Vista Energy SAB de CV (VIST) 2023 Q1 法說會逐字稿

Good day, and thank you for standing by. Welcome to the Vista's First Quarter 2023 Earnings Webcast Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Alejandro Cherñacov, Strategic Planning and Investor Relations Officer.

Thanks. Good morning, everyone. We are happy to welcome you to Vista's first quarter 2023 results conference call. I am here with Miguel Galuccio, Vista's Chairman and CEO; Pablo Vera Pinto, Vista's CFO; and Juan Garoby, Vista's COO.

Before we begin, I would like to draw your attention to our cautionary statements 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 and adjusted net income. Reconciliation of these measures to the closest IFRS measure can be found in our earnings release that we issued yesterday. Please check our website for further information.

Our company, Vista is a sociedad anónima bursátil de capital variable organized under the laws of Mexico, registered in Bolsa Mexicana de Valores and the New York Stock Exchange. From this quarter onwards, you will only find the tickers of our stock as the warrants were canceled. Such tickers are VISTA A in the Bolsa Mexicana de Valores and VIST in the New York Stock Exchange.

I will now turn the call over to Miguel.

Thanks, Ale. Good morning, everyone, and welcome to this earnings call. I am pleased to share with you our results for the first quarter of 2023, during which we have continued to deliver a strong operational and financial performance. Total production averaged 52,200 BOE per day, a 19% increase year-over-year. Our production was up 24% on an interannual basis, boosted by the tie-in of 6 wells in our development hub.

Total revenues in Q1 2023 were $303 million, a 46% increase year-over-year, driven by higher production and stronger realized oil prices. Lifting cost per BOE was $6.4 for the quarter, reflecting enhanced focus on our shale oil assets. Capital expenditure was $162 million, including the drilling of 9 wells and the completion of 8 wells during the quarter. Adjusted EBITDA came very strong at $204 million for the quarter, an interannual increase of 61%. We recorded positive free cash flow of $35 million for the quarter. Net leverage ratio at the quarter end was 0.37x adjusted EBITDA. Adjusted net income was a solid $72 million, implying an interannual increase of 84% and quarterly adjusted EPS of $0.80 per share.

We will now deep dive into our main operational and financial metrics. Total production during Q1 2023 was 52,200 BOE per day, up 19% interannually. Oil production was 44,000 barrels of oil per day, up 24% year-over-year. Our double-digit production growth reflects the strong performance of our shale oil projects, which has offset the impact of the transaction to fully focus on shale operations, which became effective on March 1.

On a pro forma basis, we recorded a 7% sequential increase in both oil and total production. This was driven by a robust productivity of 6 wells tie-in during the quarter, 5 in Bajada del Palo Oeste-15, plus a well Bajada del Palo Este-2301 in our Bajada del Palo Este pilot. For additional details on our operated production and the production of the transferred asset, please refer to the earnings release published yesterday.

I will now share an update on our development hub. In Bajada del Palo Oeste, we continue to see strong productivity with average well performance 3% above our type curve for the first 360 days of production. In terms of new well activity, we finished drilling pad Bajada del Palo Oeste-16. This pad located in the south of the block contain 4 wells, 2 lands in La Cocina and 2 in Organico. We start drilling pad Bajada del Palo Oeste-17, which also contain 4 wells. Those pads will be completed and tied-in by early July.

In Aguada Federal, we recently completed and tied-in pad Aguada Federal-4 in the western part of the block. This is also for well pad. We landed 2 wells in La Cocina, 1 well in Organico and 1 well in the Middle Carbonate. This is the first well we have landed in the Middle Carbonate in Aguada Federal. In Bajada del Palo Este, we completed and tied-in the third well of the ongoing pilot. We are very excited by the production results we are seeing.

Cumulative production for the first 60 days was 75,000 BOE with a peak IP30 above 1,500 BOE per day. This proves the quality of our acreage in Bajada del Palo Oeste and the continuity of the play from our flagship block, Bajada del Palo Este. Based on these successful results, we have increased our estimated ready-to-drill inventory in the block from 50 to up to 150 wells. This takes our total inventory to up to 1,000 wells, of which we have only drilled and completed 74 wells to date. As a reminder, our entire inventory is located in 35-year concessions, 100% owned and operated by Vista.

Total revenues in Q1 2023 were $303.2 million, which is 46% up compared to the same period last year, driven by oil production growth and improved realized oil prices. Realized oil price for the quarter averaged $66.6 per barrel, up 4% year-over-year. The average realized domestic price was $65.9 per barrel, while the realized price of the export market was $69.8 per barrel. We expect realized oil prices during Q2 to remain broadly in line with those of Q1.

Total sales volume was 2,500 barrels of oil per day higher than production. This volume was drawn from our inventory. Sales to export markets accounted for 58% of oil volume and 60% of oil revenues. We supported 5 cargoes during the quarter for 2.4 million barrels of oil in total. In line with our export-focused strategy, 55% of LTM revenues came from international markets.

Realized gas prices increased 54% year-over-year to $4.7 per million BTU, mainly boosted by the export to Chile, accounting for 30% of our total gas volume at a price of $8.9 per million of BTU. Lifting cost for the quarter was $30.1 million, 2% down from the same period last year. Lifting costs per BOE was $6.4, a reduction of 18% on an interannual basis and 11% on a sequential basis. We are already capturing the benefits from the deal we signed in the previous quarter to fully focus on our Vaca Muerta operation. The deal is effective at March 1, so costs from the quarter reflect a full month having removed the transferred assets from our cost base. We estimate the lifting cost for the month of March was around $5 per BOE. Our model shows we are well on track to deliver on our $5.5 per BOE guidance for the full year.

Adjusted EBITDA for the quarter was $204.4 million, implying an interannual growth of 61%. This reflects a strong revenue growth and lower lifting costs as described previously. Adjusted EBITDA margin was a robust 67% during the quarter, an improvement of 6 percentage points year-over-year. Netback was $43.5 per BOE, a 35% interannual increase. Both metrics have increased sequentially, reflecting improved margin driven by the transaction to fully focus on our Vaca Muerta assets.

During Q1 2023, we recorded $34.7 million of free cash flow. Cash from operating activities was $158.8 million. This includes $60 million of upfront payment to Oldelval for the reservation of capacity in the oil pipeline expansion and a decrease of $5 million in account payables. Cash flow used in investment activities was $124 million. This is $38 million lower than the accrued CapEx mainly due to $24 million in account payables and $10 million received from Aconcagua as an upfront payment for the transferred assets.

Cash flow from financing activities was $71.1 million, mainly driven by debt issuance of $135 million. We successfully issued dollar-linked bonds with a 0% coupon for a 4-year maturity and 1% coupon for a 5-year maturity. This was partially offset by the debt repayment of $22.5 million and interest payments of $7.9 million. Gross debt stood at $659.6 million at end of Q1. Cash at the end of the period was $350.2 million. This led to a slight reduction in the net leverage ratio to 0.37x adjusted EBITDA at quarter end.

To conclude this call, I will recap on today's key messages. During Q1 2023, we made good progress in our development hub, which continues to drive production growth. The successful results in our pilot in Bajada del Palo Oeste have proven the quality of our assets and contributed to the addition of 100 wells to our ready-to-drill inventory. We are already seeing the benefits of the transaction we announced early this year to fully focus on our shale oil assets. Our lifting costs, EBITDA margins and netbacks have all improved sequentially. As the deal is effective at March 1, we only captured the effect partially and expect further upside in the coming quarters.

During this quarter, we have once again delivered a very solid operational and financial results. This includes good progress in our decarbonization and nature-based solution projects to meet our ambition to reach Scope 1 and 2 net zero by 2026. We are well on track to deliver on our 2023 guidance across operational and financial metrics. Early this week, our shareholders approved an addition to our current share buyback plan from $20 million to $50 million. To wrap up and before we open the call for questions, I want to thank our employees and shareholders for their continued support.

And with that, operator, please open the line for Q&A.

(Operator Instructions) Our first question comes from the line of [Thiago Casciaro] from Morgan Stanley.

I have two questions here, perhaps linked to each other. The first question is about the infrastructure, the bottleneck taking place in Vaca Muerta. Can you give us an update on the projects being implemented to increase the oil evacuation capacity, including the timeline in (inaudible) access to pipeline we'll be able to get in the next 12 to 24 months? And what about longer term developments? Are there any plans already in the making to the company's knowledge?

And the second question is about the company's drilling plan. Your execution has been very consistent and Vista is generating positive free cash flows. Can you talk about the company's decision-making process related to the potential revision and acceleration of the CapEx drilling plan? And how should we think about the equipment and infrastructure availability in that case?

So I probably will start for the second part of your question related to the production program, potential acceleration and decision-making process and then I will move to infrastructure. So first of all, let me give you a bit of visibility of what we are doing this year and how the production is going to come in based on the timing, because there's 2 things that are related to the drilling program and the completion program of this year that are different to the ones that we did last year.

Well, first of all, we have at the beginning of the year in Q1, a net effect of the transaction with Aconcagua that was 6,000 barrels per day that basically impact in 2 months of our Q1 number. And the second thing that we have in our program that I think is different to since that we have done in the past is the fact that we are drilling and completing 2 pads based on our [cube] methodology or cube technology. That means that we are drilling and completing 2 pads together to avoid basically interference between them, but of course, delay in production.

So when you look at the drilling program and the completion program, the way that the production will come in is a bit different than what we have done in the past. So we are closing Q1 with an average of 52,200 in terms of production. We expect that Q1 -- sorry, we expect Q2 to be probably slightly lower than that number since we are going to tie-in. So in the first quarter we tied-in 5 wells. In the second quarter, we will tie-in 7 wells. Then we will see an important increase in production start in Q3 where we're going to be tying-in 12 wells. And then on Q4, again, we'll come back to 5 wells. So Q3 really is where we have this Bajada del Palo 16 and 17 coming in since we are going to complete those 2 back-to-back. So that is basically make the production growth this year a bit different to the ones that we have shown previously.

Now when you look at the drilling program of the year, we will finish in drilling for the pad that we have today in the drilling at the end of September. So the third probably decision in terms of acceleration that we will have is the decision of probably adding 2 pads at the end of the year in Q4. 2 pads that we can drill. Of course, we cannot complete. It will be completed in 2024. That is not a decision that we have made already, but it's something that we can do just basically moving on with a normal drilling plan and same equipment.

More longer term, I would say, 2024 and beyond, we are evaluating different growth scenarios from 2024 and onwards. That scenario is that we're evaluating it due to the strong performance that we have. And since also we have a very strong platform that could allow us to scale basically with the same core people that we have, with the super strong inventory that we have, I mean, we are talking about 1,000 wells, we have drilled only 70 of those, the access to equipment due to the long-term relationship we have with our service provider, and of course, because we have a solid financial situation in some. So we are evaluating different scenarios. We are not guiding for that, but I mean, I want you to have in mind that we are doing that. In terms of equipment, I mean, I think it will be possible. Again, due to the relationship we have with the service provider, I believe we -- in case we go for a scenario that is more aggressive, we will have the option to bring more equipment and also to use the same equipment that we have more efficiently.

Coming to infrastructure, so let me give you a bit of overall view. I think you know what we are drilling and tracking. We have been very strong in terms of what we are doing with Oldelval. So Oldelval, we're expecting, again Q1 2024, 40% of the Oldelval additional capacity that is around 300,000 barrels per day coming into play. And then in Q1 2025, the whole project should be complete. In line with Oldelval, OTE port facilities expansion will be coming in. And I think the new thing that we are doing is the export to Chile through Otasa. This is a pipeline that already exists. It was put in place. It's been testing as we speak. And the offtake of that production will be up. That is starting now Q2 2023. And you can expect that we will participate on that with between 4,000 and 5,000 barrels of oil per day. That will allow us to reduce a bit tracking. But basically, this is what we are adding. Vaca Muerta Norte will come later. We are expecting that for Q3 2023. And that basically could replace Otasa.

So that Thiago I think is -- I have completed all your questions.

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

A follow-up on the (inaudible) pipeline, recommencing operations. Can we expect higher prices to reduce discounts for these sales?

So again, I mean, the Chile first stage of Vaca Muerta Norte, we will export between 4,000 and 5,000 barrels per day, as I mentioned before. We expect the pricing netback for Vista to be very similar to the one that we'll get when we export through Bahia Blanca. So we don't see any change on that. As I mentioned before, that we have also an effect on tracking for us. We don't expect any immediate impact, but we are tracking today probably 2,500 barrels per day. We could reach 6,000. If we would not have Otasa, we could reach probably 10,000 barrel per day in terms of tracking. So clearly, this new route of export to Chile is helping both on export and also on cost.

And then another quick one. So you recently announced the world progress in Bajada del Palo Oeste, which would be increasing your inventory. Given that your current capital allocation priorities for Bajada del Palo Oeste, I mean, would you contemplate into entering a joint venture or any other things to expedite the development of Bajada del Palo Oeste?

No, Rodrigo, we are not contemplating any joint venture as we speak in Bajada del Palo Oeste. Bajada del Palo Oeste, Aguada Federal and Bajada del Palo Este are our core show in terms of development. If at some point of time, we retain doing something, probably it will be more related to the blocks that we have in the north. But no, at the moment, we are not expecting -- as I said, we have a solid financial position. So there's no need.

Our next question comes from the line of Alejandro Demichelis from Nau Securities.

Congratulations on the results. A couple of questions. First one, given the economic situation in Argentina, acceleration of inflation and so on, Miguel, could you please give us some kind of view of how you're seeing the development of the domestic pricing if we can see a situation where domestic prices come down in this environment? And then related to this, how you see the evolution of your own costs, both on the listing side, but also on the CapEx?

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

In terms of drilling, we finished the year with the drilling costs of around $12.7 million for our normal wells. And today, we are seeing that drilling costs between 13 and $13.5 million and this was due to the appreciation of pesos. And related to the gasoline price increase, we see -- so first of all, Q1, the prices of the plant increased 11% in local currency, but decreased 5% in U.S. dollars due to basically same higher appreciation of pesos. Q2, I mean, what we are seeing in terms of dollar terms, we will see even more pressure on the appreciation of pesos. But also, I mean, we expect that -- we expect basically that export prices for us will be flat and local prices, we said, probably also we expect that will be around the same level that we are today.

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

Yes, it's a possibility, definitely. Of course, I mean, if the export prices or the brand is strong, that will be intention to the market, and we always fight for our crude oil prices. But yes, you could have in the second half due to the actual conditions and also due to the election more pressure on the local market, definitely. That pressure goes more to the refineries and to the people that have integrated operation than us.

Our next question comes from the line of Andres Cardona from Citi.

Just have a question, and I would like to understand how is the decree to access the dollar market working so far? If you can provide an update, it would be very appreciated.

Yes. I mean, we've been giving updates on the decree that in October 20 of 2022, the Central Bank basically established. As I said before, that was followed, but a few formalities from the Secretary of Energy in beginning of January and also Vista that adhere to that regime end of January. What happened after that, we filed several requests due to basically the decree based on the incremental production that we have in Q3 2022, incremental production that we have in Q4 and in Q1 2023. So we are expecting to receive the certificate. That is to access around $66 million in foreign currency. This was for $14 million, 22 and $30 million respectively for the 3 quarters that I mentioned before. Of course, there's still some uncertainty around when we will receive those certificate. But I mean, we are filing based on the decree and based on incremental production that we are seeing coming in.

Our next question comes from the line of Oriana Covault from Balanz.

This is Oriana Covault with Balanz. I had 3 questions. If I may go one by one, that would be great. The first one is a follow-up with regards to the Otasa pipeline and exports to Chile. Just to understand maybe if you have more information on will this be carried out under firm contracts or sold at spot? And if so, if you have any information also about fees that the owners of the pie will charge for its usage?

Oriana, the Otasa -- I mean, adding to what I said, that is still in negotiation, but you should expect a firm contract.

And maybe just moving on to the Oldelval pipeline, can you comment about what levels are you currently operating? You're close to your limits based on the current capacity like taking aside the expansion. And do you see like this current limits in capacity would potentially command a slowdown in the drilling program towards late 2023 or 2024 just before the expansion comes through?

Oriana, today, we are at current capacity, basically, we are top up. And our plan the way that's being built is to take advantage of everything that comes from Oldelval as the 2 stages are coming in and particularly for this year. So I mean, our plan is in line with the capacity that we can access from Oldelval.

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

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

(Operator Instructions) Our next question comes from the line of Regis Cardoso from Credit Suisse.

Miguel, Alejandro, congratulations on the results. 2 quick topics I wanted to follow-up with. One is on the well (technical difficulty) I mean, you have substantial room potentially to either grow further your inventory or to develop the inventory you already have? So this is a recurring question. How do you see now the balance between CapEx, buyback, deleveraging, particularly, I guess, with the recent backdrop from the macro front? I mean from one hand, you have Argentina growing exports and a clear case for the exporters gaining access to the dollars and eventually using that to remunerate shareholders versus continue re-investing in your existing portfolio. So that's question on just broadly on well inventory and capital allocation.

And then I guess the second question would be on lifting cost. If I remember correctly, you did $6.4 and the guidance for the year is $5.5. So what do you think is between those 2 numbers? And if you can still reach the guidance for the year?

I mean, starting with the first part, definitely, when we look -- I mean, what we can do in terms of continue creating value, the main things that basically we can do and we are analyzing and evaluating, as I mentioned before, due to the strong performance that we have and due to the platform that we have to scale, as I said, because we have the people, we have the equipment, we have a solid financial performance is to accelerate or to further grow in terms of drilling and completion and basically accelerating the use of the 1,000 well portfolio that we have in hand. I think this is the main driver to add additional value to our stock and to Vista.

Nevertheless, again, when you look at going forward, our ability to generate EBITDA and cash, we can continue doing our buyback program and we can continue -- and also we plan to continue to deleveraging in the company as it makes sense. So 3 of them are not exclusive. I think the first one is probably the more important part because in the current context with our current inventory and with our current performance, it's clearly the best way that we can create value.

In terms of the lifting costs, as I mentioned before, I mean, we closed the quarter with $6.4. And the last month, we really start to see the effect of our pure conventional production lifting cost. And we see that number today close to $5. So we guide for $5.5. I think you should see the number probably more close to $5 than close to $5.5.

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

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

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