Vista Energy - Earnings Call - Q1 2020

Transcript

Speaker 0

Ladies and gentlemen, thank you for standing by, and welcome to Vista Oil and Gas First Quarter twenty twenty Results Conference Call. Now it's my pleasure to return the call to Alejandro Chernyakov, Strategic Planning and Investor Relations Officer.

Speaker 1

Thanks. Good morning, everyone.

Speaker 2

We are happy to welcome you to Insta's first quarter twenty twenty results earnings call. I am here with Miguel Gallucho, ISTA's Chairman and CEO and with Paolo Verapinpo, ISTA's CFO. Before we begin, I would like to draw your attention to our cautionary statement on Slide two. Please be advised that our remarks today, including the answers to your questions, may include forward looking statements. These forward looking statements are subject to risks and uncertainties that could cause actual results to be materially different from expectations contemplated by these remarks.

Our financial figures are stated in U. S. Dollars and in accordance with International Financial Reporting Standards. However, during this conference call, we may discuss certain non IFRS measures such as adjusted EBITDA. Reconciliations of these measures to the closest IFRS measure can be found in the earnings release that we issued today.

Please check our website for further information. Our company, the capital of the organized under the laws of Mexico registered in the Vaca Mexicana de Valores and the New York Stock Exchange. The tickets of our common stocks are Vista in the Vaca Mexicana de Valores and BIST in the New York Stock Exchange. The ticker of our warrant is BTW408A. I will now turn the call over to Miguel.

Speaker 1

Good morning, everyone, and thank you for joining this earnings call. This webcast is completely different to all the previous one I have done. We are going through an unprecedented health crisis. I hope you and your families are healthy and staying safe as we go through this COVID-nineteen pandemic. I would like to kick off by commenting on our response to COVID-nineteen with a special focus on our people, business continuity and balance sheet strength.

The COVID-nineteen outbreak is currently causing a significant impact on the global economy, the oil industry and our operation in Argentina and Mexico. Vista's response has been firm and decisive as it has been always, especially with regards to the health and safety of our employees. In this respect, I would like to mention that currently 75% of our employees are working from home in accordance to our health protocol. We have also opened a COVID-nineteen help desk to answer the questions and concerns that our employees might have. The remaining 25% of our workforce is strictly devoted to essential oilfield operations, working on seven day shifts to minimize travel to and from the field.

I will use this opportunity to highlight their effort to keep our operation running and thank them for doing so. Please note that our business continuity plan implies a reduction of 65% of field personnel compared to a regular operating day. We have also taken decisive steps to protect our cash position and strengthen our balance sheet. We stopped drilling and completion activities and scaled down our capital expenditure projects for the remainder of the year. We are also working on reducing OpEx and G and A costs to lower activity levels.

We believe this will lead to a leaner and more efficient organization that is fitter for the future. We're in tough business environment with low crude oil prices and an unprecedented drop in demand, but our strategy and the strength of our organization leave us well prepared to face this challenge. First, our two drilling CapEx decision making process coupled with flexible drilling and completion contracts enable us to take discrete investment decision with short CapEx cycle allowing us to start and stop as we see fit, helping protect our balance sheet. Second, having spent more than $200,000,000 over the past two years, we now have low investment commitment on the standing in our thirty five year concessions, allowing for flexibility in our development plan. Third, cost reduction efforts we began in April 2018 when we took over these assets have generated a low lifting cost operation at $10 per BOE.

And last but not least, our financial debt structures have lowered their maturity during 2020. I hope it come across that we are well prepared for the coming quarters. We now move on to the results of the 2020, which were partially affected by the drop in prices and demand mainly in March. In late February, we tied in our third part targeting the Vaca Muerta formation in Bajada Del Palo Este, which delivered impressive results in the first days of production. One of the wells reached more than 2,600 BOEs per day and with more room to continue growing.

In our continued quest to optimize our development cost in Baja Del Palo Este, we positively test 40 meters frac spacing in one of the wells. Remember, we are using 60 meters spacing in the rest of the wells. We will go into more details regarding our Vaca Muerta project later during the presentation. Our daily production averaged 26,500 BOEs per day, slightly impacted by the shut in of our Vaca Muerta production volume on March 20 due to low crude oil demand. Lifting cost was $9.9 per BOE, 18% below Q1 twenty nineteen, already showing partial impact of our cost reduction initiatives.

Revenues were $73,000,000 and adjusted EBITDA was $25,000,000 both impacted by falling realized oil prices in March. Cash at the end of the period stood at $2.00 $5,000,000 and net leverage ratio at 1.7 times adjusted EBITDA. As shown in the previous slide, our total production for the quarter was 26,500 BOE per day, an annual increase of 3%. This was mainly a result of the addition of volumes from our project in Baja Del Palo Este, which reached a daily production of 11,500 BOEs in Q1 prior to their shut in. Due to the oil gas mix of our shale production, the annual increase has more impact on our oil volumes where the year on year increase was 13%.

We took proactive approach and reacted quickly to the drop in crude oil demand on March 20. In advance of commercial and store restriction, we shut in our shale oil wells in order to continue producing our conventional assets. Our third party has not reached its peak when we shut in. We're noting in the fact that shale reservoirs provide a highly efficient short term storage solution and that we expect flash production driven by pressure buildup as soon as we reopen these wells, partially recovering the lost days of production. Finally, in the initial days of commercial restriction, we hired floating storage for 300,000 barrels for our May production at very competitive rate.

And we foresaw that onshore storage capacity will become unavailable later on. Our first quarter revenue totaled $73,300,000 22% below Q1 twenty nineteen, mainly driven by lower realized crude oil and natural gas prices. Crude oil realization prices were $43 per barrel, 24% below Q1 twenty nineteen. Average sale prices were $55.7 per barrel for January and forty eight point two dollars per barrel for February, but fell to $26.5 per barrel for March as the COVID-nineteen pandemic hit commodity prices, thus affecting our realized prices, which were linked to Brent in March. Average natural gas price was down 41% vis a vis the 2019, mainly due to the current gas oversupply in the domestic market which drove price decreases of 50% in the industrial segment and 35% in power generation.

We now move to OpEx. As shown in the first chart, the total operating expenses for the quarter were $23,800,000 14% below Q1 twenty nineteen. This year on year decrease were driven by cost reduction efforts conducted during 2019. But I will also like to highlight savings in the pooling activities, which were quickly adjusted in March 2020 as crude oil prices and demand start to fall. The second chart shows OpEx per barrel of oil equivalent, which was $9.9 for the quarter.

This is 18% below year on year mainly as a result of the cost savings I have just described, but also the increase of shale production volume in our Bajada Del Palo Este block at

Speaker 3

the minimum

Speaker 1

incremental cost. Moving on to Slide eight, our adjusted EBITDA for the quarter was $25,300,000 January and February with a full production and with approximately 52 per barrel of average pricing, EBITDA margin was about 40% and March with a partial shut in of the production and $26 per barrel of pricing drove us down an average EBITDA margin for the quarter of 34%. I would like to stress the importance of our solid improvement in operating expenditure performance, which allow us to partially offset the price impact. Cash flow from operating activities in Q1 twenty twenty was $21,000,000 Cash from investing activities was $69,100,000 driven by drilling and completion in our Bajada Del Palo Verde project and the payment of the acquisition of our less midstream business. With cash from financing activities at $13,800,000 our cash position stood at $205,300,000 at the end of the period, leaving us with a solid cash position to face the following quarters.

We now move on to an update of our flagship Vaca Muerta project in Baja del Palo Verde. As I mentioned earlier, in February, we tie in our third pad. The first chart shows the production of its four wells against our prior two pads. Even though the well only produced for less than thirty days before being shut in, They show promising productivity and we expect them to keep performing in this way when we reopen based on pressure and water cut data. Please note well 2063 in red, which reached 2,600 BOEs per day.

It is also worth mentioning that pad one and two keep outperforming our Tide Cur by 26%. On the bottom right side, we are showing the lateral length frac spacing and number of fracs of each well of the third pad against the average of pad one and two. Especially well 2,064 of the third pad was drilled with a lateral length of fourteen twenty seven meter and completed with a reduced frac spacing of 40 meters. As shown in the graph at the top right corner, higher density frac in shorter wells are providing similar productivity result on a per stay basis to 60 meter well spacing. This is true even when compared to Well 2063, which I referred to earlier.

This coupled with a CapEx per well saving of 15% per well achieved, as shown in our previous quarter earning call, could provide for shorter drilling cycles, shorter payback times and higher efficiency in term of reduction of development costs per BOE in lower price environment. I will now recap on our response to the unprecedented landscape generated by the COVID pandemic and let you know in more detail how we plan to move forward. First, you should know that in light of the current situation, we are withdrawing our 2020 guidance. We have adjusted our strategy and focus on two guiding principles, cash preservation protection. As I mentioned before, we have stopped drilling and completion activities and scaled down other CapEx projects as well, which will generate reduction of 50% to 65% with respect to our original guidance.

OpEx and G and A saving following a detailed rightsizing plan, which generate reduction of 20% with objective of keeping lifting cost stable at $10 to $11 per BOE with a lower production. We moved into unprecedented time with more than $200,000,000 in cash, which means we have enough liquidity to either restart drilling and completion activities in the short term or remain on hold until condition for ramping up activities are there again. In terms of value protection, I would like to share three highlights. CapEx and cost saving will not only help us to preserve our cash at this critical time, they will also make our operation leaner and fitter for the future. The continued success in lowering the development cost of our Vaca Muerta acreage will be key once we restart drilling and completion activities in Bajada Del Palo Este, enabling us to produce solid return in lower price environment.

I start this call talking about our people and their response in the field. And I also mentioned our understanding performance in Vaca Muerta, which is also an achievement of our team. I have no doubt that reinforcing teamwork and culture is key to keep producing outstanding operational results, especially during these critical periods. Because of this unprecedented landscape, our tactical decision require out of the box thinking. We shut in our Vaca Muerta wells even before our third part reaches production peak.

We did this anticipating demand and storage restrictions and in order to protect our conventional production as shared reservoir provide highly efficient storage solutions. We secure floating storage at very competitive rates for the main production volumes of our conventional asset and we are actively working on tactical export of light crude oil. Despite a challenging and changing environment, I think we are well prepared for the coming quarters. Our current view for the second half of the year is to reopen shale oil wells as demand recovers. We also evaluate the drilling and completion of another four wells if the right demand and price conditions are in place.

Before we move to Q and A, I would like to state once again that our people are our most valuable asset. And as such, we have implemented a strict health protocol prioritizing their well-being. The COVID-nineteen pandemic has led to unprecedented events such as the fall of international oil prices to record lows, but we are well prepared, thanks to our low operating costs and our solid financial position. This will allow us to restart CapEx activity when the right market conditions are in place. Finally, I would like to highlight once more the understanding productivity of our wells in Bajada Del Palo Este, which keeps reinforcing our low development cost strategy for our Vaca Muerta project.

I hope it has come across today that we continue to prove the value of our assets. To conclude the first part of this call, I would like to thank our investors for their continued support and interest in our company. I would also like to thank the entire team at Vista for their hard work and commitment, especially in these unusual times. We will now open this call for Q and A.

Speaker 4

Thank you.

Speaker 0

Our first question is from Bruno Montanari with Morgan Stanley. Go ahead, Bruno.

Speaker 5

Good morning. Thanks for taking the question and hope everyone is staying safe. I had a few questions. First one, regarding the shut strategy, I understand the option of short term storage, which is an interesting one. But I'm curious on how long you can do this for?

So the question is, if you have to shut in for longer, is there a risk that production could take longer to return or that the reservoir might not respond as initially expected? So is there a scenario you have to restart the wells even if market conditions are not favorable? And second question, maybe more macro, but there still seems to be quite a bit of confusion with the pricing environment for both oil and natural gas in Argentina. So do you have a feeling on when the market will have more clarity on the policy agreement for the coming quarters? Thank very much.

Speaker 1

Thank you, Bruno, for your question. And also, I hope you are and you and your family are remaining safe. So look at starting with the first question, yes, definitely, we moved very early with the storage, looking for a barge in order to storage. The big advantage that we have at that time was basically when we look at today, we secure that for probably half of the price that everybody is paying today. Okay?

We are paying between 25,000 and $30,000 per day. So very competitive. One more thing that we did, as I mentioned in the presentation, was to preserve value. And for us to preserve value, we need to put things in context. We have 12 unconventional wells and we have 1,000 conventional wells, okay?

Once the unconventional are in natural flow, the other ones require artificial lift, and many of them are underwater flat. So therefore, for the OpEx, and as we know, almost of the rest of our engineers know, every time that we shut in a conventional well, it's hard to predict. In many cases, we don't recover production. And to recover the production, it costs us a lot of money. So we decided to do something that we know how to do, that was to shut in those 12 wells.

We have experienced shutting in wells unconventional wells. We did it for Caso X1, Corinna and Amargos Suro Este. We shut in the well. We started well after a few months with flash production of 30%. So even our reservoir engineer said in few months, we will restart the production.

We almost can recover the production that we lost for the year, okay? So it is proof that unconventional reservoirs in the stage that we are, okay, and we are in the very early stage of their production, continuing natural floor can be used as a short term storage, okay? So we have no doubt. We have similar experience in Aguilamora four years ago. So we shut in that well for a longer period of time, was more than a year.

And we also look at the recovery. We have done a lot of research on that. So yes, we can shut in those wells for a longer period of time. Moving forward, we always have the option to export, okay? As we said today, we have taken it as a tactical option.

And of course, what is going to happen in the second half of the year will depend on what happened, as you mentioned, in terms of port. One thing that is factual and I hope you have noticed is that the price of gas stations have not dropped, okay? So today, gasoline prices in Argentina are the same that were in January and February when we sold crude oil production at $51 $52 per barrel. Therefore, what today the government is doing is trying to look what could be a good, I will say, to maintain basically to protect workforce and also to create a bridge for when the demand picked up again. As you know, quarantine in Argentina have been very restrictive, okay?

But we have just the first step of more flexibilization announced a few days ago. And we were commenting before the call that we already see the impact of that flexibilization in the demand of gasoline in several points. So not only is critical for the government how we go through this, also it's very important to be prepared where the demand come back. I hope I have answered your question. If you have additional questions, happy to answer too.

Speaker 5

That is very thorough. Thank you very much, Miguel.

Speaker 0

Thank you. Our next question comes from Regis Cardoso with Credit Suisse. Please go ahead.

Speaker 3

Hi, good morning everyone. Thanks Miguel, Haenden for the questions. Well this time my question is just really one. And if you could sort of try and explain, the most detailed you can. How do you plan on preserving liquidity to getting through the debt maturities?

Because it appears that this is a shock for the entire oil industry and for many others now in times of pandemic that will likely make some victims along the way, even if it's not a permanent long term problem. So my question really is how do you guarantee this that will be one of the survivors out of this crisis?

Speaker 1

All right. Thank you, Regis, for the question. It's a very good question, and I'm very happy to answer. And I'm very secure about how we're going to transition all this. So as I mentioned during the presentation, we focus in preserving cash and we know how to do so, preserving cash and protecting value, okay?

Preserving cash, when I say that we know how to do so, we have a very low cost operation. As you know, we basically acquired an asset that a few years ago had a lifting cost of around $18 per barrel. We took it down in this quarter below $10 to single digit. And we plan to maintain in that $10 even with lower production,

Speaker 3

okay?

Speaker 1

And if it's something where we have delivered is on that, of course, we have delivered an unconventional in productivity too. So we have a low cost operation, and we have also very low G and A that we are reducing further down. Just to give you a note on that, I have cut top management total compensation in 40%, okay? So G and A also is already low and is going to be lower. Our operation is cash flow positive, okay, at very low realization prices.

So today, this is the case. I mean we have with $10 and low G and A, we have an operation that we can run with cash flow neutral or cash flow positive. We have flexible CapEx commitments. So we designed our CapEx commitment and our ramp up in term of unconventional flexible contracts where we can, as I mentioned in the previous call, we can really reduce CapEx very quickly and burn very, very little CapEx due to the contract. We are renegotiating those contracts today because as I mentioned in the presentation, I think and our view is that we can come out of this linear unfitter.

And therefore, we have an opportunity to even go lower. The other thing that we have proved during all this period of time is that we really can reduce development costs. When you look at Part one and Part two today are producing 21%, 22% above Tycoon. And when you look at the result of Part three that where we went longer and also high density and when you look at the production, I mean, we shut in the well of 2,600 barrel of oil per day with 30% water cut. So the results are incredibly showing that we can go also to lower development costs.

We've dried a well that basically was shorter. This well was 1,400 meters. That well was went with 36 stages, 40 meters space, and basically delivered same production that was in part one and part two with lower CapEx. Therefore, is a test that is demonstrating that really we can go lower in development costs. We are sitting in $200,000,000 of cash.

We know with very low maturity maturity during 2020, we have just $50,000,000 that today we are facing way of doing that. We can pay out or we can or we have other options as well. So that debt is with most of the debt is from local banks. We are in very close contact with them. So we don't have an issue for 2020.

Our view of 2021 is that it's going to encounter us sitting on cash with a company that is again prepared to ramp up again. And of course, we have I will say, we follow your forecast and the other people forecast and we have a prediction that it's going to encounter 2021 with the price environment that it will allow us to basically restart our growth story. I don't know if I have answered your question or if you have any more specific thing that you want to know, happy to answer too.

Speaker 6

That's very clear, Angel. If I may, just

Speaker 3

a few follow ups. What do you believe are the costs the operating costs you have so that we can understand how much volume given demand is uncertain and prices or the combination of the two would be required for you to break even? And I'm asking this because I believe you are doing a good job in cutting costs or maybe looking at previous costs is not necessarily a good proxy of what we should expect for 2020, 2021. So costs and then debt maturities or if you could roll over those debts or if you're still working on OPIC, if you're working on new debt, I mean something that would definitely take liquidity out of the way if there's any update on that front. And then still on the liquidity sort of thing, how low can you bring down CapEx?

You mentioned it's very flexible. Can it be zero? I mean zero might be too extreme, can it be that very low? And if you do, let's say if you do very close to zero CapEx, what would be the impacts to decline rates? And for how long could you actually remain at very low CapEx levels?

Speaker 1

Thank you. Starting with the OpEx, low OpEx is I mean, we are spending around today $9,000,000 per month, okay? This is very low OpEx. This is OpEx plus G and A. OpEx alone is around $7,000,000 okay?

So that is how low is our OpEx today. In terms of maturities in terms of CapEx, okay, we already spent in Q1 $75,000,000 The rest of the year, we can go as low at 20,000,000 additional. So that is how low we can go in CapEx, okay? That is for the rest of the year. So we don't have really big CapEx commitment.

In term of maturity, I think I explained, this year, have $50,000,000 of maturity with local banks, okay? I think we are today looking at options, but we feel comfortable we can roll over that maturity.

Speaker 2

And also, we can pay

Speaker 1

it, okay? So we have the option. I mean we are sitting in $200,000,000 of cash. You the other question was decline. Well, yes, without pulling units, you will decline in the convention.

And remember, we have more than 10,000 barrels of production shut in. So we don't have a problem of decline. If we decline, we open a well that is natural flow, but basically to maintain in production have much lower lifting costs than the one that we have in the conventional production. So I don't see a problem with that. So I would say, Regis, we feel comfortable.

I mean, I'm

Speaker 6

sure we will

Speaker 1

navigate navigate this year, okay? Of course, we are not here to navigate. We are here to grow. Our story is a growth story. And what we are focused on is how we can be how we can even reduce further our development costs and an OPEC cost in case in order to deliver even better return in 2021 when demand and prices are back.

Speaker 3

Very clear, Miguel. Thanks so much. Let's I mean, sincerely hoping that this time of crisis will be behind us soon and that we can all go back on the growth path which for VISTA, I mean you have done a brilliant job so far. Thanks.

Speaker 1

Thank you, Rashida. Thank you for the questions.

Speaker 0

Thank you so much. And our next question comes from Frank McGann with Bank of America. Please go ahead,

Speaker 7

Yes. Thank you very much and good day. I just wanted to hear your views on what you're thinking about your long term breakevens and the potential to cut costs potentially in a more challenged oil environment globally even when things improve. Mean there's still some uncertainty, excess capacity on the service side and things. So I was just wondering how you are seeing that and the opportunities to cut costs to bring down your breakevens.

And then even in the the expectation that shale will be as competitive going forward even when things improve is there's a view that shale will be forever challenged. And do you see Vaca Muerta in your own assets as being somewhat more resilient as you look out longer term? How do you see yourselves as well as perhaps Argentina as a whole positioned to be able to continue to develop infrastructure and develop Vaca Muerta?

Speaker 1

Hi, Frank. Thank you for your question. Look, term of breakeven, we are not giving breakeven data, but I will tell you that in both of them. So today, we are dealing with between 12,000,000 and $11,000,000 You have seen our productivity. So today, we are both in lifting costs and development costs, I will say, between $10 and $12 per barrel.

So what we are aiming is in both of them to be in a single digit environment. And with that, I think Vaca Muerta really will be protected on low price environment and let qualified low a normal low, not the low that we are today. We see the productivity. We're still surprised about the productivity. Clearly, our strategy of completion is going clearly on the right direction.

Direction. Therefore, we feel comfortable that we can get to single digit development costs. In terms of lifting costs, when you look at our lifting costs, it's a mix of conventional and conventional. So going in single digit for unconventional as unconventional production become more important in our mix, I think it's super achievable. I believe there also we are considering a technology that is not well developed in Argentina that is gas lift.

So that will allow us also to be less dependent of pulling and pumps and so on. But I think it's going to give an edge also to continue reducing operation costs. Long term, I think it's very important your question on maintaining service capacity in the country. This kind of special moments and situation like the pandemic, it will put Argentina at test on their capacity to maintain that equipment. Now again, I will repeat what I said to Bruno that the government have decided not to reduce the price at the gas station station is quite an statement, okay?

It's an statement that clearly is toward trying to protect the workforce and protect the business during this period of time. Of course, we are all looking how that is going to translate in crude oil prices and how somehow demand is going to be managed, okay? Now again, we understand they are working on it. We understand they are very advanced on working on that. And if they maintain the price of gas station at the same level they are today, clearly, they have to do something with that.

Okay? So I feel I feel positive about that. Back to infrastructure, I mean, services, clearly, this is a setback. Okay? We were looking to build more infrastructure.

Everybody was on the same page. I think now everybody is assessing how we come out how we come up of this and what are the different scenario. Again, I'm positive on 2021. I'm positive even probably end of this year. As I mentioned in one of the questions, I mean, are just measuring the flexibization of the very strict quarantine that we put in place in first few days.

And it's very interesting to see in the demand just this very little flexibilization how many percentile points have impact on the demand. So look at I don't want to say that we have grown in that sense through the worst, but I feel positive that we can transition this. We can retain the service the key service companies in the country, and we will be ready to ramp up again toward beginning of next year, even end of this year, if the demand and the pricing come back.

Speaker 7

Okay. Thank you very much.

Speaker 1

Thank you, Frank.

Speaker 0

Thank you. Our next question comes from Pedro Medeiros with Citigroup.

Speaker 6

Good morning, guys. Well, thank you so much for taking the question, Miguel and Vista and all the Vista team. Okay. Congratulations on managing through these difficult times.

Speaker 1

I I

Speaker 6

just have some quick follow ups from the previous question. So the first one is, Miguel, would you mind giving some guidance on the working capital side of the business, okay? Is there are there any measures that you guys are taking that would release more capital in the short term or in the medium term? You still have a good amount of trade receivables there. So I just wanted to understand the dynamic and the contribution to cash flow from that side of the business.

My second question is actually for me to understand this process. How is the process to resume an unconventional well that was shut? Okay. So do you have any investments needed to resume production? Do you need to refrac the wells?

So any insight you can give through those operations, would appreciate. And the third one is kind of a different way to think about breakeven, and it's really more short term guided. Would you have like a price range or a minimum selling price that would give you confidence today to resume your unconventional wells production that were shut? Thank you.

Speaker 1

Hi, Pedro. Thank you for your question. So in terms of CapEx, Luca, what I said before, we have spent in the third quarter $75,000,000 We have reduced our in our low case scenario for of course, this is something that we will assess quarter by quarter to additional $20,000,000 on CapEx, okay? So that is how low we are going on CapEx. We are taking the opportunity to I mean, want I mean, we believe in the long term.

We have long term relationship with service companies. So of course, we are today discussing contracts and that is more burning rate that today we have on the standby. And I believe, I mean, we are making from both sides an effort for they to stay put and for us to come back with basically a lower cost structure. And even better contract that we have, assuming that the content that we are going to have when we restart is going to be a content of lower prices compared with the one that we came in. So in terms of working capital, we are basically strengthening the payables, okay, from thirty to forty days to fifty to sixty days, okay?

But again, we are not going to do anything crazy. Okay? We are in a good position. We are looking to restart operation, and we are not today in a in a in a in a moment that we are going to panic and not think on how we are going to come out out of this. Okay?

We've been through crisis. I've been through several wars and one pandemics as well, and and and we will stay cool doing what we have to do. Okay? And I think we know how to do that. In terms of something unconventional, it probably will sound more simple for you that you commented wells have not to be doesn't have to be refrac.

Okay? We just have to open the wells. We have a protocol of choke management. So for example, the well that was producing 2,500 meter 2,600 barrel of oil per day was choke, okay? So still a few months for that well to be fully open.

So we will have to start with, again, a smaller choke at the beginning and go through the protocol of open up those wells step by step in terms of choke management. But in terms of cost, it's managing a choke and open a valve. Okay? So it's that's why unconventional for us. It's so good and so low cost natural flow wells.

And we have all our wells in natural flow even though some of the day some of them have already more than a year naturally flowing. I think there was another question

Speaker 6

Yes. It was Well, thank you so much for the answers, the previous answers. The last question was around if could give some insights on a range or what will be the minimum selling price that you would have confidence on resuming your unconventional wells that were shut down?

Speaker 1

Well, look at the we want to come back to normal prices. I mean, we are seeing the same curve that you are seeing. I see it in the bottom of Schumburg. So I see the log information, see what is happening in the rest of the world. To be honest with you, it's more complex than pricing today.

I mean, we need to see the demand, and we need to see a sustainable demand with prices at the level that we went to this in, in order for us to really decide to restart operation and start to burn CapEx again, okay? So I will say today, are looking to what is going to happen with the demand and when the demand is going to be sustainable again. We know Argentina very well. I've been related to the business here for many years. We know the demand is there.

Okay? And we know how solid it is. And also we know how fragile it is because Argentina is not in a position position where where if we don't drill, okay, we will sustain our local self sufficient for too long. Okay? So also there's a risk for the country to import, and the government is very sensitive to that.

So I will say when the demand come back and if we some of these measurement they are thinking of, okay, that help us basically to come out of this with better prices sooner than later. And for what they are looking at also maybe a lack of that potential decree that it will allow or could allow to lower export duties, that also will help, okay? All that measurement will help. The question here is for me, for Argentina, if we can accelerate the ramp up back to the new normality, whatever it is. And for me, the fact, again, that they have not touched the price of gasoline on the gas station and the fact that they are advanced working on an instrument even though it's not done, so I'm not gonna say anything about that, Show me that they are basically betting to economy, betting to recovery, betting to activity more than taking an advantage situation of the low crude oil prices.

Okay. Well, thank you

Speaker 6

so much, Miguel. Very good.

Speaker 0

Thank you so much. And our next question is from Antonella Grapuano with Santander. Please go ahead.

Speaker 4

Hi. Good morning, Alejandro Miguel. Thank you for taking my question. I was wondering if you see any bottleneck in terms of storage capacity and also considering that these demand conditions could last longer than than expected. And a second question is regarding the recovery on demand that you just pointed out.

I was wondering if you could give us some magnitude of this recovery that you have seen in the past weeks.

Speaker 1

Thank you, Donela. Very good question. So look, in terms of storage capacity,

Speaker 6

I will say today,

Speaker 1

all the storage capacities have been used, okay? When you measure in volume the storage capacity of the country, we probably can storage for a little bit more of a month of production, okay? So therefore, all the storage capacities have been used. Today, the storage gain is what we have done is to have an offshore storage, okay? And again, we moved earlier.

We were the first we were the first in moving there, and we took an advantage of that. In case this continue, do we have the option to do that again? Yes. We do. Okay.

For sure, it's going to be more costly. Nevertheless, I think that option is open. In terms of the recovery, as I mentioned before, we are basically following the demand very closely. Okay? I cannot give you a number.

I think it's too early to give you a number. It has been few days. But of course, we have information and we saw the demand. Even we feel it, the ones that we are active when you go out. But we saw several points coming up in terms of demand in the gas station in these few days.

I think it's too early to give you a number. I prefer not to do so even even though I have a number in mind.

Speaker 4

Sure. Thank you. Very clear.

Speaker 0

Thank you. And I'm not showing any further questions in the queue. I would like to turn the call back to Miguel D'Alucio for his final remarks.

Speaker 1

Well, Luca, guys and girls, thank you very much for the questions. Thank you very much for being present today. Again, I hope so you and your family are safe, and we all go through this and this come up with a good outcome as soon So thank you very much for participating. All the best.

Speaker 0

And with that, ladies and gentlemen, we thank you for participating in today's program. And you may now disconnect.