American Express Q1 2024 Earnings Call Transcript

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Provided by Quartr
April 25, 2024

There are 10 speakers on the call.

Operator

Good day, and thank you for standing by. Welcome to Vista's First Quarter 2024 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 go ahead and turn it over to your speaker, Alejandro Cerniakov, Vista Strategic Planning and IRO.

Operator

Please go ahead.

Speaker 1

Thanks. Good morning, everyone. We are happy to welcome you to Vista's Q1 of 2024 results conference call. I am here with Miguel Gallucci, Vista's Chairman and CEO Paolo Verapinto, Vista's CFO and Juan Gallo, 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 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 is associated anonymous satil de capital variable, organized under the laws of Mexico, registered in the Moxie of Mexicana de Valores and the New York Stock Exchange. Our tickers are EBITDA in the Bolsa 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. During the Q1 of 2024, we made good progress towards delivering on annual guidance with solid operational and financial performance. Total production was 55,000 BOEs per day for the quarter, up 40% year over year on a pro form a basis. Oil production was 47,300 barrels per day, 15% above previous quarter also on pro form a basis.

Speaker 2

Total revenue during the quarter were CAD317 1,000,000 flat year over year. We maintained lifting cost flat visavisheprevious quarter at $4.3 per BOE reflecting the full consolidation of our new operational model following the transfer of the conventional assets. In Q1 2024, capital expenditure was $242,000,000 mainly driven by 12 wells drilled and 11 wells completed during the quarter. Adjusted EBITDA was $221,000,000 8% above year over year, supported by lower lifting costs amidst stable revenues. Adjusted net income was $47,000,000 implying a quarterly adjusted EPS of $0.5 per share.

Speaker 2

Free cash flow was negative at $84,000,000 during the quarter driven by the ramp up of our drilling and completion pace which will boost production over the coming quarters. Net leverage ratio at quarter end was a solid 0.58 times adjusted EBITDA. I will now deep dive into our main operational and financial metrics of the quarter. Total production during the quarter was 55,000 BOEs per day, a 14% increase compared to last year on pro form a basis, adjusting by the production of the transfer conventional asset. Without such adjustment, total production grew 5% year over year, evidencing that we have fully offset the impact of that transaction.

Speaker 2

On a sequential basis, total production declined slightly as the wells connected during the quarter only started impacting production in late March. Oil Natural gas production increased 8% compared to Q1 2023 on a pro form a basis. In line with our annual work program, we tied in 11 new wells during the quarter, 3 in mid February and 8 in March. This activity had little impact on Q1 production, but will boost Q2 production. We are currently producing 62,000 BOEs per day and tying a 3 well pad in Baja del Paloeste last week, the first part of Q2.

Speaker 2

We forecast a double digit production growth on sequential basis during Q2. We also reiterate our production guidance of 68,000 to 70,000 BOE per day for the year. I will now share exciting news. We recently signed an agreement to secure and import a 3rd high spec rig to Argentina. This rig is scheduled to start operating in our development hub during the 2nd semester, replacing an on call high spec rig currently working in our operation to front load the 2024 drilling activity.

Speaker 2

This will allow us to deliver 4 to 8 additional new well tie ins during the 2024, in addition to the 46 wells in our current work program. We expect this to drive an improvement in our Q4 2024 production forecast to above 85,000 BOE per day. By adding 1 fully dedicated rig, we expect to provide an upward revision of both our activity and production guidance for 2025 once the rig is operational. During Q1 2024, we recorded a solid improvement in our oil realization prices, which were up 6% year over year for an average of $70.3 per barrel during the quarter. Rallai's oil prices were CAD69.3 per barrel to domestic customers.

Speaker 2

Rallai's oil prices from export market were CAD70 $4 per barrel. Combining sales to international buyers and domestic buyers paying export parity, 57% of our total sales were sold at export parity. During the quarter, total revenues were stable year over year. This reflects a temporary buildup in our oil inventory compared to a reduction in Q1 2023. Lifting cost was $21,600,000 for the quarter, a 28% decrease compared to the same quarter last year.

Speaker 2

Lifting cost per BOE was $4.3 a decrease of 33% compared to Q1 2023 and flat with respect to the previous quarter. This reflects the consolidation of our new operating model, fully focused on our shale oil assets following the transfer of the conventional assets a year ago. Adjusted EBITDA during Q1 2024 was $221,000,000 an increase of 8% year over year, mainly driven by lower lifting costs amid flat revenues. During the quarter, we continue to deliver strong margins. Adjusted EBITDA margin was 68% during the quarter, an inter annual increase of 4% points.

Speaker 2

Net back during the quarter was $44 per BOE, a 1% increase year over year. Adjusted EBITDA in Q1 2024 includes $7,000,000 in gains from the repatriation of 20% of the export proceeds at the blue chip swap. This was down from $81,000,000 in the previous quarter, which reflected the large gap between the official effects and the blue chip swap effects. The sequential decrease in adjusted EBITDA and margin is largely explained by this effect. Free cash flow during the quarter was negative at $84,000,000 This was driven by 2 factors: thirdly, lower cash on operating activities due to a temporary increase in working capital Secondly, payments of CapEx for $148,000,000 as we ramp up drilling and completion activities during the quarter.

Speaker 2

Cash at the period end was $152,000,000 as cash from financial activities generated $22,000,000 reflecting proceeds from borrowings of $96,000,000 and repayment of borrowings of $45,000,000 Net leverage ratio stood at a very healthy 0.58 times adjusted EBITDA at quarter end. I will now summarize the key takeaways of today's presentation. During Q1 2024, we delivered a strong execution of drilling and completion activity. We tie in 11 new wells in line with our annual guidance. We recorded a 14% year over year production growth on a pro form a basis, driven by shale oil growth in our development hub.

Speaker 2

We forecast sequential double digit growth, both in terms of production and EBITDA in the Q2 of this year, which leaves us on track to deliver on our production and adjusted EBITDA guidance for the year. We recorded a robust improvement in realized oil prices, exceeding the $70 mark on average, boosted by higher baren prices and by higher share of domestic sales at Ecopor Parity. Combining sales to international buyers and domestic buyers paying export parity, 57% of our total sales were at export parity. Supported by the contracted view we have on the dynamics of our industry, both globally and domestically, and leaning into our conviction on our ability to deliver value to our shareholders, we contracted a 3rd highest spec drilling rig. We forecast this will add 4 to 8 additional new wells incremental to our original guidance in the second half of this year.

Speaker 2

This is expected to boost Q4 2024 production about 85,000 BOE per day, leaving us well prepared to potentially increase our production guidance for 2025. Before we move to Q and A, I would like to thank our investor for their continued support. And also, I would like to thank the Vista team for their hard work during the quarter, which leaves us well prepared to achieve our annual target. Operator, please open the line for Q and A.

Operator

Thank you. Our first question comes from the line of Bruno Montanari from Morgan Stanley.

Speaker 3

Good morning, everyone. Good morning, Miguel, Alejandro. Thanks for taking my questions. I wanted to explore the production and the cash flows. On production, very exciting news with the 3rd rig coming in the second half of the year.

Speaker 3

So how should we think about the incremental number of pads or wells into 2025, assuming that the rig operates at the expected specifications? Is this pace of 4 to 8 additional wells per quarter sustainable? Or can it be higher? So any color you can give on the contribution of the rig on an ongoing basis would be super helpful. And then on cash flows, there was some noise on the cash flows for the quarter on the back of the working capital situation.

Speaker 3

So if you could comment on the expectation of working capital release during the Q2 of 2024 and how to think about working capital for the full year, it would also be extremely helpful. Thank you very much.

Speaker 2

Hi Bruno, how are you? Thank you very much for your question. Look at I mean starting from the production point of view, so we finished last year with 56,000,000 in Q4 and we designed the plan for this year to have around average 55,000 barrels per day in Q1 2024. That is what we get. In the plan, we said that we are going to have an average of 68 to 70 barrels of oil per day for 2024.

Speaker 2

And that plan didn't consider adding a higher spec per rig. How we see things today? So first of all, I will say we are entering Q2 with a very good production starting point. If you take the production of April 23, that was the last one that I checked, we were producing 62,000 barrels of oil per day. And we expect to finish Q4 with an average of 85,000 barrel per day.

Speaker 2

So of course, we are not going to give guidance in Q2 and Q3, but you guys can make the number, okay? We are starting the Q2 with 62 and we want to finish an average of 85 in Q4. This is factored in the 3rd rig that we are adding today. When you look at starting this quarter with 62 and what we have coming in, in line based on the activity that we have, We have Baja del Palo Alto 22 that is a very good part of 3 wells that yet have reached peak oil. We have a Jada del Palo 23 that also shows a very good production is a part of 5 wells yet has reached peak oil.

Speaker 2

We have a Jada del Palo Oeste 24 that is in flow back and we have a Jada del Palo Oeste 25 that is going to be tied in May and probably will start to show some oil in June. So saying all that, I feel confident with the production that we are seeing and with the plan that we have. Of course, 2024 is a challenging year, okay? We are basically putting the bar in terms of growth production very high. But it's nothing that we have done before and we have a track record of delivering and we will deliver this year as well.

Speaker 2

The question will be probably for 2025, I mean, we signal that we are going to have 85,000 in average for 2025. Probably in the future, we should look at that guidance now that we are adding that third rate. Going to cash flow. So 2023, we spent $760,000,000 CapEx and we end up the year with a cash flow around $30,000,000 and with a realized price of $66.7 per barrel. Our 2024 plan was of a CapEx of $900,000,000 We expect a cash flow of $100,000,000 and we guide pricing between $65,000,000 $70,000,000 We have finished the Q1 with more activity, dollars 240,000,000 of CapEx, a negative cash flow of $84,000,000 that as you mentioned have the effect of the export cargo that came late and that effect is an effect of $42,000,000 and we have realized prices of $70,000,000 With the plan of adding a 3rd rig, we will have an additional CapEx between $150,000,000 $200,000,000 So we expect or I am expecting and that also will depend on the prices that we get to have probably negative cash flow for the 1st semester and we will probably recover positive cash flow for the 2nd semester toward the end of the year.

Speaker 2

This is our current view. I hope I have answered your question, Bruno.

Speaker 3

Sure. Thank you very much, Miguel.

Speaker 2

You're very welcome.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Daniel Guardiola from BTG

Speaker 4

Hi, good morning and thank you for taking my questions. I have a couple of questions. So my first one is related to production. I see you have goal to basically increase production by the Q4 by roughly 30,000 barrels of oil per day. And I wanted to ask you, Miguel, I mean, this is by far the most aggressive internal growth in production that this company has experienced or you're going to experience so far.

Speaker 4

Which ones do you think are the main challenges that you're going to have trying to reach this new level? And in connection with production, if I'm not mistaken, you are expecting additional pipeline capacity towards the second half of the year. But I think it's not going to be enough for you to actually evacuate 100% of this incremental production through pipelines. So I guess you're going to increase the usage of trucking. And in that sense, I wanted to know the split that you expect between trucking and pipelines and the potential effects on costs of increasing trucking evacuation capacity.

Speaker 5

So that's in terms

Speaker 4

of production. And if I may just squeeze another one and is related to the exports. We saw during the Q a significant decline in exports as a percentage of total volume sold. So I wanted to know if you can share with us what happened during the Q? And what are your expectations for the upcoming quarters?

Speaker 2

Thank you, Daniel for your question. And yes, I will agree with you that we have a challenging year ahead in terms of production. Nevertheless, I will restate what I said to Bruno. I feel very comfortable entering with 62,000 barrel of oil per day aiming for 85,000 barrel and seeing the first results of the pad that we have drilled, I feel super confident. And also you have to factor in that the 62,000 barrels per day today that we produce come fully from unconventional wells.

Speaker 2

So that means that in the last 4 to 3 years, the Vista team have managed to develop and to produce 62,000 barrels per day. So for us aiming to add another 20 is not much different than we have done before. It's going to be a challenging year, but we have the equipment and the operational capacity and the talent to make it happen. Back to your second and third question. Yes, tracking, as you said, is something that we are going to use this year.

Speaker 2

As you know, we knew that Old De Val was going to be late. It was scheduled for Q1 2024 and will be delivery on Q4. So we factored in, in our guidance, in our planned expenses to cover that. So we create tracking plan that basically call for a cost between $10 $12 per barrel of cost. Q1, we were probably tracking around 2,000 barrels per day.

Speaker 2

Q2, we think that number will be probably closer to 9,000,000 and Q3 it will be up to 12,000 barrels per day. In the guidance, we factored in $25,000,000 of expenses related to those costs of trucking. Your third question, if I remember properly, was export volume. Export volume in Q1, we have 41% of volume that were directly to export and we have a new market dynamic in the domestic market, where 60% of the domestic volume were sold at Ecopor Parity. So we sold basically 57% of our volume to export parity.

Speaker 2

Q2, we believe that 50% will be directly volumes are going to be export and probably the domestic volumes we are basically forecasting that could be around 10%. So 60% of our volume will be sold at the property. This is what we are forecasting.

Speaker 4

Thank you very much, Miguel.

Speaker 2

You're welcome, Daniel.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Tassos Vasconcellos from UBS.

Speaker 6

Hey, everyone. Thanks for taking my question. I think I have one here on my side. We have seen an increased competition in the past years here in Brazil coming from the assets sold by Petrobras, which led several independent players to increase its footprint in the industry and, of course, requiring additional equipment, services, employees and all of that led to a higher competition in the industry, right? What are the Vista's expectations for this divestment process that we're seeing from YPF and probably from some other players?

Speaker 6

Do you believe we could see a higher competition in the industry in Argentina either this year or in the upcoming ones? How do you see this environment growing in Argentina? This is my question. Thank you.

Speaker 2

Thank you, Tassos, for the question. So the short answer probably yes. First of all, I think the rationalization of the portfolio that YPF is going through and basically we went through the same rationalization of portfolio knowing that the unconventional opportunity, the main opportunity for us where the scale is and where the margin is, I believe it's a very rational decision and it's a good path that YPF is taking in that direction and applaud them for that. I guess, I think that will create more activity in the basin. It will probably attract more investment toward conventional fields that today for the one that hold both in their portfolio cannot compete for capital allocation.

Speaker 2

And if you're referring to the fact that we create within the service sector, yes, I think it will be more demand for services. And I would like to what you said that the other effect that you will have is that Vaca Muerta is growing. We see more activities. We see basically more people asking for rig and frac fleet and so on. In that sense, I believe we have a competitive advantage compared with the rest.

Speaker 2

We have from day 1 adopt a model called OneTEAM where we have made our main service providers partners. Partners mean that they've been working with us non stop since day 1, where we basically give 100% of the activity to them. So that give us a preferential relationship with those people. We have no problem to add equipment during the good time and during the bad time. And I think this is a clear example of that is the highest per rig that we are adding with Nabors basically this year.

Speaker 2

So yes, I think it will be more pressure, but I think we will be okay.

Speaker 6

All right. That's clear. Thank you.

Operator

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

Speaker 5

Hi, Miguel. Good morning. I have two questions coming back to the free cash flow concern that Bruno expressed before. There was a second item at least for us. It was surprising the advanced payment for midstream expansion.

Speaker 5

So could you please give us some context about the outlook for these potential expenses? How will it be deployed over the coming quarters? I understand there is a commitment of close to $150,000,000 out of which close to $60,000,000 have been deployed. So I wanted to understand what should we expect on this front just to be more accurate on the free cash flow forecast. The second point I wanted to understand is with Brent up $88 per barrel, And we have seen the big effort the industry has done to improve the domestic prices, domestic realization prices?

Speaker 5

What are you seeing in the second quarter? What should we expect going forward? Do you expect any slowdown on this following trend that we have seen in the Q1? And perhaps the last question is, going back to the 3rd rig point, What should we expect for 2025 will be hired for the full year? Is it yet to be decide?

Speaker 5

Just trying to get some color about what to expect for the next year.

Speaker 2

Hi, Andres. Thank you for your questions. 1 again. First, probably starting from the free cash flow. So I don't think Bruno Sprezak has a concern.

Speaker 2

We don't have a concern either. We can we basically be being we've been growing with our own cash flow generation And we can continue growing toward the 3rd rig using our own cash flow. So I mean we are in that sense privileged compared with other developers of unconventional resources. As I said before, 1st semester of course, because due to the activity how it picked up during Q2 and Q3, we will have negative cash flow and we will have positive toward the end of the year. Also next year and probably I take advantage of answering your question on the 3rd rig.

Speaker 2

I think you can factor it in that we're going to have that 3rd rig fully during 2025. But to the question from mainstream, probably putting context, so the oil capacity, the additional available capacity that was tender was 315,000 barrels per day from which we secured 31,000 of those. And Inote from also the same volume we secured 37,000 barrels per day. We prepaid $58,000,000 for both. And in Q2, Q3 and Q4, we should have additional cash cost expenditures of around $70,000,000 $40,000,000 $20,000,000 $10,000,000 if you remember properly.

Speaker 2

Related to your question about domestic pricing, So Q1, 2024, we saw domestic price of $66 The property was around 79 dollars with a brand of $80 per barrel. Going forward, we are assuming that 60 feet should be the floor. Refiners should gradually upgrade prices to our property since there's no regulation in Argentina today to maintain the domestic price fix. Refineries also, as I mentioned before, have a new dynamic. The consumption, the local consumption has dropped and they are starting to export refined products.

Speaker 2

And therefore, they are willing to pay for that additional volume export parities. 1 third of our local volume was recognized at export parity. So I believe we should see local prices coming up. I don't remember if you have any additional question. I think there were 3 of them answered.

Speaker 5

No, no. Those were the questions, Miguel. Thank you for the answers.

Speaker 2

Thank you, Andres.

Operator

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

Speaker 7

Hi, good morning. Thanks for taking my question. So during the quarter, we saw inflation coming up by 56%, while FX went up by only 7%. However, lifting costs remain mostly unchanged. Are you seeing any pressure on the cost side due to this dynamic?

Speaker 7

And what are you expecting for the remainder of the year?

Speaker 2

Thank you, Guido Marina for your question. Yes, I mean, what you're asking mainly have been an impact in our lifting costs. So from the devaluation, we saw a positive impact in our lifting cost that have an impact that we captured in December. And you saw our $4.3 per barrel lifting cost. And in Q4, we're already reflecting that saving.

Speaker 2

In Q1, We basically when in Q4, we got only 1 month of effect of that devaluation. We captured that in the full quarter during Q1 2024. That allow us to have the number that we have today that is 4.3%. So part of those saving really were offset by higher activity. We have a slightly lower production that in Q4 2023 and EBIT of cost inflection during the quarter.

Speaker 2

So if you look at our lifting costs going forward, I think you should go back to the guidance that we have that is $4.5 for the year. We will continue having effects of inflation with a flat effect. Nevertheless, we plan to almost double the production that we have at the beginning of the year. So that will dilute lifting costs. So if I had to take a guess, I will probably with up and downs move closest to the $4.5 per barrel per BOE that we have forecasted and guide.

Speaker 7

Thank you.

Operator

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

Speaker 8

Yes, good morning. Thank you very much for taking my questions. I have two questions, if I may, please. The first one is on that extra rig capacity that you mentioned, Miguel. How are you thinking about splitting the rig capacity between the different fields?

Speaker 8

Is this kind of going to be focused entirely into the BPO, BPE kind of have or should we expect something into the less developed areas? That's the first question. And then the second question is last quarter you mentioned about potential M and A activity or vis a vis you were looking at some of the assets in Argentina. So how are you thinking about that today?

Speaker 2

Thank you very much for the question. So the main activity continue to be focused on the development hub that is Agua Federal, Bajal Paloeste and Bajal Paloeste. Those three blocks continue to be the main target of our development. Related to an additional rigor, we just brought a new one. As you know, we have ambition, so I will not discount at some point of time with adding more.

Speaker 2

But for the moment, I think we should consider that we will run full speed with 3 rigs and 25, we consolidate that activity right from the beginning. So it will be another year of growth. Related to M and A activity, as you know, we are participating in the Exxon tender. As I said before, it's a very competitive tender. It's not that we are separated for more resources, but we are participating and we see what happen from there.

Speaker 2

We have a hub of further development in the north that is not in our plan yet, but at some point of time we'll come to realization. So that is the view I can give you so far.

Speaker 8

Okay. Thank you.

Speaker 2

You're welcome.

Operator

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

Speaker 9

Hi, thanks for taking my questions. This is Ojena Gold with Valens. I have maybe one brief clarification and follow-up. So the first one with regards to the contracted 3rd rig that is expected for the second half. Just to clarify, are you expecting any CapEx provisions due to this increased activity?

Speaker 9

And or was this already contemplated in your annual budget? I'm sorry if you already mentioned that, but I think I missed it.

Speaker 2

So, Riana, yes, I mean, the is what I mentioned before. So you should consider that with the 3rd rig, we will upgrade the $900,000,000 of CapEx that we have in $150,000,000 to $200,000,000 additional due to the new rig. And of course, that increased production. So we are now aiming to an average of 85,000 barrel per day for the Q4.

Speaker 9

Understood. And maybe just following up on the delays that you are seeing in older lines. Can you remind us what is Vista's current evacuation capacity? How do you expect that these delays from Old El Dorado impact your production guidance that you provided in the earnings presentation? It seems that it continues to ramp up gradually towards above 85,000,000 barrels of oil equivalent by the end of the year.

Speaker 9

But just how should we think of current evacuation capacity and the increased onelval by year end?

Speaker 2

Yes, Orianna, thank you for the question. So first of all, I mean, just to clarify, it has no impact. I mean, we have enough evacuation capacity for the year. So we will not have any negative impact in our production plant due to the evacuation. Our actual evacuation is 50,000 barrels per day.

Speaker 2

We have tracking capacity. That means we can track 20,000 barrels of oil per day and we use that based on what is needed. And on Del Val, we add another 15,000 barrel oil per day toward the end of the year is aimed for October. 2025, we will have the second phase of Old El Val that for us will mean another 15,000 barrels per day of additional capacity. So 50,000,000 plus 20,000,000 plus 15,000,000 you have there right there 85 that we have for 2024.

Speaker 9

Perfect. That's very clear. And just one last one, seeing the pricing evolution in the local market and your ability to sell volumes at export parity prices, should we think of or expect any meaningful deviation from the export mix targets, seeing that you're actually being able to place some of these volumes at export party locally?

Speaker 2

Really, I mean, we are seeing, as I mentioned Q2, 50% of our volume will go to export. We are building up on

Speaker 8

that already.

Speaker 2

And we are forecasting 10% of our local volumes to go to a property. So you should work around that 60% number.

Speaker 9

Okay. Thank you very much.

Speaker 2

You're very welcome.

Operator

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

Speaker 2

Well, guys, thank you very much for participating. Thank you for the support and for the continued interest in Vista. Have all a good day.

Operator

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

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