Vista Energy - Q4 2022

Transcript

Operator (participant)

Good day, and thank you for standing by. Welcome to the Vista's fourth quarter 2022 earnings and full year 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 one one on your telephone. You will then hear an automated message advising your hand has been raised. To withdraw your question, please press star one one 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. Please go ahead.

Alejandro Cherñacov (Strategic Planning and Investor Relations Officer)

Thanks. Good morning, everyone. We are happy to welcome you to Vista's fourth quarter and full year 2022 results conference call. I am here with Miguel Galuccio, Vista's Chairman and CEO, Pablo Vera Pinto, Vista's CFO, and Juan Garoby, Vista COO. 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. During this conference call, we may discuss certain non-IFRS financial measures such as adjusted EBITDA and adjusted net income.

Reconciliation of these measures to the closest IFRS measure can be found in our earnings release that was 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. The ticker of our common stock are Vista in the Bolsa Mexicana de Valores, VIST in the New York Stock Exchange. The ticker of our warrants is VTW4088. I will now turn the call over to Miguel.

Miguel Galuccio (Chairman and CEO)

Thanks, Ale. Good morning, everyone. Today, I will share with you the fourth quarter and full year results of 2022, during which we have continued to deliver a strong operational and financial performance. First, I will present the fourth quarter results. I will later move on to full year results and 2023 guidance. I will also comment on the transaction we closed and announced yesterday. During Q4 2022, total production averaged 54.7 thousand BOE per day, a 33% increase year-over-year. Oil production was up 41% year-over-year, driven by the tie-in of 14 well pad in Bajada del Palo Oeste and another in Agua Federal.

Total revenues were $308 million for the quarter, an interannual increase of 57%, driven by higher production and stronger realizable prices. Lifting cost per BOE was $7.2 for the quarter, reflecting our success in continuing cost pressure through a number of efficiency measures, as well as through dilution of the fixed cost through incremental production volumes.

Capital expenditure was $145 million, including the drilling of eight wells and the completion of seven wells during the quarter. adjusted EBITDA during Q4 2022 was $202 million, a 73% increase year-over-year, driven by higher production and realization prices and lower lifting cost per BOE.

During Q4 2022, we record positive free cash flow of $57 million, driven by robust adjusted EBITDA generation. Net leverage ratio at quarter end was 0.4x adjusted EBITDA. Adjusted net income was a solid $171 million, including a not recurring positive adjusted of $98 million in contacts, implying a quarterly adjusted EPS of $2 per share. We will now deep dive into our main operational and financial metrics for the quarter.

Total production during Q4 2022 was 54.7 thousand BOE per day, up 33% interannually and 8% sequentially. Oil production was up 41% year-over-year, mainly driven by the tie-in of pad Bajada del Palo Oeste 14 and Águila Mora three. Total oil production, which also includes Bajada del Palo Oeste, increased to 36.2 thousand barrels of oil per day, representing 79% of oil production. Moving to slide five, I will share some details on our projects in Vaca Muerta. In Bajada del Palo Oeste, we continue to record robust well productivity. We have tied in 60 wells to date, from which 40 have exceeded 360 days of production and are producing on average 3% above Bajada del Palo Oeste type two.

During Q4, we completed pad Bajada del Palo Oeste 15, which was tied in late in the year. This pad has five wells, of which three were landed in La Cocina and two in the Orgánico. We are seeing very good productivity readings in these wells, which are performing above our type curve after 40 days on production. We recently started to drill four well pad Bajada del Palo Este 16, which we plan to tie in during Q2. In Aguada Federal, production increased to 5,800 BOE per day during Q4 2022. The block contributed 14% of our total share production, boosted by pad Aguada Federal two and Aguada Federal three.

We have recently finished drilling four well pad Aguada Federal four, landing two wells in La Cocina, one well in Orgánico, and one well in Middle Carbonate, which we have not tested in Aguada Federal so far. We plan to complete and tie in this pad by the end of Q1. During Q4 2022, we made good progress in our pilot in Bajada del Palo Oeste. We drill, complete, and tie in one well in Bajada del Palo Oeste three, landing in La Cocina and eastern part of the block. We are currently drilling pad Bajada del Palo Oeste two, which contains two wells to La Cocina. We plan to tie in these wells during April, after which we will have fulfilled our investment commitment in this block. In Águila Mora, we completed our first two well pad in January.

We landed 1 well in La Cocina and one well in Middle Carbonate. We are currently working on the temporary production facilities for the block, which is scheduled for completion in April. Our plan is to tie in the wells after that event. Total revenues in Q4 2022 were $308.1 million, a 57% increase year-over-year, driven by production growth and stronger realization prices. During the quarter, we normalized our inventory with a build-up of 238,000 barrels. Realized oil price for the quarter averaged $68.9 per barrel, an interannual increase of 14%. The average realized domestic price was $67.2 per barrel. This figure does not include trucking transportation costs from sales point to refinery. Including such costs, the domestic realized oil prices was $63.3 per barrel.

The average realized price of the export market was $74.1 per barrel, reflecting a softer blend and higher shipping costs. For a second straight quarter, more than 50% of our total revenue came from the export market. Sales to international market accounted for 52% of all volumes and 56% of all revenues. We are exporting 4.5 cargoes during the quarter for 2.2 million barrels of oil in total. We expect to maintain this level of export during the coming quarter as well.

Realized gas prices were $4.5 per million of BTU, an increase of 65% year-over-year, mainly boosted by sales to an industrial customer at $3 per million BTU, applicable to 44% of our sale volumes, and export to Chile at $8.8 per million BTU, applicable to 26% of our sales volumes. Total lifting costs for the quarter was $36.1 million. We have successfully implemented cost saving initiatives, mainly the pipeline from Aguada Federal to Bajada del Palo Este, which reduced oil transportation costs. Additionally, the boost in production volume continues to dilute fixed costs, leading to an 11% reduction in lifting costs per BOE year-over-year. Adjusted EBITDA in Q4 2022 was $201.7 million, implying a 73% growth year-over-year.

This reflects a strong revenue growth and the reduction in lifting costs I mentioned previously. Adjusted EBITDA margin was 65% during the quarter, an interannual improvement of 6 percentage points. Net back was $40.1 per BOE, a 30% increase year-over-year, driven by higher oil prices and lower lifting costs per BOE. During Q4 2022, we continued to generate positive free cash flow for a total of $57.2 million. Cash from operation activities during the quarter increased 55% interannually to $215.4 million. Cash flow used in investment activities was $158.2 million.

Capital expenditure was $145.2 million on actual approval basis, of which $98 million were invested in new wells in our Vaca Muerta project, $31 million in facilities, and $60 million in another minor project. Cash flow generated by financing activities stood at $8.8 million during the quarter. We successfully refinanced $108.5 million of 2023 maturities, of which $45 million are now due in 2025 and $63.5 million in 2026. We'd also refinanced $40.5 million of 2024 maturities, which is due in 2025. This extended the average life of our debt from 2.4-2.8 years and reduced average debt cost from 6%-4.4%.

Gross debt stood at $549.3 million at the end of Q4 2022. The slight increase compared with Q3 2022 was driven by debt issuance to repay $22.5 million installment of our term loan in January. After this payment, gross debt stood at $526.8 million. After this debt repayment and due to our successful refinancing effort at the end of the last year, we only have $45 million of debt maturities remaining in 2023. Net leverage ratio stood at a very healthy 0.4x adjusted EBITDA at quarter end. I will now move to our full year results. During 2022, we have continued to deliver on our superior shareholder return proposition. We also achieved robust performance vis-a-vis our 2022 guidance. We further expanded our reserve and resource base.

Our P1 reserve increased to 261.6 million BOE year-end, implying reserve replacement ratio of 495%. The acquisition of 100% of Agua Federal Norte led to the addition of 300 new wells to our inventory. Our successful results in the first two wells in Bajada del Palo Este led to an addition of 50 new wells, increasing our inventory in Vaca Muerta to 900 wells in total. In 2022, we delivered solid operational performance. Production for the year was 48.6 thousand BOE per day, a 25% increase year-over-year and well above our 47,000 BOE per day guidance. Oil increased 32% year-over-year, driven by higher oil content in our shale oils.

We exported 44% of our oil sales volumes, which generate 52% of total oil sales, driven by higher realization prices in export markets. We reduced lifting costs from $7.6-$7.5 per BOE year-over-year, reflecting our effort to control costs in a challenging FX environment and delivering on our guidance. During 2022, we also made good progress in our sustainability program. We continue to invest in decarbonizing our operations. This has led to a 2% drop in absolute emissions in the year during which production increased 25%, therefore reducing emissions intensity from 24-18 kilos of CO₂ equivalent per BOE. Concurrently, we have initiated the first four projects on our nature-based solution portfolio. I will deep dive into this matter later during the presentation. Regarding shareholder returns, we have a record year.

We adjusted EBITDA at $755 million, exceeding our guidance. Return on capital average employee came very strong at 40% for the year, and so was our bottom line, with a net year of $4.2 per share and free cash flow of $197 million. We have applied part of this cash to reduce gross debt by $84 million during the year. We have also repurchased 3.2 million shares for a total of $29 million, driven by execution of our strategic plan and in a contracted context for international commodity crisis, our share price tripled during 2022. Proved reserves increased 39% vis-a-vis 2021 for a total of 251.6 million BOEs estimated at year-end 2022.

This implies a total reserves replacement ratio of 495% and 515 for proved reserve life increase to 14.2 years. This growth reflects the quality of our core Vaca Muerta acreage and our ability to generate organic and profitable growth. Net additions were 87.8 million BOE, driven by activity in Aguada Mora, where we added 40 new wells locations, Bajada del Palo Oeste, where we added 32 new well locations, and Bajada del Palo Oeste, where we added four well locations. This resulted in a total of 210 booked well locations in our P1 reserves.

The certified present value at 10% discount rate attributable to Vista's interest in proved reserve is $3.2 billion, using a price assumption of $72 per barrel for oil and $3.9 per million BTU for gas according to SEC guidelines. During 2022, we made significant achievements on the operational front. Execution of our well program led to the tie-in of 28 new shale oil wells during the year. Total wells and production increased from 40 to 68 wells, driven an increase of 25% in total production and 49% in shale oil production year-over-year. 20 of the new wells were in Bajada del Palo Este. We tied in six wells in Agua Federal, which we incorporated into our core development area by connecting it through a pipeline to Bajada del Palo cluster.

We also initiated a pilot in Bajada del Palo Este, where we tie in the first two wells in Q1 2022, showing robust productivity results. In July, we started operating our own sand mine and sand washing plant, improving sand logistics and costs. The plan is already supplying Vista wells and is designed to serve 100% of our sand needs at full capacity, which is forecasted to be reached by mid-year. We have also made good progress in expanding our oil treatment capacity. We finalized our upgrade of the oil treatment plant where we flow the Bajada del Palo cluster production, increasing its capacity to 57,000 barrels per day. We are actively working on another upgrade, which will further increase the capacity of the plant to 69,000 barrels per day by the third quarter of this year.

Finally, we achieved two measured milestones related to oil evacuation projects. In Oldelval, the pipeline linking Vaca Muerta to Puerto Rosales, we have been awarded 31.5 thousand barrels of oil per day capacity in that expansion project, in addition to 42.7 thousand we already have in the existing pipeline. We were also awarded 37.4 thousand barrels of oil per day of throughput capacity in OTE port expansion in Puerto Rosales. Our capacity in these two projects will give us increased access to exporting through the Atlantic. We have agreed to prepay 100% of our capacity in Oldelval and 50% of our capacity in OTE, which means an estimated investment in the form of prepayment to suppliers of $77 million in 2023, and $60 million in 2024, and $11 million in 2025.

The agreements we have signed for these two projects constitute a measured milestone for our growth plan. We combine secure transportation capacity, including our current capacity in Oldelval, will be 74.3 thousand barrels of oil per day, which is more than is needed to deliver our 2026 production target and has further upside due to other ongoing projects. We are currently working with other upstream players to develop an additional pipeline capacity from the core area of Vaca Muerta, where we can link to our facilities to the north of the basin, connecting with existing OTASA and OTC pipelines to Chile. We think this could also generate an evacuation route for export to the Pacific. During 2022, we have made solid progress on all our ESG fronts.

The execution of our decarbonization project draw a reduction of our carbon intensity from 24 to 18 kilos of CO2 equivalent per BOE year-over-year. During Q4 2022, we have recorded an intensity of 14 kilos as the impact of the project implementing during the year materializing full, leaving us at a very solid starting point for 2023. We also signed a long-term power purchase agreement with a leading provider of electricity from renewable sources. We plan to cover approximately 20% of our power needs from renewables in 2023 and gradually increase this share in coming years. This will contribute significantly to reducing our scope two emissions. During 2022, we made headway in the development of our Nature-Based solution portfolio. We set up Aike, a Vista subs-subsidiary, to design, manage, and execute our carbon offset projects.

Aike is staffed with leading local experts and focused on the development of a mixed forestry, forest conservation, and soil capture through sustainable agriculture and livestock practices in Argentina. In its first year of operation, Aike purchased land in the province of Neuquén, where we planted 1,080 hectares, signed a binding commitment to purchase 5,000 hectares for the forest conservation project in the province of Salta, and signed sustainable farming and livestock agreement covering a total of 3,800 ha in the province of Córdoba, Santa Fe, Buenos Aires, and Río Negro. Considering our solid progress in decarbonization and MBS projects, we are well on track to fulfill our scope one and two net zero ambition by 2026. On the social front, we achieved solid safety results, recording a total recordable incident rate below one for the third year in a row.

We have made good progress in our gender initiative through hiring and developing female talent, issuing new policies, and running workshops to increase employee awareness. We also set up a social management system, a framework to support and develop social projects with our local communities, externally audit, and following IFC standards. We have continued to strengthen our governance, issuing new policies related to business ethics and implementing a public grievance mechanism on our website. I believe the slide conveys how our stronger performance give way to a robust total shareholder return in 2022. Our strong profitable production growth drove cash generation and led to positive free cash flow, reaching almost $200 million in 2022.

This has enabled us to further deleverage our company, reducing gross debt by $84 million. This reflected in a very solid net leverage ratio of 0.4x EBITDA at year-end 2022. In terms of the quality of our results, return on average capital employee very quickly reached 40%, and adjusted EPS increased by 4x year-over-year. We have also allocated $50 million to the first two stages of our share buyback program. These significant achievements were positively reflected by our share price performance, which tripled in 2022. Moving to slide 15. Yesterday, we announced a transaction that will allow us to become fully focused on Vaca Muerta shale oil development. The transaction is structured as an innovative two-phase agreement with Petrolera Aconcagua, covers the conventional concession shows engaged on the map.

As of March 1, 2023, Aconcagua will become the operator and pay 100% of the OpEx, CapEx, royalties, and taxes of such assets. Vista will remain concession titleholder until final closing date, which should be no later than February 28, 2027. At this time, 100% ownership will be transferred to Aconcagua, subject to provincial approval. Vista will receive a consideration composed of three items. First, a payment of $26.5 million in three installments. Second, 40% of oil and gas produced by the block for the next four years, and 100% of the LPG and condensate, clear of all costs, tax, and royalties. The consideration payable in oil and gas volume has a minimum warranty volume of four million barrels of oil and three million cubic meters of gas.

Third, the right to purchase Aconcagua's 60% share of gas production at $1 per million BTU. For such gas, we will be making a margin of around $3.5 per million BTU at current prices. Importantly, the oil treatment plant geographically located in Entre Lomas, with a capacity of 57,000 barrels of oil per day, is not included in this transaction. Vista retained the right to develop the Vaca Muerta play in all the concessions. According to our estimated and realized prices of $65 per barrel of oil and $4.5 per million BTU gas, the total value to Vista of the transaction will reach a nominal value of approximately $400 million. This deal allow Vista to fully focus on the development of Vaca Muerta, while streamlining our portfolio and boosting our financial and operating metrics.

The transaction will have immediate benefits on our metrics. In 2023, we forecast a reduction in lifting costs per BOE of 25%, as well as an increase in adjusted EBITDA margin by 5 percentage points to 71%. Despite the fact that we will be consolidating 60% of all the production from this conventional asset, estimated at 5,000 BOC per day, the EBITDA impact is neutralized by the full carry over operating expenses and royalties. When taking into consideration the CapEx carry and the working capital effect, this transaction generates $30 million in incremental free cash flow for Vista, which will be invested in expanding crude oil transport infrastructure to increase exports. The deal also improve our ability to deliver on our 2026 targets through additional free cash flow.

We forecast an additional net cash generated of approximately $100 million between 2023 and 2026 as a result of the transaction. Our portfolio will be stronger with investment direct to higher IRR shale oil projects, leading to higher corporate return on capital employee and adjusted EBITDA margins. I will now present our 2023 guidance, reflecting double-digit growth in production and adjusted EBITDA. This plan, coupled with our robust delivery during 2022, leave us well on track to deliver on our 2026 targets. Our development strategy is to fully focus on developing our core areas and finalize the pilot in Águila Mora and Bajada del Palo Este to de-risk such blocks. During 2023, we plan to tie in 29 wells, 16 in Bajada del Palo Este, eight in Agua Federal, three in Bajada del Palo Este, and two in Águila Mora.

These tie-ins are forecasted to deliver 55,000 BOE per day, a 13% increase year-over-year. Exit rate is forecast at around 60,000 BOE per day. This is planned to occur even as we deconsolidate 60% of the production of our conventional asset as of March 1st, which will remove approximately 5,000 BOE per day from our production base. Lifting cost is forecasted to drop 27% year-over-year to $5.5 per BOE, mainly driven by the deconsolidation of the conventional assets. Adjusted EBITDA is estimated in the $850 million-$900 million range based on a realization price between $65 and $68 per barrel.

This implies an interannual growth of 11%-18%. Our planned CapEx is $300 million, driven by slightly higher drilling and completion activities and a strong investment in treatment facilities to increase capacity for the further growth. Greenhouse gas emission intensity is forecasted to reduce from 18 to less than 10 kilos of CO2 equivalent per BOE. This reduction captures the full year impact of the projects executed in 2022, as well as partial impact of the 2023 projects. Overall, we are very confident that Vista is well on track to deliver on the long-term target presented at our investor day in December 2021. Moreover, we see potential for over-deliver in our production efficiency metrics and free cash flow targets. We will now go through the key takeaways of today's presentation. 2022 was a year of robust operational and financial performance.

We have delivered our positively revised 2022 guidance and made good progress toward our 2026 targets. We also delivered on our superior total shareholder proposition. We reduced our debt, repurchased 3.2 million shares, and approved the warrants exchange last October. This led to a peer-leading stock performance during 2022. We signed an innovative deal that will transform Vista into a fully focused Vaca Muerta company with improved operational and financial metrics. Finally, we have issued guidance for 2023, portraying double-digit growth in production and adjusted EBITDA with higher margins. Before we move to Q&A, I would like to thank our investors for their continued support and all the team at Vista for their commitment and hard work, which were key in generating this outstanding results. With that, operator, please open the line for Q&A.

Operator (participant)

As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Alejandro Demichelis from Nau Securities.

Alejandro Demichelis (Managing Director)

Yes, good morning, gentlemen. Congratulations on the deal. Miguel, quick question. You just mentioned that you see potential to over-deliver on the 2026 targets. Could you kind of walk us how you're seeing those targets now? Because you're lowering your cash cost, you're reducing your emissions significantly through the sale, you're having more money in the bank, you're having evacuation capacity. How much more can you over-deliver or can you bring those targets forward, actually?

Miguel Galuccio (Chairman and CEO)

Hi, Alejandro, thank you very much for your question. Yes, I mean, we, if you remember for 2026, we basically guides that we were going to be around 80,000 barrel per day and $1.1 billion of EBITDA. We are well on track. As I said in the presentation, we believe that we will surpass that objective that we put ourselves. When you look at 2023, our guidance already in term of EBITDA is between $850 million and $900 million. With that, I think we will be well ahead. Other thing to consider on the plan that we present December 2021, our commodity price at that time was at $60, today we are running with higher commodity price. That also will help.

Regard activity, of course, I mean, this year, our plan is to fully utilize the capacity that we have. We will be running with one rig and a half, with a CapEx of around $600 million. Part of that CapEx, or important part of that CapEx, is going to be dedicated to facilities. In 2024, of course, also, we can shift some of that CapEx to having additional activity in term of more drilling. We could move from one and a half drilling rig to two drilling rig. If the contract is still the one that we have today, that we believe that could be the case.

Cutting the long story short, I think, we are well ahead to deliver what we said for 2026, and you should expect that we will surpass that production and also on the EBITDA target that we put in the investor call.

Alejandro Demichelis (Managing Director)

That's great. Thank you. As a small follow-up, how are you thinking about those cash returns that you mentioned to shareholders with the new setup?

Miguel Galuccio (Chairman and CEO)

The cash return is still in place. It's something that we keep into mind. This year will be a particular year because we will invest in a lot in facilities for the future growth. Now 2024, from the cash point of view, it could be, I mean, by plan, it look to be a very good year. Returning cash to shareholder or returning to shareholder is something that we keep in mind. Remember, we have a buyback program that we are executing that was approved last December. We have $20 million to execute of that buyback program. That, for us, is one of the way of returning to shareholder that continue in place, and we will continue executing that.

Alejandro Demichelis (Managing Director)

Okay. That's clear. Thank you.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from the line of Regis Cardoso from Credit Suisse.

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

Good morning, gentlemen. Miguel, Alejandro, congratulations on the deals, on the very strong results. My question really is a discussion on, you know, connects very well with the previous question. You know, now with, you know, the good results you've had, still with the constraint capital flow restrictions in Argentina, I wanted to get a sense of what you think is necessary or what would be a good arrangement that Argentina could implement to foster the investments and to allow the oil companies to remunerate their shareholders. I mean, in the past, we talked about retaining some of the dollar from exports, for example.

I'm asking this now, Miguel, basically because you've now, you know, again, divested an asset, looks at very attractive valuation, but looks like you're generating a lot of liquidity in the company, right? The question really is, you know, what can be done with that liquidity? Thank you.

Miguel Galuccio (Chairman and CEO)

Hi, Regis. Thank you very much for your question. Yes, you're completely right, and we have the same target. Let me set first, I mean, one of the thing that we have in hand today is the Decree 277/2022. I think our main objective is that this Decree that was put in place and was fully regulated by the government, so that mean that they have fulfilled all the process that they have to, they will have to put in place in order for the Decree to be operational. It's already fulfilled from the government side. It's also fulfilled from our side. We have presented everything and basically to date, we have a first claim of $36 million that is in place.

We are waiting for the minister of energy, basically to release the certificate of that claim that we have done. Okay? I would say that is what we have to keep pushing, it's a decree that was put in place that basically is good for the industry and I think good for the country, seeing all that money today is the result of investment, and it's the first thing we need to focus on.

Second, I would like to comment in term of CapEx, the 2023 is a year where most of the CapEx, most of the cash that we generate, it will be translated to CapEx because we need to invest in facilities because it's the moment that we have to upgrade our capacity and in order to fulfill the plan that we have to 2026. 2024 is a year where we had, we have a strong cash generation and not that investment in facilities. Therefore, for that to have that decree and probably other things that could come, or I expect will come from a new economical regime due to the election that we will have this year, I think will be in place.

Between most of the parties and politicians today, I mean, in comparison what we have probably 4 or 5 years ago, Vaca Muerta is the key for the country to access US dollar, and to access to the, that US dollar, we need to continue investing, and we need to continue growing the production in order to create more export volume. I think this is very clear across the board. I'm positive that whatever happen after the election, that will be part of something that will be very high in the agenda in a new government. Okay? I don't, I don't think I can tell you more than that. Complete the Decree 277. Then of course, we are hopefully that we can do even better than that.

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

Very clear, Miguel. Thank you for the comprehensive answer.

Operator (participant)

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

Andrés Cardona (VP of Equity Research)

Hi. Good morning, everyone. Congratulations on the very strong results in 2022, not only on the financial front, but also on the reserves and even on the unlocking value strategies. Let me start from that last idea. You have been very active on the M&A front. Do you see more room to something else in 2023, maybe farm out some working interest at Vaca Muerta to accelerate development or something else? The second question is: With such a low leverage and a strong cash flow, what is holding you back to accelerate the development of the projects? Is it something about, I don't know, facilities? It's a company policy to work on a neutral cash flow basis. Just wanted to understand what is holding you back from accelerate on the production front. Thank you.

Miguel Galuccio (Chairman and CEO)

Thank you, Andrés, for your question. I will start from the second question. As you know, today in 2023, we have a plan that basically is aimed to fulfill the oil capacity that we have. That oil capacity we are going to fulfill it because we are going to be exiting 2023 with 60,000 BOEs, okay? That will allow us to use every single piece of capacity that we have in our facilities and also in the main pipeline that connects with the export port in Bahía Blanca.

going forward, as I mentioned before, I mean, what we see is that 40% of the capacity that our inaudible is going to create is going to be delivered in 2024, and the rest, 60% of the additional capacity is going to be released in 2025. That will allow us to grow farther. To grow farther, I mean, in 2024, what today we can think of is to probably add half a rig, so to go to a four or five rigs program that will take us from 30 wells probably to 40 wells. Keeping in mind that we always have in our program the cash flow generation. This is something that we are always looking at.

We basically are aiming to generate cash and to return part of that to our shareholders. Again, I mean, when we don't have a attrition of capacity, the dynamics as we presented on our investor day, it will be related to how much cash we generate, how much we want to pump into additional activity, and how much we want to return to our shareholders. Of course, as you see, because you run the numbers, that cash generation is going to be so rich that we will also have the freedom to continue looking on M&A transactions. So far, what we have done has been very focused on increasing acreage in Vaca Muerta, where we have done very well with the acquisition of Agua Federal.

Not only from the economical point of view, because we bought core acreage at a very good rate, but also as the business development team execute this quarter. A transaction that help us to be a pure play in Vaca Muerta with a very focused organization, reducing our lifting costs and increasing our margins. Okay. Again, nothing that you should expect from the M&A point of view, but we always, as we did so far, looking to how we can improve our numbers and our returns and our margins.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from the line of Walter Chiarvesio from Santander.

Walter Chiarvesio (Head of Equity Research)

Hello, good morning. Congratulations for the results, and thank you for taking my questions. I would like to ask you if you could have a more specific breakdown on the CapEx, specifically the $600 million CapEx, especially between what is facilities this year, what is the direct investment in productions and drilling and completion to design the fields. That is my first question. The second, to make it clear, is you are investing in the Oldelval expansion, and you're, let's say, 1.5 thousand barrels per day with the new expansion. You mentioned in the presentation that you have a total capacity of 34.3 thousand barrels per day. The difference between the 31 thousand and the 34 thousand is already contracted?

It's something that you have secured or is it's something that is done year by year? Those are my questions. Thank you.

Miguel Galuccio (Chairman and CEO)

Thank you, Walter, for your question. Let me give you first a breakdown of the CapEx and hopefully that became more clear to you. Just to give you the breakdown first of 2022 as a baseline to compare with 2023, we basically in 2022, we spent $360 million in Vaca Muerta wells. Around $100 million in facilities. There was around $60 million in others and $5 million in Mexico. We spent around $540 million in total CapEx. This CapEx is increasing to $600 million in 2023, mainly due to facilities.

When you look at the CapEx in 2023, it's going to be $380 in Vaca Muerta wells, the 20 new wells that we put in our plan. Now, facilities jump from around $100 million to $140 millions. That basically include an upgrade of the treatment facilities, gathering facilities, compression facilities. Everything that we need to increase our capacity to basically everything that we need to deliver the plan that we put together for 2026. Our capacity in Entre Lomas, for example, is going to go all the way up to 80,000 barrels of oil per day. That is a big upgrade. The rest is still the same.

We also will see, because we will increase the activity in Mexico. In Mexico last year, we invest $5 million. This year we will drill a few wells, that go to $80 million. Main increase in CapEx is related to facilities and in order to be ready to be prepared for the 80,000 BOE that we aim in investor day. The other question was related to Oldelval. Oldelval project is a project that will add capacity to the industry of 350,000 barrel oil per day of evacuation capacity on the top that we have today. It's a project that it will require a CapEx of $1.1 billion. Vista was awarded 10% of that capacity. Okay?

That project for us, in term of CapEx, it require an investment of $180 million that is going to pay in three installment of $54 in 2023, $10 million in 2024. $54 million in 2024 and $10 million in 2025. An MTIF of $0.6 per barrel. What you should expect in term of capacity, additional capacity for us is 31,000 barrel of oil per day.

Walter Chiarvesio (Head of Equity Research)

All right. The total contracted capacity is 34,000, okay? Is that correct?

Miguel Galuccio (Chairman and CEO)

Today it's 42, and we will add 31.5.

Walter Chiarvesio (Head of Equity Research)

Okay. Okay. Perfect. Understood.

Miguel Galuccio (Chairman and CEO)

With that, we will have enough capacity to execute our plan, basically.

Walter Chiarvesio (Head of Equity Research)

Perfect. A follow-up question, is how do we should see. You mentioned that the CapEx will be reduced in 2024 because you are not investing much in facilities. What would be the number that we should model in our models?

Miguel Galuccio (Chairman and CEO)

You cut off. Could you repeat the question?

Walter Chiarvesio (Head of Equity Research)

I mean, you mentioned that 2023 is going to be like a high CapEx year, $600 million, but in 2024, CapEx, especially facilities, should be lower. How much would be the CapEx for 2024 or assuming that you drill, I don't know, similar number of wells, et cetera? I mean, it should be lower.

Miguel Galuccio (Chairman and CEO)

Yeah. If I was you, I would play... Clearly facilities are going to go down from today's $140 million-$150 million to more close to $100 million, 2024 and farther down in 2025. Like we said, $50 million-$60 million. You have to play with the fact that what we do in term of acceleration of drilling activity. It is possible that we accelerate, as I said before, to move from 1.5 rigs to two rigs, and that it will, could bring a bit of extra CapEx to the development side of the CapEx. For example-

Walter Chiarvesio (Head of Equity Research)

Okay.

Miguel Galuccio (Chairman and CEO)

it's not unthinkable that in 2024, even though we spend $40 million or $50 million less on facilities, we transfer that CapEx into wells because we want to accelerate our program. If the commodity prices still are the way that it is today and with the performance that we are having, with the portfolio that we have and with the development costs and lifting costs that we have, it could be reasonable that we want to accelerate.

Walter Chiarvesio (Head of Equity Research)

Perfect. Thank you very much for the answer.

Miguel Galuccio (Chairman and CEO)

You're welcome.

Operator (participant)

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

Rodrigo Nistor (Head Of Equity Research)

Hi, Miguel, Ale, and team. Congratulations on the strong resources quarters. I'm curious about the potential impact of the upcoming election year in, on domestic prices and how Vista plans to navigate any potential fluctuations. Additionally, I noticed that there have been some recent discounts in export prices. I'm wondering if you could provide some insight into what is driving this trend and what can we expect going forward in terms of pricing for exports. Thank you.

Miguel Galuccio (Chairman and CEO)

Thank you, Rodrigo, for the question. Well, look, as I think, first of all, as a general comment, I will say, for us, the best way of mitigating local pricing dynamic is to export more. That is what we plan to do. I mean, we have reached today 55 of our volumes are exported, and that today represents 65% of our revenue. We plan to continue growing that export volumes and also the export revenue. You see already today the mitigation of any fluctuation when we decouple of the export parity that today doesn't have the impact that it used to have for us in our balance sheet. I think this is the way to continue mitigating the local market dynamic.

Related to what it will happen this year, for anybody that have operated in Argentina, is clearly that it will be a difficult year in terms of dynamics of local prices, because what you mentioned, it's an election year. Nevertheless, the dynamic always show that basically freezing prices of gasoline in pesos is not a good deal for the country. Today it's clear that we need to continue being coupled with the international market and any big decoupling with international market end up not being good for the country, not being good for the provinces that have lived from royalties of the oil field. Neither for us that or for the industry that end up cutting investment. That is what is not what Argentina need today.

We're being conservative, as we said in our plan, in term of local pricing, local pricing, probably more conservative than we should be. That is factoring in our plan. Yes, the dynamic is going to be tough this year. Related to discount or commercial discount on exports, as we mentioned, I mean, we were at eight last quarter. For us, it's a high discount, and we see that discount coming down to more six and seven for the Q1. The reading of our commercial team is that that discount is going to continue going down during the year. We expect to be much lower than eight for the year.

The reason of that, as far as we know about, you know, we use cargoes of half a million barrels. Those cargoes have been in high demand due to Russia cut off of production. We believe that that event, even though Russia is still complicated, it will not be that much in place, and we still to see that in Q1. I would say you should consider that probably that eight was a high number and we should be more close to six or five for this year.

Rodrigo Nistor (Head Of Equity Research)

Thank you. That was really clear. A quick follow-up on the CapEx for next year. What are the key factors that Vista would consider to accelerate its investment plan? It's a matter of pricing, it's a matter of capital restrictions easing. How would you think, how is your thinking process to decide or not to ramp up investments?

Miguel Galuccio (Chairman and CEO)

For us, again, as I mentioned before, for 2023, the main thing is a year where we are going to fulfill the full capacity that we have and the industry have, leaving the year with a very high margin of 60,000 barrel oil per day. That is as much as we can do. 2024 is different because with Oldelval delivering 40% of the capacity that they are executing today, it will be more of playing how much cash we want to generate and how much CapEx of that cash we want to pump into, in traditional activity. As I said before, it's not unthinkable that we increase activity to two rigs, that is going from 30 wells to 40 wells.

We will have less CapEx to invest in facilities. If you want to model, you can continue modeling in a medium case that we will still having a CapEx of around $600 million, but with more activity. Of course, we can go farther than that. It's not in the plan today. It's not something that today we can say that we will do.

Rodrigo Nistor (Head Of Equity Research)

Okay. Thank you very much.

Operator (participant)

Thank you. I would now like to turn the conference back to Miguel Galuccio for closing remarks.

Alejandro Cherñacov (Strategic Planning and Investor Relations Officer)

Well, Lucas, thank you very much for your participation. We are closing a very good 2022 and starting 2021 with a great M&A transaction that put Vista in a better place in term of being a fully unconventional player, with better numbers, with better lifting costs, with better margins. We are looking forward to execute and deliver on our promise also in this 2020 through 2023. Thank you very much for participating. Looking forward to see you again next quarter.

Operator (participant)

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