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 the VISTA's third quarter 2023 earnings webcast. 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 Chierniakos, Strategic Planning and Investor Relations Officer. Please go ahead.

Thanks. Good morning, everyone. We are happy to welcome you to VISTA's third quarter 2023 results conference call. I am here with Miguel Galucho, VISTA's Chairman and CEO, Pablo Verapinto, VISTA's CFO, and Juan Garobi, VISTA's COO. Before we begin, I would like you to draw your attention to our cautionary statement on slide two. Please, the advice that your 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, 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 earnings call. Today, I'm pleased to present our results for the third quarter of 2023. during which we record strong growth on a sequential basis. During Q3, we focus on drilling and completion activity in Baja del Palo Oeste. This led to a sequential growth in both oil and total production that allowed us to largely replace the production from the conventional assets we transferred in Q1 2023. Total production reached 49.5 thousand VOEs per day during the third quarter, which was 6% above Q2. Oil production was 41.5 thousand barrels per day, 6% above Q2. Total revenues during the quarter were $290 million, 25% above the previous quarter. Lifting costs were $4.8 per VOE, reflecting our successful strategy to fully focus on our higher margin, lower carbon, and short-cycle shale oil assets. Capital expenditure was $181 million, mainly driven by 11 wealth drill and 12 wealth completed during the quarter. In Q3 2023, adjusted WDA was $226 million, a sequential increase of 49% on the back of revenue growth and flat lifting costs. Adjusted net income was $123 million, implying a quarterly adjusted EPS of $1.3 per share. We recorded negative free cash flow of $43 million during the quarter. It was mainly driven by a temporary increase in working capital that impacted cash flow from the operation activities. Finally, the net leverage ratio at quarter end was a solid 0.7 times adjusted EBITDA. I will now deep dive into our main operational and financial metrics. Total production during Q3 2023 was 49.5 thousand BOEs per day, down 2% on inter-annual basis. This is explained by two factors. First, the transfer of the conventional asset reduced our production by almost 6,000 BOEs per day. On a pro forma basis, adjusting for the transfer asset, total production grew 12% year over year. Second, transportation capacity limited our production growth during the first semester. This has been unlocked since June as we started exporting oil via pipeline to Chile. Our development plan during 2023 was therefore back loaded in terms of new wealth connections. The tie-in of 12 new wells in Bajada del Palo Oeste during the third quarter led to a sequential growth of 6% in total production. Moreover, the monthly breakdown reflects a solid ramp-up during the quarter, with 53,000 BOEs per day of total production during September 2023. Production ramp-up. started in August as the tying of Paths Bajada del Palo Oeste 16 and Bajada del Palo Oeste 17, corresponding to the CUBE development pilot we were running in Bajada del Palo Oeste, was delayed to late July. During the third quarter of 2023, we made solid progress in Bajada del Palo Oeste. where we focused the activity of our two drilling rigs after finalizing the pilots in Aguila Mora and Bajada del Palo Oeste in Q2. This led to 12 new wells connected during the quarter, past Bajada del Palo Oeste 16, 17, and 18. Additionally, four-well path Bajada del Palo Oeste 19, which was completed in September, was tied in October and is showing very solid productivity. We also finished drilling Bajada del Palo Oeste 20, a three-well path with all the wells targeting La Cocina. This path is currently under completion and is scheduled to be tied in during November. Finally, We are currently drilling four-well path in Bajada del Palo Oeste 21, which we plan to complete and connect before year-end. We expect to tie in a total of 23 new wells during the second semester, driving further production growth. We forecast total production of Q4 2023 at 60,000 BOEs per day, with an exit rate of 65,000 BOEs per day. The tie-in of 23 new wells during the second semester is in line with our activity guidance for the year, and two wells above the original guidance. On an annualized basis, this is an activity target we set for 2024 during our last investor day, reflecting our capability to deliver 46 new wells per year. During Q3, we also made solid progress to increase minstrel capacity. We completed the upgrade of our crude oil treatment plan, leading to a total capacity of 70,000 barrels of oil per day. Stage one of oil del Valle expansion is well advanced, with 7,500 barrels of oil per day of trunk pipeline capacity already available for VISTA, and another 5,000 barrels per day planned for mid-2024. The Vaca Muerta-Norte pipeline is on track to be commissioned before year-end. This is expected to add another 12,500 barrels of oil per day of trunk pipeline capacity for VISTA. Expansions to our oil treatment capacity and transportation capacity constitute key enablers to our updated strategic plan. which has a production target of 70,000 BOEs per day for 2024 and 100,000 BOEs per day for 2026. Total revenues in Q3 2023 were $290 million, 13% down year over year, and 25% above Q2 2023 on the back of higher export volumes and oil realization prices. Realized oil price for the quarter averaged $67.6 per barrel, down 12% year-over-year and 5% above the previous quarter. The average realized domestic price was $61.7 per barrel, while the realized export price was $74.9 per barrel. Domestic crude oil prices were impacted by the drop in prices to $56 per barrel agri following the devaluation of the Argentinian pesos from August 14 until the end of October. This led to approximately $5 million or lower adjusted EVGA during Q3 2023. Sales to export markets accounted for 55% of oil volume and 61% of oil revenues. We exported 2.2 million barrels of oil composed by four cargos through the Atlantic, including the cargo deferred from Q2 and 0.4 million barrels by pipeline to Chile. Realized gas prices decreased 24% inter-annually to $3.3 per million of BTU, mainly driven by lower price paid by clients in industrial segments. The sequential decline in realized gas prices was driven by lower gas export volumes. Lifting cost was $21.9 million for the quarter, a 37% decrease vis-a-vis Q3 2022. Lifting cost per VOE was $4.8, 35% below the same quarter of last year. These results continue to reflect the positive impact of our new operating model, fully focused on our shale oil asset, following the transfer of the conventional asset in the first quarter of the year. We expect a similar lifting cost performance during Q4. On this basis, we are on track to outperform our full year lifting cost guidance by around 5%. with a forecast of approximately $5.2 per VOE for the year. Adjusted EBITDA for the quarter was $226 million, a slight decline of 3% year-over-year. The inter-annual decrease in revenues was almost fully offset by the lower lifting costs and $20 million of other income generated by the JV with . We connected the last 12 wells under the GV during the quarter. During Q3 2023, we recorded a strong sequential expansion of margins. At Shasta WDA, margin was 78%, an increase of 12% points vis-a-vis Q2. Additionally, we recorded a net back of $49.8 per DOE, 39% above the previous quarter. These results were mainly driven by savings in lifting costs, additional sales volumes, and other income from the JV Vitra figura. We expect adjusted EBITDA to be between $215 and $230 million in Q4, noting that Q4 will not include income from the JV Vitra figura. Also, that there is uncertainty around the realized old prices, both on the domestic Medanito and international benchmark. During Q3 2023, cash from operating activities was $170 million, reflecting income tax payments of $22 million and a temporary increase in working capital of $66 million. Cash flow used in investing activities was $161 million, in line with the capital expenditures of $181 million for the quarter. During Q3 2023, we recorded negative free cash flow of $43 million. We issued a dollar-linked bond for $70 million at a very competitive term, five-year bulleted maturity and 0.99 coupons. We also repaid $22.5 million corresponding to the final installment of our syndicate loan, further reducing the share of our cross-border U.S. dollar debt. Net labor ratio stood at 0.7 times as the CDBDA at quarter end. Finally, cash at the end of the period was $174 million. To conclude this call, I will summarize today's key messages. During Q3 2023, we made robust progress in Baja del Palo Oeste. The tie-in of 12 new wells leave us well on track to deliver 31 tie-ins for the year. This activity increase has led to a substantial production ramp up during the quarter. Considering that another 11 wells tie-in are scheduled for Q4, We are forecasting 60,000 VOEs per day of total production during such quarter. This could leave us well-placed to achieve our 70,000 VOEs per day target during 2024. We have made solid progress in increasing treatment and transportation capacity, which are key pillars of our growth plan. Our oil treatment plan has recently been upgraded to 70,000 barrels of oil per day. The Old Del Valle expansion has recently added 7,500 barrels of strong pipeline capacity for Vista, which will be increased further by the Baca Muerta Norte project and the completion of the second part of stage one of Old Del Valle expansion. Finally, we recorded a strong financial matrix reflected by earnings per share of $1.3 and an adjusted VDA margin of 78%. To wrap up, and before we open the call for questions, I wish to thank our employees for their hard work and commitment during the quarter. I also thank our stockholders for their continued trust in our company. We will now move to Q&A. Operator, please open the line.

As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Rodrigo Nistor from Latin Securities Corporation.

Hi, good morning. Congrats on the results. So I have two questions. Given Argentina's current political and macroeconomic landscape, how do you anticipate the trajectory of domestic prices? And then also what are your expectations regarding discounts on export prices and how you're positioning to optimize profitability in these conditions? Thank you.

Hi, Rodrigo. Thank you for your question. Look at pricing going forward. We are seeing first probably important, we are seeing export pricing with upside at least of $2 or $3 more than Q2 as consequence of higher brand. And also we believe the discount of export pricing will be probably for Q4 below probably $2 to $3. In terms of local prices, October, we are still selling at $56 per barrel. November and December, we are in the negotiation with the refineries. The gap today between export parity and domestic prices is around 40%. Therefore, the local market needs to start to normalize. Definitely the normalization, it will be very important to drive investment in Vaca Muerta and generate more volumes for the country. So I expect that November and December, there should be a push for normalization in the local market.

Okay. That was really clear. Thank you. 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. Congratulations for the results, and thank you for taking my question. My question is regarding the differentiated effects scheme that the government just introduced for the oil and gas companies. What is the impact for the first quarter, and what do you think this could involve Well, actually, for the first quarter, because we have elections in the middle. And if you think that this could continue in the first quarter or second quarter of next year, what is your view about it? Thank you.

Hi, Walter. Thank you for your question. Yes, it's this program that we call Oil and Gas Dollar. We include in the program export for an equivalent of $135 million. which will liquidate 75% through the central bank and 25% through the blue chip swap. That will generate for us an additional revenues of around $55 million, and our calculation in financial income, we expect around a net income impact between $10 and $30 million. Regarding the continuation of this program after elections, to be honest with you, I don't know. It will all depend more on the macroeconomical program that the next president put in place.

Thank you very much. A follow-up question, if I may, is... how this dynamic is impacting your production cost vis-a-vis higher revenues due to this differentiated currency. In terms of margin, looking forward, I mean, I guess that from the first quarter, the fourth quarter, the pressure on cost on dollars may be higher, I guess, is that the case?

No, Walter, I don't think it will impact our margins, not at all. I think this will be more related to financial incomes, but not the margin per se.

Okay, perfect. Understood. Thank you very much.

You're very welcome.

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

Hi, good morning. Thanks for taking my questions. This is with Balance. I have three. If we could go one by one, that would be great. The first one is just a follow-up on the expected volumes for the fourth quarter. Recalling the guidance that you have set for 2023, 55,000 barrels per day, It seems that you might be running a tad behind with $60,000 per day expected for the fourth quarter, so I just wanted to understand if we should perhaps expect a lower production number for the full year, and what could additional drivers be there for increased volumes? Thanks. That will be the first one.

Thank you, Diana, for your question. Lucas, so let me first start with a recap of Q3. So Q3 production in barrels of oil equivalent was 49.5, 49.5 thousand barrels of oil equivalent per day. It was pretty much flat with last year and quarter on quarter with 6% increase. In terms of oil production was 41.5. That was driven by the tie-in of the two wells, as I explained in the call from Baja del Palo Este. And we have the delay of the tie-in of the cube to late July. This cube is supposed to be tie-in early July. And that was basically the delay that we are having and the shortage that we're having on production. On performance basis, and this is basically after the transfer of conventional assets, the production increased here near 12%. And if you look at the monthly breakdown in July, we were 45.6 barrel hold per day, 49.9 thousand barrel hold per day in August, and 53,000 barrel hold per day in September. So in Q4, we will connect additional 11 wells, which we expect to be more or less at 60,000 barrel hold per day by Q4 average. our exit rate in order to be 60 average, you can assume that would be probably around 65 barrel of oil per day equivalent. This will leave us well on track to deliver our 70,000 barrel of oil equivalent per day average for the next of the next year, 24, as we have defined as target. So I think this is pretty much we explained. And the only delay that we have in production was, as explained, coming from Q. Yeah, that's very clear.

Thank you. Just another one, in understanding the natural gas businesses is rather marginal to vista, but just I would notice this decrease in prices for the industrial segment. So if there's any color that you can share in this regard vis-a-vis the plant gas prices, that they were very differentiated. Thank you.

Yeah, no additional colors as everything that you know. I mean, commercial gas prices were lower due to the Argentina current situation and devaluation and so on. No more to reach into.

Okay. And just one last one. Regarding the working capital drag for your free cash regeneration, any insights in terms of this increase in receivables that we saw quarter over quarter? Is this normalized already through early fourth quarter?

It's normalized, as you know. I mean, this is the export that basically was delayed, the collection from September to October, and it's normalized. Thank you very much. You're welcome.

Thank you. One moment for our next question. Our next question comes from the line of Macias Tostes from Citi.

Hi, good morning and congratulations for the results. I just want to hear some of your thoughts regarding the devaluation after the puzzle and how is that playing vis-a-vis your lifting costs and how do you think that could move forward especially after the elections if there's another devaluation too? Thank you.

Hi, Mateos. Thank you for your question. Look, a devaluation could help to reduce lifting costs marginally. And we always, after devaluation, we have an impact on expenditures and particularly lifting costs that, of course, in the different cycles of Argentina, start to catch up again. And I think you can assume that in a period of a year, usually have a neutral effect. But the main impact on lifting cost reduction will come from production increase, as we have seen and demonstrated many times in the past. And we will start to see partially that impact in Q4. So if you have to basically put an impact in lifting costs, you should look at production increase. That is what is going to drift the lifting costs down.

Perfect. Thank you. Thanks a lot. You're welcome.

Thank you. I would now like to turn the call back over to Miguel Galucho for closing remarks.

Well, thank you very much. It was a good quarter. I would like to continue thanking you for the support and the participation on those calls. I'm looking forward to see you in Q4. Have a very good day.

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