Vista Energy SAB de CV (VIST) 2020 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to Vista Oil & Gas Second Quarter 2020 Earnings and Webcast.

(Operator Instructions) Now I would like to turn the conference over to Alejandro Cherñacov, Strategic Planning and Investor Relations Officer.

Thank you.

Good morning, everyone.

We are happy to welcome you to Vista's Second Quarter 2020 Results Call.

I am here with Miguel Galuccio, Vista's Chairman and CEO; and Pablo Vera Pinto, Vista's CFO.

Before we begin, I would like to draw your attention to our cautionary statement on Slide 2. 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.

However, during this conference call, we may discuss certain non-IFRS financial measures such as adjusted EBITDA.

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 Oil & Gas, is a Sociedad Anonima de Capital Variable organized under the laws of Mexico, registered in the Bolsa Mexicana de Valores and the New York Stock Exchange.

The tickers of our common stock are VISTA in the Bolsa Mexicana de Valores and VIST in the New York Stock Exchange.

The ticker of our warrant is VTW408A.

I will now turn the call over to Miguel.

Good morning, everyone, and thank you for joining this earnings call.

Let me kick it off by highlighting that our COVID-19 business continuity plan is still in place, and that we are successfully keeping our team healthy and safe in these unprecedented times.

I hope that you and your family are also staying safe.

During Q2, the global oil market has suffered record low prices and extremely high volatility, turning it into one of the most challenging quarters I have been through in more than 25 years of my oil and gas experience.

Despite the enormous strain, we have managed to deliver positive results, particularly on the cost side as well as on the preservation of our balance sheet.

As I will show during the presentation, we have made cost savings and tactical moves with respect to storage and export markets that have allowed us to remain cash positive during the quarter.

More importantly, we have made structural OpEx and CapEx cost reductions, which enabled us to grow in a lower oil price environment.

We are now seeing light at the end of the tunnel with demand recovery signals and controlled supply leading to Brent level of $40-plus, earlier than most of us expected, and having stayed there for most part of June and July.

On the domestic front, the economic activity of Argentina has been affected by various strict quarantine measures, depressing local crude oil demand.

In this context, we shifted our commercial effort to the international market, exporting 70% of our oil during the quarter.

This added to the fact that to date we have not yet forecast on international prices below $45 per barrel, have a positive impact on our realization prices and allow us to sell our entire Q2 production, including volumes stored during April and May, at very competitive prices above our cash cost.

At the end of May, we reopened our Bajada del Palo Oeste wells, which contributed 13,900 BOEs per day during June.

This allow us to improve the outstanding productivity of our third pad which has only produced for 20 days before the initiative in March.

In June, 2 of the wells of that pad established an all-time basin record for average daily oil production in [Pical and Erman].

This additional production from our Vaca Muerta well boosted total production, which averaged 23,800 BOE per day in Q2.

Higher realization prices is also boosting revenue, which amounted to $51 million for the quarter.

The lifting cost in the second quarter was $8.6 per BOE, 13% below Q1 and 30% below Q2 2019, a remarkable achievement of our team in reducing nonessential activities and renegotiating more than 20 field operation contracts.

Such cost savings as well as additional revenue arising from export help us to turn around a very challenging quarter and generate $10 million in adjusted EBITDA.

This resulted in a positive free cash flow quarter, closing with a cash balance of $221 million.

Finally, our net debt stood at $282 million at the end of the quarter.

And as I will show later, during July we have refinanced $75 million in 2020 and 2021 debt maturities, which leaves us with an even stronger cash position to resume activity in the coming months.

Our total production for the quarter was 23,800 BOE per day, an annual decrease of 18%, mainly impacted by the shutting of our Bajada del Palo wells, as a result of lower crude oil demand during April and May.

As demand and prices pick up, we decided to reopen our 12 wells in the last week of May.

This led to a production boost as shown in the top-right graph, with June production averaging 32,200 BOEs per day, of which 13.9 came from Bajada del Palo Oeste.

Due to the oil gas mix of our shale wells, our oil production increased by 82% from 13,000 barrels per day in May to 23,600 barrels per day in June.

Total crude oil and natural gas production for the quarter were 17% and 20% down year-on-year respectively.

Our second quarter revenues totaled $51.2 million, 57% down year-on-year, impacted by lower production and lower realized crude oil and natural gas prices.

As international demand recovered more quickly than domestic demand, which is still impacted by the effect of the lockdown restriction on the economy, we shifted our strategy and sold 70% of our crude oil to export markets.

This enabled us to offload our entire Q2 production, including the 300,000 barrels we have stored in April and we reopened Vaca Muerta production.

Crude oil realization price was $26.5 per barrel on average, 56% below Q2 2019.

The breakdown of this figure reveals how our realization prices improved during the quarter, from $19.7 per barrel in April to $24.4 in May and $31.1 per barrel in June.

This improvement was mainly driven by recovery Brent prices.

But going forward, we are already seeing a second trend, diminishing discount from Medanito crude to Brent.

The average discount in Q2 was around $10 per barrel, roughly twice pre-COVID levels, impacted by higher shipping costs and lower demand for crude oil.

We now see a more normalized shipping market, as demand for floating storage falls and crude oil demand improves.

Both are reducing the discount to Brent of Medanito oil.

So in July, we closed sales at Brent minus around $5 per barrel and in August at already Brent minus less than $4 per barrel.

Average natural gas prices were down 42% vis-à-vis the second quarter of 2019, mainly due to weak industrial demand.

Moving on to Slide 6. We present one of our major achievement of the quarter.

As shown on the first chart, total operating expenses for the quarter were $18.6 million, 43% down year-on-year.

This impressive metric was the result of a specific cash flow we put together to conduct negotiation with all key contractors, to address both unit cost as well as activity levels.

In particular, we had successful renegotiations of gas compression, production treatment, field maintenance and logistic contracts.

These cost-cutting initiatives have offset lower production, so our OpEx per barrel was $8.6 for the quarter, 30% down year-on-year, and 13% down sequentially.

Our adjusted EBITDA for the quarter was $10.2 million, and our adjusted EBITDA margin was 20%, both impacted by softer revenues.

We selected certain key indicators to (inaudible) recovery dynamic we have been through during the quarter, showing the uptime we experienced starting in the second half of May and consolidated in June.

Breaking down revenue by month, we see a solid improvement during the quarter, driven by recovering oil prices.

We maximized the benefits of this recovery by starting production in April, off-loading storage in May, and reopening Vaca Muerta production in June.

So in April, we sold less than $10 million, as most of the production was stored.

In May, revenues include the offload of April stored production.

And we started to see more solid price recovery in June, with gross revenues well above $20 million.

In our previous call, I outlined our revised 2020 approach, focus on cost saving, tactical and cash preservation actions.

3 months later, I'm very happy to say that such actions worked out properly, and prevented us from what may have been a negative adjusted EBITDA quarter as some of the research analysts rightly estimated.

Having managed to generate positive free cash flow during this challenging quarter is the result of an (inaudible) organization focused on cost reduction and cash preservation.

Moving to Slide 9. Our cash during the period increased from $205.3 to $220.7 million.

So, we have achieved what we set out to do at the start of the market downturn, basically maintaining the solid cash position.

Cash flow from operating activities was $26.6 million, a solid growth sequentially.

Cash flow from investing activity was $24.9 million, which includes payment of CapEx accrued in Q1 2020, prior to us stopping drilling and completion activities.

Finally, we had a $13.7 million increase in cash flow from financing activities, mainly from the (inaudible).

Additionally, in order to preserve cash and add more visibility to our plan, in July we refinanced $75 million of 2020 and 2021, the maturities.

$30 million correspond to short-term local bank loans previously due in July 2020, which we have rollover for 12 to 18 months.

$45 million correspond to the term loan we have with us with the bank syndicate, under which we have refinanced a $50 million payment due in July 2020 and $30 million payment due in January 2021.

In both cases for 18 months and in all cases in local currency.

This give us better cash flow visibility to restart investment activities in the coming months.

We will now deep dive into our Vaca Muerta project in Bajada del Palo Este.

As I mentioned in our previous call, we shut in all our wells on March '20, as crude oil demand declined.

In light of the improving market condition, we decided to reopen all wells between May 26 and May 30.

The graph on the left show fast production response upon reopening, driven by pressure buildup in the stimulated rock volume during the shut-in period.

This supports our view that Vaca Muerta acts as an efficient reservoir short-term storage solution.

The bottom-left chart shows the detail for our third pad, which has only been introduced for 20 days prior to shut-in.

After reopening, we have been able to concede outstanding well productivity, ensuring well number 2061 exceeded 2,100 barrels oil per day, and well number 2063 exceeded 2,200 barrels oil per day.

Both the highest peak oil metric in the calendar month in the history of Vaca Muerta based on official information disclosed by the Secretary of Energy.

Moving on Slide 10.

I will now show you our new design for our Vaca Muerta well in Bajada del Palo Este, with our 12 oil wells drilled in the pads 1, 2 and 3, giving consistent results we have now updated our type curve.

The chart on the left shows the average cumulative production of the three pads, normalized to the new well design compared to previous type curve in purple and the new type curve in black, illustrating that all wells have consistently over-performed our previous type curve.

We tested different lateral length and frac spacing in the way we have drilled.

Now we are incorporating the 60-meter frac spacing that has been successfully tested to our new well design.

The new type curve EUR is 1.5 million BOE for wells with 2,800 meter laterals and 47 frac spaces, up from 1.1 million BOE in our previous type curve, which was for 2,500 meter laterals and 34 frac spaces.

The change in our type curve is a major milestone by reducing the development cost of Vaca Muerta.

It ensures a solid return in a lower oil price scenario.

To further drive the successful reduction of the development cost of Vaca Muerta we continue focusing on drilling and completion cost savings.

We have successfully renegotiated drilling and completion contracts, incorporated learning from [factory] result of our previous well and capture (inaudible) market.

The result is a drilling and completion cost of $11.7 million for our new well design, 18% below our lowest well cost so far.

In the bottom-left chart you can see how development cost is driven down to $8.4 per BOE through the combined effect of increased well productivity and drilling and completion cost savings.

This is 29% below our lower development cost so far when normalized to the previous well design.

Optimizing well design is the key to obtain (inaudible) and should enable (inaudible) the growth even in a potentially lower oil price environment in the following years.

Before we move to Q&A, I will summarize our highlights.

We have seen an earlier-than-expected recovery in crude oil demand and therefore prices, which has allowed us to reopen all our Vaca Muerta wells and sell our entire Q2 production.

We have successfully implemented cost efficiency measures, driven lifting costs down to $8.6 per BOE.

This means that the decrease in inventory has more than offset the decrease in production in a very tough quarter.

We expect (inaudible) to be around $9 per barrel in 2020.

The boost in revenue from our shale oil production, which we managed to sell to export markets, thanks to the efforts of our commercial team, in addition to our cost-cutting program, allow us to generate positive cash flow in the quarter.

After having refinanced $75 million in 2020 and 2021 maturities, and considering our solid cash position, we are looking forward to restarting our drilling and completion activities and return to profitable growth.

If the current conditions remain in place, we should be resuming drilling and completion in August with another 4 well pads, 2 wells of such a pad will be landed in La Cocina and another 2 in the lower carbonate section of Vaca Muerta.

If the latter test positively, we'll be able to add well locations to our current inventory of over 400 wells.

Our new well design for Vaca Muerta wells will lead to a development cost of $8.4 per BOE and solid return even in a lower price environment.

I hope we come across that we have maintained a strong focus on operational and financial performance during the last 3 months.

As a team, we have devised solid technical solutions to create available growing business even at lower prices and a company that is fitted for the future.

To conclude the first part of this call, I would like to thank our investors for their continued support and interest in our company.

And I will also like to thank the entire team of Vista for their hard work and commitment, especially in this very tough and complex times.

We will now open this call for Q&A.

(Operator Instructions) Our first question is from Pedro Medeiros with Citigroup.

Well a couple of like quick questions.

We noticed improvements in lifting costs through the quarter, in part driven by the recovery in volumes.

But would you mind to give us that extra color on the trends for lifting cost that you are forecasting for the second half?

Should we continue to expect further progress in unit costs?

And my second question is, it was very positive to see production resuming at that pace in Bajada del Palo.

How -- this is a tough question, but I know the environment continues to be very fluid in terms of pricing and market conditions.

But would you mind commenting on the recurrence of that progress?

Like should we expect the wells that were turned back on to continue at that pace in the second half and resuming normal operations?

And are you ready to start completing some of the wells that were predrilled before?

And I apologize if you have addressed some of these questions by the beginning of the presentation, but I was able only to connect in the middle.

Hi, Pedro.

Thank you very much for your question.

No problem.

So starting from the lifting cost, I think well we -- if you recall, just not too long ago when we start operation with -- we used to run this field for the conventional production with $70 per barrel, our teams have done a super job lowering the lifting cost.

And we basically plan this year with a lifting cost of around $10.

The reality is we see now probably 2020 finish around $9.

This particular quarter we have 2 effects in the OpEx.

One, I will say it was particular for the quarter that is the drop of the 4 pooling unit that we have that basically we stopped because of the COVID.

We are restarting 3 of the pooling unit, one finished contract (inaudible).

So that is a particular drop that is related to the quarter.

Now there have been a lot of contract that's been renegotiated from gas compression, maintenance (inaudible) and so on.

This restructure, of course, is with us and is going to stay with us for long.

So I will say for the full year, I think you will see lifting costs more around $9 than $10.

That was the original plan.

On the CapEx side and on the activity side, so as you know, we have 12 wells 3 pads already in line.

Our 4 pad before COVID has drilled already 3 wells, 2 to the carbonate and 1 to the (inaudible).

And we're still having 1 well to drill.

So that drilling rate that is going to start in August is going to take care of finishing that pad from the drilling site and then completing 4 wells, two to the lower carbonate and 2 to the (inaudible).

The ones that go into the lower carbonate, they have a special design for completion because carbonate is usually where we have seen movements on the formation that create casing the formation.

So for that, we are using a special technology that is special, we have used it before (inaudible) for probably the first 24 stages.

And then, depends how we see the well, probably we cannot (inaudible).

For the rest, normal completion for the kitchen ones, high density completion because we are aiming to probably place around 50 stages.

The fifth pad for this year, so we are going to drill an additional pad.

Also, we start to drill some surface casing and intermediate casing on one of (inaudible).

But that part is at the north.

So it's very close to La Amarga Chica.

That path is basically outside of the area that we are drilling, now very highly prospective.

We believe there we could have very good wells.

And that is going to be then the last pad that we are going to drill this year.

In term of CapEx, you saw a big reduction in cost as well.

Of course, in the development cost, part of the decrease in development cost come from the new EUR.

This new EUR of 1.5 million barrels.

Basically, I want to also tell you that this is still below what we have seen in the -- what is the current performance for 180 days of our second pad.

So our second pad today is performing 24% above that new well design or new type curve.

Our third pad is still at 180 days performing 10% above that new well type.

And our third pad is performing almost 30% above that new well time.

So we feel very comfortable with that new well type.

In terms of CapEx, so again, a structural reduction in cost, new drilling tariff, new tubular tariff, new service tariff and also big reduction in sand cost, okay?

I think we took advantage of that particular moment to really structure our cost.

These new contracts are no short-term contracts, so are going to go all the way to 2021.

So we feel that we took advantage of this pandemic and this crisis.

Also, as I said, to be a company that is fitter for the future.

I hope I have answered your questions.

Our next question comes from Bruno Montanari with Morgan Stanley.

Great news on the type curve.

We were looking for that upgrade for a while now.

But increase was quite a nice one.

So I wanted to stay on that topic and ask if we should see this model as really the standard development for the broader play now, and the company, in a way, experimenting less with well size, frac count, et cetera.

And I'm asking this with the angle of thinking that you're drilling and completion costs as well as your production costs could go down even further under a more stable well design into the future?

My second question is more about the near-term issues.

As you mentioned, you've done a very good job in rolling over some of the near-term debt maturities.

So the question is, are you now comfortable with that schedule at this point?

Or is there more work to be done in the coming quarters, considering your potential and hopeful resumption of new drilling in the coming months.

Thank you very much, Bruno, for your question.

And yes, starting with the well type and the new well design.

So yes, we -- I think the new well design for what we have done already, it's a very good, I think, optimization of both CapEx and EUR from the NPV point of view.

So this 2,800 meters with basically 50 meter frac spacing on 47 stages is close of what today we perceive as the optimum.

It's a very, very good improvement compared what we have before.

And also, I will have to say that going forward we need to take in consideration also geography.

So you will see that not necessarily all the wells are going to be 2,800 meters.

Just for example, the well that we have completed in the kitchen in the part pad #4 is at 2,500 meters, just because we're drilling those well to the north and we basically have the limit of our concession.

Now in those particular wells, in terms of 60 meter -- 50 meter between a stage -- 60 meter between a stage, we are going to have 50 meter between a stage, and we are going to have 50 stages.

So we will play and fine-tune that concept of the well design around, depend also the geography of where that pad particularly is placed.

But definitely, it's very close to the optimum.

I don't discard that we have further cost savings in terms of CapEx, scale clearly will play a role.

Sand went down probably around 70% in our original plan, and we're still having plans probably to bring the sand costs further down.

So we will continue seeing probably a reduction in CapEx.

In terms of EUR, as I mentioned before, I mean, all our parts are performing above our new guidance of 1.5.

So I cannot also discuss that we are going to have further improvement in EUR.

But at the moment, we feel very comforted with us.

The next question with financing.

Definitely, the refinancing today leave us for 2020 and 2021 with our plan fully funded.

I don't see really set alternatives that could come in 2021, depending on where Argentina is and our access to international market.

Then in 2021, probably we will think of, again, doing something local or internationally with the sand part of our debt.

But today, with a 75% -- $75 million that we renegotiated, $45 million of the term loan and the $30 million from the local banks, we feel very comfortable and in very good position CapEx-wise to restart our profitable growth.

And as I said in the call, the interesting thing, we can restart in a lower oil price environment compared what was our view a few years ago.

One thing that we didn't address, but I think you mentioned, and it's also related to the OpEx.

Our wells are going to be assisted by gas lease.

That is new for the rating for unconventional operators.

And we believe that also is a right approach to have a very cost-efficient lifting cost.

So the $9 that we are saying as a lifting cost today, with further growth in production and as we add more unconventional ways, I believe lifting cost also will continue going down.

Our next question is from [Marcelo Gunero] with Credit Suisse.

I would like to ask 2 questions.

So first one, we all know barrel criollo was implemented at the end of May, fixing oil prices and helping maybe with export taxes.

I would like to know how is the strategy of the company looking forward to the second half of this year in regards to balancing exports with local markets, whether you might profit on 0 tax to exports or as the local market rebounds to our focus on local markets.

And another question, if I may, regarding also CapEx, one of the measures in terms of cash preservation to withstand the crisis was to cut CapEx by some 50% to 65% if I recall it well in the first quarter results presentation.

So I wonder if that measure is still valid.

And how do you see CapEx going forward for the rest of this year?

Maybe you already answered that in the previous question.

So just to confirm what we should expect in terms of CapEx.

Hi, Marcelo.

Thank you very much for your questions.

So the first one related to barrel criollo.

Yes, barrel criollo was a very good initiative from the government.

This is our view.

One thing, first of all, the price at the gas station was basically retained flat.

And that also -- I mean, that was, again, the main driver of the industry to be able to continue working even at the low oil, crude oil prices.

The $45 that barrel criollo have as the established crude oil price for the local market, have a relative impact to us because we really turn all our production to the international market.

In international market, the same decree reduced export tax to 0 when Brent is below $45 per barrel, what has been the case so far.

So that has allowed us to export most of our production.

And coming to your next question, we today see Q3, with July and August already sold on the international market.

September, will we see, I think we're starting to see some local demand, but I don't discard that we are going to also be able to probably sell something to the international market.

And Q4, we don't know, but we expect that the local demand will increase as the lockdown of the pandemic start to normalize.

So that is pretty much the situation.

In terms of CapEx, so as you saw, I mean, very low CapEx during Q2.

But as we start in Q3 and Q4, we basically, what you have to take in consideration in our model, we see CapEx between $45 million and $50 million per pad.

And if we will continue with the same activity that we think we do in 2021, that is pretty much what you have to take in consideration.

We feel that CapEx for facility is going to be very low, okay?

So between $45 million and $50 million per pad.

Our next question comes from Frank McGann with Bank of America.

Just a couple of questions, if I could, a little bit bigger picture in nature.

Just in terms of the market itself, and I know financing, of course, is a major issue, but do you see the potential for consolidation or that you could find perhaps some opportunities for yourselves to acquire properties inexpensively that might add to your longer term potential?

And then kind of along the same lines, as you look out in time, how aggressive you think will be development or the continued development of Vaca Muerta as we go forward, given a more challenging global environment in terms of potentially oil prices and certainly international companies willing to risk capital?

Hi, Frank, thank you for your question.

So to address the first one in terms of consolidation on new opportunities we are very active, we are very curious.

So we are always looking for things.

Nevertheless, I mean, with the inventory that we have and the quality of the wells that we are seeing, I mean, we have plenty in our plate.

I mean, we -- the resource is super rich.

And one thing that Vista has proved is that it's a very -- it's a top-notch operational machine.

So as far as results and Moody's inventory, we're always looking at.

It's very difficult to find something that is better what we have today in Latam, it has been our experience.

In terms of how we see Vaca Muerta development in the new context, it's a very good question.

I will say it will depend a certain extent of what -- how Argentina normalize or does not normalize in terms of market.

I think that it's going to be important.

All the things that are happening today, the renegotiation of the debt and so on, I think will have an effect on how rapidly we -- I mean, not we but Vaca Muerta will grow.

We are in a good position.

We have a very good plan, and we have cash in hand.

And also, I think another dynamic that will play, and I'm very connect with U.S. due to other positions that I have in other companies, I think looking at U.S., I see U.S. running out of sweet spots of the quality of the ones that we are basically talking today.

Therefore, for me, U.S. is going to have a breakeven price that probably is going to be higher than Vaca Muerta and less opportunities in that sense.

So I believe if you will continue in that trend -- in this trend, and we are able to continue reducing CapEx, reducing OpEx AND even we see quality of well better than the one that we are commenting today, I think Vaca Muerta from the resource place and from the oil economic place, leave Argentina bit aside, it will become a very interesting value proposition.

Of course, the context always will play a role in attracting new investment.

I hope I have answered your question, Frank.

And our next question comes from Alejandro Demichelis with Nau Securities.

Just a couple of questions from my side, please.

The first one is on your conventional assets, how is that you're seeing the decline rates now?

The second question is on the new well parts, that you're going to start on the lower carbonates and also nest to La Amarga Chica.

You were talking about potentially increasing the well location inventories that you have.

Could you give us some kind of indication of how many additional well locations you can see from there, if things go the way you think you can go?

Yes, Alejandro, thank you very much for your question.

So regarding the decline of conventional, the conventional is part of the focus that we have.

And it's our base production, as we said.

You can see decline there between 5% and 10%, depending on the field, the type of the field, if they have [water flat] or not, but this is the normal decline rate that we are seeing in conventional.

In terms of the lower carbonate, as you know, I mean, part of the challenge of Vaca Muerta has always been the thickness.

So we have different zones, different organic zones, and one zone that is -- that we call carbonate because the (inaudible) it look more carbonatic in a certain way.

The challenge, the particular challenge in that zone has been that in some places, in some geographical areas, we have the challenge that when we frac them, when we frac the carbonate, we see sheer movements that our (inaudible) that create casing damage.

When you have a casing damage, you lose your ability to basically place all the stages that you have to place in a well.

For that, we are using a technology that I have used in 3 projects that I did a long time ago in U.S., and it's a technology also I know very well from my Schlumberger times that's called a sliding sleeve.

That technology, what it does is that you don't have to go down on perforate, and basically when you run your production tubing on the lateral stage, you run a special tubular that have lips that you can open.

So what we are doing is in the carbonate trying that technology.

We are also doing something that is very tactical to manage the pressure.

We are going to frac first the well from the organic.

We are going to put the organic wells to own production, and then we are going to frac the carbonate well, also is something on the kitchen, sorry, and then we are going to frac the carbonate well.

So that also, we believe, will help us to manage the pressure.

Now it's a test.

So today, when you look at the zone that we are, is prospective for us or more prospective is the kitchen and the upper organic.

And we have around 400 locations just in the area we are bringing today, that is Bajada del Palo Oeste.

If we really prove that the carbonate is productive, by the way, we're expecting very good productivity, but from the -- our completion strategy work, I think we could probably add another 100 locations to our original estimation of 400 locations today.

So it's very interesting.

It's important for us.

We are always looking for new things.

So it will be an interesting technical challenge for us.

And just to follow-up on that.

When you're thinking about the carbonate, yes, do you also think you can achieve this kind of type curve that you are talking about now, the new type curve…

It will depend on the number of stages that we managed to place.

So with a slide and a sleeve you are basically limit to the number of stages that you can place.

So I will say probably with the last technology, top we can probably place around 24 stages.

So that type curve is going to be lower.

Now what we are thinking to do is going to place 24 (inaudible).

And if the well permits, we are going to add few other with (inaudible).

So if that test proves successful, yes, we probably will go to a well that is a bit lower to the one that we are talking today but is still very economic.

Our next question comes from Ezequiel Fernandez with Balanz.

My first question is related to -- at the beginning of the year, in Argentina, there was some talk of moving forward with a new hydrocarbons law.

I wanted to know if any progress has been made on that side.

Maybe in talks with the government.

And the second question is related to the gas market.

What are you seeing in terms of prices maybe for next year?

And also about the possibility of seeing any subsidy scheme of around $3.50 per MMBtu.

Okay.

Thank you very much for your question.

So starting with the law.

I think that's a big-picture question.

And I think important for Argentina is where we go energy wise going forward.

I do believe the Argentina to recover would require on one hand to ensure energy security, to call it in a certain way, that is not an event for Argentina because we still -- the main part of our production coming from conventional with -- in certain places with very high decline for centers.

So in order for Argentina to be self-sufficient, we need to keep -- Argentina need to incentivize for operators to keep continue drilling.

On the other hand, in the new macroeconomic environment after COVID, I think the need to profit that come from export is going to be fundamental for Argentina economy in all respect.

So therefore, I do believe there's a big incentive for the government to do 2 things.

First of all, to ensure that the local market, that people continue drilling and they have a competitive local market; and second, promote access to international market.

What happened in the COVID also has proved one thing.

It proved for the ones that didn't believe in the Vaca Muerta crude oil that Vaca Muerta crude oil, it could be sell at -- in the export market at very good prices.

The last discount that we have in our export, it was less than $4 compared with Brent.

So clearly, we have proved that there's an international market there, and I think with very low discounts.

So I believe the government and whoever managed energy policy have 2 big opportunities.

One is to ensure the energy security of Argentina and that keeping competitive in the local market with competitive prices; and second, promoting more investment in order to have some plus to respond.

I do believe in order to create that level of certainty in a country like Argentina, I definitely believe that probably we have to be an initiative that have the level of low.

And I know there are discussions about that.

I cannot comment further on that.

Second question was related to gas.

So as you know, we are very little exposed to the gas market.

We are becoming, as we drill the Vaca Muerta well, a more oily company with a very small portion of gas, we are basically seeing the gas price today, we are forecasting that price around $2.50 per million of BTU.

Their initiative to promote the drilling of gas and to incentivize gas production, there's a plan that is being discussed on the Secretary of Energy at the moment.

Of course, that will be a plus for us.

But today, we have almost no exposure to us.

Your next question comes from David Neuhauser with Livermore Partners.

An excellent quarter you guys had.

Hey, my question was regarding, again, on the macro.

How are you viewing the energy market today?

And where do you see sort of a sweet spot for you to be able to grow the asset on a go-forward basis?

It shows that, obviously, you see where all the downward pressure, maybe where the limits are, in terms of where your breakeven costs are and what the company's ability to do to continue to lower breakeven costs.

So that was excellent to see in the quarter.

What is -- where do you see your sweet spot given where current prices are today?

And sort of what's your outlook in the next few years on a recovery?

Thank you, David, for your question.

Very good question.

And thank you for your comment on our quarter.

I think what we see in -- I mean, when you look at today, the long view on the energy market, I mean, the good news is almost every single forecast show a very positive increase in oil price in 2021 and even better in 2022.

So we do -- I mean, we share that view.

We believe the international market will move up.

We believe that is important in a country that promotes exports.

Therefore, in Argentina, 2021, it will be the trade-off of what is the policy in terms of pricing for the local market.

Today, we have a market that is unregulated.

But as Argentina have moved back and forth, we know the government player role in the pricing at the pump indirectly, but it does.

So how much we can promote export and how competitive the local price in the market is going to be.

So that is where, for me, the international market, that is going to push Argentina upwards.

And the dynamic of the local market in Argentina, that is still very important because we consume most of the production.

How Argentina reacts after the pandemic, on that sense, in terms of energy policy, I think is very important.

Nevertheless, saying that, the important thing that has happened with Vista, in less than 2 years we have managed to improve the productivity of our wells and reduce both OpEx and CapEx to a level where today we can say that in 2021 we have -- we will continue drilling, as probably we establish drilling now in Q4.

I think we will have a plan that we can execute at the prices that we are today, where you will see probably increases of around production of 30%, very important increase in EBITDA.

And definitely, we have the cash to execute that plan.

So, I will say we have very good visibility at the level of prices that we have today to grow profitable next year without any issue, okay?

That will give us a very good platform for 2022 and 2023.

Now the question is, in what market we are going to be in 2021, how much upside we will have with the local market or export market, and also how the macro economy of Argentina is in order for us to go for an international market financing, if you want to deal 2022 (inaudible) forward.

But we feel very comfortable at that level of prices to start 2020 Q3, Q4 and all 2021.

And that has not been the context.

It's a word that internally, the team of Vista did in order to put us in this position with the development cost, as I mentioned, and the lifting cost, as I mentioned, that really put the company in a very good position to deal with a low oil price scenario as we are today.

Excellent.

Yes.

I think when you -- anytime you see extreme difficulties, I'll say, in any sector, any industry, you really find out who has the strongest teams with the strongest assets and what they're able to do to continue to lower their cost and put themselves in a position to be much more competitive as things improve and normalize.

So I think you're proving that time and time again.

And I think on a go-forward basis, it's going to be -- continue to be an exciting story to follow.

Thank you for your comments, very motivated for the team.

Thank you very much.

And sir, I'm not showing any further questions in the queue.

I would like to turn the call back to Miguel Galuccio for his final remarks.

Well, thank you very much, guys, for your interest for following Vista, for your comments, reports.

I hope so all of you are safe.

Thank you very much.

And looking forward to talk to you again next Q quarter.

Appreciate.

Have a good day.

Thank you.

Ladies and gentlemen, this concludes today's conference call.

Thank you for participating.

And you may now disconnect.