Q4 2019 Earnings Call
[music].
Good morning, and welcome to the fiscal year in fourth quarter 2019, why P.S.S.A. earnings Conference call. My name is brand and I'll be your operator for today.
This time all participants are in listen only mode. Later, we will conduct a question and answer session during which you can delstar. One if you have a question.
I'll now turn the call over to Ignacio Ruston, Joe you may begin Sir.
Thank you Brenda good morning, ladies and gentlemen is significant Daniel IR manager.
Like to thank you for fan out today in utilization week with and wipe, yes 20 banking.
Where we said.
With me on the go today.
Our new chairman he said Monieson on our CEO. Many of those studies you Thermo was stuck with some opening remarks, then yet and I will go through the main aspects and events that expand our size and finally, we would open the call for questions. Please go ahead.
Okay, well good morning to all of you.
Thank you for taking the time on this very difficult day for the markets to join us.
As one of these days in which most of you are glued to screens looking at what happens in Vienna, and what we can envisage.
For their very near future on the energy sector in general what was okay.
We are looking closely to what happens to the Brent crude as were less.
What happens what is happening right now with the Texas intermediate which are very low levels as you know.
Let's say that crude has declined by almost a third since January. So this this impacts all of us without any doubt.
But let's assume for this for this call.
The growing abuse outbreak is largely contained in the second half of the year at least we have to to make some.
Mold assumptions no matter what.
But let me focus a bit on Argentina, because we are also living.
Challenging times in Argentina.
And.
Of course, Benidorm Salus, we will explaining to you the results of last year as well as what's going on and we can what we can envisage about the macro scenario that we will make.
A very important impact on the decisions.
To come.
So.
Let me say just to run this up this introductory statement that I'm very proud I am very committed.
To lead a company that has 100 year here history.
Our company that has these cover the mail oil and gas basis in Argentina pioneered the development.
Of the energy sector.
In sharing which is which was something something new at the time very important. It's also the 50 electric generator of Argentina. So.
So.
In the short we can say that way Pf.
Is really are very important contribution to the Argentine economy.
So I'm fully committed.
In this very difficult international National times.
To contribute to steer the company through.
Increasing value for our investors.
And this is.
My main goal so in that respect I want to convey to you that I'm fully committed.
To properly.
And to steer.
This big ship through this storm as we can make qualify the situation today.
So keeping our fingers crossed.
I will pass the word to the Aneel.
And he will enter into the details of the management and the results of last year and then we'll move forward to the questions. You may have thank you very much.
Thank you you have more good morning, everybody and.
Before we begin I'd like to ask you to carefully review the cautionary statement on slide two will be making forward looking statements that referred to our estimates to our plans and expectations that could differ materially due to factors. We note on this slide.
And also although our financial currency is the U.S. dollar our financial statements are published in Argentine pesos base based on IRS and on this location to let you better understand our key financial and operating results unless otherwise explains the calculation of the main financial figures as in us dollars unless derived from the calculation of the goals.
Related financial results expressed in Argentine pesos, using the average exchange rate for each period.
2019 was very difficult year for Argentina for their local oil industry and for what the F.
We operated in a very adverse context and believe we have performed extremely well in managing the different variables under our control.
Strong operating cash flow financial discipline reduction in Opex and improved oil production performance, especially in Unconventionals.
You know obtain about 90% of our revenues in Argentina, and the local economy was particularly weak without GDP reduction of 2% internal consumption down more than 5% in.
Inflation of almost 54% under evaluation around 60%.
Although international crude oil prices were below the previous year local prices were further affected by the devaluation in the first time of the year and by the freeze the previous government put in place in August.
Average local fuel price as expressed in dollars were the lowest over the last 10 years.
In addition, natural gas local market prices were also well below the previous year, mainly as a consequence of natural gas glut, resulting from the subsidy known as resolution 46.
The imposition of capital controls and they will activity around the presidential elections added to the negative investment climate in 2019 that light BF needed to adapt to underwrite Ignacio relate explain we did react rapidly and adjusted Capex and Opex in the fourth quarter.
However, our low breakeven shale projects has allowed us to maintain a level of activity well above that of our competitors, therefore with less affection of long term growth prospects.
In this context full year revenues were down 11% to $13.7 billion and EBITDA was down 18% to $3.6 billion, just an inch short of our last guidance.
However, operating cash flow stood very strong at $4.3 billion in line with 2018, therefore net debt remained essentially flat inline with our commitment to strict financial discipline.
Full year earnings were negative negatively affected by their net impairment of our natural gas assets for $540 million, which had been recorded in the third quarter as a consequence of the lower price environment, We expect for the near future. No. Further impairment was recorded in the fourth quarter.
Now let me do a review of last year's operations going through some main highlights and then share a flavor of what we're seeing for 2020.
We took advantage of our broad portfolio to allocate capital in the more profitable projects, which are all crude oil oriented natural gas resources, our vast and the results of our last wells in differentiated blocks were all great, but low local prices and then oversupplied market. This incentivize.
Segments, and therefore, we shifted although all of that activity to the oil window.
Therefore, we consolidated our shallowly investments in the cluster around Loma Campana, Lamarca Chica and bundle resource.
Achieving significant improvements that resulted in that breakeven price reduction I just mentioned.
We know we do not controlled commodity prices, but we do control the breakeven price at which projects are profitable and the combination of increasing productivities and a reduction in capex resulted in such reduction in breakeven prices for Vaca Muerta.
We also invested in delineation of additional potential development clusters with encouraging results in the north of that play in buckled auto where we are partners with equity Mnner and are already drilling a six well pad. These days and also just south of Loma Campana, but with less clear result in other areas that we will not be pursuing.
For now.
And as I have repeatedly said in the past. This is not just about vaca muerta last year. After encouraging results in two pilot projects, we announced the decision to massively deploy enhanced oil recovery.
Im very proud to announce that we already have our first 10 polymer injection units displayed in our fields.
And we are about to make a final investment decision for another 10 injection plans to be installed this year.
During 2019, we continued the divestment of non core mature assets by closing the sale of for conventional blocks in though Ken and additional due in July.
We also secured high quality shale oil shale oil acreage first by purchasing 14000 acres in a while January which is contiguous to America chica.
In addition, we were granted a 35 year unconventional concession for Loma Amadesa block 43000 acre position also situated in the shale oil window.
This year, we intend to start development of I was January.
It has similar geological properties to a nearby fields and we therefore believe it is mostly de risked and also to conduct a pilot project in Alabama Asia.
We're also announcing today the sale of an 11% interest in Bulgaria sold to share shell and Ecuador.
To add to the 49% stake they recently acquired from Schlumberger.
This transaction has been done at the highest per acre multiple paid so far in vaca Muerta and it also reaffirms our strategy started in 2012 to develop unconventional us with first class partners.
Another transaction that we'd like to highlight at this time is a in the deep offshore off the coast of Argentina.
We obtained three blocks in the bidding round in April.
That were added to can 100 block, where we already had rights in all cases with best in class operating partners like equity nor untold that total.
Furthermore, in can 100 block in addition to the farmout already announced with Ecuador, We're tansley in advanced negotiations with a third partner that should be entering the blocked very soon.
With this transaction. This block is an opportunity that we can initially pursue with very limited financial exposure.
With respect to natural gas, we set us up priority to minimize production cuts due to lack of demand outside of the winter peak season.
We activated different levers the f. LNG barge that allowed us to export LNG out of Argentina for the first time in history, although at current global LNG prices it doesn't add to their BNL of course.
A more aggressive participation in auctions for both residential and power demand and a significant increase in our experts to Chile that range from two to 3.5 million cubic meters a day on a monthly basis in the mild Cesar.
In addition, we started our natural gas storage project in our repeated reservoir in okay.
Where we are are already injecting gas with the objective of injecting 1.2 million cubic meters per day during eight months and then with growing 2.4 million cubic meters per day during the other four months.
Finally, and despite all the turmoil in Argentina, and 2019, we successfully managed to rollover or replace all our short term maturities, including trade finance, maintaining our nominal debt almost flat.
We also accessed the international Aftermarkets, when we saw small window in midyear and issued at 10 year half a billion dollar bond.
On the S.G. side I am proud to share with you. The progress we have been making and that is best shown with a score. We would have had if we were part of the Dow Jones sustainability index, which has been assessed by a third party and that puts us among the top 15 companies.
The industry you can see that is the right hand side of the slide.
Safety of our personnel is our priority and the injury frequency ratio improved again this year to an all time record.
In 2018, we have launched a policy for operational excellence that is part of a cultural change that we are trying to create however in 2019, we were not able to avoid some fatal incidents from contractors working for us there's still a long way to assure that all of our suppliers on contractors have the culture.
Commitment and skill set that we require to work and why Pf.
With respect to emissions, we set an objective of reducing them by 10% by 2023 and are making good progress with a 2% reduction in 2019.
Based on our energy efficiency initiative across the whole organization on production cuts in CLP sealed to incentive fields.
Sorry seal to intensive fields.
And renewable energy through quite the evolution.
We chose win and already have one when farming operation and another three under construction.
When they are finalized later this year why Pf loose will generate from renewable sources the equivalent of more than two thirds of what why PS consumes in its entire upstream and downstream operations.
We are.
About 22000 fully compliant and they're investing heavily in our refineries to reduce the sulfur content of our fuels as not only we win one to make our operations cleaner, but also offer cleaner products to our customers.
In summary, we have a full SG agenda and significant achievements to show off.
Moving onto the upstream operations in 2019, and despite the challenging pricing scenario, we have been able to maintain again, our proven resort reserves above the 1 billion be OE Mark as we have been doing successfully over the last 10 years, which underscores that.
Of our resource base.
The 96% reserve replacement ratio was all organic and we can see how our high quality shale reserves have grown to represent 31% of total proven reserves.
Maybe the other relevant change has to do with a reset composition as liquids now represents 63% of proven reserves up from 50% a couple of years ago.
Total hydrocarbon production was 3% below the previous year inline with our last guidance, but in the fourth quarter was actually 5% above the same quarter of 2018.
Great production during the year remained almost unchanged at 227000 barrels of oil per day.
It is worth mentioning that by the end of 2018 and in July 2019, we completed the divestment of a few MACI of mature fields that together, representing we presented an average of 2.4 thousand barrels per day. Therefore pro forma all production would have been up between 18.
Regarding natural gas as we have been discussing the local market experienced an oversupply.
Actually demand was slightly lower than in 2018, mainly in the power generation segment.
Consequently gas production decreased 5% to 40 million cubic meters per day in the year, but again was up 10% in the quarter.
Moving now to shale as shown in the graph on the right. We have steadily increased production during the year and shale now represents 18% of our total hydrocarbon production compared with 11% in 2018.
Net shallow production in the quarter showed an increase of 48% compared with a fourth quarter of last year, reaching 40000 net barrels per day.
We have added another 3000 barrels in the last two months.
So far we have always compared our performance with our own past performance showing continuous improvement. This time, we decided to also share benchmarking against average performance in a different use shale plays using Hs information.
The graph on the left shows that why Pf actual productivity in the oil window of Vaca Muerta is better than the average of selected us place.
The bars in dark blue represent the production per stimulated lateral meter for Loma Campana, Lamarca chica and by Luria sued in 2019 and 2018.
The graph on the right shows the development cost for those same areas again, the comparison shows not only our progress by the competitiveness we have achieved.
Still we are not yet first in class, what we are definitely aiming to get there.
America chicken by Luria are still two to $3 above Loma campana, which as a much higher scale along the history and there is definitely an improvement of opportunity we should be achieving soon.
Some initiatives recently put in place that partially explained this performance.
We implemented for instance, water based mud on the drilling stage that by the way also has a positive impact on the environment, we optimized well design migrating to use six three quarter inch casing pro improving the greater penetration also we upgraded our quarter of the rig fleet to high spec at the moment, we count with.
Six high spec rigs and we will have all of our rigs upgraded during this year.
With all of this we will definitely will reduce our drilling days.
We also keep going longer on our laterals for instance, we are putting 64 frac stages in one for kilometer long well.
Every single where last year steered every single well as stimulated using high density completion, and we're not done yet.
Finally, as soon as one of our main shale blocks and I believe provides a good example of how we intend to create value without taking any rationally high exposure for a company of our size.
We obtained and conventional concession in 2015 that entails significant commitments.
Subsequently in 2017, we farmed out 49% of love to Schlumberger.
7200 dollar per acre valuation.
At the time the field does not have a single horizontal well.
Schlumberger carried us in the investments needed to de risk the block, while we jointly decided to accelerate the development of the core southeast part of the block.
In 2018, Schlumberger decided to exit these type of equity investments globally and run a sale process that resulted in share an equitable jointly acquiring their stake and evaluation above $12000 per acre and this was approximately a month ago now sell onec winner already partners.
F. In other shale areas are also acquiring an 11% stake from us at a premium. So we have a more balanced shareholder structure 40, 30, 30, where why Pf remains as the operator.
The implied valuation as $14000 per acre with but as a pilot demonstrated.
That not all of the acres have developer developable, the real multiple still higher berths available anywhere.
This years of transactions show the success of our model of bringing along partners to help us de risk and increased value of our assets and it highlights the underlying value of our vaca muerta acreage.
In 2019, we committed to replicate the excellent results, we had obtained in Loma Campana, India adjacent areas of America chicken bundle area.
With the objective of expanding this core shale oil development hub last year together with our partners, we invested $1.3 billion in these areas and we have agreed to invest almost 40% more in 2022 continue will ramp up in production.
By April 2019, we started evaluating our crude oil to the new 88 kilometer long Loma campana level Pelagreeny pipeline pumping production from this hub to the trunk pipeline system, we're doubling the capacity of our Loma Campana oil treating facility and building new ones in each of the other two core blocks. We also.
Expanding our sand plant to ensure that we can cope with the increase in activity, while keeping controlling costs and achieving last mile efficiencies through the utilization of our own sandboxes.
The bottom of the slide we can see the full development for each of these fields, where we view a plateau production above 75000 barrels per day in each of them and actually much higher income at umbrella.
And that hub can still grow as we have recently acquired acreage to the east in Albania, and we also have to the west with Pluspetrol elected later and they're still other areas to be the risk.
We believe many of our conventional fields are old, but not necessarily to mature as recovery factors are still low and can grow from an average of 25% after secondary recovery to an average of 33% with tertiary recovery.
This way why in 2018, we decided to take you are more seriously and after a few years Impella mode. We made the decision of accelerating its development.
We purchased and installed 10 polymer injection plans in the goal for Suncor and Okina basin.
Basis, and the initial results of the first two plants greenpeak into route were better and faster than expected.
Shown in the graph at the top.
The 10 plants implied an investment of $150 million, including the repair of our fuel injection wells and should accumulate 29 million barrels from oil from these three different fields as we can see in the bottom left.
Now that development already in motion only represents a tiny fraction of the recoverable resources that we are visualizing if we keep invest in tertiary as we can see in the bottom right.
Of course, we're only scratching the surface, there's plenty of learning ahead and the response in the form of increased oil production and therefore, the reaction of the water cut usually takes time, but.
But is definitely a great complement of the more front loaded behavior of the shale.
Moving on to natural gas I mentioned the reduction of production cuts objective. We believe it is working gas production a fourth quarter of 2019 and very likely in this first quarter of 2020 as well.
Significantly higher that comparable periods precisely because of that.
On the other hand, the significant recent reduction in drilling will result in less available gas during the winter.
The different shares in each market segment also points to a successful commercial strategy cost we are not dependent on the less attractive power segment.
Where COMESA now purchases all the fuels and thats being conducting monthly auctions. Although they are sending are very positive sign of potentially entering into multi year take or pay agreements.
We also did well in exports, although it's still small and we believe both the market and our share in that market should grow.
Now prices have come down by almost 20% last year to an average of 3.7 dollars per million with you and we expect them to come down again this year, but they are bottoming and should start going up as there's almost no activity in natural gas development. These days and therefore supply will decline.
Changing to our downstream business segment.
A few market was obviously slow in line with the rest of the economy with gasoline sales down, 1.4% and diesel sales down 2.1%.
Jet fuel demand was strong and most of the rest of the refined products were also up with the notable exception of asphalt whether collapse in public works resulted in historically low volumes.
Our market share was slightly below the previous year, where it had been unusually high.
But these levels in the 55% to 56% area should be sustainable.
At the same time premium products under our in Fenia brand had a positive performers and represent 27.5% of each of gasoline and diesel total sales.
In the case of diesel this represents a slight improvement, but in the case of gasoline a decline visibility for you see year, but without recovering trend towards the last part of a year.
With respect to prices the year was really volatiles graph on the right shows our blended price on gasoline and diesel compared with what we call objective prices, which are built based on import parity plus the effects of biofuels internalization costs and the margin.
There we can see that we started 2019 with prices just in line with that objective price.
When the economic situation deteriorated in Argentina, and simultaneously international prices recovered, we started to fall behind by gradually caught up towards media.
That is when the peso suffered its was worse devaluation of the year and the previous government decided to freeze prices.
That resulted in a gap of 15% or higher that again, we significantly recovered with price increases first in the wholesale market and then in the retail market towards the end of year.
They catch up that can be seen for the first months of 22 any is a consequence of international price declines and not have local price increases.
Currently and of course, depending the average being used for international prices given the high volatility we are experiencing we only have a 5% to 8% gap in gasoline prices, while diesel prices do not need any increase.
It is a first time in quite some time that we spend a few minutes to talk about our power generation subsidiary brand that why Pf loose.
My objective with this slide is to highlight how we created value for white be of shareholders building a company that this year, we'll have a generation capacity of 2500 megawatts and will generate $265 million of EBITDA without contributing any capital for.
F.
Projects under construction or fully funded over 80% of its capacity is sold under long term dollar denominated contracts a good part of them with white ETF and other industries and by the end of the year it should be generating over 400 megahertz of renewable energy.
The company is run by its own management team and ASCO controlled by White F and G.
Now our liking to ask Ignacio to go through some of the numbers for the quarter and also discuss our balance sheet.
Thank you Daniel.
So is the fourth quarter of last year in Q4 of 20 maintain our metrics were mainly affected by the freezing in fuel prices.
Moving down revenues, 12% and reducing 31% adjusted EBITDA.
Natural gas prices also affected revenues as they were 26% lower than the same period of last year.
As a response to potential degree 46 reacted the recently.
We focused on execution and continued a cash preservation strategy leaned on our financial discipline, we immediately reassessed our budget and reduce capex from where we originally planned to invest with the aim of minimizing the cash impact of a lesser EBITDA, what do we renegotiated rates with suppliers and constructors.
We also reached the government to explain and add the effects of the measure they have taken on multiples alternatives to reduce those effects.
As a consequence legree was still in place they allowed us some price increases. Furthermore, after it expired we were able to keep up with girl adjustments to narrow the local prices within per priority at analysis.
In terms of production, we had a significant increase of more than 5% driven by higher sales of natural gas.
Grill production remained flat through the quarter, while natural gas production increase compared to the previous summer due to the short term levers Daniel mentioned.
The study to work and execution of our more aggressive pricing policy.
We added new commercial agreements with customers, primarily external clients and power generators that generate an increasing amount or in all although both prices of yours and natural gas who are lower we had a strong flooring cash flow generation and were able to increase our cash position by year end.
Go into details of the annual cash flow, our cash position remains strong, including short term medium term with cash investments at $1.3 billion at the end of December of last year.
Committed to a strict financial discipline, our cash flow from operation exceed our Capex program in more than having you on dollars.
These include the are better performance in working capital due to accrue as we had from 27 implant gas and our accruals from distribution companies.
In fact in April 2019, we study collecting the installments of the bond issued by the government.
That plan gas program and during the year with approximately $300 million as of today. The first two installments of Twentytwenty were collected.
Concerning financing activities, our debt remained essentially flat I mean, there well as well as in that scenario, having access both delay the local and international markets through there.
Actually despite this complex scenario in 2019, we successfully managed to roll over our shorter maturities without experiencing any significant reduction in the banking facilities most of them where credit facilities.
In Twentytwenty keep on doing so as within this years, we continue to pursue all avenues to further maintain our debt levels. So far by the first month of the year, we have already faced maturities for approximately $200 million, where we issued a series of local bonds and rollover facilities for $350 million.
Finally, both our debt and cash positions are mainly the eliminated in orders our leverage ratio stood slightly above to death net debt to adjusted EBITDA was average life of debt maturity remains in the six years area.
I will let Daniel finished the presentation.
Thank you imagine us here on this a final slide I would like to address our outlook for 2020.
Clearly the outcome of the sovereign debt restructuring will be key in determining the length and depth of the economic crisis, wherein obviously news from abroad are not encouraging either as Keith mentioned.
In this context, we're taking a step further our strategy of financial discipline last year, when our fuel prices were frozen we reached rapidly we reacted rapidly and communicated to you all our decision to got investments and share the burden of the freeze with our value chain.
With the objective of minimizing the impact which with it.
For this year, we designed the budget with a reduction in capex of more than $750 million in order to have a positive free cash flow and avoid any that increases.
We have a manageable level of short term debt to rollover, which we have been successfully doing a signature mentioned, so far and only have our first relevant maturity. One year ahead of us and we expect to deal with that during the course of this year.
We are we seeing very strict in capital allocation and that is why I described that Lang our focus in profitable shale development, while we take a wait and see approach towards natural gas projects as this market stabilizes and starts growing again.
This year, we will have a lower than normal level of activity in the upstream that should allow us to focus further in cost reductions and safety improvements.
But we're not cutting capex in facilities, because we want to be prepared to react fast when conditions improve and growth can be resolved.
We have been active in managing our portfolio, but our upstream portfolio by divesting some smaller material conventional fields, incorporating partners to develop and put in value Vaca muerta.
And opportunistically, adding acreage.
The unduly assume transaction I described earlier underscores the value of our Vaca Muerta assets and the trust our partners are putting on us to operate for them in Argentina.
We believe Tony Tony EBITDA should be in the 3 billion dollar area about Capex of 2.5 billion and as I said that.
Should remain flat.
Acknowledging of course that with lower EBITDA that debt to EBITDA ratio will see a slight increase to the 2.3 times area.
Crude oil production should start growing again, despite capital restrictions and we expect that growth in the 2% area.
While natural gas production will decline again this year based on our perception of stagnant demand and the low price environment and not based the lack of opportunities, which we believe we should be addressing again in 2021.
In summary, I believe we called well in very difficult circumstances in 2019, and we have a consistent and realistic planned for 2020.
With this I would like to thank you all for your participation today and Guillermo myself and the rest of the team are now open to answer your questions.
Thank you will now begin the question answer session. If you have a question. Please press star one of your telephone keypad, if you'd like to be removed from the Q. Please press the pound side or the Heskey, if you're a speakerphone. Please pick up your headset first before dialing.
Once again, if he has a question. Please press star one and your telephone keypad.
And from Bank of America, We're Frank Mcgann. Please go ahead.
Okay. Thank you very much I was wondering if you could just talk about your youre spending plans not so much the level, but how how how you're thinking about allocation of capital right now between oil and gas between shell and tertiary I'm investments, what what factors would view.
Our leading you to emphasize certain.
Certain areas versus others, and what what could change potentially that might make you. For example go back to a little bit more of a focus on gas.
Good morning, Frank Thank you well.
In terms of the breakdown between oil and gas what I can tell you is that we are only investing in a few natural gas projects, which are non operated by us and with a good prospects and in addition to that and finalizing some facilities related to natural.
Passive element.
As I said earlier to make sure that we're not.
Putting at risk long term growth prospects, but in all we're talking about a couple of $100 million of total capex, so really really low.
In terms of the investment in oil and you ask conventional versus unconventional I'd say, 60% of the investment this and Unconventionals and 40% in conventional so we're trying to preserve a balance and we're still seeing opportunities in conventional production. In addition to the.
To the opportunities that everybody has discussed on that we have discussed at length between the goal on the Unconventionals now how we're going to be investing that.
Those monies in the unconventional I would say that the following week.
We're going to be much more focused in investing in those areas, which are already and the full development mode that us when where we can.
Bring that oil off the ground up faster, we have a proven already the economics and therefore it makes all the sense in the world to us to focus on that and doing less delineation and less piloting as we have been doing in last couple of years, which has worked very well for us.
Otherwise, we would not be in opposition to develop these.
Blocks today, but given the restrictions, it's probably not a year to invested heavily in delineation, having said that we do believe that they are a few opportunities outside of the three main blocks and as I mentioned I watch and yet is one backhaul photos and other one.
And the high yield us a third one so we will keep investing in but less heavily in some other shale areas outside of the three core.
Okay. Thanks, just a follow up is it how do the returns vary based on.
Their whole range here for all of these categories, but on the average returns in shale investments versus.
The conventional.
Frank as you know, we have never disclosed or expected irrs for any of our projects.
So that we have a cut off rate of 13%, but I can tell you shale projects have expected returns well above that that kind of rate.
Okay. Thank you very much.
[noise] from credit Suisse, we have reduced Cardoso. Please go ahead.
Hi, good morning. Thanks.
More for the very a in the presentation.
So I mean, a bit of abuser, who we hear me.
Reasonably quickly.
I've been very easy for white.
And I think you've done a extra ordinary job in keeping.
When.
No and maintaining.
Let's turn the control so really the point I want to understand the to report on that front going forward.
How much capex what.
Do you have and how do better with the.
Compare to your plan on up recruiting the rigs.
What kind of people are using for 2020 guidance, where do you believe to be the capex required to maintain production.
Uhhuh Oles question, if you could comment on on the Capex from.
And then just another topic.
How do you plan to rollover the animal feed ingredient costs.
I'm, referring to reach maturity, knowing the market from 10% comparator average cost about seven Uh huh.
Is it rollover the trade financing is good.
Over the bank loan.
And your go to market divest assets through you know make some liquidity without having to tap the market.
So if you could cook.
Your views on how to maintain be let's call the financial health.
<unk> balance sheet strong.
Good morning Regis, Thank you well to elaborate further on Capex.
Top of what we just described on the Frank said.
I think that this level of $2.8 billion of Capex is really one where we feel extremely comfortable we can we can fund we can finance right. There is always flexibility and I think the perfect. Examples what we did in the fourth quarter of last year, when very rapidly we reacted and we cut capex.
The company's intension is as not to cut Capex a further I think that we're doing that will.
Imply.
Touching the bone okay.
We already dealt with a fad, we're dealing with some of the muscle should not great, but we're definitely not wanting to touch the bone right. So I think that we are a level, which is which really sustainable but as I said if things get worse.
Worse, there's always adjustments that can be made and I think that.
We have our track record of for making those adjustments so when necessary.
In terms of the debt question.
So far we had we have a leaned towards in the past leaned towards international capital markets that means that bank loans local market and to a lesser extent that trade finance.
Where segments virtually unused for us okay. So what we're doing today.
Because frankly, 10% rates to me is the same as a market close we are not issuing debt at that 10%. So we are issuing in the local market actually a couple of days ago, We announced really small but that we are issuing dollars at 5% to 6% locally and we wish in pesos.
Then we are rolling over trade as I said and still we have not.
Going to the banking market, because we don't feel there's there's a need for that the 1.3 billion dollar give or take.
Maturities that we have this year a signature you explained what came due in January and February we very easily either rollover rolled over or replaced when we thought that there was alternative which was a more.
Cost cost efficient right. So we will continue dealing with this and this way and we do not have any intentions in tapping international markets at this market there is.
Thank you know if I may just a follow up.
Cannot be on the Capex phone I understand we were very comfortable with her.
Financing plan.
On a 2% would already be assumptions behind.
The plan I mean, do $3 billion, but our guidance what sort of oil price level or you maintain and maybe I mean, you could get some production growth.
The lower forget it correctly.
I really views on how low could you go in Bloomington burden.
Well and.
We were using for crude oil projects $60 per barrel Brent estimate obviously now seems.
Really high was not that high a month ago are sold but anyway. The good news again is that where we are investing especially when we speak all the shale is in projects, which are already in development mode, meaning that the breakevens that we look at other breakevens of the new wells by.
Being drilled in those existing blocks and there is where the breakevens are really low okay.
The.
More difficult today with a brand that are below 50 answer I saw on the screen. This morning to make a final investment decision on our brand New shale development, where you have the facilities you have the learning curve and and probably the breakeven needed for a brand new development as much higher.
On the one that we are seeing.
In the Thirtys for the existing blocks, okay. So what I'm trying to say without as obviously higher the international crude oil prices the better but still at these prices. The investment decisions had we have made in a shale.
I would not differ from those that we would make today with.
With that.
That knowledge now I did mention that we expect oil production to go up 2% this year.
If your question as well how much Capex you can actually caught in our three oil production flat, we savvy, 2% growth I really don't know, but it will be a very limited the reaction needed for that so as I said previously this is not about growing oil production might.
2% or being flat this about pursuing only profitable projects with like capital available that we are foreseeing at this stage.
Thanks very clear.
From Europeans, we had Luis Carvallo. Please go ahead.
And then again, thanks for taking the question.
For me three questions here. The first one on slide nine you just mentioned about the.
I'd like to move a couple of the transactions in more than two bottles per acreage.
This is kind of recruiting question from my end in terms of what needs to be the potential divestments from the company I mean, maybe if you look coming over the next 12 to 24 months. If there is something that you consider or due to the current economy environment in Argentina, that's something that you should we had a bit more so just an update.
Yes.
The second one.
Just to understand and.
I do I can say.
The single limitations that you might have to answer the question but.
When you look back to 2019.
You chunk of the year actually in the entire year you were below the import parity right. So now you're back to your renewal of teaching neutral position. So of course it depends on several other note several assumptions, but how do you see.
The year to be parity or scenario for for fall 2020. Thank you.
Okay.
The other second Luis and translate your question internally.
Okay issue.
Well.
Sorry, it took us sometime to.
Two over your question internally.
But basically your first part of a question has to do with M&A and what we expect to going forward and if we believe that a state offers in Argentina in any way negatively negatively impacts our possibility of our of doing more this is Mike I want us why that we understood.
And.
Let me tell you two things on the war on hand, this transaction of Andrea just happened a month ago, and our 11% stake transaction happened today last night actually so clearly our people are willing to invest in high quality assets today.
Our values, which were much higher than those that we've been seeing in their transactions over the last five years and frankly this.
Proves our theory, because we've always said that we did not one too.
Dilute our asset base too early and therefore are lower valuations.
Again Pandora is a perfect example of how we de risk.
Blog.
Other People's money and we created value of course, the other investor also created value, but we created value for the rest in a way that we all or most people would have not a thought about I mean at the value that we are selling our 11% stake the block is worth over $900 million just one.
Block, our third block well behind the first.
Two blocks in terms of production so.
I think that there is a market if we want to access of strategic investors in Vaca Muerta now.
Are we working on a potential transaction on we are not working specifically on our transaction, but they are a couple of fields that we plan to bring production next couple of years that we are.
Discussing with different partners as we always knew this is our dynamic process and we I have to tell you we've never had.
I lack of interest.
In terms of potential partners to invest with us in Iraq and Walter So.
Not bottomline nothing imminent to announce but it's looking good in terms of what we have just seen and what we expect to see in future.
Right.
Quite frankly, I had great difficulty in understanding your question.
Hi, My guess is that you made a question about expert part D versus improve party and what to expect for next year.
I don't know I go back to.
To my formation us as a professional economies and quite frankly today.
Im waiting for news from Vienna two.
To see what happens if Russia gets to an understanding with Saudi Arabia route.
What.
Can we expect about international prices I think we are.
Discussing xplore.
Priority or input part D.
Very very shaky time item.
I don't think and I don't feel comfortable elaborate in further on this.
Is very unfortunately, but I think we are all I'm sure that most of you share my view that we don't have enough information.
As to confidently make projections.
For the coming months of for the rest of the exercise.
Just answer your question because to begin with I didn't I didn't fully understood. Your question.
Sorry, if on the mix a question a different way I'm not I'm not asking for the projections about the FX rate or the.
When prices per say I'm, just asking how you've seen that why Pierre will address.
Into formal this volatility from the two different variables through the course of 2020 because clearly.
2019, the company was unable to follow these will attribute teach from different variables. So.
Just trying to get a building better sense on on how do you think that by 2020 onwards.
I mean, we should see a bit a bit more correlation between the domestic prices.
Yes International process that was my question sorry from is not clear in the first one.
Well in maybe the case certainly in maybe the case in particular with this very low prices we are.
Looking in international market in May will be the we get to a situation in which domestic markets are more linked to international prices.
But as I said you know with.
This level of I will say volatility but.
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Dunson slide we're going through.
I don't feel confident us to us to lower further on this but it's possible it's possible that as you imply I think.
We will be more domestic prices will be more connected to international prices.
Okay. Thank you.
[noise] from Raymond James We have Pavel Molchanov. Please go ahead.
Thank you for taking my question.
You said that there is almost no gas activity in Argentina, now by by you or by any other producers.
Does the government understand Ness and is there any suggestion of.
Our creating.
Revising the.
City program.
From.
Similar for example to 2017 that would incentivize.
Operator to begin investing in gas once again.
Thank you Pavel Yes, I, maybe Oversimplifies I said it also give it is clearly no activity in again there is some very limited drilling activity in the south, but really limited and when I say there is no activity in okay. It's not just assets.
At most of the market now.
Prices in Argentina for natural gas our market prices. The unfortunately, okay, because we are in.
Oversupplied market, Okay, and Thats why consumers in a way our profiting from oversupply and the alternative of import as you know because you follow a closely LNG global market, it's not as the year asset was in the past okay.
So.
I think.
The one difference to a few years ago is that shale gas development, Argentina doesn't need any subsidies.
And the subsidy program in place actually goes away in 2021 or two into any do I'm not sure.
I think is starting to anyone.
And that we Havent heard of any plans of renewing any subsea program because again I don't think theres a need to renew subsea program now as I said, we are these are not get prices today over supply at some point not very far from today, We're gonna go from oversupply too short of supplies Ok.
And I think prices at some point will stabilize above where they are today and I think that's the way. We're looking at that's why we said Allison we have plenty of natural gas opportunities each and every well we have drilled in vaca muerta with natural gas objective has had very positive results. So we were.
I don't see we're not.
Uh huh.
Eliminating in any way that prospects that we are not writing off our opportunity for natural gas for the future. All we're saying is we need a slightly higher price and a lot more important that prices, we need certainty that we're going to be able to sell our gas 360 days a year.
Another 180, so that's that's what we're looking at I think everybody understands locally the government the rest of the players.
It's just a market in a in transition.
Understood and then following up on that last fall at the Analyst day, you talked about.
Growing production on average 5% to 7% per year over the next five years, obviously that will not happen in Twentytwenty are you still anticipating.
Accelerating growth to that 5% level.
In 2021 and beyond.
I think so bother.
As as we said we with all the capital restrictions, we are going to we expect to grow crude oil production by 2%. This year. So we have all the comfort that we can grow 5% or actually much higher.
Next year now with gas is strictly because the easy answer as to your question SCS too, but from a much lower base, okay, because we're going to be producing.
35 billion cubic meters today, and this winter where two years ago, we were producing 45 million community. So can we grow 5% per year for out of our 35 million yeah definitely.
But the base as lower than a than before so all we are doing when we make a restriction decisions on capex STRI not to affect there's always some affection, but try to affect the less the growth the long term growth prospects, Okay, and I just I think.
They continue to be there from the last analyst day meeting to today, we can tell you that productivity of our wells as higher costs are lower.
So there's no change in.
In the strategic direction that we outlined at that point and I do believe that though we can grow at or beyond those levels, although we're not providing any long term goals.
Guidance today.
Okay. Thank you.
From Citigroup, we have Pedro Medeiros. Please go ahead.
Hi, good morning, guys.
Have a couple of questions most of them into your shale development plans and results.
Let me start with.
A question on how was the performance on the fourth quarter. So considering the only changes in volatility in FX oil prices and production resuming growth in some of your core assets would you mind sharing or give me some reference of how has lift lifting costs behaved in your core.
Our she'll developments, okay, given a disclosure before so just wanted to understand how.
Those variables has impacted lifting costs in the fourth quarter.
My second question is if you can give some business plan updates for the development campaigns in closer to you and crusher three I think.
You have already collected some results from drilling color closer to so if you much sharing some color of how those results look like.
And.
I have a third question around production now thank you very much for the schools and results on your your per Sherry.
Hello.
Very interesting and I just want to make sure I'm looking at it in the right way to disclose an investment of $160 million for an expected incremental production of 29 million barrels so present the development costs.
On the marginal basis for these projects will be around five to $7 a barrel.
Is there any meaningfully impacting operating costs.
Those are my questions.
Thank you.
Hi, Pedro well, let me start from a the last one.
Yes, the yellow and cost for this initial deployment of Youre is very low okay address the low hanging fruit also okay. So we cannot necessarily extrapolate this 200% of the our opportunity and as you know they are economics are really different to the shale.
The Capex is lower and the Opex is actually higher because of cost on the polymer okay. So.
I think to to get deeper in terms of the economics.
We need to wait sometime all we're saying today is less than we made a decision a year and a half two years ago, we delivered in terms of making the investment plans.
And the good news is that the initial reaction has been better and as I said faster than originally explain and that probably speeds up the decision off.
Duplicating doubling what we have done in tertiary this year and that's going to be on investments within 2020, and 2021, but frankly only scratching the surface most of the polymer injection plans have been operation just a few months.
So it's not worth getting into into more detail in my opinion, what we will commit as to continue to provide quarterly updates. So everybody can and actually see this opportunity is a huge as it could be or not okay. Andy I think I will.
Say is the breakeven as for you are that we are seeing are consistent with current crude oil prices. Okay. So this is not something that we need much higher crude oil prices to make it work okay. That's not on the Youre.
On the cluster on the north.
We have done a lot more than what we disclosed last year, you know that we have two wells in operation in buckled auto those wells are producing very well at or above the well type curve. So.
That they are we're very comfortable we are already drilling a six well pad in buckled auto or about to start drilling. These days. That's all we're going to be doing this year and justice six well pad.
So hopefully in the second half of the year, we will have that information to see if the encouraging results on the first part can be replicated in the best of luck.
We've also drilled a few wireless with less and compelling results so far.
Of course all of them.
Total soiled, okay, because we know that source rock is there by the productivity is such that with current costs and Opex and Capex sorry, it's probably they probably go to the end of our priority list and the we're not going to be pursuing in the short term so I as I said.
When they respond to Frank Spencer, beginning we are going to be doing less piloting this year and therefore.
We're going to be gaining less information this year regarding other blocks that are not under development, but.
Bottom line is at least we have a block up their buchalter with a very very encouraging results and where we have a great partner, Ecuador, and we have jointly side to continue piloting that block.
Now finally, your first question in terms of lifting costs for the shale.
Below $6 per bar, Okay, and it's 15% below 2018 so.
Lifting cost or Opex generally this is more opex, which is actually higher the lifting cost looks very very promising on the shale that that's not an issue. We also said that development costs is also looking good below $10 of our Loma Campana in the low teens in America, G. Kum, Andrea and there's no reason our long term.
That the numbers for Lamar actually come Andrea should be different than those of us like Atlanta.
Perfect. Thank you so much is very useful information.
I I have one last question around working capital.
Just as you get a sense. If you are seeing any change in the pace of Weicheng receivables free on natural gas sales and around your gas and power business again is and if there is any changes that concern for white, yes.
Pedro the there.
Most significant improvement in working capital last year had to do where the collections solve the old subsidy program for natural gas pipeline gas, we still have collections. This year. So we should also experienced positive working capital. This year, we have not seen any negative.
Significant at least a developments in terms of collections for for our sales generally and I think you probably referred to power natural gas sold to two CAMMESA to the power sector. There's always there are few a base of delay here and there but nothing.
Into a for us to worry about so far.
Okay. Thank you so much.
From Barclays, We have Andrew to Luca. Please go ahead.
Yeah, Hi, guys. Thanks for taking my questions are the first one is for each animal I was wondering and sorry to follow up on this but given your clothes linkages to the current administration is there any discussion that you guys are having with them about diesel and gasoline price increases in the near term and just generally how should we think about this and how it ranks for importance for Argentina.
At this stage given the recent downward move and international prices and then and then for that I have two questions for you going back to have a question on working capital I was wondering can you just let us know what happened to inventory and payables line during the fourth quarter. It was a pretty big contributor to liquidity.
And how should we expect us to behave for for the remainder of the year and the second question that I have also as you mentioned that there is no intention to cap on the capital markets at 10% yields.
But you also mentioned that your intentions to address at 21 maturity. This year. So the question is if the sovereign restructuring drags on and given your bonds are you willing anywhere from 10% to 12%. What other options are you guys considering to address the maturity if tapping the market a 10% in about isn't an option.
Yes regarding your first question.
You should keep in mind that why Pf, although it has.
Our government majority it is essentially a private sector company.
So we don't shape up.
Policymaking.
Okay.
Government policies and we'll do the best and we do the best we can.
From a private sector perspective.
Of course, this does not ignore that we give feedback to the government regarding where to go on how to go on the energy sector, we do that no doubts about it.
But we are not the signing the policy, making up the government. We are takers of the Paul policies implemented by the government.
Many of whom are under.
Our discussion internally quite frankly.
Things are not.
I would say is not the.
The last.
And final touches of policymaking, what we're seeing today. This is something that is is.
Our work in progress lets say, so we'll see how things trip up but essentially.
Although obviously I come from from a political.
Appointment.
My work is essentially a pro sector work.
Oh Andreas Ignacio.
Concerning inventory.
Yes, it's true that this quarter, we saw significant difference compared to previous ones.
But I would say that this is due to.
That we do India, we had been increasing stocks.
And they were consuming our.
Our biomedical PERCIUM and agency that we as a habit positioning in the gas flow because of less brother imported okay. You today the price increases a bright we try to minimize.
The imports.
So looking forward, we don't see that this would change and if you see the whole year anime fact, incenting 19.
It was quite by themselves when it when they should be as MK.
Lastly, a question regarding capital markets and it's a good one I.
Nobody knows the that 10% taxi deal that you see today is gonna be the same yield in the remainder of the year right all I'm, saying yesterday, when we look at a market and there's no need for us to do anything because we don't have a maturity for the next before the next 12 months, we decide not to do anything at the at these levels.
We have always if you look at our history of Alaska or at least assign around for last ideas. We've always been very opportunistic every time a window of opportunity opened and we were in need of financing. We were the first out there and I think that the in all we did extremely well and that's going to be a same.
Behavior that we are going to be pursuing this year, we are more entering the market or on an hourly basis and when we see an opportunity to deal with.
Future.
Maturities, we might decide to to deal with them early on and if there is no opportunity to deal with them early on we will deal with them at maturity, but frankly running a company with excess cash remember that we have more than a billion dollars of cash remember that we put together.
Plan that is a cash for at least Castro negative if not positive for the year. So we we feel very comfortable that we are in very good position to deal with this at the right time, what I cannot anticipate today. The right time is gonna be a few weeks down the road, a few months or closer to maturity.
Great. Thanks for answers guys.
From BTG, we have Daniel Guardiola. Please go ahead.
Hi, good morning, guys.
I have a couple of questions here.
My first question is on geographic diversification I want to Tonight, you have ever consider to actually invest in oil and gas assets out of Argentina in order to gradually diversified you your geographic geographic exposure.
That's my first question I. My second question is regarding the performance of Weibo shares we have seen Notacon Darby stock outdoor market collapsed and I wanted to know your thoughts on potentially putting in place our buyback program. So those are my two questions.
Thank you Daniel Yes, we have many times considered but frankly.
There's no.
Point on us with a competitive advantages that we have in Argentina that we have developed in Argentina and approve of that is how majors and some of the best players in the world Carmen and give us money to operate for them.
We don't have those same competitor advantage is outside of Argentina. So.
So I'm trying to maybe in the future we well.
But it's definitely not the case today, a and B. We have limited Capex. We are very good part of the a call today, explaining why is it that we are limiting capex for the year and that we have more opportunities to pursue than the ones that we are actually pursuing today. Okay. So I think that we have plenty of.
Food in our plates and Argentina for the short term now we are doing some studies of unconventional us outside of Argentina, Okay, and I'm not going to be elaborating further, but we are doing studies because maybe in the future as we have become the largest shale play outside of the U.S. maybe in the future we can replicate those comp.
Got it advantages that we have in Argentina elsewhere, but it's not something which is at the top of our priorities today.
On a share price I can tell you a this is high priority exam was talking to us a everyday about that it was a big part of our board discussion yesterday.
But again in this situation in which we are trying to preserve capital.
We probably don't think that as the best use of that capital again over the short term is how buyback program, but it's definitely something that is always out there India in the works for us and that if time comes on the and the financial situation improves its something that we will seriously consider.
Thank you ran.
From Goldman Sachs, we have proven to avoid please go ahead.
Hi, good morning, So perhaps your question on the first one I just wanted some help to reconcile your guidance, you're guiding for flatten that that which implies.
Breakeven at the free cash flow level roughly.
While you're guiding for $3 billion would be tragic bid louder. Please.
Can you hear me well.
Got a bit louder. Please here can you repeat.
In louder, Yes can you hear me now.
Sure.
Well.
Okay sure. So my first question I just wanted some help to reconcile the guidance you are guiding for flatten that that which implies on breakeven at the free cash flow level. Why are you are guiding for $3 billion in EBITDA in $2.8 billion in Capex and if you have.
To service to that so.
Is it because you're assuming proceeds from asset sales or even the subsidies from the natural gas market and the second question you have already mentioned, where you are occurring capex.
I know, it's hard to quantify it impact on production, but is there any metric you point can provide us with in terms of every 500 million or every $1 billion left that you invest what's the impact on production either in the short or medium term I understand your two positive on production growth.
You know Verizon some impact right. So any metric you could provide us with would be helpful. Thank you.
Hi, Bruno well.
On the guidance question I think the answer to your question is two fold on one hand, and the most relevant is definitely working capital asset as being the case. This year look at what happened this year and you can replicate a good part of that next year and the other part of the question is today, we are announcing a transaction.
In which we are going to begin getting close to $100 million. In addition to that when Schlumberger exited they had to contribute to us the remaining part of the carried interest commitment and that is also kasriel coming in so.
The rest assure that we did the math, okay, and ER and we believe that we can have a.
Net debt by by the end of the definitely.
Now ill second quarters have very good one, but unfortunately, we don't have an answer to that other than saying that yes. There is.
And impact in production definitely, especially in short and production.
But as I said in one other people's questions I don't expect that impact to be meaningfully over the long term in a way it's like delaying the whole development, okay and so some over some of that production that maybe a year or two ago. We were seeing in there in 2020 or 2021 moves out to 21 and 22, but.
But in terms of the opportunity out there the size of the opportunity that hasn't changed at least not a negative a way because as I said earlier every.
Well, we drill every advance we make we would just improve our projections going forward.
Thank you very much.
From JP Morgan, we have Barbara Halberstadt. Please go ahead.
Hi, Good morning, actually all my questions have been answering so thank you.
Yeah. It from Morgan Stanley we have gear Bloody. Please go ahead.
Hi, Good morning, I just wanted to know if you could comment on the discussions regarding the new build to protect your investments in document.
And if like like a company if you have a wish list of factors that should be.
Explored units and a second question if I may if you can only repeat dickering discount the feels to us gasoline and diesel to two international parity. We did not here is well when you commented it. Thank you.
Okay regarding your question about the bill.
I think I took care of Dodd with my previous intervention in the says that we are policy takers and say, we're not draft in policy for the government at the initial stage, we contributed myself I contributed during the campaign.
The new view, but you know this is our government prolaris not our IPO problems. So we are really.
Waiting for four announcements on on that respect.
We don't have much too to add to what you can Ah reading the press of Argentina regarding this.
And leading Jerrome. Your second question regarding a discount prices what I said during the presentation is that our diesel prices are now are in no need of any further adjustment.
With Brent prices in the 50 dollar range.
And gasoline prices on their hand still have some catch up to make which we are estimating in the 5% to 8%.
Area.
Great. Thank you.
Yeah No further questions at this time, we'll now turn it back to our speakers for closing remarks.
Okay well. Thank you very much everybody asks are usually ignacio under and steam are available to follow up on the any further questions have a great weekend.
Thank you ladies and gentlemen. This concludes today's conference. Thank you for joining you may now disconnect.
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