YPF Sociedad Anónima Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 9, 2024

There are 12 speakers on the call.

Operator

standing by. My name is Mandeep, and I'll be your operator today. At this time, I'd like to welcome everyone to the YPF 2Q 2024 Earnings Webcast Presentation Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Operator

Thank you. I would now like to turn the call over to Margarita Chun, IR Manager. You may begin.

Speaker 1

Good morning, ladies and gentlemen. This is Margarita Choon, YPF's IR Manager. Thank you for joining us today in our Q2 2024 Earnings Call. This presentation will be conducted by our CEO, Mr. Horacio Marin and our CFO, Mr.

Speaker 1

Federico Bartoeta Venha. During the presentation, we will go through the main aspects and events that explain the quarter results and then we will go to open the floor for Q and A session, together with our senior management. Before we begin, please consider our cautionary statement on slide 2. Our remarks today and answer 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

On the other hand, as of this quarter, the company decided to actively define CapEx. Instead of reporting the total PP and E acquisitions as the best approximation. In this sense, we also included acquisitions of intangible assets and excluded items charged to operating costs during the period, among others. It is worth mentioning that this new definition does not alter the accounting standards of the company. It simply provides a clearer view of the CapEx.

Speaker 1

Therefore, the analysis of CapEx since this quarter and the comparative periods is based on the new definition. I will now turn the call over to Horacio. Please go ahead. [SPEAKER ARRAN

Speaker 2

DE LAARSEN:] Thank you, Margarita, and good morning, everyone. Let me start today's presentation by describing the key milestone and development of the quarter. First of all, during Q2, we produced 20% more shale oil than Q2 last year, highlighting our strategy to focus on Vaca Muerta formation. In line with this growth, we are able to support 25% more crude oil through the Trans Andean pipeline compared to the previous quarter. This was combined with 0 fuel imports in our downturn business, while continue to reduce the gap between local fuel price to import parity to 5%.

Speaker 2

Operationally, in the Aftahi, we hit a new record in drilling and fracking speed, both key metrics in terms of efficiency and fully in line with our guidance for the year. In the Downstream segment, we also reached an all time high production record of gasoline in May at La Plata refinery. A few days ago, we made significant progress in the Andes project. We successfully execute 6 SPAs for 6 cluster, representing a cornerstone for the transformation of our production metrics in order to maximize our profitability. We also started the construction of the 1st tranche of Paca Muerta South Oil Pipeline and we are making progress putting together the producing consortium for the 2nd tranche.

Speaker 2

Finally, together with our strategic partner, we select the location of the Argentine LNG production in the province of Rio Negro. We will be sharing detail regarding all the news after presenting the quarter results. Now, I will turn the call over to Federico to go through the details of the second quarter's figures.

Speaker 3

Thank you, Racio. Revenues reached nearly $5,000,000,000 15 percent up sequentially, mainly driven by higher seasonal sales of gas and local diesel demand, as well as better fuel prices and growing oil exports to Chile. These effects were partially offset by gasoline demand contraction and lower conversion production that affected our Patagonia's operation due to extreme snowstorms and climate conditions that started by mid June and continued until early August. Interannually, revenues grew 13%, mostly on the back of a rebound in fuel prices, plus even higher oil exports, partially offset by a 6% drop in fuel demand. Adjusted EBITDA totaled $1,200,000,000 3 percent down sequentially due to a cost increase in dollar terms, reflecting the catch up with December's devaluation and a drop in conventional output that I mentioned before.

Speaker 3

Interannually, it recorded an expansion of 20%, maintaining a steady EBITDA margin of 24%. This consistently highlights our operational efficiency despite challenging conditions as we had in Patagonia during this period. Our bottom line continued positive at $535,000,000 19% down sequentially, mainly due to lower equity income and increased exploration expenses. Interannually, the bottom line was 41% up on the back of better operating performance besides lower amortization linked to the impairment of conventional material fields. Total hydrocarbon production averaged 539,000 barrels of oil equivalent per day, rising 2% sequentially and 5% inter annually, driven by a solid performance in our shale operations, which is our core business and current focus.

Speaker 3

In terms of investments, we deployed $1,200,000,000 3 percent up sequentially, and we started with the construction of the 1st tranche of Vaca Muerta Sur oil pipeline in addition to the investments in refineries to reduce sulfur content. Interannually, CapEx was 6% down, mainly as a consequence of last year inflationary context. Notably, over 70% of the quarter's investment was concentrated in the upstream mostly for shale operations. On the financial side, we reported a negative free cash flow of $257,000,000 Although the adjusted EBITDA was similar to the deployment of our CapEx, Q2 was mainly affected by higher seasonal sales, thus increasing working capital in addition to regular debt service, partially offset by a dividend collection from affiliates. As a result, we posted a slightly higher net debt of $7,500,000,000 while maintaining lent leverage ratio at 1.7x fully aligned with the target of the year.

Speaker 3

Now I will turn back the call to Horacio to continue with the operating performance.

Speaker 2

Thank you, Federico. In the ethylene segment, the total hydrocarbon production grew by 2% quarter on quarter and 5% year on year, driven once again by shale contribution, which continue its upward trend and now represent more than half of the total output. Net crude oil production continued at high levels, reaching almost 250,000 barrels per day on the back of a 20% inter annual shale expansion, offsetting the drop in conventional production due to extreme climate condition in Patagonia. Our operational activities were affected by heavy snow that result in the shutdown of our facilities for safety reasons. During June, our production decreased by around 45,000 barrels per day during 14 days.

Speaker 2

Since the beginning of August, the climate has improved and we continue to resume activities to normal levels. Despite this contraction, it's worth highlighting that 9% of the conventional output came from tertiary production, increasing by 6% inter annually and minimizing this impact and the natural decline in mature fields. Beyond crude oil, natural gas production grew by 7%, in line with increased evacuation capacity from Neuquina Basin through the new Netorchina pipeline. Additionally, the installation of the new tour partner in Loma de Lattre contributed to a 10% increase in NGL's production. Moving to lifting costs, we record $16.2 per barrel of oil equivalent in Q2, remaining stable interannually, but 25% higher sequentially, primarily due to the catch up of cost in dollar terms with December devaluation, coupled with the lower conventional production already measured before.

Speaker 2

This cost inflation also impacted the listing cost of our core hub blocks that is still at 4 $700 per barrel of oil equivalent on the gross basis, recording a larger increase due to specific higher pooling and maintenance costs. Regarding prices in the upstream segment, crude oil realization prices averaged $71 per barrel in Q2, 4% up quarter on quarter as a result of a better pricing environment in the local market, a network trend in international prices. On the natural gas side, prices reached $4 per 1,000,000 Btu, mostly driven by the seasonal winter price of plant gas that started in May. Now walking through the performance of our shale activities. In Q2, we drilled 58 horizontal wells in our operating blocks, all of them oil, 35% more than quarter on quarter and 26% more year on year.

Speaker 2

It's worth noting that shale oil production hit a new record, delivering 130,000 barrels per day. 87% of the shale oil production came from our core hub oil blocks, Loma Campana, La Marga Chica, Bandurria Sur and Aguada de Altenar. In terms of efficiency within our shale operation, we achieved another quarter of outstanding drilling and fracking metrics, averaging 292 meters per day of drilling and 237 station per month on fracking, fully in line with our guidance for the year. Also, it's worth mentioning that last June, we achieved the highest lateral length drilling speed for 1 shale well in Angotura Sur block, surpassing 1500 meters in a single day. Considering all these metrics, we plan to ramp up shale oil production in the second half of the year to achieve the target of more than 120,000 barrels per day on average for 2024.

Speaker 2

As a final conclusion, let me highlight that today's production has reached nearly 120,000 barrels per day, in line with our target average of the year. Moving on to our downstream segment, processing level averaged 299,000 barrels per day, recording refinery utilization rate of 90%. Although the processing level was essentially flat compared to the previous quarter, it decreased 2% interannually, mainly due to limited availability at the La Plata refinery affected by a shutdown, extreme weather condition and a brief direction in the pipeline during a few days, which was already restored. Despite this decline, let me mention that we set the record high gasoline production at the plateau refinery. Thanks to the new gasoline hydrotreatment plan and the revamping of existing units as part of our new fuel specification project to reduce sulfur content and improve fuels quality.

Speaker 2

In this sense, during Q2, we also continue making progress on the revamping of Lujan de Cusho Industrial Complex expected to be fully operational by next year. Fuel sales volume experienced a sequential reduction of 2%, mostly due to an 11 drop in gasoline sales, mainly due to a contraction in retail premium demand. It was partially offset by a 5% expansion in diesel sales on the back of the seasonal demand from agribusiness and higher sales to the industrial segment. It's worth noting that beside the solid performance of our refinery, we effectively address the increased diesel demand by reducing inventory levels, thereby avoiding fuel imports. Internally, fuel sales declined by 6%, particularly affected by diesel demand contraction across both retail and lutens segment.

Speaker 2

However, let me point out that we are witnessing roughly a 5% demand recovery in July versus June. In terms of prices, during Q2, we continue adjusting low cash fuel prices, mainly aiming to mitigate the impact of the devaluation and narrowing the gap to international parities. As a result, average fuel prices measured in dollars increased by 3% sequentially and 14% inter annually, while the spread versus import parity decreased to 5% in Q2, compared to 7% in Q1 and 13% in Q2 last year. Lastly, efficiency wise, since the beginning of the year, we have been focusing on the optimization of our cost structure, implemented several measures, such as the reduction of a specific full consumption of boilers and logistic rearrangements, among others. Also during Q2, we created a new specified and focused team to plan, monitor and promote the new efficiency and productivity standard within the Downtays business.

Speaker 2

I will now turn the call over Federico to go through our financial results for the quarter.

Speaker 3

Thank you, Ignacio. Switching to the financial front, let us start with cash flow evolution. Although our adjusted EBITDA was similar to the deployment of our CapEx, working capital items pressured the liquidity such as increased seasonal billing of natural gas, payment of imported goods and services deferred from last year and higher purchases of crude oil to third parties due to lower conventional production, partially offset by late collections from Q1. These effects were partially offset by dividend collection from affiliates. Considering also the regular interest payments, free cash flow came at a negative $257,000,000 In terms of financing, during Q2, we paid the amortization of 2 international bonds for a total of $268,000,000 and we issued a local hard dollar bond for $178,000,000 at a yield of 6% with a 2 year maturity.

Speaker 3

Additionally, we continued securing trade facilities and other loans. After Q2, we issued a local dollar linked bond for $185,000,000 at a 0% yield with a 2 year maturity and promising notes for $100,000,000 at 0% yield with maturities of up to 18 months. On the liquidity front, our cash and short term investment decreased by 13% sequentially to $1,400,000,000 as of the end of June. Therefore, our net debt increased to $7,500,000,000 while maintaining a stable net leverage ratio of 1.7x. Regarding our maturity profile, as of the end of June, the company faces debt maturities in the next 12 months for $1,400,000,000 mostly short term trade facilities for $611,000,000 both with local and international banks, which we are planning to refinance.

Speaker 3

The remaining portion includes international bonds for $312,000,000 and local bonds for $177,000,000 among other loans. I will now turn back to Horacio to continue with the presentation.

Speaker 2

Thank you, Federico. Let me briefly recap on the progress we made regarding our conventional mature field strategy. Last February, we obtained the approval of our Board of Directors to exit from around 50 blocks that contributed less than 1% of the company adjusted EBITDA in 2023 with an investment of around $800,000,000 This important move allow us to reallocate resources to our most profitable asset located in Vaca Muerta, enhancing our focus on high return on shale projects and optimizing our overall portfolio. In April, we launched the 1st stage called Andes Project, making the official sale of 30 blocks, grouped in 11 clusters. During the virtual data room phase and Q and A session, we attracted significant interest, totaling over 5 hand interaction from various players.

Speaker 2

By June, we opened bids and received more than 60 offers from the over 30 local international independent companies. Following a 30 day comparison analysis of all qualified bidders, this week, we have been able to execute 6 SPAs with different companies for 6 clusters. Also, we are currently progressing on the SPAs of the remaining clusters. Regarding the blocks that are not included in the Ande project, most of them located in the provinces of Santa Cruz and Tierra del Fuego, we have already initiated negotiation and expected to move forward with needed assignment and or reversion to the provincial energy companies in the near future. Otherwise, we will consider the possibility to include these blocks in the second hand project.

Speaker 2

As an updated summary of this strategic initiative, we maintain our confidence about closing the transaction for all the blocks by year end, on track with the projected timeline and terms approved by our board last February. Now let me comment on the progress achieved in the oil midstream expansion to unlock the evacuation capacity in the Neuquina Basin. Regarding the evacuation to the Atlantic, by the end of May, we initiated the construction of the first tranche of what we named Vaca Muerta South Oil Pipeline or Bemos project, connecting back up more information to Allen. Currently, Allen serves as the access point to the Lual system, facilitation transport to the province of Buenos Aires. Once the second tranche of Emus is operational, it will also be connected to the oil export dedicated port of Punta Colorado in the province of Rio Negro.

Speaker 2

The first tank has a length of around 130 kilometers with a CapEx of roughly $200,000,000 We expect this facility to become online in Q1 next year with a starting capacity of more than 350,000 barrels per day to be initially utilized currently with Del Valle's ongoing expansion expected by year end. The Demos Forkanches capacity shall be expected to over 450,000 barrels per day by the second half of twenty twenty six, when the second tranche starts its operation. The second tranche of Veymos has a length of roughly 440 kilometers with a CapEx of about $2,500,000,000 The design starting capacity is 180,000 barrels per day, planned to be expanded to around 500 by 2027. Also, the pipeline system will be designed to reach more than 7,000 barrels per day of total capacity, if the basin requires. This project is a game changer for YPF and Argentina, increasing significantly the export capacity and debottlenecking shell resources of Vaca Muerta formation.

Speaker 2

This tranche of Veymos will be a fully export dedicated infrastructure and its offshore terminal will be located at the deepwater port that will be allow VLCCs, the oil mega vessels that transfer around 2,000,000 barrels. Besides lower tariff, this vessel opened up new international market opportunities for all of Argentina producers, such as the Asian market. YPF is currently leading the development of the project as the main shipper, and we are starting it as an export consortium pipeline by which the local oil producer operator of Vaca Muerta formation shall be able to commit and secure a portion of transportation capacity. In terms of progress to date of this strategic initiative, let me share that from the technical point of view, we have already completed the basic design engineer for the pipeline and we are progressing the design review of the Torrance terminal and void system. Simultaneously, we have secured all key government approval environmental permits, and we are in the process of receiving final quotation for the EPC and light pipe supply.

Speaker 2

Right now, we are focusing on all effort to speed up the progress of receiving LOIs from the different export producer base on terms that will allow to start the project finance arrangement. So far, we have received LOIs covering around 2 third of total project transportation capacity, and we are optimistic to conclude the process during Q3. Also, we have the intention to apply for the Reiki once fully regulated. Continue our focus on growing oil export, accelerating evacuation to the Pacific. During Q2, we increased our oil export to Chile, delivering 29,000 barrels per day through the Transanion pipe line, reaching next export revenue of nearly $220,000,000 Note that this is 25 more than Q1 and represent now 11% of our alloy production.

Speaker 2

This effort 1 year ago were only 3%. Before ending our presentation and going to Q and A, let me briefly comment on the progress made regarding our LNG process so far. By end of July, YPF and its strategic partner defined the location of the project in the province of Rio Negro. The decision was taken after a deep analysis of technical, economic, environmental, geographic, fiscal, regulatory aspects. In this sense, why Pierre decided to hire at this expense, Artu Delito, who reconfirm our analysis conclusion.

Speaker 2

Also, let me recall the importance of the project. We once completed, it's expected to contribute around $15,000,000,000 annually to Argentina export revenues, significantly boosting the country's balance of payments. I will mention in previous call, we expect to own between 25% to 30% of the total energy capacity, engaging the rest of the industry to showing this project. On the other hand, it's worth mentioning that a few weeks ago, the initiative regime for large scale investment, also known as ERICI, was enacted, providing steady incentive we consider as a key way to place back up more to shale gas in the global market, transforming YPF, Argentina in the world class LNG airport. So with this, we conclude our

Operator

Thank you. We will now begin the question and answer session. Our first question comes from the line of Bruno Montanari with Morgan Stanley. Please go ahead.

Speaker 4

Good morning, everyone. Thank you for taking my questions. I have 2 quick ones here. The first one, would the company still be interested to

Speaker 5

look at potential shale oil acreage,

Speaker 4

which is available for sale in Argentina? Extent you could comment on that, it would be great how it would potentially complement the company's portfolio and much more focused on shale. And the second question is about lifting costs. We understand the reasons behind the increase in the quarter. So looking for any trends you can provide us for the coming quarters, if lifting costs would remain stable at the levels from Q2 or if there could be any relief into the coming quarters, that would be great.

Speaker 4

Thank you very much.

Speaker 2

Okay. Thank you very much, Bruno.

Speaker 6

The first question, as you mentioned, the Pillar 1 of YPF is to focalize in the more profitable asset or I bought this baca mortal oil. So for our goal, always we are going to see when there is selling of very good asset because it's a way to improve the profitability and the profitability for all the shareholders. Saying that this is a confidential process, so I cannot sorry by that, but I cannot give you more information on that, okay? Regarding the lifting cost, in this quarter, we had particularly issues. But your question is for what I see, I think that it will be in the second half.

Speaker 6

And we are foreseeing and we are working to have an average for all. I would we think that we will have a different lifting cost in both quarters, but we are increasing. Remember that we are producing today, yesterday, our production of unconventional, the daily rate the daily report was 127 barrels per day. But this is a very good increase. We are foreseeing that for the end of the year, we will have 140,000 barrels a day of non unconventional, which is totally our focus right now.

Speaker 6

And we foresee that the lifting cost for the second half, it will be $4.4 per barrel. It sounds okay, the answer for you?

Speaker 4

Sure. Just to follow-up this $4,400,000 is just for core shale hub, right?

Speaker 6

For core, yes. Yes, yes. What is important, the important for our EBITDA is unconventional.

Speaker 4

All right.

Speaker 6

Remember that we have the Andres project and we are going out of our conventional deals.

Speaker 4

All right.

Operator

Our next question comes from the line of Luis Carvalho with UBS. Please go ahead.

Speaker 7

Hi, everyone. Hi, Horacio, Federico, Margarita. Thank you for taking the questions and I would like to touch base in 2 main points here. The first one is about the, I would say, the free cash flow profile for the next couple of years, right? I mean, the company is unlikely to generate cash this year, of course, because of the investments that have been made.

Speaker 7

But when I look to the debt profile, in 2025, you had something close to $2,000,000,000 to be paid and sequentially in 'twenty six and 'twenty seven. So my point here is that I would like to understand from you how you see the external risks like if the crude prices drop or if there is any delays in terms of the production ramp up or the pipeline construction being implemented in order to allow you to flow the production or any kind of other bottlenecks that could put your, I don't know, your balance sheet in a bit more dedicated situation a bit forward. The second thing is about the crude and fuel prices. Of course, we've seen a significant improvement when we compare it to the past. But when we look in terms of CapEx and OpEx, it seems there is still, I would say, at a

Speaker 6

bit higher level. So if you

Speaker 7

can share a bit of your expectations in terms of CapEx and OpEx reduction or efficiency gains for the second half of this year and twenty twenty five, it would be great. Thank you.

Speaker 1

Thank you, Luis. I'll start with the first one.

Speaker 6

Yes, It's a lot of I would say, for a second language guy, it's a very long question, okay? Luis, and thank you for the question. I know you personally, so I remember you. If I not answer what you are expecting, please ask me again because it was a long question. I'll tell you the I tried to answer the first part of the question.

Speaker 6

Our expectation of net cash flow are exactly the same as when we arrived here. And we are followed very well the track of the results. For 2024, we will be a balance of neutral in operational point of view. So our net cash flow, it will be negative because of our interest payments, okay, or debt, okay? For next year, we are foreseeing that it will be neutral, in the order of neutral.

Speaker 6

But we are working so hard, so hard, so hard that maybe you will have some difference, okay, for going up, okay, because we are working so hard in efficiency. For Leon, we have foreseen positive cash flow. All of that is without not talking about LNG that we are looking for positive finance, no, not invest a lot in the next year. So, we will be different. And also, without M and A, okay?

Speaker 6

Regarding the prices, if the pricing goes up, okay, you will have a much better result, okay, much better result. And why we decide to go out for the mature field because we are not efficient on that because in that way this company with lower price will be no resilient. But from next year on, because our program, our focus and where we are going, we will be resilient for very low prices because we'll be almost, I would say, almost now an unconventional company with very efficient way of work. We are the best company in the results of the operational. So I'm very happy to work in this company, work hard with all the team because we are going to have very low efficiency.

Speaker 6

We start it's not in the question maybe for everybody and to share with you. For the acting side, we have started a new program what we call Toyota World and we signed a contract with the Toyota company. We are going to try to put the efficiency of the car industry in the world. That is very rapid program. Everybody is very happy on that.

Speaker 6

And also, I would say, the service company come to see me from United, the CEOs, from Europe, and everybody knows that it will be a change in efficiency in Argentina. This is very disruptive, and it will be extraordinary for the efficiency way of work because we will be focused in reducing the wealth cycle and that they will deliver much more EBITDA for the coming years from now. From the downturns part, we already have a very, very ambition program that is called growing by efficiency that we have more than 100 initiatives in the Plata. We do the Plata refinery because it's the biggest that we have, the biggest of this in Argentina and it's a very big refinery. We have more than 100 initiatives that they will put the margin much more up.

Speaker 6

My goal when I come with YPF and all the team of downstream is to have the margin in this refinery and the refinery YPF in a very good benchmark with the American refinery. So we need to increase by efficiency our margin and we are in there, okay? I don't know if I answer your question that you need if I lose something that you asked me, please repeat and I will answer.

Speaker 7

Not to know, Araceli, very clear and thanks for the complete answer and looking forward to see you in

Speaker 5

person again soon. Thank you.

Speaker 6

Okay. Thank you.

Operator

Our next question comes from the line of Viswan Falanga with Bradesco. Please go ahead.

Speaker 8

Hello, everybody. Thank you for taking my questions. I have 2 also. The first one, congratulations on the drilling speed metrics. Do you think there's still room to increase 1500 meters per day or are you already close to a limit?

Speaker 8

What will be your dream target here in terms of meter drills per day? Then my second question, when will YPF and the other interested parties decide on how to split the interest on the Vaca Muerta Sur pipeline? Could we have a decision already this year or maybe next? Thank you very much.

Speaker 6

First of all, I would like you to know thank you, Vicente, for the question. First of all, I would like for you to know me because I am a crazy guy, okay? I'm not using Adidas in my life. I'm sorry if I say took Adidas, but I love impossible is nothing in life. So what I'm going to the I don't really the technical limit for me is the ceiling.

Speaker 6

I don't care lastly if I cannot improve, but I push and always when you push, always you obtain something. Every time that you've seen I arrive in the limit, you have to go out of the company. That means that you are a I am an old man, that means that you are an old man from the mine. So I like you to know me. I am a crazy guy.

Speaker 6

I don't want I don't like that you arrive to the limit. For me, it's not the limit. The guys who are downplaying, they don't imagine what I'm hearing. As soon as we have that margin, we will have another new program. Okay.

Speaker 6

That is for the first part. For the second part, you asked me

Speaker 5

Taking Vaca Muerta.

Speaker 6

The Vaca Muerta. Okay. We have already signed a 2 third of the compromise for the project. I'm totally focused I'm focused on everything, but we are totally focused on that because I don't want to make losing money for the shareholder, like pay me my salary. And so we cannot delay one day, okay?

Speaker 6

We are you know that we are discussing with 1 big company in the United States and we are in a good shape. But as soon as we have an agreement, I will tell you. But we are our program is to mobilize the equipment in November. And that the program is the program. Yesterday, we said that we are doing that with all the industry in the same table.

Speaker 6

And we think that in a couple of weeks, we have 1 100% already signed and it's our focus. From the part of the fleet, remember, YPF has to lead the industry and we are leading the industry. And our idea is to do as simple as possible. The more simple, because the midstream is not the focus of our company or any company of the upstream, the others. So the focus is to make and increase a lot of the production.

Speaker 6

We are going to increase a lot of the production unconventional. So as soon as as simple as it is, what we are doing is the following. The percentage of your paying is a percentage of your capacity. And we are going to make like an ISPV for with all the companies. And at the beginning, we are saying to not to have 1 a lot of partners is that any partners that have more than 10% of the share, it will have a share in the board of that company.

Speaker 6

If you have less than 10%, we are not to have a board because if not, it will be very difficult to manage the company. Okay. I think I answered your question. Tell me if you are comfortable or you need more detail.

Speaker 8

Yes. No, that was very complete and interesting. Thank you and looking forward to meeting you soon. Thank you very much.

Operator

Our next question comes from the line of Alejandro de Meixales with Jefferies. Please go ahead.

Speaker 5

Hi, good morning all. Thank you very much for taking my questions. I'll ask you two questions if I may please. The first one is, you mentioned the shale growth that you're expecting by the end of this year, 140,000 barrels a day. What can we expect, say, for 2025, 2026, 2027?

Speaker 5

That's probably the first question. Then the second question is, you gave us a good update on Andes, but also when we look at the quarter, you mentioned that some of the margin refining margin impact was because of 3rd party oil purchases. So once you are out of those conventional deals, should we also expect that your refining margin is structurally lower because you need to buy more third party oil?

Speaker 1

Thank you so much. We can start with the first question, Ale. And then if you can, you can repeat the second question, if you don't mind. The first question was about the shale production of 25 onwards.

Speaker 6

25 onwards. We are working singularly, Alejandro, for the question. We are working in short term, medium term and long term strategy only. For I would like I prefer to give you the guidance and I compromise here with you and also with all the guys that they are in this call that the day you invest on next year, I give you the guidance for the 3 years with very good. It's not that I cannot tell you because there are some issues or things that we have a better idea for by the next of the year.

Speaker 6

And I prefer, if you don't mind, in March, I think it's in March or in March, I prefer that I give you a very clear answer for everybody and we might personally compromise on the result, okay, if you don't mind. Is it okay for you or?

Speaker 5

Yes, it is okay. But can you give us then how many more rigs do you expect to add, say, in 2025 then?

Speaker 6

Okay. It depends on several questions that you have, they was today. Today, we think that it will be 15 because next year, it will be a year of not growing because there will be a growing on capacity on Odelval. Remember that Odelval by the end of December, they will increase the total capacity for all the industry in 15 in the order of 15,000 barrels a day and in April, 200,000. And so we are going to always, we are going to grow efficiency, reducing the work capital as much as we can.

Speaker 6

So, and our capacity. If we have a spare capacity and we don't have the rates to reach, for sure, we're going to agree and remember that it's an open access here, okay. And also always I will look at the EBITDA, CapEx and profitability of the company, I'm not going to be crazy into higher breaks and not deliver efficiency for all the shareholders, okay?

Speaker 5

That's great. Thank you. And yes, sorry, the second question that Margarita asked me to repeat was, once you get out of the conventional fields, you will need to buy more conventional oil from 3rd parties for your refineries, right? So the question is, would that also put a bit of an impact or pressure on your refining margins structurally?

Speaker 6

Yes. But remember that, in that I have to talk about Argentina. Argentina, we are almost now in international prices. The policy of the Argentina, the change of Argentina in the oil is to go in that region. So, they will be not different to have or not to have that.

Speaker 6

And remember also that we have increasing in our production. And also we are with some exit that we have in the Andes. We have some agreements of buying the oil. In the Mendoza part, we are the for everybody, the best way efficiency to sell the oil is to YPF because it's a hinterland that is like closed. It's not easy to open that.

Speaker 6

So that is more easily to the other. Also some Medanito from us, it will be as it is today. There will be the refinery, but our role, because we are going to increase the production in the next years. I cannot say next year because it will be the other. It will be our focus also in the export.

Speaker 6

As soon as we increase a lot, I think that question now, it will be because you realize that we are going to be a company that we can buy here easily and we can explore a lot,

Operator

okay? Our next question comes from the line of Andres Cardona with Citi. Please go ahead.

Speaker 9

Good morning, Horacio, Fede. Congrats on the results I have. Two questions. The first one is about any progress on non core asset divestiture beyond the conventional crude processes that you have mentioned, if we can expect any announcement over the next 12 months? I remember you wanted to focus on the core business and mentioned some assets that could be divested there.

Speaker 9

So any update? And the second one is, there were some interesting highlights about early results on Palermo Aiki. So if you can share some thoughts about those. Thank you.

Speaker 6

Okay.

Speaker 10

Thank you,

Speaker 6

Andre, for your question. You hear Margarita, and I don't know why he tell me Andre because I know that you're Andre. But anyway, remember, because don't like my English. So that's why always they repeat me the names on that. But sorry about my English.

Speaker 6

It doesn't matter. I put the best that I can, okay? For the basis, you're talking about Pillar 2, what I'm totally I make always control on myself. The Board of Directors approved last month, and we started the process of seeing a proposal and after we come back to sell is YPF Racil, which is a lubricant company, YPF Chile, which is we are selling some lubricants

Speaker 7

and ship.

Speaker 6

Those are if you see the EBITDA is not for YPF. So we are going to sell that. Also, we are in a process to see and sell Refinor that for us is not a key asset without the negotiation and going to the way to go out there because it's not for YPF also. For if you are talking about Metro Gas, we are going to sell, but not today because there, if I sell today, I think I'm now doing my job for you, for the shareholder properly, because I'm selling when Argentina will improve a lot in the macro and when it's reducing the macro will be stabilized, the price of metro now is up. So, it's not like I'm not focused on that in this company.

Speaker 6

The guy that is working and the general manager has totally the idea that we are going to sell. But we are waiting on that because I think there, as I will repeat, it's better for you and for all the shareholders, okay? And ProFertil, you can say also in the noise downturn, but we're calling in gas energy business because it's profitable use of our gas is very, very profitable. And so because it's very profitable, it's my incoherence in, say, focusing on here in energy. But I have now a good environment to maintain that this gas that make food.

Speaker 6

So energy making food. So in there, I take out my idea. B is very profitable. So we are going to maintain. We are going to see what's happening with the selling and the other.

Speaker 6

And at that moment, we're going to look at partners to duplicate the plant. Remember, no, remember, no, but this is a you don't need to put money there. It's the project final or with the new partner, we will see how to do that, okay? And in Guitec, what is the research and development company, we are totally focused now in energy. There is no more talking about harvest or crops or nothing to do with that.

Speaker 6

And also last month we or last week, I don't remember exactly the day, sorry for that, but it was I think 2 weeks ago, we started a new program or we call MAS or PLUS, in English, PLUS Vaca Muerta, what is to work with the oil industry to solve a common problem for the industry. I don't know if it's okay for you or you need more detail from me.

Speaker 9

This is great color, and I just wanted to ask about why PF Luz, What are your thoughts on that asset?

Speaker 6

Okay. YPF Luz, sorry, sorry, I forgot YPF Luz. YPF Luz is a wonderful company and we are always we have EBITDA positive EBITDA is good. We are growing. They don't need capital for YPF Group.

Speaker 6

We always refinance with the new projects and we are growing now. We are the company that produce renewable for 700 megawatts and we are an oil and gas company that consume 4 20 megawatts. So we are in a good shape in the transition period, okay? You can make the numbers there. And Palermo Aike, sorry, I forgot that.

Speaker 6

But Palermo Aike is 1 week ago, I would say, we are producing only water, but it's not like I'm saying that it will be water, okay? Because in 1 week ago, we take out very low water percentage of the fracture. We are in less than 5% of total water that we use in the treatment. It has a very good pressure, very good pressure. The pressure is double the water, what means similar to shelves that produce.

Speaker 6

The reduction on pressure with having a choke of 4 millimeters is very good. It's comparing with my experience in another shelf. And the well is the order of 700, 760 meters and the rate is very good. We are in 4 millimeters in 1 100. And if I not remember Ron, it's 150.

Speaker 6

It's 150 kilometer, but this is 1,000 barrels a day. And so we are expecting and really, I cannot tell you it will be oil. The pressure is a very good index on that. And I think in the coming weeks, you will see the result and we are expecting that the first oil, if it can't come in the next week, okay?

Operator

Our next question comes from the line of Marina Mertens with Latin Securities. Please go ahead.

Speaker 10

Hi, good morning. Thanks for taking my questions. I have two questions. So the gap between local prices and international parities has narrowed significantly. If rent continues to decline, how do you foresee local prices adjusting?

Speaker 10

Could they converge or even exceed export parity? And the second one regarding the Downstream segment, This quarter, it showed higher prices, reduced volumes and normalized margins. How do you anticipate these dynamics to play out in the next quarters? Thank you.

Speaker 6

Okay. First part of the question, With the Brent prices of today, our weighted average is in the order of 3%, lower than import parity products. If they continue to reduce that is your question, we will reach import parity. And when you have import parity, if you are a free market, you have to take into account the free rider could make you in a problem because they can import and make money, okay? So there, we have to understand and I understand that you are abroad and for you, it's very difficult to now say World Cup in Argentina.

Speaker 6

But so far, where we are going is in a free market. And here, we'll have you can imagine that we the thing that happened in the same and United States for, say, a country. So if we reduce a lot, I always declare that I will be the 1st guy to reduce the gasoline. But also, if the price increase a lot, I will increase the prices. Sometimes when there is spike in prices to the fruit very, very high, it happened in all the countries that you cannot in one day to increase that, even in different countries.

Speaker 6

So, but we have to and we are working as it will be free market and decide on demand and supply and see what is the competence on that, okay? I understand that for everybody it's difficult to understand that, but we are doing that. And the second part is with the margin, Marina, the second part, you asked me for the margin of the downstream, no? Yes?

Speaker 10

Yes.

Speaker 6

Yes. Okay. This quarter, particularly because of several problems, no, because of maintenance stoppage, also because of the problems in the weather in the South. We couldn't not refine even though we have a record, we couldn't not refine all the quarter as is expected because we didn't have the oil to do that because of that problem, but problem and maintenance, okay? So as you make two numbers, big costs, you can already use in the figure.

Speaker 6

And so that's why our margin, I don't like also, okay? Our margin was a little less than expected. What we have is you have to spare for the second half is that it will be better than that, but don't imagine to duplicate. Duplicate is our program, what we call growing by efficiency. That will take times we are working hard.

Speaker 6

So I think I answered the question. Tell me if it's okay for you or you need more details.

Speaker 10

No, it's okay. Thank you.

Speaker 1

Thank you, Marina. And since we are running out of time, we are going to take the next question as the last one.

Operator

Our final question comes from the line of Leonardo Marcon with Bank of America. Please go ahead please.

Speaker 11

Hi guys, good morning. Thanks for taking my questions. My first question is related to the divestment of the conventional assets. Although the sales for some assets under the divestment plan have already been signed, do you guys see any risk for the conclusion of these sales as they still need the approval by the as they still need the approval should be approved by the provinces? And my second question is more regarding the capital allocation.

Speaker 11

With the conclusion of all the assets under sales, their cash generation should improve by around $750,000,000 in the next year, right? So I would like to have a better grasp on what could we expect from the company in terms of capital allocation in the next year. So if you could provide more color on what are the expectations here, if we could think about these bands or if this cash should go to accelerate projects in Vaca Muerta? Thank you.

Speaker 1

Thank you, Leo.

Speaker 6

Thank you, Leo. Sorry, Leo, but I was lost in some of the further questions. To be fair with you, it will be open, the microphone, and I will ask Margarita to tell me in Spanish. So everybody know Spanish will know that Margarita explain me your question and after I answer the question in English. So one second,

Operator

go ahead.

Speaker 1

Okay. Capital allocation.

Speaker 6

Okay. Thank you, Leonardo for the question. Thank you. Yes. But see, that is life or is life?

Speaker 6

Okay. I'm not ashamed because I have to ask you a digger. Okay. We already signed 6. I think in 6 cluster of 11.

Speaker 6

I think in the I would say in the couple of days or more, I expected if not, I will very, how to say, very Optimistic. No, very optimistic. No, I will be disappointing with the guys that work in merchant acquisition, okay? So I think we are going to sign 2 more in the next week. The others that they have there, there is one that is important because we have first to discuss a contract, export contract with we are trying to give DIFO contract to another company and after it will be already out.

Speaker 6

The other 2, we have negotiating and I think we are going to be out. I'm going to be out. 1st January, I will not have those. If not, if not, I don't know what I will do with the guy on merger acquisition. But it will be good.

Speaker 6

I'm sure that we will have out of there. Regarding the provinces, we are as soon as we have that, we discuss with them. And so when we sign, we know that we expect because I have to say that, we expect that it will be approved, okay? So I think that we are in very good shape, really, very good shape. The only thing that I ever see from WhatsApp and from people of the industry is congratulation because what we did, people in Argentina think that we are superb.

Speaker 6

I'm not superb. The guy of Merck acquisition, sometimes they are superb, sometimes they are not. But in that way, they are superb. So I'm very happy on that. After that, we have all we have 2 provinces that we are discussing.

Speaker 6

And also, I am very positive that we are going to be out of that. So what we are doing with the capital, if I can put all that capital in Vaca Muerta, I will put there. If not, it will be a safer capital for you because if I save the capital and make it more EBITDA, but I have the opportunity to put more production on board, I'm going to lose your money. But next year, because we are going to have like a bottleneck in the capacity, If we have to say the month, say for the next year, we will say for the next year, okay? But we are not going to waste your money never in my life.

Operator

That concludes our Q and A session. I will now turn the call over to Horacio Marin, CEO for closing remarks.

Speaker 6

Okay. Thank you very much for all the question. And we are very happy to have the work that we are doing in YPF. And also, we are very happy of your question because it's a way that allow us to improve. Our goal is to improve the profit for you, okay?

Speaker 6

This is our goal. There is no other goal. Thank you very much.

Operator

This concludes today's call. You may now disconnect.

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Earnings Conference Call
YPF Sociedad Anónima Q2 2024
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