Vista Energy’s shareholders have been fortunate to enjoy remarkable returns in recent years, as the stock has returned investors with 108% YTD. The company has successfully been at the forefront of the exploration of a massive shale formation in Argentina called “Vaca Muerta,” which translates to “Dead Cow.” The exceptional returns for investors can be attributed to a combination of sound business fundamentals and the expanding energy market in Argentina.
Despite its strong fundamentals, Vista Energy will face some headwinds as energy prices globally are getting hit. Risk/reward levels are becoming less favorable, and the market’s forward-looking tendency might already have priced in much of the anticipated future returns. The stock’s almost uninterrupted upward trajectory fed by investor optimism might be running to its end.
This article will touch upon the factors leading to the success of Vista Energy so far. It will also address potential risks for current and prospective investors in the company. The scope of the article predominantly encompasses Vista Energy’s activities in Argentina, beginning with providing some background information on Vaca Muerta.
What is Vaca Muerta?
Vaca Muerta is a colossal shale formation which was discovered in the Argentine provinces of Neuquén, Río Negro, La Pampa, and Mendoza in 2010. It is the second-largest gas shale reserve and fourth-largest oil shale reserve in the world, attracting the attention of energy companies worldwide.
Argentine state-owned oil giant, Yacimientos Petrolíferos Fiscales (YPF), was the first company to start exploring the Vaca Muerta site after oil was discovered in the region. The news of the new-found natural resources quickly found its way to multinationals such as Chevron, Total, and Shell PLC. Amongst these energy giants, the smaller Vista Energy has managed to obtain a stake in productive exploration sites.
Although the natural resource abundance is evident, Vaca Muerta is located in an isolated part of the country that lacks the infrastructure to operate on scale. Furthermore, local communities regularly protest against the shortage of accessibility to gas in their own communities and the ecological damage to the region. The extraction of natural resources in Latin America is often associated with socioeconomic disparities where the local communities do not share in the potential economic upside, leading to social unrest and widespread protests.
Vista’s Drilling Operations in Vaca Muerta
Vista owns 205,600 net acres (832 km2), a fraction of the total 7,4 million acres (30,000 km2) Vaca Muerta formation. It has up to 1.150 well locations in the productive heart of the formation and expects to place 138 new wells in production between 2024 and 2026, which is a 33% increase from previous estimates.
CEO Key to Growth of Vista Energy
Vista Energy was founded in 2017 by Miguel Galuccio, the former CEO of YPF (Yacimientos Petrolíferos Fiscales). His extensive experience and expertise have led the company to become an independent operator in the industry, primarily focused on shale oil and shale gas exploration in Vaca Muerta.
Already familiar with Vaca Muerta at his previous employer, Miguel Galluccio has built an efficiently operating company matching his ambitions in the energy sector. At YPF, political inference in business activities would hamper efficiency, which is not the case at Vista as it is one of the few energy companies in the region that is not state-owned. Therefore, the company can focus on growing its business by improving drilling processes and lowering costs in a sustainable manner.
The company went public on the Mexican Stock Exchange through a Special Purpose Acquisition Company (SPAC) backed by Riverstone, one of the leading investment funds in the global energy sector. Since then, Vista Energy has grown to a market cap of 2.94 billion USD in a short amount of time.
Vista Energy Sets Sights on Ambitious Drilling Goals
Despite infrastructure challenges delaying the extraction process, the long-expected drilling results did live up to the high expectations. Subsequently, Vista Energy decided to hike its investments in Vaca Muerta by 60% over the next three years. Moreover, the company raised its production forecasts to reach 100,000 barrels per day by 2026, up from the previous projection of 80,000 barrels per day.
Over the next three years, Vista plans to launch production from 138 new shale wells, a 33% increase from its previous estimate. The cost of extraction is anticipated to decrease to $4 per barrel by 2026, down from the current $5.50 per barrel, driven by improved operational efficiency, according to Vista.
Vista Energy has Eco-Friendly Initiatives
Society increasingly expects energy companies to operate in the most sustainable manner, minimizing their ecological footprint through several decarbonization projects. Vista Energy lowered its greenhouse gas (GHG) emission intensity by 64% between 2020 and 2022. The company aims for another 50% reduction by 2026 to 7 kgCO2e/boe via electrification and renewable energy.
In 2022, Vista Energy founded Aike, a subsidiary dedicated to designing, managing, and executing nature-based (NBS) projects to reduce its carbon footprint. Aike oversees the NBS projects for Vista in Argentina, spanning over 19,000 hectares in seven locations across four provinces.
Aike has projects in reforestation, sustainable livestock farming, and regenerative agriculture. The company is committed to attaining a net-zero status in 2026 by offsetting the net carbon emission from the NBS projects against the remaining emissions.
Vista Energy’s Prospects with Argentina’s New Government
Argentina’s newly elected president, Javier Milei, is implementing more market-friendly policies benefitting the operations of Vista. He has started building relationships with foreign investors and aims to finance infrastructure projects through private investment.
The new administration is expected to lift restrictions on the export of many commodities, which should lead to improvements in exports. According to the Bolsa de Comercia de Rosario (BCR), the Argentine province of Neuquén has seen a significant increase in exports, nearly tripling (271%), due to the growing momentum of oil, gas, and fuel exports from the Vaca Muerta region.
The development of Vaca Muerta has far-reaching economic implications for Argentina. It has the potential to create thousands of jobs, stimulate economic growth, and reduce the country’s dependence on energy imports. Furthermore, increased energy production from Vaca Muerta can bolster Argentina’s energy security, reducing its vulnerability to global oil and gas price fluctuations.
Enthusiasm Sparks Parabolic Surge in Vista’s Stock Price
Vista Energy was perceived as a newcomer with a promising future in the Latin American energy markets. Its experienced and specialized management team leveraged their connections in the Vaca Muerta formation to scale up Vista Energy’s operations in Argentina.
After reaching unprecedented lows of approximately 1.80 USD following the pandemic, the ADR experienced a gradual and then rapid ascent to reach a peak of 33 USD and is currently trading at 29.89 USD. The stock has delivered a remarkable return of over 1500% in only three years. This outstanding performance underscores the company’s sound business operations and ability to capitalize on the upward trajectory in energy stocks. It comes as no surprise that this has resulted in elevated levels of investor optimism.
Starting from July 2022, the stock has consistently followed a robust upward trajectory with minimal interruptions, except for a recent deviation in November 2023 when it broke the trendline. The market showed an optimistic response to the election win of Javier Milei, which brought Vista back in the trendline. For investors sitting on huge profits, this could present an attractive opportunity to take some profit as the energy sector has seen a drop in oil prices.
Given the existing global challenges, it’s conceivable that a geopolitical incident might result in an increase in oil prices. This would be bullish for Vista Energy.
Risk Rising, Reward Receding for Vista Investors
Vista Energy has made remarkable accomplishments in recent years as it started its drilling activities in the Vaca Muerta formation of Argentina. Although the company also has activities in Mexico, the majority of its assets are now invested in Argentine activities to profit from the enormous potential that Vaca Muerta provides.
The company is one of the few energy companies in the region without any state involvement. It represents a unique ‘pure-play’ public investment opportunity in Latin America’s oil and gas sector. Vista is an agile company focusing on operational efficiency, lowering costs, and reducing its carbon footprint.
Global energy markets are entering a bear market as prices drop due to an oversupply in the US and diminishing demand in China, which faces economic woes. The dedicated approach to the energy markets makes the company vulnerable to large fluctuations in energy prices. A geopolitical event might give investors a more attractive entry point at a later stage.
