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

Explicit Guidance:

• Q4 2026 Sales Volumes: Base case guidance of 20,000–30,000 barrels per day (excluding bulk sale impact), with a potential ramp to 35,000–38,000 bpd if bulk sale executes, and up to 38,000–40,000 bpd including December ramp-up.
• Q4 2026 Revenue Deficit Plug: Company projects a 900,000-barrel production shortfall in October that must be covered by Q4 cash flows, bulk crude sales, and financing options.
• Q4 2026 Cash Spend: Anticipated cash outlays of $110–120 million for OpEx, G&A, and CapEx (excluding amortization/interest), totaling approximately $165–175 million when including ~$53 million in debt service.
• Q4 2026 Liquidity: Projected to bridge the cash gap via November revenue from ~31,000 bpd sales, a potential bulk sale of 1.3 million barrels, and backup liquidity options including a $100 million unsecured loan basket or a PIPE offering.
• 2027 Outlook: Management targets full production capability for the Santa Ynez Unit (SYU) in 2027, anticipating a transition to free cash flow generation and free cash neutrality.

Business-Segment Outlook:

• Santa Ynez Unit (SYU) Production: Expects 15 producing wells on the Hondo platform to resume production in December following November commissioning; aims for 30 days of continuous production by year-end to optimize year-end reserve reporting.
• Production Rates: Projecting base oil decline rates to improve from current 8% to a long-term target of 4% due to gas repressurization strategies; expects ultimate oil recovery to double from the current 15% to approximately 30%.
• Well Portfolio: Targeting 92+ wells on production with "high divisible rates" in 2027; Harmony and Heritage platforms currently outperforming with stable oil rates and minimal decline.
• Sales Mix & Pricing: Strategy involves diversifying refiner relationships from one primary buyer to four (including three new refineries like Marathon, PBF, and others); currently operating with "walk-up" differentials in Nov/Dec but targeting longer-term contracts (6–12 months) to improve pricing in 2027.
• Inventory Management: Marketing 1.3 million barrels of bulk crude inventory (covering Oct deficit and existing storage at Las Flores Canyon, Lime Filler, and Pentland) for a lump-sum sale in November/December.

Market and Competitive Outlook:

• Pricing Environment: Operating as a "price taker" in the current heavy crude market due to ample supply (Venezuelan crude, Western Canada Select); expects to focus on volume stabilization in H2 2026 before aggressively pursuing differential improvements in 2027.
• Refinery Dynamics: Successfully secured sales agreements with three additional Los Angeles refineries; these customers are expected to digest ~15,000–20,000 bpd per refiner once long-term contracts are finalized.
• Market Share: SYU currently accounts for 22–25% of California's total in-state oil consumption (72 million cars); maintaining strategic importance to US energy security under the Defense Production Act.

Macro / Industry Outlook:

• Regulatory & Legal: Anticipates completion of regulatory "cleanup" with the Department of Transportation, PHMSA, and DOE by early 2027; currently pending appeals in the Ninth Circuit regarding FEMSA pipeline jurisdiction, with management viewing these as non-obstructive.
• Strategic Petroleum Reserve (SPR): No new legislation required for SPR access; relies on executive action from the Department of Energy (DOE) and continued White House support, with potential legislative enhancements via the National Defense Authorization Act (NDAA).
• Strategic Positioning: Asset viewed as a cornerstone for US force projection in the Pacific theater; management expects enduring political support due to energy security imperatives.

Strategic Initiatives:

• Hondo Platform Restart: Completion of internal operational commissions and MMS (Marine Minerals Administration) paperwork in Q3; scheduled to resume production in November and flow all 15 wells in December.
• Gas Injection Strategy: Implementation of gas injection to maintain reservoir pressure, shifting field management from "selling gas" to "producing oil," with third-party engineers (Netherland & Sewell) auditing 3P reserves by end of 2027.
• Refinery Diversification: Executing a transition from a single-refiner dependency to a balanced portfolio across four LA refineries to mitigate off-take risk.
• Liquidity Optimization: Execution of refinancing (Term Loan B) in Q3 to deleverage; utilizing ATM program in Q3 for working capital (no usage anticipated in Q4); holding a $100M unsecured credit basket and PIPE option as contingency liquidity.
• Bulk Sale Transaction: Structuring a back-to-back trade where a third-party purchaser buys 1.3M barrels and resells to refiners; J.P. Morgan has approved the loan leasing for this transaction.

Risks and Headwinds to Outlook:

• Execution Delays: Potential for multi-week delays in Hondo restart if valve replacements are required during MMA safety inspections.
• Market Volatility: Heavy crude differentials remain under pressure from global oversupply; no guaranteed pricing improvement in Q4 2026.
• Operational Capacity: Risk of overloading the Las Flores Canyon processing facility regarding water handling as production ramps from Hondo.
• Legal Uncertainty: Continued appellate process in the Ninth Circuit regarding pipeline jurisdiction, though management does not anticipate blocking orders.
• Liquidity Constraints: Failure to execute the bulk sale or secure alternative financing could necessitate the PIPE offering or unsecured loan drawdown to cover the Q4 cash deficit.
• Refinery Constraints: Past issues with refiner tank upgrades and off-take reliability (October shutdown) highlight ongoing friction in the distribution channel.

Management Tone on the Future:

• Confidence: High confidence in the geological upside (recovery rates doubling) and the ability to generate robust production in 2027.
• Cautious Optimism on Pricing: Explicitly states the current market requires being a "price taker" and acknowledges the "tightness" of the heavy crude environment, prioritizing volume execution over immediate margin expansion.
• Defensive Posture: Acknowledges past marketing missteps but expresses strong resolve to fix liquidity "one way or another" before entering Q1 2027.
• Strategic Patience: Willing to wait out November/December to secure a better market entry in December and focus on 2027 for "outstanding" performance.

Miscellaneous:

• Reserve Reporting: Targeting 30 days of production from Hondo by year-end to ensure third-party engineers (Netherland & Sewell) can credit the production for the year-end reserve report.
• Capital Structure: Currently utilizing a mix of cash on hand (~$38M), November revenue, and potential bulk sale proceeds to meet Q4 obligations; unsecured loan and PIPE are backup tiers.
• Operational Efficiency: Expecting Q4 LOE (Lease Operating Expenses) to be higher than Q3 due to Hondo commissioning costs, with normalization expected in Q1 2027.