Q1 2021 YPF SA Earnings Call
Good day, and thank you for standing by welcome to the Y P. S first quarter 2021 earnings call.
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I would now like to hand, the conference over to you is stick today, you Santiago worsen it.
I our manager.
Good morning, ladies and gentlemen, the Houston deal with C&I White P. S IR monitor.
Thank you for joining us today in our first quarter 2021 earnings call I Hope, you're all continue to reshape.
This presentation will be conducted by our CEO Sudhakar from D. Our CFO 100 live on myself.
During the presentation, we will go through the main aspects and events that explain our first quarter results and finally, we will open up for questions.
Before we begin I would like to draw your attention to our cautionary statement on slide two please take into consideration that our remarks today in 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.
Also note the exchange rate using calculations to reach our main financial figures in dollars.
Our financial figures are stated in accordance with ire for us, but during the call we might discuss some no name for us measures such as adjusted EBITDA I will now turn the call to <unk>.
Thank you Santiago good morning, ladies and gentlemen, thank.
You for joining us on the call today.
First and foremost, let me highlight that health and safety for our people and business partners remains our top priority.
As the COVID-19 pandemic is still impacts our region. We have continued working under strict set of guidelines for.
For our employees and contractors to ensure the protocols continue to be follow on precautionary measures to prevent contagion or not relaxed now.
Assuring operational continuity and achievement of our business plan.
Going into the economic and operating results for the first quarter Ypa's has made a robust start to 2021.
One of our toughest D. A R behind on giving a step forward towards recovery and growth.
We have attained a solid rebound in profitability with adjusted EBITDA, reaching $767 million, increasing over three times sequentially.
And come in just 10% below the levels for it.
A year ago.
This improvement was mainly due to a significant comeback in demand for gasoline and diesel.
Higher realization prices and the materialization of cost efficiencies, resulting from the company wide cost cutting plan put in place last year.
We are now focused on fully consolidating these efficiencies, making each dollar spent significantly more powerful.
As we kept ramping up activity, we completed 48 was.
34 of which were in the conventional segment.
Resulting in the quarter with the most completed horizontal wells.
Since Y P. F has started the development of Buck on Watertown.
This coupled with averted unexpected initial performance on the recently connected wells.
Allowed for our total shale oil production was up by 20% sequentially.
Backed by our core hub where output.
Rick or high March on class already been outpaced outpaced in April have you seen almost 43000 barrels per day.
On the conventional side, we managed to mitigate natural decline and grow by 1% sequentially.
We continue to have very good results by a play in both secondary and tertiary oil recovery methods.
As an example production at the mine until it's where 90 year old block continues growing and achieving new records.
With the additional production for tertiary recovery routine for 8000 barrels per day in the first quarter and even higher fiver for 4000 barrels per day more recently in April.
As a whole total oil production expanded by 4% on sequential basis to 208000 barrels per day in the first quarter being well on track to meet our guidance for the whole year.
Despite recent the recent options originated in the 20 day blockade in the province of Neuquen, which partially affected our operations and investment activities in the region.
On the back of this positive start of the year, our financials, it twice and improved beyond our initial forecasts.
Despite moving forward with our investment plan for the year, we delivered positive free cash flow of around $218 million.
This in turn allowed us to reduce our net debt during the quarter down by over $300 million routine six or $7 billion a level not seen since 2015.
The first quarter provided encouraging results, making us more confident in our ability to fully execute our capex plan for the year and in turn achieve our production targets. Nevertheless, the near future remains challenging.
Moving on future mobility restrictions on the back of the evolution of the pandemic as.
As well as macro volatility will probably continue to pay the general business environment.
Choir, and us to be even more focused in consolidating them for identifying efficiencies to become leaner. While we remain quick to react to the evolving landscape and keep on delivery delivering value to our shareholders.
Let me end by saying that I am, particularly proud of our employees.
The commitment in the airports I also want to thank our clients per day fidelity on our investors partners and suppliers for their continued support I believe the challenges ahead are still many but I am confident of what we have achieved so far and this first quarter we present.
The first step towards getting back on a profitable growth cycle now I leave you with Alejandro who will go into further detail on our first quarter 2021 results.
Thank you Sergio and good morning to you all I will now go through our main financial results for the quarter debt, although still somewhat impacted by the effects of the pandemic had a solid recovery even beyond our initial estimates.
Top of the list our revenue jumped by 17% sequentially, primarily on the back of a very strong recovery in gasoline sales and improved net prices at the pump.
However, our revenues are still well below pre pandemic levels standing at minus 7% versus Q1, 2020, and then even larger minus 20% when compared to the same quarter in 2019.
<unk> net prices stood about 15% lower than those in 2019 and volume sold of gasoline and diesel although showcasing a very solid recovery. This quarter ended about 6% below when compared with pre pandemic levels.
On the back of the significant jump in revenues and adjusted EBITDA for the quarter total $767 million.
More than four times that of the previous quarter and just 10% below Q1 2020. These.
This result was further helped by the consolidation in Opex efficiencies, which declined by 21% when compared to the previous year, pushing our EBITDA margin higher to 29% in line with historical levels.
Based on these solid recovery in adjusted EBITDA, Despite being quite on track on the execution of our Capex plan, our free cash flow before debt financing totaled $284 million, allowing us to further reduce our net debt, which ended the quarter at its lowest level since 2015 at six.
$7 million declining by almost $900 million in the last 12 months.
Sumit <unk> in our cost structure as mentioned before and fully in line with our comments during the last earnings call. Our total Opex was down by 21% compared to Q1 2020, clearly the result of the companywide cost cutting plan launched last year and.
And going forward, although we still see room for some additional savings, particularly in relation to oil development costs at Bakken water. The main goal in coming months shall be to consolidate the efficiencies achieved so far making these savings long lasting.
More specifically during the quarter, we managed to further reduce our overall lifting costs to $10 $5 per barrel of oil equivalent representing a reduction of eight per cent compared to Q1 2020.
And in the case of our downstream segment, we have captured a significant reduction in refining and logistics cost per bottle, which were down by 12% year over year, averaging 9.3 dollars for each process Barbara.
Separately on the Capex side.
Although total capex for the quarter was about $50 million below the previous quarter.
D V D in the upstream segment expanding by 17% in line with the objectives laid out during our last earnings call in terms of focusing activity on the upstream segment, particularly in shale oil.
We have also managed to put this activity for more efficiently, which is particularly evidenced by the continuous reduction in the average development cost for our core shale zone, reaching an average of 10.2 dollars per barrel of oil equivalent in Q1 2021 dropping by 14%.
Year over year and in line with our full year target announced in the previous earnings call of 9.2 dollars per barrel of oil equivalent for the full year 2021.
Although total hydrocarbon production was down by 14% year over year in Q1, it expanded by 3% on a sequential basis.
The normalization in NGL more than compensated the decline in natural gas production together with a 4% increase in crude production and a more specific 20% jump in J D.
Furthermore, during April we have marked a new production record at our core shale oil half totaling almost 43000 barrels per day of net oil production, even despite the 20 day blockade carries out by health care workers in the province of Neuquen that partially affected our operations.
Beyond back for more than conventional.
Conventional production increased by 1% sequentially as we continued moralising pulling equipment and doing it in a more efficient way, while also managed to offset natural decline to secondary and tertiary recovery techniques.
It is worth mentioning that <unk> reached a new quarterly record with production, averaging 24000 barrels per day, increasing by 15% year over year. Thanks to the innovation and topnotch technology that allow us to improve deal recovery factor.
Particularly on AOR tertiary production at these field averaged almost 5000 borrowers per day during the quarter compared to just about 700 barrels per day a year ago.
This quarter. There was also characterized by a stronger pricing environment across the board.
For crude oil realization price average $50 per barrel, 3% higher than the previous year and 25% up sequentially.
Actually reflecting the rally in international prices.
However, this increase did not fully correlated with the rice of Brent as it transitions scheme has been agreed between producers and refiners in the local market to smooth out the evolution of international crude prices, thus minimizing volatility and allowing for a gradual pass through to the pump.
Leaving room for these recent level margins within the downstream portion of the value chain.
On the natural gas side.
Mrs would also higher both on a sequential basis and compared to the previous year.
This was the first quarter under the new plan gas scheme.
Our average realization price.
Was 2.9 dollars per million Btu compared to 2.8 dollars for Q1, 2020, and 2.4 dollars in Q4.
Moving into the next slide let me go a little deeper into the upstream activity performed during Q1.
This quarter based on the ramped up activity and now we're focusing back on water. We managed to complete 48 wells said, if all of which were unconventional wells and more specifically 25 in our core shale oil.
This is mark a new record in terms of quarterly completed horizontal wells in vaca <unk> ever showcasing our renewed commitment to accelerating the development of these world class asset.
At the same time, our social mentioned in his introductory remarks, we continued with our resumption in activity in a more efficient way, making each dollar we spend more powerful.
As a clear example of this we have continued achieving a steady improvement in monthly frac stages per equipment, reaching an average of 139 stages in Q1, 21, representing a 34% improvement compared to the average of 2019 and 24% higher than the average of 2020.
On the conventional side, we also continued to make very good progress.
Good example of this continues to be the reduction in pulling intervention time as total hours per intervention in Q1 came at 22% below the average for 2019 and 8% below the average for 2020.
Switching to our downstream business as previously commented demand for refined products had a very solid start of the year with a faster than expected recovery.
Domestic sales of gasoline and diesel increased by more than 5% on a sequential basis in Q1, and almost 4% when compared to the first quarter of 2020, when the initial outburst of the pandemic had a negative impact for about 10 days in March.
Nevertheless, when compared to full pre pandemic levels of Q1 2019 local fuel sales in the first quarter were 6% below while recent renewals mobility restrictions have further affected demand with preliminary April figures ending at minus 11% for gasoline and my.
6% for diesel when compared to the same period of 2019.
However, even though local mobility restrictions could further affect demand for refined products in the country strong international prices for both crude and refined products provide an attractive opportunity to compensate lower local sales with export demand something that was not viable in <unk>.
<unk> 'twenty as global demand collapsed simultaneously.
As an example in the first four months of the year, we have already exported over 400000 borrowers of gasoline to Bolivia. While we are also evaluating potential exports to other regional markets in coming months.
In terms of refinery utilization processing levels have recovered to levels very close to pre pandemic, averaging 273000 barrels per day in Q1, only about 1% below the same period of last year and the average for all of 2019.
Finally, with regards to prices for our main domestic refined products. We have continued with an active pricing strategy at the pump.
While the increases in the first quarter were primarily oriented towards compensating tax increases and passing through regulated increases and by appeals. The net effect permitted us to stabilize our net prices in dollars and more recently regained some margin.
However, our average net price is for Q1 'twenty one measured in dollars, although expanding by about 10% sequentially still stood about 11% below the average realized prices for the same period last year.
Going forward, our publicly announced by the President of our board back in March to provide predictability to our clients. We have targeted a 15% net increase during a three month period with the last hike expected at some point this month.
This should result in reasonable net prices in dollars that shall have their correlation with the gradual normalization of local crude prices.
Furthermore, the young May we shall continue monitoring the evolution of international crude prices as well as local key variables such as inflation and devaluation to define future measures in terms of price normalization, focusing on maintaining reasonable margin along the value chain.
Turning to cash flow the recovery and profitability during the quarter led to an increase in our cash flow from operations that more than cover our investments and eastern and interest payments, allowing for the possibility to further reduce our financial debt given our defined strategy of maintaining liquidity relatively stable.
This resulted in negative net borrowing of $246 million during the quarter and a total reduction of our net debt of $324 million sequentially, while maintaining our consolidated liquidity almost unchanged at about $1 billion.
Furthermore, we have recently negotiated a fully committed short term revolving credit facility with a local financial institution.
Nathan in pesos for an amount north of $40 million equivalent debt provides us with extra flexibility to manage our liquidity more efficiently and.
And in terms of cash management, we have continued administering our liquidity with an active asset management approach to maintain a fixed exposure within certain limits. While also considering the cost of carry of such strategy. As a result as of March 31st our net FX exposure related to our liquidity position.
<unk> at around 20%, even though central bank regulations continue to require all liquidity to withheld onshore for companies like ours that have regularly regular access to the official a fixed market for imports and cross border debt servicing.
Moving forward that profile, although we have already commented the results of the global exchange offer executed earlier this year during our previous earnings call. It is worth briefly highlighting once again the debt service relief achieved for this year and next one total in close to $600 million, while at the same time.
Smoothing out our maturity profile for coming years.
Looking forward with no major bulk maturities in the near term and with most of the maturing debt for the rest of this year composed mainly of local loans and bonds coming less than $250 million in cross border maturities and most of them trade related.
We feel very comfortable in our ability to efficiently rollover maturing debt and if needed for the local market for net new funding.
Finally, although we have managed to further reduce our net debt and despite the recovery in profitability seen during the first quarter of the year, our net leverage ratio calculated as net debt over last 12 months EBITDA remained unchanged at four nine times as the full effect of the pandemic is included in the.
Rolling 12 months use it for use for the EBITDA calculation purposes.
However, we expect net leverage to significantly decrease in the near future as 12 months Rolling EBITDA recovers provided that market conditions continue to normalize and no particular contingencies materialize.
Before taking your questions. Let me once more thank you and the whole investor community for your continued support.
Now we are open for your questions. Thank you.
As a reminder to ask a question you'll need to press star one on your telephone keypad again that star one to ask a question. Please standby, while we compile the Q&A roster.
Your first response is from.
You'll hear me Levi with Morgan Stanley. Please go ahead.
Hi, Good morning, everyone and thank you for taking my question.
My first question is on floating gas I just wanted to touch based on the receivables from the plan.
If the government is taking demo time.
What is the current amount of receivables outstanding and what options. The company has a J D.
The government they used to pay there's incentive on a regular basis going forward.
And then my second question.
NASA sales.
Carlos I remember that we have already discussed.
The Lady Al White P ethane to new from day, one remains intact.
I'll dwell has the possibility of a potential divestments from noncore mature fields.
Just wanted to understand the status of these studies and discussions with international players.
And the company's perception of the current appetite for investors to resume deploying capital in the country. Thank you.
Hi, good.
Good morning, and thank you for your questions.
In terms of the plan gas receivables.
So far.
We have accumulated.
In the first quarter about $10 million in in specific receivables.
From the government in terms of subsidies.
In terms of collections.
We have not actually collected on them yet, although it's a relevant dimension that regular payment scheme takes between 60 and 70 days.
Between the end of the month of the actual month and the specific collection.
So what we can say is that we are about the month.
Behind schedule.
We attribute that mostly.
And we hope that will be the case that we attribute that mostly to the.
Initial implementation of the program, which has some had some administrative issues and some back and forth in terms of information that had to be provided.
Two the.
Secretary of energy.
So but the good news is that last Friday last week the end of last week.
The first debt payment.
Note was issued.
Authorizing the treasury to actually pay for the month of January.
And that should be collected in there in coming days. So we expect once the process was finally fine tuned.
Debt collections for the following months, we will work as a as planned by by the scheme by day by the program and so we would expect no further D.
Lace in collections down the road, it's important to note that the first quarter is clearly off season.
So the amount.
It's clearly not not that relevant as I said for the full quarter.
Total amount of receivables interest in the order of $10 million.
So the first payment was he should the first.
Note for payment was he should last Friday for amount of just north of 160 million pesos and that is 75 per cent of the amount.
The amount that should be collected for January.
And so as I said, we expect the system to normalize in coming months in case.
A D D. Actual payment doesn't take place debt is an automatic scheme whereby producers can take once the payment.
The notice was he should.
Would she has happened already for January.
For the users have the right we have the right to actually.
Use debt payment notice.
Against the taxes that we have to pay different taxes that can be used. So this can be used as a credit a fiscal credit towards tax payments. So generally speaking one of the the payment notice was executed you have no further.
Payment risks US you can take that immediately to net out.
Tax payments.
So that's basically the day now scheme and we expect that down the road a D.
The flow to normalize in collections due to happen on time.
And then on your second question I'm, sorry will let sorry for two to answer on asset divestments.
And the kinds of things.
For soon and thank you for your.
Soon respect.
Respect for the potential divestments of phosphate.
And as we commented in the past.
Focusing on our strategy.
Capital allocation from.
In our core oil and gas activities.
In optimizing our portfolio.
And in that regard.
Cash generation through where they basically chorizo noncore assets.
Provide an additional capital.
To allow more rapid deployment of resources into oil and gas.
For.
Business.
A concrete example of this strategy is the sale of two real estate assets.
In recent months at.
It will provide us with a more than $50 million.
On the other hand.
And also.
As we commented in previous calls.
We continue with the Harbin Harbin active conversations with key international players for that.
The reality of entering into new for meaning agreements in Buckeye Morita.
However, it's hard to predict the weather closing of any new agreement might take place.
In the near future as valuation assessment seem to be well above.
And with respect to.
The mature conventional areas.
Along the same lines the other comment either.
During our last earnings call.
We're also working.
Although we're still is.
Preliminary stage when a group of sure conventional areas.
That might be subject to some form of divestment.
In summary, our strategy is to continue analyzing our portfolio non operating chronic fatigue asset.
And shall move for work with the monetization potential.
A potential deal volume has shown results.
Recently.
Tibet.
Hey, guys.
Operating loss for you.
An extra sciences from Barbara Halberstadt with J P. Morgan. Please go ahead.
Hi, Thank you for the opportunity and congratulations on the results.
I just wanted to follow up on your maturity schedule for the next.
Monsoon Julian for the year end.
Beginning of 2022, given D effects restrictions if you could just confirm to life. What are your expectations in terms of day exposure you have to debt restrictions.
Quint.
Come from D. Now for that so that would be helpful.
And also on that one day investment side.
There has been of course, a lot of focus and activity on shale and with a capex increase.
From the last quarter, but production.
Crazy not to the same expense I just wanted to understand from the investments that have been done this quarter.
And how much we're expecting it to reflecting future production towards the second half.
Are we should be booking at the.
Good day investments into other quarters for for it to increase you expect for second half.
<unk>.
Thank you Barbara for your questions.
So in terms of the maturity profile and coming maturities on the impact from the effects of regulation.
Well as shown in the presentation, we have a just a little bit less than $1 billion for the rest of the year.
Actually less win when taking out the April but let's say that from April to December around $950 million from a consolidated basis and then the first quarter of next year. He said is relatively small with a with just north of $100 million in in the coming maturity. So all in all it's about $1 billion.
For the 12 months period from April to March.
We feel.
Debt coming maturities are not a significant or that don't pose a significant risk in terms of rolling the dough sober.
You've seen that we in the first quarter, we have reduced the amount of debt in a significant way by about $300 million.
Probably the second quarter will be.
Relatively stable.
And then probably we will need to take some some net new debt in the second half, but probably not as we had expected in you know in our announcements in there in the previous call or the guidance from the previous call. We expect the amount of debt that will be required.
To be significantly less than previously anticipated.
In terms of FX restrictions.
We don't have a major maturity is exposed on that front.
No current regulations.
Provide for some limitations in terms of debt repayment until the end of this year.
But with some exceptions.
One of those exceptions are maturity is coming from liability management exercises executed recently.
To actually refinance coming debt. So the most relevant maturity that we have which is about.
Just south of $45 million.
On the amortization on our 25.
On March 25 International Bond will be the first installment out of that that was the one coming out of the liability management executed in July of last year.
But that that particular amount is not subject to the regulations as provided by specific exemptions from the central Bank.
So the reminder of the maturity is affected between now and the end of the year over year or about $25 million.
Composed of two installments on the bank loan on a cross border bank loan for for about $80 million. One 818, and then about $6 million from the local bond issued in card dollars. So all in all we don't expect any any major complications.
So those issues, particularly on the installments on the bank facility. The first installment out of that was already refinanced last December within a S. R.
Similar scheme and and so we don't expect the coming maturities in June and December for $9 million each to be a problem at all and then the bond maturity of $6 million in October again, it's only $6 million in the local market.
We then expect to face any any major issue to the to do to resolve that.
Then on your on your Capex question.
Clearly it's.
The relationship is not linear right first off for you.
You have about a six month lag between the time, where are you you put your investment into place and the actual production coming out but that is considering the full cycle of investment.
However.
You know on a regular basis you have a combination of a portion of your capex that goes towards completion off of.
Of our wells that were in the middle of the process as you know we've been commenting on the stock or the inventory of drilling, but uncompleted wells that we have.
That are coming out of the pandemic, we were having a stock off an inventory of about 880 wells.
We have reduced debt our debt inventory that backlog very significantly as of today. We have just 34 remaining DUC wells from from that period.
Although we have created new Butler.
Backlog from new different stages of.
Of.
Construction of new wells. So as of now we are at about a little bit north of 70.
Wealth in our backlog.
So that's why it's not very linear how you can translate that investment into production net.
Nevertheless of course, we you know the improvement in production primarily in our core hub in shale oil.
That was the.
Cash.
In effect from the completion of wells in late 2020 and also in during this first quarter. So I would say that about.
Close to 50% of the production production increase during the quarter or close to 5000 barrels.
But they are the result of the new wells that were put into place and in operation.
In recent months and the remainder is mostly reduction in AR in losses basically through pulling intervention and also the positive result from.
The evolution of our tertiary production at one <unk> net we have been commenting also in the Boston and our sales you mentioned and as was mentioned in the in during the presentation.
Up also.
In a significant way, particularly when compared to the first quarter of last year, right and going to about 5000 barrels a day when comparing to less than a thousand barrels a day in the first quarter of 2020.
Okay, I hope that Charlie.
Okay. Thank you Barbara.
Thank you. Your next response is from Frank Mcgann with Bank of America. Please go ahead.
Okay. Thank you very much and good day I was just wondering if you could give us some update on what you're hearing about the hydrocarbons law and what you currently think that will mean for white P. F.
And then maybe if you could also just talk a little bit about in the past you've had a lot of advantages being able to source crude when you need it in the local market I'm just wondering how that is today with the current pricing changes for the price changes have been made recently in the local market.
Okay.
As you know President Alberto Fernandez.
Has publicly stated.
Pension, 2% new hydrocarbon law.
Promote investment the hydrocarbons in the country.
To Congress this year.
And also there have been active conversations between government and the industry.
As far as we understand there should be three main goals.
In the new law.
The first one is to to incentivize.
Further investment in the upstream segment.
Particularly in crude.
To generate the structural incremental volumes.
That will not only ensure that the local demand demand is met but further provides for extra production to increase exports.
The two D sand that we understand the project should contemplate the current team some meaningful export.
Export of oil exportable volumes.
Based on incremental production and grow.
One team some minimal access to.
To the foreign exchange market in relation to these exports.
The second goal.
The thing is.
To encourage the execution of hydrocarbon in the sterilization in the country.
Projects, such as LNG fertilizer, Sandra news, we find new Protract chore.
Through some form of tax benefits.
That in turn will contribute to substitute.
High value imports.
And generate exportable surpluses and significantly improve the quality of fuels.
And in the third.
The goal.
Regarding regarding natural gas.
We understand.
The loss should go beyond.
What has already been implemented as the new plan gas for.
And for postponing incentivize scene.
The production of gas under a scheme that allows producers to export.
365 days a year.
Enabling for long term contracts, while ensuring the supply of the local markets.
We think that this out.
For three main.
The goals that the.
Below us.
And with respect to the impacting Y P F.
Yeah.
<unk>.
As I mentioned.
This D C hydrocarbon role will provide the specific benefits to the industry for her.
Total and of course, who these include ypa for bundle of the oil and gas industry.
Some of those.
Could include the possibility.
To gain oil export credits that could be freely traded in the local market.
Long term contracts as I mentioned to export gas.
Plus incentives to enable oil and gas industrialization projects.
Currently in our portfolio scioto revolving for structure to improve.
Fuel quality.
Tom you were incremental production.
Additionally.
The law may include holistic revision of fuel taxes.
Just meant in a more proportionately way.
Linked to how price is evolved.
And of course, a specific focus on unconventional projects.
Accelerate production.
Enabling some blocks to grow from pilot stages to development mode.
With respect to conventional.
I think when we think the conventional production will be also considered with a specific benefit for additional production that reverts the natural decline of mature fields.
This is.
The conversation that we have with the government and also I guess.
As we move for for the industry, some conversations with government officials.
But of course on just to clarify.
Why do we have an active and constructive dialogue with the government.
For it is.
I'm not aware of the timing of the actual measures that the executive power.
I might end up presented to Congress.
Okay those are going to take.
Take the second question on your fingers here.
Okay. Frank in terms of your second question about our sourcing crude.
Crews in the in the local market.
In the first quarter, we had a similar percentage to our recent historical average India were off 20% I think the exact number with the precise number was 21%.
So roughly in line with historical averages.
Of course.
There is some pressure from local producers non integrated producers to push prices upwards.
Following closer.
The evolution of international reference prices.
But as commented during our presentation.
It's been a constructive on reasonable dialogue between refiners and producers in that.
Negotiation, We act as I said, we find are clearly based on our net.
Purchases of crude to third parties, primarily to our to our main partners.
And in that sense I think that is a general understanding that we need to smoothed out the evolution.
The rapid evolution that international prices can.
Because of the.
Difficulties to translate and to pass through those international prices to the pump.
In a faster way.
So I think there has been as I said recently, our dialogue a constructive dialogue, we managed to so far.
Negotiate with local producers.
Relevant discounts to export parity, but of course, it's a it's a dynamic process.
And that process also.
Most producers also have been having the ability to export the portion of the production.
Capturing the full benefit of export parity in that portion of their production.
In that way a set.
Sort of compensating.
The lower domestic prices.
I'm on the road. We expect these are these reasonable dialogue and agreements to continue.
As we move along the year clearly net in a difficult year in terms of macroeconomic environment and our ability to keep on adjusting prices at the pump of course.
Will will dictate also.
Ourselves and the rest of the refiners right the ability to push prices upwards.
The pump.
If international prices stabilize at these levels will continue to grow.
Of course that that ability to adjust price at the pump will dictate our ability to pay higher prices to local producers, but that is.
Still a very unclear we will we'll have to see how everything evolves down the road.
Okay, great. Thank you very much.
Sure.
Thank you. Your next response is from Marcello.
I'm Mario <unk> Credit Suisse. Please go ahead.
Good morning, and thank you for taking the questions I have two questions. Here. One is a follow up. So first question about sales volumes I mean, we saw domestic consumption are 10% above the first quarter of 'twenty 'twenty and almost split corporate for 2000.
19.
However, total sales were flat almost flat with <unk>, which reflects lower exports from the first quarter.
My question is did the domestic volumes fully recovered from COVID-19 and shouldn't you expect exports to stay low moving forward and the second question is a follow up question about Capex.
When you commented on how many drilled but uncompleted wells.
You have.
Our agenda for the quarter. My question is I wanted to understand if I mean, capex could be lower than the guidance or production could be higher.
The guidance.
For 2021 or I mean, if there's no.
This is not the case I mean your guidance.
This is Julian who place Fortunately, it's pretty well secured and for it for the questions.
Yeah.
Thank you Marcelo.
In terms of demand.
What we what we've seen in the first quarter was.
A faster than anticipated.
Recovery in in local demand.
Versus pre COVID-19 versus pre pandemic.
The the ramp up in demand that we had anticipated.
And we commented that in the last earnings call, we would expecting the full year to be about 10% to 15% below pre COVID-19 ending the year.
By December closer to 5% to 10% below.
Pre pandemic.
However, in the first quarter, we have seen a more rapid recovery.
Being at our yards as you mentioned in and probably closer to pre pandemic in the case of <unk> of gas oil on average and about an average 5% or slightly more below pre pandemic in gasoline. However.
However, based on the new.
Mobility restrictions imposed by the government and the bulk of the second wave of COVID-19 here in Argentina.
We've seen net in April.
And mostly.
Mostly in the second part of April and the first week of May is a.
It come back or a setback in that recovery, whereby we are seeing demand for gasoline and sales of gasoline probably closer to 15% to 20% below pre pandemic.
No not that much in the case of gas oil.
Because of the increased demand the seasonally increased demand for oil mostly agricultural.
The agricultural sector.
So what do I expect down the road, we continue to believe that our debt.
By the end of the year, we should be at about a 5% to 10% below pre pandemic. So we would expect the coming months tools will still have somewhat of a lower.
Demand scenario oil demand environment vis vis pre pandemic and then recovery probably.
By the spring.
One saprolite mobility restrictions, so I will start to be flexing realized but again D. He saw a very premature and and so we are we are sticking with this.
That by the end of the year, we will probably remain about 5% to 10% below pre pandemic.
And and in terms of Capex.
Production guidance, so far during the first quarter, we are slightly behind schedule on our total capex.
Versus what we had anticipated, although we expect to recover that.
In coming months.
Even though April was also a setback given the 21 day blockade in the probably soften again, which are affected partially affected our operations.
Primarily construction in that area.
So, but we still stick to the guidance provided earlier in terms of the total capex for the year.
And in that sense also in the guidance for production.
In based on our our estimates the first quarter came a little bit over our.
Our guidance or the portion of that quarter for our guidance. However.
Because of the impact that the April board, Okay, with having production and also these delayed.
Schedule for Capex.
We will then adjust broadly.
Probably the second and the third quarter will come a little bit lower than our previous plans and then being.
Fairly on plan for the full year, so basically in summary.
And not to complicate things so much we still believe that the the full $2 $7 billion capex for the year should be and remains our target and the same goes for total production to be relatively stable year over year.
However, being about 5% higher in crews and about 7% to 8% higher in natural gas when comparing the second half of this year to day.
Second half of 2020.
Alright, Thank you very much earlier.
Sure. Thank you. Thank you. Your next response is from Konstantinos Papalia midpoint day. Please go ahead.
Hi, everyone.
Good morning. This question is with respect to pump prices for diesel and gasoline.
How much room for price adjustments do you estimate for the next quarter.
Can we expect prices to recover to early 2020 levels and.
Second question again related with.
Prices with elections approaching on the third quarter and foreign exchange pressure on the peso how exposed easier M. P. D. A under a major devaluation scenario. Thank you very much.
Thank you Konstantinos tough questions that you ask.
<unk>.
Clearly.
Pump prices are.
Are hard to predict of course, we've been following.
The strategy that we've been commenting so far.
Trying to regain dollar margins.
Mostly as our international crude prices.
We need to rally.
We have continued with our active.
Strategy in terms of adjusting prices higher.
However, we are very cognizant of the oil delegate macroeconomic environment, particularly inflationary pressures.
So it's.
So that's why back in March the precedent of our board announced.
To provide some some visibility for our consumers announced at three months target.
Which you know.
It was for 15% in aggregate.
In brought in three in that was announced in three installments.
We have already performed two of those.
One should cup in NAV during the rest of May.
And so we are on target on that front down the road.
Of course, it will depend on whether you know the first of all the elasticity the price elasticity of demand and we.
We are back at more.
Closer to historical average is still down versus when you compared to the period of 2017 to 2019. The most recent years, yes, we are still down on dollar terms about 15% to 20% so theres still some room.
To recover a little bit further there are same.
Same when comparing to import party D. We are somewhere between 10% to 15% below import parity closer to 10, but of course it depends on the exact.
Exactly.
You know it depends on the volatility of international prices.
So going down the road.
Yes, we expect.
To to at least maintain.
Similar levels on the ones that we have today, although we cannot guarantee whether that will be possible.
And of course that will be pressured as I mentioned before from the price of local crude to push for further price improvements in the in the downstream segment sold us and pump prices so as to maintain downstream genes.
All of that is contemplating.
And definitely need in terms of.
The potential impact on our significant devaluation.
Yes, we are always subject to that and of course in the long run as have been demonstrated prices tend to correlate very well.
And maintain.
Sun reasonable dollar margins.
However in the short term.
Of course, our prices are in pesos right and it's positive win when for example, you know things happen like in the first quarter of last year. We are now winning international prices collapsed, our margins improve because and that allowed for the value. He can he or she also to protect the price of local crude.
But then the other way or the other side of the coin is when when international prices rally or when you have a significant devaluation of the currency debt is some lag to adjust our pump prices and then you have some temporarily.
Negative effect on your cash flow generation, but again, we don't know.
What will happen with the evolution of the effects and so far at least in the near future. We expect our dollar margins to remain relatively stable.
Well. Thank you. Thank you very much and again congratulations on very very solid results have a great day.
Thank you.
Thank you for your next response is from music you Fernandez with violence. Please go ahead.
Hi, good morning, everybody.
Yeah, Hi, good morning, everybody.
Thank you for the materials, it's always and.
Yes, it was great to see that turn around and help with congratulations so I have two basic questions.
Risks have been.
Already asked.
Regarding working capital cash sources.
I believe that you previously indicated in the last quarter that you could get.
500 million.
During this year.
The first quarter results do you think you will effectively need that much or should we expect something lower.
And the second question has to do with the current.
Discussion.
And Congress regarding Biofuels.
If you could tell us a little bit of what you think it's.
Healthy biofuel cut for diesel and gasoline for the industry.
Hi.
Good morning.
In terms of working capital.
Clearly and as commented during the last call there are several factors.
Affecting our working capital all in all.
We anticipated that.
That amount.
Also has to do with some with some.
The tax receivables that we have and some <unk>.
Collections in general so.
We still believe that a reasonably it is reasonable to anticipate an amount.
Close to that between four and $500 million for the full year.
And so far we have been collecting on the.
The latest a portion of the original plan gas installments, which is now about $25 million per month. So the first quarter. We continue collecting that and I think we have just one remaining installment took.
To collect and that's it but.
But then so as I said there are several factors affecting our working capital, but generally speaking we should still be seeing an improvement in working capital in the oil at a $4 million to $500 million for the full year.
In terms of whether we need it or not.
I think we commented briefly during our presentation, we feel more.
More confident now in terms of our based on how the year has started and you know.
The way, we are seeing our cash flow generation ability.
We see less need for net new funding, we are anticipating a significantly lower amount of debt.
And previously.
Expected and and you know as clearly seen in the evolution of our net debt in the first quarter.
And so of course, the fact that working capital.
Actually it doesn't materialize in full that should not derail in any significant way our plans for the year. So I would say that we are less.
Less at risk.
On our Capex plan when related to working capital or debt reduction in our working capital generally speaking.
In that in terms of Biofuels.
I think it's a it's a complicated.
It's a complicated.
Question.
Of course their sales.
A lot of debate in general in the industry in terms of the.
Whether or not you know what's the impact on Biofuels from Unsustainability in general on climate change and you know there are different views.
There are two sides of that library.
So it's impossible to say, what's the exact.
Percentage of.
Of biofuel cut that is reasonable of course, you know for us the lower the better our business that debt is a pass through and we would rather not have any biofuel gas, but we understand that there are different views to that so we are more passive on that situation.
And of course, and as was commented when our when our president of the board announced the price adjusted adjustments at the pump back in March. He commented also that part of that price adjustment.
It was related to a pass through of the increased biofuel price is that as you know those are regulated and based on the steep increase that was.
Announced in Biofuels, that's why.
A portion of our pump prices increase.
It was mostly due to compensate for the incremental costs on our fuel purchases.
So all in all I would say that we don't have a ready.
Company.
Message or a company target.
But definitely we would look for adjust our prices accordingly for whatever.
Decision and subpar, taking place on that front.
Yeah.
That's great. Thank you very much that's all from my side.
Thank you. Your next response is from Luis Carvalho with UBS. Please go ahead.
Hi, Thanks for taking your question just for <unk>.
To come back to one cash flow discussion so.
You had a share good quarter end.
Let's say debt.
You can deliver an EBITDA close to let's say $2 billion to $3 billion, you have a capex of $2 seven.
Cash of close to 1 billion.
And that should be paid.
Close to 950.
I'll give you something close.
Up to $400 million.
Cash by the end of the year. So just trying to understand is this cash flow.
Breakdown makes sense to.
And secondly, what is the minimum cash now that you need in order to run the company.
That would be my first question. The second question is you had somehow in D. C now forecasts a bit better.
Lutz on the downstream business off the back of the volumes and also the margin. So just trying to understand a bit better how recurring they are and what are the risks I think that you already mentioned.
Part of the difficulties in order to follow the international prices.
He'd been though between 10 and 15% below the import parity just trying to discern how we computed the downstream systems were thank you.
Thank you Louise and good morning, Thank you for your questions.
In terms of cash flow.
But generally speaking as you know we are still.
Not providing guidance for full year, EBITDA and not because we don't want to but clearly because we still believe that there are too many uncertainties down the road to make us comfortable in providing such a guidance.
We are trying to be a very coherent in the guidance that we provided on what we deliver and that's why we all want to move too fast on that front.
Given the type of fear that we have ahead of us.
In any case I think the portion that you missed on your cash flow analyses of the day interest payment portion.
And I think that.
It's important to say that we see our interest payments.
Going down this year when compared to the recent past due to historical average is for the last few years most of the US as you know the day stuck up it was coming down and also we are we are doing good progress in terms of reducing.
Our cost of financing after the day would exchange we are financial institutions that are our main partners.
Harbin offering.
Lower lower rates.
Just you know we are getting closer to a five.
5% to 6% on average for our trade short term trade finance line when comparing to an average of about 7% at the same time last year. So that's good news and also the overlap with action in the stock of debt plus the.
Cash relief that was obtained during the day. They are exchange earlier this year. So all in all the.
The cash portion or our cash interest payments are coming down in a significant way this year. So generally speaking.
We as of today, we feel very comfortable with the roughly $1 billion in liquidity.
Debt, we have that is the consolidated liquidity that we that we entertain we have at the end of March.
During the last call. We have we have said that we expected that liquidity to be.
Around $1 billion, plus minus 10% and we are exactly at the same level.
By the end of the first quarter to be completely honest based on the on the revised short term maturity profile basically the lack of bulk maturities in coming months.
And the way we see.
Cash flow from operations, we may even consider reducing that amount of liquidity.
But we are reviewing that.
For for the rest of the year.
So you know just fulfilling or us as a sense that we feel very comfortable right now in our ability to first of all rollover.
Choosing debt, which is as I said doesn't have any concentration D. Only the only major concentrations that we have it's a syndicate local syndicated loans that matures now in June for an amount of $250 million. We had actually we were presented with.
With our refinancing proposal and we are.
Analyzing it but maybe not even taking the full amount.
Because we don't feel that that's the best.
The best financing alternatives that we have in hand, we are looking at several.
Financing alternatives, mostly local about some cross more of that as well.
For the second half and that.
It makes us a more.
More confident in our in the financial Toronto, because of all of that and let me sorry for being a little bit along on my answer but.
So we feel that cash flow.
Should be better.
For the year than previously anticipated and that's why the comment in the previous earnings call was that.
We were.
Anticipating taking on a relevant amount of net new funding to be able to execute.
Execute in full our Capex plan and that's why we put some risk on our Capex plan based on our financing.
Achievements.
I would say that today, we have less at risk from the financing side, we don't see that much a requirement of net new funding.
Or not not net you're funding at all for the year as a whole and so we feel more confident and I'm, probably even considering reducing the stock of liquidity to reduce our cost of carry in our net debt FX exposure on the liquidity side.
And in terms of.
Your downstream margin question.
When you just when you calculate the average a per barrel equivalent, but rather with processed for the quarter is at about eight and a half dollars of course that is a mix of seven day thinks it includes petrochemicals in there. So it is it makes of refining.
Logistics petrochemicals.
Non grain.
Non fuel exports of agricultural products. So it's a mix of many things, but roughly speaking that number it's a little bit below average from a historical perspective. So we do expect that number.
To improve a little bit at least in the near future and hopefully stay there.
For the rest of the year and hopefully for the future so, but we're getting closer.
Two historical average is on our downstream segment, but as I said that eight and a half $5 per barrel a little bit below average.
Probably improving a little bit in the near future.
Okay. Thank you.
Duke.
There are no further questions in the queue at this time.
Thank you very much guys for force oriented for Halloween Y P F.
For us our comments for the reports.
Have a good day.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
Okay.
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Net.
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