10-K: Sable Offshore Corp. Faces Regulatory Hurdles Despite Efforts to Restart Santa Ynez Unit

• Sable Offshore Corp.'s 10-K filing highlights the company's efforts to restart production at the Santa Ynez Unit (SYU), which has been shut down since 2015.
• The company faces regulatory hurdles, including obtaining permits and approvals from various federal, state, and local agencies.
• Legal proceedings, such as disputes with the California Coastal Commission and the Zaca Preserve, add complexity and uncertainty to the restart process.
• The company estimates remaining start-up expenses of approximately $152.0 million to restart production in the second quarter of 2025.
• Sable has invested significant capital to safely restore production operations to SYU.
• The company began hydrotesting the Pipeline in early 2025 in advance of a potential restart of production from the Santa Ynez Unit offshore platforms and the associated Las Flores Canyon processing facilities in the second quarter of 2025.
• The company's ability to restart production by March 1, 2026, is critical, as failure to do so could allow Exxon Mobil to exercise a reassignment option and take ownership of the SYU Assets.
• The company has approximately 161 employees.

Score: 4

Explanation: The document presents a mixed picture. While the company is making efforts to restart production and has secured funding, it faces significant regulatory and legal challenges, as well as the risk of losing its assets if it fails to meet the restart deadline. The going concern warning also weighs negatively on the sentiment.

• Sable has invested significant capital to safely restore production operations to SYU.
• The company began hydrotesting the Pipeline in early 2025 in advance of a potential restart of production from the Santa Ynez Unit offshore platforms and the associated Las Flores Canyon processing facilities in the second quarter of 2025.
• The company has secured $590.2 million in gross proceeds from PIPE Investments and $183.5 million from warrant exercises.
• The company has a dedicated Santa Barbara County-based Surveillance and Response Team, trained to comply with PPCs tactical response plan, which will be responsible for timely initial incident response and equipped with key resources to deploy in early containment, particularly for those regions of the Pipeline between Gaviota and Las Flores Canyon.

• The company faces regulatory hurdles and legal proceedings that could delay or prevent the restart of production.
• Failure to restart production by March 1, 2026, could allow Exxon Mobil to exercise a reassignment option.
• The company has a history of net losses and negative cash flows from operations.
• The company's future success depends on the volatile prices of oil, natural gas, and NGLs.

• The company needs to satisfy a number of permitting obligations and other requirements before it can restart production of the SYU Assets.
• The company's assumptions and estimates regarding the total costs associated with restarting production may be inaccurate.
• There is no guarantee that the company will have sufficient cash to restart production of the SYU Assets.
• Oil, natural gas and natural gas liquids, or NGL(s), prices are volatile, due to factors beyond the company's control, and greatly affect the company's business, results of operations and financial condition.
• The company may be unable to Restart Production by March 1, 2026, which would permit EM to exercise a reassignment option and take ownership of the SYU Assets without any compensation or reimbursement other than the deemed repayment in full of the principal and accrued interest outstanding under the Senior Secured Term Loan Agreement.
• The company is subject to complex federal, state, local and other laws, regulations and permits that could adversely affect the cost, manner, ability or feasibility of conducting the company's operations.
• Attempts by the California state government to restrict the production of oil and gas could negatively impact the company's operations and result in decreased demand for fossil fuels in California.
• The company's assets are located exclusively onshore and offshore in California, making the company vulnerable to risks associated with having operations concentrated in this geographic area.
• All of the company's operations are conducted in areas that may be at risk of damage from fire, mudslides, earthquakes or other natural disasters.

The company plans to restart production in the second quarter of 2025 and expects operating cash flows to be sufficient to service operating expenses and indebtedness thereafter. However, this is contingent on regulatory approvals and successful completion of repairs.

The oil and gas industry is highly competitive and subject to volatile commodity prices, regulatory changes, and environmental concerns. Sable's success depends on its ability to navigate these challenges and efficiently restart production at the SYU.

• The company operates in a highly competitive environment for securing trained personnel, contracting for drilling equipment, and from time to time leasing or otherwise acquiring new acreage.
• Many of its competitors possess and employ financial, technical and personnel resources substantially greater than Sables, which can be particularly important in the areas in which it operates.
• As a result, Sables competitors may be able to pay more for productive oil and natural gas properties and exploratory prospects, as well as evaluate, bid for and purchase a greater number of properties and prospects than its financial or personnel resources permit.
• Sables ability to acquire additional properties and to find and develop reserves and resources will depend on its ability to evaluate and select suitable properties and to consummate transactions in a highly competitive environment.
• In addition, there is substantial competition for capital available for investment in the oil and natural gas industry and many of its competitors have access to capital at a lower cost than that available to Sable.

• Shareholders face the risk of dilution from future equity issuances and the potential loss of investment if the company fails to restart production.
• Employees are affected by the company's ability to provide competitive compensation and benefits, as well as the safety and stability of their jobs.
• Customers and suppliers are impacted by the company's ability to provide reliable and affordable energy products and services.
• Creditors face the risk of default on the company's debt obligations if it fails to generate sufficient cash flow.

• The company plans to submit updated Restart Plans and anticipates the OSFM will approve the Restart Plans following the completion and testing of the anomaly repair and maintenance work.
• Sables pipeline repair operations remain ongoing.
• Given the Companys current progress in complying with AB 864, submitting the Restart Plan to the OSFM, and repairing Lines 324 and 325, we believe that these requirements will not inhibit our ability to restart the onshore and offshore facilities consistent with our timeline of restarting production during the second quarter of 2025.

• On June 27, 2024, the Center for Biological Diversity and the Wishtoyo Foundation filed a complaint against Debra Haaland, Secretary of the U.S. Department of the Interior; BSEE; and Bruce Hesson, BSEE Pacific Regional Director in the U.S. District Court for the Central District of California (Case No. 2:24-cv-05459).
• On September 27, 2024, the Coastal Commission issued Notice of Violation No. V-9-24-0152 to Sable, which asserted that the safety valve installation work and certain maintenance and repair activities undertaken by Sable on the Pipelines in the Coastal Zone to address anomalies and install safety valves constituted unpermitted development activities under the Coastal Act and the Countys LCP.
• On February 18, 2025, Sable Offshore Corp. filed a complaint against the Coastal Commission in the Superior Court of the State of California for the County of Santa Barbara (Case No. 25CV00974).
• On October 3, 2024, plaintiff Zaca Preserve LLC filed a California state court complaint against Sable, its subsidiary PPC, Plains All American Pipeline LP, and Plains Pipeline LP. The case is captioned 24CV05483 and is pending in Santa Barbara Superior Court, Anacapa Division.

• On October 3, 2024, Sable Aviation, LLC (Sable Aviation), an entity controlled by our Chairman and Chief Executive Officer, and Sable entered into an Agreement of Purchase and Sale, pursuant to which Sable Aviation sold transportation assets and related equipment to Sable in exchange for 600,000 shares of Common Stock, valued at $15.2 million.

• October 16, 2020: Sable Offshore Corp. (formerly Flame Acquisition Corp.) was originally incorporated.
• November 1, 2022: Sable Offshore Corp., a Texas corporation (SOC), entered into a purchase and sale agreement (as amended, 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.
• 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).
• June 13, 2023: First Amendment to Purchase and Sale Agreement between Exxon Mobil Corporation, Mobil Pacific Pipeline Company and Sable Offshore Corp.
• December 15, 2023: Second Amendment to Purchase and Sale Agreement between Exxon Mobil Corporation, Mobil Pacific Pipeline Company and Sable Offshore Corp.
• February 14, 2024: Sable consummated the mergers and related transactions contemplated by the Merger Agreement (the Business Combination), following which Flame was renamed Sable Offshore Corp.
• February 15, 2024: Sables shares of Common Stock, par value $0.0001 per share (Common Stock) and warrants to purchase Common Stock at an exercise price of $11.50 per share (the Public Warrants) began trading on NYSE under the symbols, SOC and SOC.WS, respectively.
• March 11, 2024: Third Amendment to Purchase and Sale Agreement between Exxon Mobil Corporation, Mobil Pacific Pipeline Company and Sable Offshore Corp.
• September 6, 2024: The Company entered into an amendment to the Senior Secured Term Loan (the First Amendment).
• 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).
• October 3, 2024: Sable issued a press release announcing the redemption of all of its outstanding Public Warrants to purchase shares of Common Stock that were issued under the Warrant Agreement, as part of the units sold in the Company IPO.
• October 31, 2024: The Public Warrants ceased trading on the New York Stock Exchange.
• November 4, 2024: As of November 4, 2024 (the Redemption Date), approximately 99.8% of the Companys 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.
• 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.
• March 1, 2026: Restart Failure Date: If Restart Production does not occur prior to this date, Seller has the exclusive right, but not the obligation, to require Purchaser to reassign the Assets and any other rights conveyed under this Agreement to Seller or its designated representative, free and clear of all Encumbrances other than Sellers security interests, upon written demand, without reimbursement of any Purchaser costs or expenditures.