Fervo Energy Q3 2026 Earnings Call Transcript

Fervo Energy (NASDAQ:FRVO) reported third-quarter financial results on Monday. The transcript from the company’s third-quarter earnings call has been provided below.

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Summary

Fervo Energy announced the successful commercial operation of its first Geoblock, Cape Station, a 33 MW enhanced geothermal system built in 23 months, marking a significant milestone in utility-scale carbon-free power delivery.

The company signed a major 15-year PPA with Google for 396 MW, with an expansion option for an additional 600 MW, highlighting strong demand and strategic partnerships.

Fervo Energy reported a Q3 net income of $11.7 million, with increased general and administrative expenses, and noted capital expenditures of $256.7 million primarily on Cape Station development.

Operational improvements and cost efficiencies are being realized, with a target to achieve $5,500 per kilowatt for future Geoblocks, driven by technological advancements and strategic construction timelines.

The company maintains a strong development pipeline with 1,054 MW of binding PPAs and is exploring new opportunities in Idaho and Nevada, backed by potential DOE grants totaling $20 million.

Management emphasized Fervo Energy’s commitment to safety, sustainable development, and community engagement as foundational elements of its operational strategy.

Full Transcript

OPERATOR

Greetings and welcome to Fervo Energy’s third quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the prepared remarks. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Paxter Litvinger, Senior Director of Corporate Development and Investor Relations. Please go ahead, sir.

Paxter Litvinger (Senior Director of Corporate Development and Investor Relations)

Thank you. Good morning everyone and welcome to Fervo Energy’s Q3 2026 earnings call. Joining us today are Tim Latimer, Co-Founder and Chief Executive Officer, and David Ulre, Chief Financial Officer. Before we begin, I’d like to remind everyone that today’s discussion will contain forward-looking statements within the meaning of applicable securities laws. These statements reflect management’s current expectations and assumptions and involve known and unknown risks and uncertainties that could cause actual results to differ materially.

Please refer to the forward-looking statements and risk factors disclosed in today’s earnings release and in our filings with the SEC. Additionally, today’s discussion may include certain non-GAAP financial measures. Reconciliation tables are provided in the appendix of the earnings release as applicable. Now over to Tim to kick things off.

Tim Latimer (Co-Founder and Chief Executive Officer)

Thank you, Paxton, and good morning everyone. I’ll start with the most important development of the quarter. Our first Geoblock, Cape Station, is in commercial operation, delivering power to the grid and generating revenue under our power purchase agreement. A few years ago, enhanced geothermal was an idea recently proven with a pilot that had just begun operating. Today it is a 33 megawatt power plant, consistently delivering clean, firm electricity.

When we last spoke in August, I said we judge our progress on four things. First, the strength of our pipeline; second, how well and how quickly our modular approach serves customers; third, our license to operate in the communities where we build; and fourth, our execution in the field. This quarter we advanced on all four, and Cape Station is the clearest evidence. Cape Station’s first Geoblock is the first greenfield enhanced geothermal system development in the world to reach commercial operation, and it was built in just 23 months.

It demonstrates that enhanced geothermal can deliver reliable, carbon-free power at utility scale. We firmly believe that integrated modularity and best-in-class continuous improvement into infrastructure construction will drive tighter delivery timelines, and we’re proud to have taken the first step in delivering this promise by completing our first Geoblock ahead of schedule. During this call, I’ll elaborate on the startup of operations before turning to our recent PPA with Google, which we believe is the largest enhanced geothermal PPA signed to date. I’ll also speak about continued operational success at Cape Station, policy tailwinds, and progress across our pipeline. Before we go further, I want to talk about safety. Nothing we build matters if we don’t build it the right way. Our trailing twelve-month total recordable incident rate now stands at 0.10.

Even as we scale up construction and operations at Cape Station this quarter, our facilities construction crew also reached a major milestone: one million hours worked without a recordable incident. The men and women building our Geoblocks do complex, demanding work, including work at heights, hot work, and exposure to the elements so that reliable, clean energy can be built in America. We are deeply grateful for their efforts. One million hours without a recordable incident reflects the seriousness with which we approach this work and the tools and processes that let it be done safely.

At Fervo Energy, we’ve said that we want to show that you can be at the forefront of innovation and still lead in health, safety, and the environment. This milestone is strong evidence that innovation and safety can go hand in hand. Now back to Cape Station. On September 30, we declared commercial operation at our first Geoblock ahead of our contractual deadline. We synchronized to the grid on September 24, and today Geoblock 1 is generating revenue under its PPA. In just 23 months, we turned an empty plot of land into a fully operational power unit. This milestone sends a clear message to customers, utilities, regulators, and other developers: enhanced geothermal is now delivering at utility scale.

We took science and intellectual property validated at Project Red and built a 33 megawatt full-scale Geoblock that is delivering on our PPA supported by project finance. And we delivered it on time. We’re still early in our overall CAPE Phase 1 operational lifecycle. But while our pilot proved the building blocks of EGS, CAPE Phase 1 data is beginning to confirm the benefits of operating EGS at scale. Geoblock 1 is performing in line with our operational expectations, including both production performance and power delivered under our PPA.

Said simply, brine is arriving at the power plant at the design volume and temperature, and electricity is being sold as planned. Geoblock 1 has given us the playbook. It has taught us about commissioning sequence, equipment and controls, contractor coordination, and regulatory approvals. We’ve run that playbook once, and now we run it repeatedly, improving each time we do. Geoblocks 2 and 3 are on track with the timeline we laid out during our IPO.

Both have reached mechanical completion. Geoblock 2 has achieved grid sync, a major milestone which marks the end of hot commissioning. The plant is now in its tuning and early operations phase, exporting test energy to the grid. Geoblock 3 is close behind in cold commissioning, where we are testing the mechanical and electrical systems prior to introducing brine. We continue to expect commercial operation for these Geoblocks by January 1, 2027, which puts us on track to deliver approximately 100 megawatts of firm, clean power from Fervo Energy’s first three Geoblocks by 2027.

As we deploy our repeatable Geoblock delivery model across other geo clusters both in Utah and in other states, we expect efficiencies to compound in terms of both speed and cost over time. We are confident we can build and commission Geoblocks in fewer than 18 months. This brings me to what we are now calling Cape Google 400: Geoblocks 4 through 11, the next eight units from our factory model that will deliver to Google in 2028. Under our recently signed PPA, these Geoblocks are on track for mid-2028 delivery. Let me turn now to the details of that agreement. In September we announced what we believe is the largest enhanced geothermal power purchase agreement signed to date. It is a 15-year take-or-pay agreement, meaning Google is committed to paying for this power irrespective of the Beaver County data center plans on terms that are fixed for the life of the contract.

The agreement covers approximately 396 megawatts delivered in four tranches of 99 megawatts each, with commercial operation targeted to begin in mid-2028 and the full set of Geoblocks targeted to be online before the end of 2028. Construction is already underway, and I will share that progress shortly. Beyond the 396 megawatts contracted, we also committed to offer Google an expansion option of approximately 600 megawatts, which would bring the total to 1 gigawatt.

Let me explain how delivery works under this agreement because the structure is as important as the size. The signed 396 megawatts is the first layer, and it is initially grid connected. For Fervo Energy, it is a firm, binding, and financeable contract that we can build against today, with parent guarantees from both Fervo Energy and Alphabet behind it. For Google, we believe grid connectivity means the power they are buying has value regardless of how much of the power they consume, as Google can monetize power in the broader market.

That is the point of this structure: it lowers project-on-project risk. We built Cape Station on our schedule. Google can develop a potential data center on their schedule, and neither party is waiting on the other. The second layer, the 600 megawatt expansion option, is behind the meter, unlike the 396 megawatts which are grid connected. Fervo Energy and Google are pursuing direct-to-load delivery for this expansion to the potential regional data center.

This should be under Utah’s SB132, a framework that lets large load customers connect directly to new generation with protections for existing ratepayers. Our joint work to seek regulatory approval is underway, and we’ll share updates as this progresses. We are working on all of this with the same commitment to transparency and high-quality stakeholder engagement as we conduct with the rest of our business. Our partnership with Google adheres to the Geothermal Sustainable Development Pact, the voluntary standards I spoke about last quarter.

In October, we were at Google’s community event in Milford High School, where 250 neighbors came to learn about the potential data center and ask questions. We are pleased with our progress to date, proud to partner with Google, and honored to operate in a community of engaged, invested citizens. Of course, everything we do comes back to execution in the field, so I will turn to construction. Work on Cape Google 400 continues on track across all eight 50 megawatt Geoblocks, our standard design going forward. As I mentioned, we expect first power from these Geoblocks in mid-2028, ramping to approximately 400 megawatts by the end of that year. Since last quarter’s call, the first set of 50 megawatt turbines has passed factory acceptance tests, and we’ve accepted delivery of major equipment in line with our development plan, including recuperators and over 60% of all air-cooled condensers.

On the subsurface side, we now have four H&P Flex 3 rigs running at Cape Station. Drilling for Geoblocks 4 through 11 is approximately 18% complete. Our drilling results continue to improve as we drill more wells with our 3.0 design. Recall that our 3.0 design includes extending laterals to 7,500 ft, stepping up the lateral diameter to 8 5/8-inch casing, and targeting an average reservoir temperature of 430 degrees Fahrenheit. Each of these changes results in more power capacity through higher flow rates and higher temperatures.

Reducing costs and increasing production aren’t the result of any single breakthrough. They’re the result of intentional, iterative improvement where small changes compound into large increases in productivity. Dissolvable plugs and a redesigned toe prep reduce completion time and complexity. Rotary steerable systems and insulated drill pipe allow us to reach deeper, hotter rock without slowing down. Procurement at scale is driving cost efficiencies on our surface equipment, where our ORC framework with Mitsubishi Heavy Industries through its Turboden subsidiary provides better pricing and firm delivery timelines on the equipment at the heart of each Geoblock. No single action will win the day on cost reduction, but what Fervo Energy is demonstrating is that through our methodical approach to development and our dedication to continuous improvement, we continue to remove costs from the system, and as a result we are positioned to achieve $5,500 per kilowatt of installed CAPEX for Geoblocks 4 through 11.

Our long-term target remains at $3,000 per kilowatt. We maintain a keen focus on returns-oriented deployment of capital, where each dollar spent must justify its economic value. Last quarter we spoke about using small amounts of capital toward this effort, and one area we’ve identified is that by pairing relatively small amounts of solar with our Geoblocks to power our station auxiliary load, we increase the amount of high-value geothermal power that is available for sale under our PPAs.

We expect to continue identifying opportunities like these where, through our repeatable approach, we drive costs down and improve returns. Next, I’d like to cover policy updates. We continue to see bipartisan support for geothermal at the federal level, support that has been notably broad and durable across administrations. The Department of the Interior recently directed the Bureau of Land Management to allow certain early exploration activities with expedited approval. When we announced our 396 megawatt power purchase agreement with Google, Interior Secretary Burgum congratulated Google and Fervo Energy, calling it a powerful example of how geothermal can deliver more reliable, affordable, secure, around-the-clock American energy.

The Department of Energy further bolstered that support by selecting Fervo Energy for two potential grants totaling approximately $20 million to support exploration drilling activities. Subject to finalizing definitive funding agreements, these awards would accelerate capital to evaluate prospects in Idaho and Nevada for full-scale enhanced geothermal development. The Idaho award is notable in that it would fund our first appraisal wells in that state, marking our entry into new geography for Fervo Energy and giving us the opportunity to appraise new geothermal resources there with government support.

In recognition of geothermal’s extraordinary potential, Congress has taken action to advance impactful bills on permitting, commercial deployment, and R&D, all with broad bipartisan support. Next, let me step back and comment on our commercial pipeline. We now have 1,054 megawatts of binding power purchase agreements, representing approximately $11.9 billion of contracted revenue. With the addition of the Google PPA, that is an increase of 396 megawatts, or about 60%, from last quarter. That binding backlog is only part of the picture. Beyond those signed agreements, we have an active pipeline of discussions across utilities, industrial customers, and hyperscalers.

This broad demand reinforces just how acute the need for firm power that can be delivered quickly really is. At this moment, approximately 35% of those ongoing discussions are with utilities and load-serving entities, 15% are with large-load industrial buyers, and 50% are with data centers and hyperscalers. Our approach to power delivery will continue to blend front-of-the-meter and behind-the-meter development. Grid-connected assets remain the foundation though.

Behind the meter gives customers a faster path to power when transmission timelines lag their need. Every one of our geo clusters is planned for eventual grid interconnection. So this isn’t an either-or choice. It’s about getting customers power as quickly as possible. Before I hand it over to David, I want to note that it’s been just about six months since our IPO, and so it feels like a good opportunity to look at where we started versus where we stand today. We started with a three megawatt commercial pilot. Today, with our first Geoblock online at Cape Station, we have a total of 36 megawatts installed. We had 658 megawatts of contracted power purchase agreements, and today we have 1,054 megawatts. And our revenue backlog has grown from $7.2 billion to roughly $11.9 billion.

We raised our 2030 capacity target from 1 gigawatt to 1.1 gigawatts. We’ve grown our estimated resource potential from about 40 gigawatts to over 58 gigawatts. We’ve expanded our net geothermal leasehold portfolio from roughly 610,000 to 670,000 acres. And finally, we went from two drilling rigs to four. What hasn’t changed is our conviction. When we rang the NASDAQ bell six months ago, we believed that the subsurface technology behind the shale revolution could unlock geothermal at enormous scale.

That remains our belief today, only now we have a fully operational commercial asset and over a gigawatt of binding contracts to back it up. With that, I’ll hand it over to David.

David

Thanks, Tim. I’ll cover our third quarter results, then capital spending and liquidity, and finish with a few items related to near-term expectations before turning to our pipeline. With Geoblock 1 placed in service on the last day of the quarter, our third quarter results primarily reflect our ongoing construction and development activities. General and administrative expense was $39.4 million compared with $27.4 million in the second quarter, about $14 million of Q3 G&A was non-cash stock-based compensation, up from about $8 million in Q2 excluding stock comp, G&A rose about $6 million to about $25 million, reflecting public company costs and continued hiring. We ended the quarter with 306 employees, up from 261 at the end of June, with most of that growth in operations and construction. As we bring Cape Station online, operating loss was $43.7 million. Net income was $11.7 million, reflecting $15.4 million of interest income and two non-recurring items: an $11.8 million non-cash gain on interest rate swaps and a $29.9 million tax benefit from tax credits earned as Phase 1 assets were placed in service.

While I call out these items as non-recurring because they affect comparability between quarters, I want to remind you that our tax credits have considerable economic value and we have a binding agreement to monetize the tax credits for GeoBlocks 1 through 3, with the proceeds supporting repayment of our tax credit bridge line. Net cash used in operating activities was approximately $12 million in the quarter. The difference from operating loss primarily reflects non-cash expenses, interest income, and working capital movements. Capital expenditures were $256.7 million compared with $226.5 million in the second quarter, primarily for drilling, completions, and surface facilities at Cape Station. For the fourth quarter, we expect capital expenditures of approximately $450 to $500 million, bringing capex in the second half of 2026 to $700 to $750 million compared to our prior expectation of $850 to $900 million.

This is driven by more efficient capital execution for Cape GeoBlock 400, primarily because we now expect certain spending to occur later. While staying on schedule, our engineering and construction teams have identified opportunities to shorten the construction period, allowing us to deploy that capital closer to the expected 2028 commercial operation dates. The commercial operation dates remain unchanged, as does the approximately $2.2 billion we expect to invest in the Cape GeoBlock 400 GeoBlocks through 2028.

The revised spending plan reflects our relentless optimization of construction timelines, which helps us improve returns by deploying capital closer to revenue generation. One balance sheet item to note: our expected total cost for GeoBlocks 1, 2, and 3 remains approximately $7,000 per kilowatt. When GeoBlock 1 was placed in service on September 30, we transferred approximately $514 million from construction in process to property, plant, and equipment. That amount is not the standalone cost of GeoBlock 1 and includes a larger share of Phase 1’s well field costs and shared infrastructure that serves all three GeoBlocks, including our own substation, gen-tie, and administrative facilities, as well as capitalized interest and financing costs.

As GeoBlocks 2 and 3 are placed in service, the shared costs will be spread across more capacity. We ended the quarter with $1.9 billion of unrestricted cash and cash equivalents and current and long-term debt of $301.6 million. Now, a few items related to near-term expectations: the fourth quarter will be our first full quarter of revenue from Cape Station under our PPA. As Tim mentioned, GeoBlock 1 is performing in line with expectations. We anticipate fourth quarter 2026 revenue to be in line with what we discussed on our Q2 call. GeoBlocks 2 and 3 remain on track to progress through commissioning, grid sync, and into operations following the same sequence as GeoBlock 1.

We continue to expect commercial operation for GeoBlocks 2 and 3 by January 1, 2027. Looking ahead to 2027, our expectations for revenue remain unchanged from what we discussed on our Q2 call, and we’ll share more guidance when we report full-year 2026 results. To close, I want to talk through our development pipeline because every milestone we’ve covered today started years ago as acreage and early-stage resource. That pipeline is the engine of our growth. I’ll go from most mature development to earliest development. Today we have 36 megawatts in operation at Cape Station and Project Red. Another 66 megawatts encompassing GeoBlocks 2 and 3 in commissioning and an additional 400 megawatts encompassing GeoBlocks 4 through 11 is under construction.

Our ready-to-build capacity remains at 550 megawatts, supported by our continued expansion at Cape Station beyond what is currently in construction as well as our Corsac Geo Cluster, where we have contracted PPAs with Google and AVA Community Energy. Fervo’s advanced development pipeline remains at 3 gigawatts and early development grew to 54.7 gigawatts, up from 48.6 gigawatts. I want to pause here. A large part of that increase reflects our drilling advances at Cape Station. Our 3.0 well design is going deeper and hotter than the Phase 1 wells that underpinned the initial DeGolyer and MacNaughton heat-in-place report at Cape. Reflecting those drilling results and incremental lease acquisitions, an updated DeGolyer and MacNaughton study now supports 8.4 gigawatts of capacity potential at Cape Station—nearly double the prior 4.3 gigawatts and roughly 18 times the megawatts we have under construction today.

This is the same dynamic that played out in shale. As well designs improve, the resource base grows and the inventory of development locations expands. At Cape, every generation of our well design is going deeper and hotter and, with 8.4 gigawatts of potential alongside a clear regulatory pathway to develop behind the meter, we have a long runway to keep drilling, building, and driving costs down on the same footprint. Separately, an update on our appraisal campaign. As we outlined on our Q2 call, we’ve begun drilling appraisal wells across several of our Geo Clusters. These wells will assist in pinpointing and prioritizing specific locations for future development. This work is currently underway, and we’ll have more to share in future periods. Underpinning all of this, we continue to expand our land holdings, which now total 670,000 acres, up from 650,000 acres last quarter.

Every stage of this pipeline is moving as we build option value across our portfolio. We have 36 megawatts operating, 466 in commissioning or under construction, 550 ready to build, 3 gigawatts in advanced development, and more than 54 gigawatts in early development, all built on 670,000 acres. This is the process through which we will turn resource into megawatts, and we continue to expect this to advance. Before we open the line for Q&A, I’d like to invite you to join us at Cape Station for our investor open house on Thursday, November 19th. You can walk the site, see the drill rig and power plant, and talk with our team. Space is limited, so please request a spot through the link in our October 16th press release. For those unable to make it, we expect to host more visits in 2027. With that, operator, you may now open this up to Q&A.

OPERATOR

Thank you, ladies and gentlemen. To ask a question, please press star 1 1 on your telephone, then wait for your name to be announced. To withdraw your question, please press star 1 1 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Derek Pothaser with Piper Sandler. Your line is open.

Derek Pothaser (Analyst at Piper Sandler)

Hey, good morning, everyone. Appreciate all the updates here. Maybe just wanted to start by asking you to expand a bit more on the performance at Cape Station—specifically GeoBlock 1, the first 33 megawatts you brought online. You noted it’s operating as expected, but if you could point to specific results and maybe some of the initial data that encourages you on the performance that you’re seeing so far?

Tim Latimer (Co-Founder and Chief Executive Officer)

Yeah, definitely, Derek, appreciate the question. And on a personal note, for someone who’s been working on, you know, utility-scale enhanced geothermal systems for over a decade now, it’s just thrilling to see the flow results of Cape Phase 1 and GeoBlock 1 come in line, you know, very, very much within our expectations. As we mentioned on the call, the brine is arriving to the power plant and we’re meeting both of our flow rate targets as well as our temperature targets—very in line with our modeled expectations.

And, you know, that’s why we’re so excited to be able to achieve that 33 megawatt net number right out of the gate in terms of that, our September 30th COD that we disclosed in that press release there. And, you know, in terms of other performance metrics, I think the most important thing at this point is, you know, how many megawatt-hours are we producing and what does that translate to in terms of revenue? And I’ll just reiterate what David mentioned there, which is that we’re very in line with our prior disclosures on the Q2 call in terms of our Q4 2026 revenue target, which means that things are tracking exactly as we expected there.

Derek Pothaser (Analyst at Piper Sandler)

Great, that’s helpful. And then I want to ask about that heat-in-place study on Cape Station. You basically doubled your potential capacity to 8.4 gigs from 4.3. What does this mean for Fervo Energy longer term? Is Cape Station a bigger asset than you initially expected? Like you said with shale, you’re accessing more resources than you planned. Have to imagine this adds maybe additional GeoBlocks, but just some additional color on the increased capacity would be helpful.

Tim Latimer (Co-Founder and Chief Executive Officer)

Absolutely. And as you noted, Derek, and as we said in the script, this is not a unique feature of resource plays. A lot of times initial estimates of heat in place, or whatever resource you’re looking at, are oftentimes very conservative because it’s an unknown technology and there’s not a lot of data. But then what we saw in shale is as more wells were drilled and efficiency gains were captured and more understanding of the original resource in place was there and spacing assumptions got updated, the shale developers discovered that there were more and more hydrocarbons at each play.

And we’re seeing this play out exactly in geothermal as well. This independent report roughly doubled the capacity that we expect there to be from a technical basis in terms of heat in place at Project Cape. And in large part it’s because we’ve been able to prove out deeper drilling and more efficient operations. And the more data we get, the more comfortable third-party assessors are to give us credit for these advanced designs and these greater drilling depths and greater drilling temperatures. And this is a reflection of that.

I think a couple things is, one, we don’t think this is going to be unique to Cape. We think we’re going to be able to repeat this playbook potentially across other prospects. The more we drill, the more we learn, the more efficient we get, the more resource we believe could be available. We’re excited about what this means across the whole portfolio, with really just Cape being more advanced in terms of data collection being the first example of that.

And then in terms of Cape as well, we are seeing no shortage of customer demand both through traditional front-of-the-meter customers or behind-the-meter customers. And understanding that we have confidence in there being more resource available as well as third-party verification of that will give us more confidence to market additional expansion at Cape beyond what we’ve already disclosed. And so those efforts are ongoing even as we look at the rest of our portfolio and get excited about what these new efficiency and spacing and depth and temperature numbers mean for growing the total size of the prize across our acreage position as well.

Derek Pothaser (Analyst at Piper Sandler)

Great. Thank you, Tim. Congrats on all the updates. I’ll turn it back.

Tim Latimer (Co-Founder and Chief Executive Officer)

Thank you.

OPERATOR

Our next question comes from the line of Chris Dedranos with RBC Capital Markets. Your line is open.

Derek Pothaser (Analyst at Piper Sandler)

Yeah, thanks for taking the questions and congratulations on the strong progress here. Maybe to start, I wanted to follow up here on just some of the kind of key debates that we’ve seen out there and specifically maybe some of the longer-term expectations around water loss and thermal declines. And so can you maybe spend a few minutes here talking about how we should or shouldn’t extrapolate some of the performance at Project RED over to Cape Station and then just what gives you confidence in the long-term performance expectations?

Tim Latimer (Co-Founder and Chief Executive Officer)

Yeah, definitely. Maybe I’ll start by tackling water loss and sort of how we think about this. And we published an enormous amount of material on this. I can direct you to our website in terms of multiple blog posts explaining water and the importance of water stewardship in our operations. And that effort to be great stewards of the water resources led us to make really intentional design decisions like a commitment to using only dry cooling and no evaporative cooling in the power plant and also by targeting drilling deeper wells that target deeper brackish layers, not fresh water, for use in our operations.

And so when we think about water and what we learn there, are we being good stewards of water? Is it impacting cost structure? And do we have the right permitted and allocated amounts to continue our growth? And, you know, the new data we’ve seen from Project CAPE, you know, confirms us on all dimensions there. You know, this continues to be something where there’s minimal, little to no freshwater use in our operations or construction at all. We’re seeing that in line with our expectations.

It’s not a material driver of OPEX or cost. And we’re also seeing that within our permitted amounts that we can, you know, the levels we’re already seeing at Project CAPE, we can support years and years of expansion and growth, given the early results we’ve seen so far and the position we have in terms of water rights and allocation. So everything that we’ve seen on production of water in early CAPE operations is exactly in line with our prior disclosures.

And our confidence remains that this is a problem that we can address through good water stewardship. And then as we turn to thermal decline, it’s good to remember how valuable of an asset Project RED is. This was a first-of-a-kind test, a horizontal EGS system that had never been done before. And it has been designed from day one and continues this day to maximize learnings. As a result, we have observed, after a period of stable temperature, a decline in the production temperature. This was expected. And as we disclosed on many other calls and other forums, a decline in reservoir temperature after operating an asset for a given period of time is exactly what you expect in a geothermal reservoir.

The most important question is how does that impact project viability and economics? I’ll also note that this information, in particular how thermal decline shows up and what drives it, is now proprietary information to Fervo Energy. We’re starting to see competitors design and permit some of their first horizontal EGS projects and they’re years behind us. And no one in the world has an asset that now has three years of operational history and gives us insight into both the causes of thermal decline and also allows us to test techniques to mitigate thermal decline and improve operational performance.

So we continue to believe that this is going to be a very high-value asset for Fervo Energy. And even to this day we’re doing logging trials and other intervention work at Project RED to maximize learnings, data that we can apply to Project CAPE. And as we turn to these results in Project CAPE, as any good resource play, the real-world modeling results we see at Project RED directly inform the reservoir forecasting and expectations we see at Project CAPE. And that information is, of course, shared with our underwriters in the debt process as well—how those history-match models at RED inform CAPE. And again, we’re seeing lots of positive indications of the system there. And it’s useful to remember CAPE is a very, very different resource than RED.

RED was an isolated doublet system designed to prove out the concept and maximize learnings. CAPE is an operational asset designed for economic returns. We’ve discussed the Gen 1.0, 2.0, 3.0 well system, and things like radically longer lateral lengths, improved well spacing, more efficient completions, larger casing diameter, higher temperatures are all things that mean the Project CAPE results are going to be categorically improved from Project RED.

And we’re very excited about the early data. As I mentioned in the prior question, everything at Project CAPE from a temperature and flow rate standpoint coming in line with our expectations. So we continue to really see enormous value in Project RED in terms of maximizing learnings and data. But at the same time we’re incredibly excited about the operational and engineering improvements that we’ve already executed at Project CAPE, and that continues to go really well and have clear evidence that the results of our pilot have improved our operation and execution at Project CAPE very substantially.

Derek Pothaser (Analyst at Piper Sandler)

Got it. And maybe as a follow-up here, and I think you mentioned going larger, longer, and deeper and then making tweaks to the frac design. I guess my question would just be, do you have ways of measuring downhole once the fracs are laid, that you’re avoiding kind of channeling? And is there ways to track, I guess, maybe just performance even from Geo Block 1 today, that the water’s flowing maybe uniformly across the network? And then how long does it take for you to get maybe some level of performance data that you can come back to the table at a later date and kind of say, hey look, this first set of wells here is performing in line with what we’ve expected and we’re going to make it confirms basically the thermal decline assumptions that we laid out maybe at the time of the IPO. Thanks.

Tim Latimer (Co-Founder and Chief Executive Officer)

Yeah, definitely. The short answer is already we are collecting and have collected that data. That’s one of the things that’s really great about Project RED and why we think it’s such a unique asset in the space and will drive a significant competitive advantage. We have original flow test results for Project RED that go back three and a half years ago, and we’ve continued to do significant logging and characterization work to measure things like flow conformance and thermal decline.

And what’s fascinating now is we can go back and map what did we measure in the early flow test results and see how it manifests two or three years later in changes in flow distribution or temperature. And that’s a really unique data set that we have. And of course we’ve conducted, as we mentioned in prior cases, we’ve spent tens of millions of dollars now specifically on unique data acquisition at Project CAPE through some of this downhole logging—measuring production flow, flow conformance, temperature profile. And the combination now of having several wells online, soon to be dozens of wells online, being able to collect and map data across all of them and then go back and history-match it against Project RED is really powerful.

So we can identify what are the key design attributes, not just in things like well spacing, but in completion of the design that really do drive best-in-class performance when it comes to flow rates and thermal decline. Yes, the answer is we’ve already collected that data. We will continue to collect that data. And as mentioned, even though we only have now a few weeks of flow data at Project CAPE, everything is fitting within our modeled expectations. And I think we can confirm a lot of the assumptions that we have laid out over the last year are playing out in practice. I think as time goes on we’re just going to collect even more data to make that case. But it’s all very confirmatory to what we have expected on really every dimension of the technical roadmap.

Derek Pothaser (Analyst at Piper Sandler)

Got it. Thank you very much.

OPERATOR

Thank you. Our next question comes from the line of David Anderson with Barclays. Your line is open.

David Anderson (Analyst at Barclays)

Great, thanks. So I was wondering if you could talk a little bit about the progress you’re making on bringing down the capex costs at CAPE Google. You know, as we try to see with shale, things always improve over time. And I’m presuming most of the drop from the 7,000 down to 5,500 is subsurface. So I was wondering if you could just kind of talk about the two sides of that one. On the drilling side, where are you today in terms of drilling? How much?

Where do you need to be? I guess I’m curious along that path, how is that progressing? And then secondarily, curious on the DeGolyer and MacNaughton study that increased the heat in place, how does that—does that change the math on CAPE 2? In other words, is the megawatts being produced per well, is that now higher

Tim Latimer (Co-Founder and Chief Executive Officer)

In your expectations? How do we think about that in terms of more immediate development? Thanks. Yeah, appreciate the questions. And to start off on capex, you’re right about drilling and production results. We are certainly seeing great efficiency gains and I think in the earnings presentation we gave some really great concrete examples of where we’re seeing gains both in days of drilling and also in things like deployment of dissolvable plugs. But maybe before I get into that I’ll point out in terms of is it subsurface or surface?

In geothermal, it’s really hard to disentangle those things. It’s a complex system-wide optimization and first and foremost want to reiterate what higher temperatures does across the entire capex cycle. Higher production. As we’ve mentioned, we’ve increased our target temperature by about 30 degrees Fahrenheit between Cape Phase 1 and the Cape Google 400 project is sort of an overarching lever that reduces capex across the board. And that means because you produce more energy per flow of brine, you need fewer wells and then also the power plant is more efficient.

And that’s part of why we’ve been able to go from 33 net megawatts to 50 net megawatts from the GeoBlock first generation design to what we’re doing today. So we’re actually seeing capex reductions on both the surface and subsurface in part because of things like supply chain efficiency, construction optimizations like David mentioned, but in part because you just get more bang for your buck as you increase the temperature. And we’re continuing to see great results there.

We’re already in terms of where we are on the drilling costs. We do expect to, as we learn these longer laterals, different hole designs to continue to improve. Like you mentioned, just like shale, you know, each iteration of that well, as we draw out dozens of these wells, we’re going to get more efficient, but we’re already seeing the cost structure, drilling days versus depth completions, numbers very much tracking our expectations and driving which is why we were excited to reiterate that $5,500 per kilowatt target.

You know, we’re already really very much in line with what we need to see there. In terms of the DNM heat-in-place report. I would say a lot of this just comes down to collecting more data and as I mentioned before, also being able to get credit for deeper depths. You know, typically when you do these studies, like I said, you do these in a conservative fashion in the beginning, you really only get credit for what you’ve demonstrated as possible so far. And as we’ve drilled deeper wells, you know, this is sort of the third dimension.

You can drill longer laterals, you can drill those laterals over a larger dimension and you can also drill deeper so you get more benches of production. Now that our Cape Phase 2 wells are so much deeper than the Cape Phase 1 wells, it’s allowing us to get credit for a lot more geology that we always knew was there but wasn’t included often in the initial heat-in-place studies because we needed to demonstrate the viability of drilling those wells.

That’s a big part of it. I would say the heat-in-place study itself is not going to drive a design change in the Cape Google 400 where a lot of those wells were in plan already. It just means that as we’ve long stated, as the technology improves there’s just more geology we can access and access it more efficiently. And that’s really what this study reflects. And it’s not a major driver of changes to the Cape Google 400 planned wells at this point in time.

David Anderson (Analyst at Barclays)

Okay, that makes sense. Just sort of separately, obviously politically, data centers became a rather hot topic during the selection season. So kind of curious—you touched on this in your remarks—but kind of where does geothermal now fit in this argument? Are conversations with the offtake companies and communities, is that changing? Maybe, sort of. How is that changing and how does that impact interest in addition developments as you’re looking forward?

Tim Latimer (Co-Founder and Chief Executive Officer)

Yeah, it’s a great question. And honestly, public awareness of the importance of developing data center or any other industrial infrastructure the right way with the right sustainability standards and the right community benefits standards and the microscope that’s on that now has only benefited Fervo and our discussions with offtakers. I think some of the things that were done fast and loose in the early boom days of this data center revolution where communities were not engaged the right way and projects didn’t meet the right emission standards and other things are now well known.

Hard lessons learned to data center developers about the importance of doing things the right way. And as a result a resource that’s 24/7 carbon-free electricity that has great attributes like enhanced geothermal systems, plus a developer that has a track record of being in the community early, discussing community benefits, being a good steward of the local environment is really compelling. And I can tell you a project like what we’re doing with Google in Utah wouldn’t have come about if we were a dirtier energy resource or we hadn’t done the right community engagement work.

So I would say that this microscope on making sure that if you are going to do data center development, it’s done the right way is something that is accelerating our conversations with offtakers. Because honestly, clean and sustainable is back in the conversation in a way that it hadn’t been. And I think that’s going to be an enduring shift and we have the right sustainability metrics to be a fantastic community environmental partner. And we’re seeing ourselves being relative winners in this discussion and an acceleration of our offtake discussions as a result.

David Anderson (Analyst at Barclays)

Great, thank you.

OPERATOR

Thank you. Please stand by for our next question. Our next question comes from the line of Dylan Nassano with Wolfe Research. Your line is open.

Dylan Nassano (Analyst at Wolfe Research)

Yeah, hey everyone. Thank you. Just wanted to check on the roughly 400 megawatts of PPAs that I think got kind of reshuffled when you Google PPAs. Just any update there in terms of when those customers are expecting or want to receive that power and how you guys are planning to deliver it with interconnection?

David

Yeah, hey Dylan, appreciate the question. You know, the short of it is that we’re working through those amendments as we speak and having really constructive dialogues with those offtakers. And so there’s obviously a pretty lengthy process when it comes to working with the load-serving entities like those. And so we’re continuing to work through it. But I think the punchline is that we’re still kind of circling 2032 for delivery of those PPAs. There are some transmission opportunities that are opening up specifically to get power back into California and expect that those PPAs are going to be great candidates to take advantage of some of that capacity.

Dylan Nassano (Analyst at Wolfe Research)

Got it, thanks. And then just quick follow-up on the capex efficiencies, specifically the ones that you’re kind of saying is allowing you to shift your capex spending profile timing. Just curious, are there any opportunities there for using those efficiencies to maybe drive earlier capex upside or capex savings upside relative to the plan here?

David

Yeah, you’re asking the exact right question. And this is what our teams are constantly focused on—how do we put these timelines together to manage both construction as well as the capital outlay that comes with it. And I’d say that this is a core facet of what we’re asking our teams to do, which is challenge every assumption. And as our teams do that, they’re looking for ways to apply learnings to modular GeoBlocks and that is certainly coming through as we speak.

Just to kind of give you one firm data point that we’re already seeing: for commissioning from GeoBlock 1 at Phase 1 to GeoBlock 3 at Phase 1, we’re already expecting about a 50% improvement in that commissioning timeline. So as we roll that through our broader construction timelines, that’s going to really help us achieve these growth targets that we want, while also kind of improving returns. And if you think about what we’re doing—we alluded to this—but the overall construction budget is not changing.

What is changing is the time with which we deliver that same amount of capex. And so by pushing dollars to the right, closer to when we generate revenue, just by taking advantage of time value of money, we’re already improving returns and we’re seeing opportunities like that kind of across the board.

Dylan Nassano (Analyst at Wolfe Research)

Great. Thank you so much.

OPERATOR

Thank you. Our next question comes from the line of Joseph Osha with Guggenheim Securities. Your line is open.

Joseph Osha (Analyst at Guggenheim Securities)

Good morning. Thank you for taking my question. I’ve got two. First, if you look at page 11, there’s a lot of new stuff going on—dissolvable plugs, derotor steering systems, insulated drill pipe. Has all of this been successfully deployed already? And is all of this necessary to get to 5,500? Thanks. And then I do have a follow-up.

Tim Latimer (Co-Founder and Chief Executive Officer)

Yes, this has all been deployed successfully. We decided just to share a small subset of the improvements and things that our team has been working on and decided in this case to go with already implemented and successful improvements that we’ve seen over the last couple years at Cape. And this is all stuff that puts us on track for that 5,500, but certainly is not an exhaustive list of the improvements that we’ve already implemented and are working on.

But as I mentioned before, we feel very good about our trajectory to the 5,500 based off of these improvements and others.

Joseph Osha (Analyst at Guggenheim Securities)

Okay, thanks. And then my follow-up, you’re having really good luck with this 8 and 5/8 casing. At what point does it make sense to go to the 9 and 5/8 that you’ve talked about as opposed to just going deeper and longer and hotter with the current casing? Because obviously as your bigger bores have another set of problems, I’m just wondering how, if I look at this 3.0 design you’ve got on page 10 here, how much more room do you have to improve on that before you’ve got to go to the bigger casings?

Thank you.

Tim Latimer (Co-Founder and Chief Executive Officer)

It’s a great question, Joe, and something our engineering teams are wrestling with every day. I would say that our gains in drilling and completions and production efficiency at the 8 and 5/8 level—we’re still very optimistic at being able to drive significant improvements there. And at this point in time all of the Cape Google 400 wells are planned to be in the 3.0 design with the 8 and 5/8 inch casing. And so we think we can hit these cost targets, you know, within the Generation 3.0 well design.

And we will evaluate in the future, based off of the data we see, when and if we’re going to move to that larger casing design. But we do not believe it’s necessary to achieve our cost targets. It’s just a question of do we think it’s going to be an even larger lever for efficiency gains going forward.

Joseph Osha (Analyst at Guggenheim Securities)

Super, thank you.

OPERATOR

Thank you. Our next question comes from the line of Julian Demoulian Smith with Jeff Reese. Your line is open.

Carter (Analyst at Jefferies)

Hey guys, this is Carter on for Julian. Thank you for taking our questions. Just a quick follow-up on Google. Thanks for all the color on the PPA. There’s just on the 600 megawatt option. When do they have to decide on that? Just trying to think through, given you’ve got 550 megawatts ready to build and now the Cape asset at over 8 gigawatts, kind of when that option could get exercised if they were to decide to do that.

Tim Latimer (Co-Founder and Chief Executive Officer)

Yeah. Hey Carter, thanks for the question. We’re obviously really excited about the progress that we’re making in the community with Google and we’ve been working with them for several years and they just continue to be an outstanding world-class partner. And so we’re really excited about what we’re seeing there. When it comes to the 600 megawatt option, you pointed to the additional capacity that we have at Cape. There’s obviously multiples of capacity there to host that 600 megawatts. So that’s certainly not the question. Really this will come down to working through the various requirements to build a data center and we expect that Google is going to continue making progress on that into 2027.

Carter (Analyst at Jefferies)

Great, thank you. And I think in Tim’s answer to some of the questions around thermal decline, you referenced data that the lenders get to see around CAPE performance that we don’t. I’m just curious if you could provide some color on latest project financing discussions in general as we think about capex for the Google Cape 400 ramping into next year. Just color on how these discussions are evolving. And when we could see an update on project financing would be helpful.

David

Yeah, happy to share a little bit of color. You know, we did our initial project financing on Cape Phase 1, which is the facility that we refer to as the Granite facility. And that was a $421 million loan that we closed in March of 2026 earlier this year. And that was a really intentional loan. It was a broad syndicate of lenders, so now we have a whole set of banks that are accustomed to thinking about enhanced geothermal systems: what that means from a production forecasting standpoint, what it means for permitting, and all the various requirements.

We did all of that so that we could start to have these conversations earlier. When it came to the 400 megawatt project, which we’re now calling Cape Google 400, we expect that Cape Google 400 is going to be ready for project finance debt probably in mid-2027. When we think about the right type of debt, we’re really circling that 70% loan-to-value that we’ve been relatively consistent on. So as we look at the right time to place that, it’s probably going to be mid-’27.

Carter (Analyst at Jefferies)

Thank you.

OPERATOR

Thank you. Please stand by for our next question. Our next question comes from the line of Justin Clear with Waas Capital Partners. Your line is open.

Justin Clear (Analyst at Waas Capital Partners)

Hey, good morning. Thanks for taking the question here. I just wanted to start on the 2027 outlook here. So you maintained the revenue expectation, 60 to 80 million. Just wondering if you’ve gained any additional visibility into the potential transmission-related curtailments that you had talked about last quarter. And then just with Cape Station Phase 1 progressing on schedule, is the transmission availability really the key variable determining where revenue falls?

Or are there other key variables we should be considering such as the timing for the ramp up of Geoblocks 2 and 3?

Tim Latimer (Co-Founder and Chief Executive Officer)

Yeah, thanks for the question, Justin. And just to remind folks, what we’re talking about here is a really unique one-time outage at the substation that we tie into where there’s a third-party solar project that needs to physically tie into that same substation. And so while that’s happening, we obviously can’t be passing energy through that physical asset. We’re continuing to work with the counterparty and starting to put what we think are going to be good bookings on the outcomes there.

Nothing additional to report right now. We’ll have a little bit more detail when 2027 rolls around, but we’re finding a counterparty that’s really willing to work with us. Our interests are well aligned. The same counterparty owns other wind and solar assets that tie into the same substation. And so when it comes to limiting that downtime, we’re all incentivized to make this happen in as short an amount of time as we can. And then on your second question related to revenue from Geoblocks 2 and 3 and what we’re seeing from a timeline perspective, I think we still expect Geoblocks 2 and 3 to be ready when they need to be on January 1st. Certainly the substation outage occurring in early ’27 is going to be a piece of that. But with Geoblock 1 working as intended and presumably Geoblocks 2 and 3 following a similar track, we expect that Cape Phase 1 is going to be at its full 100 megawatts in 2027.

Justin Clear (Analyst at Waas Capital Partners)

Got it. I appreciate that. And then just one other one here. So you recognized almost 30 million in tax benefit in Q3 here as you placed CAPE Phase 1 assets on the surface into service. So wondering if you could clarify what tax credit election you’re using here. So is that the ITC or are you potentially going to use the PTC and maybe just speak to the tax strategy that you’re expecting for future assets here?

David

Yeah, so this one’s a little bit unique and it’s the only one that will work this way. But for CAPE Phase 1, we’ll have an ITC on the subsurface assets and a PTC on the surface assets. And the reason is those fall under previous definitions of those various tax credits. And so what you’re seeing in that $30 million right now is an investment tax credit related to some of those wellfield assets. As we move down the road into the future, kind of our base case on a high capacity factor resource like EGS would be that we’re monetizing production tax credits for future geoblocks.

Justin Clear (Analyst at Waas Capital Partners)

Got it. Okay, thank you.

OPERATOR

Thank you. As a reminder, ladies and gentlemen, that’s star one one to ask a question. Please stand by for our next question. Our next question comes from the line of Jeff Grant with Northlan