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

Explicit Guidance:

• Revenue & Volumes: Expects Q4 2026 gross sales volumes to reach 38,000–40,000 barrels per day, inclusive of a potential 1.3 million barrel bulk crude sale (which is excluded from the baseline 20,000–30,000 bpd guidance).
• Cash Requirements: Anticipates $110–120 million in quarterly cash spend (Opex, G&A, Capex) plus approximately $53 million in debt amortization/interest for Q4 2026, totaling $165–175 million in outflows prior to bulk sale proceeds.
• Liquidity Bridge: Projects to bridge a 900,000-barrel production deficit from October and Q4 operational costs via a combination of: (1) proceeds from the 1.3M barrel bulk sale (targeting $60M+), (2) utilization of a $100 million unsecured loan basket permitted under existing credit facilities, and (3) a potential PIPE offering if the first two options are insufficient.
• Free Cash Flow: Targets achieving free cash flow neutrality by Q1 2027, with potential positive generation thereafter as volumes stabilize and cost profiles normalize.

Business-Segment Outlook:

• Platform Hondo: Scheduled to restart production and begin flowing wells in late November 2026, with full ramp-up to 15 producing wells expected by December 2026. This is critical for year-end reserve reporting to secure 30 days of production credit.
• Production Volumes: Targeting 31,000 bpd sales in November 2026, ramping to 51,000 bpd in December 2026 (excluding bulk sale), driven by Line 2000 capacity (45k bpd) and Line M70 sales to PBF (potential 10k–15k bpd).
• Well Performance: "Harmony" and "Heritage" platforms showing no decline; "Perfads" averaging >700 bpd per curve ad. Hondo's 5 completed wells expected to contribute significantly to robust 2027 production.
• Storage & Logistics: Targeting 1.3 million barrels of total storage capacity utilization (Las Flores Canyon, Lime Fill, Pentland tanks, and pipeline space) to facilitate the bulk crude sale and manage the October production gap.

Market and Competitive Outlook:

• Refinery Relationships: Successfully executed sales agreements with three new Los Angeles refineries (totaling four active refiners), moving beyond the previous reliance on a single partner.
• Pricing & Differentials: November/December 2026 sales expected to reflect "walk-up" differentials similar to Q3 (~$30/bbl discount to Brent), with no immediate term-contract improvement anticipated. Management aims to negotiate longer-term contracts (6–12 months) in Q1 2027 to improve pricing differentials.
• Market Dynamics: Acknowledges a competitive heavy crude environment (Western Canada Select, Venezuelan crude) impacting differentials, positioning Sable as a "price taker" in the near term while focusing on volume security.

Macro / Industry Outlook:

• Strategic Petroleum Reserve (SPR): No new legislation required; relies on the 1975 Strategic Petroleum Reserve Act and current White House support (via Executive Action from DOE) to maintain the field's status as a national security asset.
• Regulatory Environment: Anticipates resolution of remaining legal disputes and regulatory "cleanup" (including Ninth Circuit appeals) by mid-2027. Continues to operate under Defense Production Act (DPA) authorization.
• Legislative Support: Monitoring the NDAA for potential legislative provisions beneficial to the field's long-term posture, with expectations for signing before year-end.

Strategic Initiatives:

• Reservoir Management: Implementing a gas injection strategy to maintain reservoir pressure, aiming to double oil recovery rates from 15% to 30% (vs. historical 15%) and reduce decline curves from 8% to 4%.
• Reserve Auditing: Targeting a full 3P reserve audit by Netherland, Sewell & Associates by the end of 2027, utilizing the upcoming 30-day production streak from Hondo for the year-end report.
• Liquidity Optimization: Actively utilizing ATM program in Q3; Q4 liquidity sources are prioritized in order: bulk sale, unsecured loan basket, then PIPE offering.

Risks and Headwinds to Outlook:

• Sales Execution: The 1.3 million barrel bulk sale remains unexecuted; failure to close this deal would necessitate greater reliance on the $100M loan basket or equity offerings.
• Regulatory Delays: Potential delays in Marine Minerals Administration (MMA) approvals for Hondo restart could push production into 2027, impacting the year-end reserve report and cash flow timing.
• Differentials: Persistent weak pricing due to oversupply in the Pacific Rim heavy crude market; potential for extended "walk-up" pricing before term contract advantages materialize.
• Midstream Constraints: Operational risks related to water handling and processing capacity at Las Flores Canyon; potential for forced curtailment if water production from Hondo wells exceeds processing limits.
• Legal Appeals: Ongoing appeals in the Ninth Circuit regarding FEMSA jurisdiction, though management views these as cleanup items rather than existential threats.

Management Tone on the Future:

• Confidence: Expresses "very encouraged" sentiment regarding SPR support and Hondo's restart, with a specific focus on the "structural" advantage of the Thanksgiving holiday period to accelerate regulatory approvals.
• Turnaround Narrative: Acknowledges past "cozy relationship" failures in sales but emphasizes a "balanced sales marketing strategy" and "strong 2027" outlook driven by fully ramped SYU production and optimized well performance.
• Transparency: Explicitly admits to the liquidity squeeze caused by October sales interruptions but frames current actions (bulk sale, loan basket) as a prudent path to stability, projecting a return to normalcy by Q1 2027.

Miscellaneous:

• Production Deficit: October revenue loss estimated at a 900,000-barrel deficit (approx. 160k sold vs. 1.3M target), which the bulk sale and financing options aim to fully replace.
• Geology Upside: Management notes that 11 years of shut-in and repressurization have created a unique scenario akin to "start[ing] over with almost a brand new oil field," offering significant upside potential beyond current production levels.