Sable Offshore Corp. (SOC) Q2 2026 Earnings Call Transcript

Hello, and welcome to the Sable Offshore Corp 2Q2026 Earnings Call. All participants will be in listen only during the prepared remarks. We will then go into a Q&A session. Also, as a reminder, this conference is being recorded today. If you have any objections, please disconnect at this time. Harrison Brough, you may begin.

Thank you, Alice. Good morning, everyone. and welcome to our second quarter 2026 earnings conference call. Joining me today to discuss our results are Jim Flores, Chairman and Chief Executive Officer, Caldwell Flores, President and Chief Operating Officer, Gregory Patronelli, Executive Vice President and Chief Financial Officer, and Anthony Dunner, Executive Vice President, General Counsel, and Secretary, as well as various other members of the SABL team. Please refer to our website to download a copy of our new investor presentation posted yesterday as well as our recently filed financial statements which will both be discussed today. We will actively display the presentation on this webcast and reference certain items by page number and then proceed to Q&A. We will also be making statements during this call that are forward-looking. These statements are based on current expectations and assumptions and are subject to risk and uncertainties. Actual results could differ materially from those described in the forward-looking statements because of factors discussed in our earnings release, in our investor presentation, in the comments made during this conference call in our most recent Form 10K, Forms 10Q, and other reports and filings with the SEC. We do not undertake any duty to update any forward-looking statements. With that, I will turn it over to Jim Flores to begin going through the investor presentation. Jim?

Thanks, Harrison, and good morning, everyone. As promised, we said we'd have a conference call at some point. The summary stuff you've seen before, but page four is it is the milestones achieved the next steps and we've listed them all since 25 and then the three updated ones restarted production of platform heritage in april 26 refinance the senior security 26 and commit commodity hedging program july 26. the next steps are restart production platform hondo which is expected at the end of september 26. so we get a full fourth quarter and establish full 3p reserve report expected first quarter 27 and then we refinance the senior secure term B note and convertible senior unsecured notes and potentially install a unit and continue to legally protect Sable's vested interests and pursue all monetary damages those are five big models of the next 12 months to achieve those on page you know we have obviously today the second quarter 20 to 40,000 barrels a day it represents a huge growth into what We're kicked off to mitigate water influx and as efficiently as possible. And we're working feverishly on a platform, a high-year-old platform. We're in bad need, but we're doing great work there. We've got a great team. And then we're working with our team and our team, of course. We'll continue to update that as good, but there's no update today. on the finance side we we completed the refinancing of July 2nd 2026 proceeds retire the former Exxon Mobil senior term though that's really key because they a lot of restrictions Exxon Mobil senior term note that we are we current financial structure it's not optimal for us at this point but it was a big big step for us and the commodity hedging program one of the things we put more protection for significant portion of our production this case will all the volatility goes the wrong direction, we'll be protected. And then we'll look at further balance sheet optimization in terms of us out there. And on page four, Gregory, I'm going to turn it over to you and let you take us through the financing overview we did in a couple other financial slots.

Yeah, sure. Thanks, Jim. So page six, the refinancing overview, like Jim just mentioned, we completed our bridge refinancing in early July that fully satisfied and took out the ExxonMobil seller financing the prior senior secured term loan. We did so with a series of transactions, $675 million senior secured term loan B. This term loan B has a maturity of December 15th, 2028 maturity this year, stepping up to 5% per quarter beginning in 2027. It also includes a seller rate that amortization depending on the prevailing commodity prices. It does have a 1.25 times MOIC to delever on the amortization front and the excess cash flow sweep front. When we achieve our additional milestones and get a full 3P reserve report, we will be on mobile, but we certainly have room to improve on the interest rate front, interest rate reduction. In addition to the $675 million senior secure term loan B, $45 million of convertible senior unsecured notes, 31 maturity, 6.5% coupon with a $4 per share initial conversion. price. So overall, we lowered our weighted average cost to debt, but we certainly have a room to improve and looking forward to further optimizing the balance sheet. In conjunction with zero borrowing base, $500 million revolving credit facility, that hedging program will fulfill our obligations under the term LundD, meet those minimum hedging requirements by hedging 100% of our Netherlands tool projected to hedge beyond those minimums. and we're currently evaluating. Slide seven is a brief overview of guidance, which you mentioned. We do have slightly elevated in GP&T here for the back half of 26. We'll get into why we think these issues will be alleviated here in the near term, but it's part and parcel of the California energy market with all the regulatory headwinds. Our capital structure, as we illustrated on the prior page, an enterprise value of $1.9 billion, equity value of $911 million at $4.75% share price as of August 7th. Our financial objectives, as we mentioned, we fully plan to delever under the terms of the new Senior Secure Term Loan B and or refinance and take out that paper as soon as possible after we issue the full 3P reserve report where we get credit for all of the PDP reserves that we will bring online at Hondo here in September and also all of our PUD locations, which were not included in the prior interim. We'll continue to optimize the balance sheet with the phase two of our refinancing, lower our cost of debt, and increase our maturity runway beyond 2028. And we will certainly opportunistically manage the convertible notes to minimize any potential solution there. We have the ability to do that with cash. We'll progress our rating agency discussions in advance of this phase two global refinancing of the balance sheet and look forward to continuing those discussions as well. Long term, we still have a one-times net debt EBITDA leveraged target. We fully plan to hit that metric. Like I mentioned, we're going to advance the hedging strategy by adding additional floor pricing protection likely in the sixty five to seventy dollar barrel range to protect the downside relative to our current our current bonds and and then long-term post refinancing we plan to implement our shareholder return program and focus on reducing the share account with share repurchases and instituting a dividend of you for our unlevered free kings we're basically walking through and doing a little bit of math math for you here which leads into the following slide and the value proposition that Sable Offshore creates with the free day. So even with all of the marketing and crude quality constraints, near-term constraints, we're still projected to generate a midpoint of $152 million of unlevered free cash flow for the back half of 2026. And into 2027, based on a Brent oil price of $75 a barrel, we're projected to generate over $500 million of unlevered free cash. We believe that the current trading valuation of Sable doesn't fully reflect the projected earnings power, the cash flow profile, and the capital allocation of the company. And we think this analysis on slide nine illustrates that. When you take a look at our levered free cash flow per share on the top left here, a 2027 leveraged free cash flow per share of $2.19. When you compare that to our pure free cash flow yield of relatively 14%, it's implying a share price of over $15 a share. And that represents a 220% premium to our share price as of August 7th. So we think on a basic outstanding share count basis and even on a fully diluted share count basis, which includes all of the potential from the convertible nuts, which we believe would be unrealistic, you still have 125% to today's price. So we think the value proposition on our shares is real, and we look forward to that. Because remember, restarting an asset of this quality and in this scale, the toughest part is right now we're on the advancing on July. For the third quarter, 26, we've got 6,000 barrels a day. in the fourth quarter, all with $65 floor pricing. This year, our ceiling is about $80,000. $27,000, $25,000 a day, and in 2028, we're required to layer in that 100% of PDP volumes per the term loan through maturity. We think they give us solid floor pricing protection to the downside, but also allow us to participate.

The midstream of rent crude marketing overview on page 11 is a lot of moving parts here with the California market but more importantly for us that's why you we don't have platform hondo on which is our easternmost platform if you look at the field from west to east the higher sulfur content to the west and the lower cut all the wells on to mitigate most of the sulfur deducts that we had got hit with here in the second quarter and we'll also be dealing with and really appreciate all the refiners working with us because of the the magnitude of the flow a lot of movements around there and Chevron's been over backwards trying to help us get all the plans. We have a plan to de-bottleneck that with Chevron starting in September, as well as two other refineries that are in the Los Angeles refining basin going through the Plains Line 2000. Additionally, there's additional pipelines that we're looking at going north. Now the San Pablo Bay pipeline looks like it's going to be in service. Thanks to California resources we look at being a third as another outlet for excess crude we've got to solve those problems those situations as many multiple out and then finally we're potential safety valve to make sure we had we have the best marketing for you so all that's in progress I'm working hard on it and so forth and we feel like during the third quarters we've kind of low point on the marketing all the all the demurrage charges and things of that nature and then fourth quarter fourth quarter one we should be to be improving it's only going into 27 that same thing we're hearing from our refining partners as well on page 12 i mentioned mentioned the buoy we're sitting off a platform harmony this is more you can see that the aspect it gives gives a lot of flexibility uh onshore market if we you know if if we have to and and give us a better marketing opportunities here with waterborne crude and the captured uh captured california market page 13 is just remind everybody This asset the asset has not changed prices have changed marketing has changed legal change, but this is not change Sandy it has unit so the number one They don't estimate recover reserves and in cumulative productions it writes number four and page 14 is our total reserves out here We've got a tremendous reservoir That's that is only had 25% of the 671 million barrels or 4.3 of the total barrels produced at date And we think we have about 10% remaining barrels, about double that amount, which gets up to about a billion 517, which will forecast below 13 gravity oil, 9 to 13 gravity, another 618 million barrels. We have a lot of oil to get out of the ground. We're glad we're getting started finally on it. Well, page 15 is our operating development plan going forward. You see it's very light on capital because of all the wireline work and so forth. Caldwell and his team commits the wireline work where we're doing a lot of water mitigation on Harmony and Heritage, some wells with a high water cut. We're either sliding sleeves on them, putting through tubing plugs, trying to shut off some of the water from the lowest zone and allow the upper zone oil to flow better. We're in the middle of that program and look for some really good results and also help relieve a lot of our handling capacity issues because of all so we get 100% of the wells on production by the fourth quarter because of pump size at Heritage and also we're not making enough gas at Harmony and Heritage to run all the compressors we have to get all the wells on so we shut off some of the water then we'll have room for these wells to bring on more gas to get all the compressors on and with the new pumps to be able to pump it out so the field is coming on spectacularly. We're still seeing no decline in our production volumes. The wells are very strong and so forth. It's just getting consistent topside and unrestrained topside throughput, which is the main goal going forward. On page 16, we talked about the previous perf ads and so forth that we've done at about 600 barrels a day per perf ad, and we've got several of those planned for Torrey just in the 500 meter barrel oil fields sitting on top each other's three of them with the upper solicitors the massive church and the next toward the drill and the page 19 you see the investment highlights you know the transition of federal oversight successfully with prime for low-cost production growth so forth we have a control our costs you can see that in what our capex looks like going forward and their ability to maintain production if not grow it here in the near term we have a large development inventory. Once we get our marketing de-bottled decks and so forth, we'll be looking at putting some rigs out there and be able to develop that with our large production base, shallow decline. Therefore, our maintenance capex is very low, high operational control. We know 100% and control and operate everything. Our food sales to Brent, we're in the discounts. Our safety and stewardship is natural policy by advertising our debt until we... else is in the in the appendix uh happy to take questions uh harris i'll turn it over to you guys and we'll get some questions sure thank you jim at this time we will now answer questions from analysts please use the raise hand feature in the webcast i'll pause a moment while the queue forms alice thank you please proceed with q a thanks harrison as a reminder at this time if you would

like to ask a question please click on the raise hand button which can be found on the black bar at the bottom of your screen. When it is your turn you'll receive a message on your screen from the host allowing you to talk and then you will hear your name called. Please accept, unmute your audio and ask your question. We will wait one moment to allow the queue to form. Our first question will come from Lloyd Burnett Jeffries. Please unmute your line and ask a question.

Hey, good morning. Thank you for all the information, guys. Can you just walk through the discounts a little bit more and then what happens when what the discount looks like when you can blend the sulfur? And then maybe Jim also, what are the other options for lowering that discount going forward? And does Does the SPR play into that? Just how do we think about those on a going concern basis? And I have one quick follow-up.

Well, I think you're in the second and third quarter. Those costs are going to be pretty steady. And also the software, get the dollars a barrel, it's going to be market-driven because you've got $3 of transportation and $17 worth of gifts at the refinery. We're going to continue to work with the refinery. But we're not forecasting any change at this point.

And then, can you just talk a little bit about what 28's capital program looks like? I mean, obviously, you lowered the capital spent this year, and then raised it a little bit in 27. How does 28 look, and kind of the trajectory going forward there?

It's page 15. Assuming it's the debt, page 15, the 28 capital looks a lot like 20.

That'd be a good reason to do it.

Also, we have a carve-out of $150 million for a buoy if we get in position.

Awesome. Thank you, guys.

Our next question comes from Michael Furrow at Pickering Energy Partners. You may now unmute your audio and ask your question.

Good morning to the stable team. Can you hear me okay? Great. All right. Thanks for the confirmation. Look, I think it's safe to say it's been a pretty eventful second quarter. Maybe we can just start with the production ramp. We recognize there's no guidebook to restarting an asset like the Santinez unit. And this is the first for the Sable team as well. But the production ramp does seem to be going a little slower than expectations, at least versus our expectations. So I think what we and others would like is just more confirmation and clarity on what the economics and cash flows are going to look like when the asset reaches its plateau. We appreciate the guidance update and we can kind of piece through the math. But, you know, just how confident are you in achieving the run rate operating costs of roughly $160 and $190 million next year after operating costs were nearly $95 million before considering the demerits charges in 2Q? And maybe it's just something as simple as having fewer employees and less work on the platforms once reaching a steady state. So anything you could provide detail-wise on the operations that would increase confidence in margin guidance going forward would be helpful.

Yeah, Michael, great question. And I think that's part of it. So I have the ability in the short term, as in the next several weeks to months, or month by September, we feel like between our ability to produce barrels and our ability to sell the barrels that we produce. That's one thing. The second item is on the operating costs front. Remember, we have a tremendous amount of contract labor, and what we're projecting here is we come in. And so I would say what 27 doesn't include, more in marketing optionality, any type of additional marketing leverage doesn't include for content, which, you know, right now we think could potentially for every dollar you spend on the chemical could yield a reduction between our June guidance and now here in August. We've deferred any and all capital that's not related to producing and selling more barrels are restarted at platform.

Right, Gregory. And I just add a little bit more to that, you know, the aspect of unintended consequences with the volume of the wells, you know, basically double than what we expect and so forth. It's overrun some of the pump capacity of the platforms. We've got new pumps on order to increase that. These are all great problems to have. But at the same point in time, you can't get all the wells on that you want because you can't handle all the production through the pipeline. So we're going through that whole process. And, you know, there's also another constraint we have is it's a lot more oil than gas. Getting all the compressors for the gas lift. We're working through all those and there's solutions for it all. But it's it's it's these are all great problems to have. And that's why we point everybody during the financing to the fourth quarter of this year will be up. Well, all our marketing bottlenecks will be would be behind us. We already got what we're saying about fourth quarter. And then all our production will be unconstrained and so forth. And we'll probably have some wireline results as well from there. So we're like everybody else. It's going to be a long, hot summer the rest of summer. But we're looking at the fourth quarter and certainly into 27, really being able to show the asset we have.

All right, that's great. I appreciate the clarification and detailed response. Maybe we can just follow up on that point in the waterborne marketing angle, Gregory. When do you think the company would be in a position to move forward with that decision to install a sales buoy? I understand it's maybe a bit premature to discuss, but ultimately you want to try to avoid moving forward with that capital spend if the mainstream constraints are going to alleviate themselves. Of course, there's other considerations going down that route. So what market signals are you looking for in the next six months? And when do you think you would need to make the decision to move forward with the buoy path for a year and 28 installation? it's really regulatory the market signal line we're right on that schedule all right thanks

for your time our next question comes from leo mariani at roth you may now unmute your audio and ask your question yeah good morning here guys um why don't you just follow up on where do you think things stand uh these days with the potential uh spr uh declaration uh in california Is that something you think is moving forward at a good pace here?

Yeah, Leo, I think it's getting wide. SIPA came out with a big 12-pacer, deep bottlenecks the whole.

Okay, appreciate that. And then also wanted to just touch base on this $500 million kind of no-boring base, working capital, you know, I guess facility you put in place for the hedging. Do you see potential for there eventually to be some boring base and some ability for Sable to draw on that? Is that something that's restricted until perhaps you guys can, you know, refinance the existing term loan and or the convert? Just trying to get a sense of when you might be able to get more of a regular way, you know, sort of a working capital facility.

Yeah, Leo, this is Gregory. Great, great question. I think the way to think about, you know, increasing the borrowing base would be post, you know, pay down of the term loan, the new senior secured term loan deed. So we hope to, you know, de-lever as quickly as possible and refinance and take that out, open up the borrowing capacity. And also, once we bring Platform Hondo online, like I mentioned, we'll get additional PDP credit and then our PUD credit as well with the development program that we have once the term loan de-capital governors are alleviated.

Okay, appreciate that. And I guess just on the more fulsome refi in 2027, which you guys certainly spoke to post the reserve report here, can you maybe give us a little bit more color on kind of what the current thinking would be after that happens, if it's all successful in terms of trying to return capital to shareholders? Do you guys kind of try to get a buyback going first, then maybe a dividend comes down the road if you guys are able to reduce the share count? Just want to get kind of management's current thinking on how that could proceed.

Yeah, all of the above. The aspect, I think, initially would be some type of dividend, and then depending on what oil prices are, we're thinking at this point in time. But right now, it's getting our balance sheet in good shape, and that's why amortizing the debt with the cash flows is successful at this point in time. We've got the real capital light program to keep our production maintained and so forth, and all the improvements are within our control. So I think next year or two is making sure that we're getting the balance sheet in a regular way situation where we can have those options. But right now, there's obviously going to be no cash leaving the system until we get the balance sheet under control.

Okay, thank you, guys.

Our last question comes from Charles Mead at Johnson Rice. You may now unmute your audio and ask your question.

Good morning, Jim and Gregory and to the rest of the SABL team there. Jim, I'd like to go back to Leo's question on the SDR. If I heard you correctly, you said you expect some kind of resolution this fall on that and that you've got some enthusiasm not just from other producers but also from pipeline and refinery operators in California. what uh solution that you're looking for uh what form is that going to take it has there been any evolution um either on your side or on the government side of what of you know what the uh what the designation will look like in terms of you know assets for that sdr well charles you were breaking up and i think you're talking about what about the designation first person has to be

designated SPR and then with them then and then you have the power of condemnation by the Department of Energy that can condemn whatever acreage or whatever supporting the SPR so that's that gives a lot of flexibility plus also be able to connect pipes that are right now and officially not connected and be able to relieve a lot of marketing constraints for everybody so that it's got because you want to have as much oil going into the SPR as you want to have much oil going out of the SPR into the into the refinery so it It gives the federal government broad powers to make sure that the California energy sector will start being efficient and be able to maintain its current production levels and also, more importantly for us, that's the big thing is support the refineries that are there. Will that restart of Valero-Venicia? I don't know. There's a lot of entrepreneurs around here looking at it here in Houston and stuff. But, I mean, it could add refineries, but for sure, at least keep the ones that are there in business. And we've got broad support from that from everybody. I say we, the Department of Energy does, so hopefully we'll get that across the line sometime this fall.

Okay. Can you guys still hear me, or am I gone? Yeah, you're good now. You're better now. Great. Thank you. Jim, a follow-up question on the declines you're seeing, or maybe the lack of declines you're seeing. uh are you uh are you seeing any uh change in the uh in the flowing pressure of the wells and uh you know and i'm curious what impact you foresee this will have on your uh on your updated uh you know 3p report that's coming in and just i'm specifically wondering do you think that how much history are the reserve engineers going to want to see before they give you credit for a lower decline and are they going to give it to you just on the wells that you that you've been able to produce or do you think they're going to give it to you more on a field-wide basis yeah we float

all the wells uh to whether they'll be able to do it on a field-wide basis yeah i we're seeing we're seeing no decline in the field so it's a massive field but i'm sure we'll we'll uh we'll all coalesce around a six or seven percent field-wide decline uh going forward which is which has been this historical uh you know it's made 100 you know 671 million barrels with a seven percent decline you know eventually that that that will revert to that and that's that's that's where the physics is going to be we're certainly enjoying the production with with no decline rate but at some point in time and when when you get that pressure drop a little bit and the gr goes up we'll be making more gas got to run our compressors we'll actually build it effectively bring on more production as well as a week that have high water cut that we can't bring on right now because of the lack of gas so the field actually run a little better and probably we see a 10 to 15 percent increase in production volumes and also some gas sales at that point time so it's it and there's there's there's a pool whether it's going to be this year or next year whether the fields are declining, but it will at some point in time, so you can use that 7% field-wide decline, and that's what we've been steady in all of our projections. I think the Netherlands Sewell pre-production decline rates on their reports like 21% and 16% the first two years, which is just protection for everybody themselves, investors and so forth, and they fully recognize the way the field's performing and looking forward to make sure we all coalesce around that.

That's great detail. Thank you, Jim.

Our last question comes from Noel Parks at TUI Brothers Investment Research. You may now unmute your audio and ask your question.

Hi, good morning. I just wondered, with Platform Hondo, you mentioned that it's in a process of restoration. Could you just talk a bit more about what's entailed in that? And I don't know if any of it is in addition to what you originally anticipated the work is that you'd have to do?

Well, a 45-year-old platform, but probably about 50% more work than we expected. A lot of structural work that we didn't expect and so forth, that the platform was in dire need. It wasn't near in the good of shape as Harmony and Heritage. It's just older and maybe less maintained from that standpoint. So we've taken it upon ourselves to basically rebuild that platform in place, and we're going to have a first-class facility. It'll probably be the most sought-after site in the whole field. We'll have a new living course, new everything from a standpoint, but also the controls had to be completely changed out where the Harmony and Heritage control just had to be updated and so forth. So we've It's going to be a brand-new platform when we finish with it, and we're looking forward to that. Also, our gas sales go through that platform as well, so we had to make sure that was in good shape. The guys, again, have done a masterful job there. We've got so many people and contractors there. We're moving logistics and people from other platforms, staying at other platforms, so that platform can do work every day. So we continue to be safe and real impressed with the work that Caldwell and Trent and their group has done.

Great. Thanks. And I was thinking about in terms of geological work, sort of just what's, I guess, the first on the agenda for further testing of the upper salacious and sort of, you know, what's kind of the most economical way to go about that? I assume it's maybe recompletion, a poll, and, you know, what sort of cost, and would that be, and what sort of data are you looking for next there?

Yeah. Well, the upper solution is 27.

Great. Thanks a lot.

There are no further questions on the line. This concludes today's Q&A.

Thank you, everyone, for your participation in today's earnings call. We appreciate it. Goodbye