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

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.