Vista Energy, S.A.B. de C.V. (NYSE:VIST) Q4 2023 Earnings Call Transcript
Vista Energy, S.A.B. de C.V. (NYSE:VIST) Q4 2023 Earnings Call Transcript February 21, 2024
Vista Energy, S.A.B. de C.V. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: 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 speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] 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 Cherñacov.
Alejandro Cherñacov: 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 Galuccio, Vista's Chairman and CEO; Pablo Vera Pinto, Vista's CFO; and Juan Garoby, 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 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 call, we may discuss certain non-IFRS financial measures such as adjusted EBITDA 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 VISTAA in the Bolsa Mexicana de Valores and VIST in the New York Stock Exchange. I will now turn the call over to Miguel.
Miguel Galuccio: 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 EBITDA. We also secured 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 56,400 boes per day during the fourth quarter, 14% above sequentially and 16% above interannually on a pro forma basis. Oil production was 48,500 barrels of oil per day, 17% above the previous quarter and 18% 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 boe during the quarter. Capital expenditure was $212 million, mainly driven by 11 well drilled and seven well completing during the quarter. In Q4 2023, adjusted EBITDA was $288 million, 43% above year-over-year, supported by the stable revenues and other operating 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 0.46x adjusted EBITDA. I will now deep dive into our main operational and financial metrics of the quarter. Total production during Q4 2023 was 56,400 BOE per day, driven by the tie-in of 11 wells in Bajada del Palo Oeste during the quarter. This led to a sequential increase of 14%. On an annual basis, production increased 3%, reflecting that we have now surpassed the production level 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 an annual pro forma basis. On 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 tie-in two pads 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 impact Bajada del Palo Oeste 19, 20 and 21. The tie-ins boosted production in Q4 and led to an exit 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 spider 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 grow offset lower realized prices. Total revenues were $309 million, 2% increase compared to 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 barrel of oil composed by 1.6 barrel 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 a $65 to $66 range for January and February, which is key to found 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 boe 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 boe was down 11% as the ramp up of production volumes continued to dilute fixed cost. 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 cost of Q1 2024. Adjusted EBITDA during Q4 2023 was $288 million, an increase of 43% year-over-year. Adjusted EBITDA performance was supported by production growth and lower lifting costs. It also includes $81 million in gains from repatriation of 27% Energy export proceeds at the blue-chip swap exchange rate. This gain has been accounted for 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 EBITDA margin was 73% during the quarter, an interannual increase of 7 percent 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 EBITDA margin. This provides a more accurate representation of our margins. For more detail, please see the earning note released yesterday afternoon. Netback 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 EBITDA generation and normalization of working capital related to sale 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 CapEx. 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 III in currency. Net lever 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 reserve 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 51,100 boes per day, a 5% interannual increase or 18% 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 boe guidance. Additionally, we made a strong progress in sustainability. We reduced emission intensity by 13% to 15.6 kilogram 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 EBITDA was $871 million, up 14% compared to 2022. Our stock price increased 115% from December 31, 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 year-end 2023. This implies a total reserve replacement ratio of 458% and 485% for oil. Proved reserve 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. These drilling and completion activities 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 derisking of our blocks. Solid productivity result in Aguila Mora and Bajada del Palo Oeste allowed us to expand our inventory by 250 wells. During the year, we successfully secure the takeaway capacity to deliver on our 2026 plan. We obtain capacity in two key projects, 12,500 barrels of oil per day in the Vaca Muerta Norte pipeline and 31,500 barrels of oil per day in the Oldelval 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 increased oil exports to 52% of total oil sales, up from 44% in 2022. This was boosted by higher production and the startup of exports to Chile, which reached 4,700 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 renewable to our energy metric, among other projects. The implementation of such projects led to the reduction of Scope 1 and 2 in greenhouse gas emissions by 30% 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 boe. Regarding nature-based solutions, our subsidy Aike achieved significant milestone during the year. We finalized planting our flagship project in Rolón 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 [indiscernible] 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 Verra. We have consistently derived strong financial metrics over the last three years, resulting in superior total shareholder returns.
Adjusted EBITDA increased by 14% year-over-year to $871 million in line with the midpoint of our additional guidance. ROACE 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 0.71x adjusted EBITDA and net leverage at 0.46x. 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 after in 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 wells in our flagship development in Bajada del Palo Oeste. Based on this activity, CapEx is forecasted to increase to $900 million in 2024. According to our model, this activity will boost our production to between 68,000 and 70,000 boes per day during 2024. We expect lifting costs to continue to decrease on the back of 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 forecasted to increase to between $1 billion and $1.15 billion using a realized 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 delivered robust operational and financial performance with double digit growth, improved results, total production and adjusted EBITDA. The transfer of our conventional asset has converted Vista into a fully focused Vaca Muerta company with lower cost 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 issued an updated strategic plan supported by our large high quality inventory, our operating credentials, our existing drilling and completion capacity, and having secure midstream 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 continuous support and the entire team at Vista for their commitment and hard work during 2023. I look forward to an equally successful 2024 and seeing you in our next earnings call. Operator, please open the line for Q&A.
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