Sable Offshore Corp
For the period ended Sep 30, 2024. Filed Nov 14, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2024 · Filed Nov 14, 2024
SOC$1.93+6.0%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-06-30; filed 2024-08-13.
0001831481-24-000007
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-09-30; filed 2024-11-14.
0001831481-24-000011
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 96 previous paragraphs and 105 current paragraphs.
61 unchanged; 29 reworded; 15 added; 6 removed; 0 previous and 0 current paragraphs rearranged.
Tables are not compared: 3 previous and 3 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (15)
Current report
First PIPE Investment
Current report
Second PIPE Investment
Current report
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. Upon the closing of the Second PIPE Investment, an associated marketing fee and legal fees of approximately $7.5 million was accrued in full, and was recognized as an offset to the proceeds from the Second PIPE Investment.
Current report
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; the Bureau of Environmental Safety and Enforcement (“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). In the complaint, plaintiffs allege that BSEE violated the National Environmental Policy Act (“NEPA”), the Outer Continental Shelf Lands Act (“OCSLA”), and the Administrative Procedure Act in November 2023 by approving an extension to resume operations associated with 16 oil and gas leases Sable holds in the Santa Ynez Unit in federal waters offshore of California in the Santa Barbara Channel. The complaint asks for the Court to issue an order finding that BSEE violated NEPA and OCSLA by approving the extension, to vacate and remand the extension to BSEE, to prohibit BSEE from authorizing further extensions until it complies with NEPA and OCSLA, and for an award of costs and attorneys’ fees. Although not named as a party to the case, Sable has moved to intervene to become a party to the lawsuit and to vigorously contest the plaintiffs’ allegations. Separately, BSEE has confirmed that Sable’s recent completion of lease-holding activities serves to maintain all 16 leases within the Santa Ynez Unit to October 9, 2025.
Current report
On August 30, 2024, the County acknowledged that it does not have jurisdiction over PPC’s installation of sixteen new safety valves in the County along the Pipelines in accordance with Assembly Bill 864. The County's acknowledgement was delivered in the form of a conditional settlement agreement dated August 30, 2024 (the "Safety Valve Settlement Agreement"), among the County, PPC and the Company, and a subsequent acknowledgement by the County’s planning and development staff.
Current report
Pursuant to the Safety Valve Settlement Agreement, PPC agreed to the following additional surveillance and
Current report
response enhancements in the County:
Current report
i. PPC will create a Santa Barbara County-based Surveillance and Response Team, trained in PPC’s 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;
Current report
ii. PPC will provide Santa Barbara first responders with additional training and equipment to assist in PPC’s incident response efforts; and
Current report
iii. PPC will undertake the following Pipeline system enhancements: (1) install and operate and maintain primary and secondary Operations Control Centers in Santa Barbara County, and (2) refurbish the Gaviota pump in its existing station.
Current report
PPC, the Company and the County have further agreed, in the Safety Valve Settlement Agreement, to file a stipulation to dismiss the pending lawsuit, Pacific Pipeline Company and Sable Of shore Corp. v. Santa Barbara County Planning Commission and Board of Supervisors (Case No. 2:23-cv-09218-DMG-MRW) within 15 days of final installation of all sixteen underground safety valves in the County.
Current report
On September 27, 2024, the California Coastal Commission (the “Coastal Commission”) notified the Company that it believed that the Company’s maintenance and repair activities on the Pipelines in the Coastal Zone may constitute unpermitted development activities under the California Coastal Act (Cal. Pub. Res. Code Section 30000, et seq.) (the “Coastal Act”). Maintenance and repair activities that are exempt from additional Coastal Act permitting requirements have been conducted on the Las Flores Pipeline system under the pipeline’s existing coastal development permits for the last 35+ years, and the Company believes the recent work is within the scope of those historic activities. Following good faith negotiations with Coastal Commission staff, on November 12, 2024 the Company received an Executive Director Cease and Desist Order from the Coastal Commission requiring the filling and closing of open sites within the Coastal Zone without completion of pipeline repairs at those sites. The Coastal Commission and the Company are now working towards an interim work plan to allow for the restoration of the excavations. The Company and the Coastal Commission agree that this work will protect the environment against concerns regarding erosion or other damage that could occur in case of inclement weather. Once the Coastal Commission approves the Company’s interim work plan, the Company expects to commence work immediately and expects the work will take approximately seven days to complete. This work will allow the Coastal Commission to complete their analysis and for the Coastal Commission and the Company to progress their discussions regarding how to proceed with the remaining pipeline maintenance and repair work in the Coastal Zone. The Company continues to actively engage with Coastal Commission staff in an attempt to agree on a consensual path forward for the remaining maintenance and repair activities in the Coastal Zone.
Current report
As of September 30, 2024, warrant holders had exercised 6,315,977 Warrants for approximately $72.5 million in cash proceeds. On 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.
Current report
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.
Current report
On October 31, 2024, the Public Warrants ceased trading on the New York Stock Exchange. As of November 4, 2024, (the "Redemption Date"), 15,957,820 shares of Common Stock were issued upon the exercise of 99.8% of the then outstanding Public Warrants by the holders thereof at an exercise price of $11.50 per share, resulting in aggregate proceeds to the Company of $183.5 million. All outstanding Public Warrants that were not exercised by 5:00 p.m. New York City time on November 4, 2024 were redeemed by the Company for $0.01 per Public Warrant (the "Redemption"). Warrants to purchase Common Stock that were issued under the Warrant Agreement in a private placement simultaneously with the Company's initial public offering and that are still held by the initial holders thereof or their permitted transferees were not subject to the Redemption and remain outstanding. Refer to Note 7 — Warrantsfor additional details regarding the warrant exercises.
Removed paragraphs (6)
Previous report
PIPE Subscription Agreements
Previous report
Registration Rights Agreement
Previous report
On the Closing Date, in connection with the consummation of the Business Combination and as contemplated by the Merger Agreement, the holders of the limited liability company interests in Holdco designated as Holdco Class A shares entered into a registration rights agreement with Sable (the “Registration Rights Agreement”) pursuant to which the holders were granted certain registration rights with respect to the Common Stock received as consideration in the Merger.
Previous report
Pursuant to the Registration Rights Agreement, Sable agreed to file a registration statement within 30 calendar days after the consummation of the Merger registering the resale of the registrable securities under the Registration Rights Agreement, and use its commercially reasonable efforts to have the registration statement declared effective by the SEC by the earlier of (i) the 90th calendar day (or 120th calendar day if the SEC notifies Sable that it will review the registration statement) following the closing of the Merger and (ii) the 10th business day after the date Sable are notified (orally or in writing, whichever is earlier) by the SEC that the registration statement will not be reviewed or will not be subject to further review. Sable thereafter will be required to maintain a registration statement that is continuously effective and to cause the registration statement to regain effectiveness in the event that it ceases to be effective. At any time the registration statement is effective, any holder signatory to the Registration Rights Agreement may request, one time in any 12-month period, to sell all or a portion of its securities that are registrable in an underwritten offering pursuant to the registration statement for a total offering price reasonably expected to exceed, in the aggregate, $25 million. In addition, the holders have certain “piggyback” registration rights with respect to registrations initiated by Sable and other Sable stockholders. Sable will bear the expenses incurred in connection with the filing of any registration statements pursuant to the Registration Rights Agreement, subject to limited exceptions.
Previous report
Pursuant to the Registration Rights Agreement, the holders of Holdco Class A shares immediately prior to the effective time of the Holdco Merger, subject to limited exceptions, agreed to a lock-up on their shares of Common Stock, pursuant to which such parties agreed to not transfer shares of Common Stock held by such parties for a period of three years following the closing of the Business Combination.
Previous report
The foregoing description of the Registration Rights Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the form Registration Rights Agreement filed as an exhibit to Sable’s Current Report on Form 8-K, filed with the SEC on February 14, 2024.
Reworded paragraphs (29)
Previous wording
This the unaudited condensed consolidated financial statements includes 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, 2023 (the “Form 10-K”), 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.
Current wording
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, 2023 (the “Form 10-K”), 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.
Previous wording
In connection with the Business Combination, Holdco and Flame entered into subscription agreements (collectively, as amended, supplemented or otherwise modified, the "PIPE Subscription Agreements") with certain investors (the “PIPE Investors”) for an aggregate commitment amount of $440,249,100. On February 14, 2024, immediately following the Closing, Sable issued 44,024,910 shares of Common Stock, at a price of $10.00 per share for an aggregate PIPE Investment of $440,249,100 in accordance with the terms of the PIPE Subscription Agreements. The shares of Common Stock issued in the PIPE Investments were offered in a private placement under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to the PIPE Subscription Agreements.
Current wording
On February 14, 2024, in connection with the Busienss 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 of $10.1 million was paid in full, and is recognized as an offset to the proceeds from the First PIPE Investment.
Previous wording
In a letter dated July 10, 2024, the California Office of the State Fire Marshal (“OSFM”) re-affirmed that Pacific Pipeline Company’s (“PPC”) April 2021 Risk Analysis and Implementation Plan (the “2021 Plan”) remains in effect and complies with California State Assembly Bill 864. PPC had filed a supplemental Revised Risk Analysis and Implementation Plan (the “Supplemental Plan”) after the County of Santa Barbara denied permits requested to comply with the 2021 Plan. While OSFM acknowledged PPC’s efforts to reduce spill response times and releases, it determined that the Supplemental Plan is not considered as effective in mitigating potential environmental impacts compared to the 2021 Plan. Consequently, the 2021 Plan, which uses the best available technology, remains in effect. Sable continues discussions to resolve the permit denial with the County of Santa Barbara for the installation of safety valves included in the 2021 Plan.
Current wording
In a letter dated July 10, 2024, the California Office of the State Fire Marshal (“OSFM”) re-affirmed that Pacific Pipeline Company’s (“PPC”) April 2021 Risk Analysis and Implementation Plan (the “2021 Plan”) remains in effect and complies with California State Assembly Bill 864. PPC had filed a supplemental Revised Risk Analysis and Implementation Plan (the “Supplemental Plan”) after the County of Santa Barbara denied permits requested to comply with the 2021 Plan. While OSFM acknowledged PPC’s efforts to reduce spill response times and releases, it determined that the Supplemental Plan is not considered as effective in mitigating potential environmental impacts compared to the 2021 Plan. Consequently, the 2021 Plan, which uses the best available technology, remains in effect.
Previous wording
On July 29, 2024, PPC submitted a letter to the OSFM requesting additional time to implement the 2021 Plan. On July 31, 2024, the OSFM approved PPC’s extension request, setting a new deadline for implementation of the approved 2021 Plan of July 1, 2025.
Current wording
On July 31, 2024, the OSFM approved an extension request previously submitted by PPC, setting a new deadline for implementation of the approved 2021 Plan to July 1, 2025.
Previous wording
The County of Santa Barbara determined Sable’s applications to be complete for Change of Owner, Change of Operator, and Guarantor of the SYU, Pacific Offshore Pipeline Company Gas Plant, and the Pipelines on July 30, 2024.
Current wording
On July 30, 2024, the County of Santa Barbara (the "County") determined Sable’s applications for the Change of Owner, Change of Operator, and Guarantor of the SYU, Pacific Offshore Pipeline Company Gas Plant, and the Pipelines were complete.
Previous wording
•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 SYU’s applicable discount rate over the period for the change in their present value until the estimated retirement of the asset.
Current wording
•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.
Previous wording
•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. General and administrative expenses that were not specifically identifiable to SYU were allocated to SYU for the period from January 1, 2020 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. SYU may also require increased services in the future, commensurate with planned activity levels.
Current wording
•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. General and administrative expenses that were not specifically identifiable to SYU were allocated to SYU for the three and nine month periods ended September 30, 2023 and 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. SYU may also require increased services in the future, commensurate with planned activity levels.
Previous wording
The comparability of our operating results for the three months ended June 30, 2024, the period February 14, 2024 through June 30, 2024 (Successor), the period January 1, 2024 through February 13, 2024 (Predecessor), and the three and six months ended June 30, 2023 (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 of the SYU Assets. We lack the ability to generate any operating revenues until we receive the necessary regulatory approvals and complete the repairs necessary to restart production. Our only source of non-operating income is generated in the form of interest income on cash and cash equivalents. Post the Business Combination, we expect to incur additional expenses as a result of being an operating public company, for legal, accounting and compliance expenses.
Current wording
The comparability of our operating results for the three months ended September 30, 2024 (Successor), the period February 14, 2024 through September 30, 2024 (Successor), the period January 1, 2024 through February 13, 2024 (Predecessor), and the three and nine months ended September 30, 2023 (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 of the SYU Assets. We lack the ability to generate any operating revenues until we receive the necessary regulatory approvals and complete the repairs necessary to restart production. Our only source of non-operating income is generated in the form of interest income on cash and cash equivalents. Post the Business Combination, we expect to incur additional expenses as a result of being an operating public company, for legal, accounting and compliance expenses.
Previous wording
Operating and maintenance expenses. Operating and maintenance expenses were $26.3 million for the three months ended June 30, 2024 (Successor), representing an increase of $12.2 million, or 86.3%, compared to $14.1 million for the three months ended June 30, 2023 (Predecessor). The increase in operating and maintenance expenses was primarily attributable to timing of maintenance expenses incurred in connection with restart efforts. Operations and maintenance expenses are expected to increase over the next several years as production is restarted.
Current wording
Operating and maintenance expenses. Operating and maintenance expenses were $25.6 million for the three months ended September 30, 2024 (Successor), representing an increase of $11.4 million, or 79.8%, compared to $14.3 million for the three months ended September 30, 2023 (Predecessor). The increase in operating and maintenance expenses was primarily attributable to timing of maintenance expenses incurred in connection with restart efforts. Operations and maintenance expenses are expected to increase over the next several years as production is restarted.
Previous wording
Depletion, depreciation, amortization and accretion. Depletion, depreciation, amortization and accretion was $2.7 million for the three months ended June 30, 2024 (Successor), representing a decrease of $2.5 million, or 48.1%, compared to $5.3 million for the three months ended June 30, 2023 (Predecessor). The decrease in depletion, depreciation, amortization and accretion was 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. The depletion, depreciation, amortization and accretion expense recognized for the three months ended June 30, 2024 (Successor) solely represents the recognition of ARO accretion for the period but depreciation will resume once the assets are placed in service. Depletion, depreciation, amortization and accretion expense is expected to increase over the next several years as production is restarted.
Current wording
Depletion, depreciation, amortization and accretion. Depletion, depreciation, amortization and accretion was $2.8 million for the three months ended September 30, 2024 (Successor), representing a decrease of $2.5 million, or 47.6%, compared to $5.3 million for the three months ended September 30, 2023 (Predecessor). The decrease in depletion, depreciation, amortization and accretion was 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. The depletion, depreciation, amortization and accretion expense recognized for the three months ended September 30, 2024 (Successor) solely represents the recognition of ARO accretion for the period but depreciation will resume once the assets are placed in service. Depletion, depreciation, amortization and accretion expense is expected to increase over the next several years as production is restarted.
Previous wording
General and administrative expenses. General and administrative expenses ("G&A expenses") were $33.2 million for the three months ended June 30, 2024 (Successor), representing an increase of $30.3 million compared to $2.9 million for the three months ended June 30, 2023 (Predecessor). The increase in G&A expenses was primarily attributable to the $21.0 million in share-based compensation expense and the recognition of salaries and wages following the Business Combination. 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.
Current wording
General and administrative expenses. General and administrative expenses ("G&A expenses") were $26.2 million for the three months ended September 30, 2024 (Successor), representing an increase of $23.2 million compared to $3.0 million for the three months ended September 30, 2023 (Predecessor). The increase in G&A expenses was primarily attributable to the $15.0 million in share-based compensation expense and the recognition of salaries and wages following the Business Combination. 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.
Previous wording
Total other (income) expense, net. Total other expense, net was $98.1 million for the three months ended June 30, 2024 (Successor), representing an increase of $98.1 million compared to other income of less than $0.1 million for the three months ended June 30, 2023 (Predecessor). The increase in total other (income) expense, net was primarily attributable to an increase of $81.2 million in the fair value of the warrants and $19.2 million in interest expense, partially offset by interest income of $2.3 million. The increase during the Successor period is due to the fact that the Predecessor did not have any debt or associated interest expense, warrants, or interest income.
Current wording
Total other expense, net. Total other expense, net was $200.1 million for the three months ended September 30, 2024 (Successor), representing an increase of $199.6 million compared to other expense of $0.5 million for the three months ended September 30, 2023 (Predecessor). The increase in total other expense, net was primarily attributable to an increase of $178.2 million in the fair value of the warrants, $19.2 million in interest expense and $5.0 million of other expense related to the First Amendment to the Senior Secured Term Loan (Refer to Note 6 — Debt for additional details regarding the First Amendment to the Senior Secured Term Loan), partially offset by interest income. The increase during the Successor period is due to the fact that the Predecessor did not have any debt or associated interest expense, warrants, or interest income.
Previous wording
Income tax expense. Income tax expense for the three months ended June 30, 2024 (Successor) was $5.1 million, representing an increase of $5.1 million compared to $0.0 for the three months ended June 30, 2023 (Predecessor). Based on our ongoing assessment of our ability to recover our deferred tax assets, we concluded that it was more likely than not that our deferred tax assets in excess of deferred tax liabilities would not be realized. For the Successor period, we concluded that certain deferred tax liabilities in future periods do not have deferred tax assets available to offset, which is primarily due to our net operating losses being limited to 80% of taxable income. Therefore, a further valuation allowance of our deferred tax assets is necessary, which results in deferred tax expense for the Successor period. Our judgment regarding the likelihood of realization of these deferred tax assets could change in future periods, which could result in a material impact to our income tax provision in the period of change.
Current wording
Income tax expense. Income tax expense for the three months ended September 30, 2024 (Successor) was $0.9 million, representing an increase of $0.9 million compared to zero income tax expense for the three months ended September 30, 2023 (Predecessor). Based on our ongoing assessment of our ability to recover our deferred tax assets, we concluded that it was more likely than not that our deferred tax assets in excess of deferred tax liabilities would not be realized. For the Successor period, we concluded that certain deferred tax liabilities in future periods do not have deferred tax assets available to offset, which is primarily due to our net operating losses being limited to 80% of taxable income. Therefore, a further valuation allowance of our deferred tax assets is necessary, which results in deferred tax expense for the Successor period. Our judgment regarding the likelihood of realization of these deferred tax assets could change in future periods, which could result in a material impact to our income tax provision in the period of change.
Previous wording
Comparison of the periods from January 1, 2024 through February 13, 2024 (Predecessor) and February 14, 2024 through June 30, 2024 (Successor) to the Six Months Ended June 30, 2023 (Predecessor).
Current wording
Comparison of the periods from January 1, 2024 through February 13, 2024 (Predecessor) and February 14, 2024 through September 30, 2024 (Successor) to the Nine Months Ended September 30, 2023 (Predecessor).
Previous wording
Operating and maintenance expenses. Operating and maintenance expenses were $7.3 million and $33.6 million for the periods from January 1, 2024 through February 13, 2024 (Predecessor) and February 14, 2024 through June 30, 2024 (Successor), respectively, or a combined $40.9 million, representing an increase of $12.0 million, or 41.6%, compared to $28.9 million for the six months ended June 30, 2023 (Predecessor). The increase in operating and maintenance expenses was primarily attributable to timing of maintenance expenses incurred in connection with restart efforts. Operations and maintenance expenses are expected to increase over the next several years as production is restarted.
Current wording
Operating and maintenance expenses. Operating and maintenance expenses were $7.3 million and $59.2 million for the periods from January 1, 2024 through February 13, 2024 (Predecessor) and February 14, 2024 through September 30, 2024 (Successor), respectively, or a combined $66.6 million, representing an increase of $23.4 million, or 54.2%, compared to $43.2 million for the nine months ended September 30, 2023 (Predecessor). The increase in operating and maintenance expenses was primarily attributable to timing of maintenance expenses incurred in connection with restart efforts. Operations and maintenance expenses are expected to increase over the next several years as production is restarted.
Previous wording
Depletion, depreciation, amortization and accretion. Depletion, depreciation, amortization and accretion was $2.6 million and $4.1 million for the periods from January 1, 2024 through February 13, 2024 (Predecessor) and February 14, 2024 through June 30, 2024 (Successor), respectively, or a combined $6.7 million, representing a decrease of $3.8 million, or 36.0%, compared to $10.5 million for the six months ended June 30, 2023 (Predecessor). The decrease in depletion, depreciation, amortization and accretion was 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. Depreciation will resume once the assets are placed in service. The $4.1 million depletion, depreciation, amortization and accretion expense recognized for the period February 14, 2024 through June 30, 2024 (Successor) solely represents the recognition of ARO accretion for the period. Depletion, depreciation, amortization and accretion expense is expected to increase over the next several years as production is restarted.
Current wording
Depletion, depreciation, amortization and accretion. Depletion, depreciation, amortization and accretion was $2.6 million and $6.9 million for the periods from January 1, 2024 through February 13, 2024 (Predecessor) and February 14, 2024 through September 30, 2024 (Successor), respectively, or a combined $9.5 million, representing a decrease of $6.3 million, or 39.8%, compared to $15.8 million for the nine months ended September 30, 2023 (Predecessor). The decrease in depletion, depreciation, amortization and accretion was 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. Depreciation will resume once the assets are placed in service. The $6.9 million depletion, depreciation, amortization and accretion expense recognized for the period February 14, 2024 through September 30, 2024 (Successor) solely represents the recognition of ARO accretion for the period. Depletion, depreciation, amortization and accretion expense is expected to increase over the next several years as production is restarted.
Previous wording
General and administrative expenses. G&A expenses were $1.7 million and $183.7 million for the periods from January 1, 2024 through February 13, 2024 (Predecessor) and February 14, 2024 through June 30, 2024 (Successor), respectively, or a combined $185.4 million, representing an increase of $179.3 million compared to $6.1 million for the six months ended June 30, 2023 (Predecessor). The increase in G&A expenses was primarily attributable to the $70.0 million settlement of the Grey Fox Matter (Refer to Note 8 — Commitments and Contingencies), $67.4 million in share-based compensation expense following the Business Combination, $16.8 million in legal expenses and professional fees related to the Business Combination, and the recognition of salaries and wages following the Company's commencement of operations following the Business Combination. 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.
Current wording
General and administrative expenses. G&A expenses were $1.7 million and $209.9 million for the periods from January 1, 2024 through February 13, 2024 (Predecessor) and February 14, 2024 through September 30, 2024 (Successor), respectively, or a combined $211.6 million, representing an increase of $202.5 million compared to $9.1 million for the nine months ended September 30, 2023 (Predecessor). The increase in G&A expenses was primarily attributable to the $70.0 million settlement of the Grey Fox Matter (Refer to Note 8 — Commitments and Contingencies), $82.3 million in share-based compensation expense following the Business Combination, $16.8 million in legal expenses and professional fees related to the Business Combination, and the recognition of salaries and wages following the Company's commencement of operations following the Business Combination. 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.
Previous wording
Total other (income) expense, net. Total other expense, net was $0.1 million and $105.6 million for the periods from January 1, 2024 through February 13, 2024 (Predecessor) and February 14, 2024 through June 30, 2024 (Successor), respectively, or a combined $105.7 million, representing an increase of $105.7 million compared to less than $0.1 in other income for the six months ended June 30, 2023 (Predecessor). The increase in total other (income) expense, net was primarily attributable to an increase of $79.4 million in fair value of the warrants and $29.0 million in interest expense, partially offset by interest income of $2.8 million. The increase during the Successor period is due to the fact that the Predecessor did not have any debt or associated interest expense, warrants, or interest income.
Current wording
Total other expense, net. Total other expense, net was $0.1 million and $305.7 million for the periods from January 1, 2024 through February 13, 2024 (Predecessor) and February 14, 2024 through September 30, 2024 (Successor), respectively, or a combined $305.8 million, representing an increase of $305.3 million compared to $0.5 million in other expense for the nine months ended September 30, 2023 (Predecessor). The increase in total other expense, net was primarily attributable to an increase of $257.6 million in fair value of the warrants and $48.1 million in interest expense, partially offset by interest income. The increase during the Successor period is also due to the fact that the Predecessor did not have any debt or associated interest expense, warrants, or interest income.
Previous wording
Income tax expense. Income tax expense was $0.0 and $18.6 million for the periods from January 1, 2024 through February 13, 2024 (Predecessor) and February 14, 2024 through June 30, 2024 (Successor), respectively, representing an increase of $18.6 million compared to $0.0 for the six months ended June 30, 2023 (Predecessor). Based on our ongoing assessment of our ability to recover our deferred tax assets, we concluded that it was more likely than not that our deferred tax assets in excess of deferred tax liabilities would not be realized. For the Successor period, we concluded that certain deferred tax liabilities in future periods do not have deferred tax assets available to offset, which is primarily due to our net operating losses being limited to 80% of taxable income. Therefore, a further valuation allowance of our deferred tax assets is necessary, which results in deferred tax expense for the Successor period. Our judgment regarding the likelihood of realization of these deferred tax assets could change in future periods, which could result in a material impact to our income tax provision in the period of change.
Current wording
Income tax expense. Income tax expense was zero and $19.4 million for the periods from January 1, 2024 through February 13, 2024 (Predecessor) and February 14, 2024 through September 30, 2024 (Successor), respectively, representing an increase of $19.4 million compared to zero for the nine months ended September 30, 2023 (Predecessor). Based on our ongoing assessment of our ability to recover our deferred tax assets, we concluded that it was more likely than not that our deferred tax assets in excess of deferred tax liabilities would not be realized. For the Successor period, we concluded that certain deferred tax liabilities in future periods do not have deferred tax assets available to offset, which is primarily due to our net operating losses being limited to 80% of taxable income. Therefore, a further valuation allowance of our deferred tax assets is necessary, which results in deferred tax expense for the Successor period. Our judgment regarding the likelihood of realization of these deferred tax assets could change in future periods, which could result in a material impact to our income tax provision in the period of change.
Previous wording
Overview. Our plans for restarting production, including restarting the existing wells and facilities and recommencing 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 SYU’s production is in the process of being restarted and prior to generating positive cash flow from production, SYU’s capital expenditure needs will be substantial and are expected to come from cash on hand. 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 gross proceeds from the PIPE Investors in connection with the Business Combination. Additionally, more than $600 million of the Purchase Price was seller-financed through a secured term loan with EM (the “Term Loan”). Based on its current financial plan, Sable management expects production to restart in late third quarter 2024 or early fourth quarter 2024, after which its operating cash flows are expected to be sufficient to service Sable’s indebtedness.
Current wording
Overview. Our plans for restarting production, including restarting the existing wells and facilities and recommencing 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 SYU’s production is in the process of being restarted and prior to generating positive cash flow from production, SYU’s capital expenditure needs will be substantial and are expected to come from cash on hand. 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 $72.5 million from the exercise of 6,315,977 warrants for 6,315,977 shares of Common Stock in the nine months ended September 30, 2024. 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”). Based on its current financial plan, Sable management expects production to restart in the fourth quarter 2024, after which its operating cash flows are expected to be sufficient to service Sable’s indebtedness.
Previous wording
Capital Requirements. Sable currently estimates start-up expenses of approximately $197.0 million in order to restart production in late third quarter 2024 or early fourth quarter 2024. Management evaluates its cost estimates on an ongoing basis. The expenditures will primarily be directed toward obtaining the necessary regulatory approvals and completing the pipeline repairs and bringing the shut-in assets back online in late third quarter 2024 or early fourth quarter 2024. After production restarts, 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 or sustain production thereafter.
Current wording
Capital Requirements. Sable currently estimates start-up expenses of approximately $197.0 million in order to restart production in the fourth quarter 2024. Management evaluates its cost estimates on an ongoing basis. The expenditures will primarily be directed toward obtaining the necessary regulatory approvals and completing the pipeline repairs and bringing the shut-in assets back online in the fourth quarter 2024. After production restarts, 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 or sustain production thereafter.
Previous wording
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 PIPE Investments and believes the Company has sufficient capital to maintain operations and complete the repairs necessary to restart production at SYU. However, the Company’s plans for production restart are contingent upon approvals from federal, state and local regulators. Additionally, if the Company’s estimates of the costs of restarting production are less than the actual amounts necessary to do so, the Company may have insufficient funds available to operate its business prior to first production 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, suspending repair efforts and reducing overhead expenses. The Company cannot provide any assurance that new financing will be available to it on commercially acceptable terms, if at all.
Current wording
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 PIPE Investment, the Second PIPE Investmentand proceeds from the exercise of Warrants (refer to Note 7 — Warrantsfor additional details regarding the warrant exercises) and believes the Company has sufficient capital to maintain operations and complete the repairs necessary to restart production at SYU. However, the Company’s plans for production restart are contingent upon approvals from federal, state and local regulators. Additionally, if the Company’s estimates of the costs of restarting production are less than the actual amounts necessary to do so, the Company may have insufficient funds available to operate its business prior to first production 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. The Company cannot provide any assurance that new financing will be available to it on commercially acceptable terms, if at all.
Previous wording
Cash Flows from Operating Activities. SYU has been shut in since 2015 and therefore SYU had no production and associated revenues for the comparative periods. The net cash used in operating activities for the Company was $22.5 million and $93.9 million for the periods from January 1, 2024 through February 13, 2024 (Predecessor) and February 14, 2024 through June 30, 2024 (Successor), respectively, or a combined $116.3 million, representing an increase of $79.2 million, or 212.8%. The primary use of cash can be attributed to maintenance and operational readiness activities for SYU in the Predecessor and Successor periods, with additional general and administrative costs incurred post the Business Combination in the Successor period. For the period from February 14, 2024 through June 30, 2024 (Successor), we had a net loss of $345.5 million, partially offset by a non-cash increase of $79.4 million in fair value of the warrants, non-cash stock-based compensation of $69.3 million, changes in accounts payable of $53.1 million, non-cash paid-in-kind interest $28.5 million, and a non-cash deferred tax expense of $18.6 million. Changes in accounts payable for that period is primarily attributable to the Grey Fox Matter settlement, with $35.0 million remaining in Accounts payable and accrued expenses as of June 30, 2024 (Refer to Note 2 — Significant Accounting Policies). Future cash flow from operations for SYU 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, NGLs and natural gas.
Current wording
Cash Flows from Operating Activities. SYU has been shut in since 2015 and therefore SYU had no production and associated revenues for the comparative periods. The net cash used in operating activities for the Company was $22.5 million and $125.5 million for the periods from January 1, 2024 through February 13, 2024 (Predecessor) and February 14, 2024 through September 30, 2024 (Successor), respectively, or a combined $148.0 million, representing an increase of $93.4 million, or 170.9% compared to the nine months ended September 30, 2023 (Predecessor). The primary use of cash can be attributed to maintenance and operational readiness activities for SYU in the Predecessor and Successor periods, with additional general and administrative costs incurred post the Business Combination in the Successor period. For the period from February 14, 2024 through September 30, 2024 (Successor), we had a net loss of $601.1 million, partially offset by a non-cash increase of $257.6 million in fair value of the warrants, non-cash stock-based compensation of $86.0 million, changes in accounts payable of $54.5 million, non-cash paid-in-kind interest $47.3 million, non-cash deferred tax expense of $19.4 million, and a non-cash effect from the First Amendment to the Senior Secured Term Loan of $5.0 million. Changes in accounts payable for that period is primarily attributable to the Grey Fox Matter settlement, with $35.0 million remaining in Accounts payable and accrued expenses as of September 30, 2024 (Refer to Note 2 — Significant Accounting Policies), approximately $7.5 million in marketing and legal fees associated with the Second PIPE Investment, and other vendor payables associated with the SYU restart. Future cash flow from operations for SYU 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, NGLs and natural gas.
Previous wording
For the six months ended June 30, 2023 (Predecessor), the $37.2 million cash used in operating activities was related to maintenance and operational readiness expenses for SYU.
Current wording
For the nine months ended September 30, 2023 (Predecessor), the $54.6 million cash used in operating activities was related to maintenance and operational readiness expenses for SYU.
Previous wording
Cash Flows from Investing Activities. The net cash used in investing activities for the Company was $0.0 and $208.3 million for the periods from January 1, 2024 through February 13, 2024 (Predecessor) and February 14, 2024 through June 30, 2024 (Successor), respectively. The Successor investing cash flow is primarily comprised of $204.2 million paid to EM at Closing for the SYU Assets, with the remaining cash paid for capital expenditures associated with restart efforts.
Current wording
Cash Flows from Investing Activities. The net cash used in investing activities for the Company was zero and $222.7 million for the periods from January 1, 2024 through February 13, 2024 (Predecessor) and February 14, 2024 through September 30, 2024 (Successor), respectively. The Successor investing cash flow is primarily comprised of $204.2 million paid to EM at Closing for the SYU Assets, with the remaining $18.6 million cash paid for capital expenditures associated with restart efforts.
Previous wording
For the six months ended June 30, 2023 (Predecessor), the net cash used in investing activities for the Predecessor period was $0.0 since SYU has been shut in since 2015, without investing activities, but has been maintained it in an operation-ready state.
Current wording
For the nine months ended September 30, 2023 (Predecessor), the net cash used in investing activities for the Predecessor period was zero since SYU has been shut in since 2015, without investing activities, but has been maintained in an operation-ready state.
Previous wording
Cash Flows from Financing Activities. The net cash provided by financing activities for the Company was $22.5 million and $396.0 million for the periods from January 1, 2024 through February 13, 2024 (Predecessor) and February 14, 2024 through June 30, 2024 (Successor), respectively. The Successor financing activities for the period are comprised of the PIPE Investments cash received of $440.2 million, net of $22.9 million of capitalized Business Combination transaction expenses, or $417.3 million net, less the 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.
Current wording
Cash Flows from Financing Activities. The net cash provided by financing activities for the Company was $22.5 million and $618.4 million for the periods from January 1, 2024 through February 13, 2024 (Predecessor) and February 14, 2024 through September 30, 2024 (Successor), respectively. The Successor financing activities for the period are comprised of the aggregate $590.2 million in gross proceeds received from the First PIPE Investment and the Second PIPE Investment, less $22.9 million of capitalized transaction expenses, or approximately $567.4 million net, cash received from Warrant exercises of $72.5 million, less the deposit paid to EM for the Senior Secured Term Loan of $18.8 million, payment of debt issuance costs of $1.6 million and associated with the First Amendment to the Senior Secured Term Loan (refer to Note 6 — Debt for additional disclosures regarding the First Amendment to the Senior Secured Term Loan), and repayment of Flame's non-convertible promissory notes—related parties for $1.1 million.
Previous wording
For the six months ended June 30, 2023 (Predecessor), the net cash used in financing activities was $37.2 million. Predecessor financing activities consists of EM capital contributions financing the maintenance and operational readiness activities for SYU.
Current wording
For the nine months ended September 30, 2023 (Predecessor), the net cash used in financing activities was $54.6 million. Predecessor financing activities consists of EM capital contributions financing the maintenance and operational readiness activities for SYU.
Previous wording
Pursuant to the Term Loan, which financed most of the Purchase Price (as defined in the 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 amount under the Term Loan. Refer to Note 6 — Debt for additional disclosures regarding the Term Loan.
Current wording
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. Refer to Note 6 — Debt for additional disclosures regarding the Senior Secured Term Loan.