Vista Energy Q3 2023 Earnings Call Transcript

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Provided by Quartr
October 25, 2023

There are 6 speakers on the call.

Operator

Good day, and thank you for standing by. Welcome to the Vista's Third Quarter 2023 Earnings Webcast. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Alejandro Czerniakov, Strategic Planning and Investor Relations Officer.

Operator

Please go ahead.

Speaker 1

Thanks. Good morning, everyone. We are happy to welcome you to Vista's Q3 2023 results conference call. I am here with Miguel Gallucho, Vista's Chairman and CEO Pablo Verapinto, Vista's CFO and Juan Gallovi, Vista's COO. Before we begin, I would like you to draw your attention to our cautionary statement on Slide 2.

Speaker 1

Please be advised that your 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.

Speaker 1

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 associated with the Capital variable, organized under the laws of Mexico, Registered in the Bolsom Mexicana De Valores and the New York Stock Exchange. Our tickers are EBITDA in the Bolsom Mexicana De Valores and BIST in the New York Stock Exchange.

Speaker 1

I will now turn the call over to Miguel.

Speaker 2

Thanks, Ale. Good morning, everyone, And welcome to this earnings call. Today, I'm pleased to present our results for the Q3 of 2023, During which we record strong growth on a sequential basis. During Q3, we focused on drilling and completion activity in Baja del Palo Oeste. This led to a sequential growth in both oil and total production that allow us to largely replace the production from the conventional asset we transfer in Q1 2023.

Speaker 2

Total production reached 49,500 boeys per day during the Q3, which was 6% above Q2. Oil production was 41,500 barrels per day, 6% above Q2. Total revenues during the Orders were $290,000,000 25 percent above the previous quarter. Lifting cost was $4.8 per BOE, reflecting our successful strategy to fully focus Capital expenditure was $181,000,000 mainly driven by 11 wells drilled and 12 wells completed during the quarter. In Q3 2023, adjusted EBITDA was $226,000,000 a sequential increase of 49% On the back of revenue growth and flat lifting cost, adjusted net income was $123,000,000 implying a quarterly adjusted EPS of $1.3 per share.

Speaker 2

We recorded negative free cash flow of $43,000,000 During the quarter, this was mainly driven by a temporary increase in working capital that impacted cash flow from operation activities. Finally, the net leverage ratio at quarter end was a solid 0.7x adjusted EBITDA. I will now deep dive into our main operational and financial metrics. Total production during Q3 2023 was 49,500 BOEs per day, down 2% on inter annual basis. This is explained by 2 factors.

Speaker 2

First, the transfer of the conventional asset reused our production by almost 6,000 BOEs per day. On a pro form a basis, adjusting for the transfer asset, total production grew 12% year over year. 2nd, transportation capacity limited our production growth during the 1st semester. This has been unlocked since June as we started exporting oil via pipeline to Chile. Our development plan during 2023 was therefore backloaded in terms of new wells connections.

Speaker 2

The tie in of 12 new wells in Bajada del Paloeste during the Q3 led to a sequential growth of 6% in total production. Moreover, the monthly breakdown reflects a solid ramp up during the quarter, with 53,000 BOEs per day of total production during September 2023. Production ramp up started in August As the tie in of part Baja del Palo Este 16 and Baja del Palo Oeste 17, corresponding to the cube development Pilot we were running in Baja del Paloeste was delayed to late July. During the Q3 of 2023, we made solid progress in Baja del Paloeste, where we focused the activity of our 2 drilling rigs after finalizing the pilots In Aguila Mora and Bajada del Paloeste in Q2. This led to 12 new wells connected during the quarter Additionally, for well pad Bajada del Palo 2019, which was completed in September, was tied in October and is showing very solid productivity.

Speaker 2

We also finished drilling Bajada del Palo Oeste 20, a 3 well pad with all the wells targeting La Cocina. This path is currently under completion and is scheduled to be tied in during November. Finally, We are currently drilling 4 well pad in Bajada del Palo Oeste 'twenty one, which we plan to complete and connect before year end. We expect to tie in a total of 23 new wells during the 2nd semester, driving further production growth. We forecast total production of Q4 2023 at 60,000 BOEs per day with an exit rate of 65,000 BOEs per day.

Speaker 2

The tie in of 23 new wells during the 2nd semester is in line with our guidance for the year and 2 wells above the original guidance. On an annualized basis, this is an activity target we set For 2024 during our last Investor Day, reflecting our capability to deliver 46 new wells per year. During Q3, we also made solid progress to increase midstream capacity. We completed The upgrade of our crude oil treatment plant, leading to a total capacity of 70,000 barrels of oil per day. Stage 1 of Old El Val expansion is well advanced with 7,500 barrels of oil per day Tranqu pipeline capacity already available for Vista and another 5,000 barrels per day planned for mid-twenty 24.

Speaker 2

The Vaca Muerta Norte pipeline is on track to be commissioned before year end. This is expected to add Another 12,500 barrels of oil per day of trunk pipeline capacity for Vista. Expansions to our oil treatment capacity and transportation capacity constitute key enablers to our updated strategic plan, which has a production target of 70,000 BOEs per day for 2024100,000 BOEs per day for 2026. Total revenues in Q3 2023 were $290,000,000 13% down year over year and 25% above Q2 2023 on the back of higher export volumes and oil realization prices. Realized oil price for the quarter averaged 67.6 dollars per barrel, down 12% year over year and 5% above the previous quarter.

Speaker 2

The average realized domestic price was $61.7 per barrel, while the realized export price was $74.9 per barrel. Domestic crude oil prices were impacted by the drop in prices to $56 per barrel agri, Following the devaluation of the Argentinian peso from August 14 until the end of October. This led To approximately $5,000,000 or lower adjusted EBITDA during Q3 2023. Sales to export market accounted for 55% of oil volume and 61% of oil revenues. We exported 2,200,000 barrels of oil composed by 4 cargoes through the Atlantic, including the cargo deferred From Q2 and 400,000 barrels by pipeline to Chile.

Speaker 2

Realized gas prices decreased 24% inter annually to $3,300,000 per 1,000,000 of BTU, mainly driven by lower price paid by clients in Industrial segment. The sequential decline in realized gas prices was driven by lower gas export volumes. Lifting cost was $21,900,000 for the quarter, a 37% decreased visavisq3 2022. Lifting cost per BOE was $4.8 35% below the same quarter of last year. These results continue to reflect the positive impact of our new Operating model fully focused on our shale oil asset following the transfer of the conventional asset in the Q1 of the year.

Speaker 2

We expect a similar lifting cost performance during Q4. On this basis, we are on track to outperform Our full year lifting cost guidance by around 5% with a forecast of approximately $5.2 per BOE for the year. Asserted EBITDA for the quarter was $226,000,000 a slight decline of 3% year over year. Their inter annual decrease in revenues was almost fully offset by the lower lifting costs and $20,000,000 Of other income generated by the JV with Trafigura. We connected the last 12 wells under the JV during the quarter.

Speaker 2

During Q3 2023, we recorded a strong sequential expansions of margins. Adjusted EBITDA margin was 78%, an increase of 12% points visavisq2. Additionally, we recorded a netback of $49.8 per BOE, 39% above the previous quarter. These results We're mainly driven by savings in lifting costs, additional sales volumes and other income from the JV with Trafigura. We expect adjusted EBITDA to be between $215,000,000 $230,000,000 in Q4, noting That Q4 will not include income from the JV with Rafiura.

Speaker 2

Also that there is uncertainty around the realized oil prices, both on the domestic Medanito and the international benchmark. During Q3 2023, cash flow and operating activities was $170,000,000 reflecting Income tax payments of $22,000,000 and a temporary increase in working capital of $66,000,000 Cash flow used in investing activities was $161,000,000 in line with the capital expenditures of $181,000,000 for the quarter. During Q3 2023, We recorded negative free cash flow of $43,000,000 We issued a dollar linked bond $70,000,000 at a very competitive term, 5 year bullet maturity and 0.99 coupons. We also repaid $22,500,000 corresponding to the final installment of our syndicate loan, Further reducing the share of our cross border U. S.

Speaker 2

Dollar debt. Net leverage ratio stood At 0.7x adjusted EBITDA at quarter end. Finally, cash at the end of the period was $174,000,000 To conclude this call, I will summarize today's key messages. During Q3 2023, we made robust Progress in Majadal Palo Oeste. The tie in of 12 new wells leave us well on track to deliver 31 tie ins for the year.

Speaker 2

This activity increase has led to a substantial production ramp up during the quarter. Considering that another 11 wells tie in As scheduled for Q4, we are forecasting 60,000 BOEs per day of total production during such quarter. This would leave us well placed to achieve our 70,000 BOEs per day target during 2024. We have made solid progress in increasing treatment and transportation capacity, which are key pillars of our growth plan. Our oil treatment plan has recently been upgraded to 70,000 barrels of oil per day.

Speaker 2

The Old El Valle Pension has recently added 7,500 barrels of Trunk pipeline capacity for Vista, which will be increased further by the Vaca Muerta Norte project and the completion of the second part of Stage 1 of Old Elvad expansion. Finally, we recorded a strong financial metrics, Reflected by earnings per share of $1.3 and an adjusted EBITDA margin of 78%. To wrap up and before we open the call for questions, I wish to thank our employees For their hard work and commitment during the quarter. I also thank our stockholders for their continued trust in our company. We will now move to Q and A.

Speaker 2

Operator, please open the line.

Operator

Our first question comes from the line of Rodrigo Nistor from Latin Securities.

Speaker 3

Hi, good morning. Congrats on the results. So I have two questions. Given Argentina's current political and macroeconomic landscape, how do you anticipate the trajectory of domestic prices? And then also what are your expectations regarding discounts on export prices and how you're positioning to optimize profitability in these conditions?

Speaker 3

Thank you.

Speaker 2

Hi, Rodrigo. Thank you for your question. Look at pricing going forward, we are seeing first Probably important, we are seeing export pricing with upside at least of $2 or $3 More than Q2, as consequence of higher brand and also we believe the discount On export pricing will be probably for Q4 below probably $2 to $3 In terms of local prices, October, we are still selling at $56 per barrel. November December, we are under negotiation with the refineries. The gap today between export parity and domestic price It's around 40%.

Speaker 2

Therefore, the local market needs to start to normalize. Definitely, the normalization, It will be very important to drive investment in Vaca Muerta, generate more volumes for the country. So I expect that November December, there should be a push for normalization in the local market.

Speaker 3

Okay. That was really clear. Thank you.

Speaker 2

Thank you.

Operator

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

Speaker 4

Hello, good morning. Congratulations for the results and thank you for taking my question. My question is regarding the differentiator effects scheme that the government just introduced for the oil and gas companies. What is the impact for the Q1? And what do you think this could evolve?

Speaker 4

Well, actually for the Q4 because we have elections in the middle. And If you think that this could continue in the Q1 or Q2 next year, what is your view about it? Thank you.

Speaker 2

Hi, Walter. Thank you for the question. Yes, it's this program that we call on oil and gas dollar. We include in the program Export for an equivalent of $135,000,000 which will liquidate 75% through the Central Bank and 25% Through the blue chip swap. That will generate for us an additional revenues of around $55,000,000 And our calculation in financial income, we expect around a net income impact between 10 And $30,000,000 Regarding the continuation of this program after elections, to be honest with you, I don't know.

Speaker 2

It will all depend more on the macroeconomic program that the next President put in place.

Speaker 4

Thank you very much. And a follow-up question, if I may, is How this dynamic is impacting your production cost visavis Higher revenues due to this differentiated currency. In terms of margin, looking forward, I mean, I guess that for the Q4 the pressure on cost on dollars maybe higher, I guess.

Speaker 2

No. Well, I don't think it will impact our margins, Not at all. I think this will be more related to financial incomes, but not the margin per se.

Speaker 4

Okay, perfect. Understood. Thank you very much.

Speaker 2

You're very welcome.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Orianna Koval from Balan's.

Speaker 5

Hi, good morning. Thanks for taking my questions. This is Rose Gold with Valens. I have 3. If we could go 1 by 1, that would be great.

Speaker 5

The first one is just a follow-up on the expected volumes for the 4th quarter. Recalling the guidance that you have set for 2023, 55,000 barrels per day, It seems that you might be running a tad behind with 60,000 barrels per day expected for the Q4. So I just wanted to understand If we should perhaps expect a lower production number for the full year and what could additional drivers be there For increased volume. Thanks. That will be the first one.

Speaker 2

Thank you, Rania, for your question. Look, so let me first start with a recap of Q3. So Q3 production in barrel of oil equivalent was 49.5 49,500 barrels of oil equivalent per day. It was pretty much flat with last year and quarter on quarter with 6% increase. In term of oil production was 41.5%.

Speaker 2

So That was driven by the tie in of the 2 wells as I explained in the call from Bajal Paloeste. And we have the delay of the tie in Of the Q, late July, this Q is supposed to be tied in early July and that was basically the delay that we are And the shortage that we're having on production. On pro form a basis, and this is basically after the transfer of conventional The production increased year on year 12%. And if you look at the monthly breakdown, in July, we were 45.6 barrel oil per day, 49,900 barrels of oil per day in August and 53,000 barrels of oil per day In September. So in Q4, we will connect additional 11 wells, We expect to be more or less at 60,000 barrels of oil per day by Q4 average.

Speaker 2

So Our exceed rate in order to be 60 average, you can Assumed it will be probably around 65 barrels of oil per day equivalent. This will leave us well on track To deliver our 70,000 barrel of oil equivalent per day average for next year 2024 As we have defined as target. So I think this is pretty much what we explained. And the only delay that we have in production was as

Speaker 5

Yes, that's very clear. Thank you. Just Another one and understanding the natural gas business is rather marginal to Vista, but just We noticed this decrease in prices for the Industrial segment. So if there's any color that you can share on this regard visavis the plant gas prices that They were very differentiated. Thanks.

Speaker 2

Yes, no additional colors. Everything that you know, I mean commercial gas prices were lower due to the Argentina current situation and devaluation and so on. No more to read into.

Speaker 5

Okay. And just one last one Regarding the working capital drag for your free cash flow generation and any insights in terms of this Receivables that we saw quarter over quarter, is this normalized already through early Q4?

Speaker 2

It's normalized. As you know, I mean, this is the airport that basically was delay The collection from September to October and is normalized.

Speaker 5

Okay. Thank you very much. You're welcome.

Operator

Our next question comes from the line of Mateusz Tostas from Citi.

Speaker 3

Hi, good morning and congratulations for the results. I'd just like To hear some of your thoughts regarding the devaluation after the Paso and how is that playing vis a vis your lifting costs? And how do you think that, that could move forward, especially after the elections, if there's another devaluation too? Thank you.

Speaker 2

Hi, Matheus. Thank you for your question. Look, the devaluation Could help to reduce lifting costs marginally and we always after evaluation we have an impact on Expenditures and particularly lifting costs that, of course, in the different cycle of Argentina start to catch up Again, and I think you can assume that in a period of a year, usually have a neutral effect. But the main impact on lifting cost reduction will come from production increase. We have seen and demonstrate many times in the past.

Speaker 2

We will start to see partially that impact in Q4. So if you have to basically Put an impact in lifting costs, you should look at production increase. That is what's going to drift the lifting cost down.

Speaker 3

Perfect. Thank you. Thanks a lot.

Speaker 2

You're welcome.

Operator

Thank you. I would now like to turn the call back over to Miguel Gallucho for closing remarks.

Speaker 2

Well, thank you very much. It was a good quarter. I would like to continue Thanking you for the support and your participation on those calls. I'm looking forward to see you in Q4. Have a very good day.

Operator

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

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