Sable Offshore Corp. (SOC) 2026 Q2 法說會逐字稿

( Operators Instructions )

Also, as a reminder, this conference is being recorded today.

If you have any objections, please disconnect at this time. Harrison Brow, you may begin.

Thank you, Alice. Good morning, everyone, and welcome to our second quarter 2026 earnings conference call.

Joining me today to discuss our results are Jim Flores, Chairman and Chief Executive Officer Caldwell Flores. President and Chief Operating Officer Gregory Patrinelli, Executive Vice President and Chief Financial Officer and Anthony Dunner, Executive Vice President, General Counsel and Secretary, as well as various other members of the Sable team.

Please refer to our website to download a copy of our new investor presentation posted yesterday, as well as our recently filed financial statements, which will both be discussed today.

We will actively display the presentation on this webcast and reference certain items by page number and then proceed to Q&A.

We will also be making statements during this call that are forward-looking. These statements are based on current expectations and assumptions and are subject to risks and uncertainties.

Actual results could differ materially from those described in the forward-looking statements because of factors discussed in our earnings release.

In our investor presentation, and the comments made during this conference call in our most recent Form 10-K, Forms 10-Q, and other reports and filings with the SEC. We do not undertake any duty to update any forward-looking statements.

With that, I will turn it over to Jim Floris to begin going through the investor presentation. Jim.

Thanks, Harrison, and good morning, everyone. As promised, we said we'd have a conference call at some point in time. This is our first conference call for Ernie from Stable Offshore. So welcome, everyone.

After looking at page 3 of the presentation, it's more of the summary stuff you've seen before. But page 4 is the milestones achieved and next steps. And we've listed them all since the beginning of this Saga in '25.

And then the three updated ones, restarting production of Platform Heritage on April 26, refinance the senior secured term note on July 26, and commence the commodity hedging program on July 26. The next steps are restart production of Platform Hondo, which is expected at the end of September 26, so we get a full fourth quarter, and establish full 3P reserve report expected first quarter of '27. And then we refinance the senior secured term B note and convertible. Senior unsecured notes and potentially install oil sales buoy at San Ynez unit and continue to legally protect SABLE's vested interest and pursue all monetary damages. Those are five big milestones ahead of us and we expect the next 12 months to achieve those.

On page 5, which is our corporate update, we have operations we're going to go through extensively today.

The second quarter, 26 X array, oil sales are 40,000 barrels a day. We represent huge growth in what our oil sales have been prior to that. We kicked off the wireline campaign now that we have all the wells open or potentially open to mitigate water influx and really try to trim up our production to wherever as efficiently as possible. And we're working feverly on Platform Hondo. Platform Hondo is a 45-year-old platform that's in bad need of.

Of restoration, that's probably the best word for it, but we're doing great work there. We've got a great team and so forth, and we're just hoping we can get that timing in September.

And then we're working with refineries from the downstream. We bought in a large quantity of oil for the California, one short refinery market, and we're working our way through that process of making sure everybody is getting comfortable with our oil, the quality of it, and also the volume of it, and we'll go into detail on that in another slide.

Regulatory legal.

We continue to wait on the US District Court for their findings and also the Ninth Circuit as we've been side by side with the US Federal Government working along with the Justice Department to be.

In a situation where all the federal regulations that we're adhering to as stable offshore are being recognized for the course. We'll continue to update that as goes, but there's no update today from that standpoint.

On the finance side, we completed the refinancing on July 2, 2026. Proceeds were retired to the former ExxonMobil senior term note. That's really key because they had a lot of restrictions to ExxonMobil senior term note that we now have a little more flexibility with the current financial structure. It's not optimal for us at this point, but it was a big step for us. And the commodity hedging program, one of the things we put in place, you'll see we've got some floor protection for a significant portion. Our production, just in case where all the volatility goes the wrong direction, we'll be protected. And then we'll look at further balance sheet optimization in '27 once all our wells are on and our reserve reports out there and we're at full power.

On page 4, Gregory, I'm going to turn it over to you and let you take us through the financing overview we did and a couple of the financial slides.

Yeah, sure. Thanks, Jim. So page 6, the refinancing overview, like Jim just mentioned, we completed our bridge refinancing in early July that fully satisfied and took out the ExxonMobil seller financing, the prior senior secured term loan. We did so with a series of transactions.

Starting with the $675 million senior secured term loan B, this term loan B has a maturity of December 15th, 2028, and it was structured as a fully amortizing loan through the maturity of the security itself, so that's. That's fully amortizing through mandatory amortization of 2.5% per quarter in the back half of this year, stepping up to 5% per quarter, beginning in 2027. It also includes a 100% excess cash flow sweep feature, which could potentially accelerate that amortization depending on the prevailing commodity prices. It does have a 1.25 times MOIC minimum takeout, and so we'll certainly be looking to delever on.

The amortization front and the excess cash flow suite front. But as Jim mentioned, when we achieve our additional milestones and get a full 3P reserve report, we will be pursuing phase two of the refinancing efforts. So I think we're very happy to complete this bridge financing, satisfy our obligations with our seller note, ExxonMobil, but we certainly have room to improve on the. On the interest rate front, interest rate reduction, and we look forward to approaching the market here in 2027. In addition to the $675 million Senior Secure Term Loan B, we issued about $345 million of convertible senior unsecured notes, those notes, the five-year notes, July 1, 2031 maturity.

6.5% coupon with a $4 per share initial conversion price. So overall, we lowered our weighted average cost of debt, but we certainly have room to improve and looking forward to further optimizing the balance sheet.

In conjunction with the debt securities, we put in place a zero-borrowing base, $500 million revolving credit facility that was designed to.

Allow us to commence that hedging program and fulfill our obligations under the term 1D, meet those minimum hedging requirements by hedging 100% of our Netherland Sool projected PDP production. We have the ability to hedge beyond those minimums and we're currently evaluating adding additional volumes, which we'll get into.

Slide 7 is a brief overview of. Our updated financial guidance, which includes our sales and cost guidance.

Like Jim mentioned, we do have slightly elevated short-term marketing and GP&T deducts reflected here for the back half of '26. We'll get into why we think these issues will be alleviated here in the near term, but it's -- yeah.

Part and parcel of the California energy market with all the regulatory headwinds and constraints.

Our capital structure, as we illustrated on the prior page, an enterprise value of $1.9 billion, equity value of $911 million at the $4.75% share price as of August 7th.

Our financial objectives.

As we mentioned, we fully plan to delever under the terms of the new senior secured term loan B and/or refinance and take out that paper as soon as possible after we issue the full 3P reserve report where we get credit for all of the PDP reserves that we will bring online at Hondo.

Here in September, and also all of our publications, which were not included in the prior interim Nolan Silver Court. We'll continue to optimize the balance sheet with the Phase 2 of our refinancing, lower our cost of debt, and increase our maturity runway beyond 2028, and we will certainly opportunistically manage the convertible notes to minimize any potential dilution there. We have the ability to do that with cash.

We'll progress our rating agency discussions in advance of this Phase 2 global refinancing of the balance sheet and look forward to continuing those discussions as well.

Long-term, we still have a one-time net debt to EBITDA leverage target, and we fully plan to hit that metric.

Like I mentioned, we're going to advance the hedging strategy by adding additional. Floor pricing protection, likely in the $65 to $70 a barrel range to protect the downside relative to our current volumes.

And then long-term post phase two of the global refinancing, we plan to implement our shareholder return program and focus on reducing the share count with share repurchases and instituting a dividend at the appropriate time.

Slide 8 is our unlevered free cash flow guidance at strip pricing. So we're basically walking through and doing a little bit of math for you here, which leads into the following slide and the value proposition that Sable Offshore creates with the free cash flow profile today. So even with all of the marketing and.

Crude quality constraints, near-term constraints, we're still projected to generate a midpoint of $152 million of unlevered free cash flow for the back half of 2026 and into 2027, based on a Brent oil price of $75 a barrel, we're projected to generate over $500 million of unlevered free cash flow.

Slide 9, we believe that the current trading valuation of Sable doesn't fully reflect the projected earnings power, the cash flow profile and the capital allocation of the company, and we think this analysis on slide 9 illustrates that.

When you take a look at our levered free cash flow per share.

On the top left here for estimated 2027 levered free cash flow per share of $2.19, and you compare that to our pure free cash flow yield of relatively 14%, it's implying a share price of over $15 a share, and that represents a 220% premium to our share price as of August 7th, it's about $4.75. So we think on a basic outstanding share count basis and even on a fully diluted share count. Which includes all of the potential shares from the convertible notes, which we believe would be unrealistic, you still have 125% in today's price. So we think the value proposition on our shares is real, and we look forward to.

We look forward to moving forward as we ramp up this asset. Because remember, restarting an asset of this quality and this scale, the toughest part is it's like flying a plane. The hardest parts are takeoff and landing. Right now, we're on the ascent, and we're very much looking forward to getting into the fourth quarter and into 2027, increasing in altitude and attacking our financial objectives that are all laid out in front of us.

Slide 10, this is our current hedging program. We've layered in costless collars, which we were required to place five days after the closing of the refinancing on July 2, 2026.

So for the third quarter of '26, we've got collars hedged about 26,000 barrels a day, growing to 29,000 barrels a day in the fourth quarter, all with $65 floor pricing. So in the back half of this year, our ceiling is about $89.39 on Brent. And in '27, recall, these are 100% PDP hedged volumes.

We've got 25,000 barrels a day and in 2028, 21,000 barrels a day. We were required to layer in that 100% of PDP volumes per the term loan through maturity. That's why we've layered in these collars. We think they give us solid floor pricing protection to the downside and also allow us to participate on the upside and certainly with the unhedged volumes as well.

Greg, on the midstream of Brent Crude marketing overview on page 11, it's a lot of moving parts here with the California market, but more importantly for us.

At SYU, we don't have Platform Hondo on, which is our easternmost platform. If you look at the field from west to east, the higher sulfur content to the west and the lower sulfur content to the east. So, once we get all the wells on and so forth, we should be able to mitigate most of the sulfur deducts that we got hit with here in the second quarter and we'll also be dealing with in the third quarter and plus some chemical things we're trying as well that should work out well. We really appreciate all the refiners working with us because of the.

The magnitude of the flows out of our field.

They were surprised and from the upside, but we had to make a lot of movements around there, and Chevron has been over backwards trying to help us get all the crude moved. With that, we have a plan to de-bottleneck that with Chevron starting in September, as well as two other refineries that are looking at taking our crude and so forth, so we'll have ample output.

In the Los Angeles refining basin going through the Plains Line 2000. Additionally, there's additional pipelines that we're looking at going north and now in San Pablo.

Bay Pipeline looks like it's going to be in service thanks to California Resources. We'll look at being a third-party customer to those guys as well as another outlet for excess crude. We've got to solve those situations for us to put drilling rigs out here and start increasing production. We want to do that sooner rather than later, so we want as many multiple outlets as possible when we hit capacity in certain areas like going south of Line 2000. And then finally, we're moving along with our legal strategy. Toward getting an offshore buoy off of Platform Harmony and SYU.

It's premature to discuss the ins and outs of that, but that's still hot on our deal and looking forward to some good work out of Washington DC to get that in a position where we can start working on that and get it built and funded here in '27 for '28 as a long-term potential.

Safety valves to make sure we have the best marketing for you. So all that's in progress, working hard on it and so forth. And we feel like during the third quarter, it's going to become a low point on the marketing, all the demurrage charges and things of that nature. And then fourth quarter one, we should be improving.

It's certainly going into '27, the same thing we're hearing from our refining partners as well.

On page 12, I mentioned the buoy.

We have an illustration where it's sitting off a platform army. This is more of a cartoon at this point in time, but you can see that the aspect, it gives a lot of flexibility.

Bypassing the onshore market if we have to and give us a better marketing opportunities here with waterborne crews and the captured California market. Page 13 is just to remind everybody, the significance of this asset, the asset has not changed, prices have changed, marketing has changed, legal has changed, but this has not changed. San Yanez unit is still the number one.

Field in the United States based on estimated recovered reserves and cumulative production in ranks number four. And Page 14, one of the aspects of.

Working on is our total reserves out here. We've got a tremendous reservoir that has only had 25% of the approved reserves ultra recovery taken out of the 671 million barrels or 4.3% of the total barrels produced to date. And we think we have about 10% remaining barrels, about double that amount, which gets up to about a billion 517, which is 899% of the primary forecast and then our heavy oil forecast below. Gravity oil, 9 to 13 gravity, another 618 million barrels. We have a lot of oil to get out of the ground. We're glad we're getting started finally on it. Page 15 is our operating development plan going forward. You see it's very light on capital because of all the wireline work and so forth. Caldwell and his team have commenced wireline work where we're doing a lot of water mitigation on Hondo, excuse Mount Harmony and Heritage, some wells with the high water cut, we're either slide sleeves on. Through tubing plugs, trying to shut off some of the water from the lowest zone and allow the upper zone oil to flow better. We're in the middle of that program and look forward some really good results and also help relieve a lot of our handling capacity issues because of all the, so we get 100% of the wells on production by the fourth quarter. Right now we're constrained because of pump size at Heritage and also we're not making enough gas at.

Harmony and Heritage to run all the compressors. We have to get all the wells on, so it's a chicken and egg deal. So we shut off some of the water that we want to process on shore, then we'll have room for these wells to bring on more gas to get all the compressors on, and with the new pumps, we'll be able to pump it out. So the field is coming on.

Spectacularly, we're still seeing no decline in our production volumes. The wells are very strong and so forth. It's just getting consistent topside and unrestrained topside throughput, which is the main goal going forward. On page 16, we talked about the previous perf adds and so forth that we've done at about 600 barrels a day per perf add, and we've got several of those planned for '26 and also for '27 that are coming on. So. Accelerating that, and we look forward to having a lot of those behind us and enjoying that production starting in '27.

Page 17 is an illustration of the massive reservoir we have, covering 77,000 acres, so there's over 1,400 feet of pay, and many places the upper solicitors hadn't even been perforated, and that's easy stuff we're going for, as well as the massive church, got tremendous.

Reserves based on development drilling, and then the heavy oil stuff we haven't touched yet, and that's for down the road. On page 18 is our initial drilling inventory just in the Upper Silicious. You think about it, you have these 500 million barrel oil fields sitting on top of each other, there's three of them, with the Upper Silicious, the Massachusetts, and the heavy oil and so forth. And we're just, in the next 20 years, we'll just be drilling wells for the Upper Silicious, who have a long inventory, multi-decade. Inventory to drill and produce, but we need to make sure everything is running topside in first-class shape. On Page 19, you see the investment highlights.

We've transitioned to federal oversight successfully, requiring for low cost production growth.

So forth. We're able to control our costs. You can see that in what our CapEx looks like going forward and our ability to maintain production, if not grow it here in the near term. We have a large development inventory. Once we get our marketing debottlenecks and so forth, we'll be looking at putting some rigs out there and be able to develop that with our large production base, shallow decline. Therefore, our maintenance CapEx is very low, high operational control, we owe 100% and control and operate everything. And then.

Linking our food sales to Brent is important. We just got to get rid of the discounts.

Our safety and stewardship is outstanding. We continue to pride ourselves there and continue to get rewarded for that going forward. And we're going to continue to conserve our financial policy by advertising our debt until we refinance it.

Everything else is in the appendix.

Happy to take questions.

Harris, I'll turn it over to you guys and we'll get some questions and make sure we have nothing going on.

Sure.

Thank you, Jim. At this time. We will now answer questions from analysts.

Please use the raise hand feature in the webcast.

I'll pause a moment while the queue forms.

Alice, please proceed with Q&A.

( Operators Instructions )

Our first question will come from Lloyd Barnett Jeffries. Please unmute your line and ask a question.

Hey, good morning.

Thank you for all the information, guys.

Can you just walk through the discounts a little bit more and then what happens when what the discount looks like when you can blend the sulfur? And then maybe, Jim, also, what are the other options for lowering that discount going forward and does the SPR play into that? Just how do we think about those on a going concern basis? And I have one quick follow-up.

Well, with the sulfur and.

The demurrage and also the differential and the transportation totals up to 30 bucks a barrel discount, okay? The sulfur is about 10 bucks out of it, and the sulfur and demurrage is about 10 bucks out of it. We see that being mitigated, as I said, as we bring on Platform Hondo to get our fuel-wide production down below our penalty level, as well as some of the chemical stuff we're doing, as well as the demurrage.

Basically, we had to cover Chevron's costs. They turned tankers around and take our production as quick as they did. So we have one more of those to do in the third quarter. So I think here in the second and third quarter, those costs are going to be pretty steady. And then going forward in the fourth quarter, that's we'll see the relief from the demurrage and also the sulfur get back down to around $20 a barrel. That's what reflects in the guidance. Now, the $20 a barrel can be market-driven because you've got $3 of transportation.

And $17 worth of gifts at the refinery. We're going to continue to work with refiners to see if we can't mitigate that, but we're not forecasting any change at this point in time.

Okay. All right. Thanks. And then can you just talk a little bit about what 28's capital program looks like?

I mean, obviously lowered the capital spent this year, but.

And then raise it a little bit in 27. How does 28 look and kind of the trajectory going forward there?

It's page 15, Lloyd.

Assuming we don't refinance the debt, page 15, the '28 capital look a lot like '27 and '26, so forth. So it would strictly be wildline work and so forth. If we're able to successfully refinance, then we'd be looking at putting some rigs out there and growing production and accelerating our rig program. But it's all. It all depends on where we are financially and what our balance sheet looks like. Gregory.

Yeah, Lloyd, great question. Remember, we have capital governors for '27 and '28 for the new senior secured term loan fee of $100 million a year. So beyond 2026, we're capped out without absence and waiver at $100 million for '27 and '28. And like Jim mentioned, you go refinance that.

We'll have some freedom to adjust the capital budget.

That'd be a good reason to do it. Also, we have a carve-out of $150 million for a buoy if we get in position to build that.

Correct.

Okay.

Awesome.

Thank you, guys.

Our next question comes from Michael Farrow at Pickering Energy Partners. You may now unmute your audio and ask your question.

Good morning to the Stable team.

Can you hear me okay?

Yes, we can. All right, Michael.

Great. All right. Thanks for the confirmation. Look, I think it's safe to say it's been a pretty eventful second quarter. Maybe we can just start with the production ramp.

We recognize there's no guidebook to restarting an asset like the Santinez unit, and this is the first for the stable team as well. But the production ramp does seem to be going a little slower than expectations, at least versus our expectations. So I think what we and others would like is just more confirmation and clarity on what the economics and cash flows are going to look like when the asset reaches its plateau.

We appreciate the guidance update and we can kind of piece through the math, but just how confident are you in achieving the run rate operating costs of roughly $160 million and $190 million next year? After operating costs were nearly $95 million before considering the demurrage charges in 2Q. And maybe it's just something as simple as having fewer employees and less work on the platforms once reaching a steady state. So anything you could provide detail-wise on the operations that would increase confidence in margin guidance going forward would be helpful.

Yeah, Michael, great question. I think the key point here is it's not a production issue, right? It's a third-party sales constraints that have not allowed us to sell all of the barrels that we can produce. The wells are performing outstanding, like Jim laid out. I think you've seen that detailed in our earnings materials. We've been filling inventory in our $540,000.

Barrel storage tanks at Los Flores Canyon and trying to deplete that inventory and have run into short-term throughput constraints due to third parties.

So that's part of it. So I feel very comfortable about our ability to hit our production targets and as these short-term constraints.

On the throughput side, both on midstream and the downstream get alleviated here in the short-term, as in the next several weeks to months or month by September, we feel like there won't be a disconnect between our ability to produce barrels and our ability to sell the barrels that we produce.

That's one thing. The second item is on the operating cost front. Remember, we have a tremendous amount of contract labor and other labor dedicated to restarting these three platforms, which are still in the process of in terms of platform condo, right? We won't be in the restart phase forever. And what we're projecting here is we come out of that, we start coming out of that restart phase in the fourth quarter. So the reason why we provided the 2027 guidance was to give you a look at what fully ramped production.

In sales would look like with a more of a steady state operating cost posture.

And so I would say 27 is a great look. What 27 doesn't include, importantly, is any type of waterborne marketing optionality, any type of additional marketing leverage, doesn't include.

Potential chemical solutions that we're looking at to reduce our sulfur content, which right now we think could potentially for every dollar you spend on the chemical could yield a $4 cost savings. So none of that is included. In our guidance. So we think there's a lot of upside ahead. And like I mentioned, we're on the ascent of this takeoff. And this is an asset of the size and the scale that we're going to do it right.

We're not managing this business for the next several months. We've got a 50-plus year reserve life asset that we're going to take care of and make sure that we spend the capital to be safe. And all the capital of what you've seen in the capital reduction between our June guidance and now here in August, we've deferred any and all capital that's not related to producing and selling more barrels, maintaining safe operations, and attacking our restart at Platform Hondo.

Right, Gregory. I'd just add a little bit more to that, the aspect of unintended consequences with the volume of the wells basically double than what we expected and so forth. It's overrun some of the pump capacity in the platforms. We've got new pumps on order to increase that. These are all great problems to have. But at the same point in time, you can't get all the wells on that you want because you can't handle all the production through the pipeline. So we're going through that whole. Process. And there's also another constraint we have is it's a lot more oil than gas. The gas production is low. So therefore, getting all the compressors for the gas lift restarted. We're working through all those and there's solutions for it all. But these are all great problems to have. And that's why we point everybody during the financing to the fourth quarter of this year. We'll be up to all our marketing.

Contracts, our marketing follow next will be behind us. We've already got -- we have line of sight for that right now here in August, but we're saying about fourth quarter. And then all our production will be on constraint and so forth, and we'll have -- we'll probably have some wildline results as well from there. So we're like everybody else. It's going to be a long hot summer the rest of summer, but we're looking at the fourth quarter and certainly into '27, really be able to show the asset we have.

All right. That's great. I appreciate the clarification and detailed response. Maybe we can just follow-up on that point of the waterborne marketing angle, Gregory.

When do you think the company would be in a position to move forward with that decision to install a sales buoy?

I understand it's maybe a bit premature to discuss, but ultimately you want to try to avoid moving forward with that capital spend if the mainstream constraints are going to alleviate themselves. Of course, there's other considerations when going down that route. So what market signals are you looking for in the next six months and when do you think you would need to make the decision to move forward with the buoy path for a year-end '28 installation?

It's really regulatory. It's not market signals. The market signals are there, it's about at least a 50%. Improvement in discs and so forth and just having the flexibility out there. So we're looking at the regulatory aspect that we've got a lot of things conversation with a lot of federal authorities on what we need to get done and so forth and they look at this as an important part of security of the offshore barrels staying offshore and so we're waiting to hear on all that. We didn't get anything done by the August recess but this fall is going to be very.

Once we get that, then we'll have about four to six months of engineering, another six to nine months of procurement. So it will be every bit of summer 28 getting it installed and getting it put on there. So I guess that's hard to move that up at all. But under our timeline, we're right on that schedule right now. All right.

Thanks for your time.

Our next question comes from Leo Mariani at Roth. You may now unmute your audio and ask your question.

Yeah, good morning here, guys. Why don't you just follow-up on where do you think things stand these days with the potential SPR declaration in California? Is that something you think is moving forward at a good pace here?

Yeah, I think it's getting widespread support. CIFA came out with a big 12-page report, California Independent Producers, and it just de-bottlenecks the whole California energy onshore market pipelines and so forth. It definitely needs to happen. It's going to benefit all the producers and all the refiners and so forth, keep them in business, connect more pipes, more flexibility. I think that's -- and we haven't heard any headwinds in. From it. We just hear about mechanics.

And so we're looking forward to seeing some resolution on that this fall.

Okay, appreciate that.

And then also wanted to just touch base on this $500 million kind of no boring base working capital, I guess, facility you put in place for the hedging. Do you see potential for there eventually to be some boring base and some ability for. Able to draw on that? Is that something that's restricted until perhaps you guys can refinance the existing term loan and/or the convert? Just trying to get a sense of when you might be able to get in more of a regular way sort of working capital facility.

Yeah, Leo, this is Gregory. Great question. I think the way to think about increasing the borrowing base would be post pay down and the new senior secured term loan deed. So we hope to delever as quickly as possible and refinance and take that out, open up the borrowing capacity. And then also, once we bring Platform Hondo online, like I mentioned, we'll get additional PDP credit and then our PUD credit as well with the development program that we have.

Once the term loan B capital governors are alleviated.

I appreciate that. And I guess just on the more fulsome refi in 2027, what you guys certainly. Spoke to post the reserve report here. Can you maybe give us a little bit more color on kind of what the current thinking would be after that happens if it's all successful in terms of trying to return capital to shareholders? Do you guys kind of try to get a buyback going first, then maybe a dividend comes down the road if you guys are able to reduce the share counts? Just want to get kind of management's current thinking on how that could proceed.

Yeah, all of the above. The aspect I think.

Initially, it'd be some type of dividend, and then depending on what oil prices are on the stock buyback is what the board's thinking at this point in time. But right now, it's getting our balance sheet in good shape, and that's why amortizing the debt with the cash flows is successful at this point in time. We've got the real capital-light program to keep our production.

Maintained and so forth and all the improvements are within our control. So I think next year or two is making sure that getting the balance sheet in a regular way situation where we can have those options. But right now, there's obviously going to be no cash leaving the system until we get the balance sheet under control.

Okay.

Thank you, guys.

Our last question comes from Charles Mead at Johnson Rice. You may now unmute your audio and ask your question.

Yes, good morning, Jim and Gregory, and to the rest of the table to you there.

Jim, I'd like to go back to Leo's question on the SDR.

If I heard you correctly, you said you expect some kind of resolution this fall on that and that you've got. Some enthusiasm, not just from other producers, but often pipeline and refinery operators in California.

What that you're looking for, what form is that going to take? Has there been any evolution either on your side or on the government side of what the designation would look like in terms of assets for that SDR effort?

Charles, you were breaking up, and I think you were talking about the designation. First, it has to be designated SBR, and then you have the power of condemnation by the Department of Energy that can condemn whatever acreage or whatever asset they want for the purpose of supporting the SBR. So that gives you a lot of flexibility, plus also be able to connect pipes.

That are right now inofficially not connected and be able to relieve a lot of marketing constraints for everybody. So you want to have as much oil going into the SBR as you want to have much oil going out of the SBR into the refinery. So it gives the federal government broad powers to make sure that the California energy sector will start being efficient and be able to maintain its current production levels and also more importantly for us to maintain the refineries. That's the big thing is support.

And will that restart of Valero Venetia? I don't know. There's a lot of entrepreneurs around here looking at it here in Houston and stuff. But I mean, it could add refineries, but for sure at least keep the ones that are there in business. And we got broad support from that from everybody. I say we, the Department of Energy does. So hopefully we'll get that across the line sometime this fall.

Can you guys still hear me or is it, am I fine?

Yeah, you're good now. You're better now.

Great, thank you.

Jim, a follow-up question on the declines you're seeing or maybe the lack of declines you're seeing.

Are you seeing any change in the flowing pressure of the wells? And I'm curious what impact you perceive this will have on your updated.

3T reports coming in and just specifically wondering, do you think that how much history are the preserve engineers going to want to see before they give you credit for a lower decline? And are they going to give it to you just on the wells that you've been able to manage or do you think they're going to give it to you more on a field-wide basis?

Yeah, we float all the wells, Charles, I mean that aspect of that, and we'll have enough production industry on everything to whether to be able to do it on a field-wide basis. Yeah, we're seeing no decline in the field, so it's a massive field, but I'm sure we'll all coalesce around a 6% or 7% field-wide decline going forward, which has been this struggle. It's made 671 million barrels with a 7% decline.

Eventually, that will revert to that, and that's where the physics is going to be. We're certainly enjoying the production with no decline rate, but at some point in time. And when you get that pressure drop a little bit and the GR goes up, we'll be making more gas. We've got to run our compressors. We'll actually be able to effectively bring on more production in some wells that have high water cuts that we can't bring on right now because of the lack of gas. So the fuel will actually run a little better and probably we'll see a 10% to 15% increase in production volumes and also some gas sales at that point in time. So there's a pool whether it's going to be this year or next year is whether the fuel is starting to climb, but it will at some point in time. So you can use that 7% field-wide decline. And that's where we've been steady in all of our projections. I think the Netherlands Soul pre-production.

Decline rates on their reports, like 21%, 16% the first two years, which is just protection for everybody and themselves, investors and so forth. And they fully recognize the way the fields perform and looking forward to make sure we all coalesce around that field-wide decline.

That's great detail.

Thank you, Jim.

Sure.

Our last question comes from Noel Parks at Tui Brothers Investment Research. You may now unmute your audio and ask your question.

Hi, good morning.

I just wondered with Platform Hondo, you mentioned that it's in a process of restoration. Could you just talk a bit more about what's entailed in that? And I was wondering if any of it is in addition to what you originally anticipated.

The work is that you'd have to do.

Well, we really anticipated a lot of work at Platform Honda, like a 45-year-old platform. And, but the amount of work did surprise us. I mean, we've had probably about 50% more work than we expected, a lot of structural work that we inspect and so forth, that.

The platform was in dire need. It wasn't near any good of shape as harmony inheritance. It's just older and maybe less maintained from that standpoint. So we've taken upon ourselves to basically rebuild that platform in place, and we're going to have a first-class facility. It'll probably be the most sought-after.

In the whole field of a new living course, do everything from a standpoint. But also the controls had to be completely changed out where the Harmony and Heritage control just had to be updated and so forth. So it's going to be a brand new platform when we finish with it.

And we're looking forward to that. And also our gas sales go through that platform as well. So we had to make sure that was in good shape.

And the guys, again, have done a masterful job there. And we've got so many people and contractors there.

We're moving logistics and people from other platforms, staying in other platforms to that platform to do work every day. So we continue to be safe and real impressed with the work that Call Well and Trent and those guys and their group has done.

Great, thanks. And I was thinking about it in terms of geological work, sort of just what I guess the first on the agenda for further testing of the upper silicious, and sort of, what's kind of the most economical way to go about that, I assume it's maybe recompletion up whole, and, what sort of cost and. Would that be in what sort of data are you looking for next there?

Yeah, well, the upper solution is going to be our main target for all of our repurfs, our perf ads, basically going up whole like we show in the illustration on page 17, and also to talk about in 14, 15, and 16. But the big thing on upper solution is once.

We're out there and we have a position to grow volumes with driller rigs, that's going to be our main target.

And that showed up on page 18, which is our location. We have over 100, 125 locations just in the Upper Salicia. We've got another 50 locations. 50 to 75 in the massive chert that's been the main producer just in the up depth locations. And then we've got to redrill the whole field again for the heavy oil. So the Upper Solicious over the next decade is going to be one of the key development deals and several of the most recent wells they drilled in 2015 and two of them in the Upper Solicious are some more prolific producers at this point in time. So we're waiting to get our hands on it. We're certainly not going to put rigs out there until we have our marketing, our pipelines, the bottlenecks and all this stuff done. Miners all in good shape and want to take more oil and then we actually can grow production with the two drilling rigs that we're going to put out there. But we're looking forward to that time and then just taking these steps, the steps to get there very deliberately and looking forward to achieving full cash flow of full production of '27. So we've got some options.

Great. Thanks a lot.

There are no further questions on the line. This concludes today's Q&A.

Thank you, everyone, for your participation in today's earnings call. We appreciate it.

Goodbye.

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