Sable Offshore Corp.
08/10/2026 | Press release | Distributed by Public on 08/10/2026 15:13
Quarterly Report for Quarter Ending June 30, 2026 (Form 10-Q)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unless otherwise noted or the context otherwise requires, references to (i) the "Company", "Sable", "we", "us", or "our" in this Item 2 are to Sable Offshore Corp, a Delaware corporation, and its consolidated subsidiaries, following the Business Combination, (ii) "Flame" are to Flame Acquisition Corp. prior to the Business Combination, (iii) the "Santa Ynez Unit" or "SYU" are to the 16 federal leases, three offshore platforms (Hondo, Harmony and Heritage), and associated ancillary facilities located in federal water offshore California, and (iv) the "Santa Ynez Pipeline System" (or "SYPS") are to the interstate pipeline connecting the SYU to the Pentland Station terminal, inclusive of "Pipeline Segment 324" and "Pipeline Segment 325", or collectively referred to as "Pipeline Segments 324 and 325" (formerly known as "901/903 Assets" and as defined in the Sable-EM Purchase Agreement), the Las Flores Canyon ("LFC") onshore processing, storage, and related pipeline assets, and the offshore pipeline connecting the SYU to LFC. The SYU Assets include the SYU and the SYPS. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes thereto included elsewhere in this Quarterly Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
Cautionary Note Regarding Forward-Looking Statements
The unaudited condensed consolidated financial statements include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "may," "should," "could," "would," "expect," "plan," "anticipate," "believe," "estimate," "continue," or the negative of such terms or other similar expressions. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the risk factors described in Part I, Item 1A "Risk Factors" included in our Annual Report on Form 10-K for the year ended December 31, 2025, and those described in our other filings with the Securities and Exchange Commission ("SEC"). The Company's securities filings can be accessed on the EDGAR section of the SEC's website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.
Recent Events
Third Amendment to Senior Secured Term Loan Agreement
On June 22, 2026, the Company entered into a third amendment (the "Third Amendment") to the Senior Secured Term Loan Agreement ("Senior Secured Term Loan") with Exxon Mobil Corporation ("Exxon" or "EM"), which, among other things, extended the maturity date of the Senior Secured Term Loan to the earlier of (i) July 24, 2026 or (ii) the occurrence of an event of default. In connection with the Third Amendment, the Company paid Exxon a $30.0 million amendment fee on June 22, 2026. Exxon also agreed to suspend and waive, until the amended maturity date, the $25.0 million minimum liquidity covenant that had been introduced under the Second Amendment to the Senior Secured Term Loan Agreement. Additionally, in connection with the Third Amendment, the Company obtained a limited waiver (the "Limited Waiver") from Exxon and Mobil Pacific Pipeline Company under the Sable-EM Purchase Agreement, which defers the Company's obligation to provide plugging and abandonment financial security under Section 11.18(c) of the Sable-EM Purchase Agreement until the earlier of (i) December 22, 2028, (ii) the date on which the new money secured financing to be entered into prior to the maturity date of Term Loan B (as defined below) for the primary purposes of refinancing the Senior Secured Term Loan is redeemed, repaid or otherwise refinanced, or (iii) the occurrence of an event of default. The Third Amendment and Limited Waiver were entered into to provide the Company with additional time and flexibility to complete its planned refinancing while preserving liquidity.
2026 Refinancing Transactions
On July 2, 2026, the Company consummated a series of transactions to refinance the Senior Secured Term Loan and strengthen its capital structure and liquidity position (collectively, the "2026 Refinancing Transactions" or the "Refinancing"). The Refinancing consisted of the following components:
•Convertible Notes Offering. The Company issued $345.0 million aggregate principal amount of 6.5% Convertible Senior Notes due 2031 (the "Convertible Notes") in an underwritten public offering, resulting in net proceeds of approximately $332.5 million.
•Concurrent Common Stock Offering. The Company issued 37,337,662 shares of Common Stock in an underwritten public offering, resulting in net proceeds of approximately $107.0 million (the "Common Stock Offering").
•New Senior Secured Credit Facilities. The Company entered into (i) a new $675.0 million senior secured Term Loan B credit facility (the "Term Loan B"), which was fully drawn at closing, and (ii) a new senior secured reserve-based revolving credit facility of up to $500.0 million (the "Senior Revolver"), which was undrawn at closing. The Term Loan B and the Senior Revolver are collectively referred to as the "New Senior Secured Credit Facilities." Both facilities mature on December 15, 2028 and are secured by first-priority liens on substantially all of the Company's assets.
The Company used the net proceeds of the Convertible Notes and the Common Stock Offering, together with borrowings under the Term Loan B, to repay in full the Company's Senior Secured Term Loan, and to pay related fees and expenses, with the remainder available for general corporate purposes.
Defense Production Act Order
On March 13, 2026, the President of the United States, Donald J. Trump, signed an Executive Order to, among other things, delegate certain authorities under the Defense Production Act ("DPA") to the United States Secretary of Energy.
Subsequently on March 13, 2026, the United States Secretary of Energy, Chris Wright, issued an order (the "DPA Order") pursuant to that delegated authority in order to address the energy scarcity and supply disruption risks that have left the region and U.S. military forces dependent on foreign oil. The DPA Order states that "[a]n affordable and reliable domestic supply of energy is a fundamental requirement for the national and economic security of any nation." It observes that the nation's energy "problems are most pronounced in our Nation's West Coast, 'where dangerous State and local policies jeopardize our Nation's core national defense and security needs, and devastate the prosperity of not only local residents but the entire United States population.'" The DPA Order also states that the SYU is a "critical energy resource on the West Coast" but "cannot be used to address the shortages identified in EO 14156 and the resulting vulnerabilities, including adversarial dependence" because "California agencies have deployed an array of state measures [ ] to block pipeline operations." Accordingly, the DPA Order directs Sable "to immediately prioritize and allocate pipeline transportation services for hydrocarbons from the SYU through the SYPS" and "immediately commence performance under contracts or orders for services…for hydrocarbon transportation capacity in the SYPS[.]" The DPA Order requires Sable to "comply with this order immediately and maintain such compliance until such time as the conditions necessitating the issuance of this order abate or until Sable is directed otherwise."
On March 14, 2026, the Company resumed transportation of oil through Pipeline Segments 324 and 325 of the Santa Ynez Pipeline System, pursuant to the DPA Order (as defined above).
On March 30, 2026, the State of California filed a Complaint for Declaratory and Injunctive Relief alleging that the DPA Order violates provisions of the Administrative Procedure Act and the U.S. Constitution. The matter is captioned State of California v. Chris Wright, et al., Case No. 2:26-cv-03396, in U.S. District Court, Central District of California. The Court held a hearing on the State's Motion for Preliminary Injunction on June 8, 2026, and ordered supplemental briefing, which was completed by the parties on June 18, 2026. On June 29, 2026, Defendants Chris Wright and the U.S. Department of Energy filed a Motion to Dismiss, in which Sable and PPC joined. On July 20, 2026, the State filed a First Amended Complaint which mooted the pending Motion to Dismiss. The parties submitted, and are currently awaiting entry of, a stipulation for briefing a renewed Motion to Dismiss addressed to the First Amended Complaint. On July 30, 2026, the Court issued a scheduling order setting a briefing schedule for a Motion to Dismiss the First Amended Complaint with a hearing scheduled on September 28, 2026.
Initiation of Oil Sales
On March 29, 2026, the Company initiated oil sales upon filling the SYPS, resulting in total sales volumes of approximately 1,923 thousand barrels of oil equivalent ("Mboe") for the six months ended June 30, 2026.
Consent Decree
The United States Department of Justice has moved to terminate or modify the Consent Decree in the United States District Court, Central District of California. Sable is not a party to this litigation, but is participating in briefing related to the Consent Decree termination or modification, which was heard on June 8, 2026.
Offshore Buoy Alternative
Sable is evaluating the installation of an oil sales buoy (the "Buoy") to provide access to additional markets for federal crude oil produced from the SYU in the Pacific Outer Continental Shelf Area (the "Buoy Strategy").
Sable has not started any preparations or installations of the Buoy. Sable estimates that the total capital required to install the Buoy would be approximately $125.0 million. See "Risk Factors-Risks Associated with Our Operations-In order to commence operations pursuant to the OS&T Strategy or the Buoy Strategy, we will require clearances and permitting, including from BOEM."
Offshore Storage and Treating Vessel Alternative
On September 29, 2025, Sable announced that it is evaluating an offshore storage and treating vessel ("OS&T") strategy to provide access to domestic and global markets via shuttle tankers for federal crude oil produced from the SYU in the Pacific Outer Continental Shelf Area (the "OS&T Strategy"). Continued delays related to the Santa Ynez Pipeline System prompted Sable to evaluate the OS&T Strategy and on October 9, 2025, Sable submitted a Development and Production Plan update for the SYU to the Bureau of Ocean Energy Management ("BOEM"). Prior to implementation of the OS&T Strategy, regulatory authorizations would be required, including clearance from BOEM. Following the resumption of oil transportation through Pipeline Segments 324 and 325 of the SYPS, the OS&T Strategy is no longer the Company's primary development pathway. Under the DPA Order (as defined above), the Company has been directed to immediately prioritize and allocate pipeline transportation services for oil transportation from the SYU through the SYPS. Nonetheless, the Company continues to evaluate the OS&T Strategy as a longer-term option to diversify sales channels, expand access to domestic and international purchasers, and provide additional flexibility in navigating potential regulatory developments.
Preparations for the OS&T Strategy, if implemented, would include the acquisition of a suitable OS&T vessel, certain refitting and upgrades to the vessel and the SYU equipment, transportation of the vessel to SYU, and related installation. Sable estimates that the total capital required to execute the OS&T Strategy would be approximately $475.0 million. See "Risk Factors-Risks Associated with Our Operations-In order to commence operations pursuant to the OS&T Strategy or the Buoy Strategy, we will require clearances and permitting, including from BOEM."
At-the-Market Common Stock Offering
On February 2, 2026, the Company entered into a Sales Agreement (the "Sales Agreement") with TD Securities (USA) LLC and Jefferies LLC, as agents (the "Agents"), under which the Company may offer and sell, from time to time at its sole discretion, an aggregate gross sale price of up to $250.0 million of shares of its Common Stock through the Agents, pursuant to an effective shelf registration statement on Form S-3 (Registration No. 333-286675), which was declared effective by the SEC on May 1, 2025 (the "ATM Program"). The Company filed a prospectus supplement with the SEC on February 2, 2026 in connection with the ATM Program. Under the terms of the Sales Agreement, the Agents may sell the Company's Common Stock by any method permitted by law deemed to be an "at the market offering" as defined in Rule 415 of the Securities Act of 1933, as amended.
During the three and six months ended June 30, 2026, the Company issued 1,640,844 and 7,000,634 shares of its Common Stock, respectively, in connection with the ATM Program, for aggregate gross proceeds of approximately $22.6 million and $95.0 million, respectively. Associated marketing and legal fees of approximately $0.6 million and $2.3 million were paid and recognized as an offset to the proceeds within Additional paid-in capital in the unaudited condensed consolidated balance sheet and statement of changes in stockholders' equity for the three and six months ended June 30, 2026, respectively.
Recent Trends and Outlook
Trends
Commodity prices have been highly volatile during the six months ended June 30, 2026, driven primarily by geopolitical developments in the Middle East. Benchmark crude oil prices began 2026 near multi-year lows, with Brent trading in the low-$60s per barrel amid a well-supplied global market and moderate demand growth. Prices rose sharply following the outbreak of armed conflict between the United States and Iran in late February 2026 and the related disruption to shipping through the Strait of Hormuz, with Brent crude briefly exceeding $118 per barrel - its highest level since the onset of the COVID-19 pandemic - before briefly moderating as the conflict de-escalated and a temporary ceasefire took hold. As of the date of this filing, Brent and WTI crude oil prices have remained elevated and volatile relative to pre-conflict levels, and renewed armed conflict and increased risk to Strait of Hormuz shipping lanes in July 2026 illustrate the continued sensitivity of global crude prices to developments in the region.
The Company is subject to ongoing litigation and regulatory proceedings, including matters involving California state agencies, refer to Note 6 - Commitments and Contingencies for additional details. Continued regulatory scrutiny and legal proceedings contribute to an uncertain operating environment and may result in increased compliance costs, operational delays, or other constraints, which could adversely affect the Company's business, results of operations, financial condition, and capital expenditures.
Outlook
Following the resumption of oil production at the Santa Ynez Unit in 2025 and the resumption of oil sales in March 2026, along with the completion of the 2026 Refinancing Transactions in July 2026, the Company's near-term strategy is focused on ramping production across its offshore platforms while managing its capital structure, liquidity, and debt service obligations. In July 2026, an average of approximately 47 wells at Platforms Harmony and Heritage were online, producing an average of approximately 720 gross barrels of oil per day per well. Sable expects to bring all 77 production wells on these platforms online during the third quarter of 2026. The Company expects Platform Hondo to commence production in September 2026.
In July 2026, the Company entered into a series of costless collar arrangements covering approximately 28.0 mbo/d for the period from July 1, 2026 through December 31, 2026 (with a $65.00 put and $89.39 call), approximately 25.0 mbo/d for the period from January 1, 2027 through December 31, 2027 (with a $65.00 put and $80.00 call), and approximately 21.0 mbo/d for the period from January 1, 2028 through December 31, 2028 (with a $65.00 put and $73.17 call), in order to manage its exposure to fluctuations in crude oil prices.
Sable is coordinating with the federal government in various legal matters to defend its vested rights to operate its assets and ensure compliance with certain federal mandates, including the Defense Production Act. Sable is also actively pursuing damages and taking proactive legal action to curb state and county regulatory overreach. The following discussion should be read in conjunction with the risk factors and other disclosures included elsewhere in this report.
Components of Results of Operations
Revenue
On March 29, 2026, the Company initiated oil sales after filling the SYPS with oil produced from Platform Harmony. In April 2026, the Company resumed oil production from Platform Heritage with such produced oil contributing to sales thereafter. The Company expects to resume oil production from Platform Hondo during the third quarter of 2026. The Company's revenue stems from the sale of the oil produced from the SYU, processed by LFC, and transported via the interstate SYPS to its ultimate sales point at Pentland Station.
Operating Expenses
•Operations and maintenance. The Company's most significant costs to operate and maintain its assets are direct labor and supervision, power, repair and maintenance expenses, and equipment rentals. Fluctuations in commodity prices impact operating cost elements both directly and indirectly. For example, commodity prices directly impact costs such as power and fuel, which are expenses that increase (or decrease) in line with changes in commodity prices. Commodity prices also affect industry activity and demand, thus indirectly impacting the cost of items such as labor and equipment rentals.
•Depletion, depreciation, amortization, and accretion. Depletion, depreciation and amortization are primarily determined under either the unit-of-production method or the straight-line method, which is based on
estimated asset service life taking obsolescence into consideration. Also included in the financial statements is the accretion associated with the Company's estimated asset retirement obligations ("ARO"). The ARO liabilities are initially recorded at their fair value and then are accreted using the Company's applicable discount rate over the period for the change in their present value until the estimated retirement of the asset.
•General and administrative. General and administrative ("G&A") costs are comprised of overhead expenditures directly and indirectly associated with operating the assets. These support services include information technology, risk management, corporate planning, accounting, cash management, human resources, and other general corporate services. Increased general and administrative services may be required in the future, commensurate with planned operations activity levels.
•Taxes other than income. Management anticipates future increases in ad valorem taxes, in line with the restarting sales of production volumes.
Results of Operations
The following review of operations for the three and six months ended June 30, 2026 and 2025 should be read in conjunction with the unaudited condensed consolidated financial statements of the Company and notes thereto included in this Quarterly Report on Form 10-Q.
Revenue
The following table presents our oil and NGL revenues and sales volumes for the three and six months ended June 30, 2026 and 2025. The Company had no natural gas revenue or sales volumes for the periods presented.
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||
|
Revenues (In millions):
|
2026 | 2025 | Change | 2026 | 2025 | Change | |||||||||||||||||||||||||||||
| Oil sales | $ | 136.6 | $ | - | $ | 136.6 | $ | 137.9 | $ | - | $ | 137.9 | |||||||||||||||||||||||
| Natural gas liquid sales | 0.1 | - | 0.1 | 0.1 | - | 0.1 | |||||||||||||||||||||||||||||
| Total oil and natural gas liquid revenues | $ | 136.7 | - | 136.7 | 138.0 | - | 138.0 | ||||||||||||||||||||||||||||
| Sales Volumes: | |||||||||||||||||||||||||||||||||||
| Oil (MBbls) | 1,905 | - | 1,905 | 1,918 | - | 1,918 | |||||||||||||||||||||||||||||
| Natural gas liquids (MBbls) | 5 | - | 5 | 5 | - | 5 | |||||||||||||||||||||||||||||
| Total sales volumes (MBOE) | 1,910 | - | 1,910 | 1,923 | - | 1,923 | |||||||||||||||||||||||||||||
The Company initiated oil sales in March 2026, following the completion of filling the SYPS on March 29, 2026. Accordingly, no sales volumes or revenues were recognized for the three and six months ended June 30, 2025.
Three Months Ended June 30, 2026 vs. Three Months Ended June 30, 2025
The following table presents selected unaudited condensed consolidated financial results of operations for the six months ended June 30, 2026 and 2025.
|
Three Months Ended June 30,
|
Increase (Decrease)
|
||||||||||||||||||||||
|
(in thousands)
|
2026 | 2025 |
$
|
%
|
|||||||||||||||||||
| Revenue | |||||||||||||||||||||||
| Oil and natural gas liquids sales |
$
|
136,709
|
$
|
-
|
$
|
136,709
|
$
|
-
|
100 | % | |||||||||||||
| Other |
416
|
-
|
416
|
100 | % | ||||||||||||||||||
| Total revenue |
137,125
|
-
|
137,125
|
100 | % | ||||||||||||||||||
| Operating Expenses | |||||||||||||||||||||||
| Operations and maintenance expenses |
113,474
|
50,398
|
63,076
|
125 | % | ||||||||||||||||||
| Depletion, depreciation, amortization and accretion |
32,024
|
3,172
|
28,852
|
910 | % | ||||||||||||||||||
| General and administrative expenses |
58,521
|
75,318
|
(16,797)
|
(22) | % | ||||||||||||||||||
| Total operating expenses |
204,019
|
128,888
|
75,131
|
58 | % | ||||||||||||||||||
| Loss from operations |
(66,894)
|
(128,888)
|
61,994
|
(48) | % | ||||||||||||||||||
| Other (income) expenses: | |||||||||||||||||||||||
| Change in fair value of warrant liabilities |
(72,056)
|
(27,146)
|
(44,910)
|
nm | |||||||||||||||||||
| Other income, net |
(665)
|
(2,508)
|
1,843
|
nm | |||||||||||||||||||
| Interest expense |
43,066
|
21,009
|
22,057
|
105 | % | ||||||||||||||||||
| Total other income, net |
(29,655)
|
(8,645)
|
(21,010)
|
nm | |||||||||||||||||||
| Loss before income taxes |
(37,239)
|
(120,243)
|
83,004
|
(69) | % | ||||||||||||||||||
| Income tax expense |
26,977
|
7,823
|
19,154
|
nm | |||||||||||||||||||
| Net loss |
$
|
(64,216)
|
$
|
(128,066)
|
$
|
63,850
|
(50) | % | |||||||||||||||
|
nm: not meaningful
|
|||||||||||||||||||||||
Revenue. The Company recognized $136.7 million in oil and natural gas liquids sales and $0.4 million in other revenue for the three months ended June 30, 2026, compared to no revenue recognized for the three months ended June 30, 2025, as oil sales did not commence until March 2026.
Operating and maintenance expenses. Operating and maintenance expenses were $113.5 million for the three months ended June 30, 2026, an increase of $63.1 million, or 125%, compared to $50.4 million for the three months ended June 30, 2025. The increase was primarily attributable to restart-related activities. Platform Harmony commenced initial production in May 2025, such that the three months ended June 30, 2025 reflected only approximately one month of associated operating costs, whereas the three months ended June 30, 2026 reflected a full quarter of Platform Harmony operating costs. In addition, Platform Heritage commenced initial production in April 2026 and contributed a full quarter of operating costs during the three months ended June 30, 2026, with no comparable costs recognized in the prior-year period. The increase was also attributable to $18.5 million of start-up related demurrage charges and $12.0 million of operator rights expenditures which were recognized for the three months ended June 30, 2026. Additionally, during the three months ended June 30, 2026, non-reoccurring expenses were incurred associated with platform commissioning activities, which the Company does not expect to recur in future periods. Operating and maintenance expenses are expected to remain elevated as compared to prior periods until all production wells are online.
Depletion, depreciation, amortization and accretion. Depletion, depreciation, amortization and accretion was $32.0 million for the three months ended June 30, 2026, an increase of $28.9 million, or 910%, compared to $3.2 million for the three months ended June 30, 2025. The increase was primarily attributable to the initial depletion expense recognized following the Company's commencement of oil sales in March 2026. For the three months ended June 30, 2025, depletion, depreciation, amortization and accretion primarily consisted of accretion expense related to asset retirement obligations, as depletion expense had not yet commenced. During the three months ended June 30, 2026, the Company recognized $29.6 million of depletion, depreciation and amortization associated with the SYU assets, $1.4 million of which was capitalized to Inventory on the unaudited condensed consolidated balance sheet, as the associated production was used to increase the volumes held in storage tanks at LFC as of June 30, 2026. Depletion, depreciation, amortization and accretion expense is expected to increase in future periods as production volumes and sales activity increase.
General and administrative expenses. G&A expenses were $58.5 million for the three months ended June 30, 2026, a decrease of $16.8 million, or 22%, compared to $75.3 million for the three months ended June 30, 2025. The decrease was primarily attributable to $25.9 million of lower compensation expense. Upon the Company's achievement of first production in May 2025, the Company made certain related restart incentive compensation payments and initiated accruing annual incentive compensation based on management's expectations, both of which were recognized during the three months ended June 30, 2025. This decrease was partially offset by $6.2 million of higher stock-based compensation for the three months ended June 30, 2025.
Total other income, net. Total other income, net was $29.7 million for the three months ended June 30, 2026, compared to total other income, net of $8.6 million for the three months ended June 30, 2025, an increase of $21.0 million. The increase was primarily attributable to a $44.9 million change in the fair value of warrants, driven by a shorter remaining term, a decrease in the market price of the Company's common stock, and changes in market volatility. This increase was partially offset by $1.8 million decrease in other income, reflecting lower interest income due to a reduced average cash balance during the period, and a $22.1 million increase in interest expense, primarily attributable to the amortization of additional debt issuance costs recognized in connection with the Third Amendment.
Income tax expense. Income tax expense for the three months ended June 30, 2026 was $27.0 million, compared to an income tax expense of $7.8 million for the three months ended June 30, 2025. The Company's effective tax rate was negative 72.4 percent for the three months ended June 30, 2026. The effective tax rate for the three months ended June 30, 2026 reflects the cumulative effect of a change in the estimated annual effective tax rate, which the Company had estimated to be zero as of March 31, 2026. In accordance with ASC 740-270-35-2, the effect of a change in the estimated annual effective tax rate is recognized in the interim period in which the change occurs, resulting in a disproportionate rate for the current quarter relative to the year-to-date rate. The Company recognized a discrete tax expense of $2.2 million for the three months ended June 30, 2026, resulting from a tax shortfall on stock-based compensation vesting for which the related deduction did not fully offset the associated book expense. The effective tax rate also differed from the U.S. federal statutory tax rate of 21% primarily due to changes in valuation allowance on the deferred tax assets and disallowed expenses.
The Company's effective tax rate was negative 6.5% for the three months ended June 30, 2025. Based on its ongoing assessment of the realizability of deferred tax assets, the Company concluded that it was more likely than not that a portion of such assets would not be realized. Accordingly, the Company recorded an additional valuation allowance in the prior-year period. This determination was primarily driven by limitations on the utilization of net operating losses, including the limitation to 80% of taxable income. As a result, the increase in the valuation allowance resulted in income tax expense in the prior-year period.
Six Months Ended June 30, 2026 vs. the Six Months Ended June 30, 2025.
The following table presents selected unaudited condensed consolidated financial results of operations for the six months ended June 30, 2026 and 2025.
|
Six Months Ended June 30,
|
Increase (Decrease)
|
||||||||||||||||||||||
|
(in thousands)
|
2026 | 2025 |
$
|
%
|
|||||||||||||||||||
| Revenue | |||||||||||||||||||||||
| Oil and natural gas liquids sales | $ | 137,980 | $ | - |
$
|
137,980
|
$
|
-
|
100 | % | |||||||||||||
| Other | 416 | - |
416
|
100 | % | ||||||||||||||||||
| Total revenue |
138,396
|
-
|
138,396
|
100 | % | ||||||||||||||||||
| Operating Expenses | |||||||||||||||||||||||
| Operations and maintenance expenses | 181,507 | 84,841 | 96,666 | 114 | % | ||||||||||||||||||
| Depletion, depreciation, amortization and accretion | 35,966 | 6,193 | 29,773 | 481 | % | ||||||||||||||||||
| General and administrative expenses | 106,571 | 97,650 | 8,921 | 9 | % | ||||||||||||||||||
| Total operating expenses | 324,044 | 188,684 | 135,360 | 72 | % | ||||||||||||||||||
| Loss from operations | (185,648) | (188,684) | 3,036 | (2) | % | ||||||||||||||||||
| Other (income) expenses: | |||||||||||||||||||||||
| Change in fair value of warrant liabilities | (27,899) | (5,851) | (22,048) | 377 | % | ||||||||||||||||||
| Other income, net | (1,218) | (5,948) | 4,730 | (80) | % | ||||||||||||||||||
| Interest expense | 77,734 | 42,019 | 35,715 | 85 | % | ||||||||||||||||||
| Total other expense, net | 48,617 | 30,220 | 18,397 | 61 | % | ||||||||||||||||||
| Loss before income taxes | (234,265) | (218,904) | (15,361) | 7 | % | ||||||||||||||||||
| Income tax expense | 26,977 | 18,706 | 8,271 | 44 | % | ||||||||||||||||||
| Net loss | $ | (261,242) | $ | (237,610) | $ | (23,632) | 10 | % | |||||||||||||||
|
nm: not meaningful
|
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Revenue. The Company recognized $138.0 million in oil and natural gas liquids sales and $0.4 million in other revenue for the six months ended June 30, 2026, compared to no revenue recognized for the six months ended June 30, 2025, as oil sales did not commence until March 2026.
Operating and maintenance expenses. Operating and maintenance expenses were $181.5 million for the six months ended June 30, 2026, representing an increase of $96.7 million, or 114%, compared to $84.8 million for the six months ended June 30, 2025. The increase was primarily attributable to resumption-related activities, including one-time platform commissioning expenses. Platform Harmony commenced initial production in May 2025, such that the six months ended June 30, 2025 reflected only approximately one month of associated operating costs, whereas the six months ended June 30, 2026 reflected a full six months of Platform Harmony operating costs. In addition, Platform Heritage recommenced production in April 2026 and contributed a full quarter of operating costs during the six months ended June 30, 2026, with no comparable costs recognized for the six months ended June 30, 2025. The increase was also attributable $18.5 million of start-up related demurrage charges and $24.0 million of operator rights expenditures which were recognized for the six months ended June 30, 2026. Additionally, during the six months ended June 30, 2026, non-reoccurring expenses were incurred associated with platform commissioning activities, which the Company does not expect to recur in future periods. Operating and maintenance expenses are expected to remain elevated as compared to prior periods until all production wells are online.
Depletion, depreciation, amortization and accretion. Depletion, depreciation, amortization and accretion was $36.0 million for the six months ended June 30, 2026, representing an increase of $29.8 million, or 481%, compared to $6.2 million for the six months ended June 30, 2025. The increase was primarily attributable to the initial depletion expense recognized following the Company's commencement of oil sales in March 2026. For the six months ended June 30, 2025, depletion, depreciation, amortization and accretion primarily consisted of accretion expense related to asset retirement obligations, as depletion expense had not yet commenced. During the six months ended June 30, 2026, the Company recognized $33.5 million of depletion, depreciation and amortization associated with the SYU assets, $5.2 million of which was capitalized to Inventory and linefill within Oil and gas properties on the unaudited condensed consolidated balance sheet, as the associated production was used to increase the volumes held within the SYPS and the storage tanks at LFC as of June 30, 2026 (refer to Note 2 - Significant Accounting Policies for additional details regarding linefill). Depletion,
depreciation, amortization and accretion expense is expected to increase in future periods as production volumes and sales activity increase.
General and administrative expenses. G&A expenses were $106.6 million for the six months ended June 30, 2026, an increase of $8.9 million, or 9% compared to $97.7 million for the six months ended June 30, 2025. The increase in G&A expenses was primarily attributable to a $15.1 million increase in share-based compensation expense and a $14.5 million increase in legal expenses related to ongoing legal and regulatory matters. The increase was partially offset by a $21.8 million decrease in other compensation costs. Upon the Company's achievement of first production in May 2025, the Company made certain related restart incentive compensation payments and initiated accruing annual incentive compensation based on management's expectations, both of which were recognized during the six months ended June 30, 2025.
Total other expense, net. Total other expense, net was $48.6 million for the six months ended June 30, 2026, an increase of $18.4 million compared to total other expense, net of $30.2 million for the six months ended June 30, 2025. The increase in total other expense, net was primarily attributable to a $35.7 million increase in interest expense, due to the increase in the Company's Senior Secured Term Loan interest rate from 10% to 15% in accordance with the terms of the Second Amendment, as well as due to the amortization of additional debt issuance costs recognized in connection with the Third Amendment. This increase was partially offset by $4.7 million increase in other income, net, and a $22.0 million favorable change in the fair value of the warrant liabilities, driven by a shorter remaining term, a decrease in the market price of the Company's common stock, and changes in market volatility.
Income tax expense. Income tax expense for the six months ended June 30, 2026 was $27.0 million, representing an increase of $8.3 million compared to $18.7 million for the six months ended June 30, 2025. The Company's effective tax rate was negative 11.5% for the six months ended June 30, 2026. The effective tax rate differed from the U.S. federal statutory tax rate of 21% primarily due to changes in valuation allowance on the deferred tax assets and disallowed expenses. The Company recognized a discrete tax expense of $2.2 million for the six months ended June 30, 2026, resulting from a tax shortfall on stock-based compensation vesting for which the related deduction did not fully offset the associated book expense.
The Company's effective tax rate was negative 8.5% for the six months ended June 30, 2025. Based on its ongoing assessment of the realizability of deferred tax assets, the Company concluded that it was more likely than not that a portion of such assets would not be realized. Accordingly, the Company recorded an additional valuation allowance in the prior-year period. This determination was primarily driven by limitations on the utilization of net operating losses, including the limitation to 80% of taxable income. As a result, the increase in the valuation allowance resulted in income tax expense in the prior-year period.
Capital Resources and Liquidity
Overview. Prior to commencing sales of production volumes through the SYPS, the Company incurred significant capital expenditures in excess of operating cash flows to achieve first sales. Additional capital will be required to resume oil production from the remaining wells at SYU, as well as to activate certain LFC facilities that are not yet fully operational. Historically, the SYU's primary source of liquidity has been operational cash flows, supplemented by the Company's access to the debt and equity capital markets. As discussed above, on July 2, 2026, the Company consummated the 2026 Refinancing Transactions, which extended the maturity of the Company's senior secured indebtedness and enhanced the Company's liquidity position.
Based on the Company's current financial plan, management expects operating cash flows, together with the remaining proceeds of the 2026 Refinancing Transactions, to be sufficient to fund operating expenses and service indebtedness; however, this expectation is subject to commodity price volatility, regulatory developments, and other factors that could impact future liquidity.
Planned Capital Expenditures. Capital expenditures across the Company's SYU Assets are expected to total approximately $85.9 million for the remainder of 2026, or approximately $148.5 million for the full year 2026 (excluding non-cash linefill capital expenditures), as the Company continues to focus on facility upgrades, maintenance capital, and low-cost production optimization initiatives. The Company expects to fund these capital expenditures primarily through operating cash flows and the remaining net proceeds of the 2026 Refinancing Transactions. As previously discussed, the OS&T Strategy and the Buoy Strategy are not expected to be pursued in the near term and, accordingly, no material capital expenditures related to such strategies are planned for 2026.
Capital Raising Activities. Prior to commencing sales of production volumes through the SYPS, the Company's capital requirements were primarily funded through proceeds from equity issuances of Common Stock and warrant exercises.
During the first quarter of 2026, the Company entered into the ATM Program to support its capital requirements and enhance liquidity, pursuant to which the Company may offer and sell, from time to time at its sole discretion, shares of its Common Stock having an aggregate gross sales price of up to $250.0 million, with approximately $155.0 million remaining at June 30, 2026.
Subsequent to quarter-end, on July 2, 2026, the Company completed the 2026 Refinancing Transactions. The Company used the net proceeds of the 2026 Refinancing Transactions to repay in full on July 2, 2026 the Senior Secured Term Loan and to pay related fees and expenses.
Going Concern and Liquidity
As of June 30, 2026, the Company reported unrestricted cash of $21.6 million, current debt of $236.7 million, and an accumulated deficit of $1.4 billion.
In connection with the preparation of its unaudited condensed consolidated financial statements as of and for the three months ended March 31, 2026, management evaluated the Company's ability to continue as a going concern in accordance with ASC 205-40, Presentation of Financial Statements - Going Concern, and concluded that substantial doubt existed regarding the Company's ability to continue as a going concern within one year of the date such financial statements were issued, due to the Company's then current debt maturity profile and related liquidity considerations.
On July 2, 2026, the Company completed the 2026 Refinancing Transactions, which extended the maturity of the Company's debt obligations and improved its liquidity position. As a result, management re-evaluated the Company's ability to continue as a going concern and concluded that the conditions and events that previously raised substantial doubt had been alleviated. Accordingly, substantial doubt regarding the Company's ability to continue as a going concern no longer exists as of the issuance date of the unaudited condensed consolidated financial statements contained in this Quarterly Report, which have been prepared on a basis that assumes the Company will continue as a going concern.
Cash Flows
The following table summarizes cash flows from Operating, Investing and Financing activities:
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Six Months Ended June 30,
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Change | ||||||||||||||||||||||
| (dollars in thousands) | 2026 | 2025 | $ | % | |||||||||||||||||||
| Cash flows (used in) provided by: | |||||||||||||||||||||||
| Operating activities | $ | (72,807) | $ | (142,948) | $ | 70,141 | 49% | ||||||||||||||||
| Investing activities | (52,559) | (192,982) | 140,423 | 73% | |||||||||||||||||||
| Financing activities | 49,281 | 282,933 | (233,652) | 83% | |||||||||||||||||||
| Net change in cash and cash equivalents | $ | (76,085) | $ | (52,997) | |||||||||||||||||||
Cash Flows from Operating Activities. Since the Company initiated oil sales in March 2026, revenues were recognized for only a portion of the six months ended June 30, 2026, and no operating revenues were recognized for the six months ended June 30, 2025. Net cash used in operating activities was $72.8 million for the six months ended June 30, 2026, a decrease of $70.1 million, or 49%, compared to net cash used in operating activities of $142.9 million for the six months ended June 30, 2025. The primary use of cash during the six months ended June 30, 2026 related to commissioning Platforms Harmony and Heritage and the resulting operations occurring thereafter, while the primary use of cash during the six months ended June 30, 2025 was attributable to maintenance and operational readiness activities.
For the six months ended June 30, 2026, the Company incurred a net loss of $261.2 million, which included non-cash charges of $69.1 million of interest expense, $36.0 million of depletion, depreciation, amortization and accretion, $30.4 million of share-based compensation, $27.0 million of income tax expense, and $8.6 million of amortization of debt issuance costs, partially offset by $27.9 million related to the decrease in the fair value of warrants. Changes in accounts payable of $98.3 million and changes in accounts receivable of $50.1 million were primarily attributable an increase in accruals following the commencement of production from Platforms Harmony and Heritage in May of 2025 and April of 2026, respectively.
For the six months ended June 30, 2025 the Company incurred a net loss of $237.6 million, which included non-cash charges of $41.7 million of interest expense, $18.7 million of income tax expense, $16.5 million of share-based compensation, $6.2 million of depletion, depreciation, amortization and accretion, and $5.9 million related to the decrease in the fair value of warrants. Changes in accounts payable of $22.4 million were primarily attributable to the increase an increase in vendor payables associated with the restart efforts.
Cash Flows from Investing Activities. Net cash used in investing activities was $52.6 million for the six months ended June 30, 2026, a decrease of $140.4 million, or 73%, compared to $193.0 million for the six months ended June 30, 2025. Cash used in investing activities in both periods primarily consisted of capital expenditures associated with restart efforts.
Cash Flows from Financing Activities. Net cash provided by financing activities was $49.3 million for the six months ended June 30, 2026, primarily consisting of $95.0 million of gross proceeds from the ATM Program, net of $15.0 million of related offering costs and offering costs associated with 2025 equity offering paid during 2026 and $30.7 million of cash paid for debt issuance costs related to the Third Amendment. Net cash provided by financing activities for the six months ended June 30, 2025, consisting of $295.0 million of gross proceeds from a 2025 equity offering, net of $12.1 million of related offering costs.
Contractual Obligations
Pursuant to the Senior Secured Term Loan, which financed most of the Purchase Price (as defined in the Senior Secured Term Loan), Sable incurred interest for the period prior to the effectiveness of the Second Debt Amendment of ten percent (10%) per annum, and fifteen percent (15%) per annum subsequent to the Second Debt Amendment, compounded annually (refer to Note 4 - Debt for additional details regarding the Second Debt Amendment). Interest on the Senior Secured Term Loan is payable in arrears on January 1st of each year but, at Sable's election, accrued but unpaid interest may be deemed paid on each interest payment date by adding the amount of interest owed to the outstanding principal (paid-in-kind) amount. Upon the execution of the Third Amendment, the maturity date of the Senior Secured Term Loan was extended to July 26, 2026. However, on July 2, 2026, the Company successfully completed the 2026 Refinancing Transactions to refinance the Senior Secured Term Loan. Refer to the Recent and Significant Events section and Note 10-Subsequent Events to the condensed consolidated financial statements for additional details regarding the Refinancing Transaction.
Additional obligations include the performance of ARO as referenced under "Critical Accounting Policies and Estimates-Asset Retirement Obligations" included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025.
Off Balance Sheet Arrangements
As of June 30, 2026, the Company had no off-balance sheet arrangements.
Critical Accounting Policies and Estimates
The critical accounting policies and estimates applied in the preparation of the Sable's interim unaudited condensed consolidated financial statements for the three and six months ended June 30, 2026 are the same as those described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025 except as follows.
Revenue Recognition
The Company currently sells crude oil under a short-term agreement at prevailing market prices, with certain adjustments for product quality and geographic location. The Company recognizes revenue when control transfers to the purchaser at the delivery point and the customer has assumed the risk and rewards of ownership.
Oil and Gas Properties
Linefill. The SYPS is an interstate pipeline that includes (among other pipeline segments and components) (i) Pipeline Segment 324, which extends from LFC to the Gaviota Pump Station in Santa Barbara County, California, and (ii) Pipeline Segment 325, which extends from the Gaviota Pump Station in Santa Barbara County, California, to Pentland Station in Kern County, California with an intermediate station at Sisquoc in San Luis Obispo, California. The Company classifies the quantity of oil used to fill Pipeline Segments 324 and 325 as linefill such that when an incremental barrel of oil is pumped into Pipeline Segments 324 and 325 it forces oil out at the Pentland Station sales point location. Pipeline Segments 324 and 325 have a capacity of approximately 540 MBbls. This linefill is accounted for at historical cost and recognized as a long term asset within Oil and gas properties on the unaudited condensed consolidated balance sheet as of June 30, 2026. The Company capitalized costs incurred that were directly attributable to filling Pipeline Segments 324 and 325, including associated depletion, depreciation, and amortization. Linefill will not be depreciated, but is subject to impairment in accordance with Financial Accounting Standards Board ("FASB") guidance with respect to accounting for the impairment or disposal of long-lived assets. Carrying amounts that are not expected to be recoverable through future cash flows are written down to estimated fair value.
Emerging Growth Company
We are an "emerging growth company," or EGC, as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act, and it has elected to comply with certain reduced public company reporting requirements.
We will no longer be an EGC as of December 31, 2026, after which we will not be able to take advantage of such reduced reporting and disclosure requirements.
Sable Offshore Corp. published this content on August 10, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on August 10, 2026 at 21:13 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]