Chevron has signed a long-term power agreement with Microsoft to support a new data center project in West Texas, deepening the energy company’s push into electricity supply for digital infrastructure.

The deal, announced Monday, covers a 20-year power purchase agreement linked to a co-located generation facility being developed by Chevron’s Energy Forge One subsidiary. The project, known as Kilby, is designed to provide dedicated electricity directly to a Microsoft-operated data center.

Chevron said the facility is being developed in partnership with Engine No. 1 and is expected to deliver about 2.67 gigawatts of capacity when complete. The company plans to build the project in phases, using a modular approach that would allow capacity to expand over time.

Most of the power is expected to come from large GE Vernova turbines and related electrical infrastructure. Additional generation capacity will come from Solar Turbines, a Caterpillar subsidiary. Chevron said the scale of the project would make it one of the largest co-located natural gas power and data center developments in the United States.

The companies framed the agreement as a way to meet fast-growing demand for artificial intelligence and cloud computing while securing reliable power for large-scale digital operations. Chevron said the arrangement would link its natural gas resources in the Permian Basin with a new source of demand for electricity. Microsoft said the partnership would help ensure it has dedicated power to support advanced computing needs.

By placing generation next to the data center, the project is intended to provide dispatchable electricity directly to Microsoft while reducing pressure on the regional grid. Chevron said that design could help limit effects on other power consumers in the area.

The project remains subject to Chevron’s final investment decision, which the company expects by the end of 2026 if other conditions are met. Chevron said it is targeting mid-teen returns from the development. First power delivery is expected in 2028.

Chevron also said the project could bring substantial economic benefits to the region. The company estimated more than $10 billion in state and local tax revenue, support for nearly 2,000 jobs, and broader economic activity tied to the development.

Environmental and community considerations were also part of Chevron’s announcement. The company said Kilby plans to use brackish groundwater rather than freshwater for plant operations and that it is pursuing options to reuse produced water from oil and gas activities. It also said the plant design would include emissions controls such as selective catalytic reduction systems intended to cut nitrogen oxide emissions, along with measures to reduce noise and light impacts.

For Chevron, the agreement adds another example of how major energy companies are positioning themselves to serve the data center market as AI-related power demand grows. For Microsoft, it expands the company’s access to dedicated energy supply as it continues to scale cloud and AI infrastructure.