Sable Offshore Corp. 3Q 2026 Earnings Call - SABLE OFFSHORE CORP

Financial Performance:

• Q3 2026 marked the second full quarter of oil sales, with volumes increasing nearly 30% quarter-over-quarter.
• Average observed production rate per well from PERF AD operations exceeded 700 barrels per day.
• Balance sheet deleveraging commenced with an initial amortization payment on the Term Loan B in Q3 following a refinancing.
• Liquidity was bolstered in Q3 via the ATM program due to downstream constraints; the company has not utilized the ATM in Q4 and cannot forward-comment on future usage.
• Q4 cash burn is estimated at $165-$175 million (including $110-$120 million opex/Capex/G&A and ~$53 million debt service), with current cash balances at approximately $38 million.
• October revenue deficit of ~900,000 barrels is being targeted for recovery via a bulk crude sale of 1.3 million barrels stored at Las Flores Canyon and other midstream facilities.

Guidance and Future Outlook:

• Q4 2026 sales guidance remains 20,000–30,000 barrels per day, excluding the 1.3 million barrel bulk sale; including the bulk sale, 4Q volumes could reach 38,000–40,000 bpd.
• November sales target set at 31,000 bpd (walk-up differentials) with a ramp to 51,000 bpd expected by December as refineries optimize intake.
• Platform Hondo is scheduled to restart production and flow wells in the last week of November, aiming for full ramp-up by December to secure 30 days of production data for year-end reserve reporting.
• Long-term goal is to double oil recovery rates from the current 15% to 30% by maintaining reservoir pressure via gas reinjection, reducing the decline curve from 8% to 4%.
• Management projects a return to free cash flow neutrality in Q1 2027, contingent on stabilizing production and securing better term contracts.

Business Segments and Product Lines:

• Santa Ynez Unit (SYU) performance: Platform Harmony and Platform Heritage are outperforming with stable production; Platform Hondo is undergoing reconstruction and safety upgrades ahead of a November restart.
• Five new PERF AD wells are completed and contributing to production growth.
• Marketing strategy shifted to a four-refinery model (including three new off-takers) to mitigate reliance on previous partners; Marathon increased intake to 30,000 bpd.
• Midstream optimization includes utilizing Line 2000 (45,000 bpd capacity) and Line M70 (potential additional 10,000–15,000 bpd to PBF) for volume diversification.

Market and Competitive Landscape:

• Operating in a heavy crude market with ample supply (including Western Canada Select and Venezuelan crude), resulting in walk-up differentials similar to Q3 levels (~$30 spread) for November/December.
• Sable holds ~22-25% of in-state California fuel supply (72 million cars fueled annually), positioning it as a cornerstone for national energy security and Strategic Petroleum Reserve (SPR) logistics.
• Competition involves refining capacity constraints in the LA basin; management is aggressively negotiating term contracts (6-12 months) to lock in improved differentials.
• Market appetite for bulk crude purchases is high, with robust interest from refiners, pipelines, and trading houses.

Risks and Challenges:

• Downstream logistics and refinery scheduling delays previously caused a significant revenue deficit in October.
• Environmental and regulatory compliance: Final paperwork submitted to Marine Minerals Administration (MMA); appeals on previous legal challenges are pending in the Ninth Circuit, though management anticipates a clean-up by mid-2027.
• Political dependency on DOE and White House support for the Strategic Barrel Reserve (SBR) and Defense Production Act (DPA) authorizations; no new legislation is required, but executive action timing is critical.
• Operational risks include water handling capacity constraints at the Las Flores Canyon facility and the potential for equipment delays during Platform Hondo commissioning.

Management Commentary and Tone:

• Tone is confident regarding operational recovery and reserve potential despite near-term liquidity pressures.
• Management expressed "apologetic" but resolute regarding the October sales disruption, attributing it to a partner's tank upgrade timing.
• Strong emphasis on the strategic value of the SYU field for US energy security and national defense.
• Commitment to resolving the liquidity gap through a multi-pronged approach: bulk crude sales, the $100M unsecured loan basket, and potential PIPE offerings.

Analyst Questions and Answers:

• Neil Dingman (William Blair): Confirmed Platform Hondo restart timeline targets the week after Thanksgiving for regulatory approval; no concern over November production delays as sales capacity is the primary constraint, not geological output.
• Michael Furrow (Pickering Energy): Clarified total storage capacity is ~1.3 million barrels (combining tanks, line fill, and pipelines); bulk sale is a simple product transfer with no clawback provisions.
• David Beckelbaum (Stifel): Differentiated current walk-up pricing from expected term contract improvements; noted Q4 LOE will remain elevated due to Hondo commissioning costs before dropping in Q1.
• Leo Mariani (Roth): Confirmed the 20-30k bpd guidance excludes bulk sale proceeds; pricing differentials for Q4 likely to mirror Q3 (~$30) unless term contracts are finalized.
• Charles Meade (Johnson Rice): Validated that 31k bpd November guidance is based on Line 2000 availability; emphasized liquidity planning covers a $900k barrel revenue hole.
• Noel Parks (Tuohy Brothers): Highlighted potential for reserve base doubling to 30% recovery via gas injection strategy; noted ongoing legal appeals but strong federal support.
• Lloyd Byrne (Jefferies): Confirmed Platform Hondo technical testing is complete; no further MMA hurdles expected before November restart.

Other Key Points:

• The company is actively exploring the use of a $100 million unsecured loan basket permitted under the senior secured term loan agreement as a secondary liquidity source.
• A third liquidity option discussed is a PIPE (Private Investment in Public Equity) offering if the bulk sale and credit facilities are insufficient.
• Third-party reserve audits by Netherland, Sewell & Associates are targeted for completion by the end of next year to reflect the new gas injection strategy.
• Sable is leveraging the Defense Production Act authorization to maintain operations and support the Strategic Barrel Reserve.