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

Financial Performance:

• Achieved 13% quarter-over-quarter revenue growth in Q3 2026, marking the second full quarter of revenue recognition.
• Completed debt refinancing in Q3 and initiated amortization on Term Loan B to begin deleveraging.
• Q3 liquidity was constrained by downstream marketing bottlenecks, necessitating a temporary ATM program deployment to bolster working capital; no ATM usage is permitted for Q4 commentary.
• Projected Q4 cash spend (OpEx, G&A, CapEx) between $110M–$120M, plus ~$53M for interest/amortization, totaling $165M–$175M; current cash balance is ~$38M.
• Aiming to bridge a ~$900K barrel revenue deficit from October using proceeds from a bulk crude sale (~1.3M barrels), potential $100M unsecured loan basket, or a PIPE offering.

Guidance and Future Outlook:

• Guidance for H2 2026 sales revised to 20,000–30,000 barrels per day (excluding bulk sale impact); with bulk sale and December ramp, Q4 could reach 38,000–40,000 bbl/day.
• Targeting November sales of ~31,000 bbl/day, ramping to ~51,000 bbl/day in December.
• Q4 2026 LOEs expected to be elevated due to Platform Hondo commissioning, with costs normalizing in Q1 2027.
• Expects 2027 to feature full SYU field production, potentially doubling oil recovery rates (15% to 30%) and reducing decline rates from 8% to 4%.
• Anticipates achieving free cash flow neutrality in Q1 2027, with upside potential as production volumes stabilize and differential contracts are secured.

Business Segments and Product Lines:

• Santa Ynez Unit (SYU): Sales resumed with all four LA refineries after a mid-October supply interruption; volumes increasing as refineries optimize refining capabilities for Sable crude.
• Bulk Sale: Marketing 1.3M barrels of stored crude (La Flores Canyon, Lime Hills, Pentland, pipelines) in November to a third-party purchaser for immediate delivery to LA refiners.
• Platform Operations: Platform Harmony and Heritage outperforming with stable production; Platform Hondo completed internal commissioning, with final regulatory filings submitted to the Marine Minerals Agency (MMA) for a November restart and December flow initiation (15 wells).
• Per FAD Operations: Continuing to exceed expectations with average production rates over 700 bbl/curve/foot.
• Gas Strategy: Shifting focus to oil maximization by retaining reservoir pressure (no gas sales), aiming to double ultimate recovery.

Market and Competitive Landscape:

• Secured agreements with three new refiners (e.g., Marathon) alongside Chevron and PBF to diversify off-take beyond the initial single-refiner reliance.
• Market context involves heavy crude oversupply (Western Canada Select, Venezuela) pressuring differentials; management expects "walk-up" differentials in Nov/Dec with potential improvement via longer-term term contracts in 2027.
• Strategic Petroleum Reserve (SPR): No new legislation required; reliance on Executive Action from the DOE and Defense Production Act (DPA) authorization; management reports continued White House support.

Risks and Challenges:

• Liquidity Pressure: Significant near-term cash outflow to cover the October sales deficit ($900K barrels) before bulk sale proceeds or credit facilities mature.
• Takeaway Constraints: Recent marketing disruptions caused by refinery infrastructure issues and regulatory delays; management emphasizes the risk of relying on a single off-taker.
• Regulatory/Legal: Pending appeals in Ninth Circuit regarding FEMSA jurisdiction; management views these as cleanup matters expected to conclude by mid-2027, with no current obstacles to operations.
• Market Volatility: Pricing remains at a discount relative to Brent; management acknowledges being a "price taker" in the current heavy crude market.

Management Commentary and Tone:

• Tone is confident and transparent regarding operational progress (Hondo restart, well performance) but candid about the temporary liquidity squeeze and marketing friction.
• Management emphasizes "prudent" liquidity management and a multi-option approach (bulk sale, credit, equity) to navigate Q4 without operational disruption.
• Reiterates the strategic importance of the SYU asset to California fuel security (22-25% of state needs) and US national defense.

Analyst Questions and Answers:

• Liquidity & Bulk Sale: Confirmed 1.3M barrel total capacity in storage/tanks/pipeline; sale is a back-to-back transfer with title passing to the buyer; proceeds used to plug the October revenue gap.
• Production Ramp: Hondo flow expected the week after Thanksgiving; full December ramp to 45,000 bbl/day via Line 2000, with potential additional 10-15k via M70 to PBF.
• Reserves: Current reserve reporting based on 15% recovery; internal studies project 30% recovery with gas reinjection, to be verified by third-party engineers (Netherland & Sewell) in next year's report.
• Differentials: November/December differentials expected to remain flat or slightly variable vs. Q3 (~$30 range); upside anticipated only upon execution of 6-12 month term contracts in 2027.

Other Key Points:

• Legal Wins: Management highlighted that they have won most material lawsuits and are in the appeal phase for a few, viewing them as procedural cleanups rather than existential threats.
• Operational Efficiency: Platform Hondo reconstruction focused on modern safety standards; wells are outperforming with minimal water production, simplifying processing requirements at La Flores Canyon.
• Strategic Pivot: Explicit shift from gas sales to oil maximization to leverage repressurized reservoirs, similar to strategies at Prudhoe Bay and Ghawar.