Sable Offshore Corp.
08/12/2025 | Press release | Distributed by Public on 08/12/2025 05:31
Quarterly Report for Quarter Ending June 30, 2025 (Form 10-Q)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unless otherwise indicated, references to "we", "us", "our", "Sable" or the "Company" in this Item 2 are to Sable Offshore Corp. (f/k/a Flame Acquisition Corp.) and its consolidated subsidiaries, following the Business Combination. References to "Flame" are to Flame Acquisition Corp. before the consummation of the Business Combination. References to the "Pipelines" are to Pipeline Segments 324/325 (formerly known as Pipeline Segments 901/903) and the other "324/325 Assets" (formally known as "901/903 Assets" and as defined in the Sable-EM Purchase Agreement). As a result of the closing of the Business Combination, which was accounted for as a forward merger in accordance with GAAP, the financial statements of Successor (as defined below) are now the financial statements of the Company. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes thereto included elsewhere in this Quarterly Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
Cautionary Note Regarding Forward-Looking Statements
The unaudited condensed consolidated financial statements include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "may," "should," "could," "would," "expect," "plan," "anticipate," "believe," "estimate," "continue," or the negative of such terms or other similar expressions. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the risk factors described in Part I, Item 1A "Risk Factors" included in our Annual Report on Form 10-K for the year ended December 31, 2024, and those described in our other SEC filings. The Company's securities filings can be accessed on the EDGAR section of the SEC's website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.
Overview
Sable Offshore Corp. is an independent oil and gas company headquartered in Houston, Texas. We were incorporated in Delaware on October 16, 2020 and, until February 14, 2024, were a blank check company formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. We are an emerging growth company and, as such, we are subject to all of the risks associated with emerging growth companies.
Business Combination
On November 1, 2022 (as amended on June 13, 2023 and December 15, 2023), Sable Offshore Corp., a Texas corporation ("SOC"), entered into a purchase and sale agreement (the "Sable-EM Purchase Agreement") with Exxon Mobil Corporation ("Exxon") and Mobil Pacific Pipeline Company ("MPPC," and together with Exxon, "EM") pursuant to which SOC agreed to acquire from EM certain assets constituting the Santa Ynez field in Federal waters offshore California ("SYU") and associated onshore processing and pipeline assets (such "Assets," as defined in the Sable-EM Purchase Agreement, collectively the "SYU Assets").
On November 2, 2022, Flame entered into an agreement and plan of merger, dated as of November 2, 2022 (as amended, the "Merger Agreement"), with SOC and Sable Offshore Holdings, LLC, a Delaware limited liability company and the parent company of SOC ("Holdco" and, together with SOC, "Legacy Sable"), which provided for the following transactions at the closing: (i) Holdco would merge with and into Flame, with Flame surviving such merger (the "Holdco Merger") and (ii) SOC would merge with and into Flame, with Flame surviving such merger (the "SOC Merger" and, together with the Holdco Merger, the "Mergers" and, along with the other transactions contemplated by the Merger Agreement, the "Business Combination").
On February 12, 2024, Flame held a special meeting of stockholders (the "Special Meeting"), at which the Flame stockholders considered and adopted, among other matters, a proposal to approve the Business Combination, including (a) adopting the Merger Agreement and (b) approving the other transactions contemplated by the Merger Agreement.
Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, following the Special Meeting, on February 14, 2024 (the "Closing Date"), the Business Combination was consummated (the "Closing"). In connection with the Business Combination, Flame changed its name to "Sable Offshore Corp."
First PIPE Investment
On February 14, 2024, in connection with the Business Combination, the Company issued 44,024,910 shares of Common Stock, at a price of $10.00 per share for aggregate gross proceeds of $440.2 million (the "First PIPE Investment"). The shares of Common Stock issued in the First PIPE Investment were offered in a private placement under the Securities Act of 1933, as amended (the "Securities Act"). Upon the closing of the Business Combination, an associated marketing fee and legal fees of approximately $22.9 million was paid in full, and was recognized as an offset to the proceeds from the First PIPE Investment.
Second PIPE Investment
On September 26, 2024, the Company issued 7,500,000 shares of Common Stock of the Company, at a price of $20.00 per share for aggregate gross proceeds of approximately $150.0 million (the "Second PIPE Investment"). The shares of Common Stock issued in the Second PIPE Investment were offered in a private placement under the Securities Act. An associated marketing fee and legal fees of approximately $7.8 million was recognized as an offset to the proceeds from the Second PIPE Investment.
Public Warrant Exercises
As of November 4, 2024 (the "Redemption Date"), approximately 99.8% of the Company's outstanding Public Warrants were exercised by the holders thereof to purchase fully paid and non-assessable shares of Common Stock at an exercise price of $11.50 per share. As a result, holders of the Public Warrants received an aggregate of 15,957,820 shares of the Company's Common Stock in exchange for $183.5 million in cash proceeds to the Company. All unexercised and outstanding Public Warrants as of 5:00 p.m. New York City time on the Redemption Date were redeemed at a price of $0.01 per Public Warrant and, as a result, no Public Warrants currently remain outstanding and the Public Warrants have ceased trading on the New York Stock Exchange. The private placement warrants and working capital warrants to purchase Common Stock that were issued under the Warrant Agreement and that are still held by the initial holders thereof or their permitted transferees were not subject to this redemption and remain outstanding.
2025 Offering
On May 21, 2025, the Company entered into an Underwriting Agreement (the "Underwriting Agreement") with J.P. Morgan Securities LLC, TD Securities (USA) LLC and Jefferies LLC, as representatives of the several underwriters (the "Underwriters"), relating to the underwritten offering of 8,695,654 shares of common stock, par value $0.0001 per share (the "Common Stock"), of the Company (the "2025 Offering"). Under the terms of the Underwriting Agreement, the Company granted the Underwriters a 30-day option to purchase up to 1,304,346 additional shares of Common Stock.
On May 23, 2025 the upsized underwritten public offering of 10,000,000 shares of Common Stock at the public offering price of $29.50 per share closed. Upon the closing of the 2025 Offering, associated marketing fees and legal fees of approximately $12.4 million were incurred, and were recognized as an offset to the proceeds from the 2025 Offering within Additional paid-in capital in the unaudited condensed consolidated balance sheet and statement of stockholders' equity (deficit)/net parent investment as of June 30, 2025. The Company intends to use the approximately $282.6 million of net proceeds from the 2025 Offering for capital expenditures, working capital purposes and general corporate purposes.
SYU Assets
Beginning in 1968 and over the course of 14 years, EM consolidated more than a dozen offshore federal oil leases and organized them into a streamlined production unit known as SYU. SYU consists of three offshore platforms and a wholly owned onshore processing facility located along the Gaviota Coast at Las Flores Canyon in Santa Barbara County, California. SYU's onshore facilities and the three offshore platforms remained in continuous operation until 2015. In May
2015, an onshore pipeline operated by Plains All American Pipeline, L.P. ("Plains") that transported produced oil from SYU experienced a leak. The SYU offshore platforms and facilities suspended production after the incident, the SYU Assets were shut in and the facilities were placed in a safe state. Prior to May 15, 2025, the offshore facilities had not produced oil and gas since May 2015; however, all equipment remained in place in an operation-ready state, requiring ongoing inspections, maintenance and surveillance. As part of these efforts, all equipment was drained, flushed and purged in 2016. All hydrocarbon pipelines within SYU were placed in a safe state and regularly monitored. In 2020, Plains entered into a Consent Decree, that provides a path for a potential restart of the Onshore Pipeline.
The discussion of the results of operations for the Predecessor periods below do not include the results from the Pipelines and the Pipelines are not included in the combined financial statements of the Predecessor included in the financial statements and related notes thereto included elsewhere in this Quarterly Report. Financial statements of the Pipelines have not been included because SEC guidance provides that the financial statements of recently acquired businesses such as the Pipelines need not be filed unless their omission would render Predecessors combined financial statements misleading or substantially incomplete. Based upon our quantitative and qualitative analysis, we do not believe omitting the financial statements of the Pipelines renders the Predecessor combined financial statements misleading or substantially incomplete. The Successor financial statements include the results from the Pipelines and the Pipelines are included in the unaudited condensed consolidated financial statements.
For the purposes of the unaudited condensed consolidated financial statements, periods on or before February 13, 2024 reflect the financial position, results of operations and cash flows of SYU prior to the Business Combination, referred to herein as the "Predecessor," and periods beginning on or after February 14, 2024 reflect the financial position, results of operations and cash flows of the Company as a result of the Business Combination, referred to herein as the "Successor."
Recent Events
Production Restart
On May 19, 2025, the Company announced that as of May 15, 2025, it had restarted production at SYU and begun flowing oil production from six wells at SYU's Platform Harmony to the Company's Las Flores Canyon ("LFC"). Additionally, on May 19, 2025 the Company also announced that with the completion of the Gaviota State Park anomaly repairs on the Las Flores Pipeline System (the "Onshore Pipeline") on May 18, 2025, the Company completed its anomaly repair program on the Onshore Pipeline as specified by the Consent Decree, the governing document for the restart and operations of the Onshore Pipeline.
Office of the State Fire Marshal
On December 17, 2024, the California Office of the State Fire Marshal ("OSFM") issued two "Letters of Decision" approving Sable's implementation of enhanced pipeline integrity standards for the Onshore Pipeline. In recognition of these robust measures, OSFM granted state waivers of certain regulatory requirements related to cathodic protection and seam weld corrosion for the Onshore Pipeline. The U.S. Department of Transportation Pipeline and Hazardous Materials Safety Administration ("PHMSA"), on February 11, 2025, delivered notices to OSFM that PHMSA does not object to OSFM's December 17, 2024 Letters of Decision approving the implementation of enhanced integrity standards for the Onshore Pipeline or OSFM's granting of state waivers of certain regulatory requirements related to cathodic protection and seam weld corrosion for the Onshore Pipeline.
On June 3, 2025, the Santa Barbara County Superior Court Judge presiding over the OSFM Lawsuits issued an order preventing OSFM from issuing any further authorizations for the Las Flores Pipeline System and preventing Sable from restarting the Las Flores Pipeline System until a hearing could be held on an order for OSFM to show cause why a preliminary injunction should not be issued. A hearing was held on July 18, 2025, and on July 29, 2025, the court entered an order granting petitioners' application for issuance of preliminary injunction in part, ruling that, absent further order of the court, Sable may restart the Las Flores Pipeline System ten (10) court days after Sable files notice that Sable has received all necessary approvals and permits for restart. The court clarified that Sable is not prevented from taking steps toward restarting the Las Flores Pipeline, and that the OSFM is not prevented from taking steps it finds appropriate in its regulatory capacity with respect to Sable's restart plans as contemplated by the federal consent decree.
Coastal Commission
On September 27, 2024, the Coastal Commission ("Commission") issued Notice of Violation No. V-9-24-0152 to the Company, which asserted that certain maintenance and repair activities undertaken by the Company on the Pipelines in the Coastal Zone to address identified anomalies and install safety valves constituted unpermitted development activities under the California Coastal Act (Cal. Pub. Res. Code Section 30000, et seq. (the "Coastal Act") and the County of Santa Barbara's ("County") Local Coastal Program ("LCP"). Sable undertook the subject repair and maintenance work, including the safety valve installation work, based on its understanding that no new coastal development permit or other Coastal Act authorization was required, consistent with the County's practice of authorizing certain repair work on the Pipelines since they were first permitted and built over 30 years ago, as well as the County's acknowledgement that it does not have permit authority or jurisdiction over the Company's installation of the new safety valves in the County along the Pipelines. Following good faith negotiations with Commission staff, on November 12, 2024, the Coastal Commission issued Executive Director Cease and Desist Order No. ED-24-CD-02 to the Company requiring the Company to, among other requirements, prepare and submit an Interim Restoration Plan and submit an application either to the Commission or the County to obtain a coastal development permit for the valve installation and other maintenance and repair work. In compliance with the Order, Sable prepared, submitted, and implemented the Interim Restoration Plan as approved by Commission staff. Sable separately submitted certain applications to the County related to some of the maintenance and repair work that was subject to Notice of Violation No. V-9-24-0152. The Order expired on February 10, 2025.
On February 12, 2025 the County Planning and Development Department delivered a letter to Sable confirming that certain pipeline repair work on the Pipelines was "authorized by the existing permits (Final Development Plan, Major Conditional Use Permit, and associated Coastal Development Permits) and was analyzed in the prior Environmental Impact Report/Environmental Impact Statement (EIR/EIS)." The letter states in part that "[t]he County previously exercised its authority under its Local Coastal Program and delegated Coastal Act authority in approving the permits and the requested anomaly repair work is within the scope of those approved permits." Sable subsequently recommenced the repair and maintenance activities which were subject to Notice of Violation V-9-24-0152.
Also on February 12, 2025, the County, acting under its certified Local Coastal Program authority under the Coastal Act, delivered a letter to the Commission. In this letter, the County states that the anomaly repair work as described in the attachments is "authorized by the existing permits (Final Development Plan, Major Conditional Use Permit, and associated Coastal Development Permits) and was analyzed in the prior Environmental Impact Report/Environmental Impact Statement. Thus, no further application to or action by the County is required."
On February 14, 2025, Sable submitted a written response to the Coastal Commission's Notice of Violation V-9-24-0152 detailing that, consistent with the County's letters, certain of the alleged unpermitted development subject to the Notice of Violation was previously approved and that no further coastal development permit is required.
On February 16, 2025, the Coastal Commission sent Sable a "Notice Prior to Issuance of Executive Director Cease and Desist Order" related to certain of Sable's Pipeline repair and maintenance activities and safety valve installation work. On February 17, 2025, Sable replied to the Coastal Commission with a letter stating that the "Coastal Act does not authorize the issuance of an [Executive Director Cease and Desist Order] under the present circumstances" and that "Sable intends to proceed with the anomaly repair work authorized by the County in its February 12, 2025 letter."
On February 18, 2025, Sable filed a complaint against the Commission in the Superior Court of the State of California for the County of Santa Barbara (Case No. 25CV00974). In the complaint, Sable challenges the Commission's prior Notices of Violations and Executive Director Cease and Desist Order as procedurally improper and asserts that Commission lacks authority to prohibit work authorized by existing permits. Sable seeks a declaration that the Commission's actions are unlawful, an injunction prohibiting further enforcement actions by the Commission, damages for the alleged taking of property rights, and attorneys' fees and costs. The Commission proceeded to issue an Executive Director Cease and Desist Order to Sable on February 18, 2025. Sable's pipeline repair operations continued.
On April 10, 2025 the Commission voted to issue a Cease-and-Desist Order, Restoration Order, and Administrative Penalty Order ("CDO"), which included the imposition of an approximately $18.0 million administrative penalty on the Company, in connection with the previously described alleged unpermitted development undertaken by the Company in the California coastal zone. The Company does not believe this penalty is lawful. The Company is committed to contesting the claims and intends to vigorously defend the Company's interest.
The Company filed a Verified Amended Petition for Writ of Mandamus and Complaint for Damages and Declaratory and Injunctive Relief on April 16, 2025. On April 16, 2025, counsel for the Commission filed a Cross Complaint for Declaratory and Injunctive Relief seeking a judicial declaration ordering the Company to comply with the CDO. An Ex Parte Application for Order to Show Cause and Temporary Restraining Order was also filed by counsel for the Commission (as Cross-Plaintiff) on April 16, 2025, seeking a Temporary Restraining Order ("TRO") and further injunctive relief against the Company (as Cross-Defendants) restraining the Company from violating the CDO. The court denied the Commission's Ex Parte Application at a hearing on April 17, 2025. The court further set the Commission's Motion for Preliminary Injunction for hearing on May 14, 2025, which the court later moved to May 28, 2025. On April 22, 2025, counsel for the Commission filed a Petition for Stay, Writ of Supersedeas, or Other Appropriate Order, and Request for Temporary Stay with the Second Division California Court of Appeal, seeking a temporary stay of the Santa Barbara County Superior Court's denial of the Commission's request for a TRO and an order requiring Sable to comply with the CDO. On May 15, 2025, the Court of Appeal denied the Commission's Petition. On May 28, 2025, the court granted the Commission's application for issuance of a preliminary injunction and on July 9, 2025, the court denied Sable's motion to stay the CDO. The matter is set for trial on October 16-17 and 20-21, 2025.
BOEM Matter
On April 2, 2025, the Center for Biological Diversity and the Wishtoyo Foundation filed a complaint against Doug Burgum, Secretary of the U.S. Department of the Interior; the Bureau of Ocean Energy Management ("BOEM"); and Douglas Boren, BOEM Pacific Regional Director in the U.S. District Court for the Central District of California (Case No. 2:25-cv-02840). On May 12, 2025, plaintiffs filed an amended complaint in which plaintiffs challenge BOEM's April 2025 decision determining that Sable is not required to revise the development and production plan for Platform Harmony in the SYU. The amended complaint asks for the court: to issue an order finding that BOEM's decision was not in accordance with OCSLA and violated the APA; order BOEM to require revision of the development and production plan for Platform Harmony; prohibit BOEM from authorizing new oil and gas drilling activity at the SYU unless and until revision of the development and production plan is complete; and for an award of costs and attorneys' fees. Sable was not named as a party to the case, but on June 10, 2025, the court granted Sable's motion to intervene as a defendant to become a party to the lawsuit, and Sable vigorously contests the plaintiffs' allegations. On July 21, 2025, Sable filed a motion to dismiss this case.
Components of Results of Operations
Revenue
The Company has not had any substantial revenues since the shut-in. The Company's various operating expenses are the principal metrics used to assess its performance.
Operating Expenses
•Operations and maintenance.The Company's most significant costs to operate and maintain its assets are direct labor and supervision, power, repair and maintenance expenses, and equipment rentals. Fluctuations in commodity prices impact operating cost elements both directly and indirectly. For example, commodity prices directly impact costs such as power and fuel, which are expenses that increase (or decrease) in line with changes in commodity prices. Commodity prices also affect industry activity and demand, thus indirectly impacting the cost of items such as labor and equipment rentals.
•Depreciation, depletion, amortization, and accretion.Depreciation, depletion and amortization are primarily determined under either the unit-of-production method or the straight-line method, which is based on estimated asset service life taking obsolescence into consideration. Since being shut in, no depletion or amortization has been recorded for the Successor periods presented. An immaterial amount of depreciation was reflected for idle plants in the historical Predecessor financial statements. Also included in the Successor and Predecessor financial statements is the accretion associated with the Company's estimated asset retirement obligations ("ARO"). The ARO liabilities are initially recorded at their fair value and then are accreted using the Company's applicable discount rate over the period for the change in their present value until the estimated retirement of the asset.
•General and administrative.General and administrative ("G&A") costs are comprised of overhead expenditures directly and indirectly associated with operating the assets. These support services include information technology, risk management, corporate planning, accounting, cash management, human resources, and other
general corporate services. For the Predecessor period, any general and administrative expenses that were not specifically identifiable to SYU were allocated to SYU for the period from January 1, 2024 to February 13, 2024. To calculate a reasonable allocation, aggregated historical benchmarking data from comparable companies with similar operated upstream assets was used to identify general and administrative expenses as a proportion of operating expenses. Increased general and administrative services may be required in the future, commensurate with planned operations activity levels.
•Taxes other than income.Management anticipates future increases in ad valorem taxes, in line with the projected restart of production.
Results of Operations
The comparability of our operating results for the three and six months ended June 30, 2025 (Successor), the three months ended June 30, 2024 (Successor), the period February 14, 2024 through June 30, 2024 (Successor), and for the period January 1, 2024 through February 13, 2024 (Predecessor) was impacted by the Business Combination. In the discussion of our results of operations for these periods, we may quantitatively disclose the impacts of the Business Combination to the extent they remain ascertainable. The entirety of our activity since inception through the Closing Date were related to our formation, the preparation for our initial public offering, and since the closing of our initial public offering, the search for a target for our initial business combination (Refer to Note 1 - Organization, Business Operations, and Going Concern).
Following the Closing Date, all of our operations have focused on restarting production sales from the SYU Assets. We lack the ability to generate any operating revenues until we receive the necessary regulatory and legal approvals to restart production sales. Our only source of non-operating income is generated in the form of interest income on cash and cash equivalents. We also expect to continue to incur additional expenses as a result of being an operating public company, including for legal, accounting and compliance expenses.
Three Months Ended June 30, 2025 (Successor) vs. Three Months Ended June 30, 2024 (Successor)
The following table presents selected unaudited condensed consolidated financial results of operations for the Successor periods presented.
| Successor | Increase (Decrease) | ||||||||||||||||||||||
| (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | $ | % | |||||||||||||||||||
| Revenue | |||||||||||||||||||||||
| Oil and gas sales | $ | - | $ | - | $ | - | -% | ||||||||||||||||
| Operating Expenses | |||||||||||||||||||||||
| Operations and maintenance expenses | 50,398 | 26,294 | 24,104 | 91.7% | |||||||||||||||||||
| Depletion, depreciation, amortization and accretion | 3,172 | 2,724 | 448 | 16.4% | |||||||||||||||||||
| General and administrative expenses | 75,318 | 33,217 | 42,101 | 126.7% | |||||||||||||||||||
| Total operating expenses | 128,888 | 62,235 | 66,653 | 107.1% | |||||||||||||||||||
| Loss from operations | (128,888) | (62,235) | (66,653) | 107.1% | |||||||||||||||||||
| Other (income) expenses: | |||||||||||||||||||||||
| Change in fair value of warrant liabilities | (27,146) | 81,178 | (108,324) | nm | |||||||||||||||||||
| Other (income) expense, net | (2,508) | (2,301) | 207 | nm | |||||||||||||||||||
| Interest expense | 21,009 | 19,175 | 1,834 | 9.6% | |||||||||||||||||||
| Total other (income) expense, net | (8,645) | 98,052 | (106,697) | nm | |||||||||||||||||||
| Loss before income taxes | (120,243) | (160,287) | 40,044 | (25.0)% | |||||||||||||||||||
| Income tax expense | 7,823 | 5,149 | 2,674 | 51.9% | |||||||||||||||||||
| Net loss | $ | (128,066) | $ | (165,436) | $ | 37,370 | (22.6)% | ||||||||||||||||
|
nm:not meaningful
|
|||||||||||||||||||||||
Operating and maintenance expenses. Operating and maintenance expenses were $50.4 million for the three months ended June 30, 2025 (Successor), representing an increase of $24.1 million, or 91.7%, compared to $26.3 million for the three months ended June 30, 2024 (Successor). The increase in operating and maintenance expenses is primarily
attributable to additional maintenance expenses incurred in connection with restart efforts, which includes a 113% increase in operations employee headcount between reporting periods, and $6.6 million related to restart incentive compensation, partially offset by $3.9 million of operating expense capitalized as Inventory and other on the unaudited condensed consolidated balance sheet as of June 30, 2025. Operations and maintenance expenses are expected to remain elevated for the remainder of 2025.
Depletion, depreciation, amortization and accretion. Depletion, depreciation, amortization and accretion was $3.2 million for the three months ended June 30, 2025 (Successor), representing an increase of $0.4 million, or 16.4%, compared to $2.7 million for the three months ended June 30, 2024 (Successor). The increase in depletion, depreciation, amortization and accretion is primarily attributable to the compounding effect of ARO accretion. The depletion, depreciation, amortization and accretion expense recognized for the three months ended June 30, 2025 (Successor) primarily represents the recognition of ARO accretion for the period. Recognition of depletion expense will resume once the assets are placed in service and sales volumes are achieved. Depletion, depreciation and amortization of $1.8 million associated with the SYU assets was recognized during the three months ended June 30, 2025 (Successor); however, as the associated production remained in the Company's storage tanks as of June 30, 2025, the entire amount has been capitalized as Inventory and other on the unaudited condensed consolidated balance sheet. Depletion, depreciation, amortization and accretion expense is expected to increase over the next several quarters as sales of production are expected to commence.
General and administrative expenses. General and administrative expenses ("G&A expenses") were $75.3 million for the three months ended June 30, 2025 (Successor), representing an increase of $42.1 million compared to $33.2 million for the three months ended June 30, 2024 (Successor). The increase in G&A expenses is primarily attributable to $35.7 million in higher compensation related to restart incentive compensation costs, and $7.8 million in higher legal costs for the three months ended June 30, 2025 (Successor).
Total other (income) expense, net. Total other (income) expense, net was $8.6 million in income for the three months ended June 30, 2025 (Successor), representing a change of $106.7 million compared to other expense of $98.1 million for the three months ended June 30, 2024 (Successor). The change in total other (income) expense, net was primarily attributable to the $108.3 million decrease in the fair value of warrants, which decreased due to the remaining term of the warrants, as well as a decrease in the market price of the Common Stock and the effects of market volatility, and an increase of $1.8 million in interest expense due to the higher debt balance for the three months ended June 30, 2025 (Successor).
Income tax expense. Income tax expense for the three months ended June 30, 2025 (Successor) was $7.8 million, representing an increase of $2.7 million compared to $5.1 million for the three months ended June 30, 2024 (Successor). Utilizing provisions of ASC 740, the Company's effective tax rate was negative 6.5% and negative 3.2% for the three months ended June 30, 2025 (Successor) and the three months ended June 30, 2024 (Successor), respectively. The negative tax rates were due to our ongoing assessment of our ability to recover our deferred tax assets, which we concluded that it was more likely than not that our deferred tax assets in excess of deferred tax liabilities would not be realized. The income tax rate was slightly higher due to lower forecasted pre-tax book loss for the full year.
Comparison of the Six Months Ended June 30, 2025 (Successor) to the periods from January 1, 2024 through February 13, 2024 (Predecessor) and February 14, 2024 through June 30, 2024 (Successor).
The following table presents selected unaudited condensed consolidated financial results of operations for the Successor and Predecessor periods presented.
| Successor | Predecessor | Increase (Decrease) | ||||||||||||||||||||||||||||||
| (in thousands) | Six Months Ended June 30, 2025 | February 14, 2024-June 30, 2024 | January 1, 2024-February 13, 2024 | $ | % | |||||||||||||||||||||||||||
| Revenue | $ | - | $ | - | $ | - | $ | - | - | % | ||||||||||||||||||||||
| Oil and gas sales | - | - | - | - | - | % | ||||||||||||||||||||||||||
| Operating Expenses | ||||||||||||||||||||||||||||||||
| Operations and maintenance expenses | 84,841 | 33,612 | 7,320 | 43,909 | 107.3 | % | ||||||||||||||||||||||||||
| Depletion, depreciation, amortization and accretion | 6,193 | 4,101 | 2,627 | (535) | (8.0) | % | ||||||||||||||||||||||||||
| General and administrative expenses | 97,650 | 183,665 | 1,714 | (87,729) | (47.3) | % | ||||||||||||||||||||||||||
| Total operating expenses | 188,684 | 221,378 | 11,661 | (44,355) | (19.0) | % | ||||||||||||||||||||||||||
| Loss from operations | (188,684) | (221,378) | (11,661) | 44,355 | (19.0) | % | ||||||||||||||||||||||||||
| Other (income) expenses: | ||||||||||||||||||||||||||||||||
| Change in fair value of warrant liabilities | (5,851) | 79,415 | - | (85,266) | nm | |||||||||||||||||||||||||||
| Other (income) expense | (5,948) | (2,800) | 128 | (3,276) | nm | |||||||||||||||||||||||||||
| Interest expense | 42,019 | 28,976 | - | 13,043 | nm | |||||||||||||||||||||||||||
| Total other (income) expense, net | 30,220 | 105,591 | 128 | (75,499) | nm | |||||||||||||||||||||||||||
| Loss before income taxes | (218,904) | (326,969) | (11,789) | 119,854 | (35.4) | % | ||||||||||||||||||||||||||
| Income tax expense | 18,706 | 18,572 | - | 134 | nm | |||||||||||||||||||||||||||
| Net loss | $ | (237,610) | $ | (345,541) | $ | (11,789) | $ | 119,720 | (33.5) | % | ||||||||||||||||||||||
|
nm:not meaningful
|
||||||||||||||||||||||||||||||||
Operating and maintenance expenses. Operating and maintenance expenses were $84.8 million for the six months ended June 30, 2025 (Successor), representing an increase of $43.9 million, or 107%, compared to $7.3 million for the period from January 1, 2024 through February 13, 2024 (Predecessor) and $33.6 million for the period February 14, 2024 through June 30, 2024 (Successor), respectively, or a combined $40.9 million. The increase in operating and maintenance expenses is primarily attributable to additional maintenance expenses incurred in connection with restart efforts, which includes a 140% increase in operations employee headcount since the Closing Date, and $6.6 million related to restart incentive compensation, partially offset by $3.9 million of operating expense capitalized as Inventory and other on the unaudited condensed consolidated balance sheet as of June 30, 2025. Operations and maintenance expenses are expected to remain elevated for the remainder of 2025.
Depletion, depreciation, amortization and accretion. Depletion, depreciation, amortization and accretion was $6.2 million for the six months ended June 30, 2025 (Successor), representing a decrease of $0.5 million, or 8%, compared to $2.6 million for the period January 1, 2024 through February 13, 2024 (Predecessor) and $4.1 million for the period February 14, 2024 through June 30, 2024 (Successor), respectively, or a combined $6.7 million. The decrease in depletion, depreciation, amortization and accretion is primarily attributable to the Company not recognizing depreciation expense following the Business Combination, as the Company determined the assets were not in service since repairs are necessary prior to achieving production restart. Depletion, depreciation and amortization of $1.8 million associated with the SYU assets was recognized during the six months ended June 30, 2025 (Successor); however, as the associated production remained in the Company's storage tanks as of June 30, 2025, the entire amount has been capitalized as Inventory and other on the unaudited condensed consolidated balance sheet. The depletion, depreciation, amortization and accretion expense recognized for the six months ended June 30, 2025 (Successor) primarily represents the recognition of ARO accretion for the period, recognition of depletion expense will resume once the assets are placed in service and sales volumes are achieved. Depletion, depreciation, amortization and accretion expense is expected to increase over the next several quarters as sales of production are expected to commence.
General and administrative expenses. General and administrative expenses ("G&A expenses") were $97.7 million for the six months ended June 30, 2025 (Successor), representing a decrease of $87.7 million compared to $1.7 million for the
period January 1, 2024 through February 13, 2024 (Predecessor) and $183.7 million for the period February 14, 2024 through June 30, 2024 (Successor), respectively, or a combined $185.4 million. The decrease in G&A expenses is primarily attributable to the $70.0 million accrued settlement of the Grey Fox Matter (Refer to Note 8 - Commitments and Contingencies) and $16.8 million in legal expenses and professional fees related to the Business Combination that were recognized for the period February 14, 2024 through June 30, 2024 (Successor). The remaining decrease in G&A expenses is attributable to a $54.0 million decrease in share-based compensation expense between reporting periods, partially offset by $35.7 million in higher compensation related to restart incentive compensation costs and the recognition of salaries and wages for the full six months ended June 30, 2025 (Successor), opposed to the Successor period February 14, 2024 through June 30, 2024. Predecessor G&A expenses were allocated to SYU as a portion of certain other operating costs based on aggregated historical benchmarking data as previously noted (Refer to Note 2 - Significant Accounting Policies).
Total other expense, net. Total other expense, net was $30.2 million for the six months ended June 30, 2025 (Successor), representing a decrease of $75.5 million compared to other expense of $0.1 million for the period January 1, 2024 through February 13, 2024 (Predecessor) and other expense of $105.6 million for the period February 14, 2024 through June 30, 2024 (Successor), respectively, or a combined expense of $105.7 million. The decrease in total other expense, net was primarily attributable to a decrease of $85.3 million in the fair value of the warrants, due to fewer warrants outstanding for the six months ended June 30, 2025 (Successor) after all public warrants were redeemed during the three months ended December 31, 2024, and due to an increase in the market price of the Common Stock in prior year compared to flat market price of the Common Stock in the current period, partially offset by $13.0 million in higher interest expense for the six months ended June 30, 2025 (Successor) due to higher debt balance over the comparative periods. The Predecessor did not have any debt or associated interest expense, warrants, or interest income.
Income tax expense. Income tax expense for the six months ended June 30, 2025 (Successor) was $18.7 million, representing an increase of $0.1 million compared to zero for the period January 1, 2024 through February 13, 2024 (Predecessor) and $18.6 million for the period February 14, 2024 through June 30, 2024 (Successor), respectively, or a combined $18.6 million. Utilizing provisions of ASC 740, the Company's effective tax rate was negative 8.5%, and negative 5.7% for the six months ended June 30, 2025 (Successor) and the period February 14, 2024 through June 30, 2024 (Successor) respectively. The negative tax rates were due to our ongoing assessment of our ability to recover our deferred tax assets, which we concluded that it was more likely than not that our deferred tax assets in excess of deferred tax liabilities would not be realized. The income tax rate was slightly higher due to lower forecasted pre-tax book loss for the full year. The higher tax rate was offset by a lower pre-tax book loss for the Successor period.
Liquidity and Capital Resources
Overview. Our plans for restarting sales of production volumes, including restarting the remainder of the existing wells and facilities that have not been restarted and recommencing oil transportation through the Pipelines, will require significant capital expenditures in excess of current operational cash flow. Historically, SYU's primary source of liquidity has been its operational cash flow and, since the shut-in, capital contributions from its parent. While production has restarted, prior to generating sales and positive cash flow from production, capital expenditure needs will be substantial and are expected to come from cash on hand. Additionally, the achievement of first production triggered the acceleration of the Senior Secured Term Loan maturity date to 240 days after the production restart date, or January 10, 2026. Accordingly, the Senior Secured Term Loan must be refinanced or otherwise paid in full by or prior to the maturity date.
Prior to the Business Combination, Flame had approximately $62.2 million in its trust account, which consisted of proceeds from the public stockholders and the private placement investors in connection with the Company's initial public offering, less redemptions. Sable raised $440.2 million in gross proceeds from the First PIPE Investment in connection with the Business Combination, $150.0 million in gross proceeds from the Second PIPE Investment, and approximately $183.5 million from the exercise of 15,957,820 warrants for 15,957,820 shares of Common Stock. Additionally, more than $600 million of the Purchase Price was seller-financed through a secured Senior Secured Term Loan with EM (the "Senior Secured Term Loan"). In May 2025, Sable raised an additional $295.0 million in gross proceeds from the sale of 10,000,000 shares of Common Stock in the 2025 Offering. Based on its current financial plan, Sable management expects sales production to commence in the third quarter 2025, after which its operating cash flows are expected to be sufficient to service Sable's operating expenses and indebtedness.
Capital Requirements.Sable currently estimates remaining start-up expenses of approximately $66.6 million in order to commence sales of production in the third quarter 2025. Management evaluates its cost estimates on an ongoing basis. The expenditures will primarily be directed toward obtaining the necessary regulatory and legal approvals and bringing additional shut-in wells back online in the third quarter 2025. After sales of production commences, Sable management
expects a rapid increase in operating cash flows that should allow Sable to fund further capital expenditures. If Sable is unable to obtain funds or provide funds as needed for the planned capital expenditure program, Sable may not be able to finance the capital expenditures necessary to restart production sales or sustain production thereafter.
Going Concern
Prior to the Business Combination, EM funded the Predecessor SYU operational expenses. Since the consummation of the Business Combination, Sable has addressed near-term capital funding needs with the First PIPEInvestment, the Second PIPE Investment,proceeds from the exercise of Warrants (refer to Note 7 - Warrants for additional details regarding the warrant exercises) and net proceeds from the 2025 Offering, and believes the Company has sufficient capital to maintain operations and restart sales of production volumes. However, the Company's plans for restart of production sales are contingent upon approvals from federal, state and local regulators.
The achievement of first production triggered the acceleration of the Senior Secured Term Loan maturity date to 240 days after the production restart date, or January 10, 2026. Accordingly, the Senior Secured Term Loan must be refinanced or otherwise paid in full by or prior to the maturity date. Additionally, if the Company's estimates of the costs to reach first sales are less than the actual amounts necessary to do so, the Company may have insufficient funds available to operate its business prior to first sales and will need to raise additional capital. If the Company is unable to raise additional capital, it may be required to take additional measures to conserve liquidity, which could include, among other things, reducing overhead expenses.
Due to the remaining regulatory and legal approvals necessary to resume pipeline operations and enable sales of production volumes, and lack of assurance that new financing, or refinancing of the Senior Secured Term Loan, will be available to the Company on commercially acceptable terms, if at all, substantial doubt exists about the Company's ability to continue as a going concern. The financial statements included in this quarterly report do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that could be necessary if the Company is unable to continue as a going concern.
Cash Flows
The following table summarizes cash flows from Operating, Investing and Financing activities:
| Successor | Predecessor | Change | ||||||||||||||||||||||||||||||
| (dollars in thousands) | June 30, 2025 | February 14, 2024-June 30, 2024 | January 1, 2024-February 13, 2024 | $ | % | |||||||||||||||||||||||||||
| Cash flows (used in) provided by: | ||||||||||||||||||||||||||||||||
| Operating activities | $ | (142,948) | $ | (93,874) | $ | (22,474) | $ | (26,600) | (22.9) | % | ||||||||||||||||||||||
| Investing activities | (192,982) | (208,285) | - | 15,303 | 7.3 | % | ||||||||||||||||||||||||||
| Financing activities | 282,933 | 395,989 | 22,474 | (135,530) | (32.4) | % | ||||||||||||||||||||||||||
| Net change in cash and cash equivalents | $ | (52,997) | $ | 93,830 | $ | - | ||||||||||||||||||||||||||
Cash Flows from Operating Activities. Since the regulatory and legal approvals required to restart Lines 324 and 325 have not been received, no revenues have been recognized for the comparative periods. The net cash used in operating activities for the Company was $142.9 million for the six months ended June 30, 2025 (Successor), representing an increase in cash used in operating activities of $26.6 million, or 22.9%, compared to net cash used in operating activities of $22.5 million for the period January 1, 2024 through February 13, 2024 (Predecessor) and $93.9 million net cash used in operating activities from February 14, 2024 through June 30, 2024 (Successor), respectively, or a combined $116.3 million. The primary use of cash can be attributed to maintenance and operational readiness activities in the Predecessor and Successor periods, with additional general and administrative costs incurred post the Business Combination in the Successor period.
For the six months ended June 30, 2025 (Successor), we had a net loss of $237.6 million, which consists of a non-cash increase of $5.9 million in fair value of the warrants, non-cash stock-based compensation of $16.5 million, non-cash paid-in-kind interest of $41.7 million, changes in accounts payable of $22.4 million, non-cash depreciation, depletion, amortization and accretion of $6.2 million, and non-cash tax expense of $18.7 million. Changes in accounts payable for the period is primarily attributable to the increase in vendor payables associated with the restart efforts. For the period January 1, 2024 through February 13, 2024 (Predecessor), SYU incurred a net loss of $11.8 million and for the period February 14,
2024 through June 30, 2024 (Successor) the Company incurred a net loss of $345.5 million, respectively, or a combined $357.3 million. Our combined net loss was partially offset by a non-cash change in the fair value of our warrant liabilities of $79.4 million, non-cash stock based compensation of $69.3 million, non-cash paid-in-kind interest $28.5 million, changes in accounts payable of $45.2 million and non-cash deferred tax expense of $18.6 million. Changes in accounts payable is primarily attributable to the Grey Fox Matter settlement, with $35.0 million in accounts payable and accrued liabilities as of June 30, 2024 (Refer to Note 2 - Significant Accounting Policies). Future cash flow from operations will depend on our ability to bring the associated oil and gas production of the assets back online, as well as the prices of oil, natural gas and NGLs.
Cash Flows from Investing Activities. The net cash used in investing activities for the Company was $193.0 million for the six months ended June 30, 2025 (Successor), representing a decrease in cash used in investing activities of $15.3 million, or 7.3%, compared to the net cash used investing activities of zero for the period January 1, 2024 through February 13, 2024 (Predecessor) and $208.3 million for the period February 14, 2024 through June 30, 2024 (Successor), or a combined $208.3 million. The Successor investing cash flow for the six months ended June 30, 2025 (Successor) consists of cash paid for capital expenditures associated with restart efforts and for the period February 14, 2024 through June 30, 2024 (Successor) is almost entirely comprised of $204.2 million paid to EM at Closing per settlement statement. The net cash used in investing activities for the Predecessor period was zero since the SYU Assets had been shut in since 2015, without investing activities.
Cash Flows from Financing Activities. The net cash provided by financing activities for the Company was $282.9 million for the six months ended June 30, 2025 (Successor), consisting of $295.0 million of gross proceeds from the 2025 Offering and related paid fees of $12.1 million. The net cash provided by financing activities for the period January 1, 2024 through February 13, 2024 (Predecessor) was $22.5 million and net cash provided by financing activities for the period February 14, 2024 through June 30, 2024 (Successor) was $396.0 million, respectively, or a combined $418.5 million.
The Predecessor financing activities for the period January 1, 2024 through February 13, 2024 (Predecessor) consists of EM capital contributions financing the maintenance and operational readiness activities. The Successor financing activities for the period February 14, 2024 through June 30, 2024 (Successor) are comprised of the aggregate $440.2 million, net of $22.9 million of capitalized Business Combination transaction expenses, or $417.3 million net, less deposit paid to EM for the Term Loan of $18.8 million, payment of debt issuance costs of $1.5 million, and repayment of Flame non-convertible promissory notes - related parties for $1.1 million.
Contractual Obligations
Pursuant to the Senior Secured Term Loan, which financed most of the Purchase Price (as defined in the Senior Secured Term Loan), Sable will pay interest at ten percent (10%) per annum compounded annually, payable in arrears on January 1st of each year. At Sable's election, accrued but unpaid interest may be deemed paid on each interest payment date by adding the amount of interest owed to the outstanding principal (paid-in-kind) amount under the Senior Secured Term Loan. On December 13, 2024, the Company entered into the Fourth Amendment to the Sable-EM Purchase Agreement, pursuant to which the following definitions were amended. "Restart Production" was redefined as 150 days after first production, extending the maturity date of the EM Term Loan by 60 days. "Restart Failure Date" was extended an additional 60 days to March 1, 2026. In the absence of further negotiations, Restart Production must take place prior to March 1, 2026, and the Senior Secured Term Loan must be refinanced within 240 days following such first production
date. Refer to Note 6 - Debtfor additional disclosures regarding the Senior Secured Term Loan.
On May 19, 2025, the Company announced that as of May 15, 2025, it had restarted production at SYU and begun flowing oil production from six wells at SYU's Platform Harmony to LFC. Additionally, with the completion of the Gaviota State Park anomaly repairs on the Onshore Pipeline on May 18, 2025, the Company completed its anomaly repair program on the Onshore Pipeline as specified by the Consent Decree, the governing document for the restart and operations of the Onshore Pipeline. As a result of Restart Production the Senior Secured Term Loan must be refinanced within 240 days following such first production date, or January 10, 2026. Accordingly, the Senior Secured Term Loan must be refinanced or otherwise paid in full by or prior to the maturity date.
Additional obligations include the performance of ARO as referenced under "Critical Accounting Policies and Estimates-Asset Retirement Obligations" below.
Off Balance Sheet Arrangements
As of June 30, 2025, the Company had no off-balance sheet arrangements.
Critical Accounting Estimates
The preparation of unaudited condensed consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the combined financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates.
Property, Plant and Equipment.
Cost Basis. Oil and gas producing activities are accounted for under the successful efforts method of accounting. Under this method, costs are accumulated on a field-by-field basis. Costs incurred to purchase, lease, or otherwise acquire a property (whether unproved or proved) are capitalized when incurred. Exploratory well costs are carried as an asset when the well has found a sufficient quantity of resources to justify its completion as a producing well and where sufficient progress assessing the resources and the economic and operating viability of the project is being made. Exploratory well costs not meeting these criteria are charged to expense. Other exploratory expenditures, including geophysical costs and annual lease rentals, are expensed as incurred. Development costs, including costs of productive wells and development dry holes, are capitalized.
Other Property and Equipment. Other property and equipment primarily consist of onshore midstream facilities and transportation assets. Due to the natural of such assets, the onshore midstream facilities are presented within oil and gas properties, while the transportation assets are presented within other assets on the unaudited condensed consolidated balance sheets.
Depreciation, Depletion and Amortization. Depreciation, depletion and amortization are primarily determined under the unit-of-production method, which is based on estimated asset service life taking obsolescence into consideration.
Acquisition costs of proved properties are amortized using a unit-of-production method, computed on the basis of total proved oil and natural gas reserve volumes. Capitalized exploratory drilling and development costs associated with productive depletable extractive properties are amortized using the unit-of-production rates based on the amount of proved developed resources of oil and gas that are estimated to be recoverable from existing facilities using current operating methods. Under the unit-of-production method, oil and natural gas volumes are considered produced once they have been measured through meters at custody transfer or sales transaction points at the outlet valve on the lease or field storage tank. Maintenance and repairs, including planned major maintenance, are expensed as incurred. Major renewals and improvements are capitalized and the assets replaced are retired.
The SYU Assets had previously been shut in since 2015 due to a pipeline incident but had been maintained by EM to preserve it in an operation-ready state and thus no depletion had been recognized prior to achieving first production on May 15, 2025. Depletion, depreciation and amortization of $1.8 million associated with the SYU assets was recognized during the three months ended June 30, 2025; however, as the associated production remained in the Company's storage tanks as of June 30, 2025, the entire amount has been capitalized as Inventory and other on the unaudited condensed consolidated balance sheet. The recognition of depletion expense on the unaudited condensed consolidated statement of operations will commence upon restart and related production.
Oil Inventory. Production volumes for the period May 16, 2025 through June 30, 2025 were retained within the Company's storage tanks and recognized as short term oil inventory, and the associated depletion expense was capitalized, as noted above. FASB ASC Topic 330-Inventory ("ASC 330") dictates that inventory shall initially be valued at the price paid or consideration given to acquire an asset. By analogy, the Company capitalized the costs incurred that were directly attributable to producing and transporting the production to the onshore storage tanks, including associated depreciation, depletion, and amortization. Oil inventory is presented as a component of Inventory and other on the unaudited condensed consolidated balance sheet.
The Company has oil inventory storage capacity of 540 MBbls onshore at LFC. The Company generally expects the inventory volumes to fluctuate over time to maintain optimal operational efficiencies. The ending volume of inventory that remains in the onshore storage tanks is measured at the current period's cost, and a lower of cost or net realizable value assessment is performed for each reporting period.
Impairment Assessment. Assets are tested for recoverability on an ongoing basis whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. Among the events or changes in circumstances which could indicate that the carrying value of an asset or asset group may not be recoverable are the following:
•a significant decrease in the market price of a long-lived asset;
•a significant adverse change in the extent or manner in which an asset is being used or in its physical condition, including a significant decrease in current and projected resource or reserve volumes;
•a significant adverse change in legal factors or in the business climate that could affect the value, including an adverse action or assessment by a regulator;
•an accumulation of project costs significantly in excess of the amount originally expected; and
•a current-period operating loss combined with a history and forecast of operating or cash flow losses.
We monitor for indicators of potential impairment throughout the year. This process is aligned with the requirements of ASC 360-Property, Plant, and Equipment and ASC 932 Extractive Activities-Oil and Gas. Asset valuation analysis, profitability reviews and other periodic control processes assist in assessing whether events or changes in circumstances indicate the carrying amounts of any of the assets may not be recoverable.
If events or changes in circumstances indicate that the carrying value of an asset may not be recoverable, management estimates the future undiscounted cash flows of the affected properties to judge the recoverability of carrying amounts. In performing this assessment, assets are grouped at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other groups of assets. Cash flows used in recoverability assessments are based on assumptions which are developed by management and are consistent with the criteria management uses to evaluate investment opportunities. These evaluations make use of assumptions of future capital allocations, crude oil and natural gas commodity prices including price differentials, refining and chemical margins, volumes, and development and operating costs. Volumes are based on projected field and facility production profiles, throughput, or sales. Management's estimate of upstream production volumes used for projected cash flows makes use of proved reserve quantities and may include risk-adjusted unproved reserve quantities.
An asset group is impaired if its estimated undiscounted cash flows are less than the asset group's carrying value. Impairments are measured by the amount by which the carrying value exceeds fair value. The assessment of fair value is based upon the views of a likely market participant. The principal parameters used to establish fair value include estimates of acreage values and flowing production metrics from comparable market transactions, market-based estimates of historical cash flow multiples, and discounted cash flows. Inputs and assumptions used in discounted cash flow models include estimates of future production volumes, throughput and product sales volumes, commodity prices which are consistent with the average of third-party industry experts and government agencies, refining and chemical margins, drilling and development costs, operating costs and discount rates which are reflective of the characteristics of the asset group.
Asset Retirement Obligations. The Company's ARO primarily relate to the future plugging and abandonment of oil and gas properties and related facilities. The fair values of these obligations are recorded as liabilities on a discounted basis, which is typically at the time the assets are installed. In the estimation of fair value, the Company uses assumptions and judgments regarding such factors as the existence of a legal obligation for an asset retirement obligation, technical assessments of the assets, estimated amounts and timing of settlements, discount rates, and inflation rates.
Derivative Warrant Liabilities. We do not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. We evaluate all of our financial instruments, including issued stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC 480 and ASC 815-15. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period.
All of our outstanding warrants are recognized as derivative liabilities in accordance with ASC 815-40. Accordingly, we recognize the warrant instruments as liabilities at fair value and adjust the instruments to fair value at each reporting period.
The liabilities are subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in our statement of operations. The private placement warrants and the working capital warrants are measured at fair value using the Modified Black-Scholes Optional Pricing Model.
Emerging Growth Company; Smaller Reporting Company
We are an "emerging growth company," or EGC, as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act, and it has elected to comply with certain reduced public company reporting requirements. Sable could remain an emerging growth company until the last day of the fiscal year following the fifth anniversary of the completion of the Company IPO. However, if (a) Sable's total annual gross revenue exceed $1.235 billion, (b) Sable is deemed to be a large accelerated filer, which means the market value of Common Stock that is held by non-affiliates exceeds $700.0 million as of the end of the prior fiscal year's second fiscal quarter, or (c) Sable's non-convertible debt issued within a three-year period exceeds $1.0 billion, Sable would cease to be an emerging growth company as of the following fiscal year.
Additionally, we are a "smaller reporting company," or SRC, as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. Sable will be a smaller reporting company until the last day of any fiscal year for so long as either (1) the market value of Common Stock held by non-affiliates did not exceed $250 million as of the prior June 30, or (2) Sable's annual revenues did not exceed $100 million during such completed fiscal year and the market value of Common Stock held by non-affiliates did not exceed $700 million as of the prior June 30.
We will no longer be an EGC or SRC as of December 31, 2025, after which we will not be able to take advantage of the reduced reporting and disclosure requirements discussed above.
Recent Accounting Pronouncements
Our management does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on our financial statements.
Sable Offshore Corp. published this content on August 12, 2025, and is solely responsible for the information contained herein. Distributed via SEC EDGAR on August 12, 2025 at 11:31 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]