Yet Another Value Podcast - Kontrarian Korner's Ben Kelleran on Sable Offshore $SOC

Episode Date: June 6, 2025

In this episode of Yet Another Value Podcast, host Andrew Walker speaks with Ben Kelleran of Kontrarian Korner to discuss Sable Offshore, a company attempting to revive the Santa Ynez oil unit off the California coast. They explore the high-stakes nature of this investment, dissect the complex legal battles with California regulators, and assess the upside potential of the project if full production is achieved. The conversation covers Sable's SPAC history, economics, leadership, refinancing plans, and what needs to happen for the company to fully restart operations and generate significant returns.______________________________________________________[00:00:00] Introduction and sponsor message[00:01:59] Guest Ben Kalleran joins[00:03:02] Overview of Sable Offshore[00:04:15] SPAC history and asset deal[00:06:23] Legal/regulatory hurdles explained[00:09:12] Why Exxon sold the asset[00:12:32] Sable’s CEO and management[00:15:13] Current production status[00:17:13] Economics and ramp potential[00:20:46] Valuation compared to peers[00:24:02] Equity raise explained[00:27:49] Debt refinancing plans[00:29:56] Legal timeline expectations[00:34:14] Fire Marshal’s role discussed[00:41:12] Takings claim details[00:43:40] All-clear signal for investors[00:47:56] Why O&G funds are hesitant[00:49:57] Key dates and next stepsLinks:Yet Another Value Blog: https://www.yetanothervalueblog.com See our legal disclaimer here: https://www.yetanothervalueblog.com/p/legal-and-disclaimer

You're about to listen to the yet another value podcast with your host, me, Andrew Walker. Today's podcast is a, it's a company that I have been completely torn on since it first emerged as a D-SPAC, buying a bunch of oil and gas investments from ExxonMobil a few years ago. I know those words are huge red flags, and that's why I've been so torn. You can see multi-backer upside. You can see zero-downside. It's really interesting. My guest today is Ben Kellorin from Contraian Corner.

I'll include a link in the show notes. But he has done a lot of work. He's talking to a lot of people on it. He's very up to speed on the process. I hope you're going to find it interesting. We start with a broad overview. We dive deep into the minutiae of the case and everything in between. So hope you're looking forward to that podcast.

I'll disclose. Small tracker position in it. So please listen to the disclaimer at the very end of this podcast. We're going to go to the podcast with Ben on SOC. But first, a word from our sponsor. Today's podcast is sponsored by Dilupa. Are you still manually updating your financial models after earning? Ask yourself why.

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With me today, I'm happy to have from Contrurion with the K-A-C-C-A-Corner. Ben, how's it going? Yeah, thanks for having me on. a long-time listener, first-time caller. So I appreciate you having me. Look, I was so excited to take Contraining with K. I forgot to say, I'm your host, Andrew Walker and everything. I'm way off my sorts.

We've got a really interesting podcast. I will tell you, this is a stock that I, it's one of the stocks I've been most torn up over the past year plus. We'll get to the stock in a second. Before I get there, a quick disclaimer, nothing on this podcast is investing advice. That's always true, particularly true today, maybe because there is a little bit of binary risk here.

And I'll just disclose that we have the tracking position in it. So you can, it won't kill us one way or the other. If it goes to 1,000, we'll be killing ourselves. We had a tracking position because zero will be killing ourselves. We have a tracking position, but it won't trade it up fortune. So that's my disclosure. Ben, the company here is Sable offshore. The ticker is SOC. It's probably the most, definitely the most popular energy stock on like retail binge with one of the most popular stocks out there. I, as I said, I've been following it for a long time. I've been torn every which way on it. But I'd love to just start with, from you. What is Sase.

And why is it so interesting? Yeah, so the short version on Sable is that they are in the process of bringing online the best oil and gas asset in the U.S. over the last several decades is called the Santaynez unit. And I think it's going to be the closest thing to Saudi economics in the U.S. once they rant production. So that's the reason I think a lot of people are bullish. There's a lot of legal and regulatory hoops they've had to jump through, a lot of complications. We even saw some of that today as we're recording, but it's the way the short version is that it's basically the exact opposite of assets in the Permian where it's low decline rate, it's long reserve life and very low cost to produce. So I think they have 50, 60, maybe 70 years of reserves in place and I think they're going to be producing for a long time once they kind of weave their way through the legal and regulatory hoops. So I know a lot of people look for like high quality businesses and basically avoid energy altogether for that reason.

But if you look at an asset like this, I think there's a lot of reason to believe that it can be a very high quality business for a very long time. Cool. That's great for you. I think one of the most important things here is the background here. And if I'm remembering my dates correctly, Sable comes out of Flame Acquisition Corps, a SPAC, and they announce a deal to buy the assets. that you were talking about from ExxonMobil in, I think it was late 2023 is when they announced the deal and the SPAC deal closes in 2024. So look, if I just, if we threw these into three buzzwords, I would have California

oil drilling and then you would have former SPAC and then you would have bought from Exxon, right? And I know a lot of people, might as well throw on pre-revenue while you're at it because there's no revenue right now. But I know a lot of people who, and myself included, when I, I say I get torn every which way on this. If you just said pre-spec, California energy drilling, pre-revenue, and bought from Exxon, you'd be like, cool. I can't imagine a worst set of things for getting my face absolutely ripped off. So I'd just love to start.

Like, when you hear that history, why is this not run for the hills? Yeah. So I think part of it is it's a little bit of a bet the jockey play with the CEO, but it's also, if you look at the quality of asset and you look at the regulatory loophole, that they've jumped through and the process they've gone to here. If your base case is that this thing restarts and gets to a regular production level, the upside here is massive. And it's always been kind of framed as a binary outcome where it either restarts or it doesn't. And I've kind of been talking about that with the narrative shift post where it's going from,

like, will it ever restart to what is it actually worth? And the biggest thing that is kind of holding. that back is, okay, you have lawsuits flying everywhere. It's kind of the case of compounding lawsuits, as one of my friends called it. But basically, I think they're going to be producing, I think it's going to be fully operational here in the near future. I think the upside when that happens, even if oil stays at $65, $75, you're looking at significant multivaguer potential. So let's quickly lay it on. So as we're talking oil is 65, you know, I, I know a lot of people like this because it's low cost and they think oil is going to 200,

but you'd probably be better in a high cost oil play if you believe oil is going to 200. Let's just quickly talk. How do you look at the fair value of this company? Well, I think the binary side, as far as looking at the downside, is where I think a lot of people kind of assume that it's a zero if you end up in going into a taking his claim, end up in court, and jumping through those hoops. And in reality, I think they have a very strong case for $7 to $10 billion, aka $75 to $100 a share, give or take of damages for like what the asset is worth

if it does end up in court. I think that is unlikely at this stage in the game, but that's the downside case. I just want to make sure we laid out. So the takings claim would be, and you can tell me if I'm wrong, or you can dive into it further. They bought these assets from Exxon, and I want to talk more about why Exxon sold them and everything, but the takings claim, just so people know,

what's being held up here, I guess this is a broader view. These assets are good. There was an issue in, I think it was 2015 with these assets, right? And these assets were basically paused. The assets are ready to run again, but the state regulator is refusing to allow them to make the final necessary repairs or just put oil through them. So that's the huge binary that's happening here.

And what you're saying is on the downside, a lot of bears say, hey, California will never let these guys run oil and gas through these pipelines again. And you're saying, hey, that's fine. If that happens, and you're not the only one. I know multiple people who've told me this. If that happens, they're going to sue the state of California for a takings claim and say, hey, these assets, the fair market value of them was $7 billion, $10 billion, take your number, you owe us $10 billion, plus interest from when you illegally took it.

and we will happily collect that and pay our shareholders $100 per share. Am I summarizing that correctly and everything? Yeah, I think at a high level, that basically sums up the takings claim. Like, people have talked about the difference between delay damages and what could happen if this thing gets to production and what the court proceedings look like at that point. But at a high level, if they're not able to restart, you have a very good case for $10 billion. Some people think more, but basically a lot of money where the state will, eventually be on the hook for a massive takings claim, and that means, like, a bond and all these

different things they would have to do that I think the state would like to avoid. And I can jump right into, you're mentioning Exxon, like, why would they get rid of it? I could jump right into that next. Yeah, because that's the other thing, right? I think one of the big issues here is people look at that and say, look, Exxon Mobile is about the most sophisticated buyer and seller of oil and gas properties, you can imagine. If there's any politics to getting this over the finish line or like nudging the people in the right direction, XOMO was probably the best lobbyist out there short of maybe like the farmer or the ag lobbies. So you have XMO saying, hey, this property's been shut for seven years. Sable, we will take your, what was it, 300 million in equity,

we'll give you a lot of financing and go with God, have this property for, you know, it was a spec, $10 per share spec. And you're talking around in a takings claim, they're going to get $100 for share after a decent bit of dilution since they went this back route too. So why would Exxon just, you know, willingly give over a 10 to 20 bagger, depending on how many shares you had outstanding? So I think the first thing to look at for Exxon side is for the size of their business, a, I mean, this is a great asset, but it really doesn't move the needle for a company the size of Exxon compared to their Gianna assets, what they have in the Permian,

and basically their international operations. and secondly, they also, with California regulations on oil and gas, they basically have it set up where not only do they want to regulate the operations in the state of California, they want to regulate the international operations as well. And so that's a big, that's a big landmine for a company the size of Exxon. So just to make that clear. So I've heard this from other people too. California, if you operate in California, I believe they say, hey, by.

operating California, all of your international operations must like kind of subscribe to California law. And if you're Exxon, which is operating in Guyana, and I'm not describing anything's that, but you know, you might not be operating with the environmental standards that California would feel comfortable with. Or you could imagine there's some parts of the way world where bribes needs to be done. And, you know, I'm not accusing Exxon of making bribes, but if they get caught I'm sure it's happened before. Yeah. And they're getting California regulations like that's going to be an issue. So you're saying, hey, it wasn't just that they were giving Sable a gift. It was this asset was actually an active drag on the rest of Exxon's, you know,

multi, multi, hundred billion dollar portfolio. Yeah, I think they were spending somewhere to the tune of 50 to 70 million a year when this thing wasn't producing just to monitor it, maintain it, do all that stuff. So it's actually a drag in that way as well. And there's a reason other oil companies have basically sold or spun off. a bunch of their California assets. You see Chevron moving their headquarters out of the state. You see refineries shutting down, all these different things.

And it's whether it's emission standards or different gasoline types for the refineries, there's a lot of reasons for energy companies to say, look, we want nothing to do with the state. We'll find a better environment to operate in. Perfect. You mentioned this was a bet on the operators, right? I'd love to just deeply to dive into that level because, again, I think one of the big pushback you here is Exxon sold and they sold into us back. I can't imagine a bit of worse set of like overarching circumstances for an investor. So I'd love to just dive deeply into the management

team of what you're seeing here. Yeah. So the CEO, I think is like I've heard from a couple of people that they think he's the only guy in Houston that could pull this off. And I think his name's Jim Flores. But I think when you look at his ownership between what he has currently And then his stock options at best over the next nine years and then founder warrants from the SPAC. I think he's going to end up with roughly like 30 million shares. So he's going to own over a quarter of this thing pretty quickly. So definitely have some alignment there. And if you look at his experience, like you go back to Freeport, MacMaran, oil and gas,

they operated the platforms that are actually just to the west of the Santa United's unit. So they have experience in that region of the world. They know what they're doing as far as these assets. They know they have a pretty good idea of what's down there as far as actual resources. And I think when you look at the operating team, the people that have experience on it, I think that's a big reason to be confident that they can kind of weave their way through the legal stuff. And then once it's up and running, operate this thing to the best of their ability. So if he ends up with 30 million chairs,

and let's say the takings claim is $100. Like, you do the math pretty quickly. This man is going to be a California oil billionaire. That'll be... He stands to make billions if he gets it right and the upside is what I see, so. Let me ask, so the other bear thesis here is, hey, this company, California is never going to let them produce oil.

Now, you've already talked about the takings claim as a downside protection if that happens. But let's just explore the California will never let them produce oil. You and I were talking June, what is it? It's June 3rd. There was, as there is almost every week with Sable at this point, there was like legal news today. We'll dive deep into the legal news. We'll dive deep into legal news at the end of the product. But I just want to overall, what's the path for California to let them start producing? Because when I look at this, you know, they did the D-SPAC. The first D-SPAC deck was from March

2023 and they were guiding to first oil getting produced in Q in January of 2024, right? We're talking June 2025. Again, it's June 3 p.m. Eastern June 2025. They haven't even started producing oil yet. So we're already almost 18 months past where they talked and we're still not there. I think the bears would say, hey, you're 18 months behind and just California stuff, we're going to let it happen. So like, how would you respond to that thesis drift and how would you respond to a

eventually the kind of oil getting produced here? Yeah, well, one thing, I guess, to clarify your question before I kind of answer it, they are actually currently producing oil and they're filling the onshore processing facility. So I guess maybe if I can back up a little bit too and talk about the actual asset itself. Sure, sure. They have three fixed platforms in place. The San Yaze unit is basically a block that Exxon consolidated. And it's 76,000 acres, like 118 square miles.

miles like massive and they have a pipeline from the platforms to the onshore processing facility which they're in the process of filling now and then they have a pipeline that is i think 11 miles give or take and then a 100 mile 110 mile pipeline from there out to where they send it off to refineries so basically they own the whole process from pulling it out of the ground to sending it off and they're filling the processing facility right now which is basically what they're waiting on as far as the last piece is regulatory approval from the fire marshal to sign off and say, yep, you guys have fulfilled your end of the consent decree, made all the repairs, taken care of the pipeline, basically done everything you need to do. And we're ready to sign off.

And that's where maybe some of the legal question marks and legal cases I've been going on lately kind of come into play. But the hydro testing has done, all the different things that Sable needs to do to be ready for full operations have been completed. So it's basically on the goal line and the legal stuff is what's making the situation cloudy right now. So I don't know if you have a different direction you want to take it from there, but I can kind of take it wherever you want.

No, let's just quickly. So let's say they get the units online, right? They start processing again. We'll talk full legal situation where we're saying today. Let's say they get the units online. What does the economics of this kind of look like? That's where I think the bull case gets pretty interesting. I can kind of get into it, but basically the, if you had a chance to look at the production

guidance they put out on when they announced first production, they went from 20 to 25,000 for the second half of this year to 40,000 to 50,000 barrels a day and drop the lease operating expense to lifting costs to 11 to 1350 a barrel and 80% of that is fixed so basically what I think is going to happen over the next say 18 months is you're going to see production ramp excuse me production ramp that lease lifting costs will basically I think go below $10 a barrel and they obviously have other costs in there from like gathering processing transportation all that and then GNA but the actual cost to get the oil out of the ground is going to be pretty similar to what you see in like places like Saudi Arabia, places like Guyana, and you have

I think a setup where the actual cost is going to come down. I think they're being pretty conservative on their guidance for production for the second half because they basically doubled it with one platform just coming online. and the first six wells they drilled or tapped were 6,000 barrels a day, so 1,000 barrels per well a day. And if you look at the other platforms and kind of do the math on where that leaves them for the second half, they're planning to bring on the second platform in July and the third one in August. I wouldn't be surprised if they're updating their production guidance here again in the next several months.

We'll see what that means for end of this year, but I wouldn't be surprised at all if they're producing 60,000, maybe more, a day by the end of this year. If they're doing $50, $60,000 barrel per day, $10 lifting costs, I think they've got like a, it's around 15% royalty. I can't remember the exact number. So what is that translating to kind of EBIT off, free cash flow, all those types of things that people would be thinking about? Yeah, it was a, I'll pull up the royalty here. If you give me one second, it is 16.4% royalty. So as far as what that turns into, like operating results wise, I basically have kind of looked at it. And like, if you look at it for a full year and say, hey, they're going to do 70,000 barrels a day at $70,000 Brent and natural gas at call it five because you get California.

you, not gas pricing. I mean, these are all rough numbers and you say, okay, lease operating expenses, 10, you have other costs in there. You're looking at, what's that, $1.2 billion in EBITDA for a full year, which I think compared to the current stock price is pretty attractive. And obviously, there's going to be CAPEX like next year. I think it's going to be a little bit heavier on the spend there. But I think it's one of those things where it turns pretty quickly.

into a capital return story once they ramp to a certain production level where they can pay out a $4 annual dividend is what they've said, and then basically buy the stock in from there and fund operations with plenty of headroom at that point. So let me put, let me, I don't even know if this is pushback, but my numbers came out pretty similar to years, right? I just kind of, a billion versus 1.2, what's $200 million of EBITA among friends? I just kind of had, it comes out to about a billion dollars of EBITDA at those numbers. I think it was a little lower on oil, but whatever, you know, what's 100 million among fronts?

The enterprise value today is between three and a three and a half billion, right? So you're talking about buying this for three to three and a half times EBITA. The CAPEX, you know, as you said, there might be some, but this is a platform that's been operating for despite the past 10 years, like kind of 30 plus years. there shouldn't be a lot of CAPEX once this comes online. So this should be really gushing cash flow. I don't think it's stressed to say five times unlevered free cash flow equity is kind of what you're paying back. Which sounds great, right?

Five times unlevered free equity, 20% cash leverage return. I think one pushback that I've heard, not even I've heard, I've had is, hey, that sounds really cheap. But guess what? All energy companies are really damn cheap, right? Like, this is in a California jurisdiction that has shown over the past 18 months. They don't want oil being produced here. This was shut down for a while. It's going to be really expensive to do repairs. If there's any issues, they're going to throw the

red flags. And you can go buy a lot of other energy oil and gas companies at similar or maybe even cheaper valuations. You know, it's not unheard of for small energy companies with pristine assets to trade for PV20s or, you know, 20% yields. So I think one pushback I would have is, hey, in an absolute sense, yes, this is cheap. But in a relative sense versus some of the peers, aren't you kind of paying a peer like multiple for something that does have binary risk? Yeah, I guess the response there is if you look at the reserves too and kind of factor that in, I know they put in their investor deck, I think, what, 646 million barrels recoverable?

And I've heard a lot of different people talking. And I think the way I'd put it on reserves is I would take the over on a billion barrels of recoverable reserves. I think they were saying like there's 15 billion barrels of oil in place. So I think what you're going to see over time is the reserves will step up. And big picture, I look at it is, okay, you're buying Saudi economics in the U.S. for called three to four, maybe $5 a barrel on the ground. And if you look at other competitors on a. kind of reserve basis, your valuations are going to be anywhere from $10 to $15 a barrel.

And right, there's obviously single asset risk that plays into it where it's like, okay, you've got single points of failure with the pipeline like you saw in 2015 and you have other things where it's California. And so maybe that gets a discount. But if you like also factor in what their margins will probably be after ramping, right, that factors into the valuation as well. So I think there's a lot of different moving pieces that will get simpler over the next 12 to 18 months as this thing comes online, ramps to production, and the numbers start to speak for themselves. Two last questions, and then I want to talk about up-to-date risk.

I know this is a frequent one I got from people who are bearish or skeptical here, right? They get the, they kind of put out a PR that says, hey, Sable reports restarted of oil production at the unit and anticipated oil. sales in July 2025. They put out that PR on May 19th. They have an investor deck that goes alongside with it with all the updated guidance, everything we're talking about here. And in that investor deck, you know, I'm looking at it right now, page 14, financial objectives, refinance our first term loan, implement a hedging program, institute aggressive shareholder return program, targeted fixed quarterly dividend, opportunistically repurchase shares, right? So that sounds great. That's everything you want to hear. Two days later, they come out and, you know,

the stock pops into that. And two days later, they do a pretty sizable equity offering, right? I think it was $256 million worth of stock. And I know a ton of bears. And again, myself as a skeptical person who's gone from like, I want a Yolo, say, able to, oh, my God, I'm so scared of everything. You look at them and you say, hey, literally two days after saying oil's coming, the gusher is finally here, we're ready to start paying the dividend. We're ready to start returning capital shareholders. They do this massive equity offering. And just like, wow. It just, you know, when management's actions don't match their words. It's a big red flag to me. So I'd love to talk you about like, why is that not a big red flag that they came out and did this enormous offering right after saying

we're almost to the capital return program. Yeah. So I think the reason, main reason they did the equity raise, when you look at their cash balance, if I remember right, I'll be in the right ballpark. I think they're down to like 190 million in cash at the end of Q1 of this year. And so equity raise was six weeks after that. And obviously, it was it was a hundred. $189 million, good sir. I'll be taking a mulligan on that, I guess. But basically, right, they're running at that point lower on cash because they basically, to get into the park to repair the last section of the pipeline, they had pipeline crews on standby.

So I think that was like $4 million of cash burn a week. They had higher legal expenses than expected for obvious reasons. And so they're getting to a point where it's like, okay, if our time, timeline to first sales is in July, that revenue starts to show up in August, and it's going to be early flow rates where it's not like you turn on the taps and like you're getting a massive amount of revenue right away, then it basically was something where I can understand why they didn't want to run into a cash crunch as far as, okay, we have to make it another four months. We have to try and bring all these platforms online. We have to make sure we can navigate

the legal side of things and do whatever that requires. I think it basically, it says a lot that the stock was down like six cents on the day. I think it basically took like a 10% haircut in the morning and ended the day, like down six cents of the equity raise. But the big picture is that, okay, we're diluting here, but this is kind of the last stop for share issuance because we've finished all repairs, all the hydro testing's done, and we're kind of at the stage of the game where we don't want to run into issues that would potentially cause problems with the refinance

and operations and other things. And with equity rates, it also puts them in a stronger position to refinance the Exxon Debt, which starts when they started production, has a spring maturity of 240 days. So I think it's like January 9th of 26th is the absolute latest. They could pay Exxon back. And if I remember right. Has that started now that they put out that press release on first oil? So the spring has started.

Yeah. So they, from what I've heard, it sounds like they're shooting for refinance in September. I think at the end of Q1, they was like $830 or $840 million outstanding on the pick debt for what they have to pay back. and now they're basically in a position where they're cashed up, they're not going to run into a cash crunch as far as operations. And they could potentially refinance with a lower amount. I think the numbers that I've kind of talked about with other people, it's like, okay, is the refinance?

They issue $800 million. Is it a billion? I mean, I think it's going to be somewhere in that ballpark. I think it's probably going to price at 8 to 9%. And we'll kind of see. where that goes. But my guess is they get that sorted sometime around September, October from what they've been saying. That makes all sense. That makes all sense. Is there, is there risk in your mind? This will, I don't want to dive into, I want to say legal to the end, and I've got like

one and a half more questions, but is there risk in your mind that you mentioned a September refinancing, the loan has not sprung until January, that they're actually not producing before then, given the state of the court cases right now? Well, I think, The timeline for the court cases and the actual facts in the case basically put Sable in the driver's seat, whether that ends up in federal court, whether it gets sorted in appeals. I think there's the way I put is I don't think the legal uncertainty is dragging for months. I think there's going to be some resolutions here pretty quick. And we can obviously get into that more detail. But I don't see an outcome where it's like, oh, like they spend six or not.

nine months or a full year in legal limbo and they have the processing facility full of oil and they have to figure out like, hey, do we put a tanker out there to get the oil to market? Do we like try and do something with trucks? Like I don't see that happening at this stage. I think the legal side will get resolved pretty quick. Okay. Let's transition to the legal side after this one last question, which I think will serve as the last question.

I've mentioned I've been all over the place on this. But I think the last risk I've had in my head is this is a high. highly volatile stock. And like you, and I have really smart friends who are in this name. And I worry that if you are not like singularly attuned to this stock, and I don't mean this in terms of like following the up and down price action every day, but I mean this in terms of like burning the phones down, talking to people around the court case, talking to regulators, talking to like whoever it is, talking to probably reporters, whatever it is. Definitely watching the definitely watching the local, what is it, the local environmental things, which can get pretty interesting, right?

People are bringing in inflatable balloons and Julia Lewis, Dreythus, I think makes an appearance. But one of the things I've heard about, as someone who runs like more than a fund of one, I worry that if I got involved, it's something that every trade I make is going to be negative EV, right? The game selection goes really against me because my friends who are following this, and I include you in this, having read your stuff on it, they like know the next card and five minutes before the market does, they know what the next card's going to be dealt. And if it's a delay, like, I know friends were long, short, like just whipping this all over the place. And I think they're making huge money. And that's awesome work. They're getting paid for doing great due diligence. But I worry if I'm

not doing that work. And I just sat here and was like, let's say I sat here and said, I think this is going to come online. Ben's right. Saudi economics in the United States, $75 stock once this comes online. like I'm going to buy and then it's going to be down to 10 up to I'm just worried I'm going to get my face ripped off by somebody who's got better information and if they know that it's not going to happen they're going to short the shit out of this thing and then I'm going to get a press release from Sable you know four hours later that says hey we lost the court case some and I'm like oh my god the people who knew like knew ahead of time so anyway I'm worried I'm buying into a negative EV game if I'm trading this not wholly focused on this which is not a bad thing right it means

there's a lot of alpha for someone, but that's my big word here. What would you say to that? Yeah, I think it kind of depends on your view of the long-term value. And if you're playing with options, like buying burning matches like I had in last week, so that didn't feel good today. But I think with shares, I just have to disclose. Remember, nothing is investment advice. You can listen to the disclaimer at the end.

Options are super risky. I just always got to disclose that when options get mentioned. Yeah. But basically, if your view that fair value is much, higher in the current share price, then I think if you're just buying shares, if you can stomach the volatility, I think that's where it's like, okay, if you think all is going to come, like, they're producing, if you think the fire marshal signs off, if you think the court cases come to basically you get more clarity there, then like, could it be $23, like tomorrow?

Like, sure. But when you get fire marshal sign off, I think the market is going to reprice it. very quickly because you have a setup where at that point you have a fully operational San Antonio's unit and so that like I've talked to people where it's like look I don't want the brain damage of dealing with this thing like tell me when the fire marshal signs off and I'll buy it because like with what I've explained to them they're like yeah sounds cheap at 30 and 40 and so like why not just wait until it's a little more clear there I mean that actually might be the right thing because you start gaming it out and you're like, well, as we're talking June 3rd, 3 p.m. at 25, it's like, hey, if the stock's going to be 35, but the fire marshal is 100%, that actually

might be a better risk or reward. So let's talk about that. We're talking here, June 3rd, 2025, 3.30 p.m. Eastern. You know, as I mentioned in late May, they put out that, hey, first production. What's going on today? Like, what's the state of play? What's the legal situation? what does it take for this to actually get production going? When are we going to know if like kind of real production and everything's going on or if they're going to have to go to court to get this? Yeah, so I guess over the last couple of weeks, starting with production, right now they're filling up the processing facility and they announced on Wednesday before the court

hearing, they're suing the CCC, but before the court hearing that all repairs are done and all hydrotesting is complete. and I'm paraphrasing, but that satisfies their end at the consent decree and that basically it's ready for full operations. And then on like Tuesday night, there was like a tentative injunction put in place like night before the Wednesday hearing on Wednesday they kept the injunction in place. And so that's where I think stock got whacked pretty good on that news where it's like, okay, what does this mean?

Why are they putting an injunction in for repairs and hydrogen? testing it's already been complete right so that's part of the gymnastics from last week where it's like you have to figure out like okay what does it mean like why are they doing this seems a little bit ridiculous to try and um do something at that stage after the work has already been done and when you kind of go through the mental math on that it's okay that part of what the CCC doesn't impact the fire marshal sign off and so my view was that, okay, sometime this week, we'd get fire marshal sign off. And that was before the hearing with the EDC, but I'll get into that separately.

And it's like, okay, everyone's panicking because they're in the injunction. What does it mean? But my view was like, okay, if Sable did their side of the consent decree, right, installing the best available control technology, the pipeline check valves, shutoff valves, did the hydro testing, like basically the whole. whole nine as far as making sure the pipelines are repaired and safe for operations, then the farm marshal signs off. It's not a discretionary decision of, oh, like, there's some legal question marks going on.

And so we have to wait and withhold the certificate operations or there's like kangaroo court proceedings going on. And we have to make sure that gets resolved first. It's really like, okay, we're the state and federal regulator. You guys did what was said in the consent decree. We're going to sign off. So, like, that was why I was expecting this week, and instead what happened is why the stock is down, what, 15, 16% today. And the EDC is suing the state fire marshal and Sable.

I think it's along with the Center for Biological Diversity. But they're suing basically to stop the fire marshal from signing off, which is going to be an interesting, interesting case that's trying win for them, but basically what is going on there, if you kind of look at the case, at the highest level, right, the fire marshal

in the state, California state constitution, the fire marshal is the regulator for like all pipelines in the state. Right? So they're basically coming in and saying actually, like, you guys can't perform what it says in the state constitution. Like it's a massive overreach.

saying we don't want you guys to sign off because we don't want the company pumping oil and so on so forth. And even though consent decree and all this other stuff, they're suing they basically had what I would call a home court advantage. And I think it'll end up getting appealed pretty quickly. And I don't think it will survive appeal. I'm obviously not a lawyer like former CPA, but I don't think it will survive appeal because there's no imminent harm. If you have waivers that were issued six months ago and like to say, oh, there's imminent harm like five and a half months later because they're pumping oil now like doesn't make a whole lot of sense and they got an expansive TRO temporary restraining order, even though the lawsuit is just for waivers and you can't really stop the fire marshal from doing their job as the regulator in the state and like in theory they would be forced to refile lawsuit and have a broader uh basically refile to target everything and i think there's basically if it goes to appeals gets overturned the fire marshal approval is coming shortly after that

and if it goes to appeals and like doesn't get overturned then the fixes in it ends up in federal court like in pretty short order so the like uncertainty and all the stuff is like okay Like the Greens, like EDC, CCC, all these alphabet soup types, they're going to keep throwing lawsuits to see if anything will stick. But if you look at the consent decree, look at the different agencies involved and who actually has oversight, I think the lawsuit will be a bad memory in three months or six months or whatever it may be. So let me just make sure I'm interested.

So the fire marshal has a sign-off. They cannot give the sign-off until this current lawsuit is resolved. And I think there's a TRO until July 18th, if I'm remembering correctly. So July 18th is kind of the earliest that you can get the sign-off at this point. Well, that was the next hearing for, excuse me, next hearing for the EDC and biological diversity case. But in appeals court, that all happen quicker. So I think that they had an appeal in the CCC case.

and that was resolved in, I think, like, a week. So it's not something that's going to be, oh, we're waiting for six weeks, and then the next hearing and same judge. Like, there's going to be other factors in play. I think it's going to happen quicker where it's like, okay, you have a different judge. You have, like, the appeal laid out where it's, okay, this is a state regulator. It also happens to be the federal regulator on this case. and they're like well within their purview to give the certificate of operations to give waivers

basically perform like a regulatory agency in the United States and that's where it kind of lines up and it's like okay if something goes wrong in appeals like yes it's complicated but it goes to federal court and I think there's my guess is there are interested parties that don't want this thing to end up in federal court because you can go back to the takings claim and delays and what that would mean for Sable and operations. If they have to like fight this out in court and it turns into some six-month or one-year type circus, then it's going to be something where the damages keep stacking up. Let me ask about the taking claim, right?

So I have consistently heard over the past year that the ultimate end game is if Sable keeps getting denied, they will hit a bunch of boards with a takings claim for $10 billion and then the board's kind of full because none of these boards they can use it's funny money when they're hiring lawyers and charging it to the citizens like that's funny

money but a $10 billion claim they can't too in a takings claim I guess my two questions would be who are they hitting with the takings claim right because they continue to own it they're just not getting all the permits to wait are they hitting one of the the environmental board

because the environmental board says hey you need to win the lawsuit, right? Like, how can you have a takings claim if they're suing to prevent you from doing something? Yeah, the takings claim would basically be against the CCC and that would end up, right? They don't have the pockets to, like, put a $500 million or $1 billion bond or whatever it would be.

And so basically the financial responsibility would end up at the state level if, like, the takings claim is big enough. And I think they, when they sued the CCC, CCC, they also included to sue for personal liability. So there's, I think, going to be a lot of stuff that comes out in depositions and all these different things before they go to trial that make it pretty interesting. But my view is that that case will get settled after oil is, like after the San Antonio's unit is fully operational, after oil is flowing. And it turns into, okay, as long as the CCC and these other environment,

governmental regulatory agencies, nonprofits, these different groups, as long as they go away from now until the end of time, then we'll settle with you guys. It's not going to be like we're still going to go after the state for 250 million or 300 million or 500 million if operations are ongoing. So what would the all clear date? Like if I was a listening to this and I said, hey, Ben's got an interesting thesis, but I want to invest. You know, he mentioned earlier, there are people who want to do it when the all clear is clear what is the all clear when is all of this legal liability in their past all this and when can you just say hey i want to underwrite this on the economics that ben said Saudi Arabia in america with a pipeline in californ when is the all clear date when all this would be

behind like what would the signal of that pay uh basically when the 8k drops that the fire marshal is given certificate operations because of that point there's no stopping it once the fire marshal is given them certificate of operations. Basically, they're ready to pump oil, send it through all the pipelines, send it out to refineries. And at that point, you'll have the legal case going on in the background where I think they were saying that the CCC case might drag out sometime into 2026. So that'll be ongoing, depending on how quickly that resolves or settles or whatever the outcome may be. But But it'll basically be background noise to, okay, they have this operating business and it's lifting costs are $10 a barrel or lower.

They're basically ramping production and they're producing 60 or 70,000 or more barrels a day sometime in 2026. And you kind of do the math on that. And it's like, that's a lot of dividends and a lot of buybacks and I think a much higher share price. So I think the short version of the All Clear is like once the fire marshal signs off, then the whole San Diego's unit is ready for full operations and the court stuff can be going on in the background, but that won't just evaporate when the fire marshal signs off. I guess kind of last question. So the fire marshal, it overrides everything and they can just operate everything else while getting sued because one thing that jumps out to me is like you read the prospectus, the most recent prospectus.

And the recent events and legal liabilities, have I seen longer, probably, but I can't remember off the top of my head. And they just keep disclosing more and more lawsuits coming in, right? Like in the prospectus, I believe it's the first time the water board is suing them and issuing them notice of violations. There's a state parks monitor where the state parks gives them the right of entry permit and they immediately get sued by the EBC and get oil out and all this sort of stuff. Let's see, what else? CalGEM says, hey, you've got to post a bond of $32 million. and submit to certain contingencies. Like, it just goes on and on, on.

I guess the fire marshal is the end-all be all to you. Like, you don't think, once that's done, you don't think any of these other agencies and they could, you know, the water board could come in. Their control board, there's nothing to do at that to kind of slow down. They can do, but it can't. I think the, as far as agencies can stop actual operations at points,

basically, marshal, which is why people are, and if in the future something pops up with lawsuits and other state agencies like the water board is on the consent decree and it basically consent decree is based then all these state agencies where permits or approvals or whatever it may be are required then they have to grant those in a reasonable amount of time and I'm paraphrasing that obviously but basically they can't just with cold because they have like environmental defense center calling them up and saying, hey, you can't let these guys in to repair. I think that was part of the delay with parks is there's outside pressure to like not let them in to finish those repairs that were done three or four weeks ago. But the big picture of view is that once it's fully operational, then there may be issues in the future, but I don't think it stops operations.

let me one more question i'd be remiss if i didn't ask this i don't think this is purely accurate but i had a few friends lob in questions when i said we're doing the the actually the episode on stable has been long long requested but a few friends loved it hey if this is such good value why don't more why is it mainly generalists and retail focus people who like this why aren't you seeing lots of oil and gas funds kind of piling into this on the relevance value and i don't think that's quite fair because I do know one or two oil and gas funds who are interested in this, but I think they are right that in general, you know, the, of the 100 oil and gas funds out there, only a handful are kind of interested in that. So I just propose to you,

why do you think it's more general as some retail focus than like dedicated O&G who are interested in looking at this? Yeah, I think the biggest thing is the California risk, right? you have kind of the state of the market right now is the whole market hates energy and even the energy people hate California. So you can have that double whammy where you're not going to get as many eyeballs as for the energy sector in general. But you're also, even the guys that have a focus on energy or are dedicated to it, question of the mental gymnastics required to own this thing like ahead of a fire marshal sign off where I've talked to a bunch of people and they've talk to funds and different things where it's like, yeah, just call me when the fire marshal

gives a green light and then, like, we'll definitely buy it. But for now, it's just kind of in the two hard pile for a lot of different investors, especially for like what kind of position size I might be willing to put on. No, I think you hit the nail on the head. Oil and gas investors tend to be more on the libertarian side, let's say, and they generally hate California. And anything that has assets in California, I think they were flexibly vomit. And then you say, hey, you say, hey, not only are the assets in California, but California is actively trying to stop them from doing this, and it's been 10 years. And you know that like the bell curve where there's like the guy drooling out his mouth

and the super genius on one end and then there's the bag on bill. Like I think they would say, like maybe they're the drooling ones and they're saying a California oil and gas never works and maybe ExxonMobil is the super smart one saying a California oil and gas never works. And everyone's in the middle saying like, no, look at the upside. I think that's what they would kind of say. And it does resonate with me a little bit, but then you're like, hey, the takings claim would be pretty big. Ben, I think we've summarized and covered everything pretty well. Any last thoughts

or anything like kind of you're looking for that listeners should be thinking about as we kind of, you know, we're recording this June 3rd. I'm sure there'll be 5-8Ks drop between now and when I release this June 6th or June 9th. But anything listeners should be kind of looking forward going forward. Yeah, I think the, there's like a case management hearing tomorrow on the fourth for the CCC. I think that is, we'll see what happens with the injunction there. I'm not sure if there'll be any movement. But again, like the pipeline is just repaired and the injunction doesn't actually stop it operations on the TRO regarding the fire marshal, then I think it's most important to see, okay, does it end up in appeals court, which it probably will.

like that i think is a safe bet and they're not going to wait until july 18th for the next tiering date uh with the same judge so like what is the process of appeals court how quickly is it end up there what is the results if that the tRO gets tossed out then i would expect a fire marshal sign off in short order after that so i wouldn't be surprised if it's like okay TRO is gone like fire marshal sign off the next day because all the stuff that they've needed to do from repairs to hydro everything is complete so that's kind of the next I guess checkpoints and then from there I'm interested to see okay you have things lining up for the next six months where it's we've got the first platform online the fire marshal sign off should be happening relatively soon after the TRO gets tossed and If not, it ends up in federal court, and that's a whole other can of worms. I think that's unlikely, but it's possible. And so Fire Marshal sign off, you've got other things that I think are pretty interesting.

I think the short interest is like 13.8 or 13.9 million shares, like got 14% short interest somewhere in there. If the Fire Marshal signs off, then you're going to see new investors, shorts, a bunch of people rushing the entrance. And then you've got a bunch of different catalysts kind of farther out where it's second platforms online, third platforms online, and Q4, it's fully operational. And my guess is they're producing over 50,000 barrels a day at that point. And then the numbers really start to show up. And I guess the last little tidbit, as far as operations I'll throw in, is they're also going to have, I think it's like 830. At the end of Q1, they had like $834 million worth of net operating losses. So that's a little kicker.

And I'm assuming after Q2, they'll have another $100 or $150 million to tack on to that. So there's a little bit of extra juice, not that the valuation needs it. But if it's so much operating losses in a SPAC shell. So basically in 2022, I think it was like two and a half. half million, and that was 93 and 23. 2024 is a big year. They had 630 million almost of NOLs. And then for the first quarter this year, they had like 110 million.

So between legal expenses, repair work, all the different things, right? That adds up over time. But with the having the pipeline cruise on standby, legal expenses, all the stuff that's happened in Q2, then like you compare that. There's still no revenue. I wouldn't be surprised if the operating loss for Q2 is somewhere in the ballpark of $150 million, if I had to guess. But those are rough estimates. I don't think it is going to be a huge issue.

But basically, I would guess at least two to three years of NOLs, that'll be a nice bonus at some point down the line. Which, as we said, both of us were triangulating around a billion dollars. EBIDA, you've got a billion dollars of tax shields that saves a pretty penny for a year or two. Cool. Ben Keller, the trade corner, include a link in the show notes. This has been great. Again, I think my biggest worry about Sable is I buy it and then I'm just getting my face ripped off by someone like you who's just burning the phones down and every trade is the wrong one. But this has been awesome.

You're obviously super deep in the weeds here. And thanks for coming on. I'm looking forward to having you on again, maybe in a month or two once the oil gets started to fly. Yeah, thanks for having me. I'm definitely looking forward to that fire marshal sign off. Hopefully we can do a recap and get more into the weeds on valuation, kind of potential upside there. A quick disclaimer.

Nothing on this podcast should be considered investment advice. Guests or the hosts may have positions in any of the stocks mentioned during this podcast. Please do your own work and consult a financial advisor. Thanks.