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

Good morning, and welcome to the Vista Investor Day. Today's call is being recorded. [Operator Instructions] I would now like to turn the conference over to Vista's Strategic Planning and Investor Relations Officer, Mr. Alejandro Cherñacov. Please go ahead.

Good morning, everyone. We are very excited you could join us today. I'm extremely pleased to welcome you to Vista's First Investor Day. Before we go into the details of the day, let me very briefly show you a Safe Harbor statement and remind everyone 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 presentation, we may discuss certain non-IFRS financial measures such as adjusted EBITDA. Reconciliations of historical measures to the closest IFRS measures can be found in our full year 2020 earnings release. Today, our CEO and our management team members will present Vista's 2022-2026 strategic plan. We'll kick off with Miguel Galuccio, Chairman of the Board, CEO and Founder, who will be discussing our strategy to deliver superior shareholder returns with a lower carbon footprint in the current energy context. Next, Gabriela Prete, our Sustainability and QHSE manager, will dive deeper into our sustainability program and why we consider it a competitive advantage. Following Gabi, Juan Garoby, our Chief Operating Officer and Vista Co-founder will go through our assets in Vaca Muerta. Juan will also introduce some key members of our operations teams who will describe past, present and future actions to continue outperforming in operational efficiency and safety standards. Last, Pablo Vera Pinto, Vista's Chief Financial Officer and Co-founder, and myself will walk you through the details of our 2022 to 2026 growth plan and its expected impact on future cash flow and profitability. We will share capital allocation priorities and explain why we consider them fundamental to maximize shareholder value. The day we'll close with a Q&A session. Before we get started, just a few housekeeping items. We expect the presentation to be 60 minutes long in total. After that, we will move to Q&A. Dialing participants will have a chance to ask live questions during the Q&A session. You will also be able to submit your questions to me by typing them on the Question box under the video screen. Third and last, you will find the slides of today's session and the video to replay on demand, both on our website, vistaenergy.com. [Presentation]

Good morning, everyone. During our presentation today, we will be presenting how we propose to deliver superior total shareholder return driven by a strong net cash generation in a world that continues to demand more and more reliable, affordable and low-carbon energy. We have built a company that is ready to thrive in the new context and our achievement over the last 40 years give me confidence that we are fit for the future. As the world population continues to grow and the global economy's span, there is no question that energy demand will continue rising. And for global growth to be sustainable, this energy demand needs to be supplied with reliable, affordable and low-carbon energy. The energy transition has taken center stage of the global agenda, and I am convinced that a low-cost and low-carbon energy producer like Vista will play a key role over the next decade as this transition unfold. We are seeing shareholders putting a strong focus on capital discipline and earning quality by demanding that companies strike the right balance between profitable growth and cash distribution to shareholders. In particular, for oil and gas companies that are likely to face price volatility in the coming years, the key differentiating factor will be to show resilience to lower prices while also being able to capture the upside of high oil prices. Vista is well positioned to excel throughout the cycle given its top quality asset base and strong execution capabilities, which allow us to generate industry-leading return with flexible and short cycle investment plan that are aligned with the transition to a low carbon economy. Vaca Muerta is a world-class play that delivers low cost, low-carbon resources with top productivity levels. Cumulative production over the first 180 days of an average oil well in Vaca Muerta have increased by more than 30% on a normalized basis since 2017, about the average well in the Permian Basin. The quality of the play also reflects the relatively low emission intensity of greenhouse gases that we are seeing in the new development of Vaca Muerta. The growth in oil and gas production from Vaca Muerta have already changed the paradigm in Argentina. We have approximately $29 billion invested up today. The play has already reached a total production of more than 500,000 BOE per day, showing a compound average growth rate of 56% since 2013. Vaca Muerta oil production reached approximately 190,000 barrels per day in October, and currently represent 35% of Argentina's oil production. While gas production from Vaca Muerta reached 42 million cubic meter per day, representing 33% of Argentina's gas production. This production growth helped Argentina materially reduce gas imports, which coupled with growing volume of light crude oil export, is supporting the economy by improving the balance of U.S. dollar payment. Medanito production has found its position in the international marketplace as a highly competitive, low-sulfur and light crude oil, helping to reduce discount to Brent. As Argentina's domestic refining market is largely mature and duly supply, it is reasonable to expect that the forecast crude oil production growth should result in increase of export volumes. This is setting Vaca Muerta on the path to become a relevant crude oil export platform and becoming an important contributor of U.S. dollar to the economy. In this context, our superior total shareholder return value proposition is based on 4 strong foundations. In first place, Vista hole a deep, ready-to-drill well inventory which give us runway to achieve our ambition growth rate over the next 5 years and then sustain or even continue growing into the next decade. Secondly, our highly competitive economics result of low development cost and low lifting costs allow us to invest with a very short payback cycle and take investment decisions on relatively small incremental dollar amount. This provide us with a high degree of flexibility. In third place, our strong focus on capital discipline and [indiscernible] management have allowed us to navigate turbulent times, giving priority to our balance sheet which is very robust at a currently 0.9x net debt to EBITDA. Last but not least, we truly believe that our sustainability-focused culture will provide us with competitive advantage on the long term. The progress we have made over the last 12 months is an evidence of the traction that our committed people generate. During the next 5 years, our priorities will be built upon these foundations. We foresee to progressively increase our drilling and completion activity of Bajada del Palo Oeste, which we expect will double from 20 to 40 wells per year by 2026. We expect most of our incremental oil production to be sold in the international market, with a target of 60% of the total oil production going to export market by 2026. This is up from the 30% in 2021. We also expect to continue reducing costs with a target of $6 per BOE for lifting cost by 2026, and a target of $6.5 per BOE for development costs by 2026. As a key priority, we forecast to reduce greenhouse gas emission intensity by 75% compared to our 2020 levels by implementing a number of technological upgrade to our facilities and key processes. Excess funds created by this increase in production at lower costs are planning to be used among other things to reduce 1/3 of our gross debt to $400 million over the next 5 years, with a stronger balance sheet providing us further flexibility. Executing on our priority should allow us to generate cumulative net cash of $1 billion over the next 5 years. To achieve this, we plan to deliver on the following key metrics by 2026. First, we plan to double production to over 80,000 BOE per day and assuming a conservative realized oil price of $60 per barrel in real term. We aim to generate over $1 billion in adjusted EBITDA by 2026. A result of these cost efficiencies, which our CEO, Juan Garoby, will describe in more detail shortly, we expect to generate industry-leading returns alongside this growth, taking our adjusted EBITDA margin to more than 65% on our return on average capital employed to over 45% by 2026. We plan to direct part of our net cash generation to increase our financial flexibility through debt reduction, targeting a net and gross leverage ratio of 0.3x and 0.4x, respectively. Finally, by implementing already identified operational projects, we plan to significantly reduce our greenhouse gas emission intensity down to 9 kilograms of CO2 per BOE by 2026. As I have been stressing throughout my presentation, sustainability is a mandate, but also a source of competitive advantage. We have a clear and concrete ambition. We aspire to become net 0 in Scope 1 and 2 by 2026, and we expect to do so by prioritizing reduction in emission of our operation. And we will complement this effort by removing the carbon of our residual emissions and launching our own portfolio of natural-based solutions in 2022, comprised of a diversified set of forest and soil carbon sequestration project. There is an opportunity to effectively and cost efficiently generate our own carbon removals in Argentina, given the region's vast natural resources and ecosystem together with our top execution capabilities. The chance of providing carbon-neutral oil to our customers could represent a considerable competitive advantage for Vista. I will now turn it over to our sustainability and QHC manager, Gabriela Prete.

Good morning. First, let me deep dive into the initiatives that drive our aspiration to become net 0 in 2026. The first part of this plan consists of reducing Scope 1 and 2 GHG emissions in our operations. To achieve this, we are already implementing selected projects prioritized based on our carbon abatement cost curve, including vapor recovery units, blanketing gas in our storage tanks, improving parameters in the glycol dehydration process and the electrification of compression stations. As a result, we are targeting to reduce our Scope 1 and 2 GHG carbon emission intensity by 75%, from 39 kilos of CO2 equivalent per BOE in 2020 to a forecast of 9 kilos of CO2 equivalent per BOE in 2026. On an absolute basis, we expect to reduce our Scope 1 and 2 emissions from 417,000 tons of CO2 in 2020 to an estimate of 265,000 tons of CO2 equivalent in 2026. This implies a reduction of 35% in absolute levels while doubling our production in the next 5 years. When we run economics for these projects given our internal carbon price of $50 per ton, all projects have a positive rate of return. Forecasted total capital expenditures on these initiatives amount to $8 million per year on average between 2022 and 2026. In order to offset the residual emissions, we plan to launch our own portfolio of nature-based solutions developed by us locally and cost efficiently following stringent standards. We are aiming for projects that are material, incremental, measurable that promote biodiversity and above all, are permanent. We are strongly focused on project quality to maximize environmental benefits and reliability. To reduce risk, we look for diversification across different geographical regions, project types and operating models. Our emphasis is on triple environmental, social and economic sustainability impact in compliance with our high governance standards. We are developing an internal CO2 accounting framework aiming for higher standards than those of carbon verifying agencies. We believe NBS to be the most cost efficient and impactful initiatives to complement our operations-driven carbon footprint reduction. This is why we plan to invest between $5 million to $10 million per year in value-generating NBS' over the next 5 years starting in 2022. This is materially less costly than other CO2 abatement options and are expected to cost less than the internal carbon pricing of $50 per ton we define, therefore, allowing us to unlock value. Nature-based CO2 removals, together with our carbon reduction initiatives across operations are the best alternative to achieve carbon neutrality while protecting and restarting nature. Now, to best reflect the spirit of our social initiatives, let me show you a video that summarizes our commitment to our people and the communities in which we live and work. It also demonstrates how invested in our people is a cornerstone of Vista's ESG program. [Presentation]

Hello again. Our robust growth plan is supported by the values embedded in our Vista way and by our some governance standards. Our Board of Directors directly and through their audit corporate practices and compensation committees, are responsible for supervising the company's strategic direction and overseeing our management. Vista's Corporate Practices Committee specifically reviews the execution of our annual plan, its risks, as well as our ESG strategy on a quarterly basis. To oversee the achievement of our goals, we have a majority independent Board. 2/3 of our Board members are independent and all Board committee seats are occupied by independent Board members only. We also seek to ensure everyone in the company is committed to our targets through accountability measures. Vista is a mostly horizontal and natural organization. As our company grows, we intend to remain agile and flexible, but also strongly committed. Several senior managers as well as the executive team co-founded Vista are personally invested in the company. More than 20% of our employees are shareholders of Vista through a long-term incentive plan with full oversight for our Compensation Committee. Also, 100% of our employees' short-term compensation incentives include but are not limited to, a relevant sustainability goal component. Individual and corporate targets are set, raising the bar with respect to operational and financial KPIs, including ESG impact to continue driving efficiency within the organization.

Good morning, everybody. We will now deep dive into 2 key aspects of our operation: Our top quality assets comprised of a deep, ready-to-drill short-cycle well inventory, Vaca Muerta, and our peer-leading operating performance. At the end of this section, I will share how we plan to continue improving operation and provide our production and cost targets for the next 5 years. To kick it off, I would like to use some footage which introduces our acreage in the core of Vaca Muerta, which is conveniently connected to infrastructure with spare capacity linking our upstream operation to the local refining system and export facilities. [Presentation]

I will now ask my colleague, Germán Bottesi, Vista's Exploration and Development Manager, to join us from our geosteering room in our offices in Neuquén. He will provide further details about the high-quality rock properties of Bajada del Palo Oeste. [Presentation]

Let me now give the floor to Raul Krasuk, Vista's well construction manager who is at one of our drilling sites at Bajada del Palo. [Presentation]

I will now introduce Matias Weissel, our operations manager, who will be joining us from our offices in Neuquén. He will talk about how we have increased production in lifting costs since we took over operations and launched our development in Bajada del Palo Oeste 4 years ago. [Presentation]

Thank you, Matias. That is all from my colleagues in the field. I will now continue with our safety performance. We have made substantial improvements alongside the activity increase in Bajada del Palo Oeste, Matias just described. As a result of these improvements, we have reduced our total recordable incident rate from 3.9% from 3.9% in 2018 to an estimate of 0.3% for 2021. We have achieved our goal to reduce TRIR below 1 in line with Tier 1 international standards in 2020, 2 years after start of operations. Finally, let me share with you our 2026 production and cost targets. We plan to more than double production from an estimate of 38,000 barrels of oil equivalent per day this year to 80,000 BOEs per day in 2026. We will achieve this by incremental drilling and completion activity in Bajada del Palo Oeste. We also expect to reduce our lifting cost by 20% from 7.5% in 2021 to $6 per barrel in 2026 as growing scale helps dilute fixed cost. Last but not least, we expect to reduce our development cost by 11% from $7.3 to $6.5 per barrel between 2021 and 2026. As we execute additional cost-reduction projects such as operating our own sand mine and permanent water infrastructure to further reduce well costs. Let me now give the floor to Pablo and Alejandro.

Good morning, everyone. We will now review our growth plan and financial strategy. Let me start with our capital allocation priorities, which we have defined seeking to maximize total shareholder return. As portrayed earlier today, we believe our strategy for the next 5 years will drive significant growth in our net cash generation. Our strategy is built upon clear capital allocation priorities, which are fully aligned with the strong foundations of our corporate strategy, as previously described by Miguel. Our main priority in terms of capital allocation is investing in high-return short-cycle projects, mostly in our derisked flagship Vaca Muerta project in Bajada del Palo Oeste aimed at generating highly profitable production growth, mainly destined to the export market. Our second priority, driven by our commitment to sustainability, is to invest in decarbonizing our operation. Our 2026 net 0 aspiration is supported by 2 programs: One, to continue implementing projects that have been prioritized based on our carbon abatement cost curve to deliver a 75% reduction in greenhouse gas emissions intensity vis-à-vis 2020. And two, to launch our own portfolio of nature-based solutions to remove the carbon of our residual emissions. The third priority in capital allocation aims to strengthen our balance sheet by allocating capital to reduce debt. And as a consequence, lower the interest burden of our upcoming cash flows while maintaining a solid cash position, which is key to enjoying financial flexibility. Last but not least, we believe it is of strategic importance to be flexible in the use of the net cash we generate in order to efficiently allocate capital according to changing market conditions. We plan to prioritize using our cash to distribute capital to shareholders via share buybacks, or eventually, dividends. In second place, we would use incremental cash generation to further reduce debt. And in third place, we would invest in certain low-risk, high-return growth projects to capture additional upside in our portfolio. And finally, we are also prepared to pursue very selected, focused and synergetic opportunities to expand and upgrade our development portfolio to generate additional growth. If we do so, we will aim to preserve or increase our targeted net cash generation over the next 5 years by implementing financing strategies that leverage our top quality assets and our recognized operating capabilities. In summary, we believe we have a simple and solid framework in place to maximize total shareholder return while maintaining a strong balance sheet.

I would like to add some color regarding how our capital allocation priorities translate into a flexible and actionable growth plan, leveraging on the quality of our Vaca Muerta assets and our solid track record as a highly efficient operator. As explained by Juan earlier, we plan to increase activity in Bajada del Palo Oeste from 20 to 40 wells per year by 2026. Under these assumptions, we expect our total CapEx to increase from an estimated $330 million in 2021 to $530 million in 2026. We forecast to spend 83% of this CapEx on development, whereas 17% is forecasted to be spent on upgrading and expanding our facilities to increase both gathering and treatment capacity in Bajada del Palo to up to 75,000 barrels of oil per day. This development plan has flexibility embedded into it, either to accelerate or slow down activity mainly driven by the small efficient investment units in our plan, each represented by one 4-well pad and by flexible contracts with low standby rates on contracted rigs and services. As a result of these investments, we are forecasting that our revenues will grow by approximately 2.5x in the next 5 years, reaching $1.65 billion in 2026. This forecast was built using a conservative flat realized oil price assumption of $60 per barrel, consistent with $65 per barrel long-term brand, both in real terms. Another key driver in our plan is that exports are forecasted to double their share in our total revenues, reaching approximately 60% of total revenues by 2026. So practically, our entire production growth is expected to be sold in the export markets, which we believe enhances the quality of our revenues.

The combined result of our robust growth plan, which doubles production while reducing costs, is an expected adjusted EBITDA of more than $1.1 billion by 2026, representing an expansion of 3x when compared to 2021. Our adjusted EBITDA margin, which we had already improved to an estimated 58% in 2021 is expected to continue expanding by another 9 percentage points to 67% in 2026. This is driven by the dilution of fixed cost due to increasing production volumes mostly from Bajada del Palo Oeste, which has a variable lifting cost of around $4 per BOE, leading to a forecasted reduction in total lifting cost to $6 per BOE by 2026. To put the profitability levels we aim to achieve in perspective, we can use return on average capital employed. We expect our ROACE to triple from approximately 18% in 2021 to a target of 45% in 2026. This expansion is supported by our capital discipline, which puts our focus on our most derisked and profitable projects. Selected peers in the oil and gas industry are showing ROACE of between 4% and 30%, with a median of 11%. At 45% in 2026, it should come across quite clearly that our strategy is designed to deliver industry-leading shareholder returns.

I will now present how we plan to reduce debt to gain additional flexibility. Maintaining a robust balance sheet is one of our strong foundations, and we plan to continue building on this. Vista keeps a very healthy debt profile with an average debt life of 2.5 years, with the dollar portion of this debt having an annual average cost of 5.4%. Cross-border dollar debt represents only 30% of total debt, which we consider to be very manageable in terms of servicing. Our short-term maturities are more than covered by our cash position, currently at $290 million, plus an additional $25 million of committed available liquidity and more than $100 million in additional lines of credits approved at Argentine banks. Our debt reduction plan assumes we refinanced only $65 million on average per year through 2026, which is very manageable if we consider we have raised over $450 million since 2019 in the Argentine debt capital markets. We intend to further strengthen our balance sheet by using part of our cash generation to lower debt from $600 million to $400 million between 2022 and 2026, respectively. This should allow us to reduce our gross leverage ratio from 1.6x forecasted at the end of 2021 to 0.4x by 2026, providing us with ample financial flexibility.

We expect our total operating cash flow, this means our revenues less all cash costs, interest expense and taxes paid, to reach approximately $3.4 billion over the next 5 years. Out of this, we plan to use $2.3 billion for capital expenditures, including approximately $15 million in our decarbonization effort. And assuming we run the company with a cash balance of $100 million, this implies we expect to generate cumulative cash of $1 billion between 2022 and 2026. Out of this cash generation of $1 billion, we plan to allocate $200 million to reduce debt, as Ale just described, which means we plan to generate net cash of $800 million in our base case scenario of $60 per barrel of realized oil price.

So we expect $200 million to reduce debt, $800 million of net cash generation, all of these at $60 per barrel of realized oil price. Now going forward, if we have different price scenarios, what should we expect?

That is a factor that distinguishes our plan. Let's assume we face a downside scenario where realized oil prices moved down an average $50 per barrel over the next 5 years. In that case, we would continue delivering the same production growth which plays an important role in reaching an efficient scale and still expect to do it with very robust profitability levels. In that scenario, we could finance more of the CapEx with debt, allowing us to still generate the cumulative cash flow of $800 million over the next 5 years, the same level as in the base case, and we would do so still maintaining a robust balance sheet with gross leverage ratio that should not exceed 1.2x EBITDA through 2026. To showcase the flexibility provided our low-cost development plan, in this same scenario, we could alternatively prioritize maintaining our targeted deleveraging and reduced debt by $200 million as in the base case, which would lead to a gross leverage ratio of 0.4x and still allow us to generate net cash of $200 million over the next 5 years. On the other hand, in an upside scenario, where realized oil prices stabilized at $70 per barrel for the next 5 years, somewhat more in line with current international prices, we would generate significantly more net cash, reaching $1.3 billion over the next 5 years. This represents a 62.5% increase compared to our base case scenario and would allow us to even further reduce our gross leverage ratio to 0.3x. In summary, we believe that these scenarios show that we have built a highly efficient and flexible operation that can rapidly adapt to varying market conditions. This will allow Vista to generate cash flows that are very resilient to weaker oil prices, and that also provides a very significant upside potential in case the current high oil price cycle extends in time. We can now move to Q&A.

Thank you, Pablo. We will take a 1-minute break before we start the Q&A session. [Operator Instructions] [ Break ]

[Operator Instructions] The first question comes from Regis Cardoso at Credit Suisse.

Miguel, Alejandro. Two questions from my side. First one regarding the business plan targets itself, and then a second one regarding the cash flow generation you forecast. So first on the business plan. Maybe, Miguel, if you could compare this most recent business plan to the ones -- to the plans Vista initially laid out when it first acquired these assets and [indiscernible]. Because if I remember it correctly, I mean, you've made very significant progress in terms of increasing the well productivity, becoming cash flow positive significantly earlier than expected. But on the other hand, that also came, let's say, in the context of very difficult scenario in Argentina, in which you had to cut back that activity and that also had implications for the production curve. So if you could maybe just sort of compare what the plan now is relative to the original plan in the first -- at the time of [indiscernible]? And then a second question from my side would be focused mostly on Slide 29, where you forecast cash generation of some $1 billion over the period of the plan. I mean, that is very significant, almost twice the market cap of the company, of course, during that period. I just wanted to make sure I understood it correctly from the presentation that this is free cash flow after interest payments, after lease payments? I mean, this is cash flow net to shareholders? And then in regards to that cash generation, if you could -- What do you plan? Is it dividend? Is it buybacks? Will you do M&A's? What are the uses for that free cash flow generation? And lastly, on the cash generation, if you could also explain what would make you choose between the 2 scenarios in the downside case, whether you have the $800 million free cash flow generation or the $400 million with the debt reduction?

Thank you very much, Regis, for your question. I will answer the first one. I'm going to take advantage of the time with the full team here to pass the last part of your question to Pablo. When we -- the first part of your question and the comparison between Investor Day and [indiscernible] is something, as you imagine, that we have replayed many, many times. And I think there are 2 -- 2 elements of that question I would like to address, probably you briefly address on one of them. One is the things that we have control of, that is our operation and the key performance metric that we have achieved with our operation, compared what we plan at that time. And second is the context. So if we start with operation, and I think that is very positive, not for what we are planning now, but for the full plan of Vista and for Vista itself is that we have managed to achieve much better performance than we plan [indiscernible] time. I will say the first one is reserve. As you know, we plan to have [ anywhere ] 1 million barrels per well. Today, we are at 1.5 million. And second is the efficiency in CapEx, drilling and completion costs and also expenses in OpEx. When you look back, I mean, we start our operation with a lifting cost of $17 per barrel, probably up $13 per barrel in development cost, so a total $26, $27 total cost to develop one barrel. Today, we are at the lifting cost of $7 and we are at the development cost of $7.6. So we have reduced that in $10 and compare what we're supposed to be today, also, we are probably down of $6, $7 compared where we're supposed to be today if we follow the plan [indiscernible] time. I will say the other thing that you mentioned that is extremely positive is that compared with that plan, we are free cash flow earlier. We should not be free cash flow today if we will follow the [indiscernible]. Of course, the fact that we have managed to reduce expenses and development and lifting costs, in general, give us a better performance on the cash generation side. I will say another addition to that in a positive way is the fact that we pass through those events, pandemic, reduction of oil prices, international oil prices, Argentina macro economy. And one thing that has been test in our operation and for the management team itself is endurance that we have and the flexibility that we have to readdress any event, be it positive or negative. As we addressed in our presentation, flexibility, agility and being able to adjust plans in order to continue generating result is one of important trade that we have as a management team and also is pretty much relating with the nature of the resource that we are developing. The second part of your question is related to the context, and it is no surprise that the context has not played us in favor. When you look at the oil prices that we plan at the time of [indiscernible] are about even the oil price that we are realizing today, okay? Already close around $60, but we have not had that pricing across the several years that we've been basically operating. And I think this is basically the main effect why our plan, I will say had been -- is performing delay -- probably around 18 months of delay compared to what we planned [indiscernible] in terms of financial results. When we talk about EBITDA, it's not the case for cash flow generation, but when we talk about EBITDA. Related to the use of free cash flow. So first of all, what you reading is right. The $1 billion of free cash for generated is after everything, so this is the true free cash flow. We pay tax and will pay the rest of since -- and we generate $1 billion that we will use to address our debt. So as we -- we signal in the presentation, we will use $200 million of that $1 billion to reduce debt. And the rest, we will use to distribute or even to address our capital expenditure in the case that we want to accelerate our growth. So $200 million for debt, $800 million for distributing to the shareholders or accelerating our plan. The distribution to the shareholders you have seen in the press release yesterday, we are calling for a shareholder meeting. And that is the first step that we are taking probably for next year, consider -- and I think with quite high likelihood of having a buyback program, okay? But unless, I will leave Pablo to put more color on what we could do on the 5-year plan including the downside case.

But just to shed a bit more light on the downside case, if we realize $50 per BOE instead -- per barrel of oil instead of the $60 that we have in our base case plan, we would still be running a very profitable operation. EBITDA margin would still be at around 60%, our netback would be more than $30 per barrel -- per BOE. And on that basis, our priority will be to maintain the production ramp-up that we have built into our strategic plan. The main reason for that being that we need to maintain an efficient scale of between 1.5 and 2 rigs that allows us to minimize development cost and maintain a very competitive lifting cost. In that scenario of $50 per barrel of realized oil price, we have laid out sort of the 2 extremes. One in which we prioritize debt reduction, and we can do that with that cash flow profile. We could still reduce $200 million in debt, and we would still have $200 million of net cash flow to distribute to shareholders, which we think is very positive. The other extreme, call it, would be to prioritize the net cash generation, and this then can be distributed to shareholders. And in that case, we would finance more of the CapEx with debt. We could still do that with a very healthy balance sheet. If we go with debt to 1.2x gross debt-to-EBITDA, we would still be able to distribute to shareholders $800 million. The reality will be most likely something in between, and based on our reading understanding of the international context and the domestic financial conditions, right? But both we think are very positive scenarios that at a more conservative, lower international oil price.

We'll move to our next question from Walter Chiarvesio at Santander.

Yes. I would like to ask how confident you feel about your net 0 planning. What are the risks and how confident you are for achieving that, on one hand? And second question is how do you see -- I don't see this in the presentation for the longer term, but how do you see the short-term dynamics of pricing in Argentina, Nigeria given the already known macroeconomic volatility in the FX front? And how do you see the export market for -- specifically for the company [indiscernible] price that the company would receive in the launch of next year, 2022.

Thank you very much, Walter. So let me start with the second part of your question, and then we will address the net 0 plan, that is probably the fun one. So from the short-term dynamics of FX, or -- we are quite experienced in Argentina, we've been through this before. Yes, clearly, we have the capital of the FX today between pesos and dollar. Nevertheless, I mean, we are not foreseeing for what it means for us. We are not foreseeing for this plan anything that can impact in the short term. As -- when you look at the composition of our plan price-wise, we have 2 effects. One is the export and one is the local market. In the local market, we are assuming realizing prices of $55. This realizing prices of $55 when you look at the price at this time today, it's something that we feel super comfortable with that. Meaning that today, that prices can pay even higher prices at $55 for producers. When you look at the margins of the refining business, clearly, we today [indiscernible] about $55 in the local market for producers. And when you look at the other side of our pricing that is export, and we are -- they are realizing $70 and the combination in the $60 that you are seeing. And we have been successfully being able to add the international market and to access to that international market. When you look at the Brent price and when you look at what we are realizing, also, we feel super comfortable because today, Argentina is fully supply of crude oil. And when you look at the plans, our plan and the plans of the other people that are operating in Vaca Muerta is clearly, we are all in the growth path. Different rates, probably different impact on growth, but most of the main players in Vaca Muerta [indiscernible]. So it's clear that the refinery capacity is not much increase, the market is fully supplied. So everything that is additional, like the plan that we are providing to you today, is going to be through export. So we clearly believe that we can increase export as our plan develops and this is not something that's going to happen to us, it's going to happen to the industry in general in Argentina. The other thing that you have seen that is related to that, and it's not addressing your question, is that the price of crude oil in Vaca Muerta in the market. Because of the discount, we have managed to address that market in a very positive way. And today, we are having discount that are $3 or $4 below what we used to have before. So we are having -- we are addressing that market with very short discount in terms of commercial due to the quality of the crude oil and the appetite for that crude oil in the international market. So net 0 plan. So the short answer to your question is we feel super comfortable we have put together. This is not something new, not something that we have prepared for this meeting. There's more than a year that the team have been working in a plan to address our ambition to be a net 0 producer that we see as a big opportunity for a company like Vista. And with that said, as you know, our initiatives have 2 sides of the story, and I would like the people that are with me today, Pablo and Gabriela, to basically address that for you. But the 2 sides is how we reduce our carbon footprint in operation, and the other side of the story is how we reduce what is left and how we offset what is left using nature-based solutions. So Gabriela?

Thank you, Miguel. So as far as reducing the carbon footprint in operation, we have set a very detailed plan that year-by-year is telling us exactly what kind of projects we are going to implement. So as an example, we have started already with the deployment of some of these projects in 2021. Some of them are things that -- technology that is already in use. So it's solid technology is proof. We are implementing vapor recovery units to capture the methane that otherwise it would have been venting. We are changing and optimizing the operational parameters of the glycol dehydration unit. And then finally, as well, year-on-year, we have a plan to implement electrification of the compression systems as well as introducing renewables into the metrics of Vista.

So just to complement Gabriela. I mean, we're coming from 360,000 tons of CO2 in 2021. We are going to be at 2020 at 265,000 ton of CO2, and that is what we have to set with nature-based solution, something that Pablo will address now.

Yes. As Miguel said, we've been working since the beginning of the year. We have engaged experts in the field. We think Argentina has a lot to offer in this very new exciting space. And what we have done is identified concrete projects that can deliver carbon removals consistent with our plan to offsetting the residual emissions of our operational carbon footprint. Essentially, this will be projects in regenerative livestock, regenerative agriculture, in forestry plantation and forest conservation. This will be a portfolio approach to mitigate the risk, and these are all identified and with concrete CapEx plan that we will start rolling out at the beginning of next year.

Just one comment. Both plans are included in the $15 million that we accounted for in CapEx in the plan.

Yes. Nature-based solutions, we believe, provides a very cost-efficient solution to carbon removals, and that's why we are prioritizing that. And because Argentina, again, has a very competitive projects and capabilities to offer in this new exciting space.

So while they're wrapping up. Yes, it's a very concrete plan. It's a plan that we have studied a lot. It will take a $15 million of CapEx run rate when you take both initiatives. What we are doing in the operation plus what we are doing in nature-based, solutions is something that we feel super comfortable and we see it really as an opportunity to deliver not only low-cost but also low-carbon burdens to the industry, into the market.

We will take our next question from Alejandro Demichelis at Nau Securities.

A couple of questions, please. The first one is you laid a very clear plan on Bajada del Palo Oeste. Maybe you can touch on what your plans are for the rest of the shale blocks, Bajada del Palo Oeste, and the new blocks and how you see that kind of adding to your production? That's the first question. The second one is on the ESG front, and you have been very clear here. Maybe you can touch on how you're thinking about water usage, water handling and how much of a constraint that could be in the future?

So Brother Alejandro, thank you for your question. What you have seen in the plan is mainly in Bajada del Palo Oeste, okay? We have included -- we have included 5 wells -- 7 wells on Bajada del Palo Oeste. Oil wells that we are going to drill now, 2 wells they are going to drill in a path further east, and then one well that we are going to drill later on in the plan really further east, okay? That's for Bajada del Palo Oeste. In terms of Aguila Mora, there's 2 ways that we have included in the plan that also fulfill our commitment that we have with the province in Aguila Mora and no further activity for the moment. And for our Aguada Federal and Bandurria Norte, as you know, it's an early acquisition that we have done, we are discussing budgeting so we have not included anything there. The commitments -- there's no understanding commitment in these 2 blocks, so we don't have to rush and we are discussing what will be the plan for those -- for those 2 block. So that is pretty much -- that doesn't mean that if the oil price scenario of the price of oil play in favor in the next few years, even higher than the one that we have present in this plan, but it is possible that we don't accelerate signing of the block because we see most of them good potential. In terms of ESG and water usage and water handling, I will ask Gabriela to answer that question.

Thank you, Miguel. So we all know that water is precious and a very scarce resource. It's a priority for us to optimize the use of water, and it's a very important results for our operations. We need this resource to be able to develop Bajada del Palo Oeste, right. So the way we operate our facilities is throughout respect to the use of these resource. Every single source of water catchment is monitored, is tracked and is definitely filing into the reports that yearly we submit to the authorities. Now because this is a very important resource, we are building our water management integrated strategy. This will go along with a solid action plan to optimize the use of the resource. And this goes hand in hand with the goals that are established into the sustainable development goal #6, which is the one that talks about water availability and sanitation.

And Alejandro, probably, the other thing you mentioned on water is one of the things that we are collaborating with our partners and people in the industry. So in the case of water and others infrastructure, I think one of the problems that we have made in Vaca Muerta that today, we have a more coherent and I will say said -- we do things together with the people that operate, and water is one example of that. It's one of the places where we collaborate particularly with Shell and the investment held in both operations.

We'll take our next question from Guilherme Levy at Morgan Stanley.

And for hosting this event. My first question is on capital allocation. You mentioned that the excess cash generation of $800 million at $60 per barrel oil can be used either to remunerate shareholders as well as to accelerate CapEx. So I was just wondering which are the triggers or what could -- what could make you more positive and decide to allocate more cash and growth rather than on shareholder remuneration? If it's more related to encouraging results from the wells in blocks other than Bajada del Palo or eventually a more positive macro environment in Argentina? And then my second question is more related to the sector. If you could perhaps comment on the current level of appetite from international oil companies to deploy capital in Vaca Muerta, and if you think that there could be more divestment opportunities from international companies in the country that could potentially open more room for Vista to add more acreage going forward?

Thank you, Guilherme, for the question. It's a very good question. So I'll go ahead with the second part. International companies in Argentina, yes, it's sometimes present opportunities for the investment, like what happened with ConocoPhillip. But the reality is that many international companies today in Vaca Muerta that are growing. Just taking public information, for example, to that have been played in Vaca Muerta similarly stage, Shell and Chevron. When you look at the public information that what they have done during the last 5 years and what we did, the ambition that they have, they are both clearly growing. So we see international companies also very committed, very, very aware of the quality of the resource, and also they've been participating in the reduction of development and lifting costs as you have seen it. So, yes, we could foresee that there could be another opportunity on M&A that address acreage of international company. But I think what we see more is that these companies today are growing in production and also have ambitions to invest more in Vaca Muerta. Regards capital allocation, what could drive more CapEx going to activity, definitely, international oil prices and how that relates to Argentina, it will be a clear driver of generating more cash and also investing more of part of that cash in CapEx. We are not short of resources. That is very important because we do have CapEx, and the company that is growing and the rate that we are growing would be difficult for a company like us to have more access. While this is not the case for us, which just shows in 2020 of replacement reserve ratio of 300%, okay? When you look at our plan in Bajada del Palo Oeste, we will consume, drill and complete 150 wells of a 450-well portfolio just in Bajada del Palo Oeste. That mean after 2026, we have 300 more locations to drill and reserve to book. And that's not taking account Bajada del Palo Oeste, doesn't take an account Aguila Mora, neither Aguada Federal or Bandurria. So therefore, if the oil price play in our favor, clearly, we will have opportunities to increase the CapEx. What other things could happen? I mean, we -- as you saw in the plan, we believe that we will further reduce development cost and lifting costs. So we plan to continue improving in our key performance indicator, and that also can be a source of investment. I don't know, Pablo, if you want to complement that question?

Yes, perhaps on our strategy to develop the other blocks that we're derisking now, right? Obviously, we are betting, we're confident that the results in Aguila Mora, Bajada del Palo Oeste are going to be positive based on the geological conditions, and we do have an ambition to develop them as well. We will look into, call it, creative or financing strategies as the one we have done with Trafigura and Bajada del Palo Oeste to also access third-party capital to help us with the development of that. Because although we are willing to put up more of our capital into the development of blocks, the order of priority that we have laid out is clear. We want to distribute share back to shareholders, and we also want to reduce debt, right? And those are our 2 priorities.

We have no further questions via the phone. I would like to turn the conference back to Mr. Alejandro Cherñacov, who will be reading additional questions from the chat.

We have a few questions from the audience. I will start with. The one -- the first one is based on reserves. And is this growth plan -- in growth plan, how do you expect the reserves to evolve?

Yes, that's a very good question. So when you look at our last official number that is 2020, we have shown a reserve of around 128 million barrels with a reserve replacement ratio of 372%. We believe -- I mean, we are finishing 2021, and we believe we will be even above that number this year. We plan to double production in 2026 as we have shown on the plan, so we will move from 40. Today, we are producing 46 all the way up to 80,000 barrels oil per day, and that is doubling the product. And we believe in reserve, we will much more double reserve than production, that means we can be above 2x, and probably even we will be marching of the 3x multiple in reserve, and that is related to the stock that we have in well. So you could expect that we will continue growing in average as a ratio of about 200% in reserve replacement ratio.

Thank you, Miguel. The next one is can you give us a production guidance for 2022, which I think we covered, and 2023? And do you still plan to concentrate in oil, even though there might be a new gas pipeline in Argentina?

So yes, the guidance as we have given for production for 2022 is 46,000 barrel oil per day, and for 2023, will be about 50,000 barrel oil per day. And then you have seen in the presentation the ramp-up all the way up to 80. As you know, because the nature of the resources that we are [ driving ], we are becoming progressively more oily. So we are today around probably 80%. We will see that in 2023 and all the way to 2026 that we will move between 85% and 90% of oil, and we will be less gassy. Do we have an ambition to play in the gas arena right from the beginning? We said that we like oil because of the fact that we believe represent better quality of revenue, and we sell to refineries. We sell to the market. We have market price and we like that. So we have not changed in that sense, we believe that we will continue to focus in oil based on also on the reserve resources that we have. And that doesn't discard that if we -- at some point of time, we believe gasses is good for us, and we can make a change. But it's not the case today. We continue to focus on oil. Any other questions?

Yes. Miguel, I wanted to ask if ramping up to 40 wells per year being drilled implies that you're operating just in Bajada del Palo Oeste, or part of this drilling is actually -- it's actually included in any other new well -- any other new field there.

All right. Yes, I would like to pass that question to Juan.

Okay. Well, thank you, Miguel. Well, basically, as Miguel just said, the plan that we have today is mainly focused on Bajada del Palo Oeste. We were planning to drill 7 wells in Bajada del Palo Oeste and 2 wells in Aguila Mora, but that is all that we have in blocks at Bajada del Palo Oeste. So mainly all or most of the 143 wells, almost 95% of those wells are to be drilled in Bajada del Palo Oeste.

Bajada del Palo Oeste, we are drilling as we speak, no?

As we speak, we are drilling in Bajada del Palo Oeste, and we're bringing one additional rig today, so we'll have 2 rigs for the first part of 2022. And we will continue at that pace for the next 2 or 3 years with 1.5 mixed average in Bajada del Palo Oeste.

Okay. We have 2 more questions, Miguel. One of them is what is your current vision of the environment of the international oil market? And how sustainable do you see current levels? And if we see actually -- do you see greater upside and downside risk in the medium term?

So we are bullish about the short-term environment in terms of crude oil prices. And that is sparking few things. I mean, we believe that -- I mean we believe we shared with you, with several analysts, that the demand of crude oil all toward 2050 is continue to be super strong. We see the demand of energy doubling from now to 2050. And when you look at that gap, of increasing in demand that is related to the demographic expansion and the economic expansion of the world, how that is going to be covered, we clearly believe that it will require of oil and gas playing a very important role. When it come particularly to oil, when it comes to the supply side of the story, we see that today compared with pre-pandemia numbers, we see the activity of the water have not come up all the way up to where it was before. We see the activity in unconventional oil in the U.S. hasn't come up all the way up to where it was, probably it is half what it was before. Partially because it's a resource that also has been already drilled and already partially consumed. And probably the appetite for that kind of business is not there at the same level today. Nevertheless, also, we see OpEx plus playing a very important role, doing exactly what they said that they have to do, and they are doing. And we also see very little elasticity for OpEx to increase production roughly from one day to other. So all those fundamentals, all those element make us think that we are in an environment where we are going to see in the medium term basically strong prices, and we are betting on that.

One last question here. Can you please discuss further how you will differentiate between buybacks and dividends?

Well, we are not paying dividends in the short term. What you will see next year is that we strongly consider to have a buyback program, and we are preparing basically for that. And it will count the time for us to have a dividend policy, is not today. And as we said before, we are going to generate $1 billion of cash in the -- we plan to generate $1 billion cash in the next 5 years. And further, we want to reduce EBITDA, our debt that today, as Pablo mentioned, we are in a very healthy and a very good position. We have a very strong balance sheet with -- we will finish this year with net debt ratio versus EBITDA of less than 1. And therefore, the other thing is how we use the rest of the $800 million. And we believe part of that has to be back to the shareholders, $800 million is a lot of cash, is the other what we value today. And therefore, part of that is going to be distributed starting next year, probably with a buyback program.

Thank you, Miguel. I don't have any more, so we can actually conclude the call.

Thank you very much for your permanent and continued support. Thank you very much for the one that have shown this presentation in this new modality post-pandemia. Hopefully, we will get back to you with an Investor Day really in the field in Vaca Muerta, we did previous to the pandemia. I would like to take advantage in order to thank you, to thank all the employees at Vista for their continued support, for their continued hard work, for their continued commitment to our operations. These numbers that we have shown and we have the -- the privilege to show it to you during this presentation, it has not been manufactured by us. These are people behind the scenes and the dividend rigs and the production plans, shareholders [indiscernible], reservoir engineers that have really made these things happen. We are very proud of that, and we thank all of them for being part of Vista and for being able to deliver the results. Thank you very much, and have a good day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.