Sable Offshore Corp.SOC
Sable Offshore Corp. Income Taxes Disclosure
Note 12 — Income Taxes
The Company follows the asset and liability method of accounting for income taxes under FASB ASC Topic 740, Income Taxes. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. After consideration of all of the information available, management believes that significant uncertainty exists with respect to future realization of the deferred tax assets and has therefore established a valuation allowance. Income taxes were not allocated to the Predecessor as the seller did not file a consolidated tax return and was not a taxable legal entity.
The components of the deferred income taxes were as follows:
| December 31, | |||||||||||
| (in thousands) | 2025 | 2024 | |||||||||
| Deferred tax assets | |||||||||||
| Net operating loss | $ | 216,910 | $ | 48,155 | |||||||
| Net oil & gas acquisition, exploration and development costs | — | 17,800 | |||||||||
| Stock based compensation | 4,207 | 5,221 | |||||||||
| Start up costs & other | 9,622 | 6,036 | |||||||||
| Accruals and other | 9,794 | — | |||||||||
| Total deferred tax assets | 240,533 | 77,212 | |||||||||
| Valuation allowance | (209,363) | (76,327) | |||||||||
| Deferred tax assets, net of allowance | 31,170 | 885 | |||||||||
| Deferred Tax Liabilities | |||||||||||
| Net oil & gas acquisition, exploration and development costs | 39,137 | — | |||||||||
| Other property | 4,866 | 2,047 | |||||||||
| Total deferred tax liabilities | 44,003 | 2,047 | |||||||||
| Net deferred tax liabilities | $ | 12,833 | $ | 1,162 | |||||||
The components of the Company’s income tax expense (benefit) were as follows:
| Successor | |||||||||||
| (in thousands) | Year Ended December 31, 2025 | February 14—December 31, 2024 | |||||||||
| Current: | |||||||||||
| Federal | $ | — | $ | — | |||||||
| State | — | — | |||||||||
| Deferred: | |||||||||||
| Federal | (102,529) | (62,730) | |||||||||
State1 | 267 | (99) | |||||||||
| Change in valuation allowance | 113,933 | 62,781 | |||||||||
| Income tax expense (benefit) | $ | 11,671 | $ | (48) | |||||||
1Net of federal benefit and state valuation allowance. | |||||||||||
As a result of the implementation of the One Big Beautiful Bill Act (OBBBA) enacted in July 2025, we recorded a $5.8 million charge in the third quarter of 2025, which was a valuation allowance against our U.S. federal deferred tax assets as of the enactment date of OBBBA.
As of December 31, 2025, the Company had $913.7 million U.S. federal net operating loss carryovers available to offset future taxable income. The Company had $359.7 million of California net operating loss carryovers available to offset future taxable income beginning in 2027 and are subject to expiration in 2047. Under the Tax Cuts and Jobs Act (“TCJA”), federal NOLs generated after 2017 will be carried forward indefinitely but are limited to an 80% deduction of taxable income. In June 2024, California’s Governor signed into law AB 167 suspending California NOL utilization for taxpayers
with more than $1 million of taxable income, effective for tax years 2024, 2025, and 2026. AB 167 includes an extended carryover period for suspended net operating losses (“NOL”) that would have been utilized if not for AB 167.
The Company’s ability to utilize its NOL carryforwards may be substantially limited due to ownership changes that have occurred or that could occur in the future, as required by Section 382 of the Internal Revenue Code of 1986, as amended (the Code), as well as similar state provisions. These ownership changes may limit the amount of NOL carryforwards that can be utilized annually to offset future taxable income and tax, respectively. In general, an “ownership change,” as defined by Section 382 of the Code, results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percent of the outstanding stock of a company by certain stockholders or public groups.
During the course of preparing the Company’s consolidated financial statements, as of and for the year ended December 31, 2025, the Company completed a preliminary assessment of the available NOL carryforwards under Section 382 of the Code. The Company determined that in September of 2024, we had a Section 382 owner shift. As such, $143.1 million of U.S. federal net operating loss carryovers and $72.3 million of California net operating loss carryovers will be subject to an annual limitation of approximately $53.9 million.
A reconciliation of the federal income tax rate to the Company’s effective tax rate for the periods presented is as follows:
| Successor | |||||||||||||||||||||||
| Year Ended December 31, 2025 | February 14—December 31, 2024 | ||||||||||||||||||||||
| (in thousands) | Amount | % | Amount | % | |||||||||||||||||||
| $ | (83,683) | 21.0 | % | $ | (129,638) | 21.0 | % | ||||||||||||||||
State and local income taxes, net of federal income tax effect(1) | 267 | (0.1) | % | (99) | — | % | |||||||||||||||||
Change in federal valuation allowance(2) | 110,927 | (27.8) | % | 62,781 | (10.2) | % | |||||||||||||||||
| Nontaxable or non-deductible expenses and other | |||||||||||||||||||||||
| Change in fair value of warrants | (18,733) | 4.7 | % | 47,765 | (7.7) | % | |||||||||||||||||
| Non-cash compensation permanent differences | (1,263) | 0.3 | % | 14,683 | (2.4) | % | |||||||||||||||||
| Other non-deductible expenses & other | 4,156 | (1.0) | % | 4,460 | (0.7) | % | |||||||||||||||||
| Income tax expense and effective tax rate | $ | 11,671 | (2.9) | % | $ | (48) | — | % | |||||||||||||||
(1)State taxes in California made up the majority (greater than 50 percent) of the tax effect in this category. | |||||||||||||||||||||||
(2)$5.8 million related to the implementation of OBBBA. | |||||||||||||||||||||||
There were no foreign tax effects, impact from cross-border tax laws, tax credits, or unrecognized tax benefits as of December 31, 2025 or December 31, 2024. Interest and penalties for the years ended December 31, 2025 and 2024, were not material. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position. The Company files income tax returns in the U.S. federal and state of California, Texas and Louisiana jurisdictions. The Company is not currently under examination in any jurisdiction. The Company’s tax returns for the years ended December 31, 2025, 2024, 2023 and 2022, remain open and subject to examination. The Company paid no cash income taxes during the years ended December 31, 2025 and 2024.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 27, 2026 | Showing above |
| 2024 | Mar 17, 2025 | |
| 2023 | Mar 28, 2024 | |
| 2022 | Mar 31, 2023 | |
| 2021 | Apr 4, 2022 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.