On June 10th, 2025, Sable's objection to the Coastal Commission's preliminary injunction was rejected by the court. The preliminary injunction stands. The trial date has been set for October 2025.
While the share price sold off 5% on the news, this has not materially changed anything. We continue to believe that this does not prevent Sable from pumping oil through the pipeline, but it does add some legal complexity to certain pipeline maintenance required by the Consent Decree. While there is a stipulation in the Consent Decree for emergency repair work, allowing for unpermitted repair work to be carried out in the event of an emergency that is probably not the best option for Sable. We believe that Sable will likely appeal this ruling to the California Appellate Court.
On June 3, 2025, the Environmental Defense Center (EDC) was granted a temporary restraining order (TRO) against the Office of the State Fire Marshal (OSFM), preventing it from issuing Sable its certificate of operation for the Las Flores pipeline.
This TRO is the last-ditch effort by environmentalists to have the pipeline shut down. This case against the OSFM is simply a reiteration of old arguments. If it has to go to trial, we believe the OSFM and Sable will prevail; however, this would likely result in further delays in restarting the pipeline. We believe it is unlikely that Sable will wait until the next hearing date on July 18th to address this matter.
The granting of the TRO against the OSFM, though, creates a jurisdictional problem, which is that the TRO would force the OSFM to violate the Consent Decree (federal law). This would violate the supremacy clause of the US Constitution, which states "...shall be the Supreme law of the land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding."
Sable will likely appeal this TRO to the California Appellate Court, hoping for a fast conclusion to either have the TRO overturned or have the Appellate Court rule that the CA Superior Court is not the correct venue for this issue given that fact that the Consent Decree governing the OSFM's actions in this matter is federal. The OSFM has been granted regulatory authority over the Las Flores pipeline by the Pipeline and Hazardous Materials Safety Administration, a division of the federal Department of Transportation, and, therefore, is operating under federal law.
On June 5th, 2025, Sable filed an objection to the preliminary injunction granted to the CCC, preventing Sable from carrying out any more 'development" on the pipeline.
It argues that the Court reached its decision without considering Sable's supplemental material, which, among other things, included the existing Coastal Development Permit (CDP). The CDP had not previously been entered into evidence at the request of the judge during the hearing on the CCC TRO. Sable argues that without considering all of Sable's supplemental material, a decision on the preliminary injunction can not be made. Similarly to the other ongoing case between the EDC and the OSFM, Sable argues that the preliminary injunction is too broad and does not limit itself to the issues in the CCC cease and desist order. in its current form, it would force Sable to violate the federal Consent Decree "because it seeks to enjoin Plaintiffs from complying with pipeline safety repair and maintenance activities required by federal law." per the Consent Decree.
Because of these recent legal setbacks, Sable announced in its recent 8-K that it is now expecting its first oil sales to start on August 1st. While this is disappointing, Sable has plenty of cash left to hold it over during this delay, especially after what now looks like an exceptionally well-timed equity sale. Ultimately, we believe Sable will prevail in these cases; these are not the most challenging legal arguments that Sable has had to deal with in this long saga. The recent sell-off, following the news has now brought the share price back to its level before the pipeline repair work was completed, presenting an excellent buying opportunity. While the timeline for first oil sales has been pushed back, and the outlook is a little less clear, we think the market is overpricing the current risk associated with these last legal issues.
It was a busy day for Sable Offshore yesterday. On May 28th, Sable released an 8-K:
On May 27, 2025 Sable Offshore Corp. conducted a successful hydrotest of the final segment of Line 325 and has now successfully hydrotested all segments of Line 324 and Line 325 (collectively, the “Onshore Pipeline”), satisfying the final operational condition to restart of the Onshore Pipeline as outlined in the Consent Decree. Therefore, no more repairs are required to the Onshore Pipelines prior to restart.
Additionally, on the 28th, the Santa Barbara County Superior Court approved a preliminary injunction requested by the CCC regarding Sable's repair work and maintenance of the pipeline. This news sent the share price plunging 15%.
We do not think that this injunction impacts Sable materially, as they have already finished repair work and completed all hydro-testing on the pipeline. The injunction does not state that the pipeline can not be operated; it is only an injunction on work that Sable has already completed. Now, with the completion of the last hydrotest, Sable has met all requirements as laid out in the Consent Decree for The Office of the State Fire Marshal (OSFM) to sign off on the restart of the pipeline.
The market appears concerned that this injunction will somehow prevent Sable from receiving the Certificate of Operation from the OSFM; this is not the case. Nowhere in the Consent Decree that governs the requirements for the restart of the pipeline does it state that ongoing legal issues prevent Sable from obtaining a Certificate of Operation from the OSFM. While it is certainly possible that the OSFM attempts to use the injunction as a reason to delay granting the Certificate of Operation, we consider this unlikely, as it would blatantly violate the Consent Decree and would open the OSFM up to a federal lawsuit. The OSFM is a procedural body, not a politically motivated one like the CCC; based on its previous interaction with Sable, we do not think the OSFM will attempt to obstruct the restart of the pipeline.
Ultimately, we think that the injunction will be rescinded; it was only a preliminary injunction. The Coastal Commission has made a habit of filing for things the day before a hearing, giving Sable's lawyers limited time to respond. The CCC did the same thing in April by asking for a Temporary Restraining Order (TRO), which Judge Anderle initially granted but then rescinded once Sable was able to respond. In this instance, the volume of documents required for Sable to make its case could not reasonably be read and digested during the hearing. We believe that this preliminary injunction will not remain in force for long. Still, until this is worked out either by the OSFM granting Sable its Certificate of Operation disproving the importance of the injunction or by the injunction being retracted, Sable's share price will likely remain below its recent high.
Yesterday, Sable released a press release announcing that they have restarted production on the Santa Ynez Unit (SYU).
Sable initiated the flow of oil production from six wells on the Harmony Platform at a rate of ~6,000 barrels of oil per day. Approximately 30% of the 32 producing wells at the Harmony Platform have been tested as of May 18th, 2025, with the remaining Harmony Platform wells projected to be tested over the next several days. Sable expects to initiate production from the additional 44 wells on the Heritage Platform and the 26 wells on the Hondo Platform in July and August, respectively.
Currently, Sable is filling the 540,000 barrels of crude storage at the onshore processing facility in Las Flores Canyon; the crude storage is expected to be filled by mid-June 2025, with oil sales starting in July 2025.
Sable has completed all anomaly repair work on the onshore pipeline as specified by the Consent Decree and has completed hydro-testing on seven of eight sections. We expect that the hydro-test of the last section is currently in progress and that the Office of the State Fire Marshal (OSFM) will give the final approval for the pipeline within the next few weeks. It is pretty clear to us that Sable would not have started production on the platforms if it were not pretty certain that the pipeline's final approval was imminent.
Sable also updated 2H 2025 guidance, increasing net average daily production to between 40,000 and 50,000 Boe/d. Cash costs per barrel also declined, with Sable now predicting cash cost a little of $20 per barrel; this was particularly surprising to us as we expected cash costs per barrel to be elevated after the start of initial production before decreasing over the next couple of years, as is so often the case with assets like this.
On May 15th, The Court of Appeal, Second Appellate District, denied the California Coastal Commission (CCC) request for a temporary stay. We expected this to happen; the CCC appealed after the Superior Court Judge ruled in Sable Offshore's favor against granting the CCC a temporary restraining order (TRO).
There have been two significant updates on Sable over the past week:
On February 18th, Sable Offshore filed a lawsuit against the California Coastal Commission (CCC), which includes a takings claim for $250 million. The lawsuit challenges the CCC's issuance of an Executive Director Cease and Desist Order (EDCDO) over Sable's repair work on the pipeline. According to Sable, the repair work is covered under a preexisting permit, and the CCC does not have jurisdiction to issue an EDCDO because the County of Santa Barbara has already granted approval for the work under existing permits through the County’s delegated authority under the Coastal Act and its certified Local Coastal Program (“LCP”). Sable also asserts that the CCC improperly issued an EDCO, by demanding the cessation of work within 24 hours and not providing an opportunity for a hearing or formal findings when under California Public Resources Code Section 30803, which governs the CCC’s authority to issue cease and desist orders, requires notice and an opportunity to respond.
This is only a quick summary of the filing; it is substantially more complicated, and I suggest reading the entire document, which is attached. The CCC is unlikely to reach the hurdle necessary for a judge to issue a temporary restraining order (TRO) on Sable, especially considering that the County of Santa Barbara approved the work under the existing permits. So that means that Sable will be able to continue the repair work on the pipeline while this is being litigated, it should not interfere with the timeline for the restart of the SYU.
On February 25th, Sable had a hearing in front of the Santa Barbara Board of Supervisors over the appeal filed by the Environmental Defense Center challenging the October 30th, 2024, decision by the Santa Barbara Planning Commission to approve the transfer of permits from Exxon and Sable. For some reason, there has been much confusion in the media over what the board's 2-2 vote means. Several media outlets stated that the tied decision or failure to pass the motion means the permits are not transferred. That is incorrect; the motion in question was for the appeal of the permit transfer that happened in October. Since the motion did not pass, the original 3-1 vote in favor of the permit transfer, which occurred in October, stands, and Sable wins.
Thanks for the thoughtful write-up I’ve been following Sable for a little while as well, and you hit all the right points. I agree this is a compelling special situation, and with the recent production start-up, a large portion of the execution risk appears to have subsided.
I’m still familiarizing myself with Sable Offshore in greater depth and am currently working on a DCF. One area I’d appreciate your thoughts on is the outstanding debt obligation to ExxonMobil. You made a good point that this facility is likely a rounding error for Exxon, especially given the regulatory complexity in California, which could make enforcement more trouble than it’s worth for them.
In the Q1 2025 10-Q, the agreement states that the Senior Secured Term Loan matures at the earliest of the following:
i)The five-year anniversary of the effective date (i.e., January 1, 2027);
ii)90 days after restart of production (defined as 240 days after first oil from the wells); or
iii)In the event of a breach by Sable.
Based on the recent production start-up, it seems the second clause is triggered, which would make the maturity date fall around January 2026. I'm wondering if you've incorporated this in your model, as this implies a ~$700 million repayment obligation may be coming due relatively soon.
Have you formed a view on how this might be handled — whether through operating cash flows , a drawdown of the balance sheet (potentially impacting net working capital), an equity issuance, or a renegotiation of terms with Exxon like I think you mentioned but I have likely missed somewhere in the financial statements?
I’m specifically trying to understand how to model the change in NWC under this scenario and would really appreciate any thoughts or assumptions you’ve made on this front.
Thanks in advance your insight would be extremely helpful.
Sable will refinance the debt soon; now that they have revenue, they will be able to refinance the debt and pay off Exxon's PIK debt hopefully by the end of the year, extending their bond maturities further out. Likely, the $200 million public offering they just announced today will be used to pay down some of the Exxon debt in the meantime.
The renegotiation with Exxon that we mentioned in this piece was in the instance that the restart of the SYU was further delayed, but now that they have a line of sight to revenue generation in Q3, they will be able to refinance the debt and pay off Exxon.
Thanks so much for the response. It looks like that offering helped answer the question as well. I'm surprised this asset is still so undervalued, especially with the facility so close to becoming a long-term asset. It's exciting we should start seeing cash flow soon. Best of luck with the blog and your future endeavors!
On June 10th, 2025, Sable's objection to the Coastal Commission's preliminary injunction was rejected by the court. The preliminary injunction stands. The trial date has been set for October 2025.
While the share price sold off 5% on the news, this has not materially changed anything. We continue to believe that this does not prevent Sable from pumping oil through the pipeline, but it does add some legal complexity to certain pipeline maintenance required by the Consent Decree. While there is a stipulation in the Consent Decree for emergency repair work, allowing for unpermitted repair work to be carried out in the event of an emergency that is probably not the best option for Sable. We believe that Sable will likely appeal this ruling to the California Appellate Court.
Legal Updates:
On June 3, 2025, the Environmental Defense Center (EDC) was granted a temporary restraining order (TRO) against the Office of the State Fire Marshal (OSFM), preventing it from issuing Sable its certificate of operation for the Las Flores pipeline.
This TRO is the last-ditch effort by environmentalists to have the pipeline shut down. This case against the OSFM is simply a reiteration of old arguments. If it has to go to trial, we believe the OSFM and Sable will prevail; however, this would likely result in further delays in restarting the pipeline. We believe it is unlikely that Sable will wait until the next hearing date on July 18th to address this matter.
The granting of the TRO against the OSFM, though, creates a jurisdictional problem, which is that the TRO would force the OSFM to violate the Consent Decree (federal law). This would violate the supremacy clause of the US Constitution, which states "...shall be the Supreme law of the land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding."
Sable will likely appeal this TRO to the California Appellate Court, hoping for a fast conclusion to either have the TRO overturned or have the Appellate Court rule that the CA Superior Court is not the correct venue for this issue given that fact that the Consent Decree governing the OSFM's actions in this matter is federal. The OSFM has been granted regulatory authority over the Las Flores pipeline by the Pipeline and Hazardous Materials Safety Administration, a division of the federal Department of Transportation, and, therefore, is operating under federal law.
On June 5th, 2025, Sable filed an objection to the preliminary injunction granted to the CCC, preventing Sable from carrying out any more 'development" on the pipeline.
It argues that the Court reached its decision without considering Sable's supplemental material, which, among other things, included the existing Coastal Development Permit (CDP). The CDP had not previously been entered into evidence at the request of the judge during the hearing on the CCC TRO. Sable argues that without considering all of Sable's supplemental material, a decision on the preliminary injunction can not be made. Similarly to the other ongoing case between the EDC and the OSFM, Sable argues that the preliminary injunction is too broad and does not limit itself to the issues in the CCC cease and desist order. in its current form, it would force Sable to violate the federal Consent Decree "because it seeks to enjoin Plaintiffs from complying with pipeline safety repair and maintenance activities required by federal law." per the Consent Decree.
Because of these recent legal setbacks, Sable announced in its recent 8-K that it is now expecting its first oil sales to start on August 1st. While this is disappointing, Sable has plenty of cash left to hold it over during this delay, especially after what now looks like an exceptionally well-timed equity sale. Ultimately, we believe Sable will prevail in these cases; these are not the most challenging legal arguments that Sable has had to deal with in this long saga. The recent sell-off, following the news has now brought the share price back to its level before the pipeline repair work was completed, presenting an excellent buying opportunity. While the timeline for first oil sales has been pushed back, and the outlook is a little less clear, we think the market is overpricing the current risk associated with these last legal issues.
It was a busy day for Sable Offshore yesterday. On May 28th, Sable released an 8-K:
On May 27, 2025 Sable Offshore Corp. conducted a successful hydrotest of the final segment of Line 325 and has now successfully hydrotested all segments of Line 324 and Line 325 (collectively, the “Onshore Pipeline”), satisfying the final operational condition to restart of the Onshore Pipeline as outlined in the Consent Decree. Therefore, no more repairs are required to the Onshore Pipelines prior to restart.
Additionally, on the 28th, the Santa Barbara County Superior Court approved a preliminary injunction requested by the CCC regarding Sable's repair work and maintenance of the pipeline. This news sent the share price plunging 15%.
We do not think that this injunction impacts Sable materially, as they have already finished repair work and completed all hydro-testing on the pipeline. The injunction does not state that the pipeline can not be operated; it is only an injunction on work that Sable has already completed. Now, with the completion of the last hydrotest, Sable has met all requirements as laid out in the Consent Decree for The Office of the State Fire Marshal (OSFM) to sign off on the restart of the pipeline.
The market appears concerned that this injunction will somehow prevent Sable from receiving the Certificate of Operation from the OSFM; this is not the case. Nowhere in the Consent Decree that governs the requirements for the restart of the pipeline does it state that ongoing legal issues prevent Sable from obtaining a Certificate of Operation from the OSFM. While it is certainly possible that the OSFM attempts to use the injunction as a reason to delay granting the Certificate of Operation, we consider this unlikely, as it would blatantly violate the Consent Decree and would open the OSFM up to a federal lawsuit. The OSFM is a procedural body, not a politically motivated one like the CCC; based on its previous interaction with Sable, we do not think the OSFM will attempt to obstruct the restart of the pipeline.
Ultimately, we think that the injunction will be rescinded; it was only a preliminary injunction. The Coastal Commission has made a habit of filing for things the day before a hearing, giving Sable's lawyers limited time to respond. The CCC did the same thing in April by asking for a Temporary Restraining Order (TRO), which Judge Anderle initially granted but then rescinded once Sable was able to respond. In this instance, the volume of documents required for Sable to make its case could not reasonably be read and digested during the hearing. We believe that this preliminary injunction will not remain in force for long. Still, until this is worked out either by the OSFM granting Sable its Certificate of Operation disproving the importance of the injunction or by the injunction being retracted, Sable's share price will likely remain below its recent high.
Yesterday, Sable released a press release announcing that they have restarted production on the Santa Ynez Unit (SYU).
Sable initiated the flow of oil production from six wells on the Harmony Platform at a rate of ~6,000 barrels of oil per day. Approximately 30% of the 32 producing wells at the Harmony Platform have been tested as of May 18th, 2025, with the remaining Harmony Platform wells projected to be tested over the next several days. Sable expects to initiate production from the additional 44 wells on the Heritage Platform and the 26 wells on the Hondo Platform in July and August, respectively.
Currently, Sable is filling the 540,000 barrels of crude storage at the onshore processing facility in Las Flores Canyon; the crude storage is expected to be filled by mid-June 2025, with oil sales starting in July 2025.
Sable has completed all anomaly repair work on the onshore pipeline as specified by the Consent Decree and has completed hydro-testing on seven of eight sections. We expect that the hydro-test of the last section is currently in progress and that the Office of the State Fire Marshal (OSFM) will give the final approval for the pipeline within the next few weeks. It is pretty clear to us that Sable would not have started production on the platforms if it were not pretty certain that the pipeline's final approval was imminent.
Sable also updated 2H 2025 guidance, increasing net average daily production to between 40,000 and 50,000 Boe/d. Cash costs per barrel also declined, with Sable now predicting cash cost a little of $20 per barrel; this was particularly surprising to us as we expected cash costs per barrel to be elevated after the start of initial production before decreasing over the next couple of years, as is so often the case with assets like this.
On May 15th, The Court of Appeal, Second Appellate District, denied the California Coastal Commission (CCC) request for a temporary stay. We expected this to happen; the CCC appealed after the Superior Court Judge ruled in Sable Offshore's favor against granting the CCC a temporary restraining order (TRO).
There have been two significant updates on Sable over the past week:
On February 18th, Sable Offshore filed a lawsuit against the California Coastal Commission (CCC), which includes a takings claim for $250 million. The lawsuit challenges the CCC's issuance of an Executive Director Cease and Desist Order (EDCDO) over Sable's repair work on the pipeline. According to Sable, the repair work is covered under a preexisting permit, and the CCC does not have jurisdiction to issue an EDCDO because the County of Santa Barbara has already granted approval for the work under existing permits through the County’s delegated authority under the Coastal Act and its certified Local Coastal Program (“LCP”). Sable also asserts that the CCC improperly issued an EDCO, by demanding the cessation of work within 24 hours and not providing an opportunity for a hearing or formal findings when under California Public Resources Code Section 30803, which governs the CCC’s authority to issue cease and desist orders, requires notice and an opportunity to respond.
This is only a quick summary of the filing; it is substantially more complicated, and I suggest reading the entire document, which is attached. The CCC is unlikely to reach the hurdle necessary for a judge to issue a temporary restraining order (TRO) on Sable, especially considering that the County of Santa Barbara approved the work under the existing permits. So that means that Sable will be able to continue the repair work on the pipeline while this is being litigated, it should not interfere with the timeline for the restart of the SYU.
On February 25th, Sable had a hearing in front of the Santa Barbara Board of Supervisors over the appeal filed by the Environmental Defense Center challenging the October 30th, 2024, decision by the Santa Barbara Planning Commission to approve the transfer of permits from Exxon and Sable. For some reason, there has been much confusion in the media over what the board's 2-2 vote means. Several media outlets stated that the tied decision or failure to pass the motion means the permits are not transferred. That is incorrect; the motion in question was for the appeal of the permit transfer that happened in October. Since the motion did not pass, the original 3-1 vote in favor of the permit transfer, which occurred in October, stands, and Sable wins.
Hi there,
Thanks for the thoughtful write-up I’ve been following Sable for a little while as well, and you hit all the right points. I agree this is a compelling special situation, and with the recent production start-up, a large portion of the execution risk appears to have subsided.
I’m still familiarizing myself with Sable Offshore in greater depth and am currently working on a DCF. One area I’d appreciate your thoughts on is the outstanding debt obligation to ExxonMobil. You made a good point that this facility is likely a rounding error for Exxon, especially given the regulatory complexity in California, which could make enforcement more trouble than it’s worth for them.
In the Q1 2025 10-Q, the agreement states that the Senior Secured Term Loan matures at the earliest of the following:
i)The five-year anniversary of the effective date (i.e., January 1, 2027);
ii)90 days after restart of production (defined as 240 days after first oil from the wells); or
iii)In the event of a breach by Sable.
Based on the recent production start-up, it seems the second clause is triggered, which would make the maturity date fall around January 2026. I'm wondering if you've incorporated this in your model, as this implies a ~$700 million repayment obligation may be coming due relatively soon.
Have you formed a view on how this might be handled — whether through operating cash flows , a drawdown of the balance sheet (potentially impacting net working capital), an equity issuance, or a renegotiation of terms with Exxon like I think you mentioned but I have likely missed somewhere in the financial statements?
I’m specifically trying to understand how to model the change in NWC under this scenario and would really appreciate any thoughts or assumptions you’ve made on this front.
Thanks in advance your insight would be extremely helpful.
Best,
Alex
Sable will refinance the debt soon; now that they have revenue, they will be able to refinance the debt and pay off Exxon's PIK debt hopefully by the end of the year, extending their bond maturities further out. Likely, the $200 million public offering they just announced today will be used to pay down some of the Exxon debt in the meantime.
The renegotiation with Exxon that we mentioned in this piece was in the instance that the restart of the SYU was further delayed, but now that they have a line of sight to revenue generation in Q3, they will be able to refinance the debt and pay off Exxon.
Thanks so much for the response. It looks like that offering helped answer the question as well. I'm surprised this asset is still so undervalued, especially with the facility so close to becoming a long-term asset. It's exciting we should start seeing cash flow soon. Best of luck with the blog and your future endeavors!