Sable to need about $1.7 billion in funding to progress Santa Ynez project, sources say

By Shariq Khan

NEW YORK, Oct 24 (Reuters) - Sable Offshore SOC.N would need about $1.7 billion in funding to implement a floating storage strategy it proposed as an alternative to marketing crude from the Santa Ynez field off California by pipeline, two sources familiar with the matter told Reuters.

Sable last month told investors that it was pursuing an offshore storage and treating vessel strategy to market oil produced from the Santa Ynez project, while it continued contesting California regulators' challenges to its planned restart of an onshore pipeline that moved crude from the project to regional refineries.

The estimated cost of pursuing that strategy has not been previously reported. Sable's estimates include the refinancing of a $900 million loan from Exxon Mobil XOM.N to buy the project from the oil major, which shut it in 2015 after an oil spill, the sources said.

Roughly $450 million in funding would be required for purchasing or converting the offshore storage and treatment vessel itself, including any modifications it might need, while another $300 million would go towards operational expenses including general and administrative costs, the sources said.

The company has been in talks with the U.S. government for financing for the project, which could include a federal loan guarantee, the sources said.

The sources requested anonymity as the estimated financing requirements and talks with the U.S. government are not public.

Sable declined to comment on the financing estimates or talks with the federal government. The White House did not immediately respond to a request for comment.

MONTHS-LONG PIPELINE DISPUTE

Sable has been locked in a months-long dispute with California over the restart of the Santa Ynez project, which had been shut for nearly a decade following the 2015 spill. Sable restarted production from one of the platforms in May.

Last week, a California judge tentatively ruled against Sable Offshore's request to lift a cease and desist order by the California Coastal Commission on repairs it had made to the onshore pipeline system, called Las Flores.

Sable had said then that the ruling did not affect its plans to resume petroleum transportation through Las Flores or production, but added it will appeal the decision.

This week, Sable's plans to restart the pipeline were dealt another blow after California's Office of State Fire Marshal said that the company had not met the conditions for the restart of the pipeline.

Sable has not completed repairs on the pipeline in the way it was required to under waivers granted to it last year, the OSFM told Sable in an Oct. 22 letter.

Sable, in its response to the OSFM on Thursday, said the agency's conclusions are in error and inconsistent with numerous talks between the two parties.

"Sable strongly disagrees with the allegations, which are inconsistent with the plain language of the waivers and numerous past discussions with OSFM experts that confirm Sable is in full compliance with the waivers. Sable plans to supplement this initial response and looks forward to quickly resolving this misunderstanding with OSFM," it said on Thursday.