Fervo Energy Q3 Earnings Call Highlights

Key Points

• Cape Station’s first 33-megawatt unit is commercially operational, generating revenue under a power purchase agreement; Fervo expects its first three units to deliver about 100 megawatts by 2027.
• A 15-year Google agreement for approximately 396 megawatts brings Fervo’s binding power purchase agreements to 1,054 megawatts, representing about $11.9 billion in contracted revenue. First power under the Google deal is targeted for mid-2028.
• Fervo ended the quarter with $1.9 billion in unrestricted cash and expects second-half capital spending to be lower than previously forecast because of construction efficiencies. Its reported $11.7 million net income included non-operating gains and a tax benefit, despite a $43.7 million operating loss.

Fervo Energy NASDAQ: FRVO has begun commercial operation of its first geothermal power unit at Cape Station, a milestone that management said puts the company on track to deliver approximately 100 megawatts of power from the project’s first three units by 2027.

The 33-megawatt GeoBlock I entered commercial operation on Sept. 30 and is generating revenue under a power purchase agreement, CEO Tim Latimer said on the company’s third-quarter earnings call. He said the unit is meeting expectations for both brine flow and temperature, as well as power delivery.

Fervo reported third-quarter net income of $11.7 million, despite an operating loss of $43.7 million. Results included interest income, a noncash gain on interest-rate swaps and a tax benefit associated with phase I assets placed in service.

Cape Station Units Advance

Latimer said GeoBlock I was completed ahead of its contractual deadline after 23 months of construction. The company considers it the first greenfield enhanced geothermal system development to reach commercial operation.

GeoBlocks II and III have reached mechanical completion, with the second unit synchronized to the grid and exporting test energy. The third is undergoing mechanical and electrical testing before brine is introduced. Fervo continues to expect both units to enter commercial operation by Jan. 1, 2027.

Latimer acknowledged that production temperatures at Fervo’s Project Red pilot declined after a period of stability, but said such declines are expected in geothermal reservoirs. He said data from the pilot informs modeling at Cape Station, where longer laterals, improved well spacing and other design changes are expected to improve performance. Cape has only a few weeks of flow data so far, he added.

Management also updated its assessment of Cape Station’s longer-term potential. An independent DeGolyer and MacNaughton study supports 8.4 gigawatts of capacity potential at the site, up from 4.3 gigawatts previously. CFO David Ulrey said the increase reflects deeper drilling results and additional lease acquisitions. Latimer cautioned that the study does not drive a major change to the wells planned for the next phase.

Google Contract Adds to Backlog

In September, Fervo announced a 15-year, take-or-pay agreement to supply Google with approximately 396 megawatts from eight additional Cape Station GeoBlocks. First power is targeted for mid-2028, with the full set of units expected online by the end of that year.

Latimer said the contracted power will initially be connected to the grid, allowing the project to proceed independently of a potential Google data center in Beaver County, Utah. The agreement also includes a commitment to offer Google an approximately 600-megawatt expansion option for direct-to-load delivery to the potential data center. The companies are seeking regulatory approval for that arrangement.

Ulrey said the option is more closely tied to the data center’s progress, though he did not identify a specific permit or decision as its trigger. He expects Google to continue working through the requirements for the potential facility into 2027.

With the Google agreement, Fervo has 1,054 megawatts of binding power purchase agreements representing approximately $11.9 billion in contracted revenue, Latimer said. The company is also working on amendments to other agreements, with delivery still anticipated around 2032, according to Ulrey.

Spending Shifts Later

Third-quarter capital expenditures rose to $256.7 million from $226.5 million in the second quarter. Fervo expects fourth-quarter spending of $450 million to $500 million and second-half spending of $700 million to $750 million, down from its previous forecast of $850 million to $900 million.

Ulrey attributed the reduction to construction efficiencies that allow some spending on the Google project to occur later. The company’s expected total investment of approximately $2.2 billion through 2028, as well as the project’s targeted commercial operation dates, remain unchanged.

Fervo expects installed capital costs of $5,500 per kilowatt for the eight Google GeoBlocks, compared with approximately $7,000 per kilowatt for the first three units. Its longer-term target remains $3,000 per kilowatt. Latimer said higher temperatures, drilling improvements and surface-equipment efficiencies contribute to the expected reduction.

The company ended the quarter with $1.9 billion in unrestricted cash and cash equivalents and $301.6 million in current and long-term debt. Ulrey said Fervo expects the Google project to be ready for project financing around mid-2027, with a target of roughly 70% loan-to-value.

Revenue and Development Outlook

Fervo reiterated that its 2027 revenue expectations were unchanged. Analyst Justin Clare of Roth Capital Partners cited a $60 million to $80 million expectation during the call. Ulrey said a planned early-2027 outage at a third-party substation could affect deliveries while a solar project connects to the facility; the company is working with the counterparty to limit downtime.

Beyond Cape Station, Fervo reported 550 megawatts of ready-to-build capacity, 3 gigawatts in advanced development and 54.7 gigawatts in early development. Latimer said the company expects updates in 2027 from appraisal work at its Corsac project in Nevada and potentially from other Nevada and Idaho prospects.

The Department of Energy selected Fervo for two potential grants totaling approximately $20 million for exploration drilling in Idaho and Nevada. The awards remain subject to definitive funding agreements.

About Fervo Energy (NASDAQ:FRVO)

Fervo Energy is a geothermal energy company that develops projects to produce electricity and provide energy storage. It applies drilling and subsurface technologies, including horizontal wells and fiber-optic sensing, to access geothermal resources and make them available in more locations.

Founded in 2017 and headquartered in Houston, Texas, Fervo has focused on projects in the western United States. Its developments include Project Red in Nevada and Cape Station in Utah, which is planned as a large-scale geothermal power project.

Fervo was co-founded by Tim Latimer, its chief executive officer, and Jack Norbeck.

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