Sable Offshore Company Investment Overview
One advantage investors that start early have is the ability to risk small amounts of capital in high risk investment opportunities.
One of these interesting high risk investments with binary outcome opportunities is an oil and gas company called Sable Offshore Company (Ticker: SOC).
Sable Offshore is a niche equity investment that has garnered a lot of attention from retail investors and even celebrities such as Phil Michelson. It is not hard to see why. The company promises multi-bagger returns if management can execute its plan over a 2 to 3 years, however the company is not without risks that have a material chance of taking the stock to 0.
Today we examine the current state of the company and the controversy surrounding it.
Early History and Assets:
Sable Offshore initially came to market as a SPAC (4 letter word) called Flame Acquisition Corp. Management, led by oil and gas industry veteran Jim Flores, then bought the Santa Ynez Unit from Exxon Mobile in 2022. The Santa Ynez Unit (SYU) consists of 3 offshore oil and gas platforms off the coast of Southern California. The assets also included an onshore processing facility, and onshore distribution pipelines for oil and natural gas. Exxon originally commissioned these platforms in the 80’s and 90’s. These assets were some of the most productive oil and gas assets in California and at one time produced roughly 10% of the oil in California. However, after a 2015 oil spill from a ruptured pipeline caused headaches from California regulators, Exxon decided to follow other major producers and sell the assets to get out of California.
Sable bought the assets from Exxon for roughly $700 million (now $850 million as a result of the paid in kind interest accumulation from 2022 to now) which is pennies compared to the PV-10 contingent reserve of roughly $10 BILLION. However, one important stipulation is that Sable must restart production by March 1st 2026 or the assets are transferred back to Exxon without any compensation to Sable. Since Sable is a single asset company, this would spell the end of the company. Hence the binary outcome for the stock.
The challenge Sable is faced with is completing the repairs necessary to recommission the pipeline which is currently facing a plethora of legal headwinds.
Valuation Support:
Sable released guidance in May 2025 that showed increased production numbers and lower production costs than originally anticipated.
Sable expects roughly 50,000 MBOE per day from the SYU and this is at a total cost of extraction of roughly $15/barrel and a Royalty of roughly 15% of total revenue. The cost of extraction is highly attractive and some of the lowest cost to produce in the United States. Sable also has the ability to modernize the SYU with items such as Electric Submersible Pumps that promise to increase the daily output from the wells.
Obviously with so much retail coverage and very little institutional coverage, there is a wide variety of estimates of price targets and revenue forecasts anywhere from EBITA of $500M to $1B. Much of these may be incorrect or hyperbolic in the near term, however in the long term, management has made it clear that their goal is to buy back stock and distribute capital to generate excess returns. And with an asset with a low cost to produce, a long history of production and a stock with a current market cap of roughly $3B, it is hard to argue with them.
CEO Profile:
Jim Flores is a veteran of the oil and gas industry. He has been CEO or a top executive of 5 different companies and has found a particular niche in operating offshore oil platforms. He has run companies that have owned platforms in the Gulf of America as well as platforms not too far from the SYU in California during his time at Plains Exploration and Production Company.
During his time at Plains Exploration and Production Company, Flores has dealt with California regulators, specifically Santa Barbara County,the same county that has jurisdiction over the SYU.
Although he has had his fair share of struggles in the industry, he seems to have extensive experience handling offshore platforms, distressed assets and even California regulators.
Jim Flores is also a large shareholder in Sable, owning about 20% of the common stock outstanding. He has even bought 600,000 shares at a price of $24/Share - roughly what Sable trades at currently. All in, Jim Flores has invested roughly $33 Million, giving shareholders confidence that the CEO has a vested interest in seeing the company succeed.
Legal Challenges:
The major reason this stock is so hairy to some investors (roughly 15% short interest) is the legal challenges surrounding restarting the pipeline and operating an oil and gas asset in California. As of today, there are two lawsuits that Sable is currently fighting and are worth talking about.
As a result of the 2015 Refugio Oil Spill, the pipeline operator and the US Federal Courts entered into a Consent Decree that essentially states that the pipeline can only be restarted once specified repair conditions are met and signed off by California’s Office of the State Fire Marshal (OFSM). Sable completed the necessary repairs and hydrostatic testing in May of this year. The last step of the Consent Decree is to receive approval from the OFSM to restart operations. However, the Environmental Defence Center has filed a lawsuit in California State Court alleging that Sable has violated the California Environmental Quality Act (CEQA) by not having public input or an Environmental Impact Report done. Sable is contesting this saying that they have received exemptions from the OFSM and California State Parks for a CEQA review. Ultimately, the State Court has granted a Temporary Restraining Order against the OFSM which prevents Sable from receiving sign off on the pipeline. The next hearing is scheduled for July 18th. If the TRO is lifted at this hearing, it can be assumed that the OFSM will provide go-ahead to Sable to start using the pipeline.
The second lawsuit making headlines involves the California Coastal Commission (CCC). The CCC has alleged that Sable has not obtained the required Coastal Development Permits (CDP) for pipeline repair work and that the original CDP permits given to Exxon (subsequently transferred to Sable as a result of the SYU sale agreement) do not cover the repair work being performed currently. The issue with this case is that the repair work has already been completed before the suit was granted a ruling. The other counter argument is that the existing CDP permits from the 1980’s have been cited as still valid by a Santa Barbara Court in a letter sent to Sable in February 2025. The letter also states that the existing CDP permits cover the repair work that was performed and no new permits are needed.
However Sable is not just on defense. There has been speculation that Sable may go after California with a Takings Clause, essentially asking for $10B in compensation as a result of not being able to restart production at the SYU. This case is pure speculation and not something that should really be considered in the underwriting of the asset.
The legal cases seem like a last ditch effort to prevent the pipeline from restarting. Agencies are throwing everything at the wall and seeing what will stick. Ultimately, it seems that Sable has a good chance of getting approval to restart the pipeline this year however it remains to be seen if there are other legal challenges that develop as the company operates. For a more indepth view into the legal challenges and commentary of SOC please look into Jason Strom on X
Oil Market Outlook:
With exception of the recent oil price spike into the $70’s due to the Iran conflict, oil has been steady in the $60-$65 price range. The $60 price has acted as a bottom as US producers take rigs offline to prevent a glut of supply as US producers stay profitable in this $60-$65 range.
With US GDP slowing and the Chinese economy facing similar slow downs, oil and gas has fallen out of favor with investors recently. However, as a cyclical industry this may start to reverse as there looks to be a few catalysts to drive the price higher.
The first catalyst would be the US spending bill that reduces the tax credits for wind and solar energy. By removing the subsidy, the oil and gas industry may receive a boost as the US looks to expand its energy production in order to power manufacturing and AI. All commodity prices are also set to strength as the Dollar continues to weaken. There looks to be a few catalysts in the near term that would drive the dollar lower such as the Fed lowering rates and the US Treasury needing to issue large amounts of T-Bills into the fall as their checking account dries up.
Final Thoughts:
Sable is different from most oil and gas equities in that the company is not dependent on the cost of oil. Obviously higher oil prices help but the investment thesis is centered simply on getting oil flowing again.
Bears are quick to point out the difficulty of operating in the California market and the amount of lawsuits certainly give credence to that argument. However, Sable is led by management that has dealt with the same California regulators, this is not a naive management group. Another promising sign is that Sable has so far handled these matters in the State Courts and has not made any meaningful attempts to rope Federal Courts into these issues. This potentially speaks to management’s confidence in their arguments that they have not needed to resort to the nuclear option in cases so far.
Although there is massive upside potential, Sable is not for the faint of heart of investors. The equity can very easily go to 0 in a variety of ways. Investors must be sure of the risks and size their position appropriately to what they are willing to lose. As always anything written is opinion and not financial advice.
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