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

Ladies and gentlemen, thank you for standing by. Welcome to VISTA's first quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker 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. If you require any further assistance, please press star 0. It is now my pleasure to introduce Strategic Planning and Investor Relations Officer Alejandro Chernacov.

Thanks. Good morning, everyone. We are happy to welcome you to VISTA's first quarter 2022 results conference call. I am here with Miguel Galuccio, VISTA's chairman and CEO, and 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. I.F.R.S. However, during this conference call, we may discuss certain non-IFRS financial measures, such as adjusted EBITDA. Reconsiderations 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. 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 VTW408A. 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 first quarter of 2022, showing that Our robust performance across all key operational and financial metrics. During Q1 2022, total production averaged 43.9 thousand BOEs per day, a 29% increase year-over-year. Oil production was up 35% year-over-year, boosted by solid-well performance in Bajada del Palo Oeste. Total revenues in Q1 2022 were $207.9 million, a 79% increase compared to Q1 2021, driven by the production increase and stronger realized pricing. Lifting costs per VOE was $7.8 for the quarter, in line with guidance for the year. Adjusted EBDA was $127.1 million, implying a solid adjusted ability margin of 61%. Capital expenditure for the quarter was $80.6 million, reflecting drilling activity in two paths and the completion of our first two wells in Bajada del Palo Este. During Q1 2022, we generated positive free cash flow of $33 million, driven by robust cash flow from operations. Additionally, we reduced growth debt by $35 million. Adjusted net income of the quarter was a solid $39.1 million. We will now deep dive into the main operational and financial metrics. Total production during Q1 2022 was 43.9 thousand BOEs per day, up 29% inter-annually. Production growth continues to be driven by our flagship development, Embajada del Palo Este, which now represents 70% of our total oil production. In this quarter, production was boosted by path number 9 and number 10. These paths were tied in Q4 2021 and are now producing in line with our tie curve. During Q1 2022, Gas production increased 9% year over year, mainly driven by associated gas from Bajada del Palo Oeste. As shared with the market last week, we are excited with the successful results of our first two wells in Bajada del Palo Oeste, corresponding to pad number 11, next to our flagship development in Bajada del Palo Oeste. Both wells targeted La Cocina Landing Zone of Vaca Muerta and we are completed with an average of 46 stages per well. After 60 days since first oil, the average peak production was about 2,400 BOEs per day per well. This result continues to prove our track record as a top Vaca Muerta operator and the high quality of our assets. More importantly, the location of the wells close to the eastern border of Bajada del Palo Oeste confirms Our geological model. At the same time, it points to the continuity of the play into Valhalla del Paloeste, where we hold further acreage. Path number 11 is the first phase of our five-well pilot program. The next three wells will be drilled in two paths to the east, as shown on the map. Upon completion of the first pilot, we will have a clear basis to upside our portfolio of ready-to-drill wells in Vaca Muerta. In Baja del Palo Oeste, we have finished drilling paths 12 and 13, which will be completed during Q2. We are on track to deliver 24 wells tied in by ERN as per guidance. Total revenues in Q1 2022 were $207.9 million, a strong inter-annual increase driven by the boost in oil and gas production and better realized prices. Realized oil prices for the quarter averaged $64.1 per barrel, up 41% year over year and 6% quarter over quarter. Sales to export market accounted for 33% The domestic market accounted for 67% of oil volumes in Q1 2022. Domestic crude oil averaged $57 per barrel. continuing to show a gradual improvement over the last six quarters. March sales to domestic market were close to $60 per barrel on average. We have already locked in 100% of April and May sales. Regarding export, we have sold one cargo in April with rent above $100. We forecast to sell between one and two additional cargos during the quarter, which should enable us to significantly increase oil revenues during Q2. With domestic prices around $60 mark, we estimate a realized oil price above $70 per barrel in Q2. Realized gas prices increased 48% year-over-year to $3 per million BTU, mainly boosted by the planned gas price of $2.7 per million BTU and industrial prices also of $2.7 per million of BTU. In addition, 10% of our gas volumes were sold to the export market for a realized price of $5.9 per million of BTU, driving 10% quarter-over-quarter increase in average realized gas prices. Total lifting cost for the quarter was $30.8 million, We maintained lifting costs virtually flat quarter over quarter despite pesos effects appreciation in real time. Lifting costs per VOE was $7.8, up 3% year over year, driven by the acquisition of Aguada Federal and Mandurria Norte, and partially upset by the incremental production from Bajada del Palo Oeste, which continues to absorb our fixed cost base. We started executing our lifting cost optimization program in Aguada Federal and Manduria Norte. So far, we achieved a 58% cost reduction in this block from $2.4 million at 50% working interest in Q4 2021 to $2 million at 100% working interest in Q1 2022. We expect further appreciation of the pesos in real term in the coming months. Our current outlook for Q2 2022 is around $8 per VOE. However, driven by the cost savings in Aguada Feria and Bandurria Norte, in combination with the incremental volume from Bajada del Palo Este, we forecast a lifting cost of $7.5 per VOE for the full year. And this is in line with guidance. Adjusted EBDA for Q1 2022 was $127.1 million. This reflects an expansion of 118% year-over-year, driven by strong revenue growth and stable costs. Adjusted EBDA improved 9% sequentially, even though it does not include operating income generated by the J.B. with Trafigura. which added approximately $4.5 million in Q4 2021. Our adjusted VDA matching was 61%, improving by 11 percentage points year over year and 2 percentage points quarter over quarter. Net back was $32.2 per VOE, a 69% inter-annual increase. This was driven by the increase in realized oil price to $64.1 per barrel and an increase in the oil to gas mix with a stable cost per VOE. Oil is now 81% of our total production, driven by the growth in Bajada del Palo Oeste. During Q1 2022, we recorded a strong financial performance with $33 million of positive free cash flow and $35 million of gross debt reduction. Cash flow from operating activities was $112.9 million, reflecting a strong EBITDA generation. Change in working capital for the quarter was negative at $21 million and is the main driver behind the sequential reduction in free cash flow. In Q1 2022, we normalized the collection cycle from our domestic crude off-takers. with whom we have reached an agreement in December 2021 to accelerate payment. Cash flow used in investment activities excluding the payment to Wintershall for the acquisition of Aguada Federal and Maduria Norte was $79.9 million. The main CAPEX drivers in Q1 2022 were drilling activities in Path 12 and 13 in Bajara del Palo Oeste. and the completion of the PAD11 Embajada del Paloeste. Cash flow used in financial activities was $50.1 million, mainly driven by the payment of $45 million of principal of our syndicate loan and $8 million of our bond series IV. Debt stood at $576.2 million at the end of the period Down 6% sequentially. We have already achieved our depth reduction target for the year. Net leverage ratio has decreased from three times adjusted EBDA at the end of Q1 2021 to a healthy 0.8 times adjusted EBDA at the end of Q1 2022. Moving to slide 10, I will present an update of our guidance for the year. Regarding activity, we tie in two shale oil wells during Q1. This is in line with guidance, leaving us on track to tie in 24 wells for the year. Total production was 43.9 million BOEs per day in Q1 2022, in line with plan. We maintain our 2022 guidance of 46,000 to 47,000 BOEs per day, a 20% increase vis-a-vis 2021. As previously discussed, lifting costs for the quarter was slightly higher sequentially. We were expecting this increase due to the FX appreciation in real terms and the consolidation of the recently acquired assets. The ongoing cost reduction initiative in Aguada Federal and Mandurria Norte and the increase in production in the second semester will be the main drivers to reduce lifting costs back to $7.5 per VOE for the year, in line with guidance. We are raising our adjusted EBITDA guidance to $625 million, an increase of $50 million compared to the original guidance. This reflects an assumption of $64 of realized oil price for the year in line with Q1 2022 prices. We see additional upside to this EBITDA guidance if the current international oil prices scenario prevails. We maintain our original CAPE guidance of approximately $400 million, noting that we are currently evaluating additional activity in our high-return short-cycle shale oil projects for the second semester. Regarding gross debt, during Q1, we essentially achieved our target of gross debt reduction for the year. We are currently analyzing options to make further debt reductions and additional drilling activities, given the additional free cash flow expected due to higher realized oil prices. Before moving to Q&A, let me share with you that we are making good progress in our sustainability drive. We are timely executing projects to reduce greenhouse gas emissions intensity by 25% in 2022 compared to 2021. We are also making good progress in the execution of the projects that are key to achieving our net-zero ambition in 2026, with carbon offset from nature-based solutions. We will publish our sustainability report next month, where we will present more details on our ESG progress. In this edition, we are including TCFD disclosure, which is key for shareholders to understand our governance, strategy, and risks related to climate change. In Q1 2022, we tie in our first two wells in Bajada del Palo Este, which showed robust production levels. This is a very important milestone as it proves our geological model and the continuity of our play into the Bajada del Palo Este block. On the financial front, we have another positive free cash flow quarter and recorded adjusted net income of $39.1 million. Additionally, we further strengthened our balance sheet by reducing gross debt by 6% in one quarter. In Q1 2022, our operational and financial performance was solid, setting us on track to deliver on 2022 guidance. We have raised Our adjusted VDA guidance, about $50 million to $625 million for the year. Early this week, we held our annual general shareholders meeting, in which we obtained approval to initiate our first share buyback program for $23.4 million. This is an important step in our strategy to deliver shareholder returns. I will take this opportunity to also thank our investors for their continuous support and our incredible team at Vista for their hard work and continuous commitment. And with that, operator, please open the line for Q&A.