We came across a bullish thesis on Sable Offshore Corp. (SOC) on Value Degen’s Substack by Unemployed Value Degen. In this article, we will summarize the bulls’ thesis on SOC. Sable Offshore Corp.’s share was trading at $20.52 as of Oct 11th. SOC’s trailing and forward P/E were 47.20 and 9.00 according to Yahoo Finance.
Aerial view of an oil rig illuminated against a night sky.
Sable Offshore Corporation (SOC) is a company focused on the extraction of oil and natural gas from the Santa Ynez unit off the coast of California. Acquired from Exxon Mobil, the asset includes three offshore platforms and a pipeline to an onshore processing facility, which has the potential to produce significant revenue through low-cost oil extraction.
SOC generates revenue by extracting oil from the Santa Ynez unit, which historically produced 30,000 barrels per day at a cost of approximately $17 per barrel. With advancements in technology, there’s potential to double or even triple production levels without substantial capital expenditure. Given California’s market conditions, oil and natural gas prices are generally higher than in other regions, increasing the profitability of SOC’s operations. The company also holds onshore land leases, which present opportunities for additional revenue streams, such as data centre power generation and carbon capture initiatives.
Investing in SOC presents a compelling opportunity for several reasons. First, the Santa Ynez unit, despite being dormant since 2015 due to a pipeline rupture and subsequent regulatory hurdles, possesses a long life span and a slow decline in production. The potential to return to production could yield upwards of $1.3 billion in revenue by 2029 if production is ramped up to 60,000 barrels per day. After accounting for capital expenditures of approximately $300 million, the company could potentially return $800 million to shareholders, equating to $8 to $10 per share in dividends.
Currently trading at around $21, SOC’s market capitalization is only a fraction of its estimated asset value, which some rough calculations suggest could be around $7 billion. This indicates significant upside potential as the market has begun to recognize the value, reflected in the share price increase from $10 in April to $25 in September. Additionally, while there are substantial legal challenges that could delay production, the market’s optimism is a sign that investors believe SOC will ultimately prevail in these matters.
However, investors must consider the risks associated with California’s regulatory environment and potential legal hurdles, particularly regarding the visibility of oil platforms along the Santa Barbara coast. Despite these challenges, SOC’s operations, solid financial prospects, and undervalued market position make it an intriguing investment opportunity.
Sable Offshore Corp. is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 11 hedge fund portfolios held SOC at the end of the second quarter which was 16 in the previous quarter. While we acknowledge the risk and potential of SOC as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than SOC but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.
