SABLE OFFSHORE CORP. 3Q 2026 EARNINGS CALL - SABLE OFFSHORE CORP

Financial Performance:

• Third quarter 2026 marked the second full quarter of oil sales, with volume sold increasing nearly 30% quarter-over-quarter.
• Revenue grew 13% sequentially, though Q3 liquidity was impacted by downstream constraints, necessitating the use of the ATM program to bolster working capital.
• The company completed a refinancing in early Q3, initiating deleveraging with the first amortization payment on the Term Loan B at quarter-end.
• Q4 projected cash spend (OpEx, G&A, CapEx) is estimated at $110–120 million, excluding ~$53 million in interest and amortization, totaling ~$165–175 million.
• A "hole" in revenue forecast of 900,000 barrels from October sales is being addressed via potential bulk crude sales, a $100 million unsecured loan basket, or a PIPE offering.

Guidance and Future Outlook:

• Guidance for Q4 2026 sales remains 20,000–30,000 barrels per day (excluding potential bulk sale proceeds).
• Management anticipates a sales ramp to 31,000 bpd in November, potentially reaching 38,000–40,000 bpd in December as Platform Hondo ramps up.
• Long-term production outlook for 2027 is strong, with the Santa Ynez Unit (SYU) expected to be on full production; 92 wells are on or moving to production.
• Management projects recovery rates could double from 15% to 30% by maintaining reservoir pressure via gas injection, potentially resulting in a 4% decline rate vs. the current 8%.
• Full third-party 3P reserve audits by Netherland, Sewell & Associates are targeted for completion by the end of 2027.

Business Segments and Product Lines:

• Santa Ynez Unit (SYU): Harmony and Heritage platforms are outperforming with minimal production decline; Platform Hondo underwent reconstruction and commissioning in Q3.
• Platform Hondo: Final paperwork submitted to the Marine Minerals Administration (MMA); production restart is scheduled for November, with full ramp-up and 15 wells flowing expected in December.
• Production Mix: Management will prioritize wells with higher oil cuts to manage water handling at the Los Flores Canyon facility, potentially shifting focus from Tejando wells as Hondo comes online.
• Inventory Management: Marketing of 1.3 million barrels of stored inventory (covering Oct production deficit) is underway with multiple purchasers.

Market and Competitive Landscape:

• Sales have expanded to all four refineries in the Los Angeles market after initial off-take disruptions; new agreements signed with three additional refiners (including Marathon).
• Current differentials remain in the $30 range ("zip code"), with no immediate improvement expected in Q4, though management targets better terms via long-term contracts in H1 2027.
• The market faces heavy crude competition from Western Canada Select and Venezuelan crude, keeping Sable as a price taker in the short term.
• The California Strategic Petroleum Reserve (SPR) remains a strategic priority, with support from the White House and potential legislative backing via the NDAA.

Risks and Challenges:

• Liquidity Constraints: A significant revenue deficit due to October sales interruptions requires immediate financing via bulk sales, debt drawdowns, or equity issuance.
• Regulatory & Legal: Pending appeals in the Ninth Circuit regarding jurisdiction and ongoing regulatory approvals for Hondo; cleanup of legal issues expected by mid-2027.
• Midstream Constraints: Dependence on pipeline capacity (Line 2,000) and storage facilities; risks associated with refinery tank upgrades and blending capabilities.
• Operational: Managing increased water production and ensuring processing facilities do not become overloaded during Hondo ramp-up.

Management Commentary and Tone:

• Tone is confident regarding long-term asset value and production potential but pragmatic about near-term market headwinds and liquidity management.
• CEO Jim Flores emphasized that the company "has not seen the best of this field yet" regarding reservoir pressure and recovery rates.
• Management expressed apologetic sentiment for the October sales disruption but highlighted a "balanced sales marketing strategy" moving forward to avoid single-point failures.
• CFO Gregory Patronelli detailed a clear liquidity waterfall plan prioritizing bulk sales, followed by the unsecured credit line, then a PIPE offering if necessary.

Analyst Questions and Answers:

• Neil Dingman (William Blair): Asked about Hondo timing and SPR politics; Management confirmed November flowing/December ramp-up and affirmed strong DOE/White House support for SPR inclusion without new legislation.
• Michael Furrow (Pickering Energy Partners): Inquired about liquidity and the 1.3M barrel bulk sale; Management clarified total storage capacity (1.3M+ barrels) and confirmed the sale is a standard transfer of product title with lender (JP Morgan) approval.
• David Beckelbaum (Stifel): Asked about volume guidance and LOE costs; Management noted Q4 LOEs will be elevated due to Hondo commissioning but will normalize in Q1 2027, with a focus on hitting mid-30s gross volumes for FCF neutrality.
• Leo Mariani (Roth): Questioned the wide sales guidance range; Management confirmed the 20k-30k guidance excludes the bulk sale and midstream constraints, with potential to reach 38k-40k bpd in Q4 including the ramp.
• Charles Meade (Johnson Rice): Asked about sales mix and covenants; Management clarified sales vary daily based on pipeline schedule and reaffirmed liquidity needs are strictly operational cash burn.
• Noel Parks (Tuohy Brothers): Requested context on production vs. logistics risks; Management highlighted the field's "repressurized" state and strategic importance to US energy security.
• Lloyd Byrne (Jefferies): Asked about remaining MMA hurdles for Hondo; Management stated all technical testing is complete and expects approval before year-end due to Thanksgiving holiday timing.

Other Key Points:

• The bulk crude sale involves a "back-to-back" transaction where third-party purchasers buy and resell to LA refineries, eliminating the need for Sable to manage the downstream sale of that specific inventory.
• Sable has a $100 million unsecured loan basket available under the senior secured term loan agreement and is exploring a PIPE as a contingency.
• The company is operating under the Defense Production Act (DPA) authorization, reinforcing its status as a cornerstone of US force projection.
• Management is actively pursuing term contracts with new refiners to improve pricing differentials beyond current walk-up rates.
• All four refineries are currently accepting Sable crude, marking a resolution to the October off-take bottleneck.