flme-20240930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

__________________________

FORM 10-Q

__________________________

(Mark One)


x			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2024


o			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to _________

Commission File No. 001-40111

__________________________

SABLE OFFSHORE CORP.

(Exact name of registrant as specified in its charter)

__________________________


Delaware						85-3514078
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)


845 Texas Avenue, Suite 2920 Houston, TX 77002
(Address of Principal Executive Offices, Zip Code)

(713) 579-6161

(Registrant’s telephone number, including area code)

__________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading
Symbol(s)

Name of each exchange
on which registered

Common Stock, par value $0.0001 per share

SOC

The New York Stock Exchange

__________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes o No x

As of November 13, 2024 there were 89,099,863 shares of Common Stock, $0.0001 par value, issued and outstanding.

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		Page
PART 1 – FINANCIAL INFORMATION		1

Item 1.	Financial Statements (unaudited)

	Condensed Consolidated Balance Sheets	1

	Condensed Consolidated Statements of Operations	2

	Condensed Consolidated Statements of Changes in Stockholders’ Equity(Deficit)/Parent Net Investment	3

	Condensed Consolidated Statements of Cash Flows	4

	Notes to Condensed Consolidated Financial Statements	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	38

Item 4.	Controls and Procedures	39

PART II – OTHER INFORMATION		40

Item 1.	Legal Proceedings	40

Item 1A.	Risk Factors	40

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40

Item 3.	Defaults Upon Senior Securities	40

Item 4.	Mine Safety Disclosures	40

Item 5.	Other Information	40

Item 6.	Exhibits	41

SIGNATURES		42

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

SABLE OFFSHORE CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(dollars in thousands)


	Successor		Predecessor
	September 30, 2024		December 31, 2023
Assets
Current assets:
Cash and cash equivalents	$	288,232	$	—
Restricted cash	35,252		—
Materials and supplies	15,838		16,213
Prepaid expenses and other current assets	4,828		—
Total current assets	344,150		16,213
Oil and gas properties (Successful efforts method)
Oil and gas properties	1,111,302		4,382,289
Less: Accumulated depreciation, depletion and amortization	—		(3,693,325)
Total oil and gas properties - net	1,111,302		688,964
Other, net	17,682		6,404
Total assets	$	1,473,134	$	711,581
Liabilities and Stockholders’ Equity/Parent Net Investment
Accounts payable and accrued expenses	$	95,601	$	5,384
Due to related party, net	—		11,370
Excise tax payable	2,308		—
Other current liabilities	361		1,148
Total current liabilities	98,270		17,902
Warrant liabilities	258,549		—
Asset retirement obligations	96,929		349,138
Senior Secured Term Loan including paid-in-kind interest, net	814,421		—
Deferred tax liabilities	20,646		—
Other	16,820		5,520
Total liabilities	1,305,635		372,560
Commitments and Contingencies (Note 8)
Stockholders' Equity/Parent Net Investment
Parent net investment	—		339,021
Preferred stock, $0.0001 par value; 1,000,000 shares authorized; none issued and outstanding at September 30, 2024	—		—
Common Stock, $0.0001 par value; 500,000,000 shares authorized; 78,789,516 issued and outstanding at September 30, 2024	7		—
Additional paid-in capital	849,621		—
Accumulated deficit	(682,129)		—
Total Stockholders’ Equity/Parent Net Investment	167,499		339,021
Total Liabilities and Stockholders’ Equity/Parent Net Investment	$	1,473,134	$	711,581

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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SABLE OFFSHORE CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(dollars in thousands)


	Successor		Predecessor		Successor		Predecessor
	Three Months Ended September 30, 2024		Three Months Ended September 30, 2023		February 14, 2024—September 30, 2024		January 1, 2024—February 13, 2024		Nine Months Ended September 30, 2023
Revenue
Oil and gas sales	$	—	$	—	$	—	$	—	$	—
Total revenue	—		—		—		—		—
Operating Expenses
Operations and maintenance expenses	25,629		14,258		59,241		7,320		43,167
Depletion, depreciation, amortization and accretion	2,755		5,255		6,856		2,627		15,764
General and administrative expenses	26,225		3,022		209,890		1,714		9,107
Total operating expenses	54,609		22,535		275,987		11,661		68,038
Loss from operations	(54,609)		(22,535)		(275,987)		(11,661)		(68,038)
Other expenses:
Change in fair value of warrant liabilities	178,199		—		257,614		—		—
Other expense (income)	2,728		535		(72)		128		533
Interest expense	19,169		—		48,145		—		—
Total other expense, net	200,096		535		305,687		128		533
Loss before income taxes	(254,705)		(23,070)		(581,674)		(11,789)		(68,571)
Income tax expense	865		—		19,437		—		—
Net loss	$	(255,570)	$	(23,070)	$	(601,111)	$	(11,789)	$	(68,571)
Basic and diluted net loss per Common Stock
Weighted average Common Stock outstanding, basic and diluted	62,166,298		n/a		60,969,774		n/a		n/a
Basic and diluted net loss per Common Stock	$	(4.11)	n/a		$	(9.86)	n/a		n/a

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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SABLE OFFSHORE CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) / PARENT NET INVESTMENT

(UNAUDITED)

(dollars in thousands)


	Common Stock			Additional Paid-In Capital	Accumulated Deficit		Total Stockholders’ Equity (Deficit)
	Shares	Amount
Successor:
BALANCE—February 14, 2024 (prior to Business Combination)	7,187,500	$	1		$	—	$	(81,018)	$	(81,017)
Redeemable shares reclassified to Common Stock	5,953,859	1			61,948		—		61,949
Net effect of Business Combination	13,141,359	2			61,948		(81,018)		(19,068)
Private offering proceeds, net	44,024,910	4			417,367		—		417,371
Issuance of merger consideration shares	3,000,000	—			36,300		—		36,300
Share-based compensation	2,758,334	—			10,080		—		10,080
Net loss	—	—			—		(180,105)		(180,105)
BALANCE—March 31, 2024	62,924,603	6			525,695		(261,123)		264,578
Share-based compensation	1,920,832	—			22,905		—		22,905
Net loss	—	—			—		(165,436)		(165,436)
BALANCE—June 30, 2024	64,845,435	6			548,600		(426,559)		122,047
Private offering proceeds, net	7,500,000	1			142,516		—		142,517
Issuance of Common Stock upon exercise of warrants	6,315,977	—			141,756		—		141,756
Share-based compensation	128,104	—			16,749		—		16,749
Net loss	—	—			—		(255,570)		(255,570)
BALANCE—September 30, 2024	78,789,516	$	7		$	849,621	$	(682,129)	$	167,499



	Parent Net Investment

Predecessor:
For the period January 1, 2024 to February 13, 2024
BALANCE—January 1, 2024	$	339,021
Contributions from parent	22,474
Net loss	(11,789)
BALANCE—February 13, 2024	$	349,706

BALANCE—January 1, 2023	$	362,596
Contributions from parent	19,747
Net loss	(23,193)
BALANCE—March 31, 2023	359,150
Contributions from parent	17,443
Net loss	(22,308)
BALANCE—June 30, 2023	354,285
Contributions from parent	17,427
Net loss	(23,070)
BALANCE—September 30, 2023	$	348,642

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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SABLE OFFSHORE CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(dollars in thousands)


	Successor		Predecessor
	February 14, 2024—September 30, 2024		January 1, 2024—February 13, 2024		Nine Months Ended September 30, 2023
Cash flows from operating activities:
Net loss	$	(601,111)	$	(11,789)	$	(68,571)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation, depletion, amortization and accretion	6,856		2,627		15,764
Stock-based compensation	86,034		—		—
Amortization of deferred financing costs	801		—		—
Paid-in-kind interest	47,344		—		—
Effect of amendment to the Senior Secured Term Loan	4,957		—		—
Deferred tax expenses	19,437		—		—
Change in fair value of warrant liabilities	257,614		—		—
Changes in current assets and current liabilities, net of effect of acquisition:
Materials, supplies and other assets	798		5,980		752
Prepaid expenses	(2,787)		—		—
Accounts payable and accrued expenses	54,548		(7,922)		(2,724)
Due to related party	—		(11,370)		162
Net cash used in operating activities	(125,509)		(22,474)		(54,617)
Cash flows from investing activities:
Payments for capital expenditures	(18,574)		—		—
Cash paid for acquisition	(204,154)		—		—
Net cash used in investing activities	(222,728)		—		—
Cash flows from financing activities:
Capital contribution from parent	—		22,474		54,617
Private offering proceeds	590,249		—		—
Payment of equity issuance costs	(22,878)		—		—
Cash received on warrants exercised	72,452		—		—
Payment on Senior Secured Term Loan	(18,750)		—		—
Payment of debt issuance costs	(1,557)		—		—
Payment of non-convertible promissory notes—related parties	(1,129)		—		—
Net cash provided by financing activities	618,387		22,474		54,617
Net change in cash	270,150		—		—
Cash and cash equivalents, beginning of the period	53,334		—		—
Cash, cash equivalents and restricted cash, end of the period	$	323,484	$	—	$	—

Supplemental Non-Cash Disclosure
Assets and Liabilities resulting from Business Combination:
Senior Secured Term Loan, including paid-in-kind interest	$	765,018	$	—	$	—
Supplies and materials	16,637		—		—
Accrued liabilities	129		—		—
Deferred tax liability	1,209		—		—
Asset retirement obligations assumed	90,073		—		—
Right of use assets obtained in exchange for operating lease liabilities	4,621		—		—

Right of use assets obtained in exchange for operating lease liabilities	$	13,260	$	—	$	—
Change in capital expenditure accruals	$	32,145	$	—	$	—
Accrued equity issuance costs	$	7,482	$	—	$	—
Warrant liabilities removed upon exercise	$	69,123	$	—	$	—

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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SABLE OFFSHORE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

SEPTEMBER 30, 2024

Note 1 — Organization, Business Operations, and Going Concern

Organization and General

Sable Offshore Corp. ("Sable," the “Company” or "we") (formerly known as Flame Acquisition Corp. or "Flame") is an independent oil and gas company headquartered in Houston, Texas. Flame was initially formed as a special purpose acquisition company for the purpose of entering into a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses.

On November 2, 2022, the Company entered into an agreement and plan of merger, dated as of November 2, 2022 (as amended, supplemented, or otherwise modified from time to time, the “Merger Agreement”), with Sable Offshore Corp., a Texas corporation (“SOC”), and Sable Offshore Holdings, LLC, a Delaware limited liability company and the parent company of SOC (“Holdco” and, together with SOC, “Legacy Sable”). Pursuant to the the Merger Agreement, on February 14, 2024, (i) Holdco merged with and into Flame, with Flame surviving such merger (the “Holdco Merger”) and (ii) Legacy Sable merged with and into Flame, with Flame surviving such merger (the “SOC Merger” and, together with the Holdco Merger, the “Mergers” and, along with the other transactions contemplated by the Merger Agreement, the “Merger”).

On November 1, 2022 (as amended on June 13, 2023 and December 15, 2023), SOC, entered into a purchase and sale agreement (the "Sable-EM Purchase Agreement") with Exxon Mobil Corporation ("Exxon") and Mobil Pacific Pipeline Company ("MPPC," and together with Exxon, "EM") pursuant to which SOC agreed to acquire from EM certain assets constituting the Santa Ynez field in Federal waters offshore California ("SYU") and associated onshore processing and pipeline assets (such “Assets,” as defined in the Sable-EM Purchase Agreement, collectively the “SYU Assets”).

On February 14, 2024 (the “Closing Date”), the Company consummated the Merger and related transactions (the "Business Combination") contemplated by the Merger Agreement, following which Flame was renamed “Sable Offshore Corp.”. Pursuant to the terms and subject to the conditions set forth in the Sable-EM Purchase Agreement, the transactions contemplated by the Sable-EM Purchase Agreement were also consummated on February 14, 2024 ("Sable-EM Closing Date"), immediately after the Business Combination, as a result of which Sable purchased the SYU Assets, effective as of January 1, 2022. On February 15, 2024, Sable’s shares of Common Stock, par value $0.0001 per share (“Common Stock”) and warrants to purchase Common Stock at an exercise price of $11.50 per share (the “Public Warrants”) began trading on NYSE under the symbols, “SOC” and “SOC.WS,” respectively (refer to Note 3 — Acquisition for additional details).

On the Closing Date, the Company issued 44,024,910 shares of Common Stock of the Company, at a price of $10.00 per share for aggregate gross proceeds of $440.2 million (the "First PIPE Investment"). The shares of Common Stock issued in the First PIPE Investment were offered in a private placement under the Securities Act of 1933, as amended (the “Securities Act”). Upon the closing of the Business Combination, an associated marketing fee of $10.1 million was paid in full, and was recognized as an offset to the proceeds from the First PIPE Investment within Additional paid-in capital in the unaudited condensed consolidated statement of stockholders' equity (deficit)/net parent investment as of September 30, 2024 (Successor).

On September 26, 2024, the Company issued 7,500,000 shares of Common Stock of the Company, at a price of $20.00 per share for aggregate gross proceeds of approximately $150.0 million (the "Second PIPE Investment"). The shares of Common Stock issued in the Second PIPE Investment were offered in a private placement under the Securities Act. Upon the closing of the Second PIPE Investment, an associated marketing fee and legal fees of approximately $7.5 million was accrued in full, and was recognized as an offset to the proceeds from the Second PIPE Investment within Additional paid-in capital in the unaudited condensed consolidated balance sheet and statement of stockholders' equity (deficit)/net parent investment as of September 30, 2024 (Successor).

As of September 30, 2024, warrant holders had exercised 6,315,977 Warrants for 6,315,977 shares of Common Stock resulting in approximately $72.5 million in cash proceeds to the Company. On October 3, 2024, Sable issued a press release announcing the redemption of all of its outstanding Public Warrants to purchase shares of Common Stock that were issued under the Warrant Agreement, as part of the units sold in the Company IPO. Refer to Note 7 — Warrants for additional details regarding the warrant exercises.

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Unless otherwise noted or the context otherwise requires, references to (i) the “Company,” “Sable,” “we,” “us,” or “our” are to Sable Offshore Corp., a Delaware corporation, and its consolidated subsidiaries, following the Business Combination, (ii) “Flame” refers to Flame Acquisition Corp. prior to the Business Combination, and (iii) the “Pipelines” are to Pipeline Segments 324/325 (formally known as Pipeline Segments 901/903) and the other “324/325 Assets” (formally known as "901/903 Assets" and as defined in the Sable-EM Purchase Agreement).

For the purposes of the unaudited condensed consolidated financial statements, periods on or before February 13, 2024 reflect the financial position, results of operations and cash flows of SYU prior to the Business Combination, referred to herein as the “Predecessor,” and periods beginning on or after February 14, 2024 reflect the financial position, results of operations and cash flows of the Company as a result of the Business Combination, referred to herein as the “Successor”.

Going Concern

The accompanying unaudited condensed consolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern. The Company has experienced losses from operations and has negative cash flows from operations. As of September 30, 2024, the Successor reported unrestricted cash of $288.2 million and an accumulated deficit of $682.1 million. The Company expects to continue to incur losses until we can restart production of the SYU Assets.

Following the Closing Date and through September 30, 2024, management has addressed capital funding needs with the First PIPE Investment, the consummation of the Business Combination, the Second PIPE Investment, and proceeds from the exercise of warrants (refer to Note 7 — Warrants for additional details regarding the warrant exercises). Management believes the Company has sufficient capital to maintain operations and complete the repairs necessary to restart production of the SYU Assets. However, the Company’s plans for production restart are contingent upon approvals from federal, state and local regulators. Additionally, if the Company’s estimates of the costs of restarting production are less than the actual amounts necessary to do so, the Company may have insufficient funds available to operate its business prior to first production and will need to raise additional capital. If the Company is unable to raise additional capital, it may be required to take additional measures to conserve liquidity, which could include, among other things, reducing overhead expenses. The Company cannot provide any assurance that new financing will be available to it on commercially acceptable terms, if at all.

Due to the remaining regulatory approvals necessary to restart production, along with the timing of ongoing construction repair efforts, substantial doubt exists about the Company’s ability to continue as a going concern. The financial statements included in this Quarterly Report do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that could be necessary if the Company is unable to continue as a going concern.

Risks and Uncertainties

Inflation Reduction Act of 2022

On August 16, 2022, the Inflation Reduction Act of 2022 (the “IR Act”) was signed into federal law. The IR Act provides for, among other things, a new U.S. federal 1% excise tax on certain repurchases of stock by publicly traded U.S. domestic corporations and certain U.S. domestic subsidiaries of publicly traded foreign corporations occurring on or after January 1, 2023 as Section 4501 of the Internal Revenue Code (the "Stock Buyback Tax"). The excise tax is imposed on the repurchasing corporation itself, not its shareholders from whom shares are repurchased. The amount of the excise tax is generally 1% of the fair market value of the shares repurchased at the time of the repurchase. However, for purposes of calculating the excise tax, repurchasing corporations are permitted to net the fair market value of certain new stock issuances against the fair market value of stock repurchases made during the same taxable year. In addition, certain exceptions apply to the excise tax. The U.S. Department of the Treasury (the “U.S. Treasury”) has been given authority to provide regulations and other guidance to carry out and prevent the abuse or avoidance of the excise tax.

The Company has accrued an excise tax payable of $2.3 million relating to redemptions of Common Stock prior to the Business Combination, which is recorded as a liability on our unaudited condensed consolidated balance sheet as of September 30, 2024 (Successor).

On June 28, 2024, the U.S. Treasury issued regulations (the "Final Procedural Regulations") finalizing proposed rules regarding the reporting and payment of the non-deductible 1% Stock Buyback Tax. Under the Final Procedural

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Regulations, the deadline for reporting, and paying, the Stock Buyback Tax for taxable years ending after December 31, 2022, and on or before June 28, 2024, was October 31, 2024. On October 30, 2024, the $2.3 million excise tax was paid in full.

Note 2 — Significant Accounting Policies

Basis of Presentation

Flame was initially formed as a special purpose acquisition company for the purpose of entering into a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. On February 14, 2024, Flame completed the transactions contemplated by the Merger Agreement and the Sable-EM Purchase Agreement, with Flame surviving the transactions and changing its name to Sable Offshore Corp. thereafter. The Company was deemed the accounting acquirer in the Business Combination based on an analysis of the criteria outlined in Accounting Standards Codification 805, Business Combinations, with such transactions being accounted for as a forward merger, and SYU was deemed the Predecessor entity for accounting purposes.

As a result of the Business Combination, the results of operations, financial position and cash flows of the Predecessor and Successor are not directly comparable. Since SYU was deemed to be the Predecessor entity, the historical financial statements of SYU became the historical financial statements of the combined Company, upon the consummation of the Business Combination. As a result, the financial statements included in this report reflect (i) the historical operating results of SYU prior to the Business Combination and (ii) the combined results of the Company, including SYU, following the Closing Date. The accompanying financial statements include a Predecessor period, which includes the period through February 13, 2024 concurrent with the Business Combination, and a Successor period from February 14, 2024 through September 30, 2024. A black line between the Successor and Predecessor periods has been placed in the unaudited condensed consolidated financial statements and in the tables to the notes to the unaudited condensed consolidated financial statements to highlight the lack of comparability between these two periods.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X of the SEC. Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a complete presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented. Financial presentation in prior periods has been adjusted to conform with current period presentation.

The Predecessor financial statements reflect the carve-out assets, liabilities, revenues, expenses, and cash flows of SYU. SYU has not previously been separately accounted for as a stand-alone legal entity. The accounts are presented on a combined basis because SYU was under common control of EM.

The accompanying Predecessor financial statements also include a portion of indirect costs for general and administrative expenses. In addition to the allocation of indirect costs, the Predecessor financial statements reflect certain agreements executed by EM for the benefit of SYU. The allocations methodologies for significant allocated items include:

•General and administrative expenses that were not specifically identifiable to SYU were allocated to SYU as a portion of certain other operating costs based on aggregated historical benchmarking data for the period from January 1, 2022 to February 13, 2024. The total amounts allocated to SYU for the period from January 1, 2024 to February 13, 2024 and the three and nine months ended September 30, 2023, which are recorded in general and administrative expenses, are $1.7 million, $3.0 million, and $9.1 million, respectively.

•Long-term debt was not allocated to SYU as it was a legal obligation of EM, which was not directly impacted by the sale of SYU to Sable.

Management believes the allocation methodologies used in the Predecessor financial statements are reasonable and result in an allocation of EM’s indirect costs of operating SYU as a stand-alone entity. These Predecessor financial statements may not be indicative of the future performance of SYU and do not necessarily reflect what the results of operations,

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financial position and cash flows would have been had SYU been operated as an independent company during the periods presented.

Emerging Growth Company Status

The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended, (the “Securities Act”), as modified by the Jumpstart our Business Startups Act of 2012, (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Significant assumptions are required in estimating the quantities and values of proved oil, gas and NGL reserves used in calculating depletion and assessing impairment of oil and gas properties. Other significant estimates made by management include, among others, allocation assumptions and the carrying amount of asset retirement obligations, which are based on the timing and cost of future abandonments, inputs utilized to fair value warrant liabilities, and assumptions used to estimate deferred taxes.

While management believes these estimates are reasonable, changes in facts and assumptions or the discovery of new information may result in revised estimates. Actual results could differ from these estimates, and it is at least reasonably possible these estimates could be revised in the near term, and these revisions could be material.

Fair Value Measurements

Fair value is defined as the price that would be received for sale of an asset or paid for transfer of a liability, in an orderly transaction between market participants at the measurement date. GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include:

•Level 1, defined as observable inputs such as quoted prices (unadjusted) for identical instruments in active markets;

•Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and

•Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

Refer to Note 11 — Fair Value Measurements for fair value disclosures.

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Cash and Cash Equivalents

The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents.

Restricted Cash

The Company considers cash or cash equivalents that are legally restricted from use or withdrawal as restricted cash. In March of 2024 the Company entered into the Settlement Agreement (as defined below) in regards to the Grey Fox Matter (as defined below) (refer to Note 8 — Commitments and Contingencies for additional details regarding the Grey Fox Matter). Pursuant to the Settlement Agreement, the Company was required to deliver a letter of credit (the "Letter of Credit") in the amount of $35.0 million to the plaintiffs' counsel in the Grey Fox Matter. The Letter of Credit was issued by JPMorgan Chase Bank, N.A. (“JPMorgan”) and required the Company to enter into a cash collateral agreement (the “Collateral Agreement”) with JPMorgan on May 7, 2024. Pursuant to the Collateral Agreement, the Company deposited $35.0 million into a collateral account (the “Collateral Account”), which is pledged as collateral to JPMorgan as the issuer of the Letter of Credit. Pursuant to the terms of the Settlement Agreement, the plaintiffs' counsel in the Grey Fox Matter may draw upon the Letter of Credit at a future date upon satisfaction of certain conditions, and the funds held in the Collateral Account are legally restricted to reimburse JPMorgan for such draws, in addition to any related fees and expenses. Additionally, pursuant to the Settlement Agreement, the Company will pay interest on the $35.0 million to the Grey Fox plaintiffs at the rate earned on the Collateral Account (the "Interest Payable"); provided however that the Company is entitled to reduce the Interest Payable by the ordinary and customary expenses charged to the Company from JPMorgan as the issuer of the Letter of Credit, capped at $0.4 million. Subject to the court’s final approval of the Settlement Agreement, the $35.0 million deposit in the Collateral Account and Interest Payable are payable upon the final payment date, which must occur no later than June 30, 2025 (the "Final Payment Date").

Prior to the Final Payment Date, the Interest Payable is not legally restricted and is available for the Company's use. However, the Company has adopted an accounting policy to consider interest that is both (i) earned on cash that is legally restricted in relation to a legal settlement and (ii) payable as a part of such settlement, such as the Interest Payable, restricted for presentation purposes. Accordingly, the $35.0 million deposit in the Collateral Account and the related Interest Payable are presented within the restricted cash balance presented on the Company’s unaudited condensed consolidated balance sheet as of September 30, 2024.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and restricted cash deposits with a financial institution, which, at times, may exceed the Federal Depository Insurance Coverage of $0.3 million. At September 30, 2024 the Company did not experience losses on this account.

Related Parties

Transactions between related parties are considered to be related party transactions even though they may not be given accounting recognition. Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 850, Related Party Disclosures (“ASC Topic 850”), requires transactions with related parties that would make a difference in decision making to be disclosed so that users of the unaudited condensed consolidated financial statements can evaluate their significance.

During the period from January 1, 2024 through February 13, 2024 (Predecessor) and t

SEC Form 10-Q filed by Sable Offshore Corp.