Vista Oil & Gas SAB de CV

NYSE:VIST

Earnings Call Analysis

Strong Production and Revenue Growth Expands Vista's Capabilities

In Q2 2024, Vista achieved record production levels with 65,300 BOEs per day, a 40% increase year-over-year. Oil production reached 57,200 barrels per day, up 46%. Revenue surged 66% to $397 million. Lower lifting costs and robust revenue growth led to a 90% rise in adjusted EBITDA, hitting $288 million. The company forecasts production to reach 85,000 BOEs per day by Q4 and maintains a full-year guidance of 68,000 to 70,000 BOEs per day. Vista is also ramping up its capital expenditure and securing additional infrastructure to support future growth.

Strong Production Growth Fuels Financial Success

In the second quarter of 2024, Vista achieved remarkable production metrics, with total production of 65,300 BOE per day, which represents a robust 40% increase year-over-year and a 19% increase quarter-over-quarter. This surge was primarily driven by increased well activity in the Vaca Muerta development hub. Notably, oil production alone reached 57,200 barrels per day, marking a 46% year-over-year increase. With revenues totaling $397 million, Vista saw a significant 66% rise from the same period last year, a clear indicator of successful execution and operational efficiency.

Cost Management and Profitability Highlights

Vista's lifting cost per BOE decreased to $4.50, which is 6% lower year-over-year, showing effective cost management amid expanding operations. Adjusted EBITDA soared to $288 million, reflecting a staggering 90% increase year-over-year with an adjusted EBITDA margin of 70%. This improved margin resulted from enhanced operational efficiency and increased scale due to high production levels.

Capital Expenditure and Future Drilling Plans

During the quarter, capital expenditure reached $346 million as the company drilled and completed 14 new wells. This investment is geared toward an anticipated total of 50 to 54 new wells by the end of the year. Vista is on track to reach an average production guidance of 68,000 to 70,000 BOE per day for the full year, with current expectations hinting toward the upper end of that range. Furthermore, the company is forecasting production growth at double-digit rates over the next two quarters, with an ambitious target of reaching 85,000 BOE per day by Q4.

Operational Highlights and Capacity Expansion Initiatives

Significant strides were made in enhancing operational capacity, including the completion of a new oil treatment plant expansion to accommodate up to 85,000 barrels of oil per day. Additionally, connections to the Vaca Muerta Norte pipeline have doubled export capacity to Chile to 12,500 barrels per day. These developments are crucial as they facilitate increased production and necessitate an efficient transportation strategy to manage future growth.

Strategic Outlook and Guidance Adjustments

As Vista navigates through 2024, the leadership indicated that current production guidance for 2025 (initially set at 89,000 BOE per day) would likely be raised, aligning with ongoing operational success. Expectations are to utilize a second frac crew, enhancing drilling flexibility and performance in 2025. The company is also closely monitoring market conditions and regulations in Argentina that may influence operational dynamics and pricing.

Revenue Realization and Market Strategy

The average realized oil price during Q2 was $71.8 per barrel, representing a 12% increase year-over-year. A majority of their sales occurred at export parity, with 64% of total sales benefiting from stronger pricing. This trend underscores the company's effective marketing strategy, especially in an environment where export prices are robust.

Preparedness for Market Fluctuations

Vista anticipates potential challenges with trucking costs, which rose significantly as the company increased its trucking capacity to handle growing volumes. As they execute a strategy to expand trucking to up to 30,000 barrels per day, freight costs will be closely monitored, especially as the OldelVal pipeline project progresses towards completion.

Earnings Call Transcript 2024-Q2

[Operator]

Good day and thank you for standing by. Welcome to Vista's Second Quarter 2024 Earnings Webcast. [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. Please go ahead.

[Alejandro Cherñacov, executive]

Thanks. Good morning, everyone. We are happy to welcome you to Vista's second 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 sociedad anonima bursatil 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 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. The second quarter of 2024 was marked by a strong inter-annual and sequential growth across key operational and financial metrics, driven by new well activity in our development hub in Vaca Muerta. Total production was 65,300 BOEs per day, an increase of 40% year-over-year and 19% quarter-over-quarter. Oil production was 57,200 barrels per day, 46% above the same quarter of last year. Total revenues during the quarter were $397 million, a 66% increase compared to the same quarter of last year.

Lifting cost was $4.5 per BOE, 6% down year-over-year. Capital expenditure was $346 million, mainly driven by 14 wells drilled and 14 wells complete during the quarter, reflecting the acceleration of capital deployment in new wells activity and $63 million in development facilities. Adjusted EBITDA was $288 million, 90% above year-over-year, driven by robust revenue growth and lower lifting cost per BOE. Adjusted net income was $22 million, implying a quarterly adjusted EPS of $0.70 per share. Free cash flow was $8 million during the quarter as higher cash flow investing driven by increase in CapEx activity was financed with robust cash from operations, driven by the boost in adjusted EBITDA.

Net leverage ratio at quarter end was a solid 0.6x adjusted EBITDA. I will now deep dive into our main operational financial metrics of the quarter. Total production during the quarter was 65,300 BOEs per day, our highest quarter ever. Production was 40% above on our inter-annual basis, reflecting the ramp-up of our new well activity as we tie in 48 new wells during the last 12 months. On a sequential basis, production growth was 19%, driven by the connection of 4 pads in Bajada del Palo Oeste and 1 pad in Bajada del Palo Este between the second half of Q1 and the first half of Q2.

Oil production was 57,200 barrels of oil per day, an inter-annual growth of 46% and a sequential growth of 21%, reflecting that the share of oil in our new wells is above that our base production. We expect this trend to continue going forward as we continue to drill in our oil prone development hub, especially Bajada del Palo Este. Natural gas production increased 70% year-over-year and 5% quarter-over-quarter. Based on our new well activity plan, our model shows that production is forecast to keep growing on a double-digit basis over the next two quarters, leaving us on track to deliver 85,000 BOEs per day in Q4.

We also reiterate our guidance of 68,000 to 70,000 BOEs per day on average for the full year, noting that we will likely be on the upper end of this range. During the second quarter of 2024, we continue to make solid progress in the execution of our annual work program. We tie in 4-well pads during Q2, two in Bajada del Palo Oeste, one in Bajada del Palo Este and one in Aguada Federal for a total of 14 new wells. We connected 25 new wells during the first 6 months of the year, leaving us on track to deliver our activity guidance, which is between 50 and 54 new wells for the year.

We also achieved a major milestone in terms of production capacity expansion by signing a contract with SLB for the second frac set. We expect the set to be fully operational for us towards year-end, adding capacity to the three [ highest spec ] drilling rigs and one frac set we are currently operating. This new contract will give us additional flexibility to potentially accelerate our activity as of 2025. During Q2 2024, we have made solid progress in securing additional oil treatment and midstream capacity for our growth plan. [ We finished ] of our oil treatment plant in Entre Lomas expanded to a total capacity of 85,000 barrels of oil per day.

We also finalized the connection of our development hub to the Vaca Muerta Norte oil pipeline, doubling our capacity to export oil to Chile to a new total of 12,500 barrels of oil per day. Finally, we initiated a project in our oil treatment plant to expand the tracking capacity from 22,000 to 37,000 barrels of oil per day. We expect this to be fully operational by the end of Q3. This will provide us with incremental takeaway capacity that is key while the pipeline system is being expanded. In Q2 2024, total revenues saw to $397 million, a 66% increase compared to Q2 2023 and 25% above the previous quarter, driven by strong production growth as well as an increase in realization prices.

Realized oil prices was $71.8 per barrel on average, up 12% on inter-annual basis. Realized oil price in the domestic market was $73.7 per barrel, including 42% of domestic volumes sold at export parity linked pricing. Net of trucking costs, domestic realized oil prices were $68.9 per barrel. During Q2 2024, we trucked 23% of volumes sold in the domestic market. In the export market, our realization price was $76.6 per barrel. We exported 1.9 million barrels of oil, 22% above the previous year, capitalizing on the strong growth of our production.

Combining sales to international buyers and domestic buyers paying export parity, 64% of our total sales were sold at export parity. Lifting cost was $26.7 million for the quarter, implying a lifting cost per BOE of $4.50. The 31% increase in absolute level compared to the same quarter of last year was driven by higher cost in gathering, processing, compression and power generation to accommodate current production and future growth. On a unit cost basis, our lifting cost was down 6% compared to the same quarter of last year, reflecting our low-cost operating model now fully focused on shale oil.

We expect a dilution of the fixed component of this incremental cost as we continue to ramp up production. Based on our annual work program, our model shows we are on track to deliver on our guidance of $4.5 per barrel for the year. Adjusted EBITDA during Q2 2024 was $288 million, an increase of 90% year-over-year, mainly driven by strong revenue growth. On a sequential basis, adjusted EBITDA increased by 31%. Adjusted EBITDA margin was 70% during the quarter, an inter-annual increase of 7 percent points, reflecting the benefit of the economy of the scale as we deliver robust revenue growth whilst decreasing lifting cost per BOE.

Netback was $48.5 per BOE, a 35% increase year-over-year, reflecting the higher prices and the increase in oil to gas ratio for our sales. Free cash flow during the quarter was $8 million, even as we accelerate CapEx as strong adjusted EBITDA generation boosted cash from operating activities. Operating activities cash flow was $281 million, in line with adjusted EBITDA as advanced payment for midstream expansion of $36 million were funded by a decrease in working capital of $33 million. Cash flow used in investing activities was $273 million, reflecting CapEx of $346 million for the quarter, partially offset by the $74 million decrease in CapEx-related working capital.

Cash at period end was $328 million as cash from financing activities generated $168 million. Net leverage ratio stood at a very healthy 0.56x adjusted EBITDA at quarter end. I will now summarize the key takeaways of today's presentation. During Q2 2024, we continued delivering strong execution of our drilling and completion plan. We tie in 14 new wells in line with our annual guidance for a total of 25 during the first semester of the year. This generated a robust production increase in Q2, both on an inter-annual and a sequential basis.

A strong revenue generation driven by robust well productivity and improved realized oil prices showing with the focus on cost efficiency boosted adjusted EBITDA, which is in the 12 months surpassed $1 billion for the first time in our company's history. We also achieved [ measure ] milestone in preparing our company for future growth, expanding our oil treatment capacity and connecting our operation to the Vaca Muerta Norte pipeline. We also secured a second frac set, which adds flexibility to potentially accelerate our short-cycle high-return capital program as of 2025.

This reflects the contractive view we have on the dynamics of our industry, both globally and domestically and is underpinned by our strong conviction on our ability to deliver value to our shareholders. The first semester has ended on a high note for us and put us on track to deliver on our annual guidance. Before we move to Q&A, I would like to thank our shareholders for their continued support and congratulate the entire Vista team for their [ outstanding ] performance.

Operator, please open the line for Q&A.

[Operator]

[Operator Instructions] Our first question will come from the line of Vicente Falanga from Bradesco BBI.

[Vicente Falanga Neto, analyst]

Miguel, Pablo, Juan and Alejandro, congratulations on the great execution. I had two questions. The first one, could you please comment on your exit production for the second quarter and how your third quarter should look like in terms of output? And then my second question, could you also please provide more details on the reason for the hiring of a second frac crew from Schlumberger? Where should this frac crew go first? And could that speed up drilling in Aguila Mora?

[Miguel Galuccio, executive]

Thank you very much for your question. So starting with the first one, Q2 exit on production. The ramp-up of Q2 was mainly driven by the 11 wells in the three parts that we connect in Bajada del Palo Este during the second half of Q1. On average, we see two of those parts performing within the [indiscernible] and one part at the north, even performing better than [ type goods ]. When you look at the average per month of Q2, we have 63.3 barrels of oil per day as a monthly breakdown. We recorded 60.6% in April, 60.5% in May and almost 70% in June. So if you have to look at the Q3, I would probably go for double-digit growth again, not least than 10%. This is what I will recommend for your model. Regarding your second question about the second frac set.

The second frac set is going to be incorporated; first of all, I mean, there was a very good movement from our people in bringing the second frac set and also taking advantage of the -- we've said a special relationship that we have with our service provider [indiscernible]. The second frac set is going to arrive in the country in Q4 of this year and will not impact 2024 plan. The second frac set was thought about gaining optionality and flexibility to accelerate and deliver our 2025 plan. So that is what we have for the second frac set in mind. So in terms of additional production for 2024, it will not be impacted. But of course, it will give us some room to accelerate [indiscernible] production during 2025.

[Operator]

[Operator Instructions] Our next question comes from the line of Daniel Guardiola Fernandez from BTG Pactual.

[Daniel Guardiola, analyst]

And yeah, congrats for the great results and the impeccable execution. I have two questions from my end. And the first one is related to the approval of the [ Omnibus law ]. That was a recent history that the government claimed in Congress. And I want to know if you can share with us the main positive or potential effects for Vista related to the approval of this deal. And more specifically, if you can comment on the applicability of the rigid chapter, especially to us [indiscernible] to potential acquisitions of companies or acreage in these sectors. So that will be my first question.

My second question, I saw during the presentation that you guys significantly increased your trucking capacity to 27,000 per day. I wanted to know, Miguel, maybe you can share with us what is -- what are your expectations in terms of total trucking towards the end of the year? How do you see that evolving in 2025 once the widely expected additional pipeline capacity comes online? And what are the costs different between trucking and using oil pipelines.

[Miguel Galuccio, executive]

Thank you, Daniel, for your question. So starting with the first one, the [indiscernible] I think the [indiscernible], as you know, I mean, we have two main statements that are important to our industry. One is the principle of no price intervention by the government in pricing of crude oil and products. And the second one is the principle of freedom of exports for crude oil and products as well. I would say these are two very important and good principles that are in the law. And now we will have to wait until the fine print is worked out and how the regulation ends up.

Of course, it's going to be a matter of execution in the sense that how fast that principle can be transmitted in real prices in the reality. Of course, we are positive. The spirit of these principles are good. Now all the players, we have to push and apply it and of course, the fine printing of the regulation is key. So I guess the Secretary of Energy will be focused on that. The second related to the [ rig ], I will say it in my view, is unclear yet. And again, there really have not been regulated yet.

The regulation has to be written and it's unclear for me, the applicability of the [ rig ] to the Upstream business overall is probably more clear regards infrastructure, but it's unclear for the upstream. Nevertheless, I would -- like you said that for Argentina and with the potential that Vaca Muerta have, actually, we have [ rigs ] in the country and the same volume of resources that you have in U.S. with 500 rigs -- using the rig to accelerate a Vaca Muerta is clearly a no brainer for me for the country. Now, I cannot comment on the application since yet it's not clear to me. How it is regulated is going to be key?

Your second question is regard the volumes of truck and cost. So the cost of trucking for us is approximately in the range of $15 per barrel. In Q1, we truck around 2,000 barrels. In Q2, we truck around 8,000 barrels. This has an impact of a cost of $11 million. Yes, 8,000 barrels per day. And in Q3, we plan to transport by truck around 13,000 barrels oil per day.

So again, impacting cost is around $20 billion. Q4 will really depend on the starting of OldelVal. So when it start in Q4, OldelVal is going to basically make a difference on how much we truck in Q4. I will say -- I will assume around 20,000 barrels oil per day. And Q4 -- this is Q4. And 2025, you should see the trucking loading down and disappear as OldelVal fully speed and also in the second half of 2025, we should have the station for OldelVal coming into place.

[Operator]

[Operator Instructions] And our next question comes from the line of Alejandro Demichelis from Jefferies.

[Alejandro Demichelis, analyst]

Congratulations on the quarter. A couple of questions, if I may, please. The first one is could you please give us how you're viewing the local pricing evolving from here. Now you're saying you have about 64% of total volumes sold at export parity. How do you see that evolving? That's the first question. And then in terms of the second question, how do you see the export volumes also evolving. And Miguel, you mentioned, it will depend a little bit how you see OldelVal. But what's your best guess today in terms of the OldelVal situation?

[Miguel Galuccio, executive]

Thank you, Alejandro, for your question. So in terms of pricing, you -- as we mentioned in the presentation, Vista average realized oil price was around $72 in Q2 2024. This was 12% above we have year-on-year, and we were 2% above on the last quarter. That was mainly driven by the 14% year-on-year increase in domestic prices. We went from $60 per barrel in Q2, we were at $68. So that taking into consideration [indiscernible] for the realized price of $85, we have a discount of $2.5. So we have a sale price of $82.5, and that give us a realized price of $76.6 with a net of 8% of export tax.

Regard the evolution of that, our total export this quarter was 38% of the total volume and the export parity total was 64% of the total volume. If we assume that in Q3, our export will move from 38% [ let's say ] towards 50% of the volume. I think we should expect that the export parity over the total will be in Q3 around 70%. So of course, the key will be, and I think for the volumes that we are putting in production and we're expecting to put in production in Q3, achieving 50% of our volume going to export, I think it's feasible. And I think I answered your two questions, Alejandro.

[Alejandro Demichelis, analyst]

Okay. That's great. And Miguel, now you have better visibility going at least into the first half of 2025. How do you see that 2025 evolving? Obviously, there are a lot of moving parts there.

[Miguel Galuccio, executive]

2025, I mean, we clearly -- our guidance for 2025, if we exceed this year at 89,000 barrels per day is basically outdated already. Therefore, you need to expect that at some point this year, we will review that guidance. And also, if you are going to model now, we have today no reason to reduce activity since everything is going well. We will end up this year with 54 wells -- so I will take at least same CapEx to drill another 54 wells for next year.

[Operator]

[Operator Instructions] Our next question will come from the line of Tasso Vasconcellos from UBS.

[Tasso Vasconcellos, analyst]

And good to see the great execution from the company. Miguel, maybe a follow-up question here on the next year's guidance. We know that it might be updated since you last released in September last year. But if you could at least provide your expectations in terms of the exit rate for this year, what might be the exit rate in terms of production for next year? Because based on the new equipment set and around 55 barrels per year, we do have a view here that you might fully anticipate the 2026 guidance for 2025 at some extent.

So it'd be great to hear your thoughts on maybe how much of production could you guys deliver at the beginning of the year and by the end of the year of 2025. My second question is on the potential M&As for Vista. We know that Exxon is selling some of the assets used in the media report that you guys and other players are bidding this process. So if you could also provide some update on this divestment process from Exxon and maybe other M&A opportunity, I would appreciate that. Those are my questions.

[Miguel Galuccio, executive]

Thank you, Tasso, for your question. And look at -- starting with 2025 forecast. As I mentioned before, again, I mean you could expect that before the end of the year, we guide you again since our current forecast seem to be shy compared with the results that we are having. Nevertheless, you have to look at 2025 that we are starting already with three rigs and three new rigs because we will have the two that [ exist ], and we will change one of the ones we have today in October with a new state-of-the-art drilling rig that is coming in.

And we will have a second frac fleet. I mean, to execute 54 wells this year, with one frac fleet we were on the limit. So we will have -- as I said before, we will build additional optionality and capabilities to accelerate with a second frac set. Therefore -- and we will exceed this year probably if everything goes well and third quarter is key at around 89,000, 90,000 barrels oil per day. Therefore, you already know that 2025 number that we put in the guidance is obsolete. So I will assume in terms of activities at least, as I said before, 54 wells.

That is what we're going to deliver in 2024. And I cannot comment on production, but I'm sure we will update that as soon as possible. This is related to 2025. Related to Exxon, as I said before, and I cannot comment much on that, and I'm sure you understand because it's a process where confidentiality being -- is important. We see that we are participating in the process. I think we are a competitive leader. It's a very competitive process. And again, I mean, it's not going to change the future of Vista [ at all ]. As I said before, it's a night you have. And we will compete hard to see what is the result.

[Operator]

[Operator Instructions] And the next question comes from the line of Marina Mertens from Latin Securities.

[Marina Mertens, analyst]

I have two questions. The first one, regarding your recent equipment update, you mentioned that the new frac set will arrive by the end of the year. But could you provide an update on the current status of the new drilling rig? Is it already operational or if not, when do you expect to begin impacting your operations? And the second one, over the last quarters, you've been increasing your trucking and transportation while OldelVal project is underway. If there are any delays or any additional delays in the OldelVal projects or eventually in the Vaca Muerta tool project -- to what extent could trucking capacity be expanded?

[Miguel Galuccio, executive]

Thanks, Marina. Good question. Look at -- in terms of the equipment and in terms of the third rig, we are drilling with a third rig since Q1 this year. The only thing that you will see that in the third quarter, most likely in October, we will change one of those rigs with a new rig that is a state-of-the-art coming from Houston so it should not impact our ability to deliver what we have to deliver, [ we will just ] exchange rigs. And the frac set will probably come toward the end of the year. In terms of a potential delay of OldelVal, [ Oleoductos ] I think we are -- first of all, I would say that we aren't expecting a delay as we get closer to the date of finalization, we have better visibility on [indiscernible] going to be delivering.

Nevertheless, when you look at our capacity today with OldelVal, it's around 92,000 barrels per day. This is the capacity that we have to evacuate. This is composed of 43,000 that we have from the existing pipeline of OldelVal. We are exporting today 7,200 barrels of oil per day to Chile, but that can be expanded in Q3 probably to 9,000 and the capacity -- the total capacity is 12,000. And our -- I would say, our new trucking capacity is 30,000 barrels of oil per day from which, as I mentioned before, in Q3, we probably used [ 37,000 ] of that. So with additional trucking capacity, we are in good shape. In case we have a delay on OldelVal in Q4, we will manage to offload our production.

[Operator]

[Operator Instructions] Our next question come from the line of Andres Cardona from Citi.

[Andres Cardona Gómez, analyst]

Hi. Good morning, everyone. Congratulations on the execution of the program. I have two questions. The first one is, given the new capacity that you have on drilling and fracking, how do you imagine the time allocation of this capacity into the different asset blocks that you have? And the second one is there was an increase of some $0.20 on the lifting cost. I know it's in line with the guidance, but just wanted to understand what drives the delta between the first and the second quarter.

[Miguel Galuccio, executive]

Thank you, Andres, for your question. So I mean, in terms of priorities on the development and the new equipment [indiscernible] still the same is our development hub is Bajada del Palo Este and as well is Aguada Federal. This is where we are going to concentrate our activity. As you know, we have a deep portfolio there of 1,000 wells. We have drilled [ plenty ] of those. So plenty of room for us, and we will continue allocating our activity there. When it come to listing costs, Q2 we recorded $4.5. And basically, I would say two reasons, the $4.5.

One, we spent [indiscernible] spent money in gathering, processing, compression, power generation to accommodate the current production and the future production growth. We have to be ahead. Usually, all those projects, you have to front-load it in order to accommodate the production growth. The second part of the lifting costs was cost pressure driven by flat FX and peso inflation. We are seeing a bit of a headwind in OpEx. The peso appreciation was 12% in real term between Q1 and Q2. That is approximately $2 million of sequential lifting cost increase that basically came from that trend. Not much reason or leasing costs. We continue doing a very good job, and we are not going to change our guidance for this year.

[Operator]

And I'm not showing any further questions in the queue. I would now like to turn the call back over to Miguel Galuccio for any closing remarks.

[Miguel Galuccio, executive]

All right and ladies, thank you very much for the questions. It has been a very good quarter to us. We expect to continue delivering on the promise. Thank you very much for your participation, and have a good day.

[Operator]

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.