YPF Sociedad Anónima Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 10, 2024

There are 12 speakers on the call.

Operator

Thank you for standing by. My name is Kathleen, and I will be your conference operator today. At this time, I would like to welcome everyone to the YPF First Quarter 2024 Earnings Webcast Presentation. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer Thank you.

Operator

I will now turn the call over to Margarita Choon, Investor Relations Manager. Please go ahead.

Speaker 1

Good morning, ladies and gentlemen. This is Margarita Choon, YPS IR Manager. Thank you for joining us today in our Q4 2024 earnings call. This presentation will be conducted by our CFO, Mr. Federico Barreta Venia and our Strategy, Business Development and Control Vice President, Mr.

Speaker 1

Maximiliano Weston. During the presentation, we will go through the main aspects and events that explain the quarter results, and then we will open the floor for Q and A session together with our senior management. Before we begin, I would like to draw your attention to our cautionary statement on Slide 2. Please take into consideration that our remarks today and answers to your questions may include forward looking statements, which are subject to risks and uncertainties that could cause actual results to be materially different from the expectations contemplated by these remarks. Our financial figures are stated in accordance with IFRS, but during the presentation, we might discuss some non IFRS measures, such as adjusted EBITDA.

Speaker 1

I will turn the call over to Federico. Please go ahead.

Speaker 2

Thank you, Margarita, and good morning to all of you. Before moving to the purpose of this call, as you may know, the company's functional currency is U. S. Dollar. And since 2022, we have reported annual financial statements in both currencies, U.

Speaker 2

S. Dollar and Argentine peso. The company believes that reporting in U. S. Dollars provides general investors with a better understanding of the company's business activities and analysis of our financial performance.

Speaker 2

Accordingly, as of this quarter, the company took the initiative to start reporting quarterly financial statements also in both currencies. Now let me start the presentation by highlighting that this was a quarter in which we were able to deliver a solid beginning of the year across all our key operating and financial metrics. Revenues amounted to $4,300,000,000 in Q1, growing by 3% sequentially and 2% interannually, mainly on the back of better fuel prices in the domestic market and higher exports of oil, partially offset by demand contraction in local fuels and fertilizers. Also in Q4, our subsidiaries with functional currency in Argentine peso were affected by the deval of mid December. Adjusted EBITDA recorded a strong evolution during Q1, totaling $1245,000,000 15% up sequentially, mostly driven by the aforementioned factors, in addition to a decreased OpEx after the devaluation and lower imports of fuel combined with higher processing levels at our refineries.

Speaker 2

These effects were partially offset by reduced FX regime for exporters and lower replacement costs of our inventories. Interannually, adjusted EBITDA growth was even higher, particularly boosted by a remarkable 7% expansion in oil production, while exporting 23,000 barrels per day to Chile in Q1. The strong operating results enable our bottom line to become positive at $657,000,000 in Q1, which also almost doubled the $341,000,000 of Q1 'twenty three. Total hydrocarbon production reached 526,000 barrels of oil equivalent per day, rising 3% sequentially and interannually, driven by a sound performance in our shale operations, particularly in shale oil, which recorded 21% inter annual increase. In terms of our investment activities, we started the year deploying $1252,000,000 decreasing by 15% sequentially and 4% inter annually, mainly due to the devaluation impact mentioned before.

Speaker 2

More than 50% of the quarter investment was concentrated in shale operations in line with our strategy for the short term. On the financial side, free cash flow totaled a negative $394,000,000 as the deployment of our CapEx, payment of imports deferred from 2023 and debt service were not fully compensated by the positive cash flow from operations, taking our net debt to $7,200,000,000 while maintaining the net leverage ratio at 1.7 times, fully aligned with the target of the year. Going forward, we will continue monitoring the evolutions of Argentina's macro context, particularly the cost inflation evolution. We will concentrate our efforts to exploit the opportunities that we have ahead of us, reaffirming our shale oil oriented growth strategy and focusing on generating value for our shareholders, while maintaining financial prudency in our decisions. I now turn the call over to Max to go through the operating results for the quarter.

Speaker 3

Thank you, Federico. Let me begin by expanding on Federico's comments about our Upstream segment. During the Q1, total hydrocarbon production grew by 3% quarter on quarter year on year, driven by shale contribution, which continued on an upward trend now representing almost half of the total output. Zooming into crude oil, total output continued high in the range of 255,000 barrels of oil per day on the back of shale growth of 21% year on year, offsetting the marginal decline in conventional fields. Also, let me mention that on the conventional side, 9% came from tertiary production, increasing by 34% interannually and minimizing the impact of natural decline in mature fields.

Speaker 3

Beyond crude oil, natural gas and NGL production grew by 6% on a sequential basis on the back of demand recovery, delivering above 36,000,000 cubic meters per day 42,000 barrels of oil equivalent per day, respectively, both figures similar to the Q1 last year. Moving to lifting cost, it reached almost $13 per barrel of oil equivalent in the first quarter, 16% below the previous quarter, primarily driven by the sharp devaluation in mid December 2023, increased production and cost efficiency, such as tariff reduction on supply chain. It also impacted the lifting cost at our shale core hub blocks that stood at $3.4 per barrel of wire equivalent on a gross basis, 15% down quarter on quarter, way below the already competitive range of $4 that we recorded during the last year. Regarding prices in the upstream segment, crude oil realization prices averaged $68.3 per barrel in the Q1, representing a strong recovery of 15% quarter on quarter, mainly as a result of better pricing landscape in the local market. On the natural gas side, prices remained essentially flat at $3 per 1,000,000 BTU, mostly derived from the off peak season price of plant gas.

Speaker 3

Zooming into our shale activity, during the Q1, we drilled 43 new horizontal wells in our operated blocks, mostly oil producing blocks and only one targeting shale gas. We also completed 29 wells, all of them oil. Moreover, we tied in 39 wells being 92% of oil. All these metrics are aligned with the company's strategy to monetize shale oil opportunities in the short term together with the ongoing oil midstream expansions. It is also worth noting that shale oil production achieved once again a new record high delivering 112,000 barrels per day with a 3% sequential growth, accumulating an increase of 60% over the last 2 years.

Speaker 3

87% of our shale oil production came from our core hub oil blocks Loma Campana, La Amarga Chica, Bandurria Sur and Agua de Chana. In terms of efficiencies within our shale operations, the Q1 we continued setting new quarterly records on drilling and fracking performance, averaging 2 90 meters per day in drilling and 2 19 stages per set per month on fracking. These are improvements of 23% 12% respectively versus the Q1 2023 and fully in line with the guidance we announced during the last annual call. It is important to mention that during last February, we achieved the highest drilling speed for 1 well in our Guadalcanar block, reaching 4.75 meters per day for a well almost 4,000 meters of horizontal length, which was fully drilled in 15 days. As a result, we posted another quarter of competitive development costs for our hub oil operations at $10.3 per barrel of oil equivalent, which is slightly above sequentially due to higher activity to accelerate the development of our core hub blocks rather than Loma Campana, which is our flagship block in Vaca Muerta.

Speaker 3

Interannually, the improvement was mainly due to a restated figure for the Q1 2023, especially on the back of lower performance driven by parent child effects. In addition, we move forward with the strategy of exploring new shale opportunities beyond Vaca Muerta. In that sense, a few days ago, we finished drilling the 1st horizontal well at El Sarito block in Palermoaque formation, which is the 2nd largest unconventional resource in Argentina after Vaca Muerta. We will advance with the completion in the following months to continue exploring its potential in the coming years. On the conventional side, a few days ago, we started drilling the 1st offshore ultra deepwater well at Argerich, located 3 15 kilometers from the port of Mar del Plata in the province of Buenos Aires.

Speaker 3

We expect drilling works will take around 2 months. Before moving to the next section, let me update on the progress made in Andes project that aims at optimizing the portfolio of conventional assets in our upstream business. We have already appointed the bank to manage this process and move forward with a virtual data room last month. We expect to receive offers by June on track with the project's timeline. Now let me briefly comment on the progress achieved in the oil midstream expansions to unlock evacuation capacity in the Neuquina Basin.

Speaker 3

Regarding the evacuation to the Pacific, during the Q1, YPF continued growing all exports to Chile through the Trans Andean pipeline, which is also connected to our core hub blocks through the Vaca Muerta Norte pipeline. We exported almost 23,000 barrels of oil per day, which is 22% more than the 4th quarter, representing 9% of our oil production and totaling net export revenues of around $155,000,000 We expect to increase export volumes gradually in the coming months, also raising the mix of shale, which is even lighter than the conventional oil of the Neuquina basin since our client successfully completed the testing of its refineries to process the lighter crude oil mix. Switching to the evacuation capacity to the Atlantic on the one hand, Odello estimates to add around 45,000 barrels per day to its system by year end and 200 more by mid-twenty 25. On the other hand, YPF is leading the Vaca Muerta South project, a completely new pipeline with export terminal reaching an initial capacity of over 100 and 80,000 barrels per day by 2026 and amounting to more than 360 by 2027-twenty 28. During the quarter, we obtained the environmental permits for the whole project and launched the EPC tender expected to be awarded by year end.

Speaker 3

Keep in mind that this project has the possibility to expand to more than 700,000 barrels per day by adding pumping stations. Switching to our downstream operations in terms of refinery utilization, processing levels averaged 301,000 barrels per day, increasing by 4% sequentially since the Q4 was negatively impacted by program maintenance stoppages at La Plata refinery. Interannually, processing levels declined by 2%, mainly because during this quarter La Plata Refinery was affected by Ote's terminal unavailability to deliver crude oil, which was partially restored by the end of the Q1, in addition to heavy rains and flooding in nearby areas. This effect was offset in part by better performance at Lujan de Cuso refinery, where we recorded the highest monthly processing mark in March. Consequently, we reached more than 90% of refinery utilization factor.

Speaker 3

Regarding domestic sales of fuels, total dispatch volumes decreased by 11% quarter on quarter, mainly because of retail demand contraction and lower diesel seasonality, dropping 14% in diesel and 7% in gasoline. Interannually, it was only 2% down as a result of 4% contraction in diesel affected by lower industrial and agribusiness activity, while gasoline remained almost flat. It is worth mentioning that despite fuel demand drop in Argentina, YPF was able to gain market share, growing 8% in gasoline and 3% in diesel interannually, capturing almost 60% of local fuel market share. Moreover, and quite important for the downstream margins, lower demand of fuel was translated into lower imports, representing only 4% of total fuel sale volumes compared to 12% in the Q1 2023. In terms of prices, during the Q1, YPF continued adjusting local fuel prices, aiming at mitigating the impact of the devaluation while managing to reduce the spread versus international parities.

Speaker 3

As a result, average fuel prices measured in dollars increased by 11% sequentially and 5% interannually, narrowing the gap to import parity to 7% in the Q1 compared to 20% in the previous quarter. On the other hand, local crude oil price recovered in the Q1, where melanito price averaged $68 per barrel, representing a discount of 10% versus export parity compared to 24% in the Q4 of 2023. Thanks to all of you. This is all on my end. I will now turn back to Federico to go through our financial results for the quarter.

Speaker 2

Thank you, Max. Switching to the financial front, cash flow from operations in Q1 amounted to almost $1,100,000,000 Despite the increase in adjusted EBITDA, negative working capital variations affected Q1. There were temporary deferred payment of imported goods and services from last year to Q1 and some delays in the collection from certain gas clients. Given the deployment of our capital expenditure, capital with a regular interest payments, free cash flow came at a negative $394,000,000 Consequently, our net debt increased to $7,200,000,000 while maintaining a stable net leverage ratio of 1.7 times. In terms of financing, during Q1, we issued an amortizing 7 year export secured bond for $800,000,000 with a yield of 9.75%.

Speaker 2

Part of the proceeds was deferred to prepaying cash 40% of the 2024 notes for $138,000,000 while the balance of $208,000,000 was fully paid at maturity on April 4. Additionally, we continue securing trade facilities both with local and international banks and paid at maturity almost $100,000,000 of principal amortizations of international notes. On the liquidity front, our cash and short term investments increased 15% sequentially to 1 point $6,000,000,000 by the end of March, primarily as a result of the new bond issuance. Finally, when looking into our debt profile, I would like to highlight that our healthy liquidity position comfortably covers our debt amortization for the next 12 months. So with this, we conclude our presentation and open the floor for questions.

Operator

Thank you. We will now begin the question and answer session. Your first question comes from the line of Luis Carvalho of UBS. Your line is now open.

Speaker 4

Hi, everyone. Can you hear me well?

Speaker 1

Yes, we can hear you.

Speaker 4

Thank you for taking the question and congratulations on the results. I have basically 2 questions here. The first one, if you can give a bit more color and provide an update on the divestment process. How you're seeing that the development has been going so far? What are the potential, I would say, milestones that we should look in the next, I would say, in the next couple of quarters?

Speaker 4

The second question is more related to cost reduction. I think that part of the, let's say, the strategy is to, I don't know, optimize the, let's say, the asset portfolio, but you may have good opportunities to streamline the cost overall. So I would like to get a bit more details how the company is seeing, I would say, the cost reduction journey? Thank you.

Speaker 1

Thank you, Luis. We will start with the first question regarding the divestment process.

Speaker 3

Yes. Thank you very much. This is Max speaking. I'm going to update you on the divestment process. First, let me mention that we are on schedule on what we explained during the last call.

Speaker 3

The progress that we made between the last call and this one is that we've yes, we between April 2016 2019, we went to a roadshow that started here in Buenos Aires in the Canadian Embassy. Then we've had a meeting in the U. S. In Houston and in Calgary. And with a meeting in Calgary, we finished our pre marketing stage.

Speaker 3

The following week, we've opened a VDR. And at this stage, what I can say is that there are many CAs and a lot of companies working already with the information that we've disclosed in the DDR. So we are quite bullish about this process. And the other thing I can mention is that we are expecting offers or proposals during mid June, targeting to close on these transactions during the second half of the year.

Speaker 1

Thank you, Matt. Regarding the second question, regarding efficiency, cost reduction in the quarter, we have here Fede, our CFO.

Speaker 2

Thank you, Bruno. I believe that your question is trying to focus more on the impact on the devaluation along the Q1 and how this is going to be affecting us further along the rest of the year. So let me tell you that so far since the new government took office in December, we see that the main focus has been in stabilizing the macro, following the implementation of these some shock measures. Now during this quarter, the key developments that we have seen are mainly: number 1, is that monthly inflation more than half from 26% in December to about 11% in March. 2nd, the FX gap between the official and parallel has tightened from over 200 to approximately 12%.

Speaker 2

This is the lowest level in 4 years. Then the countries dropped from 2,000 basis points to 1200. And again, this is the lowest since 2020. And then the Net Central Bank reserves have increased by about $10,000,000,000 since December 2023. And we expect to become let's say the expectation is that they become positive shortly.

Speaker 2

So all in all, and finally, and probably as a key driver behind all these results, what we observed is that during the Q1, the government implemented the strict fiscal policy that achieved fiscal surpluses in each consecutive month for the first time since 2008. Now, I'm probably going to the root of your question, looking for the rest of the year, according to the market expectations survey of the Central Bank, they call REM in Spanish, is now forecasting on the one hand, a reduction in monthly inflation rate from 9% in April to 5% by the end of the year. This will result in a total inflation of approximately $160,000,000 towards year end, which compares positively with the 211 we had in 2023. Now on the other hand, in terms of FX evolution, the same survey expects the continuity of the current crawling peg with some converging adjustments during the second half of the year, but now with the indication that this will be done without considering discrete hikes. Now all in all, Bruno, assuming that this is a scenario where inflation remains above currency depreciation, the company and the management will continue to monitor strictly all key cost variables looking for industrial efficiencies in order to mitigate its impacts on margin.

Speaker 4

Okay. If I may just follow-up on this one. If you can maybe provide a bit more general update in terms of the you already mentioned about the acidity price fairly, but also with regards to new regulations being discussed in the country at the moment and how, I would say, you see YPF positioned to a potential, I don't know, adjustment of the regulatory framework looking forward?

Speaker 2

Basically, I understand that Bruno, you are you would like to have our views on the new legislative measures that are being discussed now in the Congress?

Speaker 4

Yes, exactly. Yes. It's new next year.

Speaker 2

Okay, excellent. Excellent. Well, Bruno, as you know, the new administration brought

Speaker 5

a radical transformation and

Speaker 2

deregulation agenda. Decrease 70 and the buses decrees 70 and the buses bill, both currently subject to the review and approval by the Congress. Now regarding the buses law, the draft deal declares a public emergency in several matters. This is for a period of 1 year and it delegates a series of legislative powers to the executive branch during this emergency. Now specifically for the oil and gas industry in general and to IPF, the new bill aims to restore the economic balance in the energy sector by introducing 3 main objectives.

Speaker 2

In our view, number 1 is it removes almost all restrictions of the hydrocarbon sector aiming to correlating prices to import and export parities. Then it creates an incentive regime for large investment called RIGI, which especially it's critical to YPS, to IPF and to the entire gas industry for the Argentine LNG project. And lastly, the bill reaffirms that international trade of oil and gas should be free of any restrictions. In this sense, it is important to highlight that as the oil market is not formally regulated in Argentina, this new regulatory framework is not a necessary enabler to continue developing our shale oil resources in Vaca Muerta. Anyhow, the main impact on our business is related to the development of the LNG project, as I said, which depends on the new incentive regime for large investment projects.

Speaker 2

Perfect.

Speaker 4

That was very clear. Thank you very much. Thank you. You're welcome.

Operator

Your next question comes from the line of Bruno Montanari of Morgan Stanley. Please go ahead.

Speaker 6

Good morning, everyone. Thanks for taking my questions. I have 3 on my side here. The first one on Vaca Muertasur. So is the final investment decision taken for the pipeline?

Speaker 6

And do you have a firm interest from other oil producers already to be equity partners in the project. And I was wondering how does Vaca Muertasur would compare or compete with the potential further duplication of Odo Val, which could be also on the table here? The second question is about the gas receivables collection. So I was wondering if you could share with us the amount which is currently due and if you were also having those offers to be paid with bonds at a haircut. And the third one, if you could comment on the free cash flow outlook for the coming quarters.

Speaker 6

You began the year maybe with a little bit heavier negative free cash flow. So, the question aims to check whether those pressures could subside now in the coming quarters? Thank you very much.

Speaker 1

Thank you, Bruno. We will start with the first question regarding Vaca Muerta South and Oldelval expansion. Here we have Max with us, our VP of Strategy.

Speaker 3

Thanks, Guido, for the question. No, so far the Vaca Muerta Sur is progressing as expected. All of the midstream projects actually are advancing as expected and are on track to debottlenecking our production capacity in Vaca Muerta. With this, we expect Odelval's first stage to be completed by the end of this year. This will be a key milestone actually, adding about 45,000 barrels per day of evacuation capacity in Vaca Muerta, reaching total capacity of 345,000 from the original of 225,000 barrels.

Speaker 3

Now for further stages, we will reach a total evacuation of 540,000 barrels. Regarding I think you asked Vaca Muerta Sur, what was already FID was what we call Tramouno. This is already in construction and the Tramodos, which is the main trunk line all the way from Neuquen to the port with a new port facility. What we can tell you at this stage is we already got the environmental permits for this project. This was a key milestone for this.

Speaker 3

And we are working and in discussions with the rest of the industry. What I cannot tell you much about this, but there's a lot of interest in participating in different levels of this project. So it's on track and we don't see any delays on this project. And sorry, and I think you've also asked your second question was about further expansions in Oliva, right? So we believe that Vaca Muerta Sur is the most competitive evacuation route for the to monetize the crude in Vaca Muerta.

Speaker 3

This is because in the port where we are foreseeing to have the facilities, we can get to that port with VLCCs, which are have much more competitive transportation cost per barrel. So we believe that this will be this is the most efficient infrastructure system. So and that's why wants to pursue this project on top of or as a priority on any other project.

Speaker 1

Thank you, Max. I don't know if it was clear, Bruno, for you and we can go with the second question.

Speaker 6

Yes, super. Thank you.

Speaker 1

Thank you. The second question was about the gas receivables. Mads, if you can answer. Fede is answering the question, our CFO.

Speaker 2

Okay. Hi, Bruno. Well, as you know, this issue is somehow marginal, I would say, for YPF considering the magnitude of our current ratio and EBITDA. As it is publicly known in recent weeks, CAMMESA has not been able to meet its obligations with upstream companies and power generators for the month of December, January February. Total figure for YPF is that out of a total receivable of $160,000,000 we had a past due of around it's probably 50% of that was past due.

Speaker 2

Now last Wednesday, the Secretary of Energy issued Resolution 58, which establishes an exceptional payment regime for Canessa past due amounts. This resolution provides sorry, that December January will be canceled with a government bond due 2,038. All in all, considering this and based on the best estimate of the company, the group has recognized a total charge of $55,000,000 of which $29,000,000 were considered a charge to our operating income and the balance correspond to our subsidiaries YPF Luz and Barragan power plant. So based on this, yesterday YPF signed an agreement with CAMMESA by which the favorable new amounts were immediately canceled and the bonds shall be delivered in the coming days. In addition, this agreement provides that moving forward payments will be done in accordance with the contractual schedule.

Speaker 6

Got it. Quick follow-up on this $29,000,000 was this charged in the Q1 already?

Speaker 5

Yes.

Speaker 6

Okay. And you did not normalize for that when you presented your EBITDA, is that correct?

Speaker 1

It is included it impacted the EBITDA. It was in the line of the commercialization cost. So it's included in the EBITDA. If we wouldn't have this impact, it would have been $30,000,000 higher.

Speaker 6

Okay. Yes, perfect.

Speaker 1

Well, we can go with the last question of Bruno. His question was about the free cash flow, negative cash flow that we started with the year and the pressure or maybe the outlook for the coming months.

Speaker 2

Okay. Well, what's happening in the Q1, Bruno, it's a combination of, I would say, 3 factors. Number 1, let's say, the composition of the negative free cash flow, it's number 1, the payment of interest of the company that amounted to probably half of that. And then the rest is composed out of 2 main issues. One is this delay in payments that we just mentioned on gas refills.

Speaker 2

And the other one is that, if you remember, by the end of last year, we have deferred payments of imports of goods and services that we cancel along the Q1 with or through buying securities from the government that allowed us to cancel these past due payables. So that was a combination during this call. Now moving forward, even though we expect a strong recovery in our EBITDA levels during 2024, this on the back of new fuel pricing strategy already implemented and our growing shale oil production, we expect the CapEx target of $5,000,000,000 for 2024 and that will push the free cash flow into the negative territory. And this will be more or less in line with the same range that happened in 2023. Nevertheless, as the expansion of EBITDA levels should be higher than the increase of our net debt, we should be ending the year with a net leverage ratio below 2023.

Speaker 2

That means something in the range of 1.7 times to 1.7 times.

Speaker 1

Bruno, if we answer your question.

Speaker 6

Yes, very clear. Thank you very much for that.

Speaker 1

Thank you. We can advance with the next question.

Operator

Your next question comes from the line of Daniel Guardiola of BTG. Your line is now open.

Speaker 7

Thank you and good morning guys. I have a couple of questions here. My first question is on the asset disposal plan. And I hear you mentioning that you already did a roadshow in Canada and Houston and Argentina. And I wanted to ask you, if you could provide us a feedback you have received so far from potential buyers of these conventional fields.

Speaker 7

And also potential pushback that maybe you have received from government entities or provinces in Argentina where these fields are located? So that's my first question. And the second one is on the Exxon exits or disposal plan, and I wanted to know if YPF is actively looking into these assets that Exxon is planning to sell in Argentina.

Speaker 1

Thank you, Daniel. We can start with the first question.

Speaker 3

Hi, Daniel. How are you? Well, regarding the asset disposal plan, we call it the Andes project. The feedback that I can tell you we got is we are already working. There are above 70 companies working that signed CAs and are working in the BDR.

Speaker 3

This is above our expectations. On processes where I've worked in the past, I've never seen that many companies. So I think that the market was expecting and looking forward to this process. But on the potential pushback, what I can tell you is that we for this project, we started and Horacio, our CEO, started from the very beginning working with all of the different stakeholders, with the governors, governments, different governments, with the unions and with everyone else before going out to the market. So we did the homework before going out, and we don't see so far, we haven't had any pushback on the clusters that are published in the or released within the Andes project.

Speaker 3

And regarding the Exxon process, there's not much I can tell you. The only thing I will tell you is one of our pillars is Vaca Muerta. We're going to focus on our most on our assets that have the highest margins. And we are becoming and we are continuously looking to any opportunity that has synergies within our operations where we want to grow. So that's what everything I can comment at this stage.

Speaker 7

Okay, great. Thanks. And if I may squeeze just another one very quickly. You did mention during the call that you drilled or you're planning to drill a ultra deepwater well offshore in the northern part of Argentina. And if I'm not mistaken, this is an extension of a major discovery that was found in Namibia 2 years ago by Shell and Total.

Speaker 7

I don't know if you can give us a notion of how big this new frontier could be for Argentina?

Speaker 1

Sure. Daniel, maybe you're referring to the Archaelich.

Speaker 8

Yes, that one. Exactly.

Speaker 3

I'll go for it. It's not in northern part of Argentina. It's the Arquerich is the 1st ultra deepwater exploration well in Argentina, and it's located about 300 kilometers offshore from the city of Mares de Plata, this is Buenos Aires, at the water depth of 1500 meters. The block is called the Canxien in the North Argentinian Basin. We started drilling this well by the end of April, and we are we do have a 35% equity stake.

Speaker 3

The operator of the well is Equinor, who's one of our partners in this joint venture. The other one is Shell with 30%. And this is an exploratory well, but what I can tell you, it's we are it's targeting a very big structure. The potential of this, I cannot tell at this stage, but of course, we are looking for something very quite material. We are looking you mentioned something about Namibia.

Speaker 3

What we are looking here is the same Rocamare, what's the translation of Rocamare? Mother rock from Namibia, and that's true. And we're going to be drilling this well during the next 2 months. And our estimation is that we could, of course, after if we have discovery, then we need to do want to assess this. But we're targeting at the end of the road to produce maybe about 200,000 barrels per day.

Speaker 3

But this is again, it's exploratory, so this is only in case of having a discovery and good results and the appraisal wells.

Speaker 8

Okay. Thanks a lot guys.

Speaker 1

Thank you, Daniel.

Operator

Your next question comes from the line of Alejandro De Michelis from Jefferies. Please go ahead.

Speaker 8

Yes, good morning. Thank you very much for taking my questions. A couple of questions, please. First one is, Max, I think you talked about the pipeline, the Vaxazil pipeline. Could you give us some indication of the cost of the project from, say, Tramour 1, Tramour 2 plus the port?

Speaker 8

That's the first question. Second question is, when you update us on the strategy, you indicated bringing 3 extra rigs by the end of this year. Could you please indicate how you're progressing on that? And can we see some acceleration in your Vaca Muerta developments?

Speaker 1

Thank you, Alejandro. We can start with the first question maybe with Vaca Muerta South, the tranche the first and second tranche cost.

Speaker 3

Tramouno, which is already FID ed, it's going to cost about $250,000,000 the tramodos between the pipeline and the terminal, it's going to cost about $2,200,000,000 And the second one, I'm not sure if I heard it right, but I think you asked about our acceleration in Vaca Muerta and our development plans in Vaca Muerta. Is that right?

Speaker 8

Yes. I'm potentially bringing some new rigs to the basin and to Argentina.

Speaker 3

Perfect. Yes. So we are currently drilling with 14 rigs, and we are planning on adding the 15th rig by June, I think. By June? Yes.

Speaker 3

And by June. And also we are going to be working with 4 frac fleets in order to accelerate. So, so far we are with the guidance that we provided in the last call, we are on track. And we are going to plan on and we are sorry, and we this is yes, I don't know if I addressed the question.

Speaker 8

Okay. So just to be clear, of the 3 rigs that you mentioned that you were adding this year, you already have 2 working and you have one extra coming in June?

Speaker 3

That's correct, yes.

Speaker 8

Okay. Great. Thank you. And I'm sorry, is there a potential to bring more rigs than that?

Speaker 3

Yes. But at this stage, we cannot because we may get to a bottleneck by the end of this year. So we are carefully accelerating. Once all the Elvalde system

Speaker 2

is yes, once

Speaker 3

not fully debottleneck, but once the first stage of this adding the capacity by the end of the year is COD, then we will be able to accelerate and further grow next year.

Speaker 8

That's great. Thank you.

Speaker 1

Thank you, Alethia.

Operator

Your next question comes from the line of Bruno Amorim of Goldman Sachs. Please go ahead.

Speaker 9

Thank you very much for taking my question and congratulations on the results. Just wanted to follow-up, I think you have made it very clear what's the plan for this year and next. Just wanted to ask your thoughts on when shareholders should expect to receive dividends. I understand you're going through a turnaround process. You're investing for the future.

Speaker 9

I just wanted to hear from you when you think the company will start paying meaningful dividends to shareholders as a result of all the measures that you are implementing? Thank you very much.

Speaker 2

I'll take it, Max. Hi, Bruno. Thank you for your words. Well, in terms of dividends strategy for this year and for next year, considering and given the strong growth in prospects of our shale oil development, particularly for the upcoming years, Dividend payments shouldn't be or are not a top priority for this immediate to next year. However, we do believe that we have to normalize and we are conscious that we need to normalize dividend payments down the road, considering that the company has not distributed dividends to shareholders for more than 5 years.

Speaker 2

So we are quite conscious of this. And so even though it is too early to comment, we may consider and we are considering and we will it's one of our drivers to reassume dividends as soon as possible. So this year, I would say that we know that it's going to be negative free cash flow. We are expecting next year to be to target for a much more neutral year in terms of cash flow. And definitely 2026 should be an year in which will be our top priorities to reassume this dividend leaving and this dividend situation.

Speaker 2

So we have in our agenda normalizing this situation as I explained. Right now, we understand that the way to maximize the value to our shareholders is to improve as much as possible and to use as much as possible the monetization of the Vaca Muerta reserves. And in order to do that, we need to heavy invest along this year. But we have this in our agenda and it would be one of our priorities.

Speaker 9

Thank you very much.

Speaker 1

Thank you, Bruno.

Operator

Your next question comes from the line of Marina Martens of Latin Securities. Please go ahead.

Speaker 10

Hi, good morning. Thanks for taking my questions. I have two questions. The first one regarding the pricing dynamics at the pump. So considering that the government has delayed the adjustment to the tax on liquid fuels, do you consider there could be any potential constraints to implement further price increases at the pump?

Speaker 10

And the second one, given the progress on the in the project Andes to divest these mature fields, could we expect YPF to proceed with any other sale of non core assets?

Speaker 1

Thank you, Marina. We can start with the first question.

Speaker 3

Hello, Marina. How are you? So regarding the prices, since the end of last year, we have been developing an active fuel price recovery strategy that resulted in prices increasing at the pump almost about yes, almost about 200% in Argentine pesos. That allowed us to translate the discrete devaluation that took place in mid December of last year and to increase prices in dollar terms, reducing the discount to international parties to down to 7 percent. Although local macro variables and the a demanding cost reduction and margin improvement plan in our Downstream business in order to sustain business margins.

Speaker 3

That's where we are focusing. Besides, it's hard to predict mostly due to the volatility and international prices. The company still needs to preserve the prices both to compensate for the evolution of a larger pesos and to adjust to local prices to import parity levels. Regarding the process on this, I think that this is we are the answer the short answer is yes, but we're going to but not now. I mean, we are focusing on the project Andes at this stage.

Speaker 1

Perfect. Thank you. Thank you, Marina.

Operator

Your next question comes from the line of Leonardo Marcones of Bank of America. Please go ahead.

Speaker 9

Hi, everyone. Thank you for taking my questions here. My first question is regarding the natural gas segment. Is the rise in natural gas prices for from Metro Gas for residential use already embedded into your estimate for the year? And what could we expect from this increase in terms of results for the next quarter?

Speaker 9

My second question is regarding the stock variation we saw during this quarter. I was wondering if you could provide a bit more color on the dynamics that led to this impact of around $125,000,000 this Q1? And maybe if I can do a third one here. It seems that the drilling and the frac efficiencies have significantly improved this year already, right? So I was wondering if you could provide a bit more color on your target for this trillion frac speed metrics and what has been done to improving so fast?

Speaker 9

Thank you.

Speaker 1

Thank you, Leo. We can start with the first question regarding the tariff adjustment at Metro Gas and the view on the outlook of the year. Just give us one second.

Speaker 3

Yes. So the tariff adjustment is what I can comment is that it was transitory and allowed us to Metro Gas to pay for all of its operating costs and any financial interest that they had to pay for. That's all on the and the second question, sorry.

Speaker 1

Yes. And the second question was about the stock variation in the quarter. Maybe, Leo, you can detail a little bit more about that because you know the still variation, we cannot have a fundamental analysis about it. You know it depends on the macro condition in Argentina also. So maybe we cannot share a deep opinion from our management regarding that.

Speaker 9

Sure. Maybe we can discuss this impact after the call. But I maybe just to highlight here, I wanted to understand maybe the dynamics that led to this impact of around $125,000,000 in this quarter from this effect? What has led to what has impacted this line? Because it was somewhat stronger, right?

Speaker 1

Well, that is a general reaction in the market. The new management started just by the last by the end of December last year, and there have been many good news in the company regarding the pricing in the downstream business and the project? There have been many news about it.

Speaker 2

It's just to understand, Leo, let's say, are you referring to the reduction in the operating cost along this quarter? Is that because we didn't understand what probably your question.

Speaker 9

Well, under the total other costs here, we saw a very strong stock variation. But maybe we can discuss this because it's more accounting discussion than a strategic one, right? So maybe you can leave to discuss this afterwards.

Speaker 1

Yes. Leo, maybe I got your question. This is a stock variation inventory, right? Because I understood like yes, yes, okay. You know there has

Speaker 8

been a

Speaker 1

huge evaluation. So that is why this is an exceptional evolution in the store variation. Also, you have to consider that in terms of OpEx, since the new management started, there have been some cost efficiency already achieved. In the upstream business, there have been some tariff reduction in the transportation, also in the downstream business. So in that sense, I think if we have to analyze specifically the inventory, I have to tell you that the main variation reason was the exceptional devaluation.

Speaker 9

Very clear, very clear. Thank you. Apologies for the confusion here. There's the last one, the Regent is really on track efficiency.

Speaker 1

Yes. So your last question was about drilling and fracking efficiency improved and compared to the targets that we announced in March, right?

Speaker 9

Yes, yes.

Speaker 3

Well, regarding that, during the first quarter, we've improved our drilling speed materially from we got to 290 meters per day. That's 9% above the last quarter. So that's sequentially. And regarding the frac speed, we also improved about 11% to 2 19 stages per set per month. So due to that, that's where we are putting most of our efforts in the unconventional business in order to accelerate, but we're very focused on efficiencies.

Speaker 9

Very clear. Thank you.

Speaker 1

Thank you, Leo. We can go with the last question since we are running out of time maybe.

Operator

Your last question comes from the line of Ezequiel Fernandez of Valens. Please go ahead.

Speaker 5

Hi, good morning, everybody. This is Ezzequiel Fernandez from Balance. Thank you very much for the materials that the IR team provided. Very complete to get the quarterly picture. I have 4 questions, but they should be quick.

Speaker 5

Sorry, if it's a little bit lengthy on the final one. So we already discussed a little bit the non core sales, potential sales. I was wondering if you have any specific plans for YPF Luz Prefertil and YPF Elysium. And I would like to go 1 by 1 of the questions, if you don't

Operator

mind. Sure.

Speaker 1

We can start.

Speaker 3

On these assets at this stage, no, we don't have any plans.

Speaker 5

Okay, great. My second question is related to some of the midstream upgrades in place. I understand that there are no ports in Argentina at the moment that can receive VLCCs. I was wondering if there is any work being done on any of the existing ports or if it's something that you will leave for the Vaca Muerta fuel pipeline?

Speaker 1

Yes. Eze, we can start with that question. Keep in mind that Punta Colorada is a port that used to be used by the mining industry. And in our case, we are building an offshore facility, not exactly using the port.

Speaker 3

Yes, that's the case. So this will work only for the new infrastructure system, which I commented, which is Vaca Muerta Sur. And in Punta, Colorado, offshore of it, this is VLCCs will be able to get to that port.

Speaker 5

Okay. That's great news. And I have 2 more questions on the downstream side. The first one here is, there seems to be intentions by the government to fully liberalize prices and for eventually internal prices, crude prices in Argentina to match Brent, with the applicable discounts, of course, and then for anybody to be able to import fuels. If that situation materializes, I think that puts the general downstream sector in Argentina a little bit, I wouldn't say in a bind, but it's going to be hard to compete with reported fuels.

Speaker 5

How do you see that? Do you agree with that view or to refinance in Argentina should be fine even in that scenario?

Speaker 2

Yes, Akeel. Well, in order to answer these specific and detailed questions, I will use the opportunity that we have together with us here Mauricio Marclin. He is the Vice President of Downstream and Commercialization. So he will be giving a much more detailed answer to you. So I'll pass the microphone to him.

Speaker 11

Hello, good morning everyone. According to your question, we are increasing our local prices according to our philosophy of converting to the import parity levels. Together with that, we are also increasing the local price crude oil prices, just matching both streams in order to keep our market supply with local fuels. In that sense, of course, for the future, we are going to reduce our gap in international prices. And that's because we are deploying in the housing sector and a strong optimization plan in order to increase our productivity.

Speaker 11

And because of that, we are going we intend and we are making huge efforts in order to keep our margins green. And in that way, I assume that during this current year, we are going to save $2 or $3 per barrel in order to keep that margin in green values.

Speaker 5

Okay. So you think those $2,000,000 to $3 per barrel in soybeans would keep local refiners at least the competitive the YPF refiners competitive vis a vis import fuel importations. Right. Okay, perfect. My final question on the oxygen side is, this discussion is a little bit muted in Argentina, but outside it happens everywhere, which is the impact of electric vehicles in local fuel demand.

Speaker 5

I don't know if you have any preliminary estimates about when will this start to be a relevant factor for YPF?

Speaker 11

Thank you for raising your question. It's quite interesting. We are constantly reviewing what the electric cars are making or the experiment work. We have the time machine, I said, because we are looking what is happening in Europe, what is happening in U. S.

Speaker 11

And of course in Latin America. So for our current business plan, that the electricity the electric vehicle is not beyond an issue for us. Nevertheless, we are deploying some electric charges through our station just as an pilot and just to foresee what is the impact of this new mobility model. But for us, it's not an issue. Nevertheless, we are constantly serving what is happening around the world.

Speaker 5

Okay. That was great guys. Thank you very much. That's all for my time.

Operator

That concludes our Q and A session. I will now turn the conference back over to Margarita Choon and Federico Parotaveina, please for the closing remarks.

Speaker 2

Well, thank you everyone for participating in this call. We appreciate the questions and we talk next quarter. Thank you very much.

Operator

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Remove Ads
Powered by Quartr
Earnings Conference Call
YPF Sociedad Anónima Q1 2024
00:00 / 00:00
Remove Ads