Vista Energy, S.A.B. de C.V. (NYSE:VIST) Q1 2024 Earnings Call Transcript

Vista Energy, S.A.B. de C.V. (NYSE:VIST) Q1 2024 Earnings Call Transcript April 25, 2024

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Operator: Good day and thank you for standing by. Welcome to Vista’s First Quarter 2024 Earnings Webcast Conference Call. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. [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 Strategic Planning and IRO. Please go ahead.

Alejandro Cherñacov: 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 US 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 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 : Thanks, Ale. Good morning, everyone. And welcome to this earning 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 performance basis. Oil production was 47,300 barrels per day, 15% above previous quarter, also on pro forma basis. Total revenue during the quarter were $317 million, flat year-over-year. We maintained lifting costs 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 $0.5 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 0.58 times 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 pro forma basis, adjusting by the production of the transferred conventional assets. Without such adjustment, 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 performance basis or 7% without such adjustment. 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 mid-March. This activity has little impact on Q1 production, but will boost Q2 production. We are currently producing 62,000 BOEs per day and have tied in a 3-well pad in Bajada Del Palo Oeste last week, the first part of Q2. We forecast a double-digit production growth on 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 and import a third high-spec rig to Argentina. This rig is scheduled to start operating in our development hub during the second semester, replacing an on-call high-spec rig currently working in our operation to front load the 2024 drilling activity. This will allow us to deliver four to eight 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 above 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 oil realization prices, which were up 6% year-over-year for an average of $70.3 per barrel during the quarter.

Realized 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 cost per BOE was $4.3, 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 BOE, 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 effects and the blue chip swap effects. 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.

It was driven by two factors. Firstly, lower cash from 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 financial 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 0.58 times adjusted EBITDA at quarter end. I will now summarize the key takeaways of today’s presentation. During Q1 2024, we delivered a 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 leads 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 four to eight 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 target. Operator, please open the line for Q&A.

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Q&A Session

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

Bruno Montanari: 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 four to eight additional wells per quarter sustainable or can it be higher? So, any color you can give on the contribution of the rig on an ongoing basis would be super helpful? 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: 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 barrels per day in Q1 2024. That is what we did. In the plan, we said that we are going to have an average of 68 to 70 barrels of oil per day for 2024. That plan didn’t consider adding a high-spec third rig. How we see things today? So first of all, I will say that we are entering Q2 with a very good production starting point. If you take the production of April 2023, that was the last one that I checked, we were producing 62,000 barrels of oil per day. And we expect to finish Q4 with an average of 85,000 barrels of 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 factored 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 El Palo Oeste 22 that is a very good part of three wells that yet has reached peak oil. We have Bajada El Palo 23 that also shows a very good production. It’s a part of five wells yet has reached peak oil. We have Bajada El Palo Oeste 24 that is in flow back. And we have a Bajada El Palo Oeste 25 that is going to be tying in May and probably will start to show some oil in June. So saying all that, I feel 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 we are basically putting the bar in terms of growth 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. We signal 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 [indiscernible] rate. Going to cash flow. So, 2023, we spend $760 million of CapEx, and we end up the year with a cash flow 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, has the effect of the export cargo that came late.

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 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.

Operator: Our next question comes from the line of Daniel Guardiola from BTG Pactual.

Daniel Guardiola: I have a couple of questions. So my first one is related to production. I see you have this goal to basically increase production by the Q4 by roughly 30,000 barrels of oil per day. And I want to ask Miguel, this is by far the most aggressive inter-annual growth in production that this company has experienced or is going to experience 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 pipelines. 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 costs of increasing trucking evacuation capacity. So that’s in terms of production. And if I may just squeeze another one, and it’s related to the exports. We saw during the Q a significant decline in exports as a percentage of total volume 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?