Sable Offshore Corp.

Note 11 — Fair Value Measurements

Certain of the Company’s financial assets and liabilities are reported at fair value on the consolidated balance sheets. An established fair value hierarchy prioritizes the relative reliability of inputs used in fair value measurements. The hierarchy gives highest priority to Level 1 inputs that represent unadjusted quoted market prices in active markets for identical assets and liabilities that the reporting entity has the ability to access at the measurement date. Level 2 inputs are directly or indirectly observable inputs other than quoted prices included within Level 1. Level 3 inputs are unobservable inputs and have the lowest priority in the hierarchy.

Recurring Fair Value Measurements

The following tables present information about the Company’s assets and liabilities that are measured at fair value on a recurring basis, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:

The following table presents the changes in the fair value of the Level 3 Private Placement Warrants and Working Capital Warrants:

During the period from February 14, 2024 through December 31, 2024 (Successor),1,609,564 Private Placement Warrants ceased to be held by the initial purchasers or their permitted transferees and therefore became redeemable by the Company and exercisable by the holders of such warrants on the same basis as the Public Warrants. As a result, $21.1 million was transferred out of Level 3 and into Level 1 in the fair value hierarchy during the period from February 14, 2024 through December 31, 2024 (Successor).

There were no other transfers in or out of Level 3 from other levels in the fair value hierarchy for the year ended December 31, 2025 (Successor) or for the period from February 14, 2024 through December 31, 2024 (Successor).

There were no financial assets or liabilities accounted for at fair value on a recurring basis in the Predecessor financial statements for the period from January 1, 2024 to February 13, 2024 (Predecessor) or for the year ended December 31, 2023 (Predecessor).

Fair Value of Financial Assets

The carrying amount of cash and cash equivalents, prepaid expenses and other current assets, accounts payable, and accrued liabilities approximate their fair value because of the short-term nature of the instruments.

Senior Secured Term Loan

As of December 31, 2025 and 2024, the estimated fair value of the Senior Secured Term Loan approximates the amount of principal and paid-in-kind interest outstanding because the interest rate is reflective of market rates and such outstanding amount may be repaid, in full or in part, at any time without penalty. The associated inputs are considered a Level 2 fair value measurement.

Warrant Liabilities

Prior to the Redemption, the Public Warrants were measured at the observable quoted price in active markets. Refer to Note 7—Warrants for details regarding the Warrant exercises and redemptions for the period from February 14, 2024 through December 31, 2024 (Successor). The estimated fair values of the Private Warrants and the Working Capital Warrants are measured using the Modified Black-Scholes Optional Pricing Model, which utilizes Level 3 inputs. Inherent in a binomial options pricing model are assumptions related to expected share-price volatility, expected life, risk-free interest rate and dividend yield. A change in these significant unobservable inputs to a different value could result in a significantly higher or lower fair value measurement at future reporting dates. The Company estimates the volatility of its Common Stock based on historical volatility that matches the expected remaining life of the warrants. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected remaining life of the warrants. The expected life of the warrants is assumed to be equivalent to their remaining contractual term. The dividend rate is based on the historical rate, which the Company anticipates to remain at zero. The aforementioned warrant liabilities are not subject to qualified hedge accounting. Changes in the estimated fair value of the Private Placement Warrants and Working Capital Warrants are included in the Change in fair value of warrant liabilities on the Company’s consolidated statements of operations for the year ended December 31, 2025 (Successor), the period from February 14, 2024 through December 31, 2024 (Successor), the period January 1, 2024 through February 13, 2024 (Predecessor), and the year ended December 31, 2023 (Predecessor).

As Private Placement Warrants held by FL Co-Investment, LLC (“FL Co-Investment”) and Intrepid Financial Partners will not be exercisable more than five years from the effective date of the registration statement, the exercise period end date is different than other Private Placement Warrants and Working Capital Warrants which will expire five years after the Closing Date or earlier upon redemption or liquidation. Accordingly, they have different inputs to the Modified Black-Scholes Optional Pricing Model.

The following table provides quantitative information regarding Level 3 inputs used to determine the fair values of Private Placement Warrants held by Intrepid Financial Partners as of December 31, 2025.

The following table provides quantitative information regarding Level 3 fair value measurements used to determine the fair value of the Working Capital Warrants and the Private Placement Warrants, excluding Private Placement Warrants held by Intrepid Financial Partners as of December 31, 2025.

The following table provides quantitative information regarding Level 3 inputs used to determine the fair values of Private Placement Warrants held by Intrepid Financial Partners as of December 31, 2024.

The following table provides quantitative information regarding Level 3 fair value measurements used to determine the fair value of the Working Capital Warrants and the Private Placement Warrants, excluding Private Placement Warrants held by Intrepid Financial Partners, as of December 31, 2024.

Note 12 — Income Taxes

The Company follows the asset and liability method of accounting for income taxes under FASB ASC Topic 740, Income Taxes. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. After consideration of all of the information available, management believes that significant uncertainty exists with respect to future realization of the deferred tax assets and has therefore established a valuation allowance. Income taxes were not allocated to the Predecessor as the seller did not file a consolidated tax return and was not a taxable legal entity.

The components of the deferred income taxes were as follows:

The components of the Company’s income tax expense (benefit) were as follows:

As a result of the implementation of the One Big Beautiful Bill Act (OBBBA) enacted in July 2025, we recorded a $5.8 million charge in the third quarter of 2025, which was a valuation allowance against our U.S. federal deferred tax assets as of the enactment date of OBBBA.

As of December 31, 2025, the Company had $913.7 million U.S. federal net operating loss carryovers available to offset future taxable income. The Company had $359.7 million of California net operating loss carryovers available to offset future taxable income beginning in 2027 and are subject to expiration in 2047. Under the Tax Cuts and Jobs Act (“TCJA”), federal NOLs generated after 2017 will be carried forward indefinitely but are limited to an 80% deduction of taxable income. In June 2024, California’s Governor signed into law AB 167 suspending California NOL utilization for taxpayers with more than $1 million of taxable income, effective for tax years 2024, 2025, and 2026. AB 167 includes an extended carryover period for suspended net operating losses (“NOL”) that would have been utilized if not for AB 167.

The Company’s ability to utilize its NOL carryforwards may be substantially limited due to ownership changes that have occurred or that could occur in the future, as required by Section 382 of the Internal Revenue Code of 1986, as amended (the Code), as well as similar state provisions. These ownership changes may limit the amount of NOL carryforwards that can be utilized annually to offset future taxable income and tax, respectively. In general, an “ownership change,” as defined by Section 382 of the Code, results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percent of the outstanding stock of a company by certain stockholders or public groups.

During the course of preparing the Company’s consolidated financial statements, as of and for the year ended December 31, 2025, the Company completed a preliminary assessment of the available NOL carryforwards under Section 382 of the Code. The Company determined that in September of 2024, we had a Section 382 owner shift. As such, $143.1 million of U.S. federal net operating loss carryovers and $72.3 million of California net operating loss carryovers will be subject to an annual limitation of approximately $53.9 million.

A reconciliation of the federal income tax rate to the Company’s effective tax rate for the periods presented is as follows:

There were no foreign tax effects, impact from cross-border tax laws, tax credits, or unrecognized tax benefits as of December 31, 2025 or December 31, 2024. Interest and penalties for the years ended December 31, 2025 and 2024, were not material. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position. The Company files income tax returns in the U.S. federal and state of California, Texas and Louisiana jurisdictions. The Company is not currently under examination in any jurisdiction. The Company’s tax returns for the years ended December 31, 2025, 2024, 2023 and 2022, remain open and subject to examination. The Company paid no cash income taxes during the years ended December 31, 2025 and 2024.

Note 13 — Leases

Right-of-use assets and lease liabilities are established on the consolidated balance sheet for leases with an expected term greater than one year by discounting the amounts fixed in the lease agreement for the duration of the lease which is reasonably certain, considering the probability of exercising any early termination and extension options. Generally, assets are leased only for a portion of their useful lives and are accounted for as operating leases. Our leased assets primarily consist of office space and additionally include facilities, land sites, vessels, and equipment used in the operation of the SYU Assets. All of our leases are classified as operating leases.

The following table shows the classification and location of our right-of-use assets and lease liabilities on our consolidated balance sheets:

The lease costs are classified by the function of the right-of-use asset. Our short term lease costs related to exploration and development activities are initially included in the Oil and gas properties line on the consolidated balance sheets and subsequently accounted for in accordance with the ASC 932. The remaining lease costs are included in our consolidated statements of operations as either Operations and maintenance expenses or General and administrative expenses based on the function of the right-of-use asset.

The following table shows the classification and location of our lease costs on our consolidated statements of operations:

The following table shows the weighted-average remaining lease term and weighted-average discount rate for our operating leases:

Future annual minimum lease payments for operating leases as of December 31, 2025, are as follows (in thousands):

The Company has generated sublease income from facilities for which it acts as lessor. Variable lease costs represent costs incurred above the contractual minimum payments. The following table includes other quantitative information for our operating leases:

Note 14 — Supplemental Cash Flow Information

The following table provides supplemental disclosure of substantive cash flow information:

Note 15 — Subsequent Events

The Company evaluated subsequent events and transactions that occurred after the consolidated balance sheet date up to the date that the consolidated financial statements were issued. Based upon this review, the Company, other than as previously described herein, did not identify any subsequent events that would have required adjustment or disclosure in the financial statements.

On February 2, 2026, the Company established an “at-the-market” equity offering program pursuant to a sales agreement with TD Securities (USA) LLC and Jefferies LLC (collectively, the “Sales Agents”) under which the Company may offer and sell, at its discretion, shares of its Common Stock from time to time. The aggregate offering size under the program is up to $250.0 million of Common Stock, and any sales completed by the Sales Agents thereunder will be made pursuant to the Company’s effective shelf registration statement on Form S-3 and an accompanying prospectus supplement. The Company expects to use the net proceeds from any sales under the program for general corporate purposes, and restart-related capital expenditures.