Sable Offshore Corp. — Q1 2024 Form 10-Q
Business context and reporting period
For the quarter ended March 31, 2024. Sable completed its business combination and acquired Exxon’s Santa Ynez Unit (SYU) offshore California assets on February 14, 2024. SYU has been shut in since 2015 following a pipeline incident and was not producing during the quarter.
The statements divide the quarter into a Predecessor period (January 1–February 13) and a Successor period (February 14–March 31). The company says these periods are not directly comparable because of the business combination and acquisition; the 2023 comparison reflects the Predecessor only.
Key financial metrics
| Metric | Reported amount |
|---|---|
| Revenue | $0 in each reported period; no oil and gas sales. |
| Net loss | $180.1 million Successor; $11.8 million Predecessor. Combined, approximately $191.9 million, versus $23.2 million for Q1 2023 Predecessor. |
| Net loss per share | $2.99 for the Successor period; no comparable per-share figures reported for the Predecessor periods. |
| Operating expenses | $159.1 million Successor and $11.7 million Predecessor. Successor G&A was $150.4 million, including significant settlement, stock compensation and transaction-related costs. |
| Cash flow | Operating cash used: $36.1 million Successor and $22.5 million Predecessor. Investing cash used: $204.1 million, primarily acquisition cash paid to Exxon. Financing cash provided: $396.0 million Successor and $22.5 million Predecessor. |
| Cash and liquidity | $209.1 million cash at March 31. Current assets were $229.1 million and current liabilities $81.8 million; working capital was approximately $147.4 million. |
| Debt | $771.2 million long-term debt, net of issuance costs, including paid-in-kind interest. The Exxon senior secured term loan bears 10% annual interest. |
| Other notable balances | $91.5 million asset retirement obligations; $68.3 million warrant liabilities; $70.0 million accrued Grey Fox settlement liability. |
Margins are not meaningful because the company had no revenue. No cash operating margin was reported.
Material changes and unusual items
- The February business combination and SYU acquisition introduced a new operating-company reporting basis and significant financing, assets and liabilities. The acquisition purchase-price allocation remained preliminary; stated consideration was approximately $985.7 million.
- The $150.4 million of Successor G&A included $70.0 million accrued for the Grey Fox settlement, $46.4 million stock-based compensation and business-combination-related costs. These items materially contributed to the reported loss.
- The $440.2 million PIPE investment provided substantial funding, while the company also paid $204.1 million cash to Exxon at closing. Cash-flow comparisons are affected by acquisition financing and a $70.0 million settlement accrual within payables.
- The term loan’s reported balance includes paid-in-kind interest. Interest expense was $9.8 million for the Successor period; the loan is secured and carries restrictive covenants.
Outlook, risks and contingencies
- Management expected production to restart in the third quarter of 2024 and estimated restart costs of approximately $197 million. Restart depends on regulatory approvals and completion of pipeline repairs.
- The filing states that substantial doubt exists about the company’s ability to continue as a going concern, notwithstanding management’s view that available capital should fund operations and repairs. Cost overruns or delays could require additional financing; financing availability is not assured.
- If production is not restarted by January 1, 2026, Exxon may have an option to require reassignment of the SYU assets, without reimbursing Sable for its costs. The term loan also matures under specified earlier-of conditions, including a period after restart.
- The Grey Fox settlement requires a $35 million payment and a $35 million standby letter of credit, subject to court approval. The court granted preliminary approval on May 1, 2024; a final approval hearing was scheduled for September 13, 2024.
- At March 31, 25.4 million warrants were outstanding. Their fair-value changes affect reported earnings, and exercise could dilute common shareholders.
Most important facts for investors to verify
- Whether required federal, state and local approvals were obtained and pipeline repairs were completed, and whether production restarted on the expected schedule and within the estimated budget.
- Current cash runway and remaining restart expenditures, including whether additional capital is required before production generates cash flow.
- Final court approval and funding of the Grey Fox settlement, including the $35 million cash payment and letter of credit.
- Term-loan principal, accrued paid-in-kind interest, maturity triggers, covenants and the status of Exxon’s potential reassignment option.
- Final acquisition purchase-price allocation and any resulting changes to asset, liability or impairment estimates.