Vista Energy, S.A.B. de C.V.
Q4 2019 Earnings Call Transcript

Published: 1 Mar 2020

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to the Vista's Full-Year 2019 and Fourth Quarter 2019 Results Conference Call. [Operator instructions] Please be advised that today's conference is being recorded.I would now like to hand the conference over to your speaker today, Alejandro Cherñacov, Investor Relations Officer. Thank you. Please go ahead, sir.

[Alejandro Cherñacov:]

Thanks. Good morning, everyone. We are happy to welcome you to Vista's full-year 2019 and fourth quarter 2019 results call. I'm here with Miguel Galuccio, Vista's Chairman and CEO, and with Pablo Vera Pinto, Vista's CFO.Before we begin, I would like to draw your attention to our cautionary statement on Slide 2. 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 accordance with International Financial Reporting Standards, IFRS.However, during this conference call, we may discuss certain non-IFRS financial measures, such as adjusted EBITDA. 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 Oil & Gas, is a Sociedad Anonima Bursatil de Capital Variable, organized under the laws of Mexico, registered in the Bolsa Mexicana de Valores and the New York Stock Exchange. The tickers of our common stock are VISTA in the Bolsa Mexicana de Valores and VIST in the New York Stock Exchange. The ticker of our warrant is VTW408A.Miguel Galuccio will now present our full-year 2019 and fourth-quarter 2019 results.

[Miguel Galuccio:]

Good morning, everyone, and thank you for joining this earnings call.The year 2019 was one of exceptional execution for Vista as we achieved our main strategic goals

[Operator:]

[Operator Instructions] Our first question comes from the line of [Enrique Simons] from Credit Suisse. Your line is now open.

[Unidentified Analyst:]

I have a question for you. Can you provide us an update on pricing of crude oil in Argentina since the price freeze from last year? And the second question is, how's the discussions regarding pricing affect the Bajada del Palo Oeste development? Are you holding back investments?

[Miguel Galuccio:]

Enrique, I was trying to understand exactly what you - your question because we couldn't listen very well, but I think I have it here. So, look at - starting with the pricing. First of all, I would like to recap on pricing. The start of drilling operation last year when the government basically freed the price of oil and testified as well with a Decree 566.We decide to restart the operation middle of November when the prices went from the period of $40 to $42 per barrel in mid-November to $51. December, we saw $53. And in January, we have realized prices of around $55. And that was basically was the main driver of us to restart operations.I believe now we are basically looking to a new scenario where, clearly, we have proved the potential that we have in Vaca Muerta. I do believe that for Argentina, this has not gone unnoticed. And besides the renegotiation of the debt, that today, probably is the country's best priority. In order to minimize the economy, there's probably one button in the control room that they have to push, and that is the development of Vaca Muerta.For that, we will require - of course, prices. We will require for me incentives to export or get to export market. And I think we will also require - or most of the company would require some kind of way of getting access to the proceeds of exportation. And I do believe, and I'm cautiously positive, that the government have that in mind, and I should be working on that.So that's still related to pricing. The other question was related to Bajada del Palo Oeste and the development. Can you repeat the second part of the question, please?

[Unidentified Analyst:]

The second question is, how are the discussions regarding pricing affect the Bajada del Palo Oeste development, and are you holding back investments?

[Miguel Galuccio:]

Yes. So, look at - we, first of all, we have built a plan. We have built a development plan based on one clear for us - a clear feature that is flexibility. Our contract with drilling contractors, our contract with the provider of the frac fleet are contracts that has embedded somehow the possibility for us to accelerate and also to stop.Therefore, we believe that with the pricing scenario that we have today, we will have very good IRRs. And of course, this is due to the production results that we are seeing in Bajada del Palo Oeste, so I think we feel comfortable in the range that we are today. And also, we want to take advantage, as you know, of the scale. For us having two drilling rigs is a way of also having economy with scale that impacts our costs.So I don't believe there is a massive number where we can stop and then accelerate. And as you can see, our CapEx costs continue in a trend of reduction. And also, we are in a trend where our production of type curve has been improving. So, I don't want to give you a massive number.I think we feel comfortable on the range, and we believe one of the key things that we have to build in, in our plan is the possibility to accelerate and to stop. We proved that last quarter in a very successful way because we managed to stop the operation and moved to cash preservation mode. We're starting this year with two rigs, but we will take the actions that we need to take if the pricing scenario change.

[Operator:]

Our next question comes from the line of Bruno Montanari from Morgan Stanley. Your line is now open.

[Bruno Montanari:]

First one is about access to exports and FX. So, we've been reading a lot about this potential new hydrocarbon law being discussed in Argentina. So, just wanted to pick your brain on what the company thinks the timing should be on this. When should we get an approval on this potential law and what you imagine the structure could be? So would it be on a company-by-company basis, establishing volumes that you can export or not? So just curious on what the potential structure could be. A second question on the reserves. I understand that you use your - pretty much your type curve for the certification of the reserves.Would you be able to give us a hint on what would the reserves look like at the current well performance level which is much better than the type curve? And a quick one, with Aleph now back to the company in full, shouldn't costs decline more in 2020, or is the company being conservative on the $10 per BOE guidance?

[Miguel Galuccio:]

Thank you, Bruno, for your question. So, look at - I will say that starting with the export and the access to dollar, I think the first thing that has to happen in order to access to export is to have the local market completely supplied, okay? So as we see more production coming from Vaca Muerta, I think the ability to create an export market is becoming something more real. Of course, we will need a change in regulation. This is my personal point of view.I think the countries have a great opportunity there, and therefore, the rules to export need to be put in place. I don't want to comment on the timing of the law because, first of all, we need a law or we could not be the law. I mean there are things that we can - that the government could basically address with a simple decree as has been done in the past. Nevertheless, I believe there are certain things that need to be regulated that have not been regulated yet.I cannot comment on the timing. I know this is important for the economy. I know there's a clear understanding of the potential of Vaca Muerta. So, as I said before, I'm optimistically cautious that we should see some action on that front.Of course, as I mentioned to you, actually, and as I mentioned before, access to proceeds for certain companies will be very important to really ramp up operation and to have an aggressive growth plan, but we are almost neutral in terms of what the local market require.So, I think we are in a very good position compared where we were a few years ago to make this happen. In terms of reserves which was your second question. As you saw, our third-party auditors, they consider our reserve additions between 900,000 and 1.1 per well.Our type curve are 20% above that, okay, today. Nevertheless, we feel very comfortable with the number that they basically allow us to book. I think it's a great result. And these kind of numbers, we have not seen much in Vaca Muerta so far.In terms of Aleph, I think I want to explain the rationality of what we have done. And as you mentioned in your report, the unwind and wind of Aleph, we, as a management team, one of the things that we do is we are shy to adjust to whatever the condition the market give us. We are in a market that is very dynamic. So, I think this is one of the biggest strengths that we have in Vista today.So, what we have done is the following and the rationality behind this is the following. One thing that happened to us - or two things changed. The first thing, and for me, an important wake-up call was the Decree 566. The Decree 566 show us that even though we went with a plan where scale was important, for Argentina, flexibility was more important.So, that, coupled with the fact that when we start to do the detailed engineering with the type of production that we were getting from the eight wells of Bajada del Palo, the facilities that we need to treat our crude oil was much less complex than the one that we were planning to have in place. That basically changed the design of what we were planning to do to a design that is more scalable and a design that basically changed the profile of CapEx that was required.So, that, coupled with the debottlenecking of our existing facilities and the fact that they said we moved to a plan where we will basically prioritize flexibility, may have things in a plan where at the beginning, we want to have more control of Aleph. Now saying that, we are fully supporting and we are not changing the business model of Aleph.We believe there is value of having a dedicated team with dedicated people that specialize and have know-how in facilities. And also, we do believe that there's a very huge opportunity in terms of cost for us and for our neighbors is having on the midstream side, a multi-client approach. And I think that it will be proved sooner than later. So therefore, we continue with Aleph, just basically with a different structure.As we have adjusted many times in our business plan, we did an adjustment in Aleph because we saw that that was in the best interest of Vista shareholders. In terms of costs for 2020, I don't think that changed much, okay? Clearly, less capital required. But in terms of lifting costs, I think what we have said, that it's going to be around $10 per barrel, I think, is a fair assumption. One thing we believe on the lifting dollar that could play against us this year is the devaluation of pesos.If you take that rate - keep or they managed to keep that flat, I think we will have little inflation in US dollar there, and we have made most of the effort on the OpEx side so far. So I believe we will not see any more reduction in lifting costs. Of course, as we add unconventional oil, okay, and the effects of dilution of the lifting cost - it will be there. And of course, the pace when we add more unconventional cost, it could show us probably some good surprises. But $10, I think, is a fair number.

[Operator:]

Thank you. At this time, I am showing no further questions. I would like to turn the call back over to Miguel for closing remarks.

[Miguel Galuccio:]

Thank you very much for joining us in the call and for the continued support, questions and reports and the way that you treat Vista. Hopefully to see you soon in the next quarter call. Thank you very much. Have a good day.

[Operator:]

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.