Chevron Signs 20-Year Power Agreement to Supply Microsoft Data Center

Chevron signed a 20-year power purchase agreement with Microsoft to supply electricity from natural gas turbines to a West Texas data center under Project Kilby.

Project Kilby and the 20-Year Microsoft Power Agreement

Chevron entered into a 20-year take-or-pay power purchase agreement with Microsoft to provide electricity for a Microsoft-operated artificial intelligence data center in Texas, the outlet reported. The arrangement is part of Project Kilby, a collaborative infrastructure development involving Chevron through its subsidiary Energy Forge One, Engine No. 1, and Microsoft. Together, these entities are working to build roughly 2.67 gigawatts of on-site power capacity.

The physical infrastructure relies heavily on gas-powered generation. GE Vernova supplies the majority of the turbines and related systems, while Caterpillar’s subsidiary Solar Turbines provides additional capacity. The modular approach enables the power plant to expand capacity incrementally, with the facility expected to begin supplying electricity by 2028.

Chevron acts as both a co-investor and fuel provider. The company supplies natural gas from its Permian Basin production fields directly to the power plant, while Energy Forge One oversees long-term facility operations, including maintenance and water management systems. For Chevron, the deal locks in long-term revenue and insulates operations from commodity price volatility.

Caterpillar’s Record Valuation and Engine Demand

Market participants increasingly price the machinery builder as an artificial intelligence play because its Power and Energy segment manufactures the engines and turbines required to keep data centers running.

The financial foundation supporting this valuation appears in first-quarter 2026 financial figures, which showed revenue rising 22% year over year to $17.4 billion. Adjusted earnings of $5.54 beat consensus estimates. Power and Energy drove much of that growth with approximately $7.0 billion in segment revenue, pushing the company’s total backlog to a record near $63 billion, up 79% from the previous year.

Addressing investor concerns about potential overcapacity during an investor meeting, Power and Energy Group President Jason Kaiser explained that customer agreements feature strict financial protections. sometimes cancellation penalties, sometimes prepayments, Kaiser noted regarding contract structures that require clients to pay if they walk away.

Margins, Tariffs, and Structural Industry Pressures

Despite surging demand and record order backlogs, profitability metrics reveal ongoing operational headwinds. Power and Energy operating margins landed near 21% in the first quarter, declining 170 basis points year over year as tariffs and capacity-ramp expenses intersected. Our sales were up 22%, profit up 13%, but were down 170 basis points, Kaiser acknowledged during investor discussions.

Caterpillar Just Blew Past $1,000 on the Microsoft-Chevron Power Deal. Is CAT Stock Still a Buy at All-Time Highs — Photo: TIKR

Management guidance points to full-year tariff costs ranging between $2.2 billion and $2.4 billion. Meanwhile, the mining-focused Resource Industries segment experienced a 39% profit drop, with margins compressing to 10.0%. These divergent figures highlight a complex corporate landscape where surging top-line revenue coexists with margin compression.

As hyperscalers continue their search for reliable baseload energy, deals like Project Kilby bridge the gap between fossil fuel production and digital infrastructure. Whether the current valuation multiples for equipment suppliers and energy providers remain sustainable depends on how effectively companies manage rising production costs while executing multi-decade power commitments.