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

Good day and thank you for standing by. Welcome to VISTA's fourth 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 the question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Vista's Strategic Planning and Investor Relations Officer, Alejandro Chernyakov.

Thanks. Good morning, everyone. We are happy to welcome you to Vista's fourth quarter and full year 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 to draw your attention to our cautionary 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 US dollars and in accordance with International Financial Reporting Standards, IFRS. However, during this call, we may discuss certain non-IFRS financial measures, such as adjusted VDA and adjusted net income. Reconciliation 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 ticker is 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 and welcome to this earnings call. We have an exceptional year in 2023. We have continued to deliver strong operational and financial results with double digit growth, improved reserves, total production, and adjusted EVDA. We also secure oil misting capacity in key projects, which underpin our updated production target for 2026. Our outstanding performance was reflected by our stock price performance, which doubled during the year. I will now present our Q4 2023 results and then move on to our full year results. During Q4, we continue to focus on drilling and completion activity in Bajada del Palo Oeste. This led to a sequential growth in total production, surpassing our consolidated production level prior to the transfer of the conventional asset in Q1 2023. Total production was 56.4 thousand BOEs per day during the fourth quarter, 14% above sequentially and 60% above inter-annually. on a pro forma basis. Oil production was 48.5 thousand barrels of oil per day, 70% above the previous quarter, and 80% percentage above the same quarter of last year, also on a pro forma basis. Total revenues during the quarter were $309 million, 2% above the previous quarter. We continue reducing our lifting costs. reaching $4.3 per VOE during the quarter. Capital expenditure was $212 million, mainly driven by 11-way drill and 7-way completing during the quarter. In Q4 2023, adjusted EBITDA was $288 million, 43% above year-over-year, supported by the stable revenues and other operated income growth amid lower lifting costs. Adjusted net income was $240 million, implying a quarterly adjusted EPS of $2.5 per share, mainly driven by higher adjusted EBITDA and the positive impact of the reduction in the full-year income tax. We recorded positive free cash flow of $107 million during the quarter, driven by a strong EBITDA generation and normalization of working capital compared with the previous quarter. Net leverage ratio at the quarter end was a solid 0.46 times adjusted EVDA. I will now deep dive into our main operational and financial metrics of the quarter. Total production during Q4 2023 was 56.4 thousand VOEs per day. driven by the of 11 wells in during the quarter. This led to a sequential increase of 14%. On an inter-annual basis, production increased 3%, reflecting that we have now surpassed the production levels prior to the transfer of the conventional asset back in March, 2023. On a pro forma basis, adjusting by the production of such asset, our total production growth was 16% year over year. During the quarter, we recorded an outstanding performance in oil production, which increased by 70% on a sequential basis and 80% on annual pro forma basis. On the other hand, gas production decreased 2% quarter over quarter, impacting our Q4 total production target and the exit rate. This was mainly due to the fact that during the quarter, we tied in two paths in the northeast of Bajada del Palo Oeste, which has a lower gas to oil ratio than other parts of our acreage. During the fourth quarter of 2023, we continue in full development mode with 100% of the drilling and completion activity in Bajada del Palo Oeste. We tie in 11 wells during the quarter in PAD Bajada del Palo Oeste 19, 20, and 21. The tie-ins boosted production in Q4 and led to an exceed rate close to 60,000 BOEs per day. The tie-in of 23 new wells during the second semester of 2023 reflects full utilization of two drilling rigs and one spudder rig, with a run rate of 46 new wells per year, in line with our 2024 plan, which we will discuss later on. During Q4 2023, our revenues were stable year over year. as oil production growth upset lower realized prices. Total revenues were $309 million, 2% increase compared to the previous quarter and 3% decline compared to Q4 2022. This was mainly driven by lower gas production, as discussed previously, and 50% decline in gas prices. Sales to export market accounted for 49% of the oil volume and 53% of net oil revenues. We exported 2 million barrels of oil composed by 1.6 barrels through the Atlantic and 0.4 million barrels by pipeline to Chile. Realized oil price for the quarter averaged $67.8 per barrel, down 2% year over year and flat compared to the previous quarter. The average realized domestic price was $63.7 per barrel, while the realized export price was $74.2 per barrel. We are seeing good recovery in the domestic prices with crude in line with the $65 to $66 range for January and February, which is key to fund our growth plan. Lifting cost was $22.3 million for the quarter, a 38% decrease compared to the same quarter of last year. Lifting cost per VOE was $4.3, a decrease of 40% compared to Q4 2022. 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. On a sequential basis, lifting cost per VOE was down 11% as the ramp-up of production volumes continued to dilute fixed costs. We expect this trend to continue during 2024. The devaluation of the peso of approximately 130% led to cost savings in the second half of December. We are still closely monitoring the full impact of this event on our lifting costs of Q1 2024. Adjusted EVDA during Q4 2023 was $288 million, an increase of 43% year over year. Adjusted EVDA performance was supported by production growth and lower lifting costs. It also includes $81 million in gains from repatriation of 27% of energy export proceeds at the blue chip swap exchange rate. This gain has been accounted for in other income. This benefit has been extended and currently allow us to repatriate 20% of our exports at blue chip swap rate. We continue to see an expansion of margins. Adjusted VDA margin was 73% during the quarter, an inter-annual increase of 7% points. Note that we have added the other income from the repatriation of export proceeds at the blue chip to our revenues to calculate our adjusted VDA margin. This provides a more accurate representation of our margins. For more detail, please see the earning notes released yesterday afternoon. Net back during the quarter was $55.6 per BOE, a 39% increase year over year. During Q4 2023, we have another positive free cash flow quarter. Cash from operating activities was $347 million. reflecting higher adjusted VDA generation and normalization of working capital related to cell collections. Cash flow used in investing activities was $240 million, in line with the capital expenditures of $212 million and a $70 million increase in working capital related to CAPEC. Free cash flow during Q4 2023 was therefore $107 million. Cash used in financing activities was $67 million, driven by the prepayment of local bonds adjusted by peso inflation, as well as bond series 3 in hard currency. Net leverage ratio stood at 0.46 times adjusted EBITDA at quarter end. Cash at the end of the period was $213 million. We now move on to the full year results. During 2023, we made solid progress across our four strategic levers. We increased P1 reserves and well inventory, reflecting the growth potential and the quality of our asset base. P1 reserves increased 27% year-over-year to 319 million BOEs. Well inventory increased 28% year-over-year to 1,150 wells, of which only 99 were on production at the end of 2023. We also deliver solid operational performance, maintaining our status as a leading operator in Vaca Muerta. Total production was 51.1 thousand BOEs per day, a 5% interannual increase, or 80% on a pro forma basis, adjusted by the transfer of the conventional assets in March 2023. Lifting cost was reduced 33% year over year to $5.1 per BOE. Our cost saving delivery was better than planned, reflecting a 7% improvement vis-à-vis our $5.5 per VOE guidance. Additionally, we made a strong progress in sustainability. We reduced emission intensity by 13% to 15.6 kilograms of CO2 equivalent, which placed our company in the best quartile compared to the comparable upstream player worldwide. I am also very proud of our safety track record. Total recordable incident rate, including employee and contractors, was below one every year for the last four years, with a 0.2 for 2023. Finally, during 2023, we continue to deliver robust total shareholder returns. Adjusted EVDA was $871 million, up 14% compared to 2022. Our stock price increased 115% from December 31st, 2022, up to date. As I mentioned previously, P1 reserves increased 27% compared to 2022. for a total of 318.5 million BOEs estimated at ERM 2023. This implies a total reserves replacement ratio of 458% and 485% for oil. Proof reserves life increased by 20% to 17 years. Net additions were 85.5 million BOEs. driven by the activity in Bajada del Palo Oeste, where we added 40 new well locations, and Bajada del Palo Oeste, where we added 26 locations. This resulted in a total of 297 book well locations in our P1 reserves. The certified present value at 10% discount rate attributable to the company interest in P1 Reserve is $3.3 billion, using a price assumption of $66.5 per barrel for oil, according to the SEC guidelines. During 2023, we also achieved significant operating milestones. We tie in 31 new wells, two above our original guidance. This drilling and completion activity boosted our total production, leading to an 18% increase year over year on a pro forma basis. Most of our drilling and completion activity in the first semester targeted the de-risking of our blocks. Solid productivity resolved in Águila Mora and Bajado del Palo Este allowed us to expand our inventory by 250 wells. During the year, we successfully secured the take-away capacity to deliver on our 2026 plan. We obtained capacity in two key projects, 12.5 thousand barrels of oil per day in the Bacamorta-Norte pipeline and 31.5 thousand barrels of oil per day in the Oldervalle expansion. The treatment plan in our development hub was expanded to 70,000 barrels of oil per day. We are currently working on another project to increase total treatment capacity to 85,000 barrels of oil per day before year-end. In terms of export volumes, in 2023 we increase oil exports to 52% of total oil sales, up from 44% in 2022. This was boosted by higher production and the start-up of exports to Chile, which reached 4.7 thousand barrels of oil per day in Q4 2023. During 2023, we also made solid progress in our emissions reduction and nature-based solution projects. Our decarbonization projects included the installation of a new vapor recovery unit, optimization of glycol dehydration process, and the addition of renewables to our energy metric, among other projects. Implementation of such projects led to the reduction of scope one and two, increased greenhouse gas emissions by 30 percent year over year. As previously discussed, emission intensity was also reduced by 30% over the same period to 15.6 kilos of CO2 equivalent per VOE. Regarding nature-based solutions, our subsidy, IK, achieved significant milestones during the year. We finalized planting our flagship project in Roland Cue with 2.5 million trees. and initiated soil preparation activities in a neighboring plot of land in Villa Zenaida. We have initiated work in our forest conservation project in Chago Aral and also made good progress in regenerative agriculture and livestock projects. In parallel, we started the process to certify the carbon credit of our projects with BERRA. We have consistently delivered strong financial metrics over the last three years, resulting in superior total shareholder returns. Adjusted EVDA increased by 14% year-over-year to $871 million, in line with the midpoint of our original guidance. ROA-CE was 39%, consistently delivering top-tier return of capital in the energy sector. Adjusted EPS per share was $5.2, an increase of 24% compared to 2022, driven by an adjusted net income of $191 million. We maintained healthy financial ratios with gross leverage at 0.71 times adjusted EBITDA and net leverage at 0.46 times. This outstanding performance across all financial metrics is reflected in the evolution of our share price, which more than doubled since year end 2022 to this date, outperforming our peers in LATAM upstream space. I will now share our 2024 guidance. As discussed during our investor day last September, we plan to increase the number of tie-ins to 46 by utilizing our existing drilling and completion capacity in full. The entire drilling campaign will be focused on our development hub, with most wealth in our flagship development, Embajada del Palo Oeste. Based on this activity, CAPEC is forecast to increase to $900 billion in 2024. According to our model, this activity will boost our production to between 68 and 70,000 BOEs per day during 2024. We expect lifting costs to continue to decrease on the back on focus on efficiency and the dilution of fixed costs by additional production volumes. We are forecasting $4.5 per BOE in 2024. Adjusted EBITDA is forecast to increase to between $1 billion and $1.15 billion using a realized oil price of $65 to $70 per barrel. Finally, we expect to continue reducing our greenhouse gas emissions intensity during 2024 in line with our 2026 reduction targets. I will now summarize the key takeaways of today's presentation. During 2023, we deliver robust operational and financial performance. We double-digit grow, improve reserves, total production, and adjusted VDA. The transfer of our conventional asset has converted Vista into a fully focused back and mortar company. We lower costs. and higher margins. Our robust performance during the year continues to prove our ability to deliver on our superior total shareholder return proposition reflected by our peer-leading share price performance. We issue an updated strategic plan supported by our large, high-quality inventory, our operating credentials, our existing drilling and completion capacity, and having secured misting capacity to deliver on our production targets. In this respect, we are well on track to double our production to 100,000 BOEs per day by 2026. Our 2024 guidance is the first step in this direction, with production growth of 35% and adjusted EBITDA growth of 23%. We plan to deliver on our 2024 and 2026 targets using our own cash generation. Before we move to Q&A, I would like to thank our investors for their continued support and the entire team at Vista for their commitment and hard work during 2023. I look forward to an equally successful 2024 and see you in our next earnings call. Operator, please open the line for Q&A.