Sable Offshore Corp: Going To California
Buying A Tracking Position In A Complicated Speculation With Interesting Upside
Summary
Sable Offshore Corp recently completed a SPAC merger and has a market cap of $658.8M.
The company has an impressive asset base, but they have work to do get the Santa Ynez field into production.
Sable has interesting warrants, but I have decided to stick with a very small tracker position in the common shares for now.
The SPAC merger closed on February 14, leaving the company with $150.8M in cash, $35M in restricted cash, and debt of $763.8M.
Management and institutions own more than two thirds of the shares outstanding after the completion of the merger.
If management can execute on their plan, buying shares around $11.00 will look like a steal in a couple years. If not, Sable will be in serious trouble.
Sable Offshore Corp is the result of a SPAC merger that closed a couple months ago on February 14, 2024. Sable definitely falls under the category of a special situation, and it’s certainly a speculative risk/reward profile. Their primary assets are the Santa Ynez field located off the coast of California (which includes three offshore platforms), where production has been shut in since a pipeline leak in June 2015, and the Los Flores Canyon processing facility. They are planning to restart production this year in July, and if they can pull it off, their assets will almost certainly produce more value than their current market cap of $658.8M.
I have decided to buy a massive tracking position of 10 shares to keep an eye on how things develop for Sable. It won’t move the needle either way for my portfolio, but even having a hundred bucks in the stock will help me keep a closer eye on the company. If they hit certain milestones in the future, that could change, but my position in Sable will remain minuscule for now. If you’re interested in Sable, I would recommend checking out the investor presentation, but let’s dive in.
An Oil Company in California?
You might be thinking, this guy has lost his mind. He’s looking at an oil company in California that also happens to have zero revenue? California, despite its history as a massive producer of oil and gas, is basically a hostile government when it comes to the traditional oil and gas industry. Just ask large refiner Valero. It’s worth noting that the Santa Ynez field is in federal waters, but Sable still has regulatory hoops to jump through before restarting production (namely the approval of Office of the State Fire Marshall), so that will be something to watch over the next couple months.
Shares vs. Warrants
The shares trade under the ticker SOC, while the warrants have the ticker SOC.WS or SOC/WS depending on your brokerage. I spent an hour trying to understand the situation, and to be perfectly honest, I ended up more confused about the warrants than when I started. The legalese on the SEC website gave me a headache, and I eventually decided that buying a tracking position in the shares would be a simpler (and less painful) way to keep an eye on Sable. If you look at Schwab, the warrants show an exercise date of February 26, 2026. On Interactive Brokers, the warrants show an exercise date of December 31, 2028.
Each whole warrant entitles the holder thereof to purchase one share of our Class A common stock at a price of $11.50 per share, subject to adjustment as described in this prospectus, and only whole warrants are exercisable. The warrants will become exercisable on the later of 30 days after the completion of our initial business combination or 12 months from the closing of this offering, and will expire five years after the completion of our initial business combination or earlier upon redemption or liquidation, as described in this prospectus.
As of yesterday’s close, the warrants were trading at $2.68. If you want to buy the warrants, I would strongly recommend that you take the time to understand the legalese in the various financial statements better than I have. I would also recommend using limit orders, because they are illiquid (approximately 2.5k warrants traded yesterday). Basically what I’m saying on the warrants is do your own due diligence, and understand the situation inside out if you do decide to buy the warrants.
Asset Overview
The thing that makes Sable very interesting is the assets and existing infrastructure they have. If Sable is able to restart production and develop some of the adjacent parcels, buying shares today around $11.00 will look like a steal in a couple years. They are targeting a restart of oil production in July 2024. If they get regulatory approval and restart production, it will be a huge catalyst for the shares.
SYU is comprised of three platforms located in federal waters offshore California and its onshore processing facility.
The offshore position is comprised of 16 federal leases across approximately 76,000 acres and includes 100% working interest with an average 83.6% net revenue interest. The Hondo platform and the Harmony platform develop the Hondo Field, and the Heritage platform develops the Pescado and Sacate Fields. The platforms are located 5 to 9 miles offshore of Santa Barbara County in shallow water depths of 900 to 1,200 feet and service 112 wells, comprised of 90 producers, 12 injectors and 10 idle with an additional 102 identified, undrilled opportunities. A 2015 analysis identified step-out potential for untested fault compartments or sub-accumulations and indicated a potential technical opportunity for up to an additional 102 identified, undrilled opportunities based on spacing assumptions ranging from 20 to 80 acres. For each platform, more opportunities exist than there are available donor wellbores based on current spacing assumptions (i.e., each platform is slot-constrained).
The wholly owned onshore processing facility is a fully integrated oil and gas processing facility with additional capacity for development. The natural gas and NGLs it processed prior to the Line 901 incident were sold into the Southern California markets and the oil volumes were sold to California refineries. The onshore position is approximately 1,480 surface acres, which include the processing facility and parts of the surrounding canyons. The onshore facilities occupy approximately 35 acres and are comprised of:
• an oil treating plant with capacity of approximately 180 MBop/d where it conducts crude dehydration, crude stabilization, and gas separation and compression;
• a biologic/physical water treating plant with capacity of more than 67 MBwp/d where it conducts free oil removal, degassing, and biological treatment;
• POPCO gas plant with approximately 80 Mcf/d sales capacity where it conducts gas sweetening, sulfur recovery, NGL fractionation, and gas compression;
• another gas processing plant where it conducts gas sweetening, sulfur recovery, and NGL fractionation, and sends fuel gas to the co-generationpower plant;
• an almost entirely electric co-generation power plant with a capacity of 50 MW, including a 40 MW gas turbine, a 10 MW steam turbine, and steam generation;
• crude storage capacity of 540 MBbls;
• a produced water pipeline, which is partially offshore;
• liquified petroleum gas storage and loading; and
• a transportation terminal.
Financials
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