Vista Oil & Gas SAB de CV

NYSE:VIST

Earnings Call Transcript 2023-Q1

[Operator]

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 Chernacov, Strategic Planning and Investor Relations Officer. Please go ahead.

[Alejandro Chernacov]

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 was 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 VISTAA in the Bolsa Mexicana de Valores and VIST in the New York Stock Exchange.

I will now turn the call over to Miguel.

[Miguel Galuccio, Founder, Chairman and Chief Executive Officer]

Thanks, Ale. Good morning everyone. And welcome to this earning 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. Oil production was up 24% on an interannual basis boosted by the tie-in of six 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 $6.40 for the quarter, reflecting enhanced focus on our shale oil assets.

Capital expenditure was $162 million including the drilling of nine wells and the completion of eight wells during the quarter.

Adjusted EBITDA came very strong at $204 million for the quarter, an internal increase of 61%.

We recorded positive free cash flow of $35 million for the quarter, net leverage ratio at the quarter end was 0.37 times adjusted EBITDA.

Adjusted net income was a solid $72 million, implying an internal 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 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 of March 1.

On performance basis, we recorded a 7% sequential increase in both oil and total production. This was driven by a robust productivity of six wells during the quarter, five in part Bajada del Palo Este 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 assets please refer to the earnings released published yesterday.

I will now share an update on our development hub. In Bajada del Palo Este we continue to see a 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 part, Bajada del Palo Este 16. This part located in the south of the block contained four wells, two lands in La Cocina and two in Organic. We start drilling part Bajada del Palo Este 17, which also contain four wells both path will be completed on time by early July.

In Aguada Federal, we recently completed a tie part Aguada Federal-4 in the western part of the block. This is also for well path. We landed two wells in La Cocina, one well in Organic and one 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 tie-in the third world of the ongoing pilot. We are very excited by the production result we are seeing. Cumulative production for the first 60 day was 75,000 boe with the peak IP30 above 1,500 boe per day. This proved the quality of our acreage in Bajada del Palo Este and the continuity of the play from our flagship block, Bajada del Palo Este.

Based on the 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 1000 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 all production growth and improved realized oil prices. Realized oil price for the quarter average $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 – for 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 batters of oil per day higher than production. This volume was drawn from our inventory. Sales to export market accounted for 58% of oil volume and 60% of oil revenues. We exported 5 cargoes during the quarter for 2.4 million barrels oil in total. In line with our export focus 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 the price of $8.9 per million Btu.

Lifting cost for the quarter was $30.1 million, 2% down from the same period last year. Lifting cost 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 as March 1st, so cost from the quarter reflect a full month having removed the transfer asset 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 annual growth of 61%. This reflects a strong revenue growth and lower lifting cost as described previously. Adjusted EBITDA margin was a robust 67% during the quarter, an improvement of 6 percentage point year-over-year. Netback was $43.5 per BOE, a 35% interannual increase. Both metrics have increased sequentially reflecting improved margining 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 flow operating activities was $158.8 million; this includes $60 million of upfront payment to all the banks 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 transfer assets.

Cash flow from financing activities was $71.1 million, mainly driven by debt issuance of $135 million. We successfully issued dollar linen bonds with a zero percent coupon for a four-year maturity and 1% coupon for a five-year maturity. This was partially offset by the debt repayment of $22.5 million and interest payments of $7.9 million. Gross debt totaled $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 0.37 times 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 Bajada del Palo Este have proven the quality of our asset and contributed to the addition of 100 wells to our ready-to-drill inventory. We are already seen the benefits of the transaction we announced early this year to fully focus on our shale oil asset. Our lifting costs, dividend margins and netback have all improved sequentially as the deal is effective. As of March 1st we only capture the effect partially and expect further upside in the coming quarters.

During this quarter we have one, again deliver very solid operation and financial result. 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 approve an addition to our current share buyback plan extending it 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 the continued support.

And without operator please open the line for Q&A.

[Operator]

Thank you. [Operator Instructions] Our first question comes on the line of [indiscernible] from Morgan Stanley.

[Unidentified Analyst]

Hey, good morning. Thanks for taking my questions. I have two questions here, perhaps linked to each other. The first question is about 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 incremental 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 draining 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 trading plain? And how should we think about the equipment and infrastructure availability in that case? Thank you very much.

[Miguel Galuccio, Founder, Chairman and Chief Executive Officer]

Good morning, Tiago [ph]. Thank you very much for your questions. 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 tie-in. Because there's two 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 and in effect of the transaction with Aconcagua that is was 6,000 barrel per day that basically impact in two months of our Q1 number. And the second thing that we have in our program that I think is different to things that we have done in the past is the fact that we are drilling two – drilling and completing two parts based on our cube methodology or cube technology that it means that we are drilling and completing two parts together to avoid basically interference – interference between them, but of course delaying production.

So when you look at – when you look at the drilling program and the completion program, the way that the production will come in is a bit different we have done in the past. So we are closing Q1 with an average of 52.2 in terms of production. We expect that Q1, sorry – we expect Q2 to be probably slightly lower the number since we are going to tie in. So in the first – in the first quarter with tie in five wells, in the second quarter we will tie in seven wells. Then we will see important increase on production start in Q3 where we're going to tie in 12 wells. And then on Q4, again we come back to five wells. So Q3 release where we have this Bajada del Palo 16 and 17 coming in since we are going to complete those two back-to-back. So that is basically make the production curve 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 finishing drilling for the path that we have today in the drilling schedule at the end of September. So the – probably the decision in term of acceleration that we will have if the decision of probably adding two part at the end of the year in Q4. Two-part that we can drill of course we cannot complete 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 that we're evaluating is 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 – due to the long-term relationship we have with our service provider and of course because we have a solid financial situation in hand. 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 term of equipment or increase in 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 – a bit of overall view. I think what we are doing. In tracking we have been very – very upfront in terms with where we're doing with Oldelval. So Oldelval we're expecting again Q1 2024, 40% of those Oldelval additional capacity that is around 300,000 barrel per day coming into place. And in Q1 2025 the whole project should be complete. In line with Oldelval, [indiscernible] facilities expansion will be coming in. And I think the new – the new thing that that we are doing is the effort to see to Chile through Otasa.

This is a pipeline that already exists. It was put in place is being testing that we speak, and the offtaker 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 barrel of oil per day. That will allow us to reduce a bit tracking but basically this is – this is what we are adding. Vaca Muerta Norte will come later, we are expecting that for Q3 2023 and that basically could replace Oldelval.

So that Tiago [ph] I think is – I have completed your question.

[Operator]

Thank you. [Operator Instructions] Our next question comes on the line Rodrigo Nistor from Latin Securities.

[Rodrigo Nistor, Latin Securities]

Hi, good morning and thank you for the opportunity to ask my questions. Follow up on the [indiscernible] pipeline where we commence the operations. Can we expect higher prices or reduce discounts for these sales?

[Miguel Galuccio, Founder, Chairman and Chief Executive Officer]

Hi, Rodrigo, thank you for the question. So again, I mean the Chile first stage of Vaca Muerta North we will support between 4,000 to 5,000 barrel per day as I mentioned before. We expect the pricing netback for Vista to be very similar to the one that we get – we get when we support through Bahía 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 barrel per day. We could reach 6,000 if we will have – not have Otasa we will reach probably 10,000 barrel per day in south tracking. So clearly this new route of export to Chile is helping both on export and also on cost.

[Rodrigo Nistor, Latin Securities]

Okay, thank you, and then another quick one. So you recently announced payroll progress in Bahía by the way which we should be looking an increase in oil inventory. Given that your current capital allocation priorities Bahía Blanca, I mean, would you have contemplating the entering joint venture or any other thing to expedite the development of Bahía Blanca?

[Miguel Galuccio, Founder, Chairman and Chief Executive Officer]

No, Rodrigo. We are not contemplating any joint venture. We are speaking [indiscernible] are our core show in term of development. If at some point of time we entertain doing something properly, will – 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.

[Rodrigo Nistor, Latin Securities]

Okay, that's very helpful. Thank you.

[Miguel Galuccio, Founder, Chairman and Chief Executive Officer]

You're welcome.

[Operator]

Thank you. [Operator Instructions] Our next question comes from the line of Alejandro Demichelis from Nau Securities.

[Alejandro Demichelis, Nau Securities]

Yes, good morning. Thank you for taking my question and congratulations on the results. 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 cost both on the lifting side, but also on the CapEx?

[Miguel Galuccio, Founder, Chairman and Chief Executive Officer]

Thank you, Alejandro, for your question. I will start with the second part lifting probably give you a bit of filling on drilling as well. So Q1, we finished with the lifting costs of $6.4 per barrel. This lifting cost was composed due to the Aconcagua transaction of two months where we have that conventional production with us. The lifting costs for those two months was around $7.5. And then in 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 lifting costs that will be around $5. So we usually expect that.

In terms of drilling, we finished last year with the drilling cost around $12.7 million for our normal wells. And today we are seeing that drilling cost between $13 million 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 PAM increased 11% in the local currency, but decreased 5% in U.S. dollar due to basically same higher appreciation of pesos. Q2, I mean, what we have seen in term of dollar term, we will see even more pressure on the appreciation of pesos, but also, I mean, we expect basically that import 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.

[Alejandro Demichelis, Nau Securities]

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

[Pablo Vera Pinto, Co-Founder and Chief Financial Officer]

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.

[Alejandro Demichelis, Nau Securities]

That's great. Thank you.

[Pablo Vera Pinto, Co-Founder and Chief Financial Officer]

That pressure goes more to the refineries and to the people that have integrated operation than us.

[Operator]

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

[Andrés Cardona, Citi]

Hi. Good morning everyone. I 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, would be very appreciated. Thanks.

[Miguel Galuccio, Founder, Chairman and Chief Executive Officer]

Thank you Andrés for the question. Yes, I mean we've been giving updates on the decree that in October 20, 2022, the Central Bank basically established. As I said before, that was followed by few formalities from the Secretary of Energy in beginning of January and also Vista had adhered 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 million and $30 million respectively for the three quarters that I mentioned before.

Of course, there's still some uncertainty around when we will receive those certificates, but I mean, we are filing based on the decree and based on incremental production that we are seeing coming in.

[Andrés Cardona, Citi]

Thank you.

[Miguel Galuccio, Founder, Chairman and Chief Executive Officer]

You are welcome.

[Operator]

Thank you. One moment for our next question. Our next question comes from the line of Oriana Covault from Balanz.

[Ezequiel Fernandez, Balanz Capital]

Hi, good morning. Thanks for taking my question. This is Ezequiel with Balanz. I had three 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 and will this be carried out under firm contracts or sold at spot? And if so, do you have any information also about fees that the owners of the pipe will charge for its usage?

[Miguel Galuccio, Founder, Chairman and Chief Executive Officer]

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

[Ezequiel Fernandez, Balanz Capital]

Sorry, perfect. Thank you. And maybe just moving on to the Oldelval pipeline, can you comment about what levels are you currently operating, if you are 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?

[Miguel Galuccio, Founder, Chairman and Chief Executive Officer]

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

[Ezequiel Fernandez, Balanz Capital]

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

[Miguel Galuccio, Founder, Chairman and Chief Executive Officer]

Oriana I mean, we have not have any issues in import equipment. We have done few importations. I mean we have all 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 that is required so far.

[Ezequiel Fernandez, Balanz Capital]

Perfect. Thank you very much.

[Miguel Galuccio, Founder, Chairman and Chief Executive Officer]

You're welcome.

[Operator]

Thank you. [Operator Instructions] Our next question comes from the line of Regis Cardoso from Credit Suisse.

[Regis Cardoso, Credit Suisse]

Hi, Miguel, Alejandro congratulations on the results. Thanks for the questions. Two quick topics I wanted to follow-up with. One is on the wells 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, the leveraging, 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 reinvesting in your existing portfolio. So, that question just broadly on well inventory and capital allocation.

And then I guess the 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 two numbers and if you can still reach the guidance for the year? Thank you.

[Miguel Galuccio, Founder, Chairman and Chief Executive Officer]

Thank you Regis for your question. I mean, starting with the first part, definitely when we look I mean, what we can do in term of continue creating value, the main thing 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 who have the equipment we have a solid financial performance is to accelerate or to further grow in term of drilling and completion and basically accelerating the use of the 1000 oil portfolio that we have in hand. I think that 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 deliver as in the company as it makes sense.

So three 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 clear the best way that we can create value.

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

[Regis Cardoso, Credit Suisse]

Understood. Thank you.

[Operator]

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

[Miguel Galuccio, Founder, Chairman and Chief Executive Officer]

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

[Operator]

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