By Gary McWilliams
HOUSTON (Portal) – Exxon Mobil Corp is set to lose up to $2 billion on the heavily leveraged sale of a troubled California offshore oil and gas field that has been shut down since a pipeline disaster in 2015.
The sale comes after a failed bid earlier this year to restart production at the site and after Exxon weeded out underperforming companies. Santa Barbara officials in March rejected a plan by Exxon to resume operations and ship oil to inland refineries via dozens of tanker trucks every day.
Sable Offshore, a blank check company founded by industry veteran James Flores, will borrow 97% of the $643 million purchase price from Exxon through a five-year loan. Blank check companies raise money to acquire operating companies. If Flores is unable to resume production at the Santa Ynez field by early 2026, Exxon could roll back all operations, Sable said in a filing.
Exxon was not immediately available to comment on the terms of the deal. It has accelerated asset sales to reduce operating expenses and improve returns after a historic 2020 loss.
Flores will seek permits to restart Santa Ynez and expects to pump about 28,100 barrels of oil and gas per day beginning in 2024, according to an investor presentation by Sable. The field has 112 drill holes and the potential for at least another 100 drill holes as indicated by his presentation.
A leak in an undersea pipeline seven years ago sent 2,400 barrels of Santa Ynez oil into the Pacific Ocean, leading to its closure. Exxon acquired the pipeline from its owner and is attempting to restart production.
The sale of Santa Ynez includes three oil and gas platforms located up to 9 miles offshore California, a pipeline and oil and gas processing assets. The first platform was built in the 1970s and began producing oil in 1981.
Flores has a long history of buying and selling businesses. He ran five US oil companies beginning with Flores & Rucks Inc in 1992, often selling his companies for sizeable profits. Its last company, Sable Permian Resources, filed for Chapter 11 bankruptcy in 2020 as oil prices plummeted.
Last year, he raised $287.5 million through an IPO for the company that became Sable Offshore. Sable has until March 1 to close a deal or return the money to its IPO investors, its filings show.
(Reporting by Gary McWilliams; Editing by Lisa Shumaker)