Vista Energy S.A.B. de C.V.

Good day and thank you for standing by. Welcome to the VISTA second quarter 2021 results 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. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Alejandro Chernacov. Please go ahead.

Thanks. Good morning, everyone. We are happy to welcome you to VISTA's second quarter 2021 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 questionnaire statement on slide two. 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. The conciliations 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 Oil & Gas, 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. The tickers of our common stock are Vista in the Bolsa Mexicana de Valores and BIST in the New York Stock Exchange. The ticker of our warrants is BTW4088. I will now turn the call over to Miguel.

Thanks Ale, good morning everyone and thank you for joining this earning call. I am delighted to share with you our results of the second quarter of 2021, during which we have obtained understanding achievements across all key operations and financial metrics. We made good progress with respect to our 2021 guidance on the back of a strong execution in terms of drilling and completion phase in Bajada del Palo Oeste. Q2 2021 was our fourth consecutive quarter with total production growth, achieving a record of 39,900 DOC per day. This implies a 67% increase year over year. Oil production was up 101% year over year and 19% sequentially boosted by the tie-in of PAD number 7 in Embajada del Palo Este in March. It is fair to say that Q2 2020 is a low comparison base, even the production shut-in in response to the drop in demand due to the COVID pandemic. This comment applies to most metrics compared on inter-annual basis. Total revenue were $165 million With triple revenues year over year, but also performed robustly quarter over quarter, mostly driven by the increase in oil production and stronger realized oil prices. In hindsight, we made a good decision to ramp up activity in late Q3 last year, so we are now capturing higher oil prices across a stronger production base. Listing costs per BOE was $7.3 per quarter, a 15% reduction year-over-year, reflecting lower incremental costs in Bajada del Palo Oeste, which continued diluting our fixed cost base. Adjusted EBITDA was $102 million, confirming a turning point in our performance and achieving 62% adjusted EBITDA margins. Expenditure for the quarter was $75 million in line with the execution of our 2021 guidance and reflecting the completion of our third path for the year in Bajada del Palo Este. During Q2 2021, we generated positive free cash flows driven by Rabat's cash flow from operations and making good progress in liability management. Cash at the end of the period was $237 million Net debt stood at $368 million. We will now deep dive into the main operational and financial metrics, so please turn to slide 4. Total debt reduction during Q2 2021 was up 67% year-over-year and 17% quarter-over-quarter. Halfway through the year, this leaves us ahead of our original 2021 guidance. Production growth was driven by our flagship development in Bajada del Palo Este, where we sat in Path 7 in March. Given the high share of oil in this development, we see greater impact in the oil production metrics, which increased 101% year-over-year and 19% quarter-over-quarter. During Q2 2021, we executed work-over projects in two gas plates. which drew a gas production increase of 10% quarter-over-quarter and 5% year-over-year, allowing us to comply with our planned gas commitment. Total revenues in Q2 2021 were $165.3 million, a strong increase year-over-year, having doubled both production and realized oil prices. Sequentially, total revenue increased by 43% driven by the additional production generated by the tie-in of Pad No. 7 and higher oil and gas prices. Proliferative price in Q2 2021 was $54.9 per barrel, up 107% year-over-year and 21% quarter-over-quarter. The domestic market accounted for 83% of our total sales in Q2 2021, reflecting an improvement in domestic crude oil price to the $64-$55 per barrel range. Sales to export market accounted for the remaining 70% of oil volumes, with a contract signed when Bren was trading around $63 per barrel. We are continuing with our strategy of building a sale book early on to lock in revenues and fund investment activities. Most of our Q3 oil sales, with a mix of domestic and export volumes, have already been locked in, at an average realized price of approximately $56 per barrel. Gas prices have increased 59% year-over-year to $3.5 per million BTU, boosted by the planned gas winter price of $4.1 per million BTU, applicable to approximately 60% of our total volumes, starting May 2021. Additionally, industry prices increased from $1.9 per million BTU into 2020, to $3 per million with you in Q2 2021. Moving to slide six, we see our continuous improvement in terms of listing cost per DOE. Total listing cost per the quarter was $26.5 million, partially driven by increasing oil fill activities, but also by the impact of a stronger peso in our operating contracts. We have seen this swing in effects in the past, and they always have minor impact in our total cost. The graph on the right shows how the production increase in Baja del Palo Este continues to absorb our feed cost base, driving a reduction of 3% quarter-over-quarter to $7.3 per DOE. In Q2 2021, Ashasti WDA stood at $102.3 million. This implies an expansion of nighttime year-over-year and a 75% growth quarter-over-quarter, reflecting the boost in revenues as described earlier and lower lifting costs per VOE. As of the DBA, margin was 62%, reflecting an improvement of 12 percentage points quarter-over-quarter and 42 percentage points year-over-year. Next back for the quarter was $28.2 per VOE, $9 per VOE above Q1 2021, as a stable cost per VOE allow us to capture the full increase in realized prices. Moving to our financial situation, which I believe is also a highlight of this quarter, we were free cash flow positive having generated 35.5 million dollars in Q2 2021 with a capital level of 80.5 million dollars. Cash flow from operating activities in Q2 2021 shows a sequential increase of 270% for a total of 116 million dollars. This reflects an increase in cash flow generation driven mainly by higher revenues. The cash flow for investment activities was $80.5 million. In line, we capped activities of $74.6 million. Approximately 85% of the investment was deployed in Baja del Palo Este. Cash flow for financing activities was $37.8 million. During Q2 2021, we repaid a total of $30.6 million in bank loans. We successfully raised the peso equivalent of 71.4 million dollars in Argentinian capital market. We issued 38.8 million dollar bond in pesos dollar linked due in two years with a 4% coupon and additionally a 32.6 million dollar bond in pesos inflation adjusted in 3.75 years with a coupon of 4%. Additionally, during July, we will draw $24 million from available credit line with local banks. This cash raise with new debt is being fully utilized to repay all the debt. We have already repaid $45 million corresponding to our top-time loan and we will repay $50 million corresponding to our Series 1 bullet burn. Under these assumptions, total debt as of August 2nd is forecasted at $534 million, which is $16 million lower than Q1 2021. Our increasingly strong operating and financial performance during the last quarter have led to progressive normalization of financial ratios. We were negatively impacted one year ago when the lockdown restrictions softened crude oil prices and sell volumes. In Q2 2021, net leverage ratio was 1.7 times adjusted EBITDA. Based on our plan for the next two quarters, we are forecasting a net leverage ratio of approximately 1.1 times adjusted EBITDA by year end. Our flagship development in Baja del Palo Este continues to dry growth. The chart on the left of line 9 shows our total shed production since we started this project and the tie-in date of each pad. The tie-in of pad number 7 at the end of the previous quarter boosted shed production in Q2 2021. Pad 8 landed two wells in La Cocina and two wells in De Organico with an average lateral length of approximately 2,600 meters and 54 average track stages per well. Normalized drilling and completion cost per well was $9.5 million in line with our previous path. We are currently finishing drilling the four wells of path number nine, which we completed and tie in in late Q3. I will now share a summary of our business development activity. In June 28, we signed an investment agreement with Trafigura for the joint development of five paths of four wells each in Bajada del Palo Este. The price tag paid by Trafigura is $5 million per path, which equates to $55,000 per acreage. The working interest In said part is 80% to Vista and 20% to Trafigura, with each partner paying its share of world capex and receiving pro-rata production. Trafigura will pay to Vista an operator fee that covers all direct and indirect costs associated with its production. Vista remains 100% title holder of the concession and operator of the block. Previously, we have sold our remaining 10% of the Corino-Namargo-Sur-Este concession to Shell for $21.5 million. The implied valuation was about $13,000 per acreage, which is one of the highest multiples for a concession in Vaca Muerta history. Both deals have a strong strategic rationale. Proceeds have improved our financial position even further. allowing us to accelerate the development of Embajada del Palo Oeste. Also, focusing our capital and team on our core project with the best economics allow us to generate higher returns at a consolidated level. Finally, the deal with Trafigura strengthened the relationship with our key domestic off-taker and one of the most important crude oil traders at a global level.