Vista Energy's 1,400% Rally Hinges on Milei's Deregulation Plans

Key Takeaway

• Vista Energy's shares surged 1,400% in three years, driven by successful shale oil extraction in Argentina's Vaca Muerta.
• President Javier Milei's deregulation plans are crucial for further growth, aiming to triple crude production by 2030.
• Investors face challenges due to ongoing capital controls and lower domestic oil prices compared to global benchmarks.

Vista Energy's Meteoric Rise

Vista Energy, led by Miguel Galuccio, has seen its New York-traded shares surge by approximately 1,400% over the past three years, outperforming every other global oil driller worth $1 billion or more. Galuccio, who holds a 7.9% stake in Vista, now valued at around $370 million, has been instrumental in unlocking the potential of Argentina's Vaca Muerta shale field. This region, discovered nearly a century ago, remained largely untapped until Galuccio's leadership at state-run YPF SA and later at Vista Energy.

Vista's success is a testament to its ability to deliver strong economic performance in its shale areas, consistently exceeding guidance. "Vista was able to show great economics in their shale areas and continually out-deliver guidance, justifying the share rally, despite rich trading multiples," said Oriana Covault, a research analyst at Balanz Capital in Buenos Aires.

Milei's Economic Reforms

The future of Vista Energy and Argentina's broader shale ambitions now hinges on President Javier Milei's economic reforms. Milei, who is just months into his four-year term, aims to deregulate Argentina's tightly controlled economy, including the oil markets. However, his signature legislation still requires congressional approval, and he has yet to eliminate restrictions on importing equipment and money flows, which are significant hurdles for investors.

Milei's pro-business ideology is seen as crucial for Argentina's shale leaders, who project that daily crude production in Vaca Muerta could reach 1 million barrels by 2030, nearly triple the current output. "If we want to grow to 1 million barrels, we have to add five rigs every year, and making Argentina even more investable is required to do that," Galuccio stated.

However, some progress has been slower than investors would like. Nicolas Gadano, chief economist at Buenos Aires consultancy firm Empiria, noted, "Milei, on the purely pragmatic grounds of trying to slow inflation, is beginning to moderate or backpedal on his convictions, and that’s a yellow traffic light."

Challenges and Opportunities

Despite the challenges, Argentina currently produces over 350,000 barrels of shale oil daily, exporting one-third of it. During peak winter demand, the country also produces the equivalent of another 500,000 barrels of shale and tight gas. While this output is modest compared to the prolific Permian Basin in the US, it has been enough to make Galuccio wealthy.

Vista Energy's growth has been catalyzed by its ability to attract significant investment, including from the United Arab Emirates government, which is its largest shareholder. The company is also involved in a bidding war to acquire shale oil blocks that Exxon Mobil Corp. is exiting. Exxon’s departure from Vaca Muerta highlights the challenges Big Oil faces in Argentina, primarily due to government meddling in oil prices and exports, and stringent money controls.

"Easing capital controls will probably be the main single factor enabling Argentina to accelerate development of Vaca Muerta," Galuccio emphasized.

Street Views

• Nicolas Gadano, Empiria (Cautiously Optimistic on Argentina's shale industry):

  "Milei, on the purely pragmatic grounds of trying to slow inflation, is beginning to moderate or backpedal on his convictions, and that’s a yellow traffic light. Continued capital controls mean that, while Vista can still invest its cashflow, it’s very difficult to scale up spending or for other companies to bring in new investments."

• Oriana Covault, Balanz Capital (Bullish on Vista Energy):

  "Vista was able to show great economics in their shale areas and continually out-deliver guidance, justifying the share rally, despite rich trading multiples."

Management Quotes

• Miguel Galuccio:

  "If we want to grow to 1 million barrels [of oil], we have to add five rigs every year, and making Argentina even more investable is required to do that."
  "He has that North Star [referring to Milei’s pro-business ideology], and he’s going in that direction no matter what."
  "We will deliver on our 2026 plan. Anything else that comes will make us more investable, and it will probably give others opportunities."
  "Easing capital controls will probably be the main single factor enabling Argentina to accelerate development of Vaca Muerta."