FRVO (FRVO) Q2 2026 Earnings Report, Transcript and Summary

Greetings, and welcome to Fervo Energy Second Quarter 2026 Earnings Conference Call. [Operator Instructions] 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.

Thank you. Good morning, everyone, and welcome to Fervo Energy's Q2 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.

Thanks, Paxton, and hello to everyone listening in. When we last spoke, I emphasized Fervo's founding conviction, which bears repeating. The same drilling technologies that catalyze the shale revolution can unlock clean, always-on geothermal energy at enormous scale. As you know, we are in the midst of a once-in-a-generation surge in power demand that is likely to dictate the outcome of the American success story in both artificial intelligence and industrial growth, but also the extent to which people have access to affordable, reliable power. The stakes have never been higher, and I've never been more convinced that Fervo is uniquely positioned to meet this moment. In my opinion, this is about Fervo's ability to demonstrate success across 4 key criteria. One, does Fervo have sufficient pipeline to meet this historic call for power and is the scalability of our EGS technology able to capitalize on that pipeline. Two, does Fervo's modular approach to enhance geothermal energy match the demand profile and reliability that our customers seek. Three, does Fervo's approach to local stakeholder outreach, development and sustainability ensure we honor our partner communities and sustain our license to operate in those communities. And four, can Fervo execute in the field, putting gigawatts on the grid while simultaneously bringing down costs with seamless execution despite the numerous complexities of deploying large-scale infrastructure. The updates we have for you today will demonstrate our progress across these criteria. But simply put, we're drilling faster, going deeper and hotter and negotiating hundreds of megawatts of commercial agreements, all while continuing to execute at Cape Station. Before we dive in, I'll start with an update on safety. In Q2, our trailing 12-month total recordable incident rate stood at 0.34. These results reflect our unrelenting focus on safety backed by best-in-class operational management and commitment to community and environmental stewardship. When I began my career, I worked as a well site supervisor for drilling operations and left me with the deep appreciation for leadership surrounding safety. When we founded Fervo, we set out to prove that you could be at the forefront of innovation and still maintain the highest standards of health, safety and the environment. Our strong performance is validation of that thesis, and we are proud of Fervo's leadership in introducing the geothermal industry to ideas like and the life-saving rules. These programs have directly driven our results. With that, let's turn to recent updates. First, on our pipeline. This quarter, we moved 8 GeoBlocks, representing 400 megawatts of capacity from early development into advanced development. We moved 10.5 gigawatts across 2 geo clusters from land holdings into early development, and we expanded our total geothermal mineral rights position to over 650,000 acres. To bring these moves to life, we have 8 GeoBlocks where our internal teams achieved the key commercial resource characterization, permitting and deliverability milestones required to move from early development to advanced development. More specifically, for these 8 GeoBlocks, we have now submitted an interconnection queue application, completed geological surveys and secured the permits required for appraisal well drilling. These GeoBlocks are on the development path to ready to build, and we're now working towards the definitive agreements and remaining regulatory approvals that will get them there. On the 2 GeoClusters that moved from landholdings into early development, DeGolyer and MacNaughton completed the heat initially in place studies confirming 10.5 gigawatts of development potential, which was the basis for moving that capacity into early development. To give that number context, that's more than double the current 4-gigawatt development potential at Cape Station, where we're under construction on 500 megawatts. It also supports Fervo's multi-gigawatt GeoCluster model, unlocking economies of scale that reduce costs and derisk future GeoBlocks. Looking ahead, we've laid out intentional appraisal plans across our GeoCluster portfolio, beginning in Q4, aimed at sharpening our characterization of the resource and accelerating the pipeline as it advances through development. Before I go further, it's worth discussing the scale of power demand we're seeing across the market today. The U.S. grid is facing a level of load growth we haven't seen in decades, driven by the build-out of AI and data center infrastructure, the reshoring of domestic manufacturing and broader economy-wide electrification. This spike presents a generational opportunity for clean firm power development. And while there have been some questions about the robustness of power demand coming from AI and other industrial users on the grid, Fervo's 24/7 carbon-free energy continues to be highly sought after by all categories of buyers. Our current total of 658 megawatts of signed binding PPAs with $7.2 billion of revenue backlog is evidence of that demand. But in addition to those fully contracted megawatts, we have gigawatts of demand at various stages of RFP, term sheet and contract negotiations across a multitude of our GeoClusters. And to give you a sense of how diverse the need for firm power is, approximately 35% of our future capacity negotiations are with utility buyers, 50% are with hyperscalers, and 15% are with non-hyperscaler industrial customers. Fervo's GeoBlock development strategy is a direct fit for what those buyers are looking for. Our approach of building independent modular 50-megawatt GeoBlocks means that our systems come with a level of redundancy, resiliency and stability that's critical to our customers' needs. If one GeoBlock needs maintenance, that specific GeoBlock comes down, while the remainder continue generating power. But speed and resilience are only part of what it takes to actually get infrastructure built. Our power developments are also clean, bringing with them a level of environmental stewardship, power density and responsible land use that is difficult to replicate with any other form of power generation. This is critically important to Fervo and it's central to who we are. Fervo builds things that last, which is why Fervo is a founding signatory of the Geothermal Sustainable Development Pact, a 100% voluntary pledge coordinated with key NGOs such as Sierra Club and the Northwest Energy Coalition to achieve the highest standards of responsible development across 6 pillars: community engagement, workforce development, land use, water conservation and well integrity, induced seismicity, and emissions. We will not develop in any other way. The high standards included in the Geothermal Sustainable Development Pact are Fervo's base standard. In water-constrained areas, Fervo will only develop using air-cooled condensers, meaning that we will never expose our power plants to evaporative losses that cause strain on local water supplies. We will always monitor, evaluate and respond to seismic activity around our sites. And more importantly, we will work closely with our regulators and the local communities to provide transparent data, analysis and education around the key risks of our developments. Moreover, Fervo will only work with customers and partners who are also willing to hold themselves to a similar high standard of responsible development. And as we move co-located and behind-the-meter GeoBlocks through our development pipeline, we are especially selective in vetting and choosing these partners. On this point, lately, there has been pushback across the data center development ecosystem from local communities that are justifiably concerned with the impact these data centers may have on their communities, if not developed responsibly. At Fervo, we see this as an opportunity to exemplify for others how we believe infrastructure assets should be developed, which is responsibly, transparently and in close coordination with a host of local and regional stakeholders. This model of development is not new to Fervo. If you have been to the Cape Station site, you have felt our passion for the community and our desire to be their long-term partners, collaborators and advocates for their causes. What has changed is the extent to which this approach makes Fervo unique relative to other developers developing similar infrastructure assets. As increasingly, we believe our style of prudent development will be fundamental to reliably building geothermal energy at scale. Next, I'd like to spend a few minutes on behind-the-meter development more broadly because we believe this is becoming a critically important element of bridging between the transmission grid we have in place today and the immediate call for power to support data center build-out across the United States. Speed to power, the ability to bring capacity online without waiting on lengthy grid interconnection queues is becoming one of the most important factors our customers weigh when choosing a power partner, especially as hyperscale data centers and large industrial loads look to come online faster than the traditional grid can respond. Fervo's GeoBlock and GeoCluster approach bridges the gap between generating power today and connecting to the grid in the future, giving us and our customers optionality as grid time lines evolve. The same modularity that gives our systems embedded reliability and redundancy lets us cite an initial phase of power development behind the meter, then scale capacity seamlessly to meet our partners' medium- and long-term growth. Because our power output fluctuates slightly with ambient temperature by season and by time of day, EGS production profile is a perfect match for solar, storage and other forms of generation. Our fuel is geothermal heat drawn continuously from our own wells on site, which means a behind-the-meter development with EGS is insulated from fuel supply disruptions. So as we pair EGS with solar and batteries, we believe our customers will reach an incredibly high level of reliability at a competitive all-in cost that, if needed, can be further bolstered by a modest amount of on-site gas generation to account for tail end events. Fervo's EGS power provides the right modularity, reliability and output for behind-the-meter development, and our customers are quickly realizing the same. Despite behind-the-meter being important to go-forward business, 100% of Fervo's GeoClusters are constructed with a long-term plan of grid interconnection. We continue to submit interconnection queue positions and execute interconnection agreements. But behind the meter is a means to deliver power to our customers when transmission time lines lag our customers' need for power. This hybrid behind-the-meter and front-of-the-meter strategy is exactly what's accelerating our growth. As has been our approach, we will only disclose PPAs once they're signed and binding, and we won't get ahead of that process. What I can say is that our behind-the-meter pipeline has real momentum, and we're optimistic that we'll have an announcement before year-end. Of course, execution is what makes any of this possible. So let's turn to updates at Cape Station. As a reminder, we're currently building 500 megawatts at the Cape GeoCluster, which at last studied, measured over 4 gigawatts of total resource potential. Our first installation, Cape Phase I is approximately 100 megawatts, made up of three 33-megawatt GeoBlocks and is fully contracted under 2 PPAs. This is the first multi-GeoBlock EGS development in the world. And we're doing 2 things that have never been done before. First, we're drilling horizontal wells and leveraging multistage hydraulic fracturing. Fervo was the first to take this approach in geothermal history in our Project Red pilot, and now we're the first to do this at large-scale development. Second, we're using in-house engineers alongside trusted industry partners for equipment design and construction. And as a demonstration of the efficacy of this approach, in less than 2 years, we have gone from a patch of dirt to a fully constructed power unit that is just around the corner from utility scale generation today. This is the speed to power our customers are looking for. Right now, at Cape Phase I, the team remains focused on execution, prioritizing late-stage commissioning and the ramp to full production, targeting first power from GeoBlock 1 in Q4 2026 and then adding power from GeoBlocks 2 and 3 by early 2027. We have achieved the key milestone of mechanical completion on GeoBlocks 1 and 2 and expect to achieve mechanical completion on GeoBlock 3 over the next several months, in line with our construction time line. For GeoBlock 1, commissioning is progressing in stages to allow for robust data collection, safety management and incremental learning. Our first set of wells has already been connected to the power plant, moving geothermal brine through the heat exchangers and spinning the turbines, and we're testing pressure flow and safety systems at each step before bringing the next wells online. We'll continue bringing the wells online in sequence, confirming each flows properly from wellhead through the power plant and back to the well pad, a process that gradually increases output over several months before we reach full production. GeoBlocks 2 and 3 are identical in design, and we expect to apply the learnings from GeoBlock 1 commissioning process to continue optimizing production ramp at subsequent GeoBlocks. Our second phase of development at Cape Station comprises 8 50-megawatt GeoBlocks, our standard design going forward, with start-up planned for 2028. In keeping with our standardized manufacturing model, Phase II builds on learnings from Phase I to optimize subsurface performance. Phase I relied on our Fervo 2.0 well design with 5,000-foot laterals and 7-inch diameter casing at roughly 400 degrees Fahrenheit. Phase II by contrast, leverages our 3.0 well design with 7,500-foot laterals, larger 8 5/8 inch casing and an average temperature of 430 degrees Fahrenheit. Last month, we announced results from our Sawtooth 7 well, our ninth Fervo 3.0 well. This is our most complex well design to date, reaching a measured depth of nearly 19,500 feet at 460 degrees Fahrenheit. Despite the added complexity in the added drilling depth, spud to total depth took only 21 days, a new company record for drilling pace and a similar spud to total depth time as our shorter shallower Cape 1 wells. We expect these design and reservoir temperature changes, coupled with our ability to drill more quickly to significantly increase power output per well at a lower cost per kilowatt. As a simple example, an increase from 400 to the 430-degree Fahrenheit target temperature of Cape Phase II increases power output by approximately 27% for the same amount of steel in the power generation system and the same flow for the wells. In practice, that means we expect to generate 27% more power at Cape II than Cape I for roughly the same surface CapEx. We expect to continue reaching increasingly hotter geology at Cape as evidenced by the Sawtooth 7 well reaching 460 degrees Fahrenheit despite the Cape 2 design point being at only 430 degrees Fahrenheit. This makes us confident in our ability both to bring down costs and realize a durable production profile. Said differently, based on our performance improvement thus far, we continue to believe the learnings and innovations we've implemented in Cape Phase II have us positioned to hit an all-in cost of $5,500 per kilowatt with our long-term target of $3,000 per kilowatt still firmly in view. Lastly, on the topic of progress at Cape Station, we're proud to announce that we recently expanded our rig fleet, adding a third Helmerich & Payne rig at Cape Station, on time with our broader Cape Phase II development time line. With this, we are increasing the number of megawatts Fervo can drill per year. As an illustrative example, if at steady state, each of our 3 rigs drills an average of 1.5 wells per month, our 3 rigs combined could drill approximately 54 wells per year. If each production well generates approximately 15 megawatts of power and if our ratio of injection and production well remains the same, then our 3 rigs can drill over 400 megawatts of capacity per year. Before I hand the call over to David, I want to spend a few minutes on our technology and specifically how rapid improvements in drilling performance provide fundamental derisking to our projects. From the very beginning, our approach at Fervo has been to learn by doing. Project Red, our first pilot wasn't designed to be the final version of our technology. It was a minimum viable product built to prove out the core elements of our design as quickly and cheaply as possible, that we could drill horizontal wells in geothermal rock, create fractures in the reservoir, connect offset wells through those fractures and flow commercially relevant rates of geothermal brine through the system reliably over time. It succeeded on every one of those fronts. Since then, we've iterated fast. As I just walked through, each generation of our well design from Fervo 1.0 at Project Red to the Fervo 2.0 and 3.0 designs we're now drilling at Cape Station has gone longer, hotter and deeper than the last and delivered a meaningful step-up in performance. Our published flow test data showed Fervo 2.0 wells at Cape Phase I deliver a 3x increase in power output relative to the original Project Red wells. The Sawtooth 7 results I just walked you through are a good example of just how much that improvement continues to compound. Compare that pace and performance to our very first well at Project Red, which took us over 70 days to drill roughly 11,000 feet at 350 degrees. In the span of about 3 years, we've cut drilling time dramatically while substantially increasing performance profile. Sometimes we get the question of how we have so much confidence in the long-term thermal performance of our system. And the answer is that we have proven over several years and dozens of wells that Fervo is a company that embodies continuous improvement, mitigating future uncertainty while delivering dramatically better, cheaper operational performance. Longer laterals and better field designs mean more stimulated reservoir volume per well, which means more thermal resource in place and a more gradual decline profile. And each time we access hotter rock, each unit of flow from those wells carries a step change more energy than any well drilled before. Every new generation of well we drilled benefits from the cumulative learnings that led us to this point. To be clear, the production temperatures of our wells will decline. That's simply how the physics works. But the relevant question is whether we can learn enough to mitigate the impacts to our projects by drilling makeup wells in the future that benefit from the cumulative learnings we've gained, making those makeup wells bigger, hotter, cheaper and far more productive than those we drill today. This is how we and every other resource-based business manage decline, and the data already shows that the wells we'll drill in the future are likely to be far more productive than the wells we're drilling today. This approach is what ultimately unlocks our biggest long-term goal, making geothermal the cheapest, most reliable power source anywhere on the planet. We've already generated the largest body of hard rock drilling data and analysis in the world, and we continue to add to it every single day. We're proud of the pace of that progress, and we look forward to sharing more of it with you in the quarters ahead. Lastly, given the pace of progress we've just walked through, it's worth addressing where Fervo sits relative to the broader landscape. It's no surprise that the tremendous demand for firm power has resulted in a wave of new technology approaches entering the power space with a host of claimed benefits and at various levels of technology readiness. We believe several things are true here. New technologies are coming, and some of them will work, will receive funding and will eventually add capacity to the grid. We firmly believe the world and society need this to happen. We also believe that if offtakers need clean firm power before 2030, Fervo will likely be one of, if not the only way to get it. From now through the end of 2030, during which time we expect to have delivered over 1 gigawatt of power capacity and solidified our position as the reliable provider of clean firm power, we believe Fervo will be well positioned for an astonishing period of development in the mid-2030s and beyond. With that, I'll hand it over to David.

Thank you, Tim. I will kick off my remarks with a quick review of our financial highlights from the second quarter of 2026 before discussing our commercial and financing activities and then turning to our pipeline. For the second quarter of 2026, we reported an operating loss of $28.7 million, driven primarily by G&A expenses of $27.4 million and operating lease expenses of $1.5 million. Net loss for the quarter was $55.9 million. For the 6 months ended June 30, 2026, net cash used in operating activities was $43.8 million. This primarily reflects our net loss for the 6-month period of $87.7 million, partially offset by $61.7 million of noncash expenses, including a $40 million loss related to the change in fair value of warrant liability, $10.8 million of stock-based compensation and $9 million loss on extinguishment of long-term debt. Operating cash flow was also impacted by a $17.8 million use of cash from changes in working capital. Capital expenditures in Q2 2026 were $226.5 million compared to $108 million for the same period in 2025. This reflects the intensive construction activity at Cape Station, along with increased drilling and procurement for our next wave of GeoBlock deployment in 2028. To that end, we expect capital expenditures to total approximately $850 million to $900 million in the second half of 2026, in line with previously disclosed expectations. Cash and cash equivalents as of June 30, 2026, were $2.1 billion and current and long-term debt stood at $228.4 million. As a reminder, we completed our NASDAQ listing in mid-May, raising approximately $2.04 billion in net proceeds, significantly more capital than we had originally planned. That raise has meaningfully strengthened our balance sheet, and we're deliberately putting it to work across 3 focus areas: first, additional capital toward commercial opportunities through 2030 for which we focus on ensuring access to long lead equipment and addressing other potential development constraints; second, high-return R&D that could accelerate our path to our $3,000 per kilowatt CapEx target and optimize our near-term asset performance; and third, positioning Fervo for growth in 2030 and beyond. You're already seeing that capital show up directly in the pipeline results Tim walked you through earlier. The appraisal drilling program we're preparing to execute later this year is enabled by this raise. The through line is simple, the IPO capitalized our business in a way that will materially accelerate our growth and performance. Finally, our contracted backlog stood at $7.2 billion as of the end of the quarter, representing 658 megawatts of contracted capacity. We continue to see a healthy and growing pipeline of commercial conversations, as Tim mentioned. Next, I'd like to level set on how we think about the next few months at Cape Phase I as the first 100 megawatts begins initial production and then ramps to full production in early 2027. There are a few distinctions worth clarifying. Ramp-up is a sequence of milestones and not a single moment. We've already hit mechanical completion on GeoBlocks 1 and 2, and we expect to achieve mechanical completion of GeoBlock 3 on time, as Tim mentioned. After achieving mechanical completion, the units progress through a series of tests, verifications and optimizations, beginning with cold commissioning where the power plants and electrical equipment are tested without the presence of geothermal brine. Then we move to hot commissioning where we actually flow geothermal brine from the wellhead to the power plant to ensure the heat transfer system, the turbines and the air cooled condensers are operating as intended. When this is verified, we move on to grid synchronization performance testing, during which time we may generate some amount of test power. Cash realized from this test power can be unpredictable as it is typically subject to market pricing unlike revenue generated under our contracts. As with any new industrial asset, it's also normal to encounter early operational adjustments, brief maintenance events or periods of curtailment as we optimize performance across the units. We factor this into our ramp expectations and it's a normal part of bringing a first-of-a-kind commercial development online. Then upon achieving a host of administrative and contractual requirements, we declare commercial operation under our contract as we ramp into steady-state generation. We expect GeoBlock 1 to achieve full power generation towards the end of Q4 with GeoBlocks 2 and 3 following a similar sequence with initial power in early 2027, ramping to full power over the ensuing months. Third-party analysts currently anticipate us to generate a mid-single-digit amount of revenue in Q4 2026, and we continue to believe this is achievable. But we'll be honest, there are still things that need to happen over the next several months in order for this to materialize. For example, we need to complete the last bit of work at the substation and successfully coordinate with several different grid counterparties to achieve grid synchronization. We also have to finish the hot commissioning phase of work on GeoBlock 1. And while we don't expect anything unique to come from this process, first-time start-ups are notorious for having small correctable issues here and there. Like I said a moment ago, we still feel like we're on track, but we always feel it better to be transparent around potential challenges that we see. Similarly, while it's early to begin talking about 2027, we'd like to provide some early thoughts to consider as we prepare for our first full year of commercial operations. The simple fact is for our projects, there are things within our control and there are things outside our control. This isn't new to power development, and it's not unique to Fervo, but it is the reality we're managing to. We feel really good about the things within our control. Our ability to drill hotter, faster, deeper and cheaper is an enormous mitigant to a host of factors on our risk register. We have gotten to these results more quickly than we anticipated, and we believe there's still tremendous running room for even better drilling performance. But we also depend on a large number of partners, regulators and other stakeholders, particularly around transmission that are managing unique circumstances in 2027 that may result in Fervo being curtailed for a period of time. We're working closely with each of these partners to understand the range of outcomes for these potential events and believe these are unique to 2027 and will not recur in the future. We should state clearly that these curtailment events have nothing to do with Fervo's production, our construction or the operation of our GeoBlocks. With this in mind, for 2027, we currently anticipate generating between $60 million and $80 million of revenue. This is not our formal revenue guidance. Given the reliability of our assets and the contracted nature of our revenue, the range we're providing today is likely wider than we ordinarily provide. But as this is our first year in commercial operations and the curtailments we may experience are somewhat unique, we feel a wider range is appropriate for now. Next, given the importance of behind-the-meter GeoBlocks to our business, I want to address a common misconception about the economics of behind-the-meter generation that it's fundamentally more expensive for Fervo because of the incremental build required to achieve high levels of reliability. While it's true that a behind-the-meter project likely requires additional capacity to replicate the reliability the grid would otherwise provide, that doesn't mean Fervo bears all of that incremental cost. In the structures we're pursuing, Fervo is responsible for delivering firm geothermal power and its associated reliability to the customer's private use network, while the customer is responsible for procuring the additional generation and storage capacity required to reach their desired overall reliability level. Fervo's cost structure to deliver our portion of firm geothermal power remains broadly consistent with what we've communicated previously about our front-of-the-meter contracts. There are incremental costs to physically deliver power on site, but we don't expect those to have a material impact on our overall project return profile. Lastly, before I close this out, I want to return to the comments Tim made about the traction we currently have with our customers and potential customers. We have an active set of origination conversations ongoing across a diversity of customer types and across a breadth of maturity. We also feel confident in our ability to reliably access our supply chain, obtain permits and move GeoBlocks through our development pipeline. Taken together, we now expect to have 1.1 gigawatts installed by the end of 2030, an increase of 100 megawatts from our previous expectation of 1 gigawatt. We don't take this increase lightly. And as our confidence increases with bridge behind-the-meter projects serving as a viable alternative to grid-connected projects from a commercial, technical and financing perspective, we believe this will unlock additional speed to market for Fervo. We're extraordinarily proud of the progress our team has made this quarter, and we look forward to continuing to update you as this portfolio matures. Operator, you may now open up to Q&A.

[Operator Instructions] Our first question comes from the line of David Anderson with Barclays.

So your land portfolio has now increased to 650,000 acres, and you talked about derisking another 10.5 gigawatts into early development on top of 400 megawatts into advanced development. Has your longer-term development plan changed at all? Have any projects moved up in your time line? And if you could also expand a bit further on the appraisal drilling program starting later this year. What's sort of the target here? What are you trying to cover? Just some more details on that.

Yes, it's a great question. And I'd say within each of those buckets, it's constantly sort of a growth optimization. Where are we seeing the biggest demand for customers? It's reflected in higher pricing, where are we seeing permit regimes that are allowing us to move forward in the project development? Where are we seeing opportunities for interconnection queue time lines that are expedient or opportunities for behind the meter that can get around the interconnection queue time line. So within each of those buckets, there's constantly sort of a reshuffling of those projects. But everything is sort of in line with our expectations in terms of time line of growth. I think what you're seeing here in terms of our increase in acreage, our movement of projects through the pipeline, as David mentioned in his remarks, are things that are actually unlocked by the incremental extra capital we were able to secure in the IPO process, which, as David mentioned, was above our original expectations. And so I think we're excited about this. If you would have asked us a year ago where we would be, the maturity of this pipeline is further along than we would anticipate because the IPO proceeds enabled us to spend the time and the money on things like IPO proceeds enabled us to spend the time and the money on things like putting an appraisal rig program together faster, securing more acreage, particularly as we've seen acreage costs increase pretty dramatically. So I would say we are moving faster than we would have initially anticipated in building out this pipeline as a combination of higher IPO proceeds unlocks that, and we continue to see robust customer demand. In terms of appraisal drilling, we're very excited about this. It will be very similar to what we would have done in the Blanford prospect last year. Many of our projects have good geologic models. We are able to do surface studies, geophysical studies that allow us to unlock insights about the subsurface, but sort of the gold standard for confirming temperature at depth, which is one of the most important criteria in our techno economics is actually to drill one of those wells down to depth. And so that's what we anticipate doing at our prospect later this year. And that kind of geologic information will allow us to site where we put our first laterals to inform further geologic modeling and sort of accelerate the process beyond. And again, these are things that are unlocked and sort of ahead of our prior expectations due to the IPO proceeds. So we're really excited to be ramping up an appraisal program for some of our Nevada prospects and beyond.

Great. And you talked about the results of the Sawtooth 7. Just following on that, how many of the -- can you just remind us how many of the 3.0 wells you've now drilled to date? And how many do you need to fill out the kind of drilling programs for Cape II? And just wondering if you're maybe considering adding a fourth or maybe fifth rig to accelerate this.

Yes, it's a great question. I think we announced with the Sawtooth results that it was our ninth well, and we are continuing with the 3 rigs to add wells pretty regularly. One of the innovations that we have brought over to the geothermal sector for the first time that's kind of unlocked by the technology of our partner, Helmerich & Payne with their Flex 3 rigs is actually batch drilling. We are able to put multiple wells on a pad. We're able to optimize the sequencing because we can actually batch drill surface sections and intermediate sections and then production sections. And so as a result, actually, we will -- it's not just every 21 days or so, we deliver a new well. We actually kind of drill 4 or 8 wells on a pad and a batch process and we'll sort of finish them all at once. So that Sawtooth 7 well was the last well on the pad that it drilled, and we now have these 3 rigs actively drilling, but it -- so we've drilled significant portions of other wells since then as well. In terms of total wells, we anticipate that there could be anywhere up to 80 wells in the Phase II drilling program, and we're very far along in that process already with about 10% of the wells fully drilled and significant portions of the remaining wells drilled out. So what we continue to see is that the innovations that allowed us to come down the learning curve so quickly to achieve that fast drilling time on the Sawtooth 7 well are continuing to unlock better and better performance. So we would actually expect that trend of faster drilling and lower-cost wells despite the extreme temperatures and the greater depths we're drilling to, to continue throughout the entire Cape Phase II drilling program and beyond.

Our next question comes from the line of Dylan Nassano with Wolfe Research.

I just wanted to go back to the commentary around 2027. Can you just provide maybe a little more granularity around the curtailments that you're kind of alluding to?

Yes. thank you for the question. For 2027, I think what we said on the call is that we're looking at revenue somewhere in the range of $60 million to $80 million and tried to allude to this being a pretty wide range. Just again, to confirm, this is not anything that has to do with Fervo's production or our wells or the performance of GeoBlocks. This is really due to curtailment on the transmission lines that we have going from the Cape site to our end customers. This is something that we've had our eye on for some time. And as we get closer to 2027, it's obviously coming into a clearer picture. And so we felt like now is the right time to begin talking about it. This is something we think is unique to 2027, where that transmission operator has another asset that's being added into its line. And so there's just curtailment related to bringing that asset into the network alongside it, but nothing other than that.

Okay. That's helpful. And then just a quick follow-up on the 100 megawatts incremental by 2030. Can you just give us a sense of which of your geographies maybe that could easily fit into? And just how are you thinking about the economics there relative to the Cape Station kind of Phase I, Phase II economics?

Yes. It's a great question. And obviously, we'll have more to say about this in the future. But I think, hopefully, the read here is that we're seeing enough on the origination side to be excited about and progressing these conversations that we have the confidence to increase that target from 1 gig to 1.1 gigs. In terms of geography, what we like about our portfolio is that we have a tremendous amount of optionality across the range. And if you look at that funnel that we have that kind of shows how we move GeoBlocks from one level to the next, you obviously see that we're moving things pretty rapidly. That contains several different GeoClusters at various stages. And so we think that we've got a few really high likelihood, high-quality prospects that we can go to here. We're moving transmission and permitting across the range of those GeoClusters as well. And so we like what we're seeing there. I think it's fairly safe to say that we're more advanced in our resources in Nevada and Utah. And so I would expect that, that's likely where those projects come from, but we do maintain kind of optionality on that. And on economics, we'd say that what we're seeing on these commercial negotiations is consistent with what we've seen before, which is a range of pricing from $100 to $130 a megawatt hour. And when we think that everything that we're talking about here is going to fall down the fairway of that range.

Our next question comes from the line of Chris Dendrinos with RBC Capital Markets.

I wanted to go back to maybe just the ramp-up here in production in the back half of the year. And just as far as those PPA contracts go, can you maybe just discuss in a bit more detail how those work in terms of obligations for production capacity at any given point in time? I think there have been some concerns or debate that there might be some damage payment obligations just given when things ramp and the official start date. And so we're just trying to think through that.

Yes. Chris, thanks for the question. It's obviously something we have our eye on here. There are a couple of different dynamics. One is that each of our PPAs is different. And so the way that these work kind of changes throughout. What we have at Cape Phase I as we ramp is actually broader than kind of an instantaneous do you have 10 megawatts or 30 megawatts or 100 megawatts on time. We have kind of an extended time line to true that up over the course of the year. And so we feel good about our ability to generate that capacity and see things there. When it comes to liquidated damages, it's something that obviously is important to us and something that we think about. But we don't think that those liquidated damages in most cases, are material to the P&L. What we typically see is that we have some kind of trade-offs here. And what we mean is that we can bring things online faster that may come at the cost that we don't go through a true commissioning phase where we explore all the options, optimize the asset. And I think our management view is that that's not the appropriate decision to make. And so I think what you're hopefully hearing from us is that we're going to prioritize the health of the asset and demonstration of the core IP kind of above all else, and we think that that's the right trade-off against ODs that are likely immaterial kind of in most cases.

Got it. And maybe just as a follow-up on a separate topic here. You talked about some of the opportunities to transpose oil and gas drilling technology over to your wells. What other kind of tech unlocks are you all working on or sort of experimenting with here? And what are the kind of expectations for when that could ultimately just work into your overall drilling program and drive more step change in cost reduction?

Yes, it's a great question. And we've had several sort of significant wins in terms of upgrading oil and gas technology to deal with our more challenging geologies that are both -- there are several factors we have to consider here. Our diameter of our wells are larger than onshore, the typical unconventional onshore oil and gas wells. So that's one difference from the oil and gas world. Our temperatures are higher temperature than oil and gas wells. And then obviously, drilling through granite with the material properties of granite, it's a much harder rock to drill through than shale. So a lot of this is upgrading the right materials and especially as we push to greater depth. So some things, for example, that we've implemented recently that have yielded good results, just to give one example on the completion side is recognition that doing the deeper Phase II wells would -- if we wanted to pump with the efficiency that we wanted to would require higher pressures. So we've, for example, gone out and sourced sort of unique equipment to deal with the temperatures, casing diameters and pressures that we see in our operations that have actually led to an increase in stage success rate. To just give you one example of technologies that we're adapting over is the ability to do well stimulation at higher pressures. So there continues to be significant examples there. Another technology that we've trialed out multiple times over the last couple of quarters that we're growing increasingly confident in is going to a rotary steerable system for drilling some of these deeper and more challenging wells, which is an advanced technology that allows you to maintain your drilling program in the rotating phase where you can drill faster while still achieving the directional trajectory of our systems. And there were some growing pains adapting that technology to geothermal due to the temperatures and properties of the granite. But working across our partners, we think we've kind of honed to that end, and that's just one of those examples that as that goes from trial to a more routine part of our drilling program, which is sort of the phase we're in right now with that particular technology, it will continue to yield significant improved drilling results. And there's just a long, long list of these kinds of innovations that we're working on right now.

Our next question comes from the line of Ben Kallo with Baird.

Maybe taking a step back, just I know it was less than 2 months ago when you talked about the higher capital raise opening more opportunities. And then you increased the 2030 targets, you have a new rig out there and you have a new drilling program. Should we think of that as what that allows you the new capital? Or are there additional things that we should wait and see for? And then I have a follow-up.

Ben, great question. I'd say that this is definitely part of it. And I might separate them a little bit. The third rig that we added out at Cape is part of the normal course of development for the Cape Phase II project. And so that one we kind of had planned and so maybe wouldn't put that in the bucket of kind of directly tied to incremental CapEx or I'm sorry, incremental cash. On the opposite side of that, though, the incremental 100 megawatts, we would say, is directly tied to that as well as the appraisal drilling program that we're getting ready to embark on. When we think about what it takes to add additional megawatts before the end of 2030, appraisal is definitely part of that. That's what allows us to go into definition and start contracting those GeoClusters more specifically. Additional kind of work streams that we'll have in the mix there are permitting, interconnection queues, really derisking the development and deliverability of those megawatts. And then on the other side, it comes down to long lead equipment. And our supply chain is really robust, both from an oilfield service and equipment perspective, but also the organic Rankine cycle turbines that we utilize. But the electrical side of things is kind of no secret in the market is a little bit more stressed. And so that's where we're using some of this incremental capital to make sure that we have that equipment on time for when we need it. In terms of additional things to come, Tim's talked about some of our opportunity register that we have on the subsurface development side. And I'd expect that we're identifying some really interesting ways to deploy modest amounts of capital to derisk both our current projects, but also our future pipeline.

Okay. Great. Just going to behind the meter. Could you talk to us kind of the mechanics? And you mentioned that there was a discussion about higher costs. So how would we expect like a data center development to -- the time line to occur with your time line of build-out? So like would the data center start construction before you're completed with the power plant or after? And then would you provide the auxiliary equipment needed or even additional generation or stationary storage as part of that deal? Just maybe describe a little bit more how we should expect that to evolve.

Yes. These are great questions and some of the things that we've had to wrestle through because behind the meter is always something we say it's a simple idea to throw around. It's very challenging to implement in practice. And these are all the thorny details that you actually have to work through with your partners as you get this to be done. I think one of the things we're excited about is we've really shortened our construction time lines significantly and especially relative to other technologies, our ability to go from spud to sales in terms of producing electricity on the first couple of geo blocks in a prospect has gotten to be relatively quick. And so as a result of that, we do expect there to be kind of concurrent development of our projects with the data center projects as well. We don't think they're generally going to wait until after our projects are online to do this, particularly in any sort of behind-the-meter or islanded mode. And so we do expect that construction to be done concurrently. And this is where actually I think the GeoBlocks are a really great asset in terms of making this happen because what we're trying to do with our customers is align the growth of our prospects where maybe that's bringing on 4 GeoBlocks initially and then adding 4 more 6 months later and 4 more 6 months after that, just as an illustrative example about how that might work. Well, that means we can phase our capital deployment and growth alongside our partners' capital deployment and growth, and they can build out and sort of size their powered shells to be commensurate with bringing up these assets online. And I think when we work with our partners, they recognize that we have a fairly unique asset. The ability to build power plants that have no fuel supply risk that produce 24/7 carbon-free energy at assets that can get to a gigawatt scale across many locations in the West is something that they find very attractive and very unique. And so a lot of them are looking to scale over multiple years to turn these into sort of marquee assets within their portfolios as well just because that's not a mix of attributes you can find really anywhere else. And so that's kind of how we're thinking about it. And we do believe it is and a lot of -- obviously, in a lot of ways faster than the interconnection queue position, which is why we're taking this hybrid approach of doing this where we don't have queue positions that meet our customers' time lines. In terms of our model and higher costs, there are things, whether it's the resilience or redundancy of electrical infrastructure or different items to ensure that you have the right power quality that we would not be spending capital on if it was a grid-connected project. As we mentioned in our illustrative slide, too, we also see benefit out to our customers of hybrid approaches of pairing our assets with things like solar and storage to kind of meet their objectives in terms of the high reliability needs. And so we're working with partners on that. When we think about this tactically, Fervo has always been a company with a pretty maniacal focus. What we believe is the one thing that we do best in the world that no one else can replicate is the rapid development of enhanced geothermal systems assets. Meanwhile, we think there's many credible players that can deal with the electrical system design, the solar development and these other attributes that are not as unique to Fervo. So we are generally scoping our work to doing what we do best, which is best-in-class enhanced geothermal systems development and working with partners who can handle the other parts of the supply chain to work with our customers to build out these microgrids. And that may evolve over time as we learn more, but we love focus at Fervo, and we're laser-focused on being best-in-class of EGS development. And even in these behind-the-meter projects, that's where our focus is as well.

Our next question comes from the line of Jed Dorsheimer with William Blair.

I guess first one, maybe, Dave, if you could help on what would the cadence look like between the $60 million and between the $80 million and recognizing that it's out of your control in terms of interconnection, assume that the $60 million would be a front-end loaded haircut to sort of the prior expectations of that $80 million. Could you just help with what that cadence might look like on the lower end and the higher end?

Yes, I'm happy to, and thanks for the question, Jed. Really, this is really about the duration of that curtailment, which is maybe stating the obvious. We're working closely with our partners there to get a better understanding of how they evaluate the risk that this is either longer or potentially shorter than they imagine, and that's kind of where that $60 million to $80 million range is coming from. The way that we would think about the $60 million kind of coming to fruition is that, that's maybe an extended curtailment where things aren't quite as clean from their perspective of getting that asset online as they currently anticipate. And then obviously, all the way up to $80 million, where our contracts are structured such that we can actually exceed our target expected energy. And so we have some ability to recoup megawatt hours and reclaim revenue for 2027. And so those are all the kind of -- that's the range of outcomes that we're evaluating. I'd say that what we think about on kind of a constant basis is what can we do to control that and influence that. We think there might be a couple of things that we could add to the system to either limit our dependence on that or to increase production out of the asset. And so that's what we're going to be working on into Q4 and Q1 of '27 and then hopefully have more to say about it then.

That's helpful. And then, Tim, I was listening to Mike Rowe on a podcast the other day talking about the labor shortage and the gap -- ensuing gap that the country will face. And I'm just curious what you're doing to mitigate on the labor side of things as you have a pretty big ramp in front of you. How are you trying to get ahead of this issue and address that? And whether or not that would be the -- where you rank that from a variable perspective of having an inflationary impact on the business?

Yes. It's a great question. It's something we think about a lot. It's probably good to sort of bifurcate that we do have 2 parts of our business that actually draw from relatively distinct labor pools, and that's the drilling side of the business and the power plant construction side of the business. So our approaches here are a little bit different. On the drilling side of the business, this is where we're blessed to be adjacent to an industry that has probably one of the most robust domestic supply chains and labor pools ever created. I talk about this a lot, given my background in drilling and oil and gas is as we see increasing global competition and industrialization in China and other markets, one of the few things that you can very definitively say that the United States has the strongest labor pool in the world on and the strongest supply chain and equipment supply chain is drilling services. And we were just out on site last week with a bunch of folks, and it is incredible whenever you go to a drilling site or a completion site, the fact that the people doing that on-site supervision are people with decades of experience, and there's such a deep pool of really skilled labor there that is really exciting for us. So we don't really foresee labor challenges on the drilling side of the business at all just because that is such a deep pool and has proven to be so robust. And as you know, the rig count today is a fraction of what it was 10 or 15 years ago. And so as a result, there's a lot of skilled folks that can do that work. Where we see a little bit more pressure is on the power plant construction side, and that's because often the skilled workers we're looking for are folks that are also in demand from other power generation assets, other data center build-outs, and that's where we see more stretch. But I think we have a program there where we're really excited with particularly our strategy of building deep relationships with local and regional suppliers has served us really well. We've disclosed in the past and talked about our partnership with Industrial Builders, who's the primary construction contractor for Cape Phase I with deep experience in geothermal. We have a fantastic kind of multiyear relationship with them, and they're based in Idaho, very in close proximity to much of our project sites. So we find building these long-term deep relationships with really the right construction firms is a huge mitigant to this pressure. And in addition to that, we're being very proactive, and this gets back a little bit to our community engagement strategy in building out apprenticeship programs and workforce development programs to keep filling that pipeline. We've done a significant amount of local hiring in the Southwest Utah area, and that's from everything from operators to really leveraging the partnership we now have with SUU, Southern Utah University, as part of a geothermal apprenticeship program that's become a hiring pool for us as well. And so this goes back years ago when we established that program. So even before I think people were starting to talk about labor shortages or competition over labor with these construction booms, we were already proactively sort of training the workforce of tomorrow on the power plant construction side. And we're very confident that our strategy of working with local and regional construction partners that see huge benefit in Fervo's multiyear investments in their communities as well as our work on apprenticeship and other training sources with educational institutions is going to put us in a really good position to succeed in a competitive labor market. And I think this is something that we spend a lot of time thinking about, but I think Fervo has a really fantastic strategy going forward for both the drilling side of the business and the power plant construction side of the business.

Our next question comes from the line of Sunaina Ocalan with Bernstein SG.

If I can go to behind the meter for just one more minute and a follow-up on that. Your Slide 5, I think I totally appreciate the fact that you guys will only announce when you have something concrete, I love that. The one that you're working on right now, which you said on the call that you could potentially have some update before the end of the year, is that behind the meter or front of the meter? Or did you provide any color on that? And then I have a follow-up on Slide 5.

Yes. I think that we have -- given the level of customer demand, we have a pretty significant amount of conversations in advanced negotiation that both encompass front of the meter and behind the meter. And it's also sort of depending on the unique situation of each asset, there's also hybrid approaches where there may be a portion of projects that are front of the meter and behind the meter as well. And so I would say that going forward, we will have PPA announcements that encompass kind of both those contract structures and it's a continuum where we'll have some in between. So I'm not sure if that's a satisfactory answer to your question. But given how far along we are in advanced negotiation with multiple parties, it's kind of a blend of everything.

Okay. That's great. And just one more follow-up. On Slide 5, this is your current view of like the 50% data center hyperscalers, 15% large C&I, et cetera, right? So do you have an internal view that you're working with in terms of like how big the behind the meter can be? And is that -- is that changing over time? Is this essentially -- is that 50% essentially just addressing a constrained grid right now? What -- any color on what you're expecting that to be over the next few years?

Yes. I think it's a good question, Sunaina. And I think what we see is a couple of different things here. One, the 50% or so that we're working with in terms of hyperscalers, I think what we're hoping to show here is that, yes, like the AI hyperscaler wave is enormous, and it's a huge catalyst to our business and something that we see very acutely right now. But that doesn't mean that other sources or other uses of power are not also needing firm power that we provide. And so across industrial and other non-data center industrial users, we have just a good blend in our origination mix right now. On behind the meter specifically, I think we see it as a really big opportunity. And there had been questions over the last kind of 12 months or so about how people would actually contract for behind the meter in a way that was going to be financeable. And I think we have seen the market start to announce several of these types of agreements that really demonstrate that, yes, behind the meter can be done both from a technical and a contractual standpoint, but also from a financial and debt perspective, which is just important to getting this built. So I think what we see is an enormous opportunity there, but that doesn't kind of undermine the value that the grid provides. And I'd say that we are huge fans of the grid and think that our customers are as well. And so where there are opportunities to leverage the grid, just like Tim talked about, we will do that, and we will do both. But behind the meter is increasingly a really effective bridge between customers that candidly need power now faster than the grid can move to meet them in the future when we would prefer, and I think they would prefer that those assets are on the grid.

Ladies and gentlemen, due to the interest of time, our final question will come from the line of Derek Podhaizer with Piper Sandler.

I guess maybe, look, I mean, clearly, a number of questions and kind of noise coming out there in the marketplace around maybe the technical aspects of EGS development, including well production results, water loss or usage, seismicity. And Tim, you talked a little bit about this in your opening comments. So maybe help educate the public and the investor base around those technical aspects of EGS and even point to securing that $421 million of nonrecourse project debt financing for CP I and the amount of due diligence gone into that. I think that just would be helpful for everyone to hear from you as far as helping to dismiss and disuage some of those concerns that are out there.

Yes. I appreciate the opportunity, Derek, and it's a great point. I think folks often miss that we closed earlier this year that $421 million debt package as nonrecourse project finance debt, which is sort of a milestone for enhanced geothermal systems. And I think that it has been interesting for us to watch, I don't know, the keyboard warriors or other folks try to opine about different technology results when oftentimes, they're not subject matter experts in geothermal nor do they have access to the data that the independent engineers and the underwriters of a process like that had access to. And so I think when we looked at this, it's something we're quite proud of, first-of-a-kind project finance is sort of like the holy grail of scaling new hardware technologies. And we crossed that finish line because of the robustness of this. And the feedback we got from our banking syndicate is in terms of diligence questions fielded and scrutiny on the project is it was unlike anything that they had ever seen before just because the complications of geothermal and new technology meant that there was an enormous amount of scrutiny on it. So this project underwent a significant amount of review from a deep bench of qualified independent engineers and underwriters that evaluate everything from scenarios on water loss to scenarios on thermal decline. And I think the results speak for themselves that the folks with access to the data with access to the field results and with the right subject matter expertise to look at this, see the technology maturity and understand the things that we've talked about at length like that thermal decline is not some binary output. I mean that's oftentimes how we see the conversation framed is it's either a yes or a no. But in fact, it's something that I stated in my opening remarks, thermal decline is something that happens because physics works, like you're extracting heat. And as a result, you expect that reservoir to cool off over time. But if you actually have time to sit with the data and build financial models, you can see that a very wide range of outcomes on an aspect like thermal decline because we can mitigate it with drilling hotter, newer wells in our makeup well drilling program actually is something that's quite mitigatable from a project returns standpoint. And again, I appreciate the opportunity to reiterate this because that's what we think that means from that project finance is the folks that had all the right subject matter experts and access to data and scrutiny determined that these were bankable projects. And that, to us, means far more than any of the noise and speculation that you might see out there. And I do think speaks to the maturity of our technology.

Great. I think that's very helpful. I guess my follow-up, David, this might be for you, but just continuing on that thermal decline and the makeup well conversation. I guess help us understand from like an NPV per well perspective and the makeup wells leveraging the existing surface facilities that you'll already have in place, understand there'll be hotter, higher producing wells. But also just maybe from an NPV perspective, each new well leveraging what's already existing and help us on just kind of the overall project economics.

Yes. Thanks for that question, Derek, because I do think that, that is -- that's the way that we think about this internally, and we would encourage others to think about it as well. What we have the benefit here of is a couple of things, and you kind of pointed to one very accurately, which is the wells that we drill in the future are going to be a step change better than the wells that we drilled prior to COD of that asset just because we've continued learning and we've continued drilling in those specific fields. The other thing that we have the advantage of here is just time value of money. And as we drill wells in the future, because when we think about our CapEx, the drilling and completion of wells and the associated well pad facilities is about half of our pre-COD CapEx and the CapEx associated with the power cycle, the power gen equipment on the surface is about half. We're really talking about drilling a portion of that half that's associated with the subsurface. And we're doing that, obviously, years in the future. And because of that, it does have a muted effect on the return profile of the projects. And often what we see is that because we have this range of outcomes in terms of what we're able to deliver under our PPAs and our PPA prices are attractive, what the returns tell us is that in most scenarios, we would prefer to drill an additional well because that additional well that we're drilling is more productive than the wells that we brought on originally. And that means that we can actually deliver above kind of that expected baseline of power under our PPAs, and we see that as an attractive opportunity to deploy capital with a high return.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.