Vista Energy, S.A.B. de C.V. (VISTAA) Earnings Call Transcript

Good day, everyone, and thank you for standing by. Welcome to Vista second quarter earning release. [Operator Instructions] Please be advised that today's conference is being recorded. Now it's my pleasure to hand the conference to Vista Strategic Planning and Investor Relations Officer, Alejandro Chernacov. Please proceed. .

Thanks. Good morning, everyone. We are happy to welcome you to Vista's Second Quarter of 2026 Results Conference Call. I am here with Miguel Galuccio, Vista's Chairman and CEO; Pablo Vera Pinto, Vista's CFO, and Juan Garoby Vista's CEO; and Matias Weissel, Vista's COO. 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 the expectations contemplated by these remarks. Our financial figures are stated in U.S. dollars and in accordance with National 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 a closest IFRS measure can be found in the earnings release that we issued yesterday. Please check our website for further information. Company's associated animate Capital Vadala organized under the laws of Mexico, registered in the Bolsa Mexicana de Valores and the New York Stock Exchange. Our ticket arbit in the world of Mexicana de Valores and VIST 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. The second quarter of 2023 was marked by the closing of the acquisition etinotasset in Bakamota. This milestone in combination with organic growth took our company to a new scale leaving us in an excellent position to capture the upside of higher oil prices. As a result, adjusted EBITDA and free cash flow generation record substantial interannual and sequential increases. Total production was 156,000 barrels per day, 32% above the previous year. Oil production was 135,000 barrels per day, up 33% vis-a-vis the previous year. Total revenues during the quarter were $1.15 billion, an impressive growth of 89% compared to the same quarter of last year. Listing cost was $4.5 per BOE, 4% below year-over-year. Capital expenditure was $467 million driven by strong progress in new well activities during the quarter. Adjusted EBITDA was $805 million, an interannual increase of 99%. Net income was $322 million, an increase of 37% compared to the same quarter of last year and 199% versus the previous quarter. Excluding the gain from La Marca Chica acquisition in Q2 2025, net income expanded by more than 9x year-over-year. We record earnings per share of $3 during the quarter. Net of the Equinor acquisition payment, free cash flow was $491 million reflecting a significant boost in adjusted via generation and a meaningful improvement in working capital. Finally, our net leverage ratio at quarter end was 1.41x adjusted EBITDA on a pro forma basis, reflecting last 12 months figures for the acquired assets. The ratio was 1.25x adjusted EBITDA, marking a significant reduction year-on-year and reflecting a very strong balance sheet. Total production during Q2 averaged 15,100 BOE per day. This represents an interannual increase of 32% and a sequential increase of 16%. There are 2 drivers behind this boost. The first is organic growth. We connected 90 new wells in the last 12 months with very solid productivity, generating a 20% production growth compared to Q2 last year. On top of this, -- the consolidation of our working interest in Banduria Sur, and Bajadeltoro as of May 1, added 14,200 barrels of oil equivalent per day on average for the quarter. This reflects a run rate about 21,000 BOEs per day, which will impact fully in the third quarter. Our total production in May and June was on average 161,600 BOEs per day. Quarterly average hold production was 135,400 barrels per day, 33% higher year-over-year and 60% above the previous quarter. Gas production increased 30% on an interannual basis and 15% sequentially. Total revenues during the Q2 were $1.15 billion, a material growth of 89% compared to the previous year and 66% versus the previous quarter, driven by a solid increase in oil production and higher oil prices. Oil exports increased 54% year-over-year, reaching 8.6 million barrels in the quarter representing 72% of our oil sales volume. Taisei oil prices in Q2 was $89.4 per barrel, 44% above the previous year and 49% above the previous quarter. In both cases, driven by higher brands and an improvement in differentials. We sold 100% of our oil volumes at export parity prices, both domestically and internationally. In Q2, lifting cost was $4.5 per BOE, an inter-annual reduction of 4%, reflecting our low-cost asset base and fixed cost dilution as we continue to gain scale. On a sequential basis, lifting costs increased driven by the impact of inflation on peso-denominated goods and services amid flat effect rate. Selling expenses were $4.1 per BOE, an 8% increase year-over-year, mainly driven by higher oil prices impacting turnover tax. Adjusted EBITDA during the quarter was $805 million, 99% higher interannually and 79% higher sequentially, driven by a material expansion of revenues amid flat unit cost. Similarly, adjusted EBITDA margin was 70% an expansion of 3 percentage points compared to the same quarter of last year and 5 percentage points above the previous quarter. Net back increased 51% year-over-year to $57 per BOE. In Q2 2026, cash flow from operating activities was $985 million, reflecting a decrease in working capital of $274 million, mostly driven by the full normalization of the working capital position of our trading subsidiary, Vaca. We also made an income tax payment of $53 million. Cash flow used in investing activities was $886 million, reflecting accrued CapEx of $467 million, the $392 million payment related to the Equinor acquisition and an increase in CapEx-related working capital of $21 million. Net of Equinor acquisition, free cash flow was $491 million during the quarter, leaving us well placed to deliver on our annual guidance. Cash flow from financing activities was negative $110 million driven by the repayment of borrowings for $810 million and interest payments of $88 million, partially offset by proceeds from borrowings for $856 million. Finally, our cash position remained very strong, standing at $605 million at the end of Q2. Our net leverage ratio stood at 1.41x adjusted EBITDA or 1.25 on a pro forma basis considering the last 12 months of adjusted EBITDA for the acquired assets. To conclude this call and before we move to Q&A, I will make some closing remarks. During Q2, we materially increased the scale of our company on the back of a solid organic growth and the successful closing of the acquisition of our interest in the Bandurria sur and Baja toro blocks in Vaca Muerta. This allow us to capture the benefit of the oil price spike in Q2, leading to a substantial boost to adjusted EBITDA and free cash flow generation, in line with our capital allocation framework, we plan to use part of the free cash flow to reduce our net leverage ratio to our target of around 1x by the end of the year. We made very good progress on our annual work program and are well on track to deliver our 2026 guidance. We are maintaining our $3 billion adjusted EBITDA guidance at $85 per barrel as of now, but I want to provide a sensitivity due to the prevailing volatility in oil prices. For every $10 per barrel change in the second semester, adjusted EBITDA changes approximately $200 million. Before we move to Q&A, I would like to thank all Vista employees for their hard work during the quarter as well as our investors for their continued support. Operator, we can now move to Q&A.

[Operator Instructions] Our first question is from Alejandro Demichelis with Jefferies.

One question, please. You just have consolidated Cazadores and Baja Toro. Could you please provide some kind of color on how that is going? And how are you seeing the development of these assets going forward, please?

Thank you very much for the question. Yes, we took over our share in the asset in May, and everything I have to say, is moving along as we expected. Our share was consolidated approximately 19,000 BOE per day in Bandurria Sur and 2,000 BOE per day in Bajada deleverage Toro. In Bandurria Sur, actually, we have 3 rigs running, so you can expect production to remain relatively flat or maybe it can grow slightly towards the end of the year. . We're also starting the discussion in our -- with our partner, YPF regarding the plan for 2027. Bahaltoro, as you know, is an appraisal look -- the plan we are analyzing with YPF is to file reapplication this year. And over the next 2 years, we will then drill some pilot well to reach some of the areas and Landon, start to contract the facilities based on what we believe could be the production of develop. And we will then, we said, plan to move to full development and contract and put some dedicated rig to develop BahalelToro. Thanks, Alan, for your question.

One moment for our next question, please. It comes from Daniel Guardiola with BTG Pactual.

Miguel and team and I have a question on the production outlook for the company. Could you provide us the expected quarterly production trajectory through 2026, including the contribution from Bajoltoro and Mandora. And another question on production outlook is I would like to know if for 2027 and 2028, where you expect significant organic growth, is there a specific Brent price threshold at which you will rather to prioritize free cash flow generation over production growth. And if so, how should investors think about the trade-off between growth, shareholder distributions and maintaining leverage within your target range?

So starting with the first part, the consolidation of Bandurria Sur and Bajo del Toro to gas about 160,000 barrels per day. Monty in July, we are at 162,000. We forecast Q3 at 160 million and Q4 at 170 million. And we are confident in reaching our guidance that we provide that is 158-barrel of oil per day equivalent for the year. I am personally probably a bit more optimistic that we can even go a bit about these numbers. Related to your second part of the question, I mean, we make our plan at 65. That's happened yes. November last year. So we said you should consider that we are not going to revise anything on number at the moment. And of course, it's at some point of time, we need to reguide, we will do it. But for the moment, that are the numbers. Thank you for your question. .

Our next question is from Tasso Vasconcellos with UBS.

Miguel I think I might have some kind of follow-up guessing on these capital allocation alternatives. If you look at the production of the look that you have released for 2026 and 2027 and assume Brent at something close to $70 per barrel. We will hear that Vista could end 2027 close or even below onetime net debt to EBITDA. You still haven't paid any dividends, but you were quite successful in doing some very, very accretive M&As. From now on, what's the best capital allocation alternatives that you see for Vista. Do you still view some additional M&A on the radar as an alternative here or dividend should become a high priority for Vista?

Thank you, Taso, for your question. Yes, you look as I always have stated growth. It has been and remains our priority within our capital allocation strategy. With the additional cash that we generate, we will still keep full flexibility within the capital allocation metric that we have shown many times that mean continue seeking M&A, additional CapEx now for the Regiprojects that create a new opportunity for us in the future and buyback in the short term and potentially refine and return to shareholder policy that we have discussed before. And I think we are not at the stage to do it today, but it's something that we will consider in the future. Now in the medium term, the focus is to delever the company -- and as we stated in this call to close 2026 very close to our aim that is a onetime net leverage ratio if it's possible with the cash that we have generated, we believe that it's possible to achieve. So our capital allocation mindset today is around all those dimensions.

Our next question comes from Leonardo Marcondes with Bank of America.

Miguel -- so my question is regarding the drilling and completion CapEx for the wells, right? I mean given the strong pickup in coercivity and the significant decline year-to-date in Argentina's country risk. Do you see room to renegotiate lower fees with the oil service companies that are putting their rigs and equipment in Argentina?

Thank you, Leonardo, for the question and a good one. So as Argentina macroeconomic continue its normalization process. Price oil services became for me, more a fusion of scale, volume and I mean, scale emboli that the same thing and competition. Nevertheless, I will say Vista has demonstrated once again that innovation continue to play an important role in reducing the E&C costs. An example of this are the latest progress that we did in core reduction within the completion process. As an example, we moved some supply from 1,000 kilometer away to in-basin Bakamurta mining supply and lately to Bajada del Palo but basically, I mean, tens of kilometers away from where we operate. We're engineering the completion process to move to Etan that also the cost of supply sun. And now we are switching from our frac pump from gasoline to Gas Pam, that also is reducing cost. So I will say today, I mean, with the macroeconomic situation of Argentina, again, I would say, competition, scale and I will not discount innovation, particularly after what we have demonstrated. Of course, at the macroeconomic continue improving, that is all good news, that help definitely. Thanks for the question, Leo.

One moment for our next question. It comes from Gillern Martins with Goldman Sachs. Please proceed.

I have a quick 1 from my side here. Vamos pipeline. Could you please explain to us or provide an update on development of pipeline -- and also if you could comment, do you see any risks of having to use trucking again, particularly when considering you expect ramp up in production in the second half of the year, thank you.