Chevron Corporation (NYSE: CVX) has signed a 20-year power purchase agreement with Microsoft Corp. (NASDAQ: MSFT) to develop a co-located natural gas power facility in West Texas that will supply dedicated electricity to a Microsoft-operated data center.

The project, known as Project Kilby, is being developed through Energy Forge One LLC, a wholly owned Chevron subsidiary, in collaboration with Engine No. 1. The facility is expected to deliver approximately 2.67 gigawatts of capacity through a phased, modular approach. Primary generation will come from GE Vernova (NYSE: GEV) turbines, with additional capacity provided by Solar Turbines, a subsidiary of Caterpillar Inc. (NYSE: CAT).

Chevron said its Final Investment Decision is expected by the end of 2026, subject to other conditions being met. First power delivery is anticipated in 2028. The project is targeting mid-teen returns and is expected to generate cash flow independent of oil and gas price cycles.

"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," said Jeff Gustavson, Chevron president of New Energies.

Noelle Walsh, Microsoft president of Cloud Operations + Innovation, said the agreement would provide "dedicated, large-scale power to support the evolution and reliability of advanced compute."

Chevron said the project is expected to generate more than $10 billion in state and local tax revenue and support nearly 2,000 jobs. The facility plans to use non-potable brackish groundwater instead of freshwater and will incorporate Selective Catalytic Reduction systems to reduce NOx emissions.