Vista Energy Q1 2023 Earnings Call Transcript

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April 26, 2023

There are 8 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to the Vista First Quarter 2023 Earnings Webcast Conference Call. 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 Cierennikov, 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 Q1 2023 results conference call. I'm here with Miguel Galluccio, Vista's Chairman and CEO Pablo Verapinto, Vista's CFO and Juan Garobe, Vista's COO. Before we begin, I would like to draw your attention to our cautionary statement on Slide 2.

Speaker 1

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 Our financial figures are stated in U. S. Dollars and in accordance with International Financial Reporting Standards, IFRS. However, during this conference The closest IFRS measure can be found in the earnings release that we issued yesterday.

Speaker 1

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 Volsa Mexicana de Valores and the New York From this quarter onwards, you will only find the tickers of our stock as the warrants were canceled. Such tickers are in the Volta Mexicana de Valores and BIST in the New York Stock Exchange. I will now turn the call over to Miguel. Thanks, Ale.

Speaker 1

Good morning, everyone, and welcome to this earnings call. I am pleased to share with you our results for the Q1 of 2023, during which we have continued to deliver strong operational and financial performance. Total production Average 52,200 BOE per day, a 19% increase year over year. Our production was up 24% on an inter annual basis, boosted by the tie in of 6 wells in our development hub. Total revenues in Q1 2023 were $303,000,000 a 46% increase year over year, driven by higher production and stronger realized oil prices.

Speaker 1

Lifting cost per BOE was $6.4 for the quarter, reflecting enhanced focus on our shale oil assets. Capital expenditure was $162,000,000 including the drilling of 9 wells and the completion of 8 wells during the quarter. Adjusted EBITDA came very strong at $204,000,000 for the quarter, an inter annual increase of 61%. We recorded positive free cash flow of $35,000,000 for the quarter. Net leverage ratio at the quarter end was 0.37 times adjusted EBITDA.

Speaker 1

Adjusted net income was a solid $72,000,000 Implying an inter annual increase of 84% and quarterly adjusted EPS of $0.8 per share. We will now deep dive into our main operational and financial metrics. Total production during Q1 2023 E3 was 52,200 BOE per day, up 19% inter annually. Oil production was 44,000 barrels of oil per day, up 24% year over year. Our double digit production growth reflects The strong performance of our shale oil projects, which has offset the impact of the transaction to fully focus on shale operations, which became effective of March 1.

Speaker 1

On pro form a basis, we recorded a 7% sequential increase in both Oil and total production. This was driven by a robust productivity of 6 wells tie in during the quarter, 5 impact Bajada del Palo Este 15 plus a well Bajada del Palo Este 2,301 in our Baja del Paloeste pilot. For additional details on our operated production and the production of the Tramfer asset, Please refer to the earnings release published yesterday. I will now share an update on our development hub. In Baja del Paloeste, we continue to see a strong productivity with average well performance 3% above our type curve for the first 360 days of production.

Speaker 1

In terms of new well activity, we finished drilling pad Baja del Palo Estate 16. This path located in the south of the block contained 4 wells, 2 land in La Cocina and 2 in Organico. We start drilling pad Bajal Palosse 17, which also contain 4 wells. Both pads will be completed and tie in by Early July. In Agua Federal, we recently completed and tie in part Agua Federal 4 in the western part of the block.

Speaker 1

This is also for Wellpad. We landed 2 wells in La Cocina, 1 well in Organico and 1 well in the Middle Carbonate. This is the first well we have landed in the middle carbonate in our Aperal. In Bajada del Paloeste, we completed and tie in the 3rd well Of the ongoing pilot, we are very excited by the production results we are seeing. Cumulative production for the first Today was 75,000 BOE with a peak IP30 above 1500 BOE per day.

Speaker 1

This proves the quality of our acreage in Baja del Palo Oeste and the continuity of the play from our flagship block Baja del Palo Oeste. Based on these successful results, we have increased our estimated ready to drill inventory in the block from 50 To up to 150 wells, this takes our total inventory to up to 1,000 wells of which we have only drilled and completed 74 wells to date. As a reminder, Our entire inventory is located in 35 year concessions, 100% owned and operated by Vista. Total revenues in Q1 2023 were $303,200,000 which is 46% up compared to the same period last year, driven by oil production growth and improved realized oil prices. Realized oil price for the quarter averaged $66.6 per barrel, up 4% year over year.

Speaker 1

The average realized domestic price was $65.9 per barrel, while the realized price of the export market was 69.8 dollars per barrel. We expect realized oil prices during Q2 to remain broadly in line with those of Q1. Total sales volume was 2,500 barrels of oil per day, higher than production. This volume was drawn from our inventory. Sales to export markets accounted for 58% of oil volume And 60% of all revenues.

Speaker 1

We exported 5 cargoes during the quarter for 2,400,000 barrels of oil in total, In line with our export focused strategy, 55% of LTM revenues came from international markets. Bradesse gas prices increased 54% year over year to $4.7 per million with you, mainly boosted by TeX Porto Chile, accounting for 30% of our total gas volume at the price of $8,900,000 per 1,000,000 of Btu. Lifting cost for the quarter was $30,100,000 2% down from the same period last year. Lifting cost per BOE was $6.4 a reduction of 18% on an interannual basis and 11% on a sequential basis. We are already capturing the benefits From the deal we signed in the previous quarter to fully focus on our Vaca Muerta operation.

Speaker 1

The deal is effective as March 1st, So cost from the quarter reflect a full month having removed the transfer assets from our cost base. We estimate the lifting costs for the month of March was around $5 PBOE. Our model shows We are well on track to deliver on our $5.5 per BOE guidance for the full year. Adjusted EBITDA for the quarter was $204,400,000 implying an interannual growth of 61%. This reflects a strong revenue growth and lower lifting costs as described previously.

Speaker 1

Adjusted EBITDA margins was a robust 67% during the quarter, an improvement of 6 percentage points year over year. Net back was $43.5 per BOE, A 35% inter annual increase. Both metrics have increased sequentially, reflecting Improved margin driven by the transaction to fully focus on our Vaca Muerta assets. During Q1 2023, we recorded 34 $700,000 of free cash flow. Cash flow and operating activities was $158,800,000 This includes $60,000,000 of upfront payment to Alderball for the reservation of capacity in the oil pipeline expansion and a decrease of $5,000,000 in account payables.

Speaker 1

Our flow used in investment activities was $124,000,000 This is $38,000,000 lower than the accrued CapEx mainly due to $24,000,000 In account payables and $10,000,000 received from Aconcawa as an upfront payment for the transfer assets. Cash flow from financing activities was $71,100,000 mainly driven by debt issuance of $135,000,000 We successfully issued dollar lien bond with a 0% coupon for a 4 year maturity and 1% coupon for a 5 year maturity. This was partially offset by the debt repayment of $22,500,000 and interest payments of $7,900,000 Gross debt stood $659,600,000 at end of Q1. Cash at the end of the period was $350,200,000 This led to a slight reduction in the net leverage ratio to 0.37 times adjusted EBITDA at quarter end. To conclude this call, I will recap on today's key messages.

Speaker 1

During Q1 2023, we made good progress in our development hub, We continue to drive production growth. The successful results in our pilot in Bajada del Paloeste Have proven the quality of our asset and contributed to the addition of 100 wells to our ready to drill inventory. We are already seeing the benefits of the transaction we announced early this year to fully focus on our shale oil asset. Our lift in costs, EBITDA margins and netback have all improved sequentially. As the deal is effective at March 1, We only captured the fact partially and expect further upside in the coming quarters.

Speaker 1

During this quarter, We have once again delivered very solid operational and financial results. This includes good progress in our decarbonization and natural based solution project to meet our ambition to reach scope 1 and 2 net 0 by 2026. We are well on track to deliver Our 2023 guidance across operational and financial metrics. Early this week, our shareholders approved an addition to our current share buyback plan at 10 minute from $20,000,000 to $50,000,000 To wrap up and before we open the call for questions, I want to thank our employees and shareholders for their continued support. And with that, operator, please open the line for Q and A.

Operator

Thank Please standby while we compile the Q and A roster. Our first question comes from the line of Thiago Cascaro from Morgan Stanley.

Speaker 2

Hey, good morning. Thanks for taking my questions. I have two questions here, perhaps linked to each other. The first question is about the infrastructure, the bottleneck taking place in Vaca Muerta. Can you give us an update on the projects being implemented To increase the oil evacuation capacity, including the time line in Cremeto, access to pipeline, we'll be able to get in the next 12 to 24 months.

Speaker 2

And what about longer term developments? Are there any plans already in the making To the company's knowledge and the second question is about the company's drilling plan. Your execution has been very consistent Envista is generating positive free cash flows. Can you talk about the company's decision making process related to the potential revision and acceleration of the CapEx Drilling Plan? And how should we think about the equipment and infrastructure availability in that case?

Speaker 2

Thank you very much.

Speaker 1

Good morning, Thiago. Thank you very much for your questions. So I probably will start for the 2nd part of your question related to the production program, potential acceleration, decision making process, and then I will move to infrastructure. So first of all, let me give you a bit of visibility of what we are doing this year And how the production is going to come in based on the tie in, because there's 2 things That are related to the drilling program and the completion program of this year that are different to the ones that we did last year. 1st of all, we have the beginning of the year in Q1, a net effect of the transaction with Aconcawa that is was 6,000 barrels per day, that basically impact in 2 months of our Q1 number.

Speaker 1

And the second thing that we have in our program that I think is different to things that we have done in the past is the fact that We are drilling and completing 2 pad based on our cube methodology or cube technology. That means that we are drilling and completing 2 parts together to avoid basically Interference between them, but of course delay in production. So when you look at the The drilling program and the completion program, the way that the production will come in is a bit different than what we have done in the past. So we are closing Q1 with an average of 52.2% in term of production. We expect that Q1, sorry.

Speaker 1

We expect Q2 to be probably slightly lower than number Since we are going to tie in, so in the Q1, we tie in 5 wells. In the Q2, we will tie in 7 wells. Then we will see important increase on production start in Q3, where we're going to be tying 12 wells. And then On Q4, again, we come back to 5 wells. So Q3 really is where we have this Baja del Palo 16/17 coming in, saying we are going to complete those 2 back to back.

Speaker 1

So that It basically make the production curve this year a bit different to the one that we have showed previously. Now when you look at the drilling program of the year, we will finish in drilling for the path that we have Today in the business schedule, at the end of September. So the first probably decision in terms of acceleration that we will have If the decision of probably adding 2 pad at the end of the year in Q4, 2 parts that we can drill, of course, we cannot complete, will be completed in 2024. That is not a decision that we have made already, But it's something that we can do, just basically moving on with a normal drilling plan And same equipment. More longer term, I would say 2024 and beyond, We are evaluating different growth scenarios from 2024 and onwards.

Speaker 1

That scenario that we're evaluating is due to the strong performance that we have. And since also we have A very strong platform that could allow us to scale basically with the Same core people that we have with the super strong inventory that we have. I mean, we are talking about 1,000 wells. We have drilled only 70 of those. The access to equipment due to the long term relationship we have with our service provider And of course, because we have a solid financial situation in hand.

Speaker 1

So We are evaluating different scenarios. We are not guiding for that. But I mean, I want you to have in mind that we are doing that. In terms of Equipment, we're increasing equipment, I mean, I think it will be possible. Again, due to the relationship we have with the service provider, I believe we in case we go for any scenario that is more aggressive, we will have the option to bring more equipment and also to use the same equipment that we have more efficiently.

Speaker 1

Coming to infrastructure, so let me give you a EBITDA's overall view, I think you know what we are doing in tracking. We have been very, very upfront In terms of what we are doing with Old Del Val, so Old Del Val, we're expecting again Q1 2024, 40% of those Del Val Additional capacity is around 300,000 barrels per day coming into place. And in Q1 2025, The whole project should be complete. In line with Old El Val, Otepor facilities expansion We'll be coming in. And I think the new thing that we are doing is this effort to Chile through Otasa.

Speaker 1

This is a pipeline that already exists. It was put in place. It's been testing as we speak. And the offtaker of that production will be in UP. That is starting now Q2 2023 And you can expect that we will participate on that with between 4,005,000 barrels of oil per day.

Speaker 1

That will allow us to reduce a bit tracking, But basically, this is what we are adding. Vaca Muerta Norte will come Later, we are expecting that for Q3 2023 and that basically could replace OTAS. So that, I think is I have completed your question.

Operator

Our next question comes from the line of Rodrigo Nestor from Latins Securities.

Speaker 3

Hi, good morning and thank you for the opportunity to ask my questions. Follow-up on the Transcendian pipeline, where we commenced your operations. If Can we expect higher prices or reduced discounts for these sales?

Speaker 1

Hi, Rodrigo. Thank you for the question. So again, I mean, the Chile first stage of Vaca Muerta Norte, We will export between 4,005,005,000 barrels per day, as I mentioned before. We expect the pricing netback for Vista Very similar to the one that we get when we export through Bahia Blanca. So we don't see any change on that.

Speaker 1

As I mentioned before, that will have also an effect on tracking for us. We don't expect any immediate impact, but we are tracking today probably 2,500 barrels per day. We could reach 6,000. If we will have not have Potaca, We will reach probably 10,000 barrels per day in terms of tracking. So clearly, this new route of Export to Chile is helping both on export and also on cost.

Speaker 3

Okay. Thank you. And then another quick one. So you recently announced favorable progress in Baja del Panoeste, which will be increasing your well inventory. Given that your current capital allocation priorities of Bajal Paloeste, I mean, would you contemplating entering a joint venture or Any other thing to expedite the development of Bajal Paloeste?

Speaker 1

No, Rodrigo. We are not contemplating any joint venture. We're Our core show In terms of development, if we at some point of time we entertain doing something probably Will be more related to the blocks that we have in the north. But no, at the moment, we are not expecting. As I said, we have a solid financial position.

Speaker 1

So there's no need.

Speaker 3

Okay. That's very helpful. Thank you.

Speaker 1

You're

Operator

welcome. Thank you. One moment for our next question. Our next question comes from the line of Alejandro De Michelis from NAU Securities.

Speaker 4

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

Speaker 1

Thank you, Alejandro for your question. I will start with the second part, Lifting probably give you a bit of feeling on drilling as well. So Q1, we finished with a lifting cost of $6.4 per barrel. This lifting cost was composed due to the Aconcawa transaction 2 months where we have that conventional production with us, the lifting cost for those 2 months was around 7.5 And then March, we saw lifting costs coming below 5%. And of course, the 6.4% is the composition Of all that, we will see how lifting costs behave in the following quarters, But we believe, I mean, we will establish a lifting cost that will be around $5 So you should expect that.

Speaker 1

In terms of drilling, we finished the year with the drilling cost of around $12,700,000 For our normal wells and today we are seeing the drilling cost between 13 and 13.5 And this was due to the appreciation of pesos. And Related to the gasoline pipe increase, we see So first of all, Q1, the prices of the palm increased 11% in local currency, But decreased 5% in U. S. Dollar due to basically saying higher appreciation of pesos. Q2, I mean, what we have seen in term of $1.10, we will see even more pressure on the appreciation of pesos.

Speaker 1

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

Speaker 4

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

Speaker 1

Yes, it's a possibility, definitely. Of course, I mean, if the Export prices of the brand is strong. That will be intention to the market and we always fight for our crude oil prices. But yes, you could have in the second half due to the actual conditions and also due to the election More pressure on the local market, definitely.

Speaker 4

Okay. Thank you.

Speaker 1

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

Operator

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

Speaker 5

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

Speaker 1

Thank you, Andres, for the question. Yes, I mean, we've been giving updates on the decree that in October 2020, 2022, the Central Bank basically established. As I said before, that was followed by a few formalities from the Secretary of Energy in beginning of January And also Vista that had a year to that regime end of January. What happened after that, we filed several requests due to basically the decree Based on the incremental production that we have in Q3 2022, incremental production that we have in Q4 and in Q1 2023. So we are expecting to receive the certificate that is to access around $66,000,000 in foreign currency.

Speaker 1

This was for $14,000,000 $22,000,000 $30,000,000 respectively for the 3 quarters that I mentioned before. Of course, there's still some uncertainty around when we will receive those certificates. But I mean, we are filing based on the degree Based on the incremental production that we are seeing coming in.

Speaker 3

Thank you.

Speaker 1

You're welcome.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Orianna Kovalt from Valens.

Speaker 6

Hi, good morning. Thanks for taking my question. This is Ojana Gaut with Valens. I had Three questions, if I may go one by one, that would be great. The first one is a follow-up with regards to the Atasa pipeline and exports to Chile.

Speaker 6

Just to understand maybe if you have more information on will this be carried out under firm contracts or sold at spot? And if so, do you have any information also about fees that the owners of the pie will charge for its usage?

Speaker 1

Yoreana, Diotasa, I mean, adding to what I said, that is still in negotiation, but you should expect a firm

Speaker 6

Sorry. And perfect. Thank you. And maybe just moving on to the Old El Val pipeline, can you comment about what levels Are you currently operating you're close to your limits based on the current capacity, like taking aside the expansion? And do you see like this current Levitt's in capacity would potentially command a slowdown in the drilling program towards

Speaker 1

Yoran, today we are at current capacity basically. We are top up And our plan, the way that's been built is to take advantage of everything that it comes from Old El Val As the two stages are coming in and particularly for this year. So I mean, our plan is in line with the capacity that we can access

Speaker 6

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

Speaker 1

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

Speaker 6

Perfect. Thank you very much.

Speaker 1

You're welcome.

Operator

Our next question comes from the line of Regis Cardoso from Credit Suisse.

Speaker 7

Congratulations on the results. Thanks for the questions. Two quick topics I want To follow-up with, one is on the I mean, you have substantial room potentially to either Grow further your inventory or to develop the inventory you already have. So this is a recurring question. How do you See now the balance between CapEx buyback, deleveraging, particularly, I guess, with the recent backdrop From the macro front, I mean, for one hand, you have Argentina growing exports and a clear case for The exporters gaining access to the dollars and eventually Using that to remunerate shareholders versus continue reinvesting in your existing portfolio.

Speaker 7

So that question on just broadly on well inventory and capital allocation. And then I guess the second question would be on lifting cost. If I remember correctly, you did $6,400,000 and the guidance for the year is $5,500,000 So what do you think is Between those two numbers and if you can still reach the guidance for the year. Thank you.

Speaker 1

Thank you, Resi, for your question. I mean, starting with the first part, Definitely, when we look, I mean, what we can do in terms of continue creating value, The main things that basically we can do and we are analyzing and we are relating, as I mentioned before, due to the strong performance that we have And due to the platform that we have to scale, as I said, because we have the people, we have the equipment, we have a solid financial performance, Is to accelerate or to further grow in term of drilling and completion and Basically accelerating the use of the 1,000 well portfolio that we have in hand. I think that is the main This is the main driver to add additional value to our stock and to Vista. Nevertheless, again, When you look at going forward, our ability to generate EBITDA and cash, We can continue doing our buyback program and we can continue and also we plan to Continue the deleveraging company as it makes sense. So 3 of them are not Exclusive.

Speaker 1

I think the first one is probably the more important part because in the current context with our current inventory And with our current performance, it's clear the best way that we can create value. In terms of the lifting costs, as I mentioned before, I mean, We closed the quarter with 6.4%. And the last month, we really start to see The effect of our pure conventional production lifting costs, and we see the number Today, close to 5. So we guide for 5.5. I think you should see the number probably more close to 5

Operator

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

Speaker 1

Well, thank you very much for your interest report and continued support And looking forward to see you in the quarter. Have a good day everybody.

Operator

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

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