On Monday, TD Cowen initiated coverage on Sable Offshore Corp. (NYSE: SOC), assigning the stock an Outperform rating and setting a price target of $20.00. The firm highlighted the company's potential in offshore California production, noting the significant free cash flow (FCF) yields expected once shut-in production is restored.
Sable Offshore is seen as a pure-play opportunity in a promising reservoir, with the main challenge being the path to first production. TD Cowen anticipates that once full approval is granted, the focus will shift to de-risking the proven developed producing (PDP) reserves. This initial stage is crucial for setting the stage for future discussions on production growth.
The analyst from TD Cowen believes that even with the planned expansion, including over 80 electric submersible pump (ESP) installations, Sable Offshore is positioned to generate substantial free cash flow. This growth is expected to come while the company exploits over 100 identified step-out locations, which present additional opportunities for production increase.
Additionally, Sable Offshore's strategic positioning allows it to explore carbon capture and storage (CCS) opportunities offshore California. The company has plans to file for a class VI permit in 2025, which could enhance its profile in the growing field of CCS.
The $20 price target reflects the firm's confidence in Sable Offshore's ability to deliver on its production and free cash flow potential, as well as its prospects for future growth in both oil production and environmental initiatives.
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