Q1 2020 Earnings Call
[music].
Welcome to the Q1 2020 associate and only my S. Eight earnings Conference call. My name is Richard and I'll be your operator for today's call. At this time all participants are in listen only mode. Later, we will conduct a question and answer session. During the question answer session. If you have occurred.
Question. Please press Star then one on your Touchtone phone.
I'll now turn the call them because here's your Georgie you may begin.
[noise]. Thank you good morning, ladies and gentlemen, my name is set to kill Jody Vice President Dr. I did you business development and Investor relations with wipe yet.
Thank you for joining us today these locations, where we put a sand wipe, yes to south and I'm 21st quarter results.
Before we begin used to review carefully the cautionary statement on slide two will be making forward looking statements doesn't refer to our estimates plans and expectations that could differ materially due to factors. We note on this line.
Also note that exchange rate calculation used to reach our main financial figures he's in U.S. daughters.
You will know by now we're currently in the transition period between Coos at the company.
So before starting the presentation, who would have some brief comments by you ceremony isn't quite the F. chairman and circa front. The then USIO and then both Ignacio Sanyo head of IR and myself will be conducting the presentation and answering the questions basically general go ahead.
Thank you Sir zero for your introduction.
Welcome.
Thank you very much to overview the best source there are listening to you today as well as the media there's covering this meeting.
During the reason why P.F. shareholders and real meeting, which replaced two weeks ago I had the biggest how that could be pandemic and the drop in oil prices was affecting our operations and strategy I know who have quickly reacted to serve our cash flow and the value of our company.
Well.
Switch steps, we blend to take once the scenario standardized in order to keep delivering products to our clients and creating value for our shareholders.
The speech I gave a dot shareholders meeting.
I was with US the rest of the meeting documents are available on our website for your reference and things have not changed done much since last week. So I would rather direct you to to looking at this material.
Our website.
No I am proud to introduce to you the newly appointed CEO Mr. says you are from deep.
Which.
We'll be conducting the company on a daily basis.
Facing a scenario.
No there scenario in the history of do all and gas industry, but I'm very confident that search your.
Joining the management team will be able to successfully deep why be ETF. During this time.
I will leave you with him so that we can move on to their first quarter earnings. Thank you very much.
Many thanks and good morning, everyone.
We are going through unprecedented times, given the carbon 18 pandemic.
So first and foremost I was that you and your primary it's always things safe.
After 27 years in the oil and gas industry.
Having covered several amazed with the management positions, both internationally and Argentina.
I'm thrilled to be back and why we have.
The company in which I started my career in 1993.
Onto the chance to work again with so many wonderful people that I have seen grow over the years.
I've been here for a little more on a week now working closely with Danielle on the rest of the management team to ensure a swift and effective transition to take the actions that are necessary in the current environment.
One of my most important tasks.
Historically defined the company strategy that will build on a strict capital allocation process.
The ones who are sustainable growth.
The leverage in the company to strengthen our balance sheet.
We cornerstone of our strategy.
Where are you finding the company's strategy will shortly required modifications in our organization.
We will go back to basics reevaluate our portfolio and generate debate is for future growth.
By focusing on our roads, I think highly efficient world class oil and gas operator.
By doing so I am confident that we will become a company that is more solid resilient anatol industry leader with a strategic relationship with the Argentine government. The province is on all our stakeholders.
We are uniquely positioned to leverage a large scale resource with both conventional and shale development.
With a strong foothold in the domestic market would grow in energy needs.
The opportunity to lead the way to transform Argentina into a net exporter of energy aligns us with broader interests of the industry and our country.
In the current environment with low commodity prices on a depressed demand I'm not shy put touch this point I'm fully aware of the company's current situation and you're going to need to improve efficiency across our upstream and downstream operations.
Both in Capex and operating costs.
We need to become leaner to be able to move faster.
I would like to thank you Danielle on behalf of or why be happy employees on our board members for all these years of car work and education.
First as CFO and then.
CEO.
And we always him the best in his future endeavors.
I look forward to building a strong relationship within better community.
We will certainly have time over the next month to get to know each other better.
Because I have only been here four week, I apologize, but I will not be answering questions today.
Please turn to he'll go ahead.
Thank you I.
Sure No, we're leaving an impressive situation with an outbreak of the current idols pandemic. Therefore before moving to the main highlights of the quarter I would like to share with you. The three main action lines that we have taken to cope with these challenging situation.
As we always say protecting our people is not a priority, but it is fair value for this reason one of the three main action lights, we launched is related to the safety of our personnel clients suppliers communities and operations.
In order to ensure we take decisive actions in real time, we're creating an AD hoc copied committee led by our vice President of environment Health and safety.
These committee is coordinating all actions and protocols on a daily basis, we are following strictly health and safety protocols and updating them accordingly.
The result, so far are impressive and we're very happy to our plan ahead and invested accordingly, so that more than 97% of the positions that do not require face to face attention having field through remote work connecting with each other use in top technology and just maintaining a few skeleton crews.
In the field and sites, while maximizing the use of Offsite contra rooms.
The second actual line is linked to adapting our operations, we define a business continuity plan in close coordination with a different business units.
Here too we have been very dynamic as we manage stop him very quickly and in a safely manner, all drilling and completion activities across the country.
We are sure early storage capacity for the excess oil and refined products for crude oil. We hire three barge is a very competitive rates securing around 1.5 million barrels of additional storage capacity.
Besides we stopped purchase in order to third parties on adjusted our production on a refinery utilization to the demand by operating only two of our three refineries.
In April the evidence utilization was 47% without processing crude are the plus or winkle refinery.
Fortunately as of last week due to the recovery in demand will resume operations in plus or winkle on our three refineries are now operating reaching a 55% utilization rate as of last week.
We manage as well to explore crude oil our refined products compensating local demand reduction. Despite this context and following strict protocols, we maintain fully operational our retail network.
The third online is linked to preserving our balance sheet with strong focus on cash.
This copied situation fund our balance sheet with one point $16 billion of cash and equivalents in hand.
Of course, a link to the isolation measures taken in the country, our sales and therefore cash generation what effect it almost four on day to another due to the drop in demand.
The situation negatively impacted our working capital position, we still have disbursements to do for the previous months operations.
Indeed sales volume dropped initially more than 60% and our cash position was affected but he has now stabilized and the good news is that it seems that we reached a bottom in sales by mid April.
We start we already started to see an increase in sales of around 10 percentage points and we have not yet restarted activities for which we will adopt a gradual approach linked to the path or the recovery in demand prioritizing cash and also considering that we have oil and refined products in stories some curtailed production.
Even some drilled but uncompleted shale wells, we will see these impacts on the results of the second quarter.
Our search of said, we're working on identifying significant opex and capex reduction opportunities across the whole Albany and we're in the process of reviewing those with him.
These reductions will go on top of those were identified at the beginning of the year as we are now focusing more on cash preservation and growth.
In their financing front, we are working successfully with banks to keep on refinancing shortened maturities and top in the local market.
International will comment later on what we need in the quarter on how we are facing these challenging context.
With these I will let him Korean with a presentation will join back for the concluding remarks acuity.
Thank you Sir your first I would like to highlight that we maintain our commitment we actually priorities in this line. They injury frequency ratio improved again this quarter to an all time record of serial point 16 concerning our main operational and financial figures of the quarter. They were partially impacted by demand.
Sorry isolation measures implemented across the country in mid March Twentytwenty.
Production as we will show later came at a 510000 barrels of oil equivalent per day, which represents a 5% increase compared to first quarter of 29 team as we continue increasing our net shale production however, compared to the previous car you dropped 3% mainly assembly production services were not available mute.
They locked down and we experienced some losses human dose at borrowings.
Due to climate effects.
Regarding our could already taken price it averaged 48.5 dollars per buyer it almost unchanged quarter over quarter, but below last year's first quarter braces.
Consequence of the excess offer natural gas market prices were also below the previous year serialization price indeed, our selling price averaged $2.8 million per media meet you.
Including 11 cents of subsidies compared to 3.7 dollars per million video one year ago.
Regarding our main financial fear in dollar terms total revenues show a reduction of 18% year over year to $2.8 billion, mainly driven by lower demand at lower prices for our main products gasoline diesel and gas.
Adjusted EBITDA was down by 17% in dollars, maintaining EBITDA margins stable at 30%.
For 16, and I as 29 effects are not included in our adjusted EBITDA and financial debt. In addition, it is important mentioning that our adjusted EBITDA does not include well sorry on $4 million from next iteration of the promote of stem rochette stake demand or vessel following the sale of its stake to sell an equity in generate.
Twentytwenty.
Capital expenditures were around $600 million, mainly focused on our upstream business.
Finally, operating cash flows too strong a nice Henry and $61 million, allowing to end the quora with assuming our cash position there and the beginning of the quarter.
As mentioned total current production team fibers and higher than the previous year career, but actually on showed a minor dropped to 225000 barrels of oil today. It is worth mentioning that by the end of July 2019, we completed the divestment of mature fields that represent the an average of scope.
With 8000 barrels per day in the first quarter of 2019.
Despite being in our supply gas market, our gas production increased 10% to 38 million cubic meters per day. This is mainly linked to our strategy of regaining natural gas market share. Consequently, we were able to reduce the production curtailments from 9.5 million cubic meters per day in the first quarter of last year to only 1.1 million cubic meters per day this year.
In turn.
NGL production increased 8% to 45000 barrels per day, given the lower restrictions in natural gas production.
Moving now to shale as shown in the graph on the right production continues to increase every quarter and now represents 23% of our total production compare with 15% in their first quarter of 17 ending.
And then shale production reached a record high of 100 down 17000, various appointed equivalent per day, 63% higher than the same quarter last year.
Production at our three shale development fees increased during the quarter driving net shale production to 43000 net barrels per day as we connected had total of 22, new shale horizontal wells. This new production represents a 41% increase compared to the first quarter of last year.
In addition to those new whereas before the locked down we were operating with the 13 drilling rigs.
With which we build up on cereal inventory of drilled but uncompleted was 21 for shale oil and 10 for shale gas.
In fact, some of them are already fractured and only need to be connected once they loved down is lifted and it is safe to return to the operations and the market conditions are said, we can complete those wells and bring additional production. This would have reducing capex and how elevated production with shorter cycles of cash generation.
Chasing Doha downstream business until Argentina entered their receive you've looked down demand of our main products of this business gasoline and diesel was very similar to last years level for the month of shattering on February since mid March the fuel market was negatively impacted with a sharp decrease.
Leasing demand or 80% for gasoline while diesel volumes dropped by 50%. They didn't have with action was partially mitigated by wholesale with a strong agribusiness activity explained by currently harvesting season.
Sorry side gasoline and diesel sales during the quarter ended up decreasing 10% and 8% respectively compared to the first grow 2018, I said with equivalent in process get implacable.
We are seeing a recovery and volumes antibodies positive trend. We ended up April with Eliquis of 72% in gasoline and 38% in diesel compared to the same months of 2018.
Our aggregate market share during the quarter slightly dropped by remained strong at 55% in particulary market share for our premium products remained above 60%.
Besides global sales of other refined products such as said fewer people were also affected by lower demand driven by the shutdown.
However, we were able to increase our export volumes by 13% compared to the quarter last year.
With higher sales of fuel oil ambush in NAFTA among others as mentioned, we immediately reacted to the falling demand when they look down started and I chassis the processing levers.
Therefore during the quarter, we processed on average to carry on 75000 bars of rubber they without realization rate of 86%.
Now 90, <unk> from 191% in a previous core analyzing the core of figures with realization Irish 90% in the first two months of Twentytwenty, but then decreased to 77% in March however, when compared to the first quarter of 2019 that realization rate increased by 2% as last year volumes were affected by incidents in the topping.
The furnace of letting the share complex and power outages planned Hyundai crucial industrial complexes.
Moving to a chart on the right, we can see that gasoline and diesel prices were slightly above the prices of the previous square at a 90 day priests embrace it degree expired by mid November how we did some catch up with import parity and stay at those values.
Turning to cash flow the cash generation from Oregon operations in the first quarter of the year reached a total of nine cadreon $61 million Levered by the 851 million the rest of EBITDA on working capital collections here, we can see our planned gas 2017 collections that works council for approximately 75 million.
During the quarter.
Financial discipline is one of our key priorities.
During the quarter, our investments effectively paid reached $792 million almost 10% below last year squarely average levels. This capex payments Gary's contrarian $80 million from the last month of 2900 investment program blast $70 million of material re purchase for future.
Our Capex. In addition by the end of January Slumber shares sold their stake.
Bundled has soared to equity around sale, which triggers acceleration in cash of they promote for their initial interest at that block. In 2017, then our cash flow from operations was enough to fulfill our capex, although not enough to face interest payments.
During the quarter.
We kept the local market twice for an amount of approximately $220 million regarding three facilities, which our main back of much with this in the short term we have rolled over a considerable amount of them I have not seen anything nipigon reduction in those lines, our cash position by the end of the core is helping us to go through the currency challenging.
Scenario and we continue working on initiatives radius, capex and opex to strengthen our balance sheet.
When looking ahead the scenario is excellent our efforts will focus on growing our our shorter maturity as we have been doing for the last quarters, then more than half of our debt matures in more than four years. In fact, the average life of why be F. standalone basis, it's more than five on a happier.
Our target is preserving liquidity, we believe our nominal debt you seen manageable levels as our leverage ratio slightly above 2.2 times net debt to adjusted EBITDA.
Our proactively working in different financing initiatives, we're working closer with box seeing their support role over the banking facilities, when explaining them, our cash preservation strategy and the resilience. Our business has the facilities are quite atomised in terms of counterparties in between local and pouring lending.
What we consider our next fight significant debt in the capital markets is a $1 billion bonds. Due March 2021, our objective is asking for the last month rollover that maturity and market conditions, we still have almost a year to do so under this scenario. We are monitoring the market to do allow 80 management when conditions.
Two we met.
With late sat here, we'll say some conclusions remarks.
Thank you Ignacio.
As you can see our first quarter results, we are aligned with our previous expectations. The currency valuation force us to reshape our twentytwenty approach for this reason, we're withdrawing our previous Twentytwenty guidance.
During this presentation, we have shared with you. The three main strategic action lines, we have taken to cope with the some presidency duration. We will continue protecting the safety of our people clients suppliers and contractors as it is at this particular times that we need to stand by our values.
We will be adjusting capex and Opex, along all business units and corporate units.
We will continue adopting our crude processing levels to the man and stocks.
We will follow a strict capital allocation process investing in those most profitable ventures.
Finally, as we mentioned during this presentation liquidity and cash preservation and our priorities why do we will continue managing our short term maturities.
With that we'd like to address your questions in dislocation and considering that we're still working here just in our future plans looking at different scenarios. We are requesting to focus your questions in relation to the first quarter results. Thank you.
Thank you we will now be getting the question and answer session. If you have a question. Please press Star then one on your Touchtone phone if you wish to be removed from the Q. Please press the pound side or the hash key if you're using a speaker phone you may need to pick up the handset first the four pressing the numbers once again, if you have.
Question. Please press Star then one on your Touchtone phone and we're standing by for questions.
Thank you My first question on line comes from at least Carvallo WPS. Please go ahead.
I would want thanks for taking the call and welcome and good luck to be the new management.
Looking forward I believe it or you have to two questions. If I made the first one is trying to understand your liquidity position.
It doesn't trenching 21, the company has something closer to $3 billion.
In that expiring and with a cash position of close to 1.12.
Let's say from the first quarter right of course, you have a cash generation, but.
When you saw due to the last week in spine company was almost free cash flow breakeven, we thought it would be oil price at $60. So.
I just like you help to try to concede that we can see HGTV cash availability and cash generation first with the versus the data on the next two years the second question.