Fervo Energy: Shale 2.0 - Unlocking the Power of Geothermal; Initiate at Overweight

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Fervo Energy: Shale 2.0 - Unlocking the Power of Geothermal; Initiate at Overweight

le revenue.

Key Risks to Consider:

• To prove it can scale up, execution will be paramount. We do not see significant

technology risk to Fervo’s EGS design as it relies on two decades of industry expertise in shale

development to navigate the learning curve in drilling horizontally and hydraulic fracturing in

granite. The key is proving it can scale operations through its GeoBlock design to be able to

bring online 1 GW per year by 2030, which will require continuous execution to meet

development timelines. The first milestone is initial power at Cape 1 by 2H26 and completing

the first phase of 100 MW by 2Q27 (our estimate), which could be impacted by delays in

drilling or completing wells as could surface construction issues.

• Challenges in bringing down the capex costs down. Arguably the biggest pushback to the

Fervo story is the expected cost reductions from $7,000/MW at Cape 1 down to $3,000/kW for

full scale development. This is driven by improving drilling times (as seen in the Permian),

optimizing completions (longer laterals, bigger casing) and developing in hotter zones

(increased thermal efficiency). As project IRRs are highly sensitive to capex/MW, a lack of

improvement in drilling, completions and new zones could have significant implications to

our DCF valuation.

• Very low maintenance capex based on limited decline rates and reservoir consistency.

Perhaps the biggest difference between traditional shale development and EGS is the lack of

decline rates. In the Permian, well production typically declines up to 70% over the first 2

years, whereas Fervo is estimating only 1% annual thermal decline rates. Project Red has