Vista Energy - Q1 2023

Transcript

Operator (participant)

Good day, and thank you for standing by. Welcome to the Vista's Q1 2023 earnings webcast conference call. At this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Alejandro Cherñacov, Strategic Planning and Investor Relations Officer. Please go ahead.

Alejandro Cherñacov (Strategic Planning and Investor Relations Officer)

Thanks. Good morning, everyone. We are happy to welcome you to Vista's Q1 2023 results conference call. I'm here with Miguel Galuccio, Vista's Chairman and CEO, Pablo Vera Pinto, Vista's CFO, and Juan Garoby, Vista's COO. Before we begin, I would like to draw your attention to our cautionary statement on slide 2. 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, IFRS. However, during this conference call, we may discuss certain non-IFRS financial measures such as Adjusted EBITDA and Adjusted Net Income.

Reconciliations of these measures to the closest IFRS measure can be found in the earnings release that we issued yesterday. Please check our website for further information. Our company, Vista, is a sociedad anónima bursátil de capital variable organized under the laws of Mexico, registered in the Bolsa Mexicana de Valores and the New York Stock Exchange. From this quarter onwards, you will only find the tickers of our stock as the warrants were canceled. Such tickers are Vista in the Bolsa Mexicana de Valores and VIST in the New York Stock Exchange. I will now turn the call over to Miguel.

Miguel Galuccio (CEO)

Thanks, Ale. Good morning, everyone, welcome to this earnings call. I am pleased to share with you our results for the Q1 of 2023, during which we have continued to deliver a strong operational and financial performance. Total production averaged 52.2 thousand BOE per day, a 19% increase year-over-year. Oil production was up 24% on an inter-annual basis, boosted by the tie-in of 6 wells in our development hub. Total revenues in Q1 2023 were $303 million, a 46% increase year-over-year, driven by higher production and stronger realized oil prices. Lifting cost per BOE was $6.4 for the quarter, reflecting enhanced focus on our shale oil assets. Capital expenditure was $162 million, including the drilling of 9 wells and the completion of 8 wells during the quarter.

Adjusted EBITDA came very strong at $204 million for the quarter, an inter-annual increase of 61%. We recorded positive free cash flow of $35 million for the quarter. Net leverage ratio at the quarter end was 0.37 times Adjusted EBITDA. Adjusted Net Income was a solid $72 million, implying an inter-annual increase of 84% and quarterly Adjusted EPS of $0.8 per share. We will now deep dive into our main operational and financial metrics. Total production during Q1 2023 was 52.2 thousand BOE per day, up 19% inter-annually. Oil production was 44,000 barrels of oil per day, up 24% year-over-year.

Our double-digit production growth reflects the strong performance of our shale oil projects, which has offset the impact of the transaction to fully focus on shale operations, which became effective of March 1st. On performance basis, we recorded a 7% sequential increase in both oil and total production. This was driven by a robust productivity of six wells tie-in during the quarter. five in pad Bajada del Palo Este 15, plus a well Bajada del Palo Este 2301 in our Bajada del Palo Este pilot. For additional details on our operated production and the production of the transfer asset, please refer to the earnings release published yesterday. I will now share an update on our development hub.

In Bajada del Palo Este, we continue to see a strong productivity, with average well performance 3% above our type curve for the 1st 360 days of production. In terms of new well activity, we finished drilling pad Bajada del Palo Este 16. This pad, located in the south of the block, contain Four wells, two land in La Cocina and two in Orgánico. We start drilling pad Bajada del Palo Este 17, which also contain 4 wells. Both pads will be completed and tie-in by early July. In Aguada Federal, we recently completed and tie-in pad Aguada Federal four in the western part of the block. This is also a four-well pad. We landed two wells in La Cocina, one well in Orgánico, and one well in the Middle Carbonate. This is the 1st well we have landed in the Middle Carbonate in Aguada Federal.

In Bajada del Palo Este, we completed and tie-in the third well of the ongoing pilot. We are very excited by the production results we are seeing. Cumulative production for the first 60 days was 75,000 BOE, with a peak IP30 above 1,500 BOE per day. This proves the quality of our acreage in Bajada del Palo Este and the continuity of the play from our flagship block, Bajada del Palo Oeste. Based on these successful results, we have increased our estimated ready to drill inventory in the block from 50 to up to 150 wells. This takes our total inventory to up to 1,000 wells, of which we have only drilled and completed 74 wells to date. As a reminder, our entire inventory is located in certified year concessions, 100% owned and operated by Vista.

Total revenues in Q1 2023 were $303.2 million, which is 46% up compared to the same period last year, driven by oil production growth and improved realized oil prices. Realized oil price for the quarter averaged $66.6 per barrel, up 4% year-over-year. The average realized domestic price was $65.9 per barrel, while the realized price of the export market was $69.8 per barrel. We expect realized oil prices during Q2 to remain broadly in line with those of Q1. Total sales volume was 2,500 barrels of oil per day, higher than production. This volume was drawn from our inventory. Sales to export markets accounted for 58% of oil volume and 60% of oil revenues.

We exported five cargos during the quarter for 2.4 million barrels of oil in total. In line with our export-focused strategy, 55% of LTM revenues came from international markets. Realized gas prices increased 54% year-over-year to $4.7 per million BTU, mainly boosted by the export to Chile, accounting for 30% of our total gas volume at the price of $8.9 per million of BTU. Lifting costs for the quarter was $30.1 million, 2% down from the same period last year. Lifting costs per BOE was $6.4, a reduction of 18% on an inter-annual basis and 11% on a sequential basis. We are already capturing the benefits from the deal we signed in the previous quarter to fully focus on our Vaca Muerta operation.

The deal is effective as March first, so costs from the quarter reflect a full month having removed the transferred assets from our cost base. We estimate the lifting cost for the month of March was around $5 per BOE. Our model shows we are well on track to deliver on our $5.5 per BOE guidance for the full year. Adjusted EBITDA for the quarter was $204.4 million, implying an inter-annual growth of 61%. This reflects a strong revenue growth and lower lifting costs as described previously. Adjusted EBITDA margins was a robust 67% during the quarter, an improvement of 6 percentage points year-over-year. Netback was $43.5 per BOE, a 35% inter-annual increase.

Both metrics have increased sequentially, reflecting improved margin driven by the transaction to fully focus on our Vaca Muerta assets. During Q1 2023, we recorded $34.7 million of free cash flow. Cash from operating activities was $158.8 million. This includes $60 million of upfront payment to Oldelval for the reservation of capacity in the oil pipeline expansion and a decrease of $5 million in account payables. Cash flow used in investment activities was $124 million. This is $38 million lower than the accrued CapEx, mainly due to $24 million in account payables and $10 million received from Aconcagua as an upfront payment for the transferred assets. Cash flow from financing activities was $71.1 million, mainly driven by debt issuance of $135 million.

We successfully issued dollar-linked bonds with a 0% coupon for a 4-year maturity and 1% coupon for a 5-year maturity. This was partially offset by the debt repayment of $22.5 million and interest payments of $7.9 million. Gross debt stood at $659.6 million at end of Q1. Cash at the end of the period was $350.2 million. This led to a slight reduction in the net leverage ratio to 0.37x Adjusted EBITDA at quarter end. To conclude this call, I will recap on today's key messages. During Q1 2023, we made good progress in our development hub, which continues to drive production growth.

The successful results in our pilot in Bajada del Palo Este have proven the quality of our assets and contributed to the addition of 100 wells to our ready-to-drill inventory. We are already seeing the benefits of the transaction we announced early this year to fully focus on our shale oil asset. Our lifting costs, EBITDA margins, and Netback have all improved sequentially. As the deal is effective as March first, we only capture the effect partially and expect further upside in the coming quarters. During this quarter, we have again, delivered very solid operational and financial results. This includes good progress in our decarbonization and Nature-Based Solutions project to meet our ambition to reach Scope one and two net zero by 2026. We are well on track to deliver on our 2023 guidance across operational and financial metrics.

Early this week, our shareholders approved an addition to our current share buyback plan, extending it from $20 million-$50 million. To wrap up, and before we open the call for questions, I want to thank our employees and shareholders for their continued support. With that, operator, please open the line for Q&A.

Operator (participant)

Thank you. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes in the line of Tiago Casemiro from Morgan Stanley.

Thiago Casqueiro (Equity Research Analyst)

Hey, good morning. Thanks for taking my questions. I have two questions here, perhaps linked to each other. The first question is about infrastructure, the bottleneck taking place in Vaca Muerta. Can you give us an update on the projects being implemented to increase the oil evacuation capacity, including the timeline incremental access to pipeline, we'll be able to get in the next 12-24 months? What about longer term developments? Are there any plans already in the making, to the company's knowledge? The second question is about the company's drilling plan. Your execution has been very consistent and Vista is generating positive free cash flows. Can you talk about the company's decision-making process related to the potential revision and acceleration of the CapEx drilling plan? How should we think about the equipment and infrastructure availability in that case?

Thank you very much.

Miguel Galuccio (CEO)

Good morning, Thiago. Thank you very much for your questions. I probably will start for the second part of your question related to the production program, potential acceleration, and decision-making process. I will move to infrastructure. First of all, let me give you a bit of visibility of what we are doing this year and how the production is going to come in based on the tie-in, because there's two things that are related to the drilling program and the completion program of this year that are different to the ones that we did last year. First of all, we have the beginning of the year in Q1, an effect of the transaction with Aconcagua that was 6,000 barrels per day, that basically impact in two months of our Q1 number.

The second thing that we have in our program that I think is different to things that we have done in the past is the fact that we are drilling and completing two pad based on our cube methodology or cube technology. That it means that we are drilling and completing two pad together to avoid basically interference between them. Of course, delaying production. When you look at the drilling program and the completion program, the way that the production will come in is a bit different than we have done in the past. We are closing Q1 with an average of 52.2 in term of production. We expect that Q1, sorry.

We expect Q2 to be probably slightly lower than that number since we are going to tie-in. In the Q1, we tie-in five wells. In the Q2, we will tie-in seven wells. We will see important increase on production start in Q3, where we're going to be tie-in 12 wells. On Q4, again, we come back to 5 wells. Q3 really is where we have this Bajada del Palo 16 and 17 coming in, seeing we are going to complete those two back to back. That is basically make the production curve this year a bit different to the one that we have showed previously.

When you look at the drilling program of the year, we will finishing drilling for the part that we have today in the drilling schedule at the end of September. The first, probably decision in term of acceleration that we will have if the decision of probably adding two pad at the end of the year in Q4. two pad that we can drill, of course, we cannot complete, will be completed in 2024. That is not a decision that we have made already, but it's something that we can do, just basically moving on with a normal drilling plan and same equipment. More longer term, I would say 2024 and beyond, we are evaluating different growth scenarios from 2024 and onwards.

That is scenarios that we're evaluating is due to the strong performance that we have. Since also we have a very strong platform that could allow us to scale basically with the same core people that we have, with the super strong inventory that we have. I mean, we are talking about 1,000 wells. We have drilled only 70 of those. The access to equipment due to the long-term relationship we have with our service provider. And of course, because we have a solid financial situation in hand. We are evaluating different scenarios. We are not guiding for that. I mean, I want you to have in mind that we are doing that. In term of equipment, increasing equipment, I mean, I think it will be possible.

Again, due to the relationship we have with the service provider, I believe we, in case we go for any scenario that is more aggressive, we will have the option to bring more equipment, and also to use the same equipment that we have more efficiently. Coming to infrastructure. Let me give you a bit of a bit of overall view. I think you know what we are doing in trucking. We have been very strong in terms of with where we are doing with Oldelval. Oldelval, we're expecting, again, Q1 2024, 40% of those Oldelval additional capacity. That is around 300,000 barrels per day coming into place. In Q1 2025, the whole project should be complete.

In line with Oldelval, Otasa facilities expansion will be coming in. I think the new thing that we are doing is this export to Chile through Otasa. This is a pipeline that already exists. It was put in place. It's being tested as we speak, and the off taker of that production will be ENAP. That is starting now, Q2 2023, and you can expect that we will participate on that with between 4,000 and 5,000 barrel of oil per day. That will allow us to reduce a bit trucking, but basically this is what we are adding. Vaca Muerta Norte will come later. We're expecting that for Q3 2023, and that basically could replace Otasa.

That, Thiago, I think is, I have completed your question.

Operator (participant)

Thank you.

Miguel Galuccio (CEO)

Yeah.

Operator (participant)

One moment for our next question. Our next question comes from the line of Rodrigo Nistor from Latin Securities.

Rodrigo Nistor (Institutional Sales)

Hi, good morning, and thank you for the opportunity to ask my questions. Follow up on the Transandean pipeline, we mentioned operations. If, can we expect higher prices or reduced discounts for these sales?

Miguel Galuccio (CEO)

Hi, Rodrigo. Thank you for the question. Again, the Chile first stage of Vaca Muerta Norte, we will export between 4,000 and 5,000 barrel per day, as I mentioned before. We expect the pricing Netback for this to be very similar to the one that we get when we export through Bahía Blanca. We don't see any change on that. As I mentioned before, that will have also an effect on trucking for us. We don't expect any immediate impact, but we are trucking today probably 2,500 barrel per day. We could reach 6,000. If we would have not have Otasa, we would reach probably 10,000 barrel per day in term of trucking.

Clearly, this new route of export to Chile is helping both on export and also on cost.

Rodrigo Nistor (Institutional Sales)

Thank you. Another quick one. You recently announced the well progress in Bajada del Palo Este, which will be an increase in your well inventory. Given that your current capital allocation priority is Bajada del Palo Este, I mean, would you contemplate into entering a joint venture or any other thing to expedite the development of Bajada del Palo Este?

Miguel Galuccio (CEO)

No, Rodrigo Nistor, we are not contemplating any joint venture. As we speak in Bajada del Palo Este, Aguada Federal, and Bajada del Palo Este are our core shale in term of development. If we, at some point of time we entertain doing something, probably will be more related to the blocks that we have in the North. No, at the moment we are not expecting. As I said, we have a solid financial position, so there's no need.

Andres Cardona (VP and Equity Research of Oil and Gas / Petrochemicals)

Okay. That's very helpful. Thank you.

Miguel Galuccio (CEO)

You're welcome.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from the line of Alejandro Demichelis from Bradesco BBI.

Alejandro Demichelis (Managing Director of Latin America Equity Research)

Yes, good morning. Thank you for taking my question, and congratulations on the results. Couple of questions. First one, given the economic situation in Argentina, acceleration of inflation and so on, Miguel, could you please give us some kind of view of how you're seeing the development of the domestic pricing, if we can see a situation where domestic prices come down in this environment? Related to this, how you see the evolution of your own costs, both on the lifting side but also on the CapEx.

Miguel Galuccio (CEO)

Thank you, Alejandro, for your question. I will start with the second part, lifting, probably give you a bit of filling and drilling as well. Q1, we finished with a lifting cost of $6.4 per barrel. This lifting cost was composed due to the Aconcagua transaction of two months where we have that conventional production with us. The lifting cost for those two months was around $7.5. March, we saw lifting costs coming below $5. Of course, this 6.4 is the composition of all that. We will see how lifting costs behave in the following quarters, we believe, I mean, we will establish a lifting cost that will be around $5. You should expect that.

In term of drilling, we finished last year with the drilling costs around $12.7 million for our normal wells. Today we are seeing that drilling cost between $13 and $13.5. This was due to the appreciation of pesos. Related to the gasoline price increase, we see... First of all, Q1, the prices of the pump increased 11% in the local currency, but decreased 5% in US dollar due to basically the same higher appreciation of pesos. Q2, I mean, what we are seeing in term of dollar term, we will see even more pressure on the appreciation of pesos.

Also, I mean, we expect that, we express basically that, export prices for us will be flat and local prices, we said it probably also, we expect that will be around the same level that we are today.

Alejandro Demichelis (Managing Director of Latin America Equity Research)

The main question is what happens in the second half of the year then, yeah? If gasoline prices do not increase or do not follow inflation, then we may see domestic crude oil prices coming down.

Miguel Galuccio (CEO)

Yeah, it's a possibility, definitely. Of course. I mean, if the export prices or the brand is strong, that will bring tension to the market, and we always fight for our crude oil prices. Yes, you could have in the second half, due to the actual conditions and also due to the election, more pressure on the local market, definitely.

Alejandro Demichelis (Managing Director of Latin America Equity Research)

That's great. Thank you.

Miguel Galuccio (CEO)

That price, that pressure goes more to the refineries and to the people that have integrated integrated operation than us.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from the line of Andres Cardona from Citi.

Andres Cardona (VP and Equity Research of Oil and Gas / Petrochemicals)

Hi. Good morning, everyone. I just have a question, and I would like to understand how is the decree to access the dollar market working so far? If you can provide an update, could be very appreciated. Thanks.

Miguel Galuccio (CEO)

Thank you, Andres, for the question. I mean, we've been giving updates on the decree that in October 20 of 2022, the central bank basically established. As I said before, that was followed by few formalities from the Secretary of Energy in beginning of January and also Vista that adhere to that regime end of January. What happened after that, we filed several requests due to basically the decree based on the incremental production that we have in Q3 2022, incremental production that we have in Q4 and in Q1 2023. We are expecting to receive the certificates that is to access around $66 million in foreign currency. This was for $14 million, $22 million, and $30 million respectively for the Q3 that I mentioned before.

Of course, there's still some uncertainty around when we will receive those certificates, but I mean, we are filing based on the decree and based on the incremental production that we are seeing coming in.

Speaker 9

Thank you.

Miguel Galuccio (CEO)

You're welcome.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from the line of Oriana Covault from Balanz Capital.

Oriana Covault (Equity Research Analyst)

Hi, good morning. Thanks for taking my question. This is Oriana Covault with Balanz Capital. I had three questions. If I may go one by one, that would be great. The first one is a follow-up with regards to the Otasa pipeline and exports to Chile. Just to understand maybe if you have more information on will this be carried out under firm contracts or sold at spot? If so, do you have any information also about fees that the owners of the pipe will charge for its usage?

Miguel Galuccio (CEO)

Oriana, the Otasa, I mean, adding to what I said, that is still in negotiation, but, you should expect a firm contract.

Oriana Covault (Equity Research Analyst)

Perfect. Thank you. Maybe just moving on to the Oldelval pipeline. Can you comment about at what levels are you currently operating, if you're close to your limits based on the current capacity, like taking aside the expansion? Do you see like this current limited capacity would potentially command a slowdown in the drilling program towards late 2023 or 2024, just before the expansion comes through?

Miguel Galuccio (CEO)

Oriana, today we are like current capacity, basically we are top up. Our plan, the way that been built is to take advantage of everything that it comes from Oldelval as the two stages are coming in, and particularly for this year. I mean, our plan is in line with the capacity that we can access from Oldelval.

Oriana Covault (Equity Research Analyst)

Understand. Maybe just one final one. Just with the macro deterioration and like poor expectations for the harvest and subsequent hard dollar inflows, do you see any potential impact in terms of access to imports? Just thinking of infrastructure needs or equipment, how are you observing this?

Miguel Galuccio (CEO)

Oriana, I mean, we have not had any issues in import equipment. We have done few importations. I mean, we have all the equipment in place today. The service companies that we are using are ones that basically have quite a bit of stock in the country. In the few cases that we've had to access to imports, I mean, we have been able to bring the equipment that is required so far.

Oriana Covault (Equity Research Analyst)

Perfect. Thank you very much.

Miguel Galuccio (CEO)

You're welcome.

Operator (participant)

Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Our next question comes from the line of Regis Cardoso from Credit Suisse.

Regis Cardoso (VP Equity Research, Head of Latam Oil and Gas, Infrastructure and Capital Goods)

Hi, Miguel, Alejandro. Congratulations on the results. Thanks for the questions. Two quick topics I wanted to follow up with. One is on the well, I mean, you have substantial room potentially to, you know, either grow further your inventory or to develop the inventory you already have. You know, this is a recurring question. How do you see now the balance between, you know, CapEx, buyback, deleveraging, particularly I guess with the recent backdrop from the macro front? I mean, from one hand you have Argentina growing exports and, you know, a clear case for the exporters gaining access to the dollars and eventually, you know, using that to remunerate shareholders versus, you know, continue reinvesting in your existing portfolio.

That question on, you know, just broadly on, well, inventory and capital location. I guess the second question would be on lifting costs. If I remember correctly, you did $6.4, and the guidance for the year is $5.5. What do you think is, you know, between those two numbers and if you can still reach the guidance for the year? Thank you.

Miguel Galuccio (CEO)

Thank you, Reggie, for your question. I mean, Starting with the first part, definitely when we look, I mean, what we can do, in term of, continue creating value, the main things that basically we can do, and we are analyzing and evaluating, as I mentioned before, due to the strong performance that we have and due to the platform that we have To scale, as I said, because we have the people, we have the equipment, we have a solid financial performance, is to accelerate or to further grow, in term of, drilling and completion and basically accelerating the use of the 1,000 well portfolio that we have in hand. I think that is the main, this is the main driver to add additional value, to our stock and to Vista.

Nevertheless, again, when you look at going forward, our ability to generate Adjusted EBITDA and cash, we can continue doing our buyback program. We can continue... I mean, also we plan to continue deleveraging the company as it makes sense. Three of them are not exclusive. I think the first one is probably the more important part because in the current context with our current inventory and with our current performance, it's clear the best way that we can create value. In term of the lifting costs, as I mentioned before, I mean, we closed the quarter with $6.64. The last month, we really start to see the effect of our pure conventional production lifting costs.

We see that number today at close to five. We guide for 5.5. I think you should see the number probably more close to five than close to 5.5. Okay.

Andres Cardona (VP and Equity Research of Oil and Gas / Petrochemicals)

Understood. Thank you.

Operator (participant)

Thank you. At this time, I would now like to turn the conference back over to Miguel Galuccio for closing remarks.

Miguel Galuccio (CEO)

Well, thank you very much for your interest, report, and continued support. Looking forward to see you next quarter. Have a good day, everybody.

Operator (participant)

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.