works plan to build power on site, according to data provider Cleanview. It is tracking 59 such data centers with a combined capacity of about 90 gigawatts -- about enough to power Texas on the hottest day of the year.
Project Kilby would start delivering power in late 2028, with a full build-out of the site continuing into the 2030s, James said.
Going without a grid connection means the project requires an overbuild of power equipment and a large battery storage system to maintain reliability. Solar power could be added later, too, given that West Texas is one of the best spots in the country for it, James said.
The engineering challenges of building "behind-the-meter" projects have been underestimated, but can provide companies with computing power more quickly and avoid cost impacts to other ratepayers, James said.
"If we're going to build the amount of compute that we need, this is going to have to be a very large part of the solution," James said.
He expects to see more projects moving to West Texas.
"We think the Permian in particular is a place where we're going to see growth for a very long time," he said. "This should be the Northern Virginia kind of equivalent for AI compute."
Write to Jennifer Hiller at jennifer.hiller@wsj.com and Collin Eaton at collin.eaton@wsj.com
(END) Dow Jones Newswires
June 22, 2026 08:01 ET (12:01 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
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