California Legislature Muddies the Water
A Note on Sable Offshore, AB1448, SB542 & Trailer Bills
I have followed Sable Offshore for two years now and from the beginning the negativity was high and is reflected in the securities price. One would not have to squint to see how a California based asset, coming out of the other side of an oil spill in Santa Barbra might have a tough time garnering a lot of confidence from the investing public.
It seems to me that after all of the conversations I have had to date, the work I have done, and conviction I have personally gained, there has been one foundational piece that has continued to pressure the stock price more than anything else. That piece is that the entire California machine is working against you, and that it might not be today, but some day down the road there is going to be a “thing” that stops Sable dead in its tracks.
Given that this narrative has been so persistent and pontificated about, what has happened is now anything that comes out from a state entity sounds an alarm for the investing public. I think that is a rationale way to behave in a way given the corrupt and backroom nature of the interworking of politics broadly and California in particular. However, thinking is always critical and at points of inflection it is everything.
By the very nature of an investment in Sable Offshore you are making the explicit claim that a pipeline that has been offline for a decade is going to come online in the mecca of environmentalism, and that California is either going to allow it directly or not be able to stop it. To come to that conclusion, one must be radically independent of the consensus or be pitched the stock by someone that is.
If we simply walk through the timeline of events that were certain to be the death of Sable or a significant deterrent to their restart objectives, the directional progress becomes clear.
In the beginning it was safety valves and CBAT technology that leads to a 2 year litigation with Sables case prevailing and using that settlement as a vehicle to overcome future obstacles. After that the California Coastal Commission enters the arena and that was the next big “thing” that was going to stop sable.
The ECDO back in September caused a lot of panic and I was flooded with messages around the CCCs ability to enforce environmental review and new permit applications. That failed not once but twice with Sable moving closer to the goal line.
All the while the permit transfer battle was going on. There was a 3-2 decision in favor of allowing Sable to be owner operator and guarantor of the pipeline that was appealed by the Environmental Defense Center (EDC) that decision was split 2-2 with both sides claiming victory.
How would sable operate their pipeline without this? This became the boogey man and still causes confusion today despite Sable flowing oil from platforms to LFC and an operating agreement with Exxon and an active lawsuit between Exxon and the planning commission in SB county.
Then came the TRO and PI issuance where, on procedure Sable lost both cases, in one case it flew in the face of federally mandated pipeline repair work and on the other literally injuncted the FM from doing what the California State Constitution outlines is that offices duty. Then there was Gaviota state parks easement, there was the state waiver for cathodic protection, there was the water board, the list goes on and on and on.
The point? This has been two years of nothing but anxiety and obstacles from the opposition and what I think has happened now is the market is so primed for the next obstacle and has anticipated it so much that no matter what comes out this late in the game it must be the kill shot evidenced by Geck’s tentative ruling for the PI dropping, the market selling the stock off nearly 20% only to have it end up nearly 40% in the same session.
There is rarely any useful signal in stock price movements to begin with but Sable’s seems extraordinarily arbitrary. Let’s look at the facts on the ground.
Where We Stand: Trailer Bills, 1448 & SB542