Vista Oil & Gas SAB de CV

NYSE:VIST

Earnings Call Transcript 2024-Q1

[Operator]

Good day, and thank you for standing by. Welcome to Vista's First Quarter 2024 Earnings Webcast Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to go ahead and turn it over to your speaker, Alejandro Cherñacov, Vista's Strategic Planning and IRO.

[Alejandro Cherñacov, executive]

Thanks. Good morning, everyone. We are happy to welcome you to Vista's First Quarter of 2024 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 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 and adjusted net income. Reconciliations of these measures to the closest IFRS measure can be found in the earnings release that we issued yesterday. Please check our website for further information. Our company is 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. Our 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.

[Miguel Galuccio, executive]

Thanks, Ale. Good morning, everyone, and welcome to this earnings call. During the first quarter of 2024, we made good progress towards delivering on annual guidance with solid operational and financial performance. Total production was 55,000 BOEs per day for the quarter, up 40% year-over-year on a pro forma basis. Oil production was 47,300 barrels per day, 15% above previous quarter also on a pro forma basis. Total revenue during the quarter were $317 million, flat year-over-year. We maintained lifting cost flat vis-a-vis the previous quarter at $4.3 per BOE, reflecting the full consolidation of our new operational model following the transfer of the conventional assets. In Q1 2024, capital expenditure was $242 million, mainly driven by 12 wells drilled and 11 wells completed during the quarter. Adjusted EBITDA was $221 million, 8% above year-over-year, supported by lower lifting costs amidst stable revenues. Adjusted net income was $47 million, implying a quarterly adjusted EPS of $0.50 per share. Free cash flow was negative at $84 million during the quarter, driven by the ramp-up of our drilling and completion pace, which will boost production over the coming quarters. Net leverage ratio at quarter end was a solid 0.58x adjusted EBITDA. I will now deep dive into our main operational and financial metrics of the quarter. Total production during the quarter was 55,000 BOEs per day, a 14% increase compared to last year on a pro forma basis, adjusting by the production of the transfer conventional assets. Without such adjustments, total production grew 5% year-over-year, evidencing that we have fully offset the impact of that transaction. On a sequential basis, total production declined slightly as the wells connected during the quarter only started impacting production in late March. Oil production increased 15% year-over-year on a pro forma basis or 7% without such assessment. Natural gas production increased 8% compared to Q1 2023 on a pro forma basis. In line with our annual work program, we tie in 11 new wells during the quarter, 3 in mid-February and 8 in March. This activity had little impact on Q1 production but will boost Q2 production. We are currently producing 62,000 BOEs per day and have tie-in a 3 well pad in Bajada Palo Oeste last week, the first part of Q2. We forecast a double-digit production growth on a sequential basis during Q2. We also reiterate our production guidance of 68,000 to 70,000 BOE per day for the year. I will now share exciting news. We recently signed an agreement to secure an import a third highest back rig to Argentina. This rig is scheduled to start operating in our development hub during the second semester, replacing an on-call high-spec [indiscernible] currently working in our operation to frontload the 2024 drilling activity. This will allow us to deliver 4 to 8 additional new well tie-ins during the 2024 in addition to the 46 wells in our current work program. We expect this to drive an improvement in our Q4 2024 production forecast to about 85,000 BOE per day. By adding one fully dedicated rig, we expect to provide an upward revision of both our activity and production guidance for 2025 once the rig is operational. During Q1 2024, we recorded a solid improvement in our organization prices, which were up 6% year-over-year for an average of $70.3 per barrel during the quarter. Fertilize oil prices were $69.3 per barrel to domestic customers. Realized oil prices from export market were $74 per barrel. Combining sales to international buyers and domestic buyers paying export parity, 57% of our total sales were sold at export parity. During the quarter, total revenues were stable year-over-year. This reflects a temporary buildup in our oil inventory compared to a reduction in Q1 2023. Lifting cost was $21.6 million for the quarter, a 28% decrease compared to the same quarter last year. Lifting costs per BOE was $4.30, a decrease of 33% compared to Q1 2023 and flat with respect to the previous quarter. This reflects the consolidation of our new operating model, fully focused on our shale oil assets following the transfer of the conventional assets a year ago. Adjusted EBITDA during Q1 2024 was $221 million, an increase of 8% year-over-year, mainly driven by lower lifting costs amid flat revenues. During the quarter, we continued to deliver strong margins. Adjusted EBITDA margin was 68% during the quarter, an interannual increase of 4 percent points. Net back during the quarter was $44 per EOE, a 1% increase year-over-year. Adjusted EBITDA in Q1 2024 includes $7 million in gains from the repatriation of 20% of the export proceeds at the blue-chip swap. This was down from $81 million in the previous quarter, which reflected the large gap between the official FX and the blue-chip swap effect. The sequential decrease in adjusted EBITDA and margin is largely explained by this effect. Free cash flow during the quarter was negative at $84 million. This was driven by 2 factors: firstly, lower cash on operating activities due to a temporary increase in working capital; secondly, payments of CapEx of $148 million as we ramp up drilling and completion activities during the quarter. Cash at the period end was $152 million as cash from financing activities generated $22 million, reflecting proceeds from borrowings of $96 million and repayment of borrowings of $45 million. Net leverage ratio stood at a very healthy 0.58x adjusted EBITDA at quarter end. I will now summarize the key takeaways of today's presentation. During Q1 2024, we delivered strong execution of drilling and completion activity. We tie in 11 new wells in line with our annual guidance. We recorded a 14% year-over-year production growth on a pro forma basis, driven by shale oil growth in our development hub. We forecast sequential double-digit growth, both in terms of production and EBITDA in the second quarter of this year, which leaves us on track to deliver on our production and adjusted EBITDA guidance for the year. We recorded a robust improvement in realized oil prices, exceeding the $70 mark on average, boosted by higher brent prices and by higher share of domestic sales at export parity. Combining sales to international buyers and domestic buyers paying export parity, 57% of our total sales were at export parity. Supported by the contracted view we have on the dynamics of our industry, both globally and domestically and leaning into our conviction on our ability to deliver value to our shareholders, we contracted a third high-spec drilling rig. We forecast this will add 4 to 8 additional new wells incremental to our original guidance in the second half of this year. This is expected to boost Q4 2024 production about 85,000 BOE per day, leaving us well prepared to potentially increase our production guidance for 2025. Before we move to Q&A, I would like to thank our investors for their continued support. And also, I would like to thank the Vista team for their hard work during the quarter, which leaves us well prepared to achieve our annual targets. Operator, please open the line for Q&A.

[Operator]

[Operator Instructions] Our first question comes from the line of Bruno Montanari from Morgan Stanley.

[Bruno Montanari, analyst]

I wanted to explore the production and the cash flows. On production, very exciting news with the third rig coming in the second half of the year. So how should we think about the incremental number of pads or wells into 2025, assuming that the rig operates at the expected specifications. Is this pace of 4 to 8 additional wells per quarter sustainable? Or can it be higher? So any quarter you can give on the contribution of the rig on an ongoing basis would be super helpful. And then on cash flows, there was some noise on the cash flows for the first quarter on the back of the working capital situation. So if you could comment on the expectation of working capital release during the second quarter of 2024 and how to think about working capital for the full year? It would also be extremely helpful.

[Miguel Galuccio, executive]

Thank you very much for your question. Look at -- I mean, starting from the production point of view. So we finished last year with 56% in Q4, and we designed the plan for this year to have around average 55,000 barrel per day in Q1 2024. That is what we get. In the plan, we said that we are going to have an average of 68 to 70 barrels oil per day for 2024. And that plan didn't consider adding a high-spec rig. How we see things today. So first of all, I will say we are ended in Q2 with a very good production starting point. If you take the production of April 23, that was the last one that I checked, we were producing 62,000 barrels oil per day. And we expect to finish Q4 with an average of 85,000 barrels oil per day. So of course, we are not going to give guidance in Q2 and Q3, but you guys can make the number, okay? We are starting the Q2 with 62%, and we want to finish an average of 85% in Q4. This is factoring in the third rig that we are adding today. When you look at starting this quarter with 62 and what we have coming in, in line based on the activity that we have, we have Bajada del Palo in '22. That is a very good part of 3 wells that yet have reached peak oil. We have Bajada del Palo '23 that also shows a very good production. It's a part of a well yet has reached peak oil. We have had Bajada del Palo Oeste '24 that is in flow back, and we have had Bajada del Palo Oeste '25 that is going to be tied-in in May and probably will start to show some oil in [indiscernible]. So saying all that, I feel confident with the production that we are seeing and with the plan that we have. Of course, 2024 is a challenging year, okay? We are basically putting the bar in terms of gross production very high. But it's nothing that we have done before, and we have a track record of delivering and we will deliver this year as well. The question will be probably for 2025. I mean we signaled that we are going to have 85,000 average for 2025. Probably in the future, we should look at that guidance now that we are adding that rate. Going to cash flow. So 2023, we spent $760 million of CapEx, and we end up the year with a cash flow of around $30 million and with a realized price of $66.7 per barrel. Our 2024 plan was of a CapEx of $900 million, we expect a cash flow of $100 million, and we guide pricing between 65% and 70%. We have finished the Q1 with more activity, $240 million of CapEx, a negative cash flow of $84 million that, as you mentioned, have the effect of the export cargo that came lane and that effect is an effect of $42 million, and we have realized prices of $70 million. With the plan of adding a third rig, we will have an additional CapEx between $150 million and $200 million. So we expect or why I am expecting, and that also will depend on the prices that we get to have probably negative cash flow for the first semester, and we will probably recover positive cash flow for the second semester toward the end of the year. This is our current view. I hope I have answered your question, Bruno.

[Operator]

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

[Daniel Guardiola, analyst]

I have a couple of questions. So my first one is related to production. I still have this goal to basically increase production by the Q4 by roughly 30,000 barrels of oil per day. And I wanted to ask Miguel, I mean, this is by far the most aggressive internal growth in production that this company has experienced or even experienced so far. Which ones do you think are the main challenges that you're going to have trying to reach this new level? And in connection with production, if I'm not mistaken, you are expecting additional pipeline capacity towards the second half of the year. But I think it's not going to be enough for you to actually evacuate 100% of this incremental production through pipeline. So I guess you're going to increase the usage of trucking. And in that sense, I wanted to know the split that you expect between trucking and pipelines and the potential effects on cost of increasing trucking evacuation capacity? So that's in terms of production. And if I may just squeeze another one and is related to the exports. We saw during the Q a significant decline in exports as a percentage of total volumes sold. So I wanted to know if you can share with us what happened during the Q? And what are your expectations for the upcoming quarters?

[Miguel Galuccio, executive]

Thank you, Daniel, for your question. And yes, I will agree with you that we have a challenging a challenging year ahead in term of production. Nevertheless, I will restate what I said to Bruno, I feel very comfortable entering with 62,000 barrels oil per day aiming for 85,000 and seeing the first results of the pad that we have drilled are still super confident. And also, you have to factor in that the 62,000 barrels per day today that we produce come fully from unconventional wells. So that means that in the last 4 to 3 years, the Vista team have managed to develop and to produce 62,000 barrels per day. So for us, aiming to add another 20,000, it's not much different than we have done before. It's going to be a challenging year, but we have the equipment and the operational capacity and the talent to make it happen. Back to your second and third question. Yes, tracking, as you said, is something that we are going to use this year. As you know, we knew that all deal was going to be late. It was scheduled for Q1 2024 and will be delivering on Q4. So we factor it in, in our guidance, in our plan expenses to cover that. So we treat tracking plan that basically call for a cost between $10 and $12 per barrel. Of course, Q1, we were probably tracking around 2,000 barrel per day. Q2, we've seen that number will be probably closer to 9%. And Q3, it will be up to 12,000 barrels per day. In the guidance, we factored in $25 million expenses related to those costs of tracking. Your third question, if I remember properly was for volume. Export volume in Q1, we have 41% of volume that were directly to export, and we have a new market dynamic in the domestic market, where 60% of the domestic volume were sold at export parity -- so we sold basically 57% of our volume to export parity. Q2, we believe that 50% will be directly volume going to be export. And probably the domestic volumes we are basically forecasting that could be around 10%. So 60% of the -- of our volume will be sold at export parity. This is what we are forecasting.

[Operator]

Our next question comes from the line of Tasso Vasconcellos from UBS.

[Tasso Vasconcellos, analyst]

I think I have one here on my side. We have seen an increased competition in the past years seen in Brazil coming from the assets sold by Petrobras, which led several independent players to increase its footprint in the industry and of course, requiring additional equipment, services employees and all of that led to a higher competition in the industry, right? What are the Vista's expectations for this divestment process that we're seeing from YPF and probably from some other players. Do you believe we could see a higher competition in the industry in Argentina, either this year or in the upcoming months? How do you see this environment growing in Argentina? This is my question.

[Miguel Galuccio, executive]

Thank you, Tasso, for the question. So the short answer, probably, yes. First of all, I think the rationalization of the portfolio that YPF is going through. And basically, we went through the same rationalization of portfolio, knowing that the conventional opportunities, the main opportunity for us where the scale is and where the margin is, I believe, it's a very rational decision and it's a good path that YPF is taking in that direction and applaud them for that. And yes, I think that will create more activity in the basin. It will probably attract more investment toward conventional fees that today for the one that holds both in their portfolio cannot compete for capital allocation. And if you're referring to the fact that we get within the service sector, yes, I think it will be more demand for services. And I will add to what you said that the other effect that you will have is that Vaca Muerta is growing. We see more activities. We see basically more people asking for rig and frac fleet and so on. In that sense, I believe we have a competitive advents compared with the rest. We have, from day 1, adopt a model called One Team, where we have made our main service provider partners. Partners mean that they've been working with us nonstop since day 1 where we basically give 100% of the activity to them. So that gives us a preferential relationship with those people. We have no problem to add equipment during the good time and during the bad time. And I think this is a clear example of that is the highest per rig that we are adding with [ neighbor ] basically this year. So yes, I think we'll be more pressure, but I think we will be okay.

[Operator]

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

[Andres Cardona, analyst]

I have 2 questions. Coming back to the free cash flow concern that Bruno expressed before. There was a second item, at least for us, it was surprising the balance payment for midstream expansion. So could you please give us some context about the outlook for these potential expenses? How will be deployed over the coming quarters? I understand there is a commitment of close to $150 million, out of which close to $60 million have been deployed. So I wanted to understand what should we expect on this front used to be more accurate on the free cash flow forecast. The second point I wanted to understand is with Brent at $88 per barrel, and we have seen the weak effort the industry has done to improve the domestic prices, [ domesticalization ] prices. What are you seeing in the second quarter? What should we expect going forward? Do you expect any slowdown on this following trend that we have seen in the first quarter? And perhaps the last question is going back to the third rig point, what should we expect for 2025? Will be hired for the full year is yet to decide? Just trying to get some color about what to expect for the next year.

[Miguel Galuccio, executive]

Andres, thank you for your question. One, again, first of all, starting from the free cash flow. So I don't think Bruno said that he have a concern. We don't have a concern either. We can -- we basically -- we've been growing with our own cash flow generation. And we can continue growing towards the third rig using our own cash flow. So I mean, we are, in that sense, privilege compared with other developers of unconventional resources. As I said before, first semester, of course, because due to the activity, how it picked up during Q2 and Q3, we will have a negative cash flow, and we will have posited toward the end of the year also next year and probably I take advantage of answering your question on the third rig.I think you can factor it in that we're going to have that rig fully during 2025. Back to the question from midstream, I'm probably putting in context of the bulk capacity, the addition of bulk capacity that was tendered was 315,000 barrels per day from which we secure 31,000 of those and not from also the same volume we secured 37,000 barrels per day. We prepaid $58 million for both. And in Q2, Q3 and Q4, we should have additional cash cost expenditures of around $70 million. $40 million, $20 million, and 10 million, if I remember properly. Related to your -- related to your question about domestic pricing. So Q1 2024, we saw a domestic price of $66. The export parity was around $79 with a Brent of $80 per barrel. Going forward, we are assuming that [indiscernible] should be the floor. [indiscernible] upgrade prices toward export parity since there no regulation in Argentina today to maintain the domestic price fixed. Refineries also, as I mentioned before, have a new dynamic. The consumption -- the local consumption is -- has dropped and they are starting to export refined products. And therefore, they are willing to pay for that additional volume export parities. 1/3 of our local volume was recognized at export parity. So I believe we should see local prices coming up. I don't remember if you have an additional question. I think there were 3 of them answer.

[Andres Cardona, analyst]

No, no. Those were the question, Miguel. Thank you for the answers.

[Miguel Galuccio, executive]

Thank you, Andres.

[Operator]

Our next question comes from the line of Marina Mertens from Latin Securities.

[Marina Mertens, analyst]

So during the quarter, we saw inflation coming up by 56%, while FX went up by only 7%. However, listing costs remain mostly unchanged. Are you seeing any pressure on the cost side due to these dynamics? And what are you expecting for the remainder of the year?

[Miguel Galuccio, executive]

Thank you, Marina, for your question. Yes, I mean, what you're asking mainly have a dynamic or an impact in our lifting cost. So from the devaluation, we saw a positive impact in our lifting costs that have an impact that we captured in December, you saw our $4.3 per barrel lifting cost. And in Q4, we're already reflecting that saving in Q1 -- we basically -- when -- in Q4, we got only 1 month of effect of that devaluation, we captured that in the full quarter during Q1 2024. That allow us to have the number that we have today that is 4.3%. So part of those savings really were offset by higher activity. We have a slightly lower production than in Q4 2023 and a bit of cost inflection during the quarter. So if you look at our lifting costs going forward, I think you should go back to the guidance that we have that is $4.5 for the year. We will continue having effects of the inflation with a flat effect. Nevertheless, we plan to almost double the production that we have at the beginning of the year. So that will dilute lifting cost. So if I have to take a guess, I will probably, with up and downs moved closer to the $4.5 per barrel per BOE that we have forecasted and guide.

[Operator]

Our next question comes from the line of Alejandro Demichelis from Jefferies.

[Alejandro Anibal Demichelis, analyst]

Yes. I have 2 questions, if I may, please. The first one is on that extra rig capacity that you mentioned, Miguel. How are you thinking about splitting the rig capacity between the different fields? Is this kind of going to be focused entirely into the BPO or BPE kind of have? Or should we expect something into the less developed areas? That's the first question. And then the second question is, last quarter, you mentioned about potential M&A activity or at least that you were looking at some of the assets in Argentina. So how are you thinking about that today?

[Miguel Galuccio, executive]

Thank you very much for your question. So the M&A activity continued to be focused on the development hub that is [indiscernible] Palo Oeste. Those 3 blocks continue to be the main target of our development. Related to an additional rig, we just brought a new one. As you know, we are ambition. So I will not discount at some point of time with adding more. But for the moment, I think we should consider that we will run full speed with 3 rigs and '25, we consolidate that activity right from the beginning. So it will be another year of growth. Related to M&A activity, as you know, we are participating in the Exxon tender. As I said before, it's a very competitive tender. It's not that we are separated for more resources, but we are participating and we see what happened from there. We have a hub of further development in the north, that is not in our plan yet. But at some point of time, we come to realization. So that is the view I can give you so far.

[Operator]

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

[Oriana Covault, analyst]

This is Oriana Covault with Balanz. I have maybe one brief clarification and a follow-up. So the first one, with regards to the contracted third rig that is expected for the second half. Just to clarify, are you expecting any CapEx revisions due to this increased activity? And -- or was this already contemplated in your annual budget? And I'm sorry if you already mentioned that, but I think I missed it.

[Miguel Galuccio, executive]

So, Oriana, yes. I mean the -- is what I mentioned before. So you should consider that with the third week, we will upgrade the $900 million of CapEx that we have in $150 million to $200 million additional due to the new rig. And of course, that increased production. So we are now aiming to an average of 85,000 barrels oil per day for the fourth quarter.

[Oriana Covault, analyst]

Understood. And maybe just following up on the delays that you are seeing in Oldelval. Can you remind us what is this current evacuation capacity? And how do you expect that these delays from Oldelval impact your production guidance that you provided in the earnings presentation?It seems that it continues to ramp up gradually towards about 85 million barrels of oil equivalent by the end of the year. But just how should we think of current evacuation capacity and the increase on Oldelval by year-end?

[Miguel Galuccio, executive]

Yes, Oriana, thank you for the question. So first of all, I mean, just to clarify, have no impact. I mean, we have enough evacuation capacity for the year. So we will not have any negative impact in our production plan due to the evacuation. Our actual evacuation is 50,000 barrels oil per day. We have tracking capacity that means we can track 20,000 barrels oil per day, and we use that based on what is needed. And Oldelval, we add another 15,000 barrels oil per day towards the end of the year is aimed for October. 2025, we will have the second phase of Oldelval that for us will mean another 15,000 barrel oils per day of additional capacity. So 50,000 plus 20,000 plus 15,000, you have there right there, 85,000 that we have for 2024.

[Oriana Covault, analyst]

Perfect. That's very clear. And just one last one, seeing the pricing evolution in the local market and your ability to sell volumes at export parity prices, should we think of or expect any meaningful deviation from the export mix target seeing that you're actually being able to place some of these volumes at export parity locally?

[Miguel Galuccio, executive]

Really, I mean, we are seeing, as I mentioned, Q2, 50% of our volume will go to export. We are building up on that already. And we are forecasting 10% of our local volumes to go to export parity. So you should work around that 60% number.

[Operator]

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

[Miguel Galuccio, executive]

All right. Thank you very much for participating. Thank you for the support and for the continued interest in Vista. Have all a good day.

[Operator]

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