In mid-December I wrote Part 3 of my Data Centers in the Permian Basin series of articles (1), which provided evidence that Chevron was planning to build a power generation facility in Reeves County on a patch of land that contained some land owned by Texas Pacific Land Company (“TPL”). The two main gating items for Chevron to overcome before moving forward with the project were securing the requisite tax abatement and an off-take partner. On April 1st, Kevin Crowley (2) from Bloomberg broke the story more broadly than my humble newsletter and noted that Chevron was in talks with Microsoft to be their – hopefully first of many – off-take partner(s). On June 22, Kevin wrote a second article noting that Chevron and Microsoft have reached an agreement, which means the project is moving forward (3). The combination of TPL, Chevron, and Microsoft in this project lends massive credibility to the thesis that the Permian Basin will attract several AI datacenters (realtors in Pecos are going to love this). I think it is worth the time to look at this announcement as well as what else is going on with this thesis.
Chevron / Microsoft / TPL Project
Deal Specifics
The agreement, named Project Kirby, provides for a power plant that generates 2.67 gigawatts. It will be built in a phased modular approach. Note that when announcing these plans at Chevron’s Analyst Day, Chevron noted that the initial phase would be 2.5 gigawatts and it would be expandable to up to 5 gigawatts. First power is expected to be delivered in 2028, as compared to the original goal of 2027. The project is expected to support ~2,000 jobs. Brackish water will used in power generation; although, it is also noted that Chevron is “…also working to advance solutions for reuse of produced water from oil and gas operations”. What does this mean for the Permian Basin players that are often featured in my articles, namely TPL, LandBridge and WaterBridge?
TPL Implications
On June 23, TPL issued a press release (4) where TPL announced an agreement to provide land and water solutions to Project Kirby. The press release noted that TPL contributed land to the project in exchange for cash consideration and a right to sell brackish water for use in power generation – TPL made the same deal with and unnamed entity in Q1 26 as per their Q1 results press release. This has two major implications. First, it indicates that the earnings from the brackish water business likely dwarfs the cash consideration for the land. We don’t have specifics on the earnings potential from brackish water sales, but Horizon Kinetics has done some excellent work on this topic (5). Second, it shows that TPL has at least three major data center projects in the work. The first is obviously what they are doing with Bolt, the second is the project mentioned in the Q1 earnings call (which we know is not Bolt or Chevron), and the third is project Kirby. The Permian Basin looks like it will turn into a major hub for digital infrastructure.
Broader Implications – WaterBridge and LandBridge
Project Kirby proves out the thesis that hyperscalers will put AI datacenters in the Permian Basin. This obviously bodes well from LandBridge and I would be surprised if LandBridge did not announce a definitive agreement for a datacenter on their land by the end of this year. However, there are some interesting nuggets in both Chevron’s and TPL’s Project Kirby press releases. Both press releases refer to their organizations working on advancing the use of produced water to be used in the production of power (and by extension datacenter cooling). I have believed for a while that the first projects in the basin would use brackish water, but over time, brackish water will be replaced with produced water. Who is in the best position to supply produced water to Project Kirby? The answer is likely WaterBridge and LandBridge.
I secured the below map from my friends at B3 Insight – the best source for intelligence and data on produced water in my opinion (6). According to the map, there are three easy sources of water for the project. First, the orange pipeline is Chevron’s. That would likely be the first source. The next easy source is the blue pipeline. That is WaterBridge. Aside from what is on the map, WaterBridge also has the most scaled system in the area. Finally, there are the purple triangles, which are WaterBridge/LandBridge produced water disposal wells. Note that WaterBridge owns the water in these wells. While water has flowed into them historically, it can also flow back out.
The Chevron / Microsoft / TPL deal is exciting for multiple reasons. The obvious reason is that it proves out the Permian Basin data center thesis. Next, it foreshadows that there will ample money to be made by those that have access to brackish and/or produced water. The datacenters in the Permian Basin trade is in the early stages and there are several ways to play it. Several of the companies exposed to this thesis are currently trading at reasonable, if not cheap, prices based on their core businesses alone. The data center in the Permian Basin thesis has often been a cheap or free option, but that option looks increasingly to be deep in the money. After writing about this thesis for several years, it is exciting to see the thesis proved out. I need to remind myself to stay calm, but I don’t mind if you dear readers want to bid these stocks up so that they start to reflect the values of their deep-in-the-money call options.
Index:
(1) https://310value.substack.com/p/data-centers-in-the-permian-basin-9c9
(3) Technically, the Final Investment Decision (“FID”) is expected to come later this year, but as I understand it, Chevron is just finalizing engineering plans. They have budgeted ~$7B for the initial phase of this project and the major gating items have been achieved. Hopefully nothing stops this train.
(5) I referred and cited the Horizon Kinetics work in the following article: https://310value.substack.com/p/two-companies-marked-safe-from-the
(6) https://www.b3insight.com/
Disclaimer: Not a solicitation or an offer to buy or sell any security. For educational and entertainment purposes only; this is not investment advice. Do your own due diligence. I am long several of the companies mentioned, but under no obligation to provide updates on changes in positions.
What are your thoughts on EagleRock?
TPL’s release puts their Kilby contribution on the power side (surface + brackish water for the plant). The compute is Microsoft-operated and the release doesn’t site it on TPL acreage. So is Kilby actually datacenter-surface validation, or is that still riding on Bolt? Curious how you’re splitting the power leg from the compute leg here