Sable Permian Resources Is For Sale

 Sable Permian Resources is a small player in the Permian shale oil patch. They have the oil rights for 127,600 acres and produced an average 51,500 BOE/day (barrels of oil equivalent per day) in the past quarter. Current book value of these assets is $990 million.

Sable underwent a major restructuring in 2017 and then again in 2019. On June 25th they file for Chapter 11 bankruptcy protection. This time the assets are being sold off. The auction is set for October 2nd - this coming Friday.

Sable is not a public company. The overview of the company and situation provided for the bankruptcy proceedings is the best place to start. The company has $10.5 million in cash and $1.3 billion in debt in three tranches:

  1. $574.9 - Revolving Credit Facility
  2. $707.7 - 12% Senior Secured First Lien Notes due 2024 (ask price: 10; no bids)
  3. $36.1 - Senior Notes (price: 0)

Despite their name, the First Lien Notes are subordinate to the Revolving Credit Facility. All the assets are in the subsidiary named "Sable Land Company, LLC" which has pledged the assets for its Revolving Credit Facility. The First Lien Notes were issued by the holding company that owns Sable Land. So they are a first lien on everything left over after Sable Land has paid all its debts.

The billion dollar question is "how much will the assets sell for?"

If it is less than $575 million then the First Lien Notes will be wiped out. If it is the $990 million that was set in the restructuring last year then the First Lien Notes will receive about 12 cents on the dollar.

The $990 million is a conservative price - but it is a very poor time to be auctioning Permian assets.

$990 million is $7,762/acre - well under Pioneer's $21,243/acre. From a current production perspective, it is $19,194 per BOE/day - well under the comparables I could find (Pioneer: $38,561; Apache: $21,480; Occidental: $50,280).

I suggest Sables' First Lien Notes (originally issued to "American Energy - Permian Basin, LLC) are not a good investment. Without an intimate understanding of how the auction is likely to go on Friday there is just too much risk of losing everything. However, they appear to be an pretty good speculation. There are no bidders for the bonds. If they could be purchased at a very low price, say 1 or 2, then there may be a very handsome return in a very short period of time.

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