*1st Feb 2025* - Price = $24.93 ### A High-Value Energy Opportunity Sable Offshore Corp. (SOC) presents a unique investment opportunity in the oil and gas sector. The company acquired the Santa Ynez Unit (SYU) from ExxonMobil for $643 million, even though the field holds an estimated 1 billion barrels of oil and has a projected value of $10 billion. The key to this investment is whether SOC can restart production, which is currently planned for early 2025. The investment case for SOC is based on three key factors: #### 1. The Oil is Already There This is not a new exploration project. The Santa Ynez field was one of Exxon’s most productive U.S. assets, producing 10-20 million barrels per year before being shut down in 2015 due to a pipeline issue. SOC’s main challenge is not finding oil but bringing existing wells back into production. #### 2. Low Cost, High Potential Profits The [[cost of extracting oil]] from this field is around $16 per barrel, making it significantly cheaper than many other producers. If oil prices remain at $70 per barrel, SOC could generate hundreds of millions in profit per year. If production scales up, profits could exceed $1 billion annually. #### 3. Regulatory Hurdles are Clearing The main challenge has been obtaining government approval to restart operations. SOC has already secured key approvals, and the final steps, including pipeline testing, are expected to be completed in early 2025. If everything proceeds as planned, production could resume shortly after. ### TL;DR If SOC successfully restarts production, its stock price could increase significantly. If delays persist, the company’s valuation remains uncertain. At current prices, SOC offers an opportunity to invest in a well-established oil field at a steep discount. For those willing to accept some uncertainty, SOC represents a chance to invest in a valuable energy asset that just needs regulatory approval to begin generating substantial cash flow. **Recent Developments:** - **January 22, 2025:** SOC shares spiked **7.9%**, with no specific news identified; the stock is up **127.6% since February 2024**. - **Stock Performance:** Despite regulatory uncertainty, SOC remains a **speculative investment** with significant upside potential. - **Regulatory Progress:** SOC has cleared key hurdles, but **California politics and environmental opposition** remain challenges. ### **Key Investment Highlights** - **World-Class Asset:** The **SYU** spans **76,000 acres**, with **over 1 billion barrels of recoverable resources**, capable of producing **60,000-100,000 barrels per day**. - **Low-Cost, High-Margin Production:** Operating costs of **$17 per barrel** ensure **strong profitability** even in volatile markets. - **Experienced Leadership:** Led by **James C. Flores**, an industry veteran with a **proven track record** of creating shareholder value. - **Strategic Restart Plan:** Production expected to resume **by Q4 2025**, with **key regulatory milestones already achieved**. - **Financial Strength:** Well-capitalized with **$288 million in cash** and over **$590 million raised through investments**. - **Energy Transition Alignment:** Positioned for **Carbon Capture and Storage (CCS)** and **natural gas development**. ### **Regulatory & Operational Milestones** - **Regulatory Progress:** - **Federal Consent Decree:** Sable must pass compliance under the **Office of the State Fire Marshal (OSFM)**, which has **six required steps**; currently on **steps 5 & 6 (deferred maintenance and startup plan)**. - **Pipeline Safety Waivers Approved (December 2024):** 60-day review by **PHMSA**; if no objections, waivers take effect by **mid-February 2025**. - **Santa Barbara County Settlement (2024):** Avoided potential litigation with the county due to lost tax revenues from non-operational assets. - **Operational Progress:** - Pipeline Hydrotesting to Begin (January 2025). - Potential Restart of Production in Q4 2025. ### **Market Outlook & Competitive Positioning** - **California’s Oil Dependence:** - State production is **283,000 bpd** vs. **4M bpd consumption**, largely sourced from **Middle East, Canada, and Alaska**. - **Declining Alaska output** may increase California’s reliance on domestic production. - **Limited State Jurisdiction:** - SYU operates on **16 federal offshore leases**, reducing California’s regulatory reach. - **Pro-Oil Federal Administration (2025):** Likely to support offshore production. ### **Financial Projections & Shareholder Returns** #### **Production & Cash Flow Projections** - **Base Case (2025):** 10M barrels/year → **$400M EBIT** @ $70/b oil. - **Growth Case (2028):** 20M barrels/year → **$1.2B EBIT**. - **Expansion Case (2029+):** **Potential for 60,000 barrels/day**, generating **$800M+ in free cash flow annually**. #### **Valuation Scenarios** |Scenario|Production|Oil Price|Total Cost ($/b)|Annual FCF|Valuation|Price/Share| |---|---|---|---|---|---|---| |**Bear**|No restart|N/A|N/A|N/A|Assets revert to Exxon|<$1B| |**Base**|10M bbls|$70|$26|$285M|$6.27B|$70.32| |**Bull**|60M bbls|$100|$20|$800M+|$20B+|$150+| #### **Shareholder Return Strategy** - **Quarterly Dividend:** Fixed **$1/share**, with upside to **$2.50/share**. - **Stock Buybacks:** Opportunistic repurchases with excess cash. - **Debt Management:** Aggressive paydown of $1B in net debt. ### **Key Risks & Mitigations** 1. **Regulatory Hurdles:** SOC still requires final approvals, but progress has been strong. 2. **California Political Climate:** Historically hostile to fossil fuel companies, mitigated by federal jurisdiction. 3. **Oil Price Volatility:** Strong hedging strategies in place to manage fluctuations. 4. **Operational Execution:** Management must deliver on restart and ramp-up plans. 5. **Environmental Opposition:** California Coastal Commission remains a challenge. 6. **Pipeline Access Challenges:** Land easement disputes resolved but could resurface. ### **Management & Ownership** - **CEO/Chairman: James C. Flores** - Former CEO of Plains Resources, PXP (sold to Freeport-McMoRan). - Led 420% production growth and 174% reserve growth at PXP. - Owns ~20% of SOC, aligning interests with shareholders. - Flores Family Invested $33M into SOC. >"**Sable Offshore Corp.** (NYSE:SOC): There are certain attributes of a business that I find attractive. Among the very top are recurring revenue, operating leverage, high insider ownership, and a high free cash flow yield. If we are lucky, we typically get three out of the four attributes, but rarely all four. ### **Catalysts** 1. **Regulatory Clearance:** PHMSA’s final approval (~February 2025) would confirm restart. 2. **Production Restart:** Q4 2025 operations could drive SOC **>50% upside to ~$30/share**. 3. **Dividend Payments:** Confirmation of **$1/quarter payout** could lead to **>$40/share target**. 4. **Expansion to 60,000+ barrels/day:** Production growth could push valuations past **$150/share**. ### **Final Takeaway** Sable Offshore Corp. presents a **rare opportunity** to invest in a **world-class asset** with **significant growth potential**. If production resumes successfully, **SOC could be a multi-bagger**, with a **3x+ upside** over the long term. While **regulatory risks remain**, the **company is well-capitalized** and led by a **proven management team**. Investors with a **higher risk tolerance** may find this an **attractive buy opportunity**, while **cautious investors may prefer to wait for more clarity** on operations and profitability before initiating or expanding positions. Ref: - https://www.reddit.com/r/ValueInvesting/comments/1hkz8tf/sable_offshore_corp/ - [[Hyrdrostatic Pressure Testing]]