(Bloomberg) – Chevron chose West Texas as the site of its first project to provide natural gas-fired power to a data center, the beginning of a new line of business for the oil giant to capitalize on the boom in artificial intelligence.
The company is in exclusive talks with the data center’s end user, which it didn’t name, and anticipates making a final investment decision early next year, according to a statement and presentation released ahead of Chevron’s investor day on Wednesday. The facility is expected be operational in 2027, and will have capacity to generate as much as 5,000 megawatts in the future.
Oil majors are looking to cash in on the enormous demand for energy that will be needed to power data centers, which are being located further away from major population centers and closer to sources of fuel.
Chevron is one of the biggest producers in the Permian Basin of West Texas, which spews out so much natural gas that it often overwhelms pipelines and has to be burned off.
“We’ve got the gas,” Chief Financial Officer Eimear Bonner said in an interview prior to Chevron’s investor presentation in New York on Wednesday. “We are uniquely positioned to have a very competitive project.”
The power project is expected to ramp up by its third year to have the capacity to produce about 2,500 megawatts, which is more than the equivalent of two nuclear reactors. It will likely be built separately from the grid to avoid competing with electricity supply for the wider population. Chevron sees an opportunity to secure demand for its 3 billion cubic feet per day of natural gas output.
Key to Chevron’s venture into AI was forming a partnership with Engine No. 1, the investor that ran a successful activist campaign against arch-rival ExxonMobil in 2021. The collaboration with Engine No. 1 secured an order for seven large natural gas turbines from GE Vernova Inc.
Chevron executives are due to explain its power strategy in more detail at the investor day, the Houston-based company’s first for nearly three years. The energy giant also expects to grow its free cash flow 14% annually over the next five years, reaching $30 billion by 2030 with Brent crude at $70 a barrel, according to the presentation materials.
The company left its buyback at just over $10 billion a year, the low end of its target range, but CFO Bonner said Chevron’s cash generation is now strong enough that it could fund a $20 billion buyback if Brent were to settle at $80 a barrel. Futures are currently trading near $65.
New long-term targets include:
Reduced annual capital budget to $18 billion to $21 billion through 2030 from $19 billion to $22 billion
Generating enough cash to cover its dividend and capital spending with Brent at $50 a barrel
Growing oil and gas production by 2% to 3% annually
Analysts at JPMorgan Chase & Co. had been expecting growth of about 1.7% annually
Increasing annual cost savings to as much as $4 billion by the end of 2026, up from as much as $3 billion previously
