Fervo Energy Q3 2026 Earnings Call Transcript

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Provided by Quartr
November 9, 2026

Key Takeaways

  • Positive Sentiment: Cape Station’s first 33 MW GeoBlock entered commercial operation ahead of its deadline, delivering power and revenue under its PPA. Fervo said early flow, temperature and production results are in line with expectations; GeoBlocks 2 and 3 have reached key commissioning milestones and remain on track for commercial operation by January 1, 2027.
  • Positive Sentiment: Fervo signed a 15-year, take-or-pay PPA with Google for approximately 396 MW, targeted for delivery in 2028, bringing binding PPAs to 1,054 MW and contracted revenue to about $11.9 billion. A separate option for roughly 600 MW depends on development of a potential data center and regulatory progress.
  • Positive Sentiment: The company expects installed CapEx of $5,500 per kW for GeoBlocks 4–11, down from about $7,000 per kW for the first three GeoBlocks, while maintaining its longer-term $3,000-per-kW target. Fervo said construction spending is shifting later without changing Cape Google 400’s schedule or its approximately $2.2 billion total investment plan through 2028.
  • Positive Sentiment: Fervo reported that an updated independent resource study nearly doubled Cape Station’s estimated capacity potential to 8.4 GW, and its early-development pipeline grew to 54.7 GW. The company said deeper, hotter drilling and continued operational data support expansion potential, though much of the broader pipeline remains at an early stage.
  • Negative Sentiment: Q3 G&A rose to $39.4 million from $27.4 million in Q2, partly due to higher stock-based compensation, hiring and public-company costs; operating loss was $43.7 million. Reported net income of $11.7 million included a non-cash swap gain and tax-credit benefit, so it does not reflect underlying operating profitability.
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Earnings Conference Call
Fervo Energy Q3 2026
00:00 / 00:00

There are 14 speakers on the call.

Operator

And welcome to Fervo'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, Paxton Bentzinger, Senior Director of Corporate Development and Investor Relations. Please go ahead, sir.

Speaker 1

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 Ulrey, 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.

Speaker 2

Thank you, Paxton, and good morning, everyone. I'll start with the most important development of the quarter. Our first GeoBlock at 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 MW power plant consistently delivering clean, firm electricity. When we last spoke in August, I said we'd 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.

Speaker 2

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 integrating 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.

Speaker 2

Our trailing 12-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, 1 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. 1 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, we have 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.

Speaker 2

Now, back to Cape Station. On September 30th, we declared commercial operation at our first GeoBlock, ahead of our contractual deadline. We synchronized to the grid on September 24th, 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 MW full-scale GeoBlock that is delivering on our PPA, supported by project finance, and we delivered it on time. We are still early in our overall Cape Phase 1 operational life cycle, 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.

Speaker 2

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 designed volume and temperature, and electricity is being sold to the plant. GeoBlock 1 has given us the playbook. It has taught us about commissioning sequence, equipment and controls, contractor coordination, and regulatory approvals. We have 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.

Speaker 2

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 1st, 2027, which puts us on track to deliver approximately 100 MW of firm, clean power from Fervo's first three GeoBlocks by 2027. As we deploy our repeatable GeoBlock delivery model across other GeoClusters, 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 we will deliver to Google in 2028 under our recently signed PPA. These GeoBlocks are on track for mid-2028 delivery.

Speaker 2

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 MW, delivered in four tranches of 99 MW each, with commercial operation targeted again 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 MW contracted, we also committed to offer Google an expansion option of approximately 600 MW, which would bring the total to 1 GW.

Speaker 2

Let me explain how delivery works under this agreement, because the structure is as important as the size. The signed 396 MW is the first layer, and it is initially grid connected. For Fervo, it is a firm, binding, and financeable contract that we can build against today, with parent guarantees from both Fervo 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 build 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 MW expansion option, is behind the meter.

Speaker 2

Unlike the 396 MW, which are grid connected, Fervo and Google are pursuing direct-to-load delivery for this expansion to the potential regional data center. This would 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 will 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.

Speaker 2

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 MW GeoBlocks, our standard design going forward. As I mentioned, we expect first power from these GeoBlocks in mid-2028, ramping to approximately 400 MW by the end of that year. Since last quarter's call, the first set of 50 MW turbines has passed factory acceptance tests, and we have 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 FlexRig3 rigs running at Cape Station. Drilling for GeoBlocks 4 through 11 is approximately 18% complete.

Speaker 2

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 feet, stepping up the lateral diameter to 8 and 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 are not the result of any single breakthrough. They are 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.

Speaker 2

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 is demonstrating is that through our methodical approach to development and our dedication to continuous improvement, we continue to remove cost from the system. 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.

Speaker 2

Last quarter, we spoke about using small amounts of capital toward this effort, and one area we have 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 would 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 MW power purchase agreement with Google, Interior Secretary Burgum congratulated Google and Fervo.

Speaker 2

calling it, quote, "A powerful example of how geothermal can deliver more reliable, affordable, secure, around-the-clock American energy." End quote. The Department of Energy further bolstered that support by selecting Fervo 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 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.

Speaker 2

We now have 1,054 MW 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 MW, 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.

Speaker 2

Every one of our GeoClusters 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 3 MW commercial pilot. Today, with our first GeoBlock online at Cape Station, we have a total of 36 MW installed. We had 658 MW of contracted power purchase agreements, and today we have 1,054 MW, and our revenue backlog has grown from $7.2 billion to roughly $11.9 billion. We raised our 2030 capacity target from 1 GW to 1.1 GW. We've grown our estimated resource potential from about 40 GW to over 58 GW.

Speaker 2

We've expanded our net geothermal leasehold portfolio from roughly 610,000 to 670,000 acres. 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.

Speaker 3

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.

Speaker 3

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 $29.9 million tax benefit from tax credits earned as Phase I 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 three, with the proceeds supporting repayment of our tax credit bridge loan. 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.

Speaker 3

For the fourth quarter, we expect capital expenditures of approximately $450 million-$500 million, bringing CapEx in the second half of 2026 to $700 million-$750 million, compared to our prior expectation of $850 million-$900 million. This is driven by more efficient capital execution for Cape Google 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 Google 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.

Speaker 3

One balance sheet item to note: our expected total cost for GeoBlocks 1, 2, and three remains approximately $7,000 per kilowatt. When GeoBlock 1 was placed in service on September 30th, 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 I's well field cost 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.

Speaker 3

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 1st, 2027. Looking ahead to 2027, our expectations for revenue remain unchanged from what we discussed on our Q2 call, and we will share more guidance when we report full year 2026 results. To close, I want to talk through our development pipeline, because every milestone we have covered today started years ago as acreage and early-stage resource. That pipeline is the engine of our growth.

Speaker 3

I'll go from most mature development to earliest development. Today, we have 36 MW in operation at Cape Station and Project Red. Another 66 MW encompassing GeoBlocks 2 and 3 in commissioning, and an additional 400 MW encompassing GeoBlocks 4 through 11 is under construction. Our ready-to-build capacity remains at 550 MW, supported by our continued expansion at Cape Station beyond what is currently in construction, as well as our Corsac GeoCluster, where we have contracted PPAs with Google and Ava Community Energy. Fervo's advanced development pipeline remains at 3 GW, and early development grew to 54.7 GW, up from 48.6 GW. 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 one wells that underpinned the initial DeGolyer and MacNaughton heat-in-place report at Cape.

Speaker 3

Reflecting those drilling results in incremental lease acquisitions, an updated DeGolyer and MacNaughton study now supports 8.4 GW of capacity potential at Cape Station, nearly double the prior 4.3 GW 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 GW 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 GeoClusters. These wells will assist in pinpointing and prioritizing specific locations for future development.

Speaker 3

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 MW operating, 466 in commissioning or under construction, 550 ready to build, 3 GW in advanced development, and more than 54 GW 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.

Speaker 3

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 us up to Q&A.

Operator

Thank you. Ladies and gentlemen, to ask a question, please press star 11 on your telephone, then wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Derek Podhaizer with Piper Sandler. Your line is open.

Speaker 4

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 the Cape Station, specifically GeoBlock 1, the first 33 MW you brought online. You noted it is 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 are seeing so far.

Speaker 2

Yeah, definitely, Derek. Appreciate the question. On a personal note, for someone who has been working on utility-scale enhanced geothermal systems for over a decade now, it is just thrilling to see the flow results of Cape Phase 1 and GeoBlock 1 come in line, very much within our expectations. As we mentioned on the call, the brine is arriving to the power plant, and we are meeting both of our flow rate targets as well as our temperature targets, very in line with our modeled expectations. That is why we are so excited to be able to achieve that 33 MW net number right out of the gate in terms of our September 30th COD that we disclosed in that press release there.

Speaker 2

In terms of other performance metrics, I think the most important thing at this point is, how many megawatt hours are we producing, and what does that translate to in terms of revenue? I will just reiterate what David mentioned there, which is that we are 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.

Speaker 4

Great. No, that's helpful. I want to ask about that heat-in-place study on Cape Station. You basically doubled your potential capacity to 8.4 GW from 4.3 GW. What does this mean for Fervo 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. I have to imagine this adds maybe additional GeoBlocks, but just some additional color on the increased capacity would be helpful.

Speaker 2

Absolutely. 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. What we saw in shale is as more wells were drilled and efficiency gains were captured and a more understanding of the original resource in place was there and spacing assumptions got updated, the shale developers discovered that there was more and more hydrocarbons at each play. 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.

Speaker 2

In large part, it's because we've been able to prove out deeper drilling and more efficient operations. 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. 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.

Speaker 2

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. 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.

Speaker 4

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

Speaker 2

Thank you.

Operator

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

Speaker 5

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. 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? Thanks.

Speaker 2

Yeah, definitely. Maybe I'll start by tackling water loss and how we think about this. We've 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. 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 to target deeper brackish layers, not fresh water, for use in our operations. When we think about water and what we learn there, are we being good stewards of water? Is it impacting cost structure? Do we have the right permitted and allocated amounts to continue our growth?

Speaker 2

The new data we've seen from Project Cape confirms us on all dimensions there. This continues to be something where there's little to no fresh water 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 the levels we're already seeing at Project Cape, we can support years and years of expansion and growth there, given the early results we've seen so far and the position we have in terms of water rights and allocation. 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.

Speaker 2

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've 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.

Speaker 2

We're starting to see competitors design and permit some of their first horizontal EGS projects, and they're years behind us. 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. We continue to believe that this is going to be a very high-value asset for Fervo, and even to this day, we're doing logging trials and other intervention work at Project Red to maximize learnings that we can apply to Project Cape. 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 informs the reservoir forecasting and expectations we see at Project Cape.

Speaker 2

That information is, of course, shared with our underwriters in the debt process as well, how those history match models at Red inform Cape. Again, we are seeing lots of positive indications of the system there. It is 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 have discussed the Gen 1.0, 2.0, 3.0 well system and things like radically longer lateral lengths, improved well spacing, more efficient completion, larger casing diameter, higher temperatures are all things that mean the Project Cape results are going to be categorically improved from Project Red. We are very excited about the early data, as I mentioned in the prior question.

Speaker 2

Everything at Project Cape from a temperature and flow rate standpoint coming in line with our expectations. We continue to really see enormous value in Project Red in terms of maximizing learnings and data, but at the same time, we are incredibly excited about the operational and engineering improvements that we have already executed at Project Cape. 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.

Speaker 5

Got it. Maybe as a follow-up here, I think you mentioned going larger, longer, and deeper, then making tweaks to the frac design. I guess, my question would just be, do you have ways of measuring down hole once the fracs are laid that you are avoiding channeling? Is there ways to track, I guess maybe just performance even from GeoBlock 1 today that the water is flowing maybe uniformly across the network? 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 say, "Hey, look, this first set of wells here is performing in line with what we have expected, and we are going to make" It confirms basically the thermal decline assumptions that we laid out maybe at the time of the IPO.

Speaker 5

Thanks.

Speaker 2

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

Speaker 2

And of course, we've conducted, as we've 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 conformance, temperature profile. 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, 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 completions design, that really do drive best-in-class performance when it comes to flow rates and thermal decline. So, yes, the answer is we've already collected that data. We will continue to collect that data.

Speaker 2

As mentioned, even though we only have now a few weeks of flow data at Project Cape, everything is fitting within our model of expectations. 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.

Speaker 5

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.

Speaker 6

Great. Thanks. Tim, 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. As we've seen 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. 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? Where do you need to be, I guess? I'm curious, like, along that path. How is that progressing? Then secondarily, curious on the DeGolyer and MacNaughton study that increased the heat-in-place. Does that change the math on Cape 2? In other words, is the megawatts being produced per well, is that now higher in your expectations?

Speaker 6

How do we think about that in terms of kind of the more immediate development? Thanks.

Speaker 2

Yeah, I appreciate the questions. 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. 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.

Speaker 2

That means because you produce more energy per flow of brine, you need fewer wells, and then also the power plant is more efficient. 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 could just get more bang for your buck as you increase the temperature. 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.

Speaker 2

Like you mentioned, just like shale, each iteration of that well, as we drill out dozens of these wells, we are going to get more efficient. We are 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. We are already really very much in line with what we need to see there. In terms of the D&M 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. Typically, when you do these studies, like I said, you do these in a conservative fashion in the beginning, and you really only get credit for what you have demonstrated as possible so far.

Speaker 2

As we have drilled deeper wells, 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 is allowing us to get credit for a lot more geology that we always knew was there, but was not included often in the initial heat-in-place studies because we needed to sort of demonstrate the viability of drilling those wells. That is 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.

Speaker 2

It just means that, as we have long stated, as the technology improves, there is just more geology we can access and access it more efficiently, and that is really what this study reflects. It is not a major driver of changes to the Cape Google 400 planned wells at this point in time.

Speaker 6

Okay, that makes sense. Just sort of separately, obviously, politically, data centers became a rather hot topic during the election season. 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? Or maybe sort of how is that changing, and how does that impact interest in addition to developments as you are looking forward?

Speaker 2

Yeah, it's a great question. 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 benefit 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.

Speaker 2

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. 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 has accelerated our conversations with offtakers, because honestly, clean and sustainable is back in the conversation in a way that it hadn't been.

Speaker 2

I think that's going to be an enduring shift, and we have the right sustainability metrics to be a fantastic community environmental partner. We're seeing ourselves being relative winners in this discussion and an acceleration of our offtake discussions as a result.

Speaker 6

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.

Speaker 7

Yeah. Hey, everyone. Thank you. Just wanted to check on the roughly 400 MW of PPAs that I think got kind of reshuffled when you and the Google PPAs. Just any updates 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?

Speaker 2

Yeah. Hey, Dylan. Appreciate the question. The short of it is that we're working through those amendments as we speak and having really constructive dialogues with those offtakers. There's obviously a pretty lengthy process when it comes to working with the load-serving entities like those. 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.

Speaker 7

Got it. Thanks. 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 X upside or CapEx savings upside relative to the plan here?

Speaker 2

Yeah. You are asking the exact right question, and this is what our teams are constantly focused on, or how do we put these timelines together to manage both construction as well as the capital outlay that comes with it. I would say that this is a core facet of what we are asking our teams to do, which is challenge every assumption. As our teams do that, they are 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 are already seeing, for commissioning from GeoBlock 1 at Phase 1 to GeoBlock 3 at Phase 1, we are already expecting about a 50% improvement in that commissioning timeline.

Speaker 2

As we roll that through our broader construction timelines, that is going to really help us achieve these growth targets that we want while also kind of improving returns. If you think about what we are 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. By pushing dollars to the right, closer to when we generate revenue, just by taking advantage of time value of money, we are already improving returns, and we are seeing opportunities like that kind of across the board.

Speaker 7

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.

Speaker 8

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

Speaker 3

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 have seen over the last couple years at Cape. This is all stuff that put us on track for that 5,500, but certainly is not an exhaustive list of the improvements that we have already implemented and are working on. As I mentioned before, we feel very good about our trajectory to the 5,500 based off of these improvements and others.

Speaker 8

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

Speaker 3

It is 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 inch level, we are still very optimistic at being able to drive significant improvements there. 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. We think we can hit these cost targets within the Generation 3.0 well design. We will evaluate in the future, kind of based off of the data we see, when and if we are going to move to that larger casing design. We do not believe it is necessary to achieve our cost targets.

Speaker 3

It's just a question of, do we think it's going to be an even larger lever for efficiency gains going forward?

Speaker 8

Super. Thank you.

Operator

Thank you. Our next question comes from the line of Julien Dumoulin-Smith with Jefferies. Your line is open.

Speaker 9

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. Just on the 600 MW option, when do they have to decide on that? Just trying to think through, given you've got 550 MW ready to build, and now the Cape asset at over 8 GW, kind of when that option could get exercised if they were to decide to do that.

Speaker 3

Yeah. Hey, Carter. Thanks for the question. We are obviously really excited about the progress that we are making in the community with Google. We have been working with them for several years, and they just continue to be just an outstanding world-class partner. We are really excited about what we are seeing there. When it comes to the 600 MW option, you pointed to the additional capacity that we have at Cape. There is obviously multiples of capacity there to host that 600 MW. That is 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.

Speaker 9

Great. Thank you. 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 do not. I am just curious if you could provide some color on latest project financing discussions in general as we think about CapEx for the Cape Google 400 ramping into next year. Just color on how those discussions are evolving and when we could see an update on project financing would be helpful.

Speaker 3

Yeah. Happy to share a little bit of color. 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. 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 MW project, which we are now calling Cape Google 400. We expect that Cape Google 400 is going to be ready for project finance debt probably in mid-2027.

Speaker 3

When we think about the right type of debt, we are really circling that 70% loan-to-value that we have been relatively consistent on. As we look at kind of the right time to place that, it is probably going to be mid-2027.

Speaker 9

Thank you.

Operator

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

Speaker 10

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 million-$80 million. Just wondering if you have gained any additional visibility into the potential transmission-related curtailments that you had talked about last quarter. 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?

Speaker 3

Yeah. Thanks for the question, Justin. Just to remind folks, what we are talking about here is a really unique one-time outage at the substation that we tie into, where there is a third-party solar project that needs to physically tie into that same substation. While that is happening, we obviously cannot be passing energy through that physical asset. We are continuing to work with the counterparty and starting to put what we think are going to be good bookends on the outcomes there. Nothing additional to report right now. We will have a little bit more detail when 2027 rolls around. But we are finding a counterparty that is really willing to work with us. Our interests are well aligned. This same counterparty owns other wind and solar assets that tie into the same substation.

Speaker 3

When it comes to limiting that downtime, we are all incentivized to make this happen in a short amount of time as we can. On your second question related to revenue from GeoBlocks 2 and 3 and what we are seeing from a timeline perspective, I think we still expect these GeoBlocks 2 and 3 to be ready when they need to be on January 1st. Certainly, the substation outage occurring in early 2027 is going to be a piece of that. With GeoBlock 1 working as intended and presumably GeoBlocks 2 and 3 following a similar track, we expect that the Cape Phase 1 is going to be at its 400 MW in 2027.

Speaker 10

Got it. I appreciate that. Just one other one here. You recognized almost $30 million in tax benefit in Q3 here as you placed the Cape Phase 1 assets into service. Just wondering if you could clarify what tax credit election you are using here. Is that the ITC or are you potentially going to use the PTC? Maybe just speak to the tax strategy that you are expecting for future assets here.

Speaker 3

Yeah. This one is a little bit unique, and it is the only one that will work this way. For Cape Phase 1, we will have an ITC on the subsurface assets and a PTC on the surface assets. The reason is that those fall under previous definitions of those various tax credits. What you are seeing in that $30 million right now is an investment tax credit related to some of those well field assets. As we move down the road into the future, our base case on a high capacity factor resource like EGS would be that we are monetizing production tax credits for future GeoBlocks.

Speaker 10

Got it. Okay. Thank you.

Operator

Thank you. As a reminder, ladies and gentlemen, that is star 11 to ask a question. Please stand by for our next question. Our next question comes from the line of Jeff Grampp with Northland Capital Markets. Your line is open.

Speaker 11

Good morning. Wanted to circle back on the solar installations that you guys referenced. Can you give us a sense of what kind of scale you are looking? I do not know if solar per GeoBlock is the right KPI, but how scalable are these and how impactful could those be to cost savings with respect to the longer-term capital targets you guys have laid out?

Speaker 3

Yeah. Thanks for the question, Jeff. When we think about solar, it is a pretty modest amount of solar that we are talking about here. This is something that other geothermal developers have employed at other assets, and it seems like it has worked for them as well. Where we see an opportunity is really just to power pumps and various station load. When you think about the summertime in particular, solar is really, really effective during the summer. We expect to realize some benefit there. When we look at this, each asset is going to be a little bit different depending on where it is. You can think about this being 20%-25% of the nameplate capacity of the EGS system itself. It is really not big dollars, though we do like the returns that we expect on those dollars.

Speaker 3

We think that this is going to be a really complementary addition to the asset.

Speaker 11

Great. That is super helpful. For my follow-up, obviously a lot of focus on Cape for obvious reasons. Outside of Cape, I think you mentioned some different exploration targets related to some DOE funding, things like that. Are there any main catalysts or exploration activities that we should be thinking about getting some news flow or updates on as you guys progress into and through next year?

Speaker 3

Yeah, definitely. We discussed previously that we will be doing an appraisal campaign on one of our next Nevada assets, Corsac. So we expect to be able to provide updates likely next year on some of those early results. We are also very excited, one of the developments this last quarter was getting awarded two different Department of Energy enhanced geothermal system demonstration project grants, one for a project site we have in Idaho and another for an additional project site we have in Nevada. Likely we would expect some incremental updates on our appraisal work there also sometime in 2027.

Speaker 11

Fantastic. Looking forward to it. Thank you.

Operator

Thank you. Our next question comes from the line of Sean Milligan with Needham & Company. Your line is open.

Speaker 12

Hey, good morning. Thank you for all the commentary on the operations side. I just wanted to ask a question about the corporate cost side heading into Q4 and next year. I guess a couple quarters out now, costs are a little bit higher than we expected on the G&A side, but is there a run rate that we should think about, or were there any one-time items included in this quarter that we should back out on a forward basis?

Speaker 3

Yeah. Thanks for the question there, Sean. We'll be back with more detail in 2027, obviously, as we provide a little bit better guidance there. But as we think about what we've been experiencing right now, public company costs are high, and that's maybe the punchline. We've added additional employees. Quite a few of those additions are really focused on the construction, the GeoBlock factory side of things. But certainly, we're also adding folks on the back office administrative side. In addition to that, we have been using various service providers to help us kind of fill the gap while new employees get up to speed on the administrative side of things. As we shift into 2027, what we expect is some of those employees that we have hired are now bearing more of the burden. So hopefully some of that service work will come down in the future.

Operator

Thank you. Please stand by for our next question. Our next question comes from the line of Jed Dorsheimer with William Blair. Your line is open.

Speaker 13

Hi, guys. Thanks for taking my question. I joined the Q&A a little bit late, so I apologize in advance if you've already answered this. I wanted to just dig into the Google option a little bit more. I guess if I took a cynical view on the PPA that they signed, their ability to resell that could be looked at as more of a protective, I guess, put, if you will. But building that data center or filing for a permit seems like it would be a clear signal triggering the option of the additional 600 MW. I guess I just wanted to ask that out loud and see if you would view that differently or would agree with that.

Speaker 3

Yeah. Thanks for the question, Jed. You are right. When it comes to the 400 MW portion of this, like Tim mentioned, that is a firm contract. Our goal when we wrote that PPA was to have a 400 MW PPA that looks and feels like most PPAs and is financeable with counterparties and lenders and the sort, and that is what we ended up with there. When it comes to the 600 MW, yeah, that is more tied to the outcome on the data center. The trigger for the option is not quite as clear as any kind of specific permit or anything like that. But we feel good about the progress that we are making there, and I have certainly been in community with Google quite a bit and think that they are doing a really nice job making progress, and we are excited to be standing beside them.

Speaker 13

Great. As a follow-up, there is this BAAJA, or the Bipartisan American Affordability and Jobs Act, that is kind of going through the legislative process right now. There is a lot of language, and one of the co-authors of that is Senator Mike Lee from Utah, and there is a lot of language specific to geothermal in there. I am just curious your thoughts, if that were to go through, how that might change some of the regulatory framework around geothermal for you guys.

Speaker 2

Yeah. We appreciate the question. We are incredibly excited about what BAAJA can do for our country's energy system in terms of its reliability, affordability, and sustainability. Fervo has been proud to endorse that legislation in multiple different forums. We appreciate both the leadership of Senator Lee of Utah as well as his Democratic counterparties, and I think coming up with a really great bill that is just going to be very important for the future of the American energy system. As you mentioned, there is maybe one of the largest or most additive sections is fixes to geothermal, and we are excited about that. Some of it is giving parity to things in federal permitting that oil and gas has enjoyed for decades that geothermal has been left out on, and other things are providing more financial resources and staffing offices better that we believe will lead to better permit timelines.

Speaker 2

The backdrop of this is that we have already seen significant improvements administratively over the last several years in geothermal permitting as it has become a larger priority for this country, and nothing in our go-forward expectations relies on the BAAJA. The guidance we have given previously has been based off of our expectations on federal permitting timelines. But if the BAAJA were to pass, both the geothermal provisions as well as the transmission provisions would be very additive to our business, just in terms of creating better regulatory backdrop and faster permit timelines for our projects. For that reason, we stay keenly focused on it. Even though our growth plans do not rely on it, we are excited about it being a potential catalyst for even faster development as we move forward.

Speaker 13

That is helpful. Thanks, guys.

Operator

Thank you. Ladies and gentlemen, I am showing no further questions in the queue. That concludes today's conference call. Thank you for your participation. You may now disconnect.

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