Sable Offshore Corp.

Previous wording

Unless otherwise indicated, references to “we”, “us”, “our”, “Sable” or the “Company” in this Item 7 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 is provided as a supplement to, and should be read in conjunction with our financial statements and related notes thereto included elsewhere in this Annual Report. In addition to historical data, this discussion contains forward-looking statements about our business, operations and financial performance based on current expectations that involve risks, uncertainties and assumptions. Our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including but not limited to those discussed in “Cautionary Notice Regarding Forward-Looking Statements” and Part I, Item 1A, “Risk Factors.”

Current wording

The following discussion and analysis should be read in conjunction with our consolidated financial statements and notes thereto in Item 8. Financial Statements and Supplementary Data of this report. In addition to historical data, this discussion contains forward-looking statements about our business, operations and financial performance based on current expectations that involve risks, uncertainties and assumptions. Our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including but not limited to those discussed in “Cautionary Note Regarding Forward-Looking Statements” and Part I, Item 1A. “Risk Factors.”

Previous wording

For the purposes of the 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.”

Current wording

For the purposes of this discussion, 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.”

Previous wording

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, a pipeline operated by Plains All American Pipeline, L.P. (“Plains”) that transported produced oil from SYU experienced a leak, as further described under“Business—Pipeline 901 Incident.” The SYU platforms and facilities suspended production after the incident, the SYU Assets were shut in and the facilities were placed in a safe state. The facilities are not currently producing oil and gas; however, all equipment remains in place in an operation-ready state, requiring ongoing inspections, maintenance and surveillance. As part of these suspension efforts, all equipment was drained, flushed and purged in 2016. All hydrocarbon pipelines within SYU have been placed in a safe state and remain under regular monitoring. In 2020, Plains entered into a Consent Decree, described further under“Business—Pipeline 901 Incident,” that provides a path for a potential restart of the Pipelines.

Current wording

Prior to May 15, 2025, the SYU 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. The Santa Ynez Pipeline System was maintained in a safe state and regularly monitored.

Previous wording

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 Annual 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 consolidated financial statements.

Current wording

The discussion of the results of operations for the Predecessor periods below do not include the results from the Pipeline Segments 324 and 325, and the Pipeline Segments 324 and 325 are not included in the combined financial statements of the Predecessor included in the financial statements and related notes thereto included elsewhere in this Annual Report. Financial statements of the Pipeline Segments 324 and 325 have not been included because SEC guidance provides that the financial statements of recently acquired businesses such as the Pipeline Segments 324 and 325 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 Pipeline Segments 324 and 325 renders the Predecessor combined financial statements misleading or substantially incomplete. The Successor financial statements include the results from the Pipeline Segments 324 and 325 and the Pipeline Segments 324 and 325 are included in the consolidated financial statements.

Previous wording

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.

Current wording

The Company has not had any substantial revenues since its inception. The Company’s various operating expenses are the principal metrics used to assess its performance.

Previous wording

•Depreciation, depletion, amortization, and accretion. Depreciation, depletion and amortization are primarily determined under either the unit-of-production 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.

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 2015 when production temporarily ceased, no depletion has been expensed for the Successor periods presented. However, depletion associated with the current production has been capitalized to Inventory for produced barrels in storage at SYU (see further discussion in Note 2—Significant Accounting Policies to the consolidated financial statements). 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. For the Predecessor period, any general and administrative expenses that were not specifically identifiable to SYU were allocated to SYU for the year ended December 31, 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. Increased general and administrative services may be required in the future, commensurate with planned operations 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. 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.

Previous wording

•Taxes other than income. Management anticipates future increases in ad valorem taxes, in line with the projected restart of production.

Current wording

•Taxes other than income. Management anticipates future increases in ad valorem taxes, in line with the projected restarting sales of production volumes.

Previous wording

Operating and maintenance expenses. Operating and maintenance expenses were $7.3 million and $87.9 million for the periods from January 1, 2024 through February 13, 2024 (Predecessor) and February 14, 2024 through December 31, 2024 (Successor), respectively, or a combined $95.2 million, representing an increase of $34.5 million, or 56.9%, compared to $60.7 million for the year ended December 31, 2023 (Predecessor). The increase in operating and maintenance expenses was primarily attributable to activities associated with restart, which includes an 88% increase in operations employee headcount since the Closing Date. Operations and maintenance expenses are expected to increase over the next several years as production is restarted and additional employees are hired to support safe production operations.

Current wording

Operating and maintenance expenses. Operating and maintenance expenses were $219.2 million for the year ended December 31, 2025, representing an increase of $124.0 million, or 130%, compared to $7.3 million for the period from January 1, 2024 through February 13, 2024 (Predecessor) and $87.9 million for the period February 14, 2024 through December 31, 2024 (Successor), respectively, or a combined $95.2 million. The increase in operating and maintenance expenses is primarily attributable to additional maintenance expenses incurred in connection with restart efforts, which includes a 37% increase in operations employee headcount since the prior year, $28.0 million related to operator rights expenditures, and $6.6 million related to restart incentive compensation, partially offset by $6.1 million of operating expense capitalized as Inventory on the consolidated balance sheet as of December 31, 2025. Operations and maintenance expenses are expected to remain elevated prior to our commencement of sales of production.

Previous wording

General and administrative expenses. General and administrative expenses were $1.7 million and $229.1 million for the periods from January 1, 2024 through February 13, 2024 (Predecessor) and February 14, 2024 through December 31, 2024 (Successor), respectively, or a combined $230.9 million, representing an increase of $218.1 million compared to $12.8 million for the year ended December 31, 2023 (Predecessor). The increase in general and administrative expenses was primarily attributable to general and administrative related stock-based compensation of $86.6 million following the Business Combination, the $70.0 million settlement of the Grey Fox Matter (Refer to Note 8 — Commitments and Contingencies), $17.5 million in legal expenses and professional fees related to the Business Combination, restart efforts, and other legal matters, 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 $176.2 million for the year ended December 31, 2025, representing a decrease of $54.7 million compared to $1.7 million for the period January 1, 2024 through February 13, 2024 (Predecessor) and $229.1 million for the period February 14, 2024 through December 31, 2024 (Successor), respectively, or a combined $230.9 million. This decrease is primarily attributable to higher non-recurring G&A expenses recognized for the period February 14, 2024 through December 31, 2024 (Successor) such as 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. Also contributing to the decrease in G&A expenses was a $49.0 million decrease in share-based compensation expense between reporting periods. These decreases were partially offset by $35.7 million in higher compensation related to restart incentive compensation costs, $29.7 million in higher legal expenses and professional fees attributable to our continued pursuit of achieving first sales, and the recognition of salaries and wages for the full year ended December 31, 2025, compared to the Successor period February 14, 2024 through December 31, 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).

Previous wording

Income tax benefit. Income tax benefit was zero and less than $0.1 million for the periods from January 1, 2024 through February 13, 2024 (Predecessor) and February 14, 2024 through December 31, 2024 (Successor), respectively, representing an increase of less than $0.1 million compared to zero for the year ended December 31, 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 future estimated taxable income. 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 (benefit). Income tax expense for the year ended December 31, 2025 was $11.7 million, representing an increase of $11.7 million compared to zero for the period January 1, 2024 through February 13, 2024 (Predecessor) and less than $0.1 million for the period February 14, 2024 through December 31, 2024 (Successor), respectively, or a combined less than $0.1 million. Utilizing provisions of ASC 740, the Company’s effective tax rate was negative 2.9%, and less than negative 0.01% for the year ended December 31, 2025 and the period February 14, 2024 through December 31, 2024 (Successor) respectively. The negative tax rates were due to our ongoing assessment of our ability to recover our deferred tax assets, in 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 negative income tax rate was greater for the year ended December 31, 2025 due to an increase in the valuation allowance primarily associated with net operating losses not expected to be realized in future periods.

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 production is in the process of being restarted and prior to generating positive cash flow from production, 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 $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 Senior Secured Term Loan with EM. Based on its current financial plan, Sable management expects production to restart in the second quarter 2025, after which its operating cash flows are expected to be sufficient to service Sable’s operating expenses and indebtedness.

Current wording

Overview. Our plans for recommencing 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 Santa Ynez Pipeline System or via OS&T, 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 2015 when production temporarily ceased, capital contributions from its parent. While production has restarted, prior to generating sales and positive cash flow from production, our capital expenditure needs have been and will continue to be substantial.

Previous wording

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.

Current wording

Capital Raising Activities. 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. On the Closing Date, the Company issued 44,024,910 shares of Common Stock of the Company, at a price of $10.00 per share for aggregate gross proceeds of $440.2 million (the “First 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 (“Second PIPE Investment”).

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 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. 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.

Current wording

If our estimates of the costs to reach first sales via the Santa Ynez Pipeline System or the OS&T are less than the actual amounts necessary to do so, we may have insufficient funds available to operate our business prior to first sales of production and will need to raise additional capital. If we are unable to raise additional capital, we may be required to take additional measures to conserve liquidity, which could include, among other things, reducing overhead expenses.

Previous wording

Due to the remaining regulatory approvals necessary to restart production, along with the timing of ongoing construction repair efforts, substantial doubt exists about the Company’s ability to continue as a going concern. The financial statements included in this Annual 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.

Current wording

Due to the uncertainty regarding our resumption of sales of production volumes, and lack of assurance that new financing, or refinancing of the Senior Secured Term Loan, will be available to us 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 annual 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.

Previous wording

Cash Flows from Operating Activities. The SYU Assets have been shut in since 2015 and therefore there has been no production and associated revenues for the comparative periods. The net cash used in operating activities for the Company was $22.5 million and $163.0 million for the periods from January 1, 2024 through February 13, 2024 (Predecessor) and February 14, 2024 through December 31, 2024 (Successor), respectively, or a combined $185.4 million, representing an increase of $115.3 million, or 164.5% compared to the year ended December 31, 2023 (Predecessor). 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 period from February 14, 2024 through December 31, 2024 (Successor), we had a net loss of $617.3 million, which consists of a non-cash increase of $227.5 million in fair value of the warrants, non-cash stock-based compensation of $91.6 million, non-cash paid-in-kind interest of $66.3 million, changes in accounts payable of $54.0 million, non-cash depreciation, depletion, amortization and accretion of $9.7 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 December 31, 2024 (Refer to Note 2 — Significant Accounting Policies), and other vendor payables associated with the restart efforts. 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, NGLs and natural gas.

Current wording

For the year ended December 31, 2025, we had a net loss of $410.2 million, which consists of a non-cash decrease of $89.2 million in fair value of the warrants, non-cash paid-in-kind interest of $87.7 million, non-cash stock-based compensation of $42.7 million, non-cash tax expense of $11.7 million, and non-cash depreciation, depletion, amortization and accretion of $12.9 million. Changes in Inventory for the period of $6.1 million is attributable to the cash paid for expenses capitalized as Inventory on the consolidated balance sheet as of December 31, 2025 and changes of Prepaid expenses and other assets for the period of $7.5 million is attributable to the cash paid for future period expenses, net of non-cash amortization of such payments. 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 December 31, 2024 (Successor) the Company incurred a net loss of $617.3 million, respectively, or a combined $629.1 million. Our combined net loss was partially offset by a non-cash increase in the fair value of our warrant liabilities of $227.5 million, non-cash stock based compensation of $91.6 million, and non-cash paid-in-kind interest $66.3 million. Changes in accounts payable of $46.0 million is primarily attributable to the Grey Fox Matter settlement, with $35.0 million in accounts payable and accrued liabilities as of December 31, 2024 (Refer to Note 2—Significant Accounting Policies). Future cash flow from operations will depend on our ability to recognize sales of production volumes, as well as the prices of oil, natural gas and NGLs.

Previous wording

Cash Flows from Investing Activities. The net cash used in investing activities for the Company was zero and $276.2 million for the periods from January 1, 2024 through February 13, 2024 (Predecessor) and February 14, 2024 through December 31, 2024 (Successor), respectively. The Successor investing cash flow is primarily comprised of $203.9 million paid to EM at Closing, with the remaining $72.3 million cash paid for capital expenditures associated with restart efforts.

Current wording

Cash Flows from Investing Activities. Net cash used in investing activities was $417.6 million for the year ended December 31, 2025, representing an increase in cash used in investing activities of $141.4 million, or 51%, compared to the net cash used investing activities of zero for the period January 1, 2024 through February 13, 2024 (Predecessor) and $276.2 million for the period February 14, 2024 through December 31, 2024 (Successor), or a combined $276.2 million. Investing cash flow for the year ended December 31, 2025 consists of cash paid for capital expenditures associated with restart efforts and for the period February 14, 2024 through December 31, 2024 (Successor) is comprised of $203.9 million paid to EM at Closing per settlement statement and $72.3 million paid for capital expenditures associated with restart efforts. There was no net cash used in investing activities for the Predecessor period since production from the SYU Assets temporarily ceased in 2015 and had no investing activities.

Previous wording

Cash Flows from Financing Activities. The net cash provided by financing activities for the Company was $22.5 million and $721.7 million for the periods from January 1, 2024 through February 13, 2024 (Predecessor) and February 14, 2024 through December 31, 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 $30.6 million of capitalized transaction expenses, or approximately $559.7 million net, cash received from Warrant exercises of $183.5 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 repayment of Flame's non-convertible promissory notes—related parties for $1.1 million.

Current wording

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. Financing activities for the period February 14, 2024 through December 31, 2024 (Successor) are comprised of $440.2 million of gross proceeds from the First PIPE Investment, $150.0 million of gross proceeds from the Second PIPE Investment, or $590.2 million in aggregate gross private offering proceeds, net of $30.6 million of capitalized transaction expenses, or $559.7 million net, plus $183.5 million net cash received from warrant exercises, less deposit paid to EM for the Term Loan of $18.8 million, payment of debt issuance costs of $1.6 million, and repayment of Flame non-convertible promissory notes — related parties for $1.1 million.

Previous 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. 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 — Debt for additional disclosures regarding the Senior Secured 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 incurred interest for the period prior to the effectiveness of the Second Debt Amendment of ten percent (10%) per annum, and fifteen percent (15%) per annum subsequent to the Second Debt Amendment, compounded annually (refer to Note 6—Debt for additional details regarding the Second Debt Amendment). Interest on the Senior Secured Term Loan is payable in arrears on January 1st of each year but, 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. 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.

Previous wording

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 consolidated balance sheets.

Current wording

Other Property and Equipment. Other property and equipment primarily consist of onshore midstream facilities, transportation assets and assets related to the Company’s corporate office (the “Office Assets”). Due to the nature of such assets, the onshore midstream facilities are presented within oil and gas properties, while the transportation assets and the Office Assets are presented within other assets on the consolidated balance sheets.

Previous wording

The SYU Assets have 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 has been recorded for the periods presented. The recognition of depletion expense will commence upon restart and related production.

Current wording

The SYU Assets had not produced oil and gas 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 $6.0 million associated with the SYU Assets was recognized during the year ended December 31, 2025; however, as the associated production remained in the Company’s storage tanks as of December 31, 2025, the entire amount has been capitalized as Inventory on the consolidated balance sheet. The recognition of depletion expense on the consolidated statement of operations will commence upon the commencement of sales of production.

Previous wording

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.

Current wording

We monitor for indicators of potential impairment throughout the year. This process is aligned with the requirements of ASC 360 and ASC 932. 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.

Previous wording

Asset Retirement Obligations. The Company’s asset retirement obligations 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.

Current wording

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.