The Trump Administration Ordered a Previously Shut-Down Oil Pipeline Reopened in California. Here's What Investors Need to Know About the Company that Owns It.
Key Points
The Trump Administration issued an emergency order to restart the Santa Ynez Pipeline System.
The system hasn't restarted since getting shut down in 2015 due to an oil spill.
The pipeline is crucial to supporting Sable Offshore's operations.
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Earlier this week, the Trump Administration issued an emergency order directing Sable Offshore (NYSE: SOC) to restart the Santa Ynez Unit and related pipeline. The restarted pipeline would allow more U.S. oil to flow into California refineries, displacing foreign imports. Global oil supplies are currently constrained due to the war with Iran and its impact on oil flows out of the Persian Gulf.
Here's what investors need to know about the pipeline and Sable Offshore.
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Closed since a 2015 oil spill
The Santa Ynez Unit and related Santa Ynez Pipeline System have remained shut since the Refugio oil spill in May 2015. The pipeline had corroded, causing 142,000 gallons of oil to spill, contaminating one of the most biologically diverse areas along the U.S. West Coast. The pipeline system, then owned by Plains All American Pipeline, didn't have an automatic shut-off valve. The system supported offshore oil platforms operated by ExxonMobil.
ExxonMobil acquired the pipeline system from Plains in 2022. It needed the pipeline back online to restart its production platforms because it couldn't transport the oil by trucks to refineries. The oil giant eventually sold Santa Ynez to Sable Offshore for $643 million later that year, loaning it most of the money to fund the deal.
Sable Offshore has been trying to restart the repaired pipeline. However, it has faced opposition. The company has been looking into alternative ways to transport oil from Santa Ynez to refineries, including using shuttle tankers.
An emergency order to restart
The war with Iran has impacted global oil supplies and sent crude prices soaring. The Trump administration has taken several steps to lessen the war's impact on oil, including releasing oil from the SPR. Restarting the Santa Ynez Pipeline System will add additional supply.
Sable Offshore has resumed oil flows through the pipeline and expects to start selling 50,000 barrels per day by April 1. The pipeline has a capacity of 200,000 barrels per day. Sable has about 540,000 barrels in storage, enough to fill the pipeline as it restarts production. The company plans to ramp up production at its offshore platforms in the coming months to provide more oil to California's refining market.
Despite the emergency restart, California is still seeking to block the project. The Department of Parks and Recreation recently demanded that Sable remove a portion of the pipeline that crosses Gaviota State Park. Sable has sued the state parks department in response. Given the continued opposition, there's a risk that Sable might have to shut down the system again.
A high-risk oil stock
Sable Offshore has been trying to restart the Santa Ynez Pipeline System for years. It's finally able to do so after the Trump administration issued an emergency order to restart the pipeline due to the war's impact on the oil market. However, there's a high risk that the pipeline could face another shutdown due to intense opposition following the 2015 oil spill. That makes Sable a very risky oil stock since Santa Ynez is its only operating area.
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Matt DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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