Vista Oil & Gas SAB de CV

NYSE:VIST

Earnings Call Analysis

Vista's Q3 2023 Results Show Strong Growth

In Q3 2023, Vista focused on drilling in Bajada del Palo Oeste, driving oil and total production up by 6%, replacing production lost from Q1 asset transfers. Total production was 49,500 boes/day, with revenues of $290 million, up 25% from Q2. Adjusted EBITDA rose to $226 million, a 49% growth, with margins at a robust 78%. Despite a 13% year-over-year revenue drop, lifting costs decreased to $4.8/boe, outperforming guidance by 5%. However, the quarter saw negative free cash flow of $43 million, due to working capital hikes, while net leverage maintained solidity at 0.7 times adjusted EBITDA. Growth in exports and operational efficiency paved the way for this progress, even as the company targets higher production of 60,000 boes/day in Q4, aiming for a 65,000 boes/day exit rate.

Robust Output and Revenue Growth

Vista's strategic focus on high-margin shale oil assets yielded a substantial increase in production and revenue for the third quarter of 2023. The total production surged to 49,500 barrels of oil equivalent per day (boe/d), marking a significant 6% rise from the prior quarter, led by an oil output of 41,500 barrels per day. Growth momentum was highlighted by a striking 25% revenue increase from the previous quarter, achieving a total of $290 million.

Operational Efficiency and Financial Stability

Vista's operational advances are mirrored in its reduced lifting costs and vigorous financial metrics. The efficient production model brought lifting costs to $4.8 per boe, indicative of cost-effective operations. Furthermore, the company's finances remained robust with an adjusted EBITDA of $226 million, which is a 49% sequential growth, while maintaining a healthy net leverage ratio at 0.7 times adjusted EBITDA. Yet, the company experienced negative free cash flow of $43 million, attributable to a temporary surge in working capital.

Future Production Outlook

Looking ahead to the fourth quarter of 2023, Vista predicts a total production of 60,000 boe/d, culminating in a 65,000 boe/d exit rate. This growth trajectory is in line with the year's operational plan and is even slated to exceed the initial well-connection guidance. With plans to activate a total of 23 new wells, the company is optimistically positioned to meet, and potentially surpass, future production targets.

Revenue Amid Market Fluctuations

Despite a year-over-year reduction of 13% in total revenues, the third quarter saw a 25% boost compared to Q2 2023, a result of increased export activities and higher realized oil prices. The quarter's realized oil price averaged $67.6 per barrel, depicting a modest 5% quarter-over-quarter increase, alongside robust export figures. However, domestic oil pricing faced headwinds with a price drop to $56 per barrel, influenced by the Argentine peso's devaluation. The reduced domestic prices affected adjusted EBITDA margins lightly but the export sales footprint was strengthened, accounting for 55% of oil volume and 61% of oil revenues.

Cost Management and EBITDA Performance

Vista continues to leverage its new operating model, focusing on lucrative shale assets, which has led to a considerable year-over-year decrease of 37% in lifting costs. The company anticipates maintaining this cost performance metric in Q4 and surmises that it will outdo its yearly lifting cost guidance by around 5%, targeting approximately $5.2 per boe. While adjusted EBITDA saw a slight 3% interannual decline, the outlook remains promising due to the steady cost management strategies and the projected increase in upcoming production.

Earnings Call Transcript 2023-Q3

[Operator]

Good day, and thank you for standing by. Welcome to the Vista's Third Quarter 2023 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 Cherñacov's Strategic Planning and Investor Relations Officer. Please go ahead.

[Alejandro Cherñacov, executive]

Thanks. Good morning, everyone. We are happy to welcome you to Vista's Third 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 you 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, 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. Our 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, executive]

Thanks, Ale. Good morning, everyone, and welcome to this earnings call. Today, I'm pleased to present our results for the third quarter of 2023 during which we record a strong growth on a sequential basis. During Q3, we focused on drilling and completion activity in Bajada del Palo Oeste. This led to a sequential growth in both oil and total production that allow us to largely replace the production from the conventional assets with [indiscernible] Q1 2023. Total production reached 49,500 BOEs per day during the third quarter, which was 6% above Q2. Oil production was 41,500 barrels per day, 6% above Q2. Total revenues during the quarter were $290 million, 25% above the previous quarter. Lifting cost was $4.8 per BOE, reflecting our successful strategy to fully focus on our higher-margin, lower carbon and short-cycle shale oil assets. Capital expenditure was $181 million, mainly driven by 11 well drilled and 12 wells completed during the quarter. In Q3 2023 adjusted EBITDA was $226 million, a sequential increase of 49% on the back of revenue growth and flat lifting costs. Adjusted net income was $123 million, implying a quarterly adjusted EPS of $1.30 per share. We recorded negative free cash flow of $43 million during the quarter. This was mainly driven by a temporary increase in working capital that impacted cash flow from operation activities. Finally, the net leverage ratio at quarter end was a solid 0.7x adjusted EBITDA. I will now deep dive into our main operational and financial metrics. Total production during Q3 2023 was 49,500 BOEs per day, down 2% on an interannual basis. This is explained by 2 factors. First, the transfer of the conventional assets reduced our production by almost 6,000 BOEs per day. On a pro forma basis, adjusting for the Trumper asset, total production grew 12% year-over-year. Second, transportation capacity limited our production growth during the first semester. This has been unlocked in soon as we started exporting oil via pipeline to Chile. Our development plan during 2023 was therefore backloaded in terms of new wealth connections.The tie-in of 12 new wells in Bajada del Palo Este during the third quarter led to a sequential growth of 6% in total production. Moreover, the monthly breakdown reflects a solid ramp up during the quarter with 53,000 BOEs per day of total production during September 2023. Production ramp-up started in August as the tie-in of Bajada del Palo Este 16 and Bajada del Palo Este 17, coresponding to the cube development pilot we were running in Bajada del Palo Este was delayed to late July. During the third quarter of 2023, we made solid progress in Bajada del Palo Este , where we focus the activity of our 2 drilling rigs after finalizing the pilots in Aguila Mora and Bajada Palo Este in Q2. This led to 12 new wells connected during the quarter passed by Bajada Palo Este 16, 17 and 18. Additionally, 4 well Bajada Palo Este 19, which was completed in September, was tie-in October and is showing very solid productivity. We also finished drilling Bajada Palo Este 20, a 3-well pad with all the wells targeting La Cocina. This path is currently under completion and is scheduled to be tie-in during November. Finally, we are currently drilling 4-well pad in Bajada Palo Este 21, which we plan to complete and connect before year-end. We expect to tie in a total of 23 new wells during the second semester, driving further production growth. We forecast total production of Q4 2023 at 60,000 BOEs per day with an exit rate of 65,000 BOEs per day. The tie-in of 23 new wells during the second semester is in line with our activity guidance for the year and true well above the original guidance. On an annualized basis, this is an activity target we set for 2024 during our last Investor Day, reflecting our capability to deliver 46 new wells per year. During Q3, we also made solid progress to increase midstream capacity. We completed the upgrade of our crude oil treatment plan, leading to a total capacity of 70,000 barrels of oil per day. Stage 1 of Oldelval expansion is well advanced with 7,500 barrels of oil per day of trunk pipeline capacity already available for Vista and another 5,000 barrels per day planned for mid-2024. The Vaca Muerta Norte pipeline is on track to be commissioned before year-end. This is expected to add another 12,500 barrels of oil per day of strong pipeline capacity for Vista. Expansions to our oil treatment capacity and transportation capacity constitute key inhibitors through our updated strategic plan, which has a production target of 70,000 BOEs per day for 2024 and 100,000 BOEs per day for 2026. Total revenues in Q3 2023 were $290 million, 13% down year-over-year and 25% above Q2 2023 on the back of higher export volumes and oil realization prices. Rallied oil price for the quarter averaged $67.6 per barrel, down 12% year-over-year and 5% above the previous quarter. The average realized domestic price was $61.70 per barrel, while the realized export price was $74.9 per barrel. Domestic crude oil prices were impacted by the drop in prices to $56 per barrel again following the devaluation of the Argentinian peso from August 14 until the end of October. This led to approximately $5 million of lower adjusted EBITDA during Q3 2023. Sales to export markets accounted for 55% of our volume and 61% of oil revenues. We supported 2.2 million barrels of oil composed by 4 cargoes through the Atlantic, including the cargo deferred from Q2 and 0.4 million barrels by pipeline to Chile. Realized gas prices decreased 24% interannually to $3.3 per million of BTU mainly driven by lower price paid by clients in industrial segment. The sequential decline in realized gas prices was driven by lower gas export volumes. Lifting cost was $21.9 million for the quarter, a 37% decrease vis-a-vis Q3 2022. Lifting costs per BOE was $4.80, 35% below the same quarter of last year. These results continue to reflect the positive impact of our new operating model, fully focused on our shale assets following the transfer of the conventional asset in the first quarter of the year. We expect a similar lifting cost performance during Q4. On this basis, we are on track to outperform our full year lifting cost guidance by around 5% with a forecast of approximately $5.2 per BOE for the year. Adjusted EBITDA for the quarter was $226 million, a slight decline of 3% year-over-year. The interannual decrease in revenues was almost fully offset by the lower lifting costs and $20 million of other income generated by the JV with Trafigura. We connected the last 12 wells under the JV during the quarter. During Q3 2023, we recorded a strong sequential expansion of margins. Adjusted EBITDA margin was 78%, an increase of 12 percentage points vis-a-vis Q2. Additionally, we recorded a netback of $49.8 per BOE, 39% above the previous quarter. These results were mainly driven by savings in lifting costs, additional sales volumes and other income from the JV with Trafigura. We expect adjusted EBITDA to be between $215 million and $230 million in Q4, noting that Q4 will not include income from the JV with Trafigura. Also that there is uncertainty around the realized oil prices, both on the domestic Medanito and international benchmark. During Q3 2023, cash from operating activities was $170 million, reflecting income tax payments of $22 million and a temporary increase in working capital of $66 million. Cash flow used in investing activities was $161 million, in line with the capital expenditures of $181 million for the quarter. During Q3 2023, we recorded negative free cash flow of $43 million. We issued a dollar-linked bond for $70 million at a very competitive term, 5-year bullet maturity and 0.99 coupons. We also repaid $22.5 million corresponding to the final installment of our SDK loan, further reducing the share of our cross-border U.S. dollar debt. Net leverage ratio stood at 0.7x adjusted EBITDA at quarter end. Finally, cash at the end of the period was $174 million. To conclude this call, I will summarize today's key messages. During Q3 2023, we made robust progress in Bajada del Palo Este. The tie-in of 12 new wells leave us well on track to deliver 31 tie-ins for the year. This activity increase has led to a substantial production ramp-up during the quarter. Considering that another 11 wells tie in are scheduled for Q4, we are forecasting 60,000 BOEs per day of total production during such quarter. This could leave us well placed to achieve our 70,000 BOEs per day target during 2024. We have made solid progress in increasing treatment and transportation capacity, which are key pillars of our growth plan. Our oil treatment plant has recently been upgraded to 70,000 barrels oil per day. The Oldelval expansion has recently added 7,500 barrels of trunk pipeline capacity for Vista, which will be increased further by the Baca Amargo Norte project and the completion of the second part of Stage 1 of Oldelval expansion. Finally, we recorded strong financial metrics reflected by earnings per share of $1.30 and adjusted EBITDA margin of 78%. To wrap up and before we open the call for questions, I wish to thank our employees for their hard work and commitment during the quarter. I also thank our stockholders for their continued trust in our company. We will now move to Q&A. Operator, please open the line.

[Operator]

[Operator Instructions]. Our first question comes from the line of Rodrigo Nistor from Latin Securities.

[Rodrigo Nistor, analyst]

Congrats on the results. So I have 2 questions. Here Argentina's current political and microgaming landscape, how do you anticipate the trajectory of domestic prices? And then also, what are your expectations regarding discounts on export prices and how you're positioning to optimize profitability in these conditions.

[Miguel Galuccio, executive]

Rod, thank you for your question. Look at pricing going forward, we are seeing first pool important we are seeing port pricing with upside at least of $2 or $3 more than Q2 as a consequence of higher brand. And also, we believe the discount of our export pricing will be probably for Q4 below probably $2 to $3. In terms of local prices, October, we are still selling at $56 per barrel. November and December, we are under negotiation with the refineries. The gap today between export parity and domestic prices is around 40% therefore, the local market needs to start to normalize. Definitely, the normalization, it will be very important to drive investment in Banca Morta and generate more volumes for the country. So I expect that November and December, there should be a push for normalization in the local market.

[Operator]

Our next question comes from the line of Walter Chiarvesio from Santander.

[Walter Chiarvesio, analyst]

Congratulations for the results. My question is regarding the differential FX scheme that the government has introduced for the oil and gas companies. What is the impact for the fourth quarter? And what do you think this could evolve actually for the fourth quarter because you have the elections in the middle and if you think that this could continue in the first quarter or second quarter next year, what are your view about it?

[Miguel Galuccio, executive]

Walter, thank you for your question. Yes, this program that we call on oil and gas dollar. We include in the program export for an equivalent of $135 million, which we liquidate 75% through the Central Bank and 25% through the blue-chip swap. That will generate for us an additional revenues of around $55 million. And our calculation in financial income, we expect around a net income impact between $10 million and $30 million. Regarding the continuation of this program after elections, to be honest with you, I don't know. It will all depend more on the macroeconomical program that the next president put in place.

[Walter Chiarvesio, analyst]

And a follow-up question, if I may, is how this dynamic is impacting your production cost vis-a-vis higher revenues due to the differentiated currency. In terms of margin, looking for, what I mean. I guess that for the fourth quarter, the pressure on cost of notes may be higher, I guess.

[Miguel Galuccio, executive]

No, Walter. I don't think it will impact our margins, not at all. I think this will be more related to financial income, but not the margin per se.

[Operator]

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

[Oriana Covault, analyst]

This is Oriana Covault with Balanz. I have 3. If we could go one by one, that would be great. The first one is just a follow-up on the expected volumes for the fourth quarter. Recalling the guidance that you have set for 2023, 55,000 barrels per day, it seems that you might be running a tad behind with 60,000 barrels per day expected for the fourth quarter. So I just wanted to understand if we should perhaps expect a lower production number for the full year? And what could additional drivers be there for increased volumes . That would be the first one.

[Miguel Galuccio, executive]

Thank you, Oriana for your question. Look so let me first target recap of Q3. So Q3 production in barrel of oil equivalent was 49,500 barrels of oil equivalent per day. It was pretty much flat with last year and quarter-on-quarter, were 6% increase. In terms of oil production was 41.5%. So that was driven by the timing of the 2 wells, as I explained in the call from Bajada del Palo Este, and we have the delay of the timing of the cube to [indiscernible] is supposed to be tie-in early July, and that was basically the delay that we are having and the shortage that we're having on production. On a pro forma basis, and this is basically after the transfer of conventional assets, the production increased year-on-year 12%. And if you look at the monthly breakdown in July, we were 45.6% barrels of oil per day, 49,000 barrels per day in August and 53,000 barrel oil per day in September. So in Q4, we will connect additional 11 wells, which we expect to be more or less a 60,000 barrel oil per day by Q4 average. So our exit rate in order to be 60 average, you can assume that it will be probably around 65 barrel oil per day equivalent. This will leave us well on track to deliver our 70,000 barrel of oil equival in per day average for the next -- of the next year '24 as we have defined a target. So I think this is pretty much what explained. And the only delay that we have in production was, as explained, coming from Q.

[Oriana Covault, analyst]

Yes. That's great. Just another one, an understanding the natural gas businesses is rather marginal to test. But just I would notice this decrease in prices for the industrial segment. So is there any color that you can share on this regard vis-a-vis the plan gas prices that they were very differentiated.

[Miguel Galuccio, executive]

Yes, no additional color as to everything that you know, I mean, commercial gas prices were lower due to the Argentina current situation and the valuation and so on, no more to read into.

[Oriana Covault, analyst]

Okay. And just one last one. Regarding the working capital drag for your free cash flow generation and any impact in terms of the increase in receivables that we saw quarter-over-quarter. Is this normalizing already through early fourth quarter?

[Miguel Galuccio, executive]

It normalized. As you know, I mean, this is the effort that basically was delayed the collection from September to October and is normalized.

[Operator]

Our next question comes from the line of Matias Tostes from Citi.

[Unknown Analyst]

Congratulations for the results. I'd just like to hear some of your thoughts regarding the devaluation after the peso and how is that playing vis-a-vis your lifting costs? And how do you think that that could move forward, especially after the elections, if there's another devaluation to.

[Miguel Galuccio, executive]

Mateos, thank you for your question. Look a devaluation could help to reduce lifting costs marshall. And we always -- after the devaluation, we have an impact on expenditures and particular lifting costs that, of course, in the different cycles of Argentina start to catch up again. And I think you can assume that in a period of a year, usually have a neutral effect. But the main impact on listing cost reduction will come from production increase as we have seen and demonstrated many times in the past, and we will start to see partially that impact in Q4. So if you have to basically put an impact in lifting costs, you should look at a production increase. That is what you're going to derive the lifting cost down.

[Operator]

Thank you. I would now like to turn the call back over to Miguel Galuccio for closing remarks.

[Miguel Galuccio, executive]

Well, thank you very much. It was a good quarter. I would like to continue thanking you for the support and the participation on those calls and looking forward to see you in Q4. Have a very good day.

[Operator]

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