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 second quarter 2024 earnings webcast. At this time, all participants are in listen-only mode. After the speaker's presentation, it 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 Chanaco. Please go ahead.

Thanks. Good morning, everyone. We are happy to welcome you to VISTA's second quarter of 2024 results conference call. I am here with Miguel Gallucho, VISTA's chairman and CEO, Pablo Beravinto, 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 U.S. dollars and in accord 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 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 BISD 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. The second quarter of 2024 was marked by a strong inter-annual and sequential growth across key operational financial metrics, driven by new well activity in our development hub in Vaca Muerta. Total production was 65.3 thousand BOEs per day, an increase of 40% year over year and 19% quarter over quarter. Oil production was 57.2 thousand barrels per day. 46% above the same quarter of last year. Total revenues during the quarter were $397 million, a 66% increase compared to the same quarter of last year. Lifting costs was $4.5 per BOE, 6% down year over year. Capital expenditure was $346 million, mainly driven by 14 wells drilled and 14 wells complete during the quarter, reflecting the acceleration of capital deployment in new wells activity and $63 million in development facilities. Adjusted EVDA was $288 million, 90% above year over year, driven by robust revenue growth and lower listing cost per VOE. Adjusted net income was $22 million, implying a quarterly adjusted EPS of $0.7 per share. Pre-cash flow was $8 million during the quarter, as higher cash flow investing driven by increase in CAPEC activity was financed with robust cash flow operations driven by the boost in adjusted VDA. Net leverage ratio at quarter end was a solid 0.6 times adjusted VDA. I will now deep dive into our main operational financial metrics of the quarter. Total production during the quarter was 65.3,000 VOEs per day, our highest quarter ever. Production was 40% above on our interannual basis, reflecting the ramp up of our new well activity as we tie in 48 new wells during the last 12 months. On a sequential basis, production growth was 19%, driven by the connection of four paths in Bajada del Palo Este and one path in Bajada del Palo Este between the second half of Q1 and the third half of Q2. Oil production was 57.2 thousand barrels of oil per day, an interannual growth of 46% and a sequential growth of 21%, reflecting that the share of oil in our new wells is above our base production. We expect this trend to continue going forward as we continue to drill in our oil-prone development hub, especially Bajada del Palo Este. Natural gas production increased 70% year over year and 5% quarter over quarter. Based on our new well activity plan, Our model shows that production is forecast to keep growing on a double-digit basis over the next two quarters, leaving us on track to deliver 85,000 BOEs per day in Q4. We also reiterate our guidance of 68,000 to 70,000 BOEs per day on average for the full year, noting that we will likely be on the upper end of this range. During the second quarter of 2024, we continue to make solid progress in the execution of our annual work program. We tie in four well paths during Q2, two in Embajada del Palo Oeste, one in Embajada del Palo Este, and one in Agueda Federal for a total of 14 new wells. We connected 25 new wells during the first six months of the year. leaving us on track to deliver our activity guidance, which is between 50 and 54 new wells for the year. We also achieved a major milestone in terms of production capacity expansion by signing a contract with SLV for the second frag set. We expect the set to be fully operational for us towards year-end, adding capacity to the three high-spec drilling rigs and one frag set we are currently operating. This new contract will give us additional flexibility to potentially accelerate our activity as of 2025. During Q2 2024, we have made solid progress in securing additional oil treatment and minstering capacity for our growth plan. Within it, our oil treatment plant in Entre Lomas expanded to a total capacity of 85,000 barrels of oil per day. We also finalized the connection of our development hub to the Vaca Muerta Norte oil pipeline, doubling our capacity to export oil to Chile to a new total of 12,500 barrels of oil per day. Finally, we initiated a project in our oil treatment plant to expand the tracking capacity from 22,000 to 37,000 barrels of oil per day. We expect this to be fully operational by the end of Q3. This will provide us with incremental takeaway capacity that is key while the pipeline system is being expanded. In Q2 2024, total revenue soared to $397 million, a 66% increase compared to Q2 2023, and then 25% above the previous quarter, driven by strong production growth, as well as an increase in realization prices. Realized oil prices was $71.8 per barrel on average, up 12% on interannual basis. Realized oil price in the domestic market was $73.7 per barrel, including 42% of domestic volumes sold at expropriety link pricing. Net of tracking costs domestically realized oil prices were $68.9 per barrel. During Q2 2024, we tracked 23% of the volume sold in the domestic market. In the export market, our realization price was $76.6 per barrel. We exported 1.9 million barrels of oil, 22% above the previous year, capitalizing on the strong growth of our production. Combining sales to international buyers and domestic buyers paying export parity 64% of our total sales were sold at export parity. Lifting cost was $26.7 million for a quarter, implying a lifting cost per BOE of $4.5. The 31% increase in absolute level compared to the same quarter of last year was driven by higher costs in gathering, processing, compression, and power generation to accommodate current production and future growth. On a unit cost basis, our lifting cost was down 6% compared to the same quarter of last year, reflecting our low-cost operating model, now fully focused on shale oil. We expect a dilution of the fixed component of this incremental cost as we continue to ramp up production. Based on our annual work program, our model shows we are on track to deliver on our guidance of $4.5 per barrel for the year. Adjusted VDA during Q2 2024 was $288 million, an increase of 90% year-over-year, mainly driven by strong revenue growth. On a sequential basis, adjusted VDA increased by 31%. Adjusted VDA margin was 70% during the quarter, an interannual increase of 7% points reflecting the benefit of the economy of the scale as we deliver robust revenue growth while decreasing lifting costs per VOE. Net back was $48.5 per VOE, a 35% increase year over year reflecting the higher prices and increase in oil to gas ratio for our sales. Free cash flow during the quarter was $8 million Even as we accelerate CAPEX, a strong adjusted VDA generation boosted cash from operating activities. Operating activities cash flow was $281 million in line with adjusted VDA as advance payment for ministry expansion of $36 million were funded by a decrease in working capital of $33 million. Cash flow used in investing activities was $273 million, reflecting CAPEC of $346 million for the quarter, partially offset by the $74 million decrease in CAPEC-related working capital. Cash at period N was $328 million, as cash from financing activities generated $168 million. Net leverage ratio stood at a very healthy 0.56 times adjusted VDA at quarter end. I will now summarize the key takeaways of today's presentation. During Q2 2024, we continue delivering a strong execution of our drilling and completion plan. We tie in 40 new wells in line with our annual guidance for a total of 25 during the first semester of the year. This generated a robust production increase in Q2, both on an inter-annual and a sequential basis. A strong revenue generation driven by robust web productivity and improved reliable prices, showingly with the focus on cost efficiency, boosted adjusted EVDA, which in the 12 months surpassed $1 billion for the first time in our company history. We also achieved measure milestones in preparing our company for future growth, expanding our oil treatment capacity, and connecting our operation to the Vaca Muerta Norte pipeline. We also secure a second FRACset, which adds flexibility to potentially accelerate our short cycle hard return capital program as of 2025. This reflects the constructive view we have on the dynamics of our industry, both globally and domestically. and is underpinned by our strong conviction on our ability to deliver value to our shareholders. The first semester has ended on a high note for us and put us on track to deliver on our annual guidance. Before we move to Q&A, I would like to thank our shareholders for their continued support and congratulate the entire VISTA team for their outstanding performance. Operator, please open the line for Q&A.

Thank you. And at this time, we'll conduct the question and answer session. As a reminder, to ask a question, you will need to press star 1-1 on your telephone and wait for a name to be announced. To withdraw your question, please press star 1-1 again. One moment for our first question. Our first question will come from the line of Vicente Falanga from Berdesco BBI. Your line is open.

Thank you very much. Good morning, everyone. Miguel, Pablo, Juan, and Alejandro, congratulations on the great execution. I had two questions. The first one, could you please comment on your exit production for the second quarter and how your third quarter should look like in terms of output? And then my second question, could you also please provide more details on the reason for the hiring of the second flat crew from Schlumberger? Where should this fat crew go first and could that speed up drilling in Aguilamora? Thank you very much.

Hello Vicente, thank you very much for your question. So starting with the first one, Q2 exit on production. The ramp-up of Q2 was mainly driven by the 11 wells in the three paths that we connect in Bajada del Palo Este during the second half of Q1. On average, we see two of those paths performing within the tight curve and one path at the north even performing better than the tight curve. When you look at the average per month of Q2, we have 65.3 barrels of oil per day as a monthly breakdown. We record 60.6 in April, 16.5 in May, and almost 70 in June. So if you have to look at the Q3, I will probably go for a double digit growth again. not less than 10%. This is what I will recommend for your model. Regarding your second question about the second frag set, the second frag set is going to be incorporated. First of all, I mean, there was a very good movement from our people in bringing the second frag set and also taking advantage of the I will set a special relationship that we have with our service provider in this case, Schoenbergshe. The second process is going to arrive in the country in Q4 of this year. I will not impact 2024 plan. The second process was thought about gaining optionality and flexibility to accelerate and deliver our 2025 plan. So that is what we have for the second fraction in mind. So in terms of additional production for 2024, it will not be impacted. But of course, it will give us some room to accelerate or to bring more production during 2025. Great. Thank you very much for the answers. Thank you, Vicente.

One moment for our next question. Our next question comes from Daniel Guardiola Fernandez from BTG Pactual. Your line is open.

Thank you. Hi, good morning, guys. Yeah, congrats for the great results and the impeccable execution. I have two questions for my end. The first one is related to the approval of the Omnibus Law. That was a recent victory that the government claimed in Congress. And I want to know if you can share with us the main positives or potential effects for VISTA related to the approval of this deal. And more specifically, if you can comment on the applicability of the REGIF chapter, especially to upstream projects or to potential acquisitions of companies or acreage in this sector. So that will be my first question. My second question, I saw during the presentation that you guys significantly increased your trucking capacity to 37K per day. I wanted to know, Miguel, and maybe you can share with us, what are your expectations in terms of total trucking towards the end of the year? How do you see that evolving in 2025 once the widely expected additional pipeline capacity comes online? And what are the costs different between trucking and using oil pipelines.

Thank you, Daniel, for your question. So starting with the first one, the ley bases and the RIGI. The ley bases, as you know, have two main statements that are important to our industry. One is the principle of no price intervention by the government. in pricing of crude oil and products. And the second one is the principle of freedom of exports for crude oil and products as well. I would say these are two very important and good principles that are in the law. And now we will have to wait until the fine print is worked out and how the regulation end up. Of course, it's going to be a matter of execution. in the sense that how fast that principle can be transmitted in real prices in the reality. Of course, we are positive. The spirit of these principles are good. Now, all the players, we have to push and apply it. And of course, the fine printing of the regulation is key. So I guess the Secretary of Energy will be focused on that. The second, related to the RIGI, I will say, in my view, it's unclear yet, and again, the RIGI has not been regulated yet. The regulations have to be written. And it's unclear for me the applicability of the RIGI to the Aftrim business overall. It's probably more clear in regards to infrastructure, but it's unclear for the Aftrim. Nevertheless, I would like to say that For Argentina, and with the potential that Vaca Muerta has, actually we have 30 rigs in the country and the same volume of resources that you have in the U.S. with 500 rigs. Using the rigging to accelerate Vaca Muerta is clearly a no-brainer for me for the country. Now, I cannot comment on the application since yet it's not clear to me. How it's regulated is going to be key. Your second question is regarding the volumes of track and cost. So the cost of tracking for us is approximately in the range of $15 per barrel. In Q1, we track around 2,000 barrels. In Q2, we track around 8,000 barrels. These have an impact or a cost of $11 million. Yes, 8,000 barrels per day. And in Q3, we plan to transport by truck around 13,000 barrels per day. So again, impact in cost is around $20 billion. Q4, we really depend on the starting of all the valves. So when starting Q4 del Valle is going to basically make a difference of how much we track in Q4. I will assume around 20,000 barrels per day. And 2025, you should see the tracking is loading down and disappear. As Oldelvar gets full speed and also in the second half of 2025, we should have the second stage of Oldelvar coming into place.

Thank you, Miguel, for the answer.

Thank you. One moment for our next question.

And our next question comes from Alejandro Demichelis from Jefferies. Your line is open.

Yes, good morning, gentlemen. Congratulations on the quarter. A couple of questions, if I may, please. The first one is, could you please give us how you're viewing the local pricing evolving from here? Now you're saying you have about 64% of total volume sold at export parity. How do you see that evolving? That's the first question. And then... In terms of the second question, how do you see the export volumes also evolving? And Miguel, you mentioned it will depend a little bit how you see it all the while. But what's your best guess today in terms of the all the while situation?

Thank you, Alejandro, for your question. So in terms of pricing, as we mentioned in the presentation, Vista Average Realized Oil price was around $72 in Q2, 2024. This was 12% about half year on year, and we were 2% about the last quarter. That was mainly driven by the 14% year-on-year increase in domestic prices. We went from $60 per barrel And in Q2, we were at 68. So that, taking into consideration, in general for the realized price, a brand of 85, we have a discount of 2.5. So we have a sell price of 82.5. And that gives us a realized price of 76.6, with a net of 8% of export tax. Regarding the evolution of that, our total export discount quarter was 38 percent of the total volume, and the export parity total was 64 percent of the total volume. If we assume that in Q3 our export will move from 38 percent, let's say, toward 50 percent of the volume, I think we should expect that the export parity over the total will be in Q3 around 70 percent. Of course, the key will be, and I think for the volumes that we are putting in production and we're expecting to put in production in Q3, achieving 50% of our volume going to export, I think it's feasible. And I think I answered your two questions, Alejandro.

Okay. That's great. And Miguel, now you have... Better visibility going at least into the first half of 2025. How do you see that 2025 evolving? Obviously, there are a lot of moving parts there.

2025, I mean, we clearly, our guidance for 2025, if we exceed this year at 89,000 barrels per day, is basically outdated already. Therefore, you need to expect that at some point this year we will review that guidance. And also, if you are going to model now, we have today no reason to reuse activity since everything is going well. We will end up this year with 54 wells. So I will take at least same capex to drill another 54 wells for next year.

Okay.

Yeah, that's very clear. Thank you very much.

Thank you. One moment for our next question.

Our next question comes from the line of Tasso Vasconcellos from UBS. Your line is open.

Hi. Good morning, everyone. Thanks for taking my question, and good to see the great execution from the company. Miguel, maybe a follow-up question here on the next year's guidance. We know that it might be updated since you last released it in September last year, but if you could please provide our expectations in terms of the exit rate for this year, what might be the exit rate in terms of production for next year, because based on the new equipment set and around 55 wells per year we do have a view here that you might fully anticipate the 2026 guidance for 2025 at some extent so it would be great to hear your thoughts on maybe how much of production could you guys deliver at the beginning of the year and by the end of the year of 2025. uh my second question is on the potential mnas for for vista We know that Exxon is selling some of the assets and news in the media report that you guys and other players are beating this process. So if you could also provide some updates on this investment process from Exxon and maybe other M&As opportunity, I would appreciate that. Those are my questions. Thank you.

Thank you, Tasso, for your question. And look, starting with 2025 forecast, As I mentioned before, again, I mean, you could expect that before the end of the year, we guide you again since our current forecast seems to be shy compared with the results that we are having. Nevertheless, you have to look at 2025. that we are starting already with three rigs and three new rigs because we will have the two that will exist and we will change one of the one we have today in October with a new state-of-the-art drilling rig that is coming in. And we will have a second frag fleet. I mean, to execute 54 wells this year with one frag fleet, we were on the limit. So we will have, as I said before, we will build additional optionality and capabilities to accelerate with the second frag set. Therefore, and we will exceed this year, probably if everything goes well, and third quarter is key, at around 89, 90,000 barrels per day. Therefore, you already know that 2025 number that we put in the guide and it's obsolete. I will assume, in terms of activities, at least, as I said before, 54 wells. That is what we want to deliver in 2024. And I cannot comment on production, but I'm sure we will update that as soon as possible. This is related to 2025. Related to Exxon, as I said before, and I cannot comment much on that, and I'm sure you understand because it's a It's a process where confidentiality is important. We see that we are participating in the process. I think we are a competitive leader. It's a very competitive process. And again, I mean, it's not going to change the future of Vista at all. As I said before, it's a night to have. And we will compete hard to see what is the result.

That's clear. Thank you. Thank you, Tasso. Thank you. One moment for our next question.

And the next question comes from Marina Mertens from Latin Securities. Your line is open.

Hi. Good morning. Thanks for taking my question. I have two questions. The first one, regarding your recent equipment update, you mentioned that the new FRAC set will arrive by the end of the year, but could you provide an update on the current status of the new drilling rig? Is it already operational, or if not, when do you expect to begin impacting your operations? And the second one, over the last four years, you've been increasing your tracking transportation, while all the project is underway. If there are any delays or any additional delays in the All Dead Wild project or eventually in the Vaca Muerta Sur project, to what extent could tracking capacity be expanded?

Thank you, Marina. Good question. Look, in terms of the equipment and in terms of the third rig, we are drilling with a third rig since Q1 this year. The only thing that you will see that in the third quarter, most likely in October, we will change one of those rigs with a new rig that is an estate of their rig coming from Houston. So it should not impact our ability to deliver what we have to deliver. We just exchange rigs. And the FRACSEC will probably come toward the end of the year. In terms of a potential delay of Delval, first of all, I would say that we are not expecting a delay. As we get closer to the date of finalization, we have better visibility on when Delval is going to be delivered. Nevertheless, when you look at our capacity today with all Delval, it's around 92,000 barrels per day. This is the capacity that we have to evacuate. This is composed of 43,000 that we have from the existing pipeline of oil del Valle. We are exporting today 7,200 barrels of oil per day to Chile, but that can be expanded in Q3 probably to 9,000, and the total capacity is 12,000. And our new tracking capacity is 30,000 barrels of oil per day. from which, as I mentioned before, in Q3, we'll probably use 13,700 of that. So with additional tracking capacity, we are in good shape. In case we have a delay on the value in Q4, we will manage to offload our production.

Thank you very much.

You're welcome, Marina. One moment for our next question.

Our next question comes from the line of Andres Cardona from Citi. Your line is open.

Hi, good morning, everyone. Congratulations on the execution of the program. I have two questions. The very first one is, given the new capacity that you have on drilling and fracking, how do you imagine the time allocation of this capacity into the different asset blocks that you have? And the second one is there was an increase of some 20 cents on the lifting cost. I know it's in line with the guidance, but I just wanted to understand what drives the delta between the first and the second quarter. Thank you.

Thank you, Andres, for your question. So, I mean, in terms of priorities on the development, the new equipment and so on is still the same as our development hub. This is where we are going to concentrate our activity. As you know, we have a deep portfolio there of south and west. We have hundreds of those, so plenty of room for us, and we will continue locating our activity there. When it comes to listing costs, Q2, we record 4.5. uh and basically i would say two reasons the 4.5 one we spend as we have to spend money in gathering processing compression power generation to accommodate the current production and the future production growth we have to be ahead usually all those projects you have to front load it in order to accommodate the production growth The second part of the lifting cost was cost pressure driven by flat effects and peso inflation. We are seeing a bit of a headwind in OPEX. The peso appreciation was 12% in real term between Q1 and Q2. That is approximately $2 million of sequential lifting cost increase that basically came from that trend. No much reading or listening calls. We continue doing a very good job, and we are now going to change our guidance for this year.

Thank you, Miguel.

Thank you. And I'm not showing any further questions in the queue. I would now like to turn the call back over to Miguel Gallucho for any closing remarks.

Well, guys and ladies, thank you very much for the questions. It has been a very good quarter to us. We expect to continue delivering on the promise. Thank you very much for your participation and have a good day.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.