Microsoft Signed a 20-Year Power Deal. The Seller Was an Oil Company.

Research Desk · September 4, 2026

Oil production in the Permian Basin of West Texas. Photo via Wikimedia Commons.

The August jobs report hit the tape at 8:30 this morning, and for a week the entire market has been arguing about one question: whether the Federal Reserve raises rates on September 16 or sits still.

Thursday gave the bulls their answer, or at least a hint of one. Fed governor Christopher Waller said he was inclined to hold the target range at 3.5% to 3.75%, yields backed off, and the Dow added more than 600 points for its best session in a month.

Underneath all of that, something less discussed has been running all year. The best-performing sector of 2026 is not artificial intelligence. It is energy, up roughly 43% with four months still on the calendar.

And the most recognizable name in that sector closed Thursday near $212, within about a dollar of its 52-week high, after climbing roughly 43% year to date.

An Oil Major Is Three Businesses Wearing One Ticker

Picture a family that owns a wheat farm, the mill next door, and the bakery in town.

When wheat prices spike, the farm prints money and the bakery's margins get squeezed. When wheat gets cheap, the bakery makes up part of the difference. Owning all three smooths the ride.

Chevron (NYSE: CVX) is built the same way. Upstream is the farm, and refining and marketing are the mill and the bakery.

In the second quarter both ends worked at once. Brent averaged about $104 a barrel against $68 a year earlier, and the company's U.S. refineries ran a record 1.07 million barrels a day of crude at better than 97% utilization.

The Quarter That Paid for Hess

Revenue came in at $67.2 billion, up 51.4% year over year. Earnings were $12.1 billion, or $6.11 per share, on a 21% return on capital employed.

Free cash flow reached $18.1 billion in three months. That is the number that funds everything else.

The Hess acquisition passed its one-year mark during the quarter. Management had targeted $1 billion of annual synergies and delivered $1.5 billion, six months ahead of schedule.

Guyana contributed roughly 275,000 barrels of oil equivalent per day of the year-over-year production gain, with the Bakken adding about 180,000. Worldwide output hit 4.07 million barrels of oil equivalent per day.

The cash went three places. Chevron retired $8.41 billion of debt inside the quarter, bought back $3.1 billion of stock, and raised the dividend for the 39th consecutive year to $1.78 a quarter, payable September 10.

The Data Center Deal Nobody Expected From an Oil Company

Here is the part of the quarter that got the least attention and may matter the most.

Chevron signed a 20-year power purchase agreement to supply roughly 2.67 gigawatts of behind-the-meter electricity to a Microsoft data center in West Texas.

Behind-the-meter means the power plant sits next to the building and never touches the public grid. That matters because the interconnection queue for new grid capacity in Texas now runs years long, and an AI operator that waits in line does not get to train anything.

So the hyperscaler buys its own generation. Chevron owns the gas, has the land, and knows how to build large industrial projects on schedule. CEO Mike Wirth has framed the strategy as positioning the company to help power American AI dominance.

For four years the market has paid enormous multiples for companies that consume electricity. This is a contract to sell it, at a fixed customer, for two decades.

Risk Factors

The earnings math above runs on Brent near $104. A year ago it was $68, and the difference is most of the profit growth.

Investors got a live demonstration earlier this year. When a U.S.-Iran ceasefire memorandum took shape and traders priced the Strait of Hormuz reopening, crude fell about 20% from its highs and Chevron slid from $214 toward $188 in a matter of weeks. Chevron carries more oil leverage than several of its integrated peers, which cuts both ways.

The Venezuela expansion is the second risk. Chevron is the only major U.S. oil company operating in the country and has committed more than $7 billion to a deal tied to a very large reserve base. It is a genuine growth engine and also a political asset in a country with a long history of reversing terms on foreign operators.

The Middle East cuts both ways too. The same conflict that lifted crude prices also forced curtailments in the Partitioned Zone between Saudi Arabia and Kuwait, where Chevron holds production.

Finally, the price. Shares sit within a dollar or two of the 52-week high, the average analyst target is around $218, and the lowest target on the Street is $175, roughly 17% below Thursday's close. That is the bear case with a number attached.

The Bottom Line

For an investor who cares about income and durability, the package is unusually complete right now: a 3.3% yield with 39 consecutive annual raises behind it, record production, $18.1 billion of quarterly free cash flow, and net debt at 0.6 times cash flow after $8.4 billion of repayment.

What comes attached is honest and simple. The price of a barrel sets the earnings, and part of the growth story sits in Caracas.

The question worth sitting with is the power contract. If selling dedicated electricity to AI operators becomes a real second business, the market is currently valuing this company entirely on the price of oil, and only on the price of oil.