Vista Oil & Gas SAB de CV

NYSE:VIST

Earnings Call Transcript 2022-Q1

[Operator]

Ladies and gentlemen, thank you for standing by and welcome to Vista's First Quarter 2022 Earnings Conference Call. [Operator Instructions]

It is now my pleasure to introduce Strategic Planning and Investor Relations Officer, Alejandro Cherñacov.

[Alejandro Cherñacov, executive]

Thanks. Good morning, everyone. We are happy to welcome you to Vista's First Quarter 2022 Results Conference Call. I'm here with Miguel Galuccio, Vista's Chairman and CEO; and 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 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, is a sociedad anónima bursátil 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 VISTAA 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.

[Miguel Galuccio, executive]

Thanks, Ale. Good morning, everyone, and thank you for joining this earnings call. I am delighted to share with you our results of the first quarter of 2022, showing our robust performance across all key operational and financial metrics. During Q1 2022, total production averaged 43,900 boes per day, a 29% increase year-over-year. Oil production was up 35% year-over-year, boosted by solid well performance in Bajada del Palo Oeste. Total revenues in Q1 2022 were $207.9 million, a 79% increase compared to Q1 2021, driven by the production increase and stronger realized prices. Lifting costs per boe was $7.8 for the quarter, in line with guidance for the year. Adjusted EBITDA was $127.1 million, implying a solid adjusted EBITDA margin of 61%. Capital expenditure for the quarter was $80.6 million, reflecting drilling activity in 2 pads and the completion of our first 2 wells in Bajada del Palo Este. During Q1 2022, we generated positive free cash flow of $33 million, driven by robust cash flow from operations. Additionally, we reduced gross debt by $35 million. Adjusted net income of the quarter was a solid $39.1 million.

We will now deep dive into the main operational and financial metrics. Total production during Q1 2022 was 43,900 boes per day, up 29% interannually. Production growth continues to be driven by our flagship development in Bajada del Palo Oeste, which now represents 70% of our total oil production. In this quarter, production was boosted by pad #9 and #10. These pads were tied in Q4 2021 and are now producing in line with our type curve. During Q1 2022, gas production increased 9% year-over-year, mainly driven by associated gas from Bajada del Palo Oeste.

As shared with the market last week, we are excited with the successful results of our first 2 wells in Bajada del Palo Este, corresponding to pad #11 next to our flagship development in Bajada del Palo Oeste. Both wells targeted La Cocina landing zone of Vaca Muerta and were completed with an average of 46 stages per well. After 60 days since first oil, the average peak production was about 2,400 boes per day per well. This result continues to prove our track record as a top Vaca Muerta operator and the high quality of our assets. More importantly, the location of the wells close to the eastern border of Bajada del Palo Oeste confirms our geological model. At the same time, it points to the continuity of the play into Bajada del Palo Este, where we hold further acreage.

Pad #11 is the first phase of our 5-well pilot program. The next 3 wells will be drilled in 2 pads to the east as shown on the map. Upon completion of the first pilot, we will have a clear basis to [ upside ] our portfolio of ready-to-drill wells in Vaca Muerta.

In Bajada del Palo Oeste, we have finished drilling pads 12 and 13, which will be completed during Q2. We are on track to deliver 24 wells tied in by year end as per guidance.

Total revenues in Q1 2022 were $207.9 million, a strong interannual increase driven by the boost in oil and gas production and better realized prices. Realized oil prices for the quarter averaged $64.1 per barrel, up 41% year-over-year and 6% quarter-over-quarter.

Sales to export market accounted for 33% of all volumes, having exported 2 cargoes in the quarter for 1 million barrels of oil in total. These sales contracts were executed with an average Brent of around $85. Commercial discounts to Brent were around $1 per barrel on average.

The domestic market accounted for 67% of oil volumes in Q1 2022. Domestic crude oil averaged $57 per barrel, continuing to show a gradual improvement over the last 3 quarters. March sales to domestic market were close to $60 per barrel on average. We have already locked in 100% of April and May sales. Regarding export, we have sold 1 cargo in April with Brent above $100. We forecast to sell between 1 and 2 additional cargoes during the quarter, which will enable us to significantly increase our revenues during Q2. With domestic prices around $60 mark, we estimate a realized oil price above $70 per barrel in Q2.

Realized gas prices increased 48% year-over-year to $3 per million BTU, mainly boosted by the Plan Gas price of $2.7 per million BTU and industrial prices also of $2.7 per million BTU. In addition, 10% of our gas volumes were sold to the export market for a realized price of $5.9 per million BTU, driving 10% quarter-over-quarter increase in average realized gas prices.

Total lifting cost for the quarter was $30.8 million. We maintained lifting costs virtually flat quarter-over-quarter despite pesos FX appreciation in real terms. Lifting cost per boe was $7.8, up 3% year-over-year driven by the acquisition of Aguada Federal and Bandurria Norte and partially offset by the incremental production from Bajada del Palo Oeste, which continues to absorb our fixed cost base. We started executing our lifting cost optimization program in Aguada Federal and Bandurria Norte. So far, we achieved a 58% cost reduction in this block from $2.4 million at 50% working interest in Q4 2021 to $2 million at 100% working interest in Q1 2022. We expect further appreciation of the pesos in real term in the coming months. Our current outlook for Q2 2022 is around $8 per boe. However, driven by the cost saving in Aguada Federal and Bandurria Norte, in combination with the incremental volume from Bajada del Palo Oeste, we forecast a lifting cost of $7.5 per boe for the full year and this is in line with guidance.

Adjusted EBITDA for Q1 2022 was $127.1 million. This reflects an expansion of 118% year-over-year, driven by strong revenue growth and stable costs. Adjusted EBITDA improved 9% sequentially, even though it does not include operating income generated by the JV with Trafigura, which added approximately $4.5 million in Q4 2021. Our adjusted EBITDA margin was 61%, improving by 11 percentage points year-over-year and 2 percentage points quarter-over-quarter.

Netback was $32.2 per boe, a 69% interannual increase. This was driven by the increase in realized oil price to $64.1 per barrel and an increase in the oil to gas mix with a stable cost per boe. Oil is now 81% of our total production, driven by the growth in Bajada del Palo Oeste.

During Q1 2022, we recorded a strong financial performance with $33 million of positive free cash flow and $35 million of gross debt reduction. Cash flow from operating activities was $112.9 million, reflecting a strong EBITDA generation. Change in working capital for the quarter was negative at $21 million and is the main driver behind the sequential reduction in free cash flow. In Q1 2022, we normalized the collection cycle from our domestic crude offtakers with whom we have reached an agreement in December '21 to accelerate payment. Cash flow used in investment activities, excluding the payment to Wintershall for the acquisition of Aguada Federal and Bandurria Norte, was $79.9 million. The main CapEx drivers in Q1 2022 were the recent activities in pad 12 and 13 in Bajada del Palo Oeste and the completion of the pad 11 in Bajada del Palo Este.

Cash flow used in financial activities was $50.1 million, mainly driven by the payment of $45 million of principal of our syndicated loan and $8 million of our bond series IV. Debt stood at $576.2 million at the end of the period, down 6% sequentially. We have already achieved our debt reduction target for the year. Net leverage ratio has decreased from 3x adjusted EBITDA at the end of Q1 2021 to a healthy 0.8x adjusted EBITDA at the end of Q1 2022.

Moving to Slide 10. I will present an update of our guidance for the year. Regarding activity, we tied in 2 shale oil wells during Q1. This is in line with guidance, leaving us on track to tie in 24 wells for the year. Total production was 43.9 million-boes (sic) [ Mboes ] per day in Q1 2022, in line with plan. We maintain our 2022 guidance of 46,000 to 47,000 boes per day, a 20% increase vis-a-vis 2021. As previously discussed, lifting cost for the quarter was slightly higher sequentially. We were expecting this increase due to the FX appreciation in real terms and the consolidation of the recently acquired assets. The ongoing cost reduction initiative in Aguada Federal and Bandurria Norte and the increase in production in the second semester will be the main drivers to reduce lifting costs back to $7.5 per boe for the year, in line with guidance.

We are raising our adjusted EBITDA guidance to $625 million, an increase of $50 million compared to the original guidance. This reflects an assumption of $64 of realized oil price for the year, in line with Q1 2022 prices. We see additional upside to this EBITDA guidance if the current international oil price scenario prevails. We maintain our original CapEx guidance of approximately $400 million, noting that we are currently evaluating additional activity in our high-return, short-cycle shale oil projects for the second semester. Regarding gross debt, during Q1, we essentially achieved our target of gross debt reduction for the year. We are currently analyzing options to make further debt reductions and additional drilling activity, given the additional free cash flow expected due to higher realized oil prices.

Before moving to Q&A, let me share with you that we are making good progress in our sustainability drive. We are timely executing projects to reduce greenhouse gas emission intensity by 25% in 2022 compared to 2021. We are also making good progress in the execution of the projects that are key to achieving our net zero ambition in 2026, with carbon offsets from nature-based solutions. We will publish our Sustainability Report next month, where we'll present more details on our ESG progress. In this edition, we are including TCFD disclosure, which is key for shareholders to understand our governance strategy and risks related to climate change.

In Q1 2022, we tied in our first 2 wells in Bajada del Palo Este our, which showed robust production levels. This is a very important milestone as it proves our geological model and the continuity of our play into the Bajada del Palo Este block. On the financial front, we have another positive free cash flow quarter and recorded adjusted net income of $39.1 million. Additionally, we further strengthened our balance sheet by reducing gross debt by 6% in 1 quarter.

In Q1 2022, our operation and financial performance was solid, setting us on track to deliver on 2022 guidance. We have raised our adjusted EBITDA guidance by $50 million to $625 million for the year. Earlier this week, we held our annual general shareholders meeting in which we obtained approval to initiate our first share buyback program for $23.4 million. This is an important step in our strategy to deliver shareholder return. I will take this opportunity to also thank our investors for their continued support and our incredible team at Vista for their hard work and continuous commitment. And with that, operator, please open the line for Q&A.

[Operator]

[Operator Instructions] Our first question comes from the line of Guilherme Levy with Morgan Stanley.

[Guilherme Levy, analyst]

Congratulations on the result. My first question is on crude exports. I wanted to get more color on your expectations for crude oil exports into the coming quarters and years from both Vista and if you have any thoughts on Argentina, too? And also, if you could share with us the current amount of spare capacity in the Argentine oil transportation system, just for us to get an idea of how much time does the company and the country have before it can become an issue? And then the second question, I just wanted to pick your brain and see if you have identified an increase in the appetite from international companies more recently to accelerate the drilling campaigns in Vaca Muerta?

[Miguel Galuccio, executive]

Thank you, Guilherme, for your question, and thank you for the congratulations. So starting with the oil exports for the second quarter, we continue to see that in the second quarter, we'll be able to export 1.5 million barrels. And we continue also to see that this 1.5 million barrels will continue exporting during the rest of the year. We were able to export around 1 million in the first quarter. We already have 1 million for sure that we're going to export in the second quarter. And there's a third cargo that we can allocate on the second quarter. So we are very confident on that. And I think this is the result that you could see in Q2.

Your next question was related to the evacuation capacity. So actually, OldelVal, main trunk pipeline that transports the crude oil between Neuquina basin and Bahía Blanca, is running around 265,000 boe per day, okay? And actually have a spare capacity, I will say, between 10% and 15%. By the end of the year, they are planning to add additional capacity of around 15,000 to 20,000 barrels per day. They are planning to use [indiscernible] to reduce friction and that will add additional capacity towards the end of the year. And also, we understand that the [ field ] have filed plans to add 1 more pipeline to double the capacity in a step towards 2024. And the first step is going to be probably Q3 or Q4 of 2023. So if that plan go ahead as planned, we should be okay to export -- I mean to continue exporting what we plan to support and taking into consideration the growth that we are having in Vaca Muerta, we should be in good -- we should be in good shape.

[Operator]

Your next question comes from the line of Walter Chiarvesio with Santander.

[Walter Chiarvesio, analyst]

Congratulations for the results. I would like to ask you if you could give us an idea of how is the local price dynamic going in these high prices probably peaking of the oil? Are you seeing conversations to increase prices at the bottom that could affect the oil price locally? Whatever thoughts you could give us on that would be great. And the other thing is that if you expect cost pressures in the future given the global inflationary trends across the economy, and I don't know, in particular in the oil industry? That's for me.

[Miguel Galuccio, executive]

Thank you, Walter, for your question. And before we start with your question, probably adding to Guilherme's question that I skipped regarding the appetite of Vaca Muerta international players. So Guilherme, we see appetite in the international players. As we move in, they're moving, particularly the ones that are today in Vaca Muerta and active. We see them having growing plan. And I think 1 fact that is showing that is that the production have grown -- have increased 40% in 1 year from 160,000 barrels to 220,000 barrels. This is the running rate. This is a 40% increase in the last year. This is not coming just from Vista, it is the total production of Vaca Muerta. So clearly, the rest of the players are having -- have an appetite.

So Walter, on your question in terms of pricing. So as you see, I mean we have upgraded our EBITDA from $575 million to $625 million. The $575 million EBITDA number was done with a realized price of $60 and we are seeing an average of $64 -- we are expecting an average of $64 going forward in the $625 million that we have signaled. Now the $64, the -- average $64 is the price that we have in Q1. So in Q2, we are seeing local prices at least of $60. We are coming from $57.4 and export prices, the -- basically, the point that we have today is the 1 cargo that we already closed, that was at Brent of $103. So you should expect realized prices around $95. So that is for pricing.

Average for Q2, as we said, we could estimate that will be around $70. So yes, I mean all the movement in prices is positive. The local price, as you know, depends somehow linked to the pump price. So what will happen with the pump, I cannot -- I can expect that logically, we will see further increase, increases that we have seen since the beginning of the year. So far in part, it's 8% in dollars. So we should expect to see further price increases at the pump. That will be the logical thing to happen. If we are seeing pressure of cost inflation, yes, definitely, we do. We are seeing cost inflation on the OpEx side. This is linked to the real peso appreciation in Argentina, but we're still keeping our $7.5 per barrel lifting cost mark and we have restated today on our guidance. And that's really, the main effect that is allowing us to do that is, first of all, I mean we are fighting -- we are fighting that inflation in every corner. We have an organization that is doing that and we've been -- we are pretty good doing that. But also, the main effect that allow us to maintain that guidance is the fact that we are adding more unconventional production. And of course, that dilutes our feed costs and dilute our lifting costs and that's why we are maintaining that guidance.

We also see pressure from our main service -- our main oilfield service providers, that will be on the CapEx side. But I mean that is a matter of how we move forward and how we negotiate and how many options we have. But yes, we are seeing cost pressure in all fronts.

Do we have any further questions?

[Operator]

Yes. I'm showing our next question comes from the line of Regis Cardoso with Credit Suisse.

[Regis Cardoso, analyst]

Congratulations on the results. Two quick follow-ups from my side and then 2 questions. The follow-ups, 1 on lifting costs, $7.8 currently. So you said you plan to reach the, the objective of $7.5. So I understand you can still reduce cost from here. Just wanted to understand how do you balance this between getting a higher cost base in Aguada Federal and Bandurria Norte versus the cost inflation we've discussed, right? I think the inflation we're living through now has been a little bit of a surprise to everyone. So I wanted to get a sense of how much you're getting affected by this.

The other follow-up is just quickly on the realized export prices. Just wanted to get a sense of what should we compare export prices to? Do you price lagging 1 month? Because the implied export price in the first quarter seemed relatively low compared to Brent prices. I just wanted to get a sense why is that? And apparently, there will be a significant improvement for the second quarter. If you want to tackle those 2, maybe then I'll just follow up with the other 2 quick ones.

[Miguel Galuccio, executive]

Okay. Regis, starting from the second one, it's quite straightforward. I mean you can expect a lag of 2 months on the export prices and that's probably the effect that you see. Now to give you probably data, and of course, I mean you remember that the question is quite simple. I mean we have Brent prices and the discount on export tax is 8%, plus the commercial discount that, as you have seen, we have been reducing from our first export of $5 to towards $1, sometime less than $1. So this is how you have to calculate. Then for what you see in the quarter, yes, you can see a lag of 2 months probably. And that, of course, is going to -- is going somehow to create a bit of noise on the prices that we are seeing.

But for example, we have 1 cargo that we export in Q2. That was done at $104, I think, and the realized price was $95, okay? So I'm giving you that data. This is the cargo that we export in the first part of Q2. And we have 2 more to go, okay? So that is the second question.

The first question, I don't know if I really understand it, but -- so we are...

[Regis Cardoso, analyst]

So I just wanted to get a sense of how much of the cost -- lifting cost reduction could come from efficiency gains in Aguada Federal and Bandurria Norte and how much could it increase from an inflation perspective?

[Miguel Galuccio, executive]

Okay. So from Bandurria Norte is not reducing, okay? So Aguada Federal today, yes, we will see a reduction, a big reduction because we are laying a 10-kilometer pipeline and we -- today, we are trucking. So today, we have in Aguada Federal, a current lifting cost of probably $30 per barrel. It will come down towards the end of the year to $10 per barrel. Now this is in 500 barrels of oil per day of production, okay? So the effect in the total production is still small. So it's not really something that is really going to move the needle.

Now on the OpEx side, we are getting a lot of pressure. And what we are doing is to fight in that pressure of the FX rate with efficiencies. And I think in absolute value, we will not be able to reduce that FX rate or to cap that -- to neutralize the FX rate just with efficiencies. So part of the fact that we are -- and part of the things that allow us to maintain the $7.5 is the additional volume that comes from the unconventional production that we are going to add during the year. That is unconventional, that doesn't have a lifting cost of $7.5 per barrel. It has a much lower lifting cost. Therefore, we reduce our feed cost and that is what allows us to maintain the guidance. I hope so that it's clear.

[Regis Cardoso, analyst]

Very clear, Miguel. If I may, just 2 quick ones on the investment side. In this CapEx plan of $400 million, how many rigs and how many pads are embedded in this plan? And whether you continue to -- you plan on continue to drill in Bajada del Palo Este after the recent results?

[Miguel Galuccio, executive]

Okay. So we have -- in the plan, we have 1.5 rigs, okay? This is the actual plan. With that actual plan, we basically are going to drill 24 wells. This, again, is the actual plan. We are looking toward -- we will review that toward the middle of the year. If clear that we are generating better EBITDA, clear that we are generating more cash, so towards the second part of the quarter, 1 decision that we are going to make, if we add additional activity. And also, if we will want to further reduce debt. The 24 wells that we are going to tie in are 2 from Bajada del Palo Este, 16 from Bajada del Palo Oeste, 4 from Aguada Federal that are DUCs, so these are wells that are already drilled that we are going to basically complete and tie in, and 2 from Águila Mora. This is the 24 that we have today in our plan.

[Operator]

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

[Miguel Galuccio, executive]

Hello, Alejandro?

[Alejandro Demichelis, analyst]

Hello. Can you hear me now?

[Miguel Galuccio, executive]

Yes. We listen to you Alejandro now. Yes.

[Alejandro Demichelis, analyst]

Okay. That's great. So well, first, thank you very much for taking the call and congratulations. Just I wanted to follow up on the situation of accelerating activity. So could you please give us some kind of feeling of what are you thinking about doing, if you think you have enough money and you like what the outlook is, please?

[Miguel Galuccio, executive]

Yes. Alejandro, it's very simple. I mean if we decide to add activity, it will be most likely 1 pad in Bajada del Palo Este. We could also look at Aguada Federal, but we today perceive Aguada Federal as a continuation of Bajada del Palo Este, as per today information that we have. But it's going to be most likely, if we add, it's going to be 1 more pad.

Are you there, Alejandro?

[Technical Difficulty]

[Operator]

Our next question is from Andres Cardona with Citigroup.

[Andres Cardona, analyst]

Congratulations for both the results and the successful drilling at Bajada del Palo Este. Let me start from there. Do you have plans to drill the east side of Bajada del Palo Este after the good results of -- sorry, do you have plans to drill the east side of Bajada del Palo Oeste after the positive results you have at Bajada del Palo Este? And the second one is, could you consider more deals like the ones you did with Trafigura? Or given the incremental cash flow you're ready to accelerate by your own? And maybe why not do both, right? How to balance this potential better return that you can get because of higher prices and accelerate in both ways? So I just wanted to hear your thoughts about these possibilities.

[Miguel Galuccio, executive]

Thank you very much for your question. So starting with Bajada del Palo Este. So let me tell you first about Bajada del Palo Este that I think it's important to understand. So we have a delineation plan of 5 wells in Bajada del Palo Este, from which we drill the first 2 wells, as you said, on the west of our Bajada del Palo -- on the east of our Bajada del Palo Oeste and the west of the Bajada del Palo Este. These 2 wells that we completed during Q1 were 2 wells of around 2,250 meters. We put on that 46 frac stages and we saw initial production of around 2,400 barrels per day. This production is a fantastic production and it basically proves the expectation or proves our geological model, and proves our geological model mainly in 2 parameters. One is [ portal ] pressure and the other one is API gravity. The API gravity of those wells were around 30 API. And also, I mean this for Vaca Muerta is fantastic news, but because it proves that we can have this kind of productivity with 30 API gravity wells.

So this somehow is very encouraging. So as per your question, yes, of course, this is proving that our east side of Bajada del Palo Oeste is good, but also it's proving that in that area where we drilled that pad, we probably, as we said, we can add around 50 locations within the west side of Bajada del Palo Este, very close of the pad that we drilled, okay? So very good news, very encouraged about that. What is left is for us to drill another 3 wells. We will probably place a pad toward the center of the block, so toward east. And then probably we will drill further east 1 more well just to finish assessing the opportunity, the complete opportunity, of Bajada del Palo Este.

Any other question?

[Operator]

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

[Oriana Covault, analyst]

This is Oriana Covault with Balanz. I have 3 questions. Sorry for the extension, but they should be rather quick. So first, looking at implied royalty rates for the quarter, it looks higher than the 12% for unconventional yields. Are there any specific royalty rates for some of the wells that we are missing?

[Miguel Galuccio, executive]

Oriana, sorry, we are having a hard time listening to you. Can you speak slowly? Because the line is not so good, so I can't get the question.

[Oriana Covault, analyst]

Yes. I'm sorry. Do you hear me better now?

[Miguel Galuccio, executive]

Yes.

[Oriana Covault, analyst]

Okay. So my first question was around royalty rates. When we look at the implied royalty rates for the quarter, it looks higher than the 12% for the unconventional wells. So just trying to figure out if there's any specifics that we are missing?

[Miguel Galuccio, executive]

Okay. All right. So I see -- look at -- this is a mix of the 12% that we have in unconventional, plus 15% that we have on the conventional. So the calculation should be quite straightforward. So I'm not sure if it's that different between 15% and 12% is what you're seeing. But I mean happy to follow up with Alejandro on that one if you want to have more details.

[Oriana Covault, analyst]

That sounds good. Maybe if we could move to the following one. Just seeing global industry trends that are pricing on availability and cost of rigs, do you expect this to have a particular effect on CapEx per well or the speed of your development plan post 2022? Or anything in particular for Vista that we should have in consideration?

[Miguel Galuccio, executive]

No, not really, Oriana. I mean we -- as I mentioned to you, on the CapEx side, also, we would have oil services -- oilfield services contract pressure. And we have contract in place, so it will be more of a thing for the future. And then we will have probably inflation from wages and other things. So we will have to deal with that. In terms of the rate, we continue, as I said before, with the 24 wells. Just to have an idea, because you saw in Q1 that we just tie in 2 wells in Bajada del Palo Este. Now Q2, we should see around 8 wells coming in from Bajada del Palo Oeste. Q3, another 4 -- 8 wells, 4 from Bajada del Palo Oeste and 4 from Aguada Federal. These are the DUCs that we are going to complete and tie in. And Q4, we should expect another 4 wells from Bajada del Palo Oeste and 2 wells from Aguila Mora, okay? So this will complete, this will be the pace and the velocity where we complete the plan that we have outlined so far. And of course, this is done with 1.5 rigs. So also, we will evaluate the possibility of adding 1 pad toward the second part of the year, but that has not been decided yet.

[Oriana Covault, analyst]

Okay. That's perfectly clear. And just 1 last one. We have heard some rumors about a potential new law that could allow exporters to keep some sort of free use reserve offshore. Just wondering what is your take on this? Do you see this with some solid ground or for the time being only rumors?

[Miguel Galuccio, executive]

Oriana, yes. So yes, we have plenty of discussion on that. It's clear for the country that this is a win-win situation if they allow to flexible-ize and how cross-border, the moving of proceeds. So I understand the minister is somehow positive with that, in favor with that. It's a win-win -- it's a win-win situation for country and the industry. So I will not comment on the likelihood of that to happen, but I think it makes a lot of sense.

[Oriana Covault, analyst]

Perfect. That sounds great. And again, congratulations for the results.

[Miguel Galuccio, executive]

Thank you, Oriana, for being present.

[Operator]

And our next question comes from the line of [ Jorge Mauro ] with Fundamental.

[Unknown Analyst]

Yes. My question is regarding Bajada del Palo Este and if you can comment on the results so far relative to your long-term plan? I mean given the -- now that you have completed these wells, do you have any change on that plan? Or is it going [indiscernible]? Wonder if you can comment on Bajada del Palo Este?

[Miguel Galuccio, executive]

Thank you, [ Jorge ], for your questions. So I mean for Bajada del Palo Este, the first thing that we need to do is to complete the delineation. So we just completed the first part of that. And I will say the easy part of that, because we completed the first pad very close to Bajada del Palo Oeste. It is a fantastic news because allow us to demonstrate that in that block, surrounding where we did the first pad, as I mentioned before, probably we have already additional 50 locations.

Now before to deciding what will be our strategy to really tackle the full block, we need to finish the delineation. After that, we could decide if we want to do it alone, if we want to bring in a partner, if we want to sell part of the block or whatever. But so far, what we need to do is to finish the completion of the delineation that will, as I said before, it will take additional 3 wells. So far, we believe that 1 is going to be in the middle of the block and 2 and then 1 pad very further east, okay?

As we move further east, we know that it was 1 of the formation that will not be present. So we need to really try to recalibrate and demonstrate how -- if the actual model that we have is working exactly with the reality. So that will be the first step. And then we can decide commercially what is the strategy to develop, to fully develop Bajada del Palo Este. As you know, we have today in our well inventory, 850 wells, okay? That's coming from Bajada del Palo Oeste and Aguada Federal. So we have really more reserves that we can [indiscernible] at the pace that we are going. So it will be plenty of options for us to develop Bajada del Palo Este.

[Operator]

Thank you. Now I'm showing no further questions. So with that, I'll hand the call back over to Miguel for any closing remarks.

[Miguel Galuccio, executive]

Ladies and gentlemen, thank you very much for attending this conference call. We are super happy with the results and also we would like to take the opportunity to thank you for your support and for following us and for the interest. So looking forward to see you next quarter.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you for participating and you may now disconnect.