Vista Energy S.A.B. de C.V. American Depositary Shares, each representing one series A share, with no par value

Good day and thank you for standing by. Welcome to VISTA's second quarter 2023 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. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Alejandro Cherniakov, VISTA Strategic Planning and IRO. Please go ahead.

Thanks. Good morning, everyone. We are happy to welcome you to VISTA's second quarter 2023 results conference call. I am here with Miguel Galucho, VISTA's chairman and CEO, Pablo Verapinto, VISTA CFO, and Juan Garovis, VISTA COO. Before we begin, I would like to draw your attention to our cautionary statement on slide two. Please, the advice that I remarked 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 measures 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 VISTA in the Bolsa Mexicana de Valores and BIST in the New York Stock Exchange. I will now turn the call over to Miguel.

Thanks, Ale. Good morning, everyone, and welcome to this earning call. I am pleased to share with you our results for the second quarter of 2023, during which we have made substantial progress in the delivery of our strategic pillars. We significantly increase our well inventory, secure enough evacuation capacity to deliver on our 2026 strategic plan, and strengthen our balance sheet. This leaves us well prepared for strong, profitable growth in the second half of the year and in the coming years. During the first half of 2023, we focus our drilling and completion effort in finalizing the pilot in Bajada del Palo Oeste and Aguila Mora. leading to fewer tie-ins during the Q2. Still, total production increased 4% year-over-year for a total of 46.6 thousand VOE per day during the quarter. Oil production was up 6% on inter-annual basis and 22% above pro forma basis, adjusting from the debauchery of the conventional asset. Total revenues in Q2 2023 were $231 million. a 22% decrease year-over-year, driven by oil inventory buildup, which we'll explain in the following slide, and softer oil realization prices. Difting costs was $4.8 per VOE for the quarter, reflecting our successful strategy to fully focus on our higher-margin shale oil assets. Capital expenditure was $179 million, including the drilling of 10 wells and the completion of five wells during the quarter, as well as the execution of our key facilities project. In Q2 2023, adjusted VDA was $152 million. We recorded negative free cash flow of $85 million driven by the acceleration of CAPEX and lower cash from operating activities. The leverage ratio at the quarter end was a solid 0.5 times adjusted EBDA. Adjusted net income was $57 million, implying a quarterly adjusted EPS of $0.6 per share. We will now deep dive into our main operational and financial metrics. Total production during Q2 2023 was 46.6 thousand VOE per day, up 4% interannually. driven by storm production from our shale assets. Oil production was 39.2 thousand barrels of oil per day, up 6% year-over-year. On performance basis, adjusting from the transfer of conventional assets, total production grew 20% year-over-year, and oil production grew 22% year-over-year. Sequentially, we recorded a slight decrease in production driven by three factors. Firstly, the transfer of conventional assets means a loss of 5.5 thousand barrels of oil equivalent per day. Secondly, evacuation capacity limits our production growth, although this has been unlocked since June, as we start exporting oil via pipeline to Chile. Thirdly, as we focus on our pilot in Aguila Mor, we tie in less wealth than on our average quarter. The three drivers we factor into 2023 plan and guidance, so we'll expect to meet our production guidance of 55,000 barrels of oil per day for the year. In the following slide, we will deep dive into our shale oil developments, and we'll explain how we have shifted back to Bajada del Palo Oeste and how that will grow in the coming quarters. I will start with some details on our successful result in Águila Mora and Bajada del Palo Oeste pilot. In Águila Mora, we tie in two wells in pad Águila Mora 1, landing one well in La Cocina and one well in Middle Carbonate. Cumulative production of the pad was performing 4% above our Bajada del Palo Oeste tight curve after 60 days of production. These are the first two wells we drill in this block. located in the north of Vaca Muerta. Based on these successful results, we added up to 100 wells to our inventory. In Bajada del Palo Oeste, we tie in one well in the path Bajada del Palo Oeste 2, which is currently showing robust production, with cumulative production performing 72% above our Bajada del Palo Oeste tie curve after 80 days on production. This is the fourth well we drilled in this block and reconfirms our 150-well inventory in Bajada del Palo Este. The two wells in Path 1 on the western side of the block and the single well in Path 3 on the eastern part of the block continue delivering solid production performance, as shown on the chart on the right. Successful result in Baja del Palo Este pilot enabled us to extend our model in Chucorinón, Amargo Norte, the neighboring block to the south. This is a concession where we hold 85% working interest with the remaining 15% held by Gas y Petróleo de Neuquén, the oil and gas company owned by the Neuquén province. We estimate an inventory of up to 50 wells in this block. The successful activity in Bajada del Palo Este and Aguilamora pilot lead to the addition of 300 wells to our inventory, for a total of 1,150 wells across all Vaca Muerta assets. As I will explain later during the presentation, this is just one of the key factors that leave us well-prepared for a profitable growth acceleration beyond our current strategic plan. After concluding the pilot, we moved back to Bajada del Palo Oeste, where we have made solid progress in new well drilling. During Q2 2023, we finished drilling and completed Bajada del Palo Oeste 16, and also drilled Bajada del Palo Oeste 17, which is currently under completion. The two paths consist of four wells each, are being developed as a cube. In a pilot, we are running seeking to optimize well productivity. This means we will tie in both paths simultaneously during the coming week, which also resulted in lower production in Q2 2023. We are currently drilling four well paths, Bajada del Palo Oeste 18 and Bajada del Palo Oeste 19. Bajada del Palo Oeste 18 is expected to be completed and tie in by the end of Q3. Embajada del Palo Oeste 19 in Q4 leaving us well on track to tie in 20 wells in the second semester of 2023 as per guidance. We are on track to upgrade our oil treatment plan by the end of Q3 2023. This will increase our treatment capacity to 70,000 barrels of oil per day in line with the requirements of our production plan through 2026. During Q2, we secured enough misting evacuation capacity to meet our production targets through 2026. At the end of May, we started exporting oil to Chile through the Otaza OTC pipeline that started operating after more than a decade being shut. To do this, we reverted the pipeline flow from Las Condidas northwards through the Old Elbal system. Current flow to Chile is 4.7 thousand barrels of oil per day, and could increase up to 5.7 thousand barrels of oil per day over the following months. In Q2, we secured our participation in the Vaca Muerta-Norte pipeline with an 8 percent working interest. This will give us access to increase evacuation capacity to Chile to 12.5 thousand barrels of oil per day, including the current flow. we expect the Vaca Muerta and Norte pile line to be operational in Q4 2023. At that time, we plan to revert the existing Oldelval pile line from Las Condidas back to the original direction of flow. Adding to our existing capacity in Oldelval, the new Vaca Muerta and Norte capacity means that by ERA in 2023, we forecast to have 57,000 of oil per day of pile line capacity. This can be complemented by up to 11,000 barrels of oil per day of tracking capacity. If we consider the capacity already contracted in all the El Val expansion to Puerto Rosales, we forecast to have 89,000 barrels of oil per day by ERN 2025, or 100,000 barrels of oil per day if tracking is included. This means we have already secured the necessary evacuation capacity to deliver on our 2026 production target with room for further acceleration. I cannot stress enough the importance of this significant milestone and its contribution to support our growth plans. Total revenues in Q2 2023 were $231 million, which is 22% below the same period last year. This decrease was the result of two factors. Thirdly, the normalization of our crude oil stock from lows in previous quarter, which combined with the production being rerouted to Chile, led to less volumes available in the terminal for exports through the Atlantic. This delayed our last cargo of the quarter from late June to the first week of July, and therefore we exported three cargos during the quarter instead of four we originally expected. Secondly, oil realization prices softened during the quarter. Realized oil price for the quarter averaged $64.3 per barrel, down 18% year-over-year and 3% sequentially. The average realized domestic price was $63.1 per barrel, while the realized price of the export market was $68.6 per barrel. Sales to export market accounted for 48% of the oil volumes. 51 percent of oil revenues. We exported 1.6 million barrels of oil composed by three cargoes through the Atlantic and 152,000 barrels by pipeline to Chile. We remain focused on our export-driven strategy by 55 percent of last 12 months of revenue coming from the international market. We expect to increase this to about 60 percent in Q3 2023. Rally gas prices decreased 16 percent sequentially to $3.9 per million of VTU, mainly driven by lower export volumes to Chile, accounting for 10 percent of our total gas volume at a price of $7.6 per million of VTU. We have very good news on the cost side. After a quarter of operating only our shale oil asset, the cost dropped to $4.8 per VOE, a reduction of 8% on inter-annual basis and 25% on sequential basis. This reflects the cost benefit of the transaction we announced in the previous quarter. We remain well on track to deliver on our $5.5 per VOE guidance for the full year. Assisted EBITDA for the quarter was $151.8 million. adjusted EVDA margin was a robust 66% during the quarter. On an inter-annual basis, this is a drop of only three percentage points despite an 18% decrease in realized oil prices, which was possible given our rebase cost structure following the transaction to fully focus on Shell assets. The decrease in adjusted EVDA reflects softer prices the focus on drilling pilot during the first semester, and the inventory build-up I just mentioned. Additionally, in this quarter, we have no tie-ins under the JV with Trafigura. We generated $10 million of other income in Q2 2022. We expect strong results in the second semester. The drilling and the completion pace have already picked up and will allow us to tie in 12 Basada del Palo Oeste Wells in Q3, boosting oil production and revenues. Having normalized inventories and flow to Chile, we plan to export volumes equivalent to five cargoes, including export to Chile in Q3. Finally, we plan to tie in three parts under the Trafigura JV, which will generate $90 million of other incomes in Q3 2023. During Q2 2023, Cash from operating activities was $89.3 million, reflecting the payment of annual income tax of $36 million, a change in working capital of $70 million, and advance payments for transport infrastructure of $5 million. Cash flow used in investing activities was $174 million, in line with CAPEX of $179 million for the quarter. This acceleration in CAPEX deployment sets the stage for growth in the coming quarters. During Q2 2023, we recorded negative free cash flow of $85 million. We issued a bond for $13.5 million and repaid $22.5 million corresponding to an installment of our syndicate loan. We also refinanced $40.8 million maturity in 2024 to 2026. In Q3, we plan to repay the last installment of our syndicate loan on July 20. After this event, we will have no remaining debt maturities in 2023. Cash at the end of the period was $223 million. The reduction vis-a-vis the end of the previous quarter reflects our tactical decision to pre-finance our investment plans with liquidity available at a very competitive cost in the local bond market. During Q2 2023, we have continued to strengthen our balance sheet. Gross debt currently stands at $651 million. Over the past quarters, we have tactically accessed the local debt market in Argentina at a very competitive interest rate. This has not only allowed us to pre-finance our CAPEC acceleration, but it has also reduced our average cost of debt, which as a quarter end was 3%. Our financing strategy is focused on reducing cross-border debt, which we have successfully reduced from 54% of our total debt in 2020 to 22% of our total debt as quarter end. The average life of our debt is three years. Our growth leverage ratio is a very healthy 0.8 times adjusted VDA. Our solid financial status leave us in a good position for an acceleration in growth going forward. To conclude this call, I will recap on today's key messages and announce our upcoming investor day, where we will provide an update to our strategic plan. During Q2 2023, we made robust progress in Bajada del Palo Oeste. Considering our progress in drilling and completion activity, we are on schedule to tie in 12 wells during Q3. This will boost production and drive an increase in adjusted VDA in the second semester, in line with our annual work program. We are well on track to meet 2023 production and cost guidance. Successful results in our pilot in Baja del Palo Este and Aguilamora had led us to extend drilling inventory to 1,150 ready-to-drill wells. This provides significant upside potential to our existing strategic plan, which was designed at that time when our inventory was less than half of that size. To grow beyond our current strategic plan, we need more evacuation capacity, which we have achieved this quarter. We have secured misting and export evacuation capacity to deliver well above our 2026 production target. Based on our current capacity and the contract we have in place, we forecast to have 100,000 barrels of oil per day of prime evacuation capacity by the end of 2025. Finally, We have a solid balance sheet with a very healthy labor ratios, manageable debt maturities at a very competitive cost, and relatively low share of cross-border debt. On the basis of our strong position, I am extending an invitation to a virtual investor day hosted by myself and the rest of Vista's executive team. During this event, which will take place on September 26, we will provide an update on our strategic plan and set new targets for 2026. We will provide further information on the event through our usual investor relations channels. To wrap up, and before we open the call to questions, I want to thank our employees for their relentless work during the quarter. and also thanks our investors for their continued support. We will now move to Q&A. Operator, please open the line.

As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Bruno Montanari from Morgan Stanley.

Morning. Thanks for taking my questions. Thank you, Miguel. Thank you, Alejandro. So two questions on my end. One, just to confirm, so today you have no more restrictions to export more to Chile. Is that correct, with the new evacuation capacity that was achieved? And wanted to know also if you have faced any problems with the rain. We have been reading that there has been some restriction because of the rain. So just wondering if that affects your production and exports now at the beginning of the quarter. And then my second question is about the acceleration. It's very clear, Miguel, based on the presentation that you are in a very good position to potentially accelerate the growth, especially in the coming few years. So two items there. One, is there anything you can do already in 2023 that would perhaps make you a little bit above the $55,000? barrels per day target? And two, would you say the acceleration would come more on adding new equipment or doing things more efficiently and being able to drill and complete and tie in the pads faster than what we were doing today? Thank you very much.

Hi, Bruno. Thank you very much for the question. And starting with the first one, you're correct. I mean, we don't have any restriction with the pipeline at Chile at the moment. The pipeline to Chile was shut down for 70 days. That pipeline passed below a river and the river bed moved and the pipeline was a bit of a surface that therefore they decided to have a check on the pipeline. ENAP at the moment is very happy with the quality of the crude oil that we are sending. So I'm sure we will play some catch up during the year, but that doesn't change the plan that we have for the year. And basically, we don't depend only from Chile. We have our exit through the Atlantic. I don't see any issue with the slight problem that we have with Chile. In terms of the acceleration for the topic of 2023, our current plan leaves us with spare drilling and fracking capacity for Q4. We have done also our homework in terms of evacuation and treatment capacity, so we will have spare treatment and evacuation capacity. But at the moment, we are not going to announce anything. So leave me the news to announce September in the investor day. But thank you anyway for the question.

Thank you. Very clear.

Thank you. One moment for our next question. Our next question comes from the line of Rodrigo Nistor from Latin Securities.

Good morning, everyone. Thanks for the update. I've got two questions for you. So the first one, during the strategic capital spending initiative we have online, what are the expectations for cash flow generation over the upcoming quarters? And then another one on Aguilamora, I mean, following the successful results from the pilot project, are you planning to invest in the necessary infrastructure to connect the blocks? And if you have an estimate on the required CAPEX for that, thank you.

Hi, Rodrigo. Thank you very much for your question. Regarding the free cash flow for the second half, first, cash at the end of Q2 was close to $233 million. We're still seeing CAPEX about cash generation in Q3. basically to the to the high drilling and completion activity and also the investment on upgrading facilities in q4 under the current plan free cash flow uh it will be positive again okay though so that's related with your first question related agilamora first let me tell you that we are super happy with the path that we put to complete two wells that were landing in La Cocina and the other one in Middle Carbonate. Both of them were average wells of 2,500 meters on 44 stages, and they were tied in, and they're performing 4% above a high polyester tight curve, and they've been producing for 60 days. So super happy with the news. Regarding the evacuation, I think we are evacuating today through a neighbor operator, and it will be too early to give you an answer on what exactly we will do in terms of infrastructure for evacuation. But we are at the moment evaluating the results. We will continue monitoring as well after the first 60 days, but it's very encouraging. I'm sure we will come with a plan soon.

Okay, that was really clear. Thank you.

Thank you. One moment for our next question. Our next question comes from the line of Walter Chiarvesio from Santander.

Hello. Good morning, Miguel and Alejandro. Thank you for taking my question. We are seeing an encouraging improvement in productivity in other blocks than Bajada de Palo Oeste. And I would like if you could develop a little bit more about what explains the improvement in productivity, just the geological characteristics of the block, or changing techniques, drilling and completions, whatever. And if that implies that the productivity curve It's changing the outlook for the whole company in terms of EUR per well and productivity looking forward. And linked to that, if the CapEx were focused on those other blocks rather than Palo Verde, it would be part of the acceleration program of the company in the near future. That's it from me. Thank you.

Thank you very much, Walter, for your question. And I love that question because probably Bajada del Palo Este results are the best news that we have had during this year. I mean, the result of Bajada del Palo Este compared with our original protection are outstanding. Just to give you first a recap for everybody on Bajada del Palo Este, as you remember in Bajada del Palo Este, we drilled our first two wells to La Cocina more or less a year ago. Those two wells are performing 30% above Bajada del Palo Oeste, Taikur. Then we drill Bajada del Palo Oeste three paths, one well on the very eastern side of the block, one single well that land in La Cocina, really looking for the limit of that block, and we end up having a well a very good economic well today that is performing 7% below Bajada del Palo Este tight curve after 90 days of production. And probably the biggest and more important news related to this quarter is Bajada del Palo Este 2, one well on the center of Bajada del Palo Este block, land in La Cocina, a length of 2,800 meters, only 47 stages, was tied in April, and is producing 70% above Bajada del Palo Oeste Ticur after 80 days. This is a super well. It's producing 3,000 barrel per day of IP30. So, I mean, it will be probably ranked between the best wells that we have drilled in the area. So, back to your question, Bajada del Palo Oeste and Aguadar Federal for us represent to the one development block. So, of course, anything that is related to acceleration naturally will be done in those three blocks. You know, I mean, with the treatment capacity, connections between these two blocks is seamless for us because it's just internal pipeline that we have to relate. So, yeah, the focus of any acceleration program will include bajada el palo este on it. So that is the answer, Walter. I don't know if I'm missing anything.

No, it's just that the follow-up would imply a lower lifting cost or, sorry, cost per barrel taking these higher productivity curves in the future.

We are not updating our tight curve. I mean, this is, as you know, our plays have a statistical nature. So therefore, we continue having the same tight curve for all these blocks. So we are not planning to do any upgrade of the tight curve for the moment, even though, yes, I mean, there are a few good ones.

Perfect. Thank you very much, Miguel.

You're welcome.

Thank you. One moment for our next question. Our next question comes from the line of Regis Cardoso from Credit Suisse.

Hi, Miguel. Hi, everyone. Thanks for taking my questions. A couple of topics I wanted to touch on. Quick one first is, how do you compare guidance with the actual production in EBITDA so far in the first half of this year? I mean, it appears you're probably lagging behind that guidance. Most likely, your production in EBITDA will increase in the upcoming quarters, but is it still the case that you believe the guidance is in place? That's the first question. The second question would be, going back to the previous one you just answered, Miguel, about the order of the development of the assets. You said you're thinking about everything around the Barada de Palo as one field, right, one cluster. But does it imply, I mean, where are the better opportunities? Is it in any specific window in any specific area? that you prioritize? I mean, say, start with La Cocina in Barrada de Palo Oeste and then go into the others? Or can you do, you know, different targets simultaneously? So that would be the second question. And then maybe if I may, just a quick third one. How do you expect the share of exports to grow in Europe? sales, and how do you think that will affect your realization price in the future? I mean, do you think Vista would capture more of an oil price upside, say, if brand prices were to go up again? And is exporting still, you know, a preferred route, say, if oil prices were to come down? Just to understand, how do you balance realization prices there? with the growing share of exports. Thanks.

Hi, Regis, and thank you for your question. Regarding the first part of your question, regarding guidance, we are coming in line with guidance on a realized price of $60 per barrel. And when you look at currently, our average price also was around $65 per barrel. Of course, the cargo that we basically couldn't fit in in Q2, it will be accounted in Q3 with higher brand prices. So, I mean, for the whole year, we have a positive impact in our P&L. Regarding development, again, I mean, just restating what I said before, Bajal, Palo Oeste, Aguada Feral, Bajada del Palo Oeste for us will be one development cluster and the main development cluster. As soon as we have, I mean, with the new result of Bajada del Palo Oeste 2, I will set, we should expect that Corydnon Amargo Norte also will be coming part of that cluster as well. Bajada del Palo Oeste, we are developing La Cocina en Orgánico, When in Bajada del Palo Oeste, we are just focused in La Cocina for the moment. So this will be the main horizon that we will be developing in an acceleration plan. You have other question? Ah, the other question was related to exports and percentage. So when you look at Q2, we have... Our export percentage of our production was around 49%, and the realized price of airport was around $68 per barrel. You should expect that this 49% going up to 55% or 60% since the fact that we are going to have, we are going to be moving one cargo from Q2 to Q3. As you know, the brand is performing better and our discounts are lower. I mean, we moved from a discount of $6. We expect Q3 to be around $5. We already saw $5 in this quarter. So, I mean, we are planning with prices for export around the same level that we have last quarter. Yes, if the brand performs better, it could be better. It could be slightly better. So this is what we are seeing.

Okay, understood. Thanks so much, Miguel. Have a good one. Thanks, Horacio.

Thank you. One moment for our next question. Our next question comes from the line of Oriana Covo from Belon.

Hi, Miguel, Alejandra, and the rest of the team for taking my question. I have two questions. Maybe the first one has to do with lifting costs. You have been guiding lifting costs even below the current $5 per barrel for a time now, and it was great to see that happening this quarter. So just to understand if this acceleration over the last couple of quarters, beyond the transfer of the assets to Petro Aconcagua, is there something else that is explained in the accelerated reduction in lifting costs? That's the first question.

Oriana, thanks for the question. Regarding lifting costs, Yes, we're coming from a running rate of $7.5 per barrel, and that was before this investment of our conventional asset. We saw 6.4 in Q1, and we are seeing 4.8 now. Of course, this 48 is taking full impact of the transfers of the conventional assets. As we continue increasing unconventional production, yes, we still see some potential and some upside that will be more related to the production growth that really reducing the OPEC side. But at the moment, we are keeping the guidance as it is. But yes, very encouraging result on the lifting cost side.

Thank you. That's very clear. And one last one. I noticed in your presentation that you would be transferring some of the capacity that you're currently using through Old El Val de Otaza for the export to Chile through the Vaca Muerta Norte instead of keeping the two alternative routes. So just perhaps to understand the rationale, if you see any upside potential for keeping the two routes open or if there's any, what is driving the decision of moving volumes from one area to the other, it's pricing-wise in terms of contracts, any additional color on that end would be very much appreciated.

Thanks. Thanks, Oriana. No, there's no competition between the two demands. The demand of Chile will be covered through Baca Muerta Norte. One Baca Muerta Norte is in line and is covering now through the rerouting that we did for Las Condidas. There's no competition between the two volumes. And basically, the outline that we have, the outlook that we have in table export is the one that we have mentioned. So no one of them is going to jeopardize the volume that we have one or two others. And of course, I mean, importing through the pipeline is always more efficient, no?

Perfect. Okay, thank you very much.

And we saw an impact in this quarter on Chile, reducing the tracking that we have toward the end of the quarter. That has also a positive impact.

Great, that's very clear. And congratulations for these key milestones in mid-term capacity. Thank you. You're welcome.

Thank you. At this time, I would now like to turn the conference back over to Miguel Galucho for closing remarks.

Well, thank you very much, everybody. And I'm looking forward to see you all on the 26th on the investor call. Have a good day.

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