Vista Energy - Earnings Call - Q2 2020
July 29, 2020
Transcript
Speaker 0
Ladies and gentlemen, thank you for standing by, and welcome to Vista Oil and Gas Second Quarter twenty twenty Earnings and Webcast. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Now I would like to turn the conference over to Alejandro Cernakos, Strategic Planning and Investor Relations Officer.
Speaker 1
Thank you. Good morning, everyone.
Speaker 2
We are happy to welcome you to Vista's second quarter twenty twenty results call. I am here with Miguel Gallucho, Vista's Chairman and CEO and Paolo Verapinto, Vista'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, IFRS. However, during this conference call, we may discuss certain non IFRS financial measures such as adjusted EBITDA. 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 Oil and Gas, is associated with the Capitalo Ariave organized under the laws of Mexico registered in the Vuelta Mexicana de Valores and the New York Stock Exchange. The ticker of common stock are Avista in the Vuelta Mexicana de Valores and BIST in the New York Stock Exchange. The ticker of our warrants is BTW408A. I will now turn the call over to Miguel.
Speaker 3
Good morning, everyone, and thank you for joining this earning call. Let me kick it off by highlighting that our COVID-nineteen business continuity plan is still in place and that we are successfully keeping our team healthy and safe in these unprecedented times. I hope that you and your family are also staying safe. During Q2, the global oil market has suffered record low prices and extremely high volatility, turning it into one of the most challenging quarter I have been through more than twenty five years of my oil and gas experience. Despite the enormous strength, we have managed to deliver positive result, particularly on the cost side as well as on the preservation of our balance sheet.
As I will show you in the presentation, we have made cost savings and tactical moves with respect to storage and export markets that have allowed us to remain cash positive during the quarter. More importantly, we have made structural OpEx and CapEx cost reductions, which enable us to grow in a lower oil price environment. We are now seeing light at the end of the tunnel with demand recovery signals and control supply leading to brand level of $40 plus earlier than most of us expected and having stayed there for most part of June and July. On the domestic front, the economy activity of Argentina has been affected by various strict quarantine measures, decreasing local crude oil demand. In this context, we shifted our commercial effort to the international market, exporting 70% of our oil during the quarter.
This added to the fact that today, we have no export tax on international prices below $45 per barrel, have a positive impact on our realization prices and allow us to sell our entire Q2 production, including volumes stored during April and May at very competitive prices above our cash cost. At the May, we reopened our Bajada Del Palo Oeste wells, which contributed 13,900 BOEs per day during June. This allow us to prove the understanding productivity of our third pad, which has only produced for twenty days before the initiative in March. In June, two of the wells of that pad established an all time basin record for Avela daily oil production in peak calendar month. This additional production from our Vaca Muerta well boosted total production, which averaged 23,800 BOE per day in Q2.
At higher realization prices, it also boosted revenue, which amounted to $51,000,000 for the quarter. The lifting cost in the second quarter was $8.6 per BOE, 13% below Q1 and 30% below Q2 twenty nineteen, a remarkable achievement of our team in reducing nonessential activities and renegotiating more than 20 field operation contracts. Such cost saving as well as additional revenue arising from export helped us to turn around a very challenging quarter and generated $10,000,000 of adjusted EBITDA. This resulted in a positive free cash flow quarter closing with a cash balance of $221,000,000 Finally, our net debt stood at $282,000,000 at the end of the quarter. And as I will show later, during July, we have refinanced $75,000,000 2020 and 2021 debt maturities, which leaves us with an even stronger cash position to resume activity in the coming months.
Our total production for the quarter was 23,800 BOE per day, an annual decrease of 18%, mainly impacted by the shut in of our Bajada Del Palo wells as a result of lower crude oil demand during April and May. As demand and prices pick up, we decide to reopen our 12 wells in the May. This led to a production boost as shown in the top right graph, which showed production averaging 32,002 BOEs per day, of which 13.9 came from Bajada Del Palo Oeste. Due to the oil gas mix of our shale wells, our oil production increased by 82% from 13,000 barrels per day in May to 23,600 barrels per day in June. Total crude oil and natural gas production for the quarter were 1720% down year on year respectively.
Our second quarter revenues totaled $51,200,000 57% down year on year, impacted by lower production and lower realized crude oil and natural gas prices. As international demand recovered more quickly than domestic demand, which is still impacted by the effect of the lockdown restriction on economy, we shifted our strategy and sold 70% of our crude oil to export markets. This enabled us to offload our entire Q2 production, including the 300,000 barrels we have stored in April and the reopening of Vaca Muerta production. Crude oil realization price was $26.5 per barrel in average, 56% below Q2 twenty nineteen. The breakdown of this figure reveals how our realization prices improved during the quarter from nineteen point seven dollars per barrel in April to $24.4 in May and $31.1 per barrel in June.
This improvement was mainly driven by recovery Brent prices. But going forward, we are already seeing a second trend diminishing discount from metamito crude to Brent. The average discount in Q2 was around $10 per barrel, roughly twice pre COVID levels, impacted by higher shipping costs and lower demand for crude oil. We now see a more normalized shipping market as demand for floating storage falls and crude oil demand improves. Both are reducing the discount to Brent of megameter oil.
So in July, we closed sales at Brent minus around $5 per barrel and in August at already Brent minus less than $4 per barrel. Average natural gas prices were down 42% vis a vis the 2019 mainly due to weak industrial demand. Moving on to Slide six, we present one of our major achievement of the quarter. As shown on the first chart, total operating expenses for the quarter were $18,600,000 43% down year on year. This impressive metric was the result of a specific task force we put together to conduct negotiation with all key contractors to assess both unit cost as well as activity levels.
In particularly, we had successful renegotiations of gas compression, production treatment, field maintenance and logistic contracts. These cost cutting initiatives have offset lower production, so our OpEx per barrel was $8.6 for the quarter, 30% down year on year and 13% down sequentially. Our adjusted EBITDA for the quarter was $10,200,000 and our adjusted EBITDA margin was 20%, both impacted by softer revenues. We selected certain key indicator to better extend the recovery dynamic we have been through during the quarter, showing the upturn we experienced starting in the May and consolidated in June. Breaking down revenue by month, we see a solid improvement during the quarter, by recovering oil prices.
We maximized the benefits of this recovery by storing production in April, offloading storage in May and reopening Vaca Muerta production in June. So in April, we sold less than $10,000,000 as most of the production was stored. In May, revenues include the offload of April's stored production and we started to see more solid prices recovery in June, which drove revenues well above $20,000,000 In our previous call, I outlined our revised 2020 approach focused on cost saving, tactical and cash preservation actions. Three months later, I'm very happy to say that such actions worked out properly and prevented us from what may have been a negative adjusted EBITDA quarter as some of the research analysts rightly estimated. Having managed to generate positive free cash flow during this challenging quarter is the result of an agile organization focused on cost reduction and cash preservation.
Moving to Slide nine. Our cash during the period increased from $205,300,000 to $220,700,000 So we have achieved what we set out to do at the start of the market downturn, basically maintaining a solid cash position. Cash flow from operating activities was $26,600,000 a solid growth sequentially. Cash flow from investing activity was $24,900,000 which include payment of CapEx accrued in Q1 twenty twenty, prior to us stopping drilling and completion activities. Finally, we had a $13,700,000 increase in cash flow from financing activities, mainly from the peso trading line in Argentina.
Additionally, in order to preserve cash and add more visibility to our plan, in July, we refinanced $75,000,000 of 2020 and 2021 debt maturities. Dollars 30,000,000 correspond to short term local bank loans previously due in July 2020, which were rollover for twelve eighteen months. Dollars 45,000,000 correspond to the term loan with the bank syndicate, under which we have refinanced a $50,000,000 payment due in July 2020 and $30,000,000 payment due in January 2021. In both cases for eighteen months and in all cases in local currency. This give us better cash flow visibility to restart investment activities in the coming months.
We will now deep dive into our Vaca Muerta project in Bajada Del Palo Esti. As I mentioned in our previous call, we shut in all our wells on March 20 as crude oil demand declined. In light of the proven market condition, we decided to reopen all wells between May 26 and May 30. The graph on the left show fast production response upon reopening, driven by pressure buildup in the stimulated rock volume during the shutting period. This supports our view that Vaca Muerta acts as an efficient in reservoir short term storage solution.
The bottom left chart shows the details for our third part, which had only been produced for twenty days prior to the incident. After reopening, we have been able to confirm outstanding well productivity. Ensure, well number 2,061 exceeded 2,100 barrels of oil per day and well number 2,063 exceeded 2,200 barrel hauled per day. Both the highest peak oil metric in the calendar month in the history of Vaca Muerta based on official information disclosed by the Secretary of Energy. Moving on Slide 10, I will now show you our new design for our Vaca Muerta Well in Bajada Del Palo Oeste.
With our 12 old wells drilled in the past one, two and three giving consistent result, we have now updated our type cool. The chart on the left shows the average cumulative production of the three parts normalized to the new well design compared to previous tycoon in purple and the new tycoon in black, illustrating that all wells have consistently overperformed our previous tycoon. We tested different lateral lengths and frac spacing in the way we have drilled. Now we are incorporating the 60 meter frac spacing that has been successfully tested to our new well design. The new Tykour's EUR 1,500,000 BOE for wells with 2,800 meter laterals and 47 frac spaces, up from 1,100,000 BOE in our previous type curve, which was for 2,500 meter laterals and 34 frac stages.
The change in our type curve is a major milestone by reducing the development cost of Vaca Muerta, it ensures solid return and in a lower oil price scenario. To further drive the successful reduction of the development cost of Vaca Muerta, we continue focusing on drilling and completion cost savings. We have successfully renegotiated drilling and completion contracts, incorporate learning from factory result of our previous well and capture upside from the domestic oversupply of subs and market. The result is a drilling and completion cost of $11,700,000 for our new well design, 18% below our lowest well cost so far. In the bottom left chart, you can see how development cost is driven down to $8.4 per BOE through the combined effect of increased well productivity and drilling and completion cost savings.
This is 29 below our lower development cost so far when normalized to the previous well design. Optimizing well design is the key to obtain solid returns and should enable profit to grow even in a potentially lower oil price environment in the following years. Before we move to Q and A, I will summarize our highlights. We have seen an earlier and expected recovery in crude oil demand and therefore prices, which has allowed us to reopen all our Vaca Muerta wells and sell our entire Q2 production. We have successfully implemented cost efficiency measures, driven lifting costs down to $8.6 per BOE.
This means that the decrease in OpEx has more than offset the decrease in production in a very tough quarter. We expect OpEx level to be around $9 per barrel during 2020. The boost in revenues in our shale oil production, which we managed to sell to export markets, thanks to the effort of our commercial team, in addition to our cost cutting program, allow us to generate positive cash flow in the quarter. After carrying refinancing $75,000,000 in 2020 and 2021 maturities and considering our solid cash position, we are looking forward to restarting our drilling and completion activities and return to profitable growth. If the current conditions remain in place, we should be resuming drilling and completion in August with another four well pad.
Two wells of Asachi Pad will be landed in La Cocina and another two in the lower carbonate section of Vaca Muerta. If the latter tests positively, we will be able to add well location to our current inventory of over 400 wells. Our new well design for Vaca Muerta wells will lead to a development cost of $8.4 per BOE and solid return even in a lower price environment. I hope we come across that we have maintained a strong focus on operational and financial performance during the last three months. As a team, we have devised solid technical solutions to create a viable growing business even at lower prices and a company that is fit for the future.
To conclude the third part of this call, I would like to thank our investors for their continued support and interest in our company. And I would also like to thank the entire team at Vista for their hard work and commitment, especially in these very tough and complex times. We will now open this call for Q and A.
Speaker 0
First question is from Pedro Medeiros with Citigroup. Please go ahead.
Speaker 4
Hi, Miguel. Good morning. Thank you so much for the presentation and congratulations on the results. Okay, for you and
Speaker 3
for the whole Vista team on these tough times.
Speaker 4
Well, a couple of like quick questions. We noticed improvements in lifting costs through the quarter, in part driven by the recovery in volumes. Well, would you mind to give us that extra color on the trends for lifting cost that you are forecasting for the second half? Should we continue to expect further progress in unit costs? And my second question is, it was very positive to see production resuming at that pace in Bahadro Del Pado.
Speaker 3
How
Speaker 4
this is a tough question, but I know the environment continues to be very fluid in terms of pricing and market conditions. But would you like to comment on the recurrence of that progress? Should we expect the wells that were turned back on to continue at that pace in the second half and resuming normal operations? And are you ready to start completing some of the wells that were predrilled before? Thank you so much.
And I apologize if you have addressed some of these questions by the beginning of the presentation, but was able only to connect in the middle. Hi, Pedro, and thank you
Speaker 3
very much for your question. No problem. So starting from the lifting cost, I think, well, we if you recall just not too long ago when we start operation, used to run this field for the conventional production with $70 per barrel. Our teams have done a super job lowering the lifting cost and we basically planned this year with the lifting cost around 10 The reality is we see now probably twenty twenty finishes around 9. This particular quarter, we have two effects in the OpEx.
One, I will say it was particular for the quarter that is the drop of the fourth pulling unit that we have. But basically, we are stopping because of the COVID. We are restarting three of those per unit, one finished contract and we don't need it anymore. So that is a particular drop that is related to the quarter. Now there have been a lot of contracts that have been renegotiated from gas compression, maintenance, so on and so on.
This restructure of course is with us and is going to stay with us for long. So I will say for the full year, I think you will see lifting cost more than 9% than 10%. That was the original plan. On the CapEx side and on the activity side, so as you know, we have 12 wells, three pads already in line. Our four pads before COVID have drilled already three wells, two to the carbonate and one to the and we're still having one well to drill.
So that drilling rig that is going to start in August is going to take care of finishing that part from the drilling side and then completing four wells, two to the lower carbonate and two to the kitchen. The ones that go into the lower carbonate, they have a special design for completion because carbonate is usually where we have seen movements on the formation that create casing deformation. So for that, we are using a special technology that is special that we have used it before. And U. S.
Is broadly used that is a sliding sleeve for probably the first 24 stages. And then depending how we see the well, we cannot sound with plug and play and perf. For the rest, normal completion for the kitchen ones, high density completion because we are aiming to probably place around 50 stages. The fifth part for this year, so we are going to drill an additional part. Also, we start to drill some surface casing and intermediate casing on one of the well of that part.
But that part is at the north. So it's very close to La Amarga Chica. That part is basically outside of the area that we are drilling. Now very highly prospective. We believe there we could have very good quest.
And that is going to be then the last part that we are going to drill this year. In terms of CapEx, you saw big reduction in cost as well. Course, in the development cost. Part of the decrease in development cost comes from the new EUR. This new EUR of 1,500,000 barrels, basically I want to also tell you that it's still below what we have seen in the what is the current performance for one hundred and eighty days of our second pack.
So our second pack today is performing 24% above that new well design or new Tycoon. Our third pack is still at one hundred and eighty days performing 10% above that new well type. And our third party is performing almost 30% above that new well type. So we feel very comfortable with that new well type. In terms of CapEx, so again, a structural reduction in costs, new drilling tariffs, new tubular tariffs, new service tariffs and also big reduction in some costs, okay?
I think we took advantage of that particular moment to restructure our costs. These new contracts are no short term contracts, so are going to go all way to 2021. So we feel that we took advantage of this pandemic and this crisis also, as I said, to create a company that is fit for the future. I hope I have answered your questions.
Speaker 5
You did. Okay. It was
Speaker 4
very good. Thank you so much, Miguel. Thanks again.
Speaker 0
Thank you. Our next question comes from Bruno Montanari with Morgan Stanley. Please go ahead.
Speaker 1
Hi, Miguel, Alejandro. Thanks for taking my question. Great news on the type curve. We were looking for that upgrade for a while now, but increase was quite a nice one. So I wanted to stay on that topic and ask if we should see this model as really the standard development for the broader play now and the company in a way experimenting less with well size, frac count, etcetera?
And I'm asking this with the angle of thinking that your drilling and completion costs as well as your production costs could go down even further under a more stable well design into the future? My second question is more about the near term issues. As you mentioned, you've done a very good job in rolling over some of the near term debt maturities. So the question is, are you now comfortable with the debt schedule at this point? Or is there more work to be done in the coming quarters considering your potential and hopeful resumption of new drilling in the coming months?
Thank you very much.
Speaker 3
Thank you very much, Bruno, for your question. And yes, starting with the well type and the new well design. So yes, we I think the new well design for what we have done already is a very good, I think, optimization of both CapEx and EUR from the NPV point of view. So this 2,800 meters with basically 50 meters of spacing and 47 stages is close from what today we perceive of the optimum. It's a very, very good improvement compared to what we have before.
And also, I would have to say that going forward, we need to take in consideration also geography. So you will see that not necessarily all the wells are going to be 2,800 meter. Just for example, the well that we have completed in the kitchen in the part number four is at 2,500 meters just because we're drilling those wells to the north and we basically have the limit of our concession. Now in those particular wells, in terms of 60 meter between stage, we are going to have 50 meter between stage and we are going to have 50 stages. So we will play and fine tune that concept of the well designed around, depend also the geography of where that part particularly is placed.
But definitely, it's very close to the optimum. I don't discard that we have further cost saving in terms of CapEx. Scale clearly will play a role. Sand went down probably around 70% seen our original plan. And we still have in plans probably to bring the sand cost further down.
So we will continue seeing probably reduction in CapEx. In terms of EUR, as I mentioned before, I mean, all our parts are performing above our new guidance of 1.5. So I cannot also discard that we are going to have further improvement in UR. But at the moment, we feel very comfortable with that. The next question was financing.
Definitely the refinancing today leave us for 2020 or 2021 with our plan fully funded. I don't see really a set of alternatives that could come in 2021 depending on where Argentina is and our access to international market. Then in 2021, probably we wish we will think of again doing something local or internationally with some part of our debt. But today, with the $75,000,000 that we renegotiated, the 45,000,000 of the term loan and the 30,000,000 from the local banks, we feel very comfortable and in very good positions CapEx wise to restart our profitable growth. And as I said in the call, the interesting thing, we can restart in a lower oil price environment compared what was our view a few years ago.
One thing that we didn't address, but I think you mentioned and it's also related to the OpEx, our wells are going to be assisted by gas lease. That is new for the racing for unconventional operators. And we believe that also is the right approach to have a very cost efficient lifting cost. So the nine that we are seeing as a lifting cost today with the further growth in production and as we add more unconventional waste, I believe lifting cost also will continue going down.
Speaker 1
Got it. Very clear. Thank you, Miguel.
Speaker 0
Thank you. Our next question is from Marcelo Guimiro with Credit Suisse. Please go ahead.
Speaker 6
Good morning, Miguel, Alejandro. I hope all is well as you and your family. Thank you for taking the question. I would like to ask two questions. So first one, we all know Vahil Quiolio was implemented at the May, fixing oil prices and helping maybe with export taxes.
I would like to know how is the strategy of the company looking forward to the second half of this year in regards to balancing exports with local markets, what are your might profits on zero tax to exports or as the local market rebounds to your focus on local markets? And another question, if I may, regarding also CapEx. One of the measures in terms of cash preservation to withstand the crisis was to cut CapEx by some 50% to 65%, if I recall it well in the first quarter results presentation. So I wonder if that measure is still valid and how do you see CapEx going forward for the rest of this year? Maybe you already answered that on the previous question.
So just to confirm what we should expect in terms of CapEx. Thank you very much.
Speaker 3
Hi, Marcelo. Thank you very much for your question. So the first one related to Barrique Rioccio. Yes, Barriq Riosho was a very good initiative from the government. This is our view.
One thing, first of all, the price of the gas stations was basically retained flat. And that also I mean that was again the main driver of the industry to be able to continue working even at the low oil crude oil prices. The $5 that Barril Criollo have as established crude oil price for the local market have a relative impact to us because we really turn all our production to the international market. In international market, the same decree reduced export tax to zero when Brent is below $45 per barrel, which has been the case so far. So that has allowed us to export most of our production.
And coming to your next question, we today see Q3 with July and August already sold on the international market. September, what we see I think we're starting to see some local demand, but I don't discard that we are going to also be able to probably sell something to the international market. And Q4, we don't know, but we expect that the local demand will increase as the lockdown of the pandemic start to normalize. So that is pretty much the situation. In terms of CapEx, so as you saw, I mean, low CapEx during Q2.
But as we start in Q3 and Q4, we basically what you have to take in consideration your model, we see CapEx between 45,000,000 and $50,000,000 per pad. And if we continue with the same activity that we think we'll do in 2021, that is pretty much what you have to take in consideration if the debt capital facility is going to be very low, okay? So between 45,000,000 and $50,000,000 per pad. Okay. Thank you very much, Miguel.
Very clear. Thank you, Marcelo.
Speaker 0
Thank you. Our next question comes from Frank McGann with Bank of America. Please go ahead.
Speaker 7
Okay. Thank you very much. Just a couple of questions, if I could, little bit bigger picture in nature. Just in terms of the market itself, and I know financing, of course, is a major issue, but do you see the potential for consolidation or that you could find perhaps some opportunities for yourselves to acquire properties inexpensively that might add to your longer term potential? And then kind of along the same lines, as you look out in time, how aggressive do you think will be development or the continued development of Vaca Muerta as we go forward given a more challenging global environment in terms of potentially oil prices and certainly international companies willing to risk capital?
Speaker 3
Hi, Frank. Thank you for your question. So to address the first one in terms of consolidation on new opportunities, we are very active. We are very curious. So we are always looking for things.
Nevertheless, I mean, with the inventory that we have and the quality of the wells that we are seeing, I mean, we have plenty in our plate. I mean, we the resource is super rich. And one thing that Vista has proved is that it's a very it's a top notch operational machine. So as far as result and with this inventory, we're always looking at. It's very difficult to find something that is better what we have today in LatAm.
It has been our experience. In terms of how we see Vaca Muerta development in the new context, it's a very good question. I will say it will depend a certain stage of what how Argentina normalize or does not normalize in terms of market. I think that it's going to be important. All the things that are happening today, the renegotiation of the debt and so on, I think will have an effect on how rapidly we I mean, not we, but Vaca Muerta could grow.
We are in a good position. We have a very good plan and we have cash in hand. And also I think another dynamic that we play and I'm very connect with The U. S. Due to other positions that I have in other companies.
I think looking at U. S, I see U. S. Running out of sweet spots of the quality of the one that we are basically talking today. Therefore, for me U.
S. Is going to have a breakeven price that probably is going to be higher than Vaca Muerta and less opportunities in that sense. So I believe if we continue in that trend in this trend and we are able to continue reducing CapEx, reducing OpEx and even we see quality of well better than the one that we are commenting today, I think Vaca Muerta from the resource place and from the oil economic place, the Argentina EBITDA side, it will become a very interesting value proposition. Of course, the context always will play a role in attracting new investment. I hope I have answered your question, Frank.
Speaker 7
That's great. Thank you very much. Thank
Speaker 0
you. And our next question comes from Alejandro Dimichelis with NIU Securities.
Speaker 5
Good morning. Just a couple of questions from my side, please. The first one is on your conventional assets, how is that you're seeing the decline rates now? The second question is on the new well pads that you're going to start on the lower carbonates and also next to La Amarga Chica. You were talking about potentially increasing the well location inventories that you have.
Could you give us some kind of indication of how many additional well locations you can see from there if things go the way you think you can go?
Speaker 3
Yes, Alejandro. Thank you very much for your question. So regarding the decline of conventional, yes, conventional is part of the focus that we have and our base production, we said that you can see decline there between 510%, depending on the field, the type of the field, if they have waterflood or not. But this is the normal decline rate that we are seeing in conventional. In terms of the lower carbonate, as you know, I mean, of the challenge of Vaca Muerta have always been the sickness.
So we have different zones, different organic zones and one zone that is that we call carbonate because the lithology it look more carbonatic in a certain way. The challenge the particular challenge in that zone have been that in some places, in some geographical areas, we have the challenge that when we frac them when we frac the carbonate, we see sheer movements that our shareholders and your physic assigned to basically foils that create casing damage. When you have a casing damage, you lose your ability to basically place all the spaces that you have to place in a well. For that, we are using a technology that I have used in the three projects that I did a long time ago in U. S.
And it's a technology also I know very well from my Schumburg et al. That call it sliding sleeve. That technology, what it does is that you don't have to go down and perforate. And basically, when you run your production tubing on the lateral stage, you run a special tubular that have leaps that you can open. So what we are doing is in the carbonate trying that technology.
We are also doing something that is very tactical to manage the pressure. We are going to frac first the wells from the organic. We are going to put the organic wells on production and then we are going to frac the carbonate Also, it's something from the on the kitchen, sorry, and then we are going to frac the carbonate waste. So that also we believe will help us to manage the pressure. Now it's a test.
So today when you look at the zone that we are is prospective for us or more prospective is the kitchen and the upper organic. And we have around 400 locations just in the area we are drilling today that is Bajada Del Palo Oeste. If we really prove that the carbonate is productive, by the way, we're expecting very good productivity. But from the our completion strategy work, I think we could probably add another 100 locations to our original estimation of 400 locations today. So it's very interesting.
It's important for us. We are always looking for new things. So it will be an interesting technical challenge for us.
Speaker 4
That's great. Thank you. And just
Speaker 5
to follow-up on that, when you're thinking about the carbonates, yes, do you also think you can achieve this kind of type curve that you're talking about now, the new type curve, I mean?
Speaker 3
It will depend on the number of stages that we manage to place. So with a slight lift, you are basically limited to the number of stages that you can place. So I will say probably with the last technology top, we can probably place around 24 stages. So that Tycoon is going to be lower. Now what we are thinking to do is I'm going to place 24 with Linus Deep.
And if the wait permits, we are going to add few others with Plat and Perf. So if that test proves successful, yes, we probably will go to a well that is a bit lower to the one that we are talking today, but it's still very economic.
Speaker 5
That's fantastic. Thank you very much. You're welcome.
Speaker 0
Thank you. Our next question comes from Ezequiel Fernandez with Valens. Please go ahead.
Speaker 5
Good morning. Thank you for the materials. My first question is related to at the beginning of the year in Argentina, there was some talk of moving forward with new hydrocarbons law. I wanted to know if any progress has been made on that side, maybe in talks with the government. And the second question is related to the gas market.
What are you seeing in terms of prices maybe for next year? And also about the possibility of seeing a new subsidy scheme of around $3.5 per MMBtu?
Speaker 3
Okay. Thank you very much for your question. So starting with the law. I think that's a big picture question, and I think important for Argentina is where we go energy wise going forward. I do believe the Argentina to recover will require on one hand to ensure energy security to call it in a certain way.
But it's not a given for Argentina because we're still the main part of our production coming from conventional with in certain places with very high decline percentage. So in order for Argentina to be self sufficient, we need to keep and Argentina need to be incentivized for operators to keep continue drilling. On the other hand, in the new macroeconomic environment after COVID, I think the need to proceed that come from export is going to be fundamental for Argentina economy in all respect. So therefore, I do believe there's a big incentive for the government to do two things. First of all, to ensure that the local market that people continue drilling and they have a competitive local market and second, promote access to the international market.
What happened in the COVID also has proved one thing. It proved for the ones that didn't believe in the Vaca Muerta crude oil that the Vaca Muerta crude oil it could be sell in the export market at very good prices. The last discount that we have in our export it was less than $4 compared with Brent. So clearly, we have proved that there's an international market there and I think with very low discounts. So I believe the government and whoever manage the energy policy have two big opportunities: one, to ensure that there is a security in Argentina and thus keeping competitive in the local market with competitive prices.
And second, promoting more investment in our ventures that have some plus to respond. I do believe in order to create that level of certainty in a country like Argentina, I definitely believe that probably it will have to be an initiative that has the level of law. And I know there are discussions about that. I cannot comment further on that. Second question was related to that.
As you know, we are very little exposed to the gas market. We are becoming as we drill the Vaca Muerta well, a more oily company with a very small portion of gas. We are basically seeing the gas price today. We are forecasting gas price around $2.5 per million of BTU. There are initiatives to promote the drilling of gas and to incentivize gas production And there's a plan that is being discussed on the second bit of energy at the moment.
Of course, that will be a plus for us. But today, we have almost no exposure to that.
Speaker 5
Okay. That was great and all from my side. Thank you very much.
Speaker 3
You're very welcome.
Speaker 0
Thank you. The next question comes from David Neuhauser with Livermore Partners. Please go ahead.
Speaker 8
Hey, good morning Miguel. An excellent quarter you guys had. Hey, my question was regarding again on the macro. How are you viewing the energy market today? And where do you see sort of a sweet spot for you to be able to grow the asset on a go forward basis?
It shows that obviously you see where the all the downward pressure maybe where the limits are in terms of where your breakeven costs are and what the company's ability to do to continue to lower breakeven costs. So that's that was excellent to see in the quarter. What is where do you see your sweet spot given where current prices are today? And sort of what's your outlook in the next few years on a recovery?
Speaker 3
Thank you, David, for your question. Very good question and thank you for your comments on our quarter. I think what we see in I mean, when you look at today the long view on the energy market, I mean, the good news is almost every single forecast show a very positive increase in oil price in 2021 and even better in 2022. So we do I mean, we share the view. We believe the international market will move up.
We believe that it's important in a country that promotes exports. Therefore, in Argentina 2021, it will be the trade off of what is the policy in terms of pricing for the local market. Today, have a market that is unregulated, but as Argentina has moved back and forth, we know the government play a role in the pricing at the pump indirectly, but it does. So how much we can promote export and how competitive the local price in the market is going to be. So that is where for me the international market that is going to push Argentina upwards.
And the dynamic of the local market in Argentina that is still very important because it will consume most of the production. How Argentina does after the pandemic on that sense in terms of ownership policy, think is very important. Nevertheless, saying that, what the important thing that has happened with Vista in less than two years, we have managed to improve the productivity of our wells and reduce both OpEx and CapEx to a level where today we can say that in 2021, we have we will continue drilling as probably we will establish drilling now in Q4. I think we will have a plan that we can execute at the prices that we are today, where you will see probably increases of around production of 30%, very important increase in EBITDA. And definitely, we have the cash to execute that plan.
So I would say we have very good visibility at the level of prices that we are today to grow profitable next year without any issue, okay? That will give us a very good platform for 2022 and 2023. Now the question is in what market we are going to be in 2021, how much upside we will have with the local market or export market and also how the macro economy in Argentina is in order for us to go for an international market financing, if you want to build 2022, 2023 forward. But we feel very comfortable at that level of crisis to restart twenty twenty Q3, Q4 and all 2021. And that has not been the context, It's the word that internally the team of Vista did in order to put us in this position with the development cost, as I mentioned, and the lifting cost, as I mentioned, that really put the company in a very good position to deal with a low oil prices scenario as we are today.
Speaker 8
Excellent. Yes, I think when you anytime you see extreme difficulties, I'll say, in any sector, any industry, you really find out who has the strongest teams with the strongest assets and what they're able to do to continue to lower their cost and put themselves in a position to be much more competitive as things improve and normalize. So I think you're proving that time and time again. And I think on a go forward basis, it's going to be continue to be an exciting story to follow. Thank you.
Speaker 3
Thank you, Neves, for your comments. Very motivated for the team. Thank you very much.
Speaker 0
Thank you. And sir, I'm not showing any further questions in the queue. I would like to turn the call back to Miguel Galluccio for his final remarks.
Speaker 3
Well, thank you very much guys for your interest, for following Vista, for your comments, reports. I hope so. All of you are safe. Thank you very much and looking forward to talk to you again next quarter. Appreciate.
Have a good day.
Speaker 0
Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating and you may now disconnect.