Q3 2021 YPF SA Earnings Call
[music].
Good morning, My name is Chris and I'll be your conference operator today.
At this time I'd like to welcome everyone to the White P. F Q3, 2021 earnings webcast presentation.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there'll be a question answer session.
If you'd like to ask a question. During this time simply press Star then the number one on your telephone keypad.
To withdraw your question. Please press star one again.
Thank you Santiago West neck, IR monitor for White P F.
You may begin.
Good morning, ladies and gentlemen, decent deal with it as well.
Ips monitor thank you for joining us today in our third quarter 2021 earnings call I Hope you all continue to be safe.
This presentation will be conducted by our CEO sitting in for Andy our CFO hadn't rodeo on.
Myself during the presentation, we will go through the main aspects and events that.
Explain our third 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 U S dollars.
Our financial figures are stated in accordance with the idea for us but during the call we might discuss some know Nate first measures such as adjusted EBITDA I will now turn the call to say to him.
Thank you Santiago good morning, ladies and gentlemen, thank you for joining us on the call today.
The three month ended last September constitute at yet another quarter with a strong financial and operational results all the while our operations and businesses.
Zero to move into the post pandemic new norm.
As we move forward with our focused approach towards that he brings sustainable recovery.
Adjusted EBITDA was above the $1 billion mark for the second consecutive quarter.
This is a result came on the back of a benign pricing environment.
Primarily on Brent related products and natural gas, while we managed to continue recovering our oil and gas production.
Christine 7% since the last quarter.
17% year to date wild.
While containing cost pressures.
Capex activity continues to be primarily concentrated in developing our unconventional resources rich.
Reaching a historical record in terms of completed horizontal shale wells in any given quarter seems to be getting a luck on work that's in development.
At the same time, we maintain our focus on achieving further operational efficiencies.
Pushing our technical boundaries to the next level.
Securing further gains in drilling and fracking speeds, while also recording the longest well ever drilled it and become water with the horizontal leg of over 4100 meters at our Loma Campana block.
In terms of shale production growth came mainly from the natural gas side based on the Italians accomplish during the previous quarter on early on in the third quarter.
Increasing shale gas operated production by 166% year to date.
This temporary prioritization of natural gas was tactically aimed and odd complain.
Complain with our CSR commitments within the plan gas program.
While waiting for further long term contracting outside of it.
Generating a significant recovery in a stable and predictable revenues for this segment.
On the other hand, when shale oil production grew by 5% during the quarter.
Tie ins have permitted to resume growth momentum with preliminary.
Got that for October representing growth of 17% versus the average in Q3.
Reaching a new record high in shale oil production of 61000 barrels a day.
You know these shown domestic demand for gasoline and diesel continue their recovery trend. After mobility restrictions were fully lifted by the end of the second quarter.
With preliminary data for October so in demand for both fields being at or slightly above pre COVID-19 levels of 2019.
During the quarter, we kept moving forward with our sustainability and energy transition agenda, we are making progress in concrete actions to reduce emissions and improve efficiency in our oil and gas business.
The startup of a new E. T V you will need in Luke on the coastal refinery.
In the beginning of works to revamp gas processing plants in Loma La Lata.
Additionally, we are also advancing.
Our new energy portfolio.
Our power subsidiary White P F loose made.
It made very good progress on the final stages of the new 120 Mega Watts Wind farm.
They own.
C O D before the end of this month.
Thus, we will finish the year with almost 400 megawatts of renewable generation capacity.
Well see as shown in White P F loose.
Second largest renewable generator in Argentina BC.
Besides the company already levered growth of 114% or needs for renewable generation when comparing to cumulative nine months of 2021 with the same period of last year.
On it's still hub, we have new projects and pipeline.
Plus might be if it's one of the largest buyers of renewable energy with about 30% of our power purchases coming from renewable sources, showcasing our clear commitment towards reducing our carbon footprint.
We have also decided to gradually increase our participation in a low kind of distributed solar company.
The offering of renewable energy solutions to our clients.
I'm going to put in for war nature based solutions like four station projects plus the one we have in noga and proteins.
On this topic I had recently the owner to co chair the Energen in resource efficiency Task force within the V 20, which presented policy recommendations to the G 20 heads of state aid.
Odd accelerating orally unjust energy transitions in that sense, we highlighted the role of low carbon solutions like natural gas.
In addition to renewables, which will be crucial for some countries in their net zero journey and in our case they start taking potential out there where bus shale gas resources have to contribute to the process of regional and global they can only station.
As a final comment on my introduction to our third quarter results.
It's also worth highlighting that despite moving forward with our Capex plan, we managed to deliver positive positive free cash flow before debt repayment for the sixth consecutive quarter.
This in turn allowed us to continue reducing our net debt.
Resulting in a steeper reduction in our net leverage ratio returning to historical healthy levels.
And finally looking forward, although we remain cautious on tobacco for local macroeconomic uncertainties that could test our ability to adjust the fuel prices in the near term.
The robust results achieved so far permit us to revise our adjusted EBITDA guidance for the year.
Yeah.
Towards to a range of three $8 billion to $3.9 billion.
We also reaffirm our guidance for full year capex of $2 $7 billion on our oil and gas production targets for the second half.
The latter with some upside particularly in crude.
Shale oil production could end the year above previous expectations, providing for a better entry point into 2022.
Before leaving jewelry the other hand, it all I would like to once again tell you that I am, especially proud of the way P. F team for their commitment and their airports.
I also want to thank our clients for their fidelity on our investors partners and suppliers for their continued support.
Good morning to you all.
Briefly unless you painted by Sergio our third quarter results came in very strong on the back of a benign pricing environment, coupled with higher natural gas output and the continued recovery in local U S demand.
Adjusted EBITDA reached over $1 $1 billion, 6% higher than the previous quarter.
When compared to pre pandemic levels. This quarters results were 18% higher than Q3, 2019 or 11% higher than the average of the third quarters of 2017 2018 in 2019 showcasing the strong performance achieved in the quarter.
On the cumulative basis for the nine months ended September adjusted EBITDA reached $3 billion.
Resulting in an EBITDA margin of 31% the highest mark for the same nine months period over the last five years.
Within business segments. It is worth highlighting the partial shift of margins from downstream to upstream when compared to the previous quarter.
Back of higher recognized local crude prices when the prices at the pump remain almost flat in dollar terms.
This resulted into margin for our refining and marketing business.
Which was lower on a sequential basis, but mostly in line with the historical average at about $11 per barrel during Q3.
They're supported by positive results on the petrochemical segment.
An extra $2 per barrel when looking into the full adjusted EBITDA generated by our downstream operations.
However, the future evolution of margins for the downstream segment, not only for white B F, but for the industry as a whole represents one of the key risks for our sector going forward.
Pressure is mounting from local independent producers to reduce the discount of local crude prices with respect to export parity.
I don't see much ability to pass on price increases to the pump could be challenging considering recent actions taken by the government to contain inflation.
Nevertheless, we will continue to want to keep all your orders such as FX devaluation and global and local crude prices closely do they find new adjustments at the pump.
However, should the FX depreciation accelerates in coming months, we shall carefully address the pace of any adjustments of our prices in pesos given the overall macroeconomic environment that could result in higher demand elasticity in such a context.
Moving into revenues results showed an increase of 8% sequentially, reaching $3 $6 billion in the quarter, mainly supported by a 31% jump in natural gas revenues and 15% in domestic sales of gasoline and diesel.
When comparing these figures with pre pandemic levels of the same quarter in 2019 revenues were 9% higher.
On the cost side, Opex expanded 6% quarter on quarter in dollar terms on the back of increased activity on the recent evolution of microbiome.
However, on a cumulative basis for the nine months ended September total opex remains well below pre pandemic levels of minus 15% when compared to the same period of 2019.
Cost efficiency secured last year continued to be willing to effect the spun despite mounting inflationary salary pressures, while the currency depreciation has slowed down.
As regards to Capex during Q3, we managed to accelerate the implementation of our investment program. After it is somewhat slower than projected base in the first half of the year.
Capex expanding by 20% when compared to the previous quarter accumulating $1.8 million during the nine months ending September 83% of which was deployed into all went upstream operations.
Finally, these results translated into yet another quarter of delivering positive free cash flow before debt financing totaling $144 million, allowing for our net debt to decline by another 44 million or by a luxury of 151 million when considering liquidity invested in financial assets.
<unk> accounted as non current given their maturity being a few months longer than one year and that would not for trading accounting treatment.
In addition, when considering the evolution during the last 12 months net debt was reduced by about $750 million or the larger $890 million when including the non current liquidity.
Focusing on our upstream activities total hydrocarbon production expanded by 7% on a sequential basis, accumulating a 17% increase when compared with average production in Q4 of last year.
Quarter over quarter improvement was primarily concentrated on natural gas, which grew by 14% versus the previous quarter as we focused our upstream activity on gas in line with our commitments as part of the new players.
More specifically, we managed to grow our shale gas production by 64% when compared to the previous quarter.
Even more pronounced jump of 74% when looking specifically at our operated shale gas production, mostly led by the productivity of the new world, stating in the recon the mongoose show and what are they let Dana blocks.
On the crude oil side production remained stable versus the previous quarter, given the temporary redirection of efforts towards gas as previously mentioned.
Nevertheless, it is worth highlighting the 5% growth in shale oil during Q3 on the further 17% in October versus the average of Q3 with our core have reaching a new record at over 50000 barrels per day of NATO in.
Regarding prices.
During the quarter, we benefited from a 10% increase in natural gas prices, averaging four $2 per million Btu, primarily on the back of seasonal adjustments with NPG for contracts.
Separately on the crude oil front, our average realization price increased by 7% to $55 per barrel only partially reflecting the rally in international prices as local cruises continues being negotiated between local producers and refiners in a way to smooth out the impact of local fuel prices from the volatility.
In international markets.
Moving into the operational highlights of our upstream operations during the third quarter, we marked a new record in terms of horizontal wells completions with 44 total new wells 37 shale oil wells and seven shale gas wells.
Totaling 99 wells during the nine months ended in September.
And setting New records, we took advantage of the relatively large backlog of DUC wells that were accumulated last year during the pandemic.
But we also managed to keep drilling activity high that's well stable.
Stabilizing our drilling uncompleted inventory at about 60 wells, which we can see a fairly reasonable to provide enough flexibility to our operations.
This positive evolution in completed wells comes not only as a result of our ratio capex activity, but even more importantly on the back of the continuous operational improvements that we continue to achieve.
Our drilling time on the unconventional side improved by almost 20% when compared to the normalized levels of Q2.
And even higher 35% versus the average of 2019.
This was mainly the result of a reduction in nonperforming times on standardization of certain activities, such as toll maneuvering segmentation casing tubing and open cold registry among others.
In addition on Frac speed, our operations improved to an average of 188 stages per site per month during Q3.
At 27% improvement compared to the previous quarter with an impressive 81% when compared to the average achieved in 2019.
Let me now go into our downstream business.
During the quarter domestic fuels demand resume its recovering towards normalized pre pandemic levels as mobility restrictions were relaxed after the setback in Q2.
Sales of our main refined products increased 13% when compared to the previous quarter, primarily driven by gasoline, which jumped 22% ending September about pre COVID-19 levels of 2019.
In the case of leasehold domestic sales increased 8% on a sequential basis, averaging 3% above Q3 2019.
In terms of refinery utilization our processing levels. During Q3 remained almost unchanged on a sequential basis, averaging 263000 barrels per day.
This represented an increase of 13% versus the same period of last year, but about 9% below the pre pandemic level of Q3 19.
Processing levels during the quarter were negatively affected by the scheduled maintenance works perform at one of the catalytic converters at the La Plata refinery, which was finalized in August within the planned scheduled.
In addition processing levels during the quarter what else are affected by complex negotiations with local independent oil producers, we changed to maximize their export volumes on the back of better realized prices.
On this issue it is what kind of lighting that during the quarter, we still acquire 19% of the crude processed at our refineries from third party producers.
However, going forward, we expect crude purchases from third parties to decline as we continue to make progress in growing our oil production, particularly light crudes coming from our back on more of the operations.
With regards prices for gasoline and diesel.
Net prices measured in dollars remained stable during Q3, when compared to the previous quarter standing at similar levels to those registered on average in 2019.
Although retail prices remained stable in pesos. The evolution resulted from a relatively low currency devaluation that was compensated with some fun adjustments at the wholesale segments.
Switching to the evolution of our cash flow during the quarter I would like to highlight the positive trend in our cash flow from operations, which once again stood above $1 billion.
Comfortably covering our fully deployed investment plan and interest payments, allowing for further net debt reduction.
This is mark the sixth consecutive quarter in positive free cash flow before debt repayment, resulting in a total net debt reduction of about $1 $2 billion since March of 2020.
In terms of debt financing activity in mid July we successfully tapped the local capital market. We had 384 million 11 year dollar linked bond with a coupon of five and three quarters that was priced at par.
[noise] advantage of a unique opportunity to pre fund our needs for the remainder of the year.
And to minimize cost of carry the transaction was structured to be disbursed in three installments to kind of around 30 million of which would actually cashed in during Q3 with a balance settled later in October.
On the other hand, there during the quarter, we paid about $190 million in outstanding White P. S left about half of which came due from trade financing another bank facilities.
$55 million from local bonds and $43 million from the semi annual amortization on our March 2025 International bond.
By September 30th.
All in consolidated borrowings from bank, a Moody's reached the lowest level in many years at around $550 million expecting this figure to be even lower by year end compared to an average of one $5 billion in the last five years.
Leaving significant room within credit lines to handle next year's needs.
In terms of liquidity.
Our cash and short term investments totaled just over $1 billion by the end of September an increase of $99 million when compared to the previous quarter.
In addition by the end of the quarter, we had $144 million booked as non current investments, which could be considered as a good proxy to liquidity I'll stay are killed in local dollar linked securities with maturities maturities longer than 12 months, but shorter than 24 months.
Although these securities have decent liquidity in the secondary market given that we do not hold them for trading based on our accounting policies were not marking these instruments to market and hence not accounting them as part of current assets.
Finally, we continued to manage our liquidity position with the objective of minimizing FX exposure.
And we have an active cash management approach to achieve the difficult task of building another way portfolio in the context of limited available instruments in the local market.
Particularly considering our self imposed credit concentration limits.
Consequently, I am given the increase in net liquidity during Q3 on the back of the opportunistic pre funding exercise.
Our net FX exposure increased from 6% by the end of June to about 14% by September 30th.
Before finishing our presentation, let me briefly go through our maturity profile.
But before doing so let me highlight the significant reduction in net leverage that was achieved during Q3.
Reaching two times net debt to 12 months of adjusted EBITDA by the end of September.
<unk> the tremendous recovery in our operating and financial performance after peaking at a net leverage ratio of four nine times only six months ago.
In addition for the first time in many years, our liquidity position exceeds our short term debt.
Liz on $1 billion coming due within the next 12 months.
In terms of 2022 debt maturities, we have just north of $800 million on a consolidated basis with a particular concentration in Q2, including the $260 million amortization, when our 'twenty 'twenty four international bond.
With that in mind, we have been working for several months now on a cross border multi lateral lengths financing, which is at the final stages of being signed.
Should the deal finally gets confirmed in coming weeks, we shall be able to closely much amortization from our international bonds. Both the 2020 fives in March and the 2014 April with disbursements from that facility.
This should therefore minimize our net demand of FX reserves from the Central Bank. Thus further mitigating potential risks to comply with our obligations. Even if current FX restrictions are extended into next year.
That finishes our presentation for today, we are now open for your questions.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad. Our first question is from Frank Mcgann with Bank of America. Your line is open.
Okay. Good day. Thank you very much everyone. I was just wondering how you're thinking about.
Gross from here you mentioned that oil.
Production could continue to rise and could be a little bit higher levels, perhaps than you had originally expected at the end of the year I was just wondering in terms of you know looking forward how much upside do you see over the next couple of years potentially and how are you seeing that relative to gas upsides of gas I'm just wondering what the transportation.
Limitations are and and now.
Now that you've ramped up the production pretty aggressively to take advantage of the planned gas prices do you see further upside in natural gas output.
Hi, good morning.
Well clearly when looking at growth potential as we have been saying, we see that mostly related to oil to crude oil as you have just said we had a very impressive ramp up in natural gas activity in the last few months, particularly in line with our commitments within the new.
Planned gas program and going forward on that particular segment on natural gas.
We are not expecting.
In the short term.
Significant further growth on natural gas, we do see a evacuation limitations out of stock on water for natural gas and as you probably know the government authorities have been key.
Commenting publicly about their intentions to put forward a new gas pipeline to further increase the.
The evacuation possibilities of natural gas out of their network innovation.
So clearly for.
As long as that those projects do materialized in coming years are we clearly are very likely to join in India for Delphi.
Forward further our growth in natural gas of course always assuming.
Preserving profitability and upfront.
But for as long as those new pipelines are not.
And in place.
We see current natural gas production as being relatively stable.
In the near future.
On the other side in terms of oil as you said, we will continue to see significant potential there.
We are.
Focusing our capex efforts on that front she would have seen during the last quarter of the growth in oil was a not relevant was relatively stable.
Clearly as we manage showed us we focus our activity in natural gas in light with our seasonal commitment.
But now as we have expressed already in October we are already ramping up activity and production in in crude oil and we expect that to continue going forward.
We do see our Capex plans too.
Probably to increase for next year, particularly in upstream we have already commented in the previous call. Our intention is to move forward with on the downstream segment with the.
A revamp on in an upgrade of our refineries, which will take a significant amount of capex in the next three years, but besides that we are also expecting to increase our upstream capex.
Particularly next year.
And with that hopefully and then probably.
A significant improvement and growth in our crude oil production.
Okay, great very interesting if I, if I could just follow up with a second question in terms of hydrogen.
Hydrogen I mean, there's you know announcements over the last couple of weeks about a large development being done in Rio <expletive> I was just wondering are you participating in that or do you have any other projects, perhaps that you might be looking at to to do green hydrogen.
Yes.
Particularly on that project that was announced we have nothing to do with it.
Well part of it.
We though although actually a part of a big consortium of Argentine companies from different segments.
Doing R&D on green hydrogen so most likely we are participating on that.
Consortium through our White Tech.
Our R&D subsidiary would you say joint venture together with Conney said so.
We are I would say are in.
Initial steps.
Doing research and development on hydrogen.
But not being part of that done another spend hours.
That came on the media in recent weeks.
Okay. Thank you very much.
Sure.
Okay.
Our next question is from you'll hear me Levy with Morgan Stanley. Your line is open.
Hi, good morning, everyone. So I have two questions.
One is on the shale production ramp up.
Our marketing and.
Joining a strike.
In the recent past.
I just wanted to get a sense from you all.
Much more efficient.
Yes, it could get.
And the bulk of the efficiency gains plus already achieved so which.
She got assumed debt.
Levels are a sustainable run rate going forward.
And then the second question is on lifting costs.
Got it.
While within their control this each quarter.
And so I wanted to one based on what should we expect going forward for this line considering both the high inflation rates in Argentina and also the inflation, we are seeing in the global oil industry.
Those were my questions. Thank you very much.
Yes.
Okay.
Thank you for your questions.
In terms of operating efficiencies within our shale activity.
I would say that yes, we definitely have an impressive improvement, particularly in track speed.
But also most recently in the last quarter and in drilling.
We are optimistic that we should continue seeing further improvements.
I would say that more on the drilling side on on fracking.
But feel we would expect also some improvements in fracking as well so clearly the numbers for the third quarter it should be used as a basis.
For future performance, but.
But we expect the along the next few months.
Particularly as I said in drilling, but then also some further improvements in fracking as well.
And in terms of lifting cost.
Well I was just had they been relatively stable managing to compensate the evolution of macro body I was clearly as inflation has been running higher than devaluation.
Sure.
Denominator I would tell you dollar equivalent costs clearly are having some pressure there.
But still we have managed to improve our comp.
And say so the evolution of those microbiome through efficiencies and through.
If a higher proportion of unconventional shale.
Our total portfolio production so.
Well, we and forward as we expect to that proportion to continue increasing meaning the proportion of shale on the total.
Hydrocarbon production.
We would expect the average lifting cost due to go down.
Probably below $10 on average for both segments conventional and unconventional.
Okay.
Our next question is from registered cargo so with credit Suisse. Your line is open.
Yes.
Okay.
Congratulations on the on the results two topics I wanted to touch on.
One of them is the guidance for the year.
<unk> play a big Capex increased in the fourth quarter.
Assuming that you've done so far a $1 7 billion.
Guidance is $2 seven just wanted to make sure if I'm understanding this correctly there there would be a big capex concentration of about $1 billion in the fourth quarter.
Likewise doing the guidance.
Discussion.
EBITDA guidance for 2021 implies fourth quarter around 800 million to 900 million.
Which is a sequential decrease relative to the third quarter.
Is this am I reading it correctly would that decrease be related to a lower gas price and the planning guys lower seasonality.
So that's the topic on the on the guidance and financial metrics.
Two other topics I wanted to touch one.
One of them is.
Looking beyond this year and into 2022.
How do you how do you balance capex, which deleveraging if any.
I mean would you.
Maintaining two times net debt to EBITDA and does it have a growing EBITDA you could actually increase.
Your absolute net debt or do you see it differently.
And uhm lately I mean, <unk> has been in disposition, where where it has struggled to grow production without leveraging any further Rachel whether you see 2022 is a more benign.
<unk>, where you could actually either deleverage or grow production more more materially.
So thats it for 'twenty, two if I may a third one.
Just on the fuel prices it appears to us that.
Domestic prices are still below international parity.
Refinery GH in Argentina so.
I wonder if that if that entails, but you still have some upside in the EBITDA front for catching up with with import parity or if I'm, if I'm seeing it wrong. Thank you.
Thank you register for your questions.
I'm going to start with.
The.
Prices.
I'm going to let.
Let me give you a broader answer.
Yes.
As you'll probably recall.
Between August of last year in May this year.
We made several adjustments the ban.
With the objective of compensating for fuel tax hikes not previously.
Translated into retail prices.
As well as a recovery in our margins.
And based on those adjustments we manage.
<unk> expense in our operating cash flow.
And by that time align net prices in dollar terms.
With the average for 2019.
When Brent prices were at similar levels trading.
Trading in the mid sixties.
Providing for reasonable margins, along the sex tourists, while you're a chain.
Since that moment, we have expressed.
Our decision to monitor the evolution of.
Key variables.
Such as the evolution of the FX as well as international and local.
This is.
So let her mind, the convenience and timing of any further adjustments.
While considering the general macroeconomic environment.
With particular emphasis on the inflationary context.
Consequently on the back of the slower anticipated evolution of the FX in recent months.
We have taken a conservative approach to address the volatility in international prices.
Within unnecessary pressure on consumers.
While we waited too for the global market to settle down.
And we manage to maintain this conservative approach on the back of back office.
<unk> effort.
From most of our stores within our sectors sector.
Collectively understood the convenience.
So let's move to the full effect of the rally in international prices to local consumers.
In any case it would be it would be fair to highlight that.
Bank related revenues, although very relevant for our company will represent less than 50% of our total revenues between 40.
55% of our island.
Going forward.
Given that market. The consensus is building up around the notion of international crude prices.
It's been down around.
7% is minimum.
We will probably probably considered.
Introducing further adjustments of the bump in coming months.
To close that gap.
Reducing the price the price distortions currently embedded in the local prices when compared to international ones.
However at the same time.
We will have to consider the evolution of the FX.
Adjust prices in pesos.
In a manageable and sustainable way.
Okay.
We are convinced that besides.
Short term fluctuations in distortions.
Having local price is.
The quarterly reference to international parity is.
The way to ensure the healthy and sustainable development of our sector.
Enabling the true potential of our world class hydrocarbon assets.
Okay.
Okay. Thank you sorry here.
Rajeev in terms of your.
Questions I will try to tackle them.
Yes.
Possible.
If I recall correctly you asked about.
Capex in the fourth quarter of this year.
Yes, the actual number is.
And expectations of about $900 million. So the aggregate for the nine months, it's a little bit over one seven rounded at one eight.
So we are expecting our capex level to increase to about 900 million.
Particularly led by upstream operations, where we see further drilling activity.
Including an average three more rigs two in our unconventional areas and one in conventional.
We also expect some further investment in facilities.
In ground facilities.
Particularly in <unk>.
Our unconventional blocks and then also we expect a ramp up in activity in our downstream operations as well.
We are seeing.
More activity on the.
The next projects basically the projects as I mentioned before the.
The multi annual project that goes for revamping and improving the quality of our fuels.
So that's in general for the fourth quarter.
In terms of Capex in terms of EBITDA expectations for the fourth quarter you are looking at it correctly.
We do see a sequential decrease in EBITDA generation.
That is mostly related to the seasonality of the natural gas segment.
While we expect a significant decline.
Mostly on prices as you know that our seasonal adjustments under the plan gas program.
So a little bit on volumes as well, but mostly on prices.
So thats.
That is the main.
Impact, though the main aspect that will make us a project at lower EBITDA for the fourth quarter together with the continuous evolution of micro body allows us as we mentioned before right the inflation running higher than devaluation that also affects somehow.
Our our cost structure.
And finally.
When looking into 2022.
We would expect.
Not to reduce to further reduce leverage but rather take advantage of the very attractive opportunities that we have to accelerate the development of our shale resources, particularly the grew our resources. So and I think we mentioned this in the previous call as well, we would expect long term leverage.
To be in the order of two times.
To Max out at two times in the future provide.
Providing for any cash flow generation.
To go into Capex.
<unk>.
Foster to accelerate the development of our shale resources.
So no not expecting any further deleveraging, but rather.
Further capex activity.
Very clear thank you Andrew.
Sure. Thank you Richard.
Thank you for your time.
Our next question is from Bruno Amorim with Goldman Sachs. Your line is open.
Thank you very much my question I have actually been answered, but just to make sure I got it correctly. It's a follow up on hedges question on deleveraging going forward, so providing that EBITDA would be in line with this year or even above next year. If you are not assuming a lower leverage and it means that in absolute term.
You do expect for Mad that should be either stable or higher next year vis vis the current liabilities is that understanding correct.
Yes, Hi, Bruno Yes. Your understanding is fairly correct. We don't expect net debt to go down next year of course, depending on what our cash flow generation will end up being next year, which will also depend on many variables.
But for as long as we continue to generate similar levels of cash.
We would expect to ramp up capex activity.
Not reducing.
Absolute net debt leverage.
Thank you very much.
Sure.
Our next question is from Konstantinos <unk> with <unk>, Argentina. Your line is open.
Thank you very much good morning, and congratulations on your results.
Question for you today is with respect to price adjustments at the pump now could you share your view for the next months.
If prices are frozen in pesos painting your downstream margins.
Can you maintain your capex schedule and if so for how long. Additionally, we know that the Mega facility has been.
Processing less Ngls in the month of October So you do have some losses, there or some revenues.
Coming through the door. So how does this how do you balance all of this with pricing.
Prices frozen and vessels in downstream and then less money entering the other business segments of the company and if I might just add one more question regarding cross border financing.
Could you give us some detail on the amount of debt maturity in August.
What happens if this cross border financing does not materialize. Thank you.
Sure Good morning Konstantinos.
In terms of your question about the.
Prices.
The bump I think Sasha.
And some detail on our expectations, we do not expect.
Prices to be frozen, but rather we expect to carefully monitor the evolution of different variables right as we've been saying, we now believe that.
International prices have established some certain floor.
Probably it would be a healthy decision for the sector as a whole to try to reduce.
The spread to international priorities.
And of course that will help.
Also depend on the evolution of the effects and we will have to carefully address.
Any potential adjustments at the pump to figure out the potential impact in demand.
Such decisions could could come.
So we are not.
Assuring by no means that prices are not going to move up.
No the opposite.
We continue to carefully monitor the different variables and in the context of the macroeconomic environment.
We had all leaving on.
So that's why I would not.
Definitely say that downstream.
Margins are going to be significantly down if you look at how.
Local crude prices have been.
Negotiated locally.
We are above the average often over the last quarter. So in the third quarter. We we have an average on the upstream side in Argentina, $55, mostly on related to Mega Nieto.
Oil.
Wait a minute I need oil those prices have been trending upwards.
Now the.
The prices that are being negotiated among producers handoff seamless is closer to $60. So already in there you are seeing an.
And evolution in upstream so because of that we are already having a reduction in downstream.
Industrial margins going forward.
Of course that is.
To be able to continue with that process, we will definitely need to address prices at the pump.
But again that will be.
Carefully monitored in coming weeks and months.
In terms of Mega is related to seasonality that I mentioned and also as you correctly say.
Mayor has been processing less amount of natural gas and producing less amount of Ngls.
That is related to a scheduled maintenance of Mega, which was performing the month of October.
It is already back in full operation and and so yes that is part of the.
The estimate that we are putting forward to the market on our EBITDA generation for the fourth quarter. So nothing beyond the day impact that we are already forecasting.
When putting forward the full three eight to $3 $9 million EBITDA for the full year.
And finally on the on the cross border financing.
Let me.
Given the fact that he is not closed.
Closed yet let me just keep.
For ourselves.
Specific tenor.
Interest rate, although I can I can mention that it's not a it's not short term, it's a medium term facility and.
At very competitive levels.
If the deal doesn't materialize of course, we will have other opportunities or other alternatives clearly not cross border.
And still consider that our ability to know what our payments our commitments on our maturities on international ones next year.
Should be granted.
Even if current effects restrictions have extended.
Given the way those FX restrictions currently in place.
Our retail or the way they work today.
Because the amortization that we have next year are related to bonds that have been part of previous liability management exercises and so we understand that current FX restrictions if at all extended.
Should not impair our ability to comply with our commitments, but again.
If these transaction moves forward, which we are very optimistic that it will.
We will further.
Provide.
For for an alleviation of a relief in FX reserves from the Central Bank.
When related to the amortization that we have to honor next year.
By having a relatively matched those payments with the disbursements from this cross border multilateral facility.
Very clear. Thank you. Thank you very much.
Sure.
Our next question is from <unk> Fernandez with balance your line is open.
Good morning to everybody. Thanks for the very complete materials as always I have three questions I would like to go one by one if you do not mind.
Last year the company launched.
On operational expenses savings program that we also bring inefficiencies in the last quarters congratulations on that.
Do you think you're mostly done with these efforts you already satisfied with what you've done.
Hi, Gail.
Sure whether you were going to ask three questions headlines, but let me quickly answer that.
We are happy.
Yes.
We feel okay with the results achieved so far clearly the evolution of macro body of wells in the last few months.
Have reduced somehow the full effect of our cost cutting.
<unk> executed last year.
By the end of last year, we had expressed that we have achieved our structural cost reduction of 20%.
When compared to pre pandemic levels.
That was sustained for the six the first six months of this year now when looking at the third quarter and we're looking at the full nine months.
Got that.
That amount of savings was reduced to about 15% when compared to the previous year.
Sorry, with pre pandemic actually if you take out some standby costs related to the locating in okay and in in April of this year that would be 17% on a on a.
Fully standardized basis.
And we are expecting that to be maintained roughly in the 15% cost reduction or savings by the end of the year. So we are okay with that.
We definitely had the expected to sustain a further savings.
We this is a new cultural thing within <unk> to continuously look for efficiencies. The same way that we are doing in our shale operations as discussed before.
We continue to look for further savings across the company.
Our new cultural way of doing and moving forward with our business.
Okay, great. Thank you my second question is.
Also during the pandemic wipe yes.
Entertained the idea of looking for asset sales.
Is the company continuing to look for interested parties and noncore assets and if there has been any progress on specific assets like <unk> or mature concessions lately.
Okay.
Thank you <unk> for your question.
And.
With respect to M&A.
I'm going to cover the sale activity and also the mature fields.
And then let me start with shale.
We mentioned.
<unk> said in previous calls and in line with the financial deleveraging.
The company has already been achieved.
We continue to see potential M&A activity.
As a way to optimize our portfolio rather than as a critical funding source.
Yeah.
In that sense, when looking at our unconventional acreage and given prevailing market conditions in.
In the near future, we shall only see if any at all some smaller scale divestment.
<unk> blocks.
Our outside our core development.
Got it.
With respect to mature fields.
We continue moving forward analyzing potential opportunities.
In our mature conventional areas.
And this analysis focuses into assets are blocks that have some further development upside.
But require a niche player to extract full potential.
And given the positive feedback gathered through an initial round of conversation with potential interested parties.
We have entered into preliminary conversations with the provincial authorities.
These assets are located to.
To establish.
The basic framework of understanding in the case.
Sal this investment opportunity and top materializing.
And these are the two.
We ask that we're analyzing with respect to M&A.
Okay, great. Thank you very much Mike.
Final question is related to.
Last maybe two or three weeks.
There were some press articles in which.
The idea of a three $5 billion of Capex for next year.
It's a sort of target.
I don't know if this is a formal target already or.
Does it still need to be confirmed.
On the guidance or budget exercise that you're probably working on.
Yeah.
Yes.
Basically that is not a formal target yet of course us.
As we commented earlier.
We do expect our capex to be higher next year than this year.
Only because of the.
Onstream.
Ah projects.
As already commented in the previous call, but also as we expect to continue increasing activity in our upstream operations with a specific focus in in oil.
As of today, we have not gone through a formal budget approval for next year.
We should be doing so in the next few weeks and once we have that.
Then we will be in a situation or in a position to formalize our capex guidance for next year.
But for now it's.
I would say it's informal intentions.
And in line with what we have been commenting in the previous call and during this call as well.
Yes.
Yes.
That's great that was very clear that's all from my side. Thank you very much.
Thank you again.
Our next question is from Luis Carvalho with UBS. Your line is open.
Hi, Sir June 100, and Thiago. Thanks, Thanks for taking the question I would like to maybe come back on the on the free cash flow.
For 2022.
You just mentioned about the acuity inform an intention is about a $3 $5 billion of Capex Youre also mentioned during the call that.
Do not have the <unk>.
Intention to potentially reduce further deleverage of the company.
But assuming we achieve the $800 million debt that you have for next year and around $600 million on that interest.
Hello This capex.
If you do not rollover any debt for next year.
Probably going to consume a significant amount of your cash.
Ephedrine DSA, let's call close to $4 billion EBITDA as you probably are going to deliver this year.
Just trying to reconcile here.
How do you have seen the Capex Stephen Kim I don't know potentially go up in and what are your expectations in terms of EBITDA for 2022, I know that you cannot provide any guidance.
Consider it as a baseline of $4 billion.
What is the likelihood that you see higher EBITDA will be corn oil prices that we have.
Current conditions that we have for 2022 in order to try to.
Reconciled to the free cash flow.
For next year and forward.
Second question I think that you also touch base on the previous question.
It's more related to the few Chilean ports right. So.
IPF didn't what gasoline.
Apparent.
When she was at a higher prices versus the average of domestic prices right. So even if you consider the difference between the premium and the regular gasoline.
I would like to see if you can provide a bit more details or update in terms of important conditions.
As we had towards to fourth quarter in 2022. Thank you.
Yeah.
Hi, good morning, and thank you for your questions.
In terms of how we intend to balance our informal expectations for next year so far.
As I said before we still have to go through a full revision.
<unk>.
Our.
Capex plan for next year, and our EBITDA generation estimates for next year.
What I can guarantee you is that we plan on maintaining a healthy financial approach.
Both in the sense of net leverage as I said with net leverage being maxed out at two times.
And cash balance, where we expect to continue.
Having.
Working with with a minimum cash balance in the other effect amounted to $1 billion.
You know that temporarily we've been above that level.
In some cases.
But roughly speaking.
In the past, we have been saying that we would be we targeted $1 billion plus or minus 10% right. Now we have reduced that target a little bit probably to a range of intended to $1 billion that is related also to our short term maturities as we commented during during the presentation for the first time in many many years.
Yes.
Our net cash position is higher than our short term maturities.
We expect that to remain the case.
For the next.
Few months and I would say a couple of years.
Given that maturities, we will continue to be relatively low.
So because of that is that of course, we when you look in when you try to estimate what the EBITDA number has to be to get to that.
That level of Capex that was formerly mentioned in the media.
Then definitely we need to.
Finalize our budget for next year and come up with the final numbers for Capex, but again as previously said, we expect to increase our capex level and.
And probably for that we will count with with still strong EBITDA generation as well as working capital contributions that we could have.
We have been we have a few fiscal credits that we can.
Now we can cashin.
And we also have some other.
Account receivable was that we have been making very good progress in collecting so when you combine all of that is that we feel pretty comfortable with our ability to increase our cash.
Already our Capex next year without Joe by rising the financial health.
Both in terms of leverage and in terms of liquidity.
And in intermodal right.
Yes, sorry, it let me challenge, let's just pretend that oil prices comes down to let's say $50 next year right I don't know if something happened in OPEC level.
Just trying to understand what will be the flexibility on the capex because of course these cash generation for 2020 to be now.
Massively impacted because of the lower oil price in that scenario.
And as a consequence GNC with the debt profile that you guys have in the the commitments what will be the flexibility in order to try to reduce the capex for.
In order to cope work to keep Youtube the net leverage at two times and I just wanted to understand that the.
Two point.
Round two times net debt to EBITDA.
Would be the main target or prediction growth, where capex will be the main the main target for the company.
Yes no.
Thank you for the for asking for the clarification, yes.
Completely clear for us that the main target is the.
Financial health.
So I would say the main target would be to be within that two times net leverage and based on that we will have to flex symbolize our capex.
In line with the cash flow generation to maintain those.
Financial targets. So clearly the answer to that will be flexible I think capex and accommodating our capex target.
To whatever cash flow generation capacity, we will end up having.
Even though we still believe that there is a tremendous opportunity to add value and to generate value for all of our stakeholders by accelerating the development of our shared resources practical.
Primarily the shale resources.
But we do believe and we are very serious about that that the only way to seriously or sustainably do that is by maintaining a prudent financial framework.
So that will be the main driver.
Okay, sorry, and then dropped you above.
The fuel imports sorry.
Thank you very very clear at this point.
Sure in terms of yearly imports yes.
As you said, we most recent data given the rally.
Primarily since October <unk>.
The massive rally in international embraces our prices.
Pump today are below import parity levels.
That's why we have to bear in mind, the full equilibrium of the market as a whole.
And in that sense.
We tried to balance the relatively small amount.
Of our imports.
In the context of the general business that we have undergoing so in that sense, yes.
Yes, the ramp up in demand.
Both in gasoline.
And diesel is.
Creating the need to increase our imports in the fourth quarter.
Primarily of gas oil as you know.
So we are structurally for the last few years, we've been structurally a net importer of diesel.
Not that much of gas.
Gasoline and so on average in the fourth quarter, we will be probably imported what was the average for the last few years, which is in the order of 20% of our diesel sales.
That could be challenging in the context of the current relationship between local fuel prices and in property. This yes.
Definitely that is a challenge and that's why our social commented in his.
When talking about the pump prices in the future evolution of pump prices, we do have and we look carefully monitor.
<unk> <unk> two.
Basically make.
The right decision in terms of the future evolution of prices.
Okay very clear. Thank you very much and thank you very much hope to see some sure.
Thank you.
Okay.
Our next question is from Walter <unk> with Santander. Your line is open.
Yes, Hey, good morning actually all my questions has been answered so thank you very much for those.
And with that I am showing no further questions I'll turn the call back over to the presenters.
Okay.
Okay. Thank you. Thank you very much guys for minority interest for falling following wipe the airframe for your comment on reports and.
Have a good day.
Ladies and gentlemen, this concludes today's conference call and webcast you may now disconnect. Thank you.
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