Vista Energy Q2 2024 Earnings Call Transcript

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July 12, 2024

There are 9 speakers on the call.

Operator

Vista Second Quarter 20 24 Earnings Webcast. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on Please be advised that today's conference is being recorded.

Operator

Would now like to hand the conference over to your speaker today, Alejandro Cernaco. Please go ahead.

Speaker 1

Thanks. Good morning, everyone. We are happy to welcome you to Vista's Q2 of 2024 results conference call. I am here with Miguel Gallucci, Vista's Chairman and CEO Paolo Verabinto, 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 2

Please be advised that

Speaker 1

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 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, plus Atil de Capital, variable organized under the loss of Mexico, registered in the Ulloa Mexicana de Valores and the New York Stock Exchange. Our tickers are Vista in the Ulfa 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. The Q2 of 2024 was marked by a strong inter annual and sequential growth across key operational financial metrics, driven by new well activity in our development hub in Vaca Muerta. Total production was 65,300 BOEs per day, an increase of 40% year over year and 19% quarter over quarter. Oil production was 57,200 barrels per day, 46% above the same quarter of last year.

Speaker 2

Total revenues during the quarter were $397,000,000 a 66% increase compared to the same quarter of last year. Lifting cost was $4.5 Boe, 6% down year over year. Capital expenditure was $346,000,000 mainly driven by 14 wells drilled and 14 wells complete during the quarter, reflecting the acceleration of capital deployment in new wells activity and $63,000,000 in development facilities. Adjusted EBITDA was $288,000,000 90% above year over year, driven by robust revenue growth and lower listing cost per BOE. Adjusted net income was $22,000,000 implying a quarterly adjusted EPS of $0.7 per share.

Speaker 2

Free cash flow was $8,000,000 during the quarter, as higher cash flow investing driven by increase in CapEx activity was financed with robust cash flow and operations driven by the boost in adjusted EBITDA. Net leverage ratio at quarter end was a solid 0.6 times adjusted EBITDA. I will now deep dive into our main operational financial metrics of the quarter. Total production during the quarter was 65,300 BOEs per day, our highest quarter ever. Production was 40% above on our inter annual basis, reflecting the ramp up of our new well activity, Ahuite eyeing 48 new wells during the last 12 months.

Speaker 2

On a sequential basis, production growth was 19%, driven by the connection of 4 parts in Baja del Palo Este and 1 part in Baja del Palo Este between the second half of Q1 and the first half of Q2. Oil production was 57,200 barrels of oil per day, an inter annual growth of 46% and a sequential growth of 21%, reflecting that the share of oil in our new wells is above that our base production. We expect this trend to continue going forward as we continue to drill in our oil prone development hub, especially Baja del Paloeste. Natural gas production increased 70% year over year and 5% quarter over quarter. Based on our new well activity plan, our model shows that production is forecast to keep growing on a double digit basis over the next two quarters, leaving us on track to deliver 85,000 BOEs per day in Q4.

Speaker 2

We also reiterate our guidance of 68,000 to 70,000 BOEs per day on average for the full year, noting that we will likely be on the upper end of this range. During the Q2 of 2024, we continue to make solid progress in the execution of our annual work program. We tie in 4 well parts during Q2, 2 in Baja del Palo Oeste, 1 in Baja del Palo Oeste and 1 in Agua Federal for a total of 14 new wells. We connected 25 new wells during the first 6 months of the year, leaving us on track to deliver our activity guidance, which is between 50 54 new wells for the year. We also achieved a major milestone in terms of production capacity expansion by signing a contract with SLV for the 2nd frac set.

Speaker 2

We expect the set to be fully operational for us towards year end, adding capacity to the 3 high spec drilling rigs and 1 frac set we currently operate. This new contract will give us additional flexibility to potentially accelerate our activity as of 2025. During Q2 2024, we have made solid progress in securing additional oil treatment and midstream capacity for our growth plan. We finished of our oil treatment plant in Entrelomas expanded to a total capacity of 85,000 barrels of oil per day. We also finalized the connection of our development hub to the Vaca Muerta Norte oil pipeline, doubling our capacity to export oil to Chile to a new total of 12,500 barrels of oil per day.

Speaker 2

Finally, we initiated a project in our oil treatment plant to expand the tracking capacity from 22,000 to 37,000 barrels of oil per day. We expect this to be fully operational by the end of Q3. This will provide us with incremental takeaway capacity that is key while the pipeline system is being expanded. In Q2 2024, total revenues sold to $397,000,000 a 66% increase compared to Q2 2023 and then 25 percent above the previous quarter, driven by a strong production growth as well as an increase in real estate prices. Realized oil prices was $71.8 per barrel on average, up 12% on inter annual basis.

Speaker 2

Realized oil price in the domestic market was $73.7 per barrel, including 42% of domestic volumes sold at a property linked pricing. Net of tracking costs, domestic realized oil prices were $68.9 per barrel. During Q2 2024, we tracked 23% of our debrune sold in the domestic market. In the export market, our realization price was $76.6 per barrel. We exported 1,900,000 barrels of oil, 22% above the previous year, capitalizing on the strong growth of our production.

Speaker 2

Combining sales to international buyers and domestic buyers paying export parity, 64% of our total sales were sold at aperparity. Lifting cost was $26,700,000 for the quarter, implying a lifting cost per BOE of 4.5 dollars The 31% increase in absolute level compared to the same quarter of last year was driven by higher costs in gathering, processing, compression and power generation to accommodate current production and future growth. On a unit cost basis, our lifting cost was down 6% compared to the same quarter of last year, reflecting our low cost operating model now fully focused on shale oil. We expect a dilution of the FIT component of this incremental cost as we continue to ramp up production. Based on our annual work program, our model shows we are on track to deliver on our guidance of $4.5 per barrel for the year.

Speaker 2

Adjusted EBITDA during Q2 2024 was $288,000,000 an increase of 90% year over year, mainly driven by strong revenue growth. On a sequential basis, adjusted EBITDA increased by 31%. Adjusted EBITDA margin was 70% during the quarter, an inter annual increase of 7% points, reflecting the benefit of the economy of the scale as we deliver robust revenue growth, while decreasing lifting cost per BOE. Net back was $48.5 per BOE, a 35% increase year over year reflecting the higher prices and the increase in oil to gas ratio for our sales. Free cash flow during the quarter was $8,000,000 even as we accelerate CapEx as a strong adjusted deterioration ratio boosted cash from operating activities.

Speaker 2

Operating activities cash flow was $281,000,000 in line with adjusted EBITDA as advanced payment for midstream expansion of $36,000,000 were funded by a decrease in working capital of $33,000,000 Cash flow used in investing activities was $273,000,000 reflecting CapEx of $346,000,000 for the quarter, partially offset by the $74,000,000 decrease in CapEx related working capital. Cash at period end was $328,000,000 as cash from financing activities generated $168,000,000 Net leverage ratio stood at a very healthy 0.56 times adjusted EBITDA at quarter end. I will now summarize the key takeaways of today's presentation. During Q2 twenty twenty four, we continue delivering a strong 14 new wells in line with our annual guidance for a total of 25 during the 1st semester of the year. This generated a robust production increase in Q2, both on an inter annual and a sequential basis.

Speaker 2

A strong revenue generation driven by robust wet productivity and improved realized oil prices, showing the focus on cost efficiency boosted adjusted EBITDA, which is in the 12 months surpassed $1,000,000,000 for the first time in our company's history. We also achieved major milestone in preparing our company for future growth, expanding our oil treatment capacity and connecting our operation to the Vaca Muerta Norte pipeline. We also secured a second frac set, which adds flexibility to potentially accelerate our short cycle hard return capital program as of 2025. This reflects the attractive view we have on the dynamics of our industry, both globally and domestically, and is underpinned by our strong conviction on our ability to deliver value to our shareholders. The 1st semester has ended on a high note for us and put us on track to deliver on our annual guidance.

Speaker 2

Before we move to Q and A, I would like to thank our shareholders for their continued support and congratulate the entire Vista team for their outstanding performance. Operator, please open the line for Q and A.

Operator

Thank you. And at this time, we'll conduct a question and answer session. Our first question will come from the line of Vicente Falanga from Bradesco BBI. Your line is open.

Speaker 3

Thank you very much. Good morning, everyone. Miguel, Pablo, Juan and Alejandro, congratulations on the great execution. I had two questions. The first one, could you please comment on your exit production for the Q2 and how your Q3 should look like in terms of output?

Speaker 3

And then my second question, could you also please provide more details on the reason for the hiring of a second frac crew from Flumbergier? Where should this frac crew go first? And could that speed up drilling in Agua Amora? Thank you very much.

Speaker 2

Hello, Vicente. Thank you very much for your question. So starting with the first one, Q2 exit on production. The ramp up of Q2 was mainly driven by the 11 wells in the 3 pad that we connect in Baja del Palo Este during the second half of Q1. On average, we see 2 of those pads performing within the tight curve and one part at the north even performing better than the tight curve.

Speaker 2

When you look at the average per month of Q2, we have 65.3 barrel of oil per day as a monthly breakdown. We record 60.6 in April, 16.5 in May and almost 70 in June. So if you have to look at the Q3, I will probably go for a double digit grow again, not least 10%. This is what I will recommend for your model. Regarding your second question about the second frac set.

Speaker 2

The second frac set is going to be incorporated. 1st of all, I mean, there was a very good movement from our people in bringing the second front set and also taking advantage of the, I will say, special relationship that we have with our service provider in this case, Jean Berce. The second frac set is going to arrive in the country in Q4 of this year and will not impact 2024 plan. The second frac sale was thought about gaining optionality and flexibility to accelerate and deliver our 2025 plan. So that is what we have for the 2nd frac sale in mind.

Speaker 2

So in terms of additional production for 2024, it will not be impacted. But of course, it will give us some room to accelerate Yochobrino production during 2025.

Speaker 3

Great. Thank you very much for the answers.

Speaker 2

Thank you, Vicente.

Operator

One moment for our next question. Our next question comes from the line of Daniel Guardiola Fernandez from BTG Pactual. Your line is open.

Speaker 4

Thank you. Hi, good morning, guys. And yes, congrats for the great results and the impeccable execution. I have two questions from Iyen. The first one is related to the approval of the omnibus law.

Speaker 4

That was a recent history that the government claimed in Congress. And I want to know if you can share with us the main positive or potential effects for Visa related to the approval of this deal. And more specifically, if you can comment on the applicability of the WIGI chapter, especially to upstream projects or to potential acquisitions of companies or acreage in this sector? So that will be my first question. My second question, I saw during the presentation that you guys significantly increased your trucking capacity to 27 ks per day.

Speaker 4

I wanted to know, Michele, maybe you can share with us what is what are your expectations in terms of total trucking towards the end of the year? How do you see that evolving in 2025 once the widely expected additional pipeline capacity comes online? And what are the costs different between trucking and using oil pipelines?

Speaker 2

Thank you, Daniel, for your question. So starting with the first one, the lay buses and the rig. The lay buses, as you know, I mean, you have 2 main statements that are important to our industry. Dan, one is the principle of no price intervention by the government in pricing of crude oil and products. And the second one is the principle of freedom of exports for crude oil and products as well.

Speaker 2

I will say these are 2 very important and good principles that are in the law. And now we will have to wait until the fine print is worked out and how the regulation end up. Of course, it's going to be a matter of execution in the sense that how fast that principle can be transmitted in real prices in the reality. Of course, we are positive. The spirit of these principles are good.

Speaker 2

Now all the players, we have to push and apply it and of course the fine printing of the regulation is key. So I guess the Secretary of Energy will be focused on that. The second related to the Rigi, I will set in my view is unclear yet. And again, the release has not been regulated yet. The regulation has to be written.

Speaker 2

And it's unclear for me the applicability of the rig to the upstream business overall. It's probably more clear regards infrastructure, but it's unclear for the upstream. Nevertheless, I would like to say that for Argentina and with the potential that Vaca Muerta have, actually we have 30 rigs in the country and the same volume of resources that you have in U. S. With 500 rigs.

Speaker 2

Using the rig to accelerate Vaca Muerta is clearly a no brainer for me for the country. Now I cannot comment on the application since yet it's not clear to me. How it's regulated is going to be key. Your second question is regard the volumes of truck and cost. So the cost of trucking for us is approximately in the range of $15 per barrel.

Speaker 2

In Q1, we track around 2,000 barrels. In Q2, we track around 8,000 barrels. This have an impact or a cost of $11,000,000 Yes, 8,000 barrels per day. And in Q3, we plan to transport by truck around 13,000 barrels per day. So again, impacting cost is around $20,000,000,000 Q4 will really depend of the starting of Old Del Valle.

Speaker 2

So when starting Q4, Old Del Valle is going to basically make a difference of how much we track in Q4. I will assume around 20,000 barrels of oil per day. And Q4 this is Q4. And 2025, you should see the tracking is loading down and disappear as all the while get full speed. And also in the second half of twenty twenty five, we should have the second stage of Old Del Val coming into place.

Speaker 4

Thank you, Miguel, for the follow-up answer.

Operator

Thank you. One moment for our next question. And our next question comes from the line of Alejandro Demichelis from Jefferies. Your line is open.

Speaker 5

Yes. Good morning, gentlemen. Congratulations on the quarter. A couple of questions, if I may, please. The first one is, could you please give us how you're viewing the local pricing evolving from here?

Speaker 5

Now you're saying you have about 64% of total volumes sold at export parity. How do you see that evolving? That's the first question. And then in terms of the second question, how do you see the export volumes also evolving? And Miguel, you mentioned it will depend a little bit how you see it over the bar.

Speaker 5

But what's your best guess today in terms of the over the bar situation?

Speaker 2

Thank you, Alejandro for your question. So in terms of pricing, are you we mentioned in the presentation, EBITDA average realized oil price was around $72 in Q2 2024. This was 12% above year on year and we were 2% above on the last quarter. That was mainly driven by the 14% year over year increase in domestic prices. We went from $60 per barrel and in Q2 we were at $68 So that taking in consideration in January for the right price, Eren of 85 dollars we have a discount of $2,500,000 So we have a sell price of $82,500,000 And that give us a real life price of $76,600,000 dollars with a net of 8% of export tax.

Speaker 2

Regarding the evolution of that, our total export this quarter was 38% of the total volume and the export parity total was 64% of the total volume. If we assume that in Q3, our export will move from 38%, let's say, toward 50% of the volume, I think we should expect that the export parity over the total will be in Q3 around 70%. So of course, the key will be and I think for the volumes that we are putting in production and we're expecting to put in production in Q3, achieving 50% of our volume going to airport, I think is feasible. And I think I answered your 2 questions, Alejandro.

Speaker 5

Okay. That's great. And Miguel, now you have better visibility going at least into the first half of twenty twenty five. How you see that 2025 evolving? Obviously, there are lots of moving parts there.

Speaker 2

2025, I mean, we clearly, our guidance for 2025, if we exceed this year at 89,000 barrel per day, is basically outdated already. Therefore, you need to expect that at some point this year, we will review that guidance. And also, if you are going to model now, we have today no reason to reduce activity since everything is going well. We will end up this year with 54 wells. So I will take at least same CapEx to drill another 54 wells for next year.

Speaker 2

Okay. Yes, that's very clear. Thank you very much.

Operator

Thank you. One moment for our next question. Our next question will come from the line of Tassos Boscosailis from UBS. Your line is open.

Speaker 6

Hi, good morning, everyone. Thanks for taking my question and good to see the great execution from the company. Miguel, maybe a follow-up question here on the next year's guidance. We know that it might be updated since you last released it in September last year. But if you could at least provide your expectations in terms of the exit rate for this year, What might be the exit rate in terms of production for next year?

Speaker 6

Because based on the new equipment set and around 55 barrels per year, we do have a view here that you might fully anticipate the 2026 guidance for 2025 at some extent. So it would be great to hear your thoughts on maybe how much of production could you guys deliver at the beginning of the year and by the end of the year of 2025? My second question is on the potential M and As for Vista. We know that Exxon is selling some of the assets and used in the media report that you guys and other players are bidding this process. So if you could also provide some updates on this divestment process from Exxon and maybe other M and A's opportunity, I would appreciate that.

Speaker 6

Those are my questions. Thank you.

Speaker 2

Thank you, Tassos, for your question. And Luca, starting with 20 25 forecast. As I mentioned before, again, I mean, you should expect that before the end of the year, we guide you again since our current forecast seem to be shy compared with the results that we are having. Nevertheless, you have to look at 2025 that we are starting already with 3 rigs and 3 new rigs because we will have the 2 that we see and we will change one of the one we have today in October with a new state of the art drilling rig that is coming in. And we will have a second frac fleet.

Speaker 2

I mean to execute 54 wells this year, we won frac fleet. We were on the limit. So we will have as I said before, we will build additional optionality and capabilities to accelerate with the 2nd frac set. Therefore and we will exceed this year probably if everything goes well and Q3 is key at around 80,000, 90,000 barrels per day. Therefore, you already know that 2025 number that we put in the guidance is obsolete.

Speaker 2

So I will assume in terms of activities, at least as I said before, 54 wells. That is what we're going to deliver in 2024. And I cannot comment on production, but I'm sure we will update that as soon as possible. And this is related to 2025. Related to Exxon, as I said before, and I cannot comment much on that.

Speaker 2

And I'm sure you understand because it's a process where confidentiality is important. We see that we are participating in the process. I think we are a competitive bidder. It's a very competitive process. And again, I mean, it's not going to change the future of Vista at all.

Speaker 2

As I said before, it's an I2Cave. To eye and we will compete hard to see what is the result.

Speaker 6

That's clear. Thank you.

Speaker 2

Thank you, Tassos.

Operator

Thank you. One moment for our next question. And our next question comes from the line of Marina Mertens from Latin Securities. Your line is open.

Speaker 7

Hi, good morning. Thanks for taking my questions. I have two questions. The first one, regarding your recent equipment update, you mentioned that the new frac set will arrive by the end of the year. But could you provide an update on the current status of the new drilling rig?

Speaker 7

Is it already operational? Or if not, when do you expect to begin impacting your operations? And the second one, over the last quarters, you've been increasing your trucking transportation while Oldozant project is underway. If there are any delays or any additional delays in the Old El Valle project or eventually in the Vaca Muerta Sur project, To what extent could trucking capacity be expanded?

Speaker 2

Thanks, Marina. Good question. Look at in terms of the equipment and in terms of the 3rd rig, we are drilling with the 3rd rig since Q1 this year. The only thing that you will see that in the Q3, most likely in October, we will change one of those rigs with a new rig that is in a state of the art rig coming from Houston. So it should not impact our ability to deliver what we have to deliver, which has exchange rigs.

Speaker 2

And the fracsec will probably come toward the end of the year. In terms of a potential delay of Del Val, or Luca, I think we are first of all, I will say that we are not expecting a delay As we get closer to the date of finalization, we have better visibility on when all Del Val is going to be delivered. Nevertheless, when you look at our capacity today with Old El Val, it's around 92,000 barrels per day. This is the capacity that we have to evacuate. This is composed of 43,000 that we have from the existing pipeline of Holdelval.

Speaker 2

We are exporting today 7,200 barrels of oil per day to Chile, but that can be expanded in Q3 probably to 9,000 and the capacity the total capacity is 12,000. And our I would say, our new tracking capacity is 30,000 barrels per day, from which, as I mentioned before, in Q3, we probably used 37,000 of that. So with additional tracking capacity, we are in good shape. In case we have a delay on the value in Q4, we will manage to offload our production.

Speaker 7

Thank you very much.

Speaker 2

You're welcome, Maria.

Operator

One moment for our next question. Our next question comes from the line of Andres Carlino from Citi. Your line is open.

Speaker 8

Hi, good morning, everyone. Congratulations on the execution of the program. I have two questions. The very first one is, given the new capacity that you have on drilling and fracking, how do you imagine the time allocation of this capacity into the different asset blocks that you have? And the second one is there was an increase of some $0.20 on the lifting cost.

Speaker 8

I know it's in line with the guidance, but I just wanted to understand what drive the delta between the 1st and the second quarter? Thank you.

Speaker 2

Thank you, Andre for your question. So I mean in terms of priorities on the development, the new equipment are still the same is our development hub, Ibajal del Paloeste, Ibajal del Paloeste and as well as our Ferral. This is where we are going to concentrate our activity. As you know, we have a deep portfolio there of 1,000 wells. We have drill country of those.

Speaker 2

So plenty of room for us and we will continue allocating our activity there. When it comes to lifting costs, Q2 will record 4.5%. And basically, I would say 2 reasons, the 4 point 5. 1, we spent as we actually spent money in gathering, processing, compression, power generation to accommodate the current production and the future production growth. Which has to be ahead.

Speaker 2

Usually, all those projects, you have to frontload it in order to accommodate the production growth. The second part of the lithium costs was cost pressure driven by flat effects and peso inflation. We are seeing a bit of a headwind in OpEx. The peso appreciation was 12% in real term between Q1 and Q2. That is approximately $2,000,000 of sequential lifting cost increase that basically came from that trend.

Speaker 2

No much freezing or lifting cost. We continue doing a very good job and we are not going to change our guidance for this year.

Speaker 8

Thank you, Miguel.

Operator

Thank you. And I'm not showing any further questions in the queue. I would now like to turn the call back over to Miguel Galucio for any closing remarks.

Speaker 2

Well, guys and ladies, thank you very much for the questions. It has been a very good quarter to us. We expect to continue delivering on the promise. Thank you very much for your participation and have a good day.

Operator

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone have a great day.

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