Business Context and Reporting Period
Vista Oil & Gas, S.A.B. de C.V. filed a Form 6-K on August 21, 2019, reporting measures adopted by the Argentine government under Decree 566/2019 and providing an operational update. The decree became effective August 16, 2019, with measures applying for 90 calendar days.
Vista operates oil and gas assets in Argentina and Mexico, with most production, revenue, drilling activity, reserves, and assets located in Argentina. Its strategy focuses on conventional assets and development of approximately 134,000 net acres in Argentina’s Vaca Muerta shale play.
Financial and Operating Metrics
- Estimated total production for the first 19 days of August 2019 was 32,800 barrels of oil equivalent per day, approximately 65% crude oil.
- July 2019 production was 28,561 barrels of oil equivalent per day, approximately 64% crude oil.
- August estimated production was 33% above April 2018 levels, when Vista began operations in Argentina.
- Bajada del Palo Oeste production reached 10,113 barrels of oil equivalent per day, driven primarily by the tie-in of a second four-well pad.
- The second pad reached peak production of 7,221 barrels of oil equivalent per day, 11% above the first pad’s peak production.
- Estimated month-to-date shale oil production from the concession averaged 7,970 barrels of oil per day.
- The filing does not provide revenue, net income, margins, cash flow, debt, liquidity, or other balance-sheet metrics for the reporting period.
Material Changes Versus the Prior Comparable Period
- Production increased from 28,561 boe/d in July 2019 to an estimated 32,800 boe/d during the first 19 days of August 2019.
- Growth was primarily attributed to performance at Bajada del Palo Oeste and the tie-in of its second four-well pad.
- The company stated that its August production estimate was 33% higher than its April 2018 production level.
Government Measures, Outlook, and Risks
- During the decree period, crude oil delivered in Argentina must be invoiced and paid at the agreed August 9, 2019 price, using a reference exchange rate of AR$45.19 per U.S. dollar and Brent of US$59.00 per barrel.
- Gasoline and diesel prices may not exceed the prices established on August 9, 2019.
- Refiners, wholesalers, and retailers must supply total domestic liquid-fuel demand at the regulated prices, while oil and gas companies must continuously supply domestic crude-oil demand.
- Vista filed a judicial claim seeking nullification of the decree’s effects and an injunction suspending the crude-oil price caps and domestic-supply obligations. Management stated that the action is intended to mitigate potential adverse effects on operations and financial results.
- The decree could adversely affect realized prices, cash generation, profitability, production economics, and the company’s ability to allocate crude among domestic and other markets.
- Vista identified customary risks and uncertainties, including Argentine regulatory and political developments, in its SEC and Mexican securities filings. The filing provides no quantified earnings or cash-flow guidance.
- The estimate that Vista could be the second-largest shale-oil producer in Vaca Muerta is based on Argentine government data for June 2019 and Vista’s first 19 days of August production.
Investor Verification Items
- Verify the final duration, enforcement, and judicial status of Decree 566/2019 and any subsequent changes to price controls or supply obligations.
- Assess the actual impact of regulated crude and fuel prices on realized prices, margins, cash flow, and liquidity.
- Reconcile estimated August production with reported monthly production and confirm the sustainability of Bajada del Palo Oeste’s ramp-up.
- Confirm the reported 7,970 barrels-per-day shale-oil estimate and the basis for the “second-largest producer” claim.
- Review subsequent filings for any disclosed debt, liquidity, impairment, production, or financing effects related to the Argentine measures.