Chevron’s second-quarter beat was the headline, but the real story landed three weeks earlier when the company locked in a two-decade take-or-pay power purchase agreement with Microsoft. The pact ties 2.67 gigawatts of gas-fired generation to an AI data center in Texas, giving Chevron a fixed revenue stream that sidesteps commodity swings and gives Microsoft baseload power long before the grid can deliver it.
The deal structure
Signed June 22, the agreement sits inside Project Kilby, a joint development among Chevron’s Energy Forge One subsidiary, Engine No. 1, and Microsoft. GE Vernova turbines will supply the bulk of the capacity, with Solar Turbines, a Caterpillar unit, filling the rest. The modular design lets the site scale incrementally, with first power targeted for 2028. Chevron acts as co-investor, developer, and fuel supplier, feeding Permian Basin associated gas directly to the plant while Energy Forge One handles operations, maintenance, and water systems.
Why the gas matters
Associated gas from Permian oil wells has long been a disposal problem: insufficient takeaway capacity forces flaring. Redirecting that volume to a behind-the-meter data center turns a waste stream into a high-margin feedstock. The take-or-pay structure guarantees Chevron recovers its capital regardless of whether Microsoft draws the full contracted load, effectively converting volatile upstream production into a tolling-like return.
Revenue visibility
The 20-year tenor insulates a slice of Chevron’s cash flow from Henry Hub swings. For a company that still derives the vast majority of earnings from crude and natural gas realizations, a contracted, dollar-denominated revenue line tied to AI infrastructure demand is a structural diversifier. Microsoft, meanwhile, secures scarce firm power in a market where grid interconnection queues stretch years.
What to watch
The Kilby template, integrated fuel, generation, and offtake under one long-term contract, could be replicated across other hyperscaler campuses. Investors should track whether Chevron discloses the PPA’s contracted capacity payments or implied EBITDA contribution in future filings, and whether similar deals follow with other cloud operators. The earnings beat was nice; the contracted cash flow is the asset.