Chevron’s Microsoft Deal Turns Natural Gas Into an AI Trade

Chevron (CVX) and Microsoft (MSFT) signed a 20-year power purchase agreement delivering 2.67 gigawatts of natural gas capacity to a dedicated AI data center campus in Texas. The deal, dubbed Project Kilby, carries a $7 billion price tag and targets mid-teen internal rates of return for Chevron.

The arrangement solves two problems: Chevron monetizes stranded natural gas from its Permian Basin operations, while Microsoft secures baseload power independent of the public grid. The structure marks a template shift for traditional energy producers seeking exposure to AI infrastructure demand without abandoning core hydrocarbon assets.

At 2.67 gigawatts, Project Kilby ranks among the largest single power commitments tied to AI data center build-outs announced to date. The 20-year duration locks in cash flows for Chevron and supply certainty for Microsoft as hyperscalers race to build compute capacity ahead of competitors. The mid-teen IRR target suggests Chevron expects margin expansion beyond typical utility-grade gas contracts.