Chevron's (CVX) partnership with Microsoft (MSFT) to build a co-located power facility for a data center highlights fuel cost economics as a "key and underappreciated" aspect of its power solutions business, UBS Securities said in a note Monday.
Chevron subsidiary Energy Forge One finalized the agreement to develop a 2.67-gigawatt natural gas-fired power plant to supply dedicated electricity to a Microsoft-operated data center under a 20-year power purchase agreement. Chevron will combine cycle gas turbines from GE Vernova (GEV) and simple cycle gas turbines from Caterpillar (CAT) to engineer the best system for its clients, the brokerage noted.
By placing power generation near its upstream operations, Chevron is creating demand for associated gas that would otherwise be flared, curtailed, or sold cheaply, UBS analysts said. The company is improving its upstream realizations as well as boosting integration across its value chain, they added.
The project's phased and modular approach allows incremental expansion over time, the brokerage said, adding that Microsoft is also seen increasing the initial order as its power needs are more than the capacity of the project.
UBS Securities has a buy rating on Chevron's stock, with a price target of $220.
Shares of Chevron were up 0.6% in Tuesday trading.
Price: $176.11, Change: $+1.05, Percent Change: +0.60%