Q4 2021 YPF SA Earnings Call
Pablo Calderon Y P F Investor Relations manager you May begin your conference.
Good morning, ladies and gentlemen, this is <unk> <unk> investor relation manager.
For joining us the call today in our full year and fourth quarter 201 earnings call. I Hope you. All continue to we say this presentation will be conducted by our CEO , Sergio <unk>, our CFO and <unk> and myself.
During the presentation, we will go through the main aspects and events that explain our fiscal year and fourth quarter results and finally, we will open up the call 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 question May include forward looking statements, which are subject to risk and uncertainties that could cause actual results to be materially different from this big patients contemplated by these remarks.
Also note the exchange rate used in calculation to reach our main financial figures in U S dollars.
Our financial figures are stated in accordance with the IRS, but during the call. We may discuss sandal <unk> measures such as adjusted EBITDA I will now turn the call to <unk>. Please go ahead.
Thank you Paolo good morning, ladies and gentlemen, thank you for joining us on the call today.
On a year has passed since we were announcing the worst onward results for this company.
<unk> recorded Q3.
And at that time.
They had a resilient <unk>.
With affirmative determination towards steer the company through the storm.
Now only a year later, we're proud to percentage of full year recovery reality deliver.
Delivering exceptional results on all fronts in line with the guidance that we had provided.
In 2021, we managed to restore profitability. It has resulted in solid positive free cash flow that in turn translated into healthy reduction of our net leverage.
Adjusted EBITDA for the year.
Ended in line with guidance at $3 $8 million.
<unk> pre pandemic levels of 2019 by about 6%.
And the positive cash flow generation achieved along seven consecutive quarters.
Allowed for in aggregate the reduction in net debt of around 17% or $1 3 billion when compared to December 2019 levels.
We have also accomplished a much needed recovery in our oil and gas production managing to grow it sequentially along the year after five years of continuous decline.
Delivering over 14% growth in the fourth quarter compared to the same periods in 2020.
This was particularly possible on the back of a strategy that combining financial prudency together with company effort to become more efficient across our operations.
Allowing us to fully execute our targeted Capex program.
And at the same time these efforts permitted us to restore a positive path in terms of proved with hydrocarbon reserves.
Reaching the remarkable growth in our reserves of around 24% on a historical high reserve replacement ratio of two three times.
Our production achievements were the result of a conscious effort to simultaneously tackle the natural decline in our conventional fields and the unparalleled opportunities for accelerated development of our sale of blocks.
While we continue prioritizing all over that.
Materialization of planning for at the beginning of the year created a renewed opportunity that we managed to successfully exploit acting as the largest bidder on the public tender and delivering on the challenging production commitments.
During the year.
<unk> progress in our operations, particularly in Vaca <unk>.
Our focused approach towards for obesity in our processes and engineering models.
Permit us.
To continue improving our efficiency.
In that regard we achieved a tremendous improvement in our Frac is speed and more recently in our drilling and speed.
And we were capable to continue reducing the development cost in our hub core on the back of new well designs that resulted in lower average well cost and higher average estimated ultimate recovery.
We have recently revisited the EUR for a title of 2500 meters of horizontal leg at some areas of the Loma Campana block to almost one 5 million barrels.
<unk> of 17% compared to previous estimates.
Along the year, we have also experienced a significant recovery in the local demand for both diesel and gasoline with particular ramp up in the fourth quarter.
This recovery permitted further improvement in our refinery runs.
Reaching an average utilization rate of 85% in the fourth quarter, while also leading to incremental volumes of imported fuels, particularly diesel to maintain the market fully supplied.
And to maintain our brand visibility in 2021, we launched a program to have data in each of our gas stations across the country.
As part of this program, which includes the system through third party financing for our franchisee network 68 locations revamped their infrastructure during 2021.
In addition, during the year, we have oriented the FERC gasification of the future in <unk>.
Started works out there, it's a very aggressive station in the city of <unk>, which will become our flagship location in coming months.
Moreover, along the year, we incorporated 30, new locations to our network to over 16 hundreds of stations across the country, including <unk>.
Customers' loyalty through innovation remains a key priority to upsell in complex market conditions as well as following <unk> on the edge of the energy transition.
And baseball is not only a year of positive economic and operating results.
We have also maintained our sustainability agenda at the forefront of our strategic decisions.
As always the remark sustainability at the core of everything we do and therefore safety of our people is a top priority.
In 2021, we continue showing improvements in the safety of our operations.
As shown in the evolution of the index that measures the frequency of accidents per million hours Award.
Although higher than in 2020, given the low activity performed that year on the back of the pandemic. The result for 2021 continue delivering on the same ambitious lines established five years ago.
To deliver on our safety and environmental goals. During 2021, we significantly increased the budget deployed towards keeping integrity and safety of all of our facilities.
At about $465 million this budget more than double the figure for 2020 and resulted in more than 30% above the average for the last five years.
Among other initiatives discussed allowed us to implement it.
<unk> prevention and control system, a program to automate detection maintenance and repair them and with focus on hazardous liquids and natural gas pipelines as well as a strong line of Oxford to reduce inventory of tanks in hike for risk status.
Along the same line in 2021 and carried out almost 500000 hours of training for direct employees and contractors focused on what we define at the Teng Golden rules to save lives.
Which looks to encourage and promote a safety culture within the entire organization.
We also maintained the sales driving program put in place in previous years, which has resulted in a relevant reduction in the frequency rate of vehicle accidents that compares positively with global oil and gas into the system.
It's also worth highlighting that our salary policy for variable bonus of executives and direct employees.
Is based on a holistic assessment that includes not only a financial and operating metrics of the company, but also sustainability goals in all its dimensions.
Which for the first time in 2022 will include diversity goals.
Integration of a more blue rather an equitable workforce is not only a responsibility we have as a company throughout our divestment in the year, but also.
Because we truly believe it SaaS immediate and long term benefits on our day to day.
Sustainability and in line.
With our policy to promote cleaner and more efficient energy solutions.
During 2021, we have been working hard on making good progress on the path of reducing our direct greenhouse gas emissions.
Within our upstream operations, which represent half of our total emissions. We have made meaningful progress. So far are much more would be achieved in the future.
Given the significantly lower emissions intensity of our shale operations, we expect to continue reducing our carbon footprint and intensively in coming years and have established a target for a further 10% reduction in 2022, averaging less down 41 kilograms of silver equivalent per well.
It'll produce.
This is then seen in the over accomplishment of the target that's put four wall back in 2017 accounting for over 14% and cumulative <unk> zero lactone and targeting a further decrease of six 5% in 2022.
Our commitment towards this reduction continuous foreseeing more than 30 initiatives for the carbonization move our activities as well as having an all time high share of renewable sources.
<unk> energy partners.
Purchases for the last quarter.
Outline our energy transition initiatives YDF loose, our strategic arm to continue expanding our renewable energy matrix.
After reaching <unk> two new for wind farm.
That added 175 megawatts to reach a total renewable portfolio of almost 414 hundred megawatts in installed capacity.
The company has recently announced the construction of a new 100 megawatt solar PV project in the province of San Juan.
Financed by a $64 million long term green bond recently issued in the local market. Finally, it's worth noting that we are also analyzing future projects to Brookfield quality enter a lithium value chain and deploy blue and green hydrogen pilots.
H two our consortium OLED by <unk> technology, Our research and development Company in Association with consent I will now turn to Alejandro talk further in detail into our financial and operating results and before the Q&A section I will share our view of the 2022.
Outlook.
Thank you Sergio and good morning to you all.
As already commented by sorry here 2021, Mark.
A significant turning point for our company.
Not only recovering historical profitability levels, and reducing our net leverage to sustainable levels, but also managing to stabilize our oil and gas production after five years of continuous decline.
Our revenues increased over 41% year over year.
A total of $13 2 billion.
Our standing only 4% below pre pandemic levels of 2019.
This increase was mainly supported by the recovery in field sales both on higher volumes dispatched as well as higher average prices in dollar terms.
In addition, our revenue that correlates with international pricing.
Such as lubricants propane petrochemicals and Virgin naphtha that represent close to 20% of our total revenues as.
As well as higher natural gas sales, which represents about 15% of our total revenues primarily on the back of our participation in the new plan gas.
On the cost side total opex in 2021 expanded by 1% compared to the previous year.
Declining by 13% compared to 2019.
Although these savings ended slightly below our expectations with respect to pre pandemic levels. We are still satisfy that with our performance as cost efficiencies secure within the program launched in 2020 continues to be willing effect in 2021.
And these savings were achieved despite mounting inflationary ancillary pressures that pushed our cost structure higher in dollar terms, given the context of a slow pace of currency devaluation.
Adjusted EBITDA closed at $3 8 billion.
In line with guidance and consolidating a remarkable recovery year over year, even exceeding the PREPA lending results of 2019 by 6%.
Furthermore, our adjusted EBITDA margin reached 29% standing at the high end of our metrics for the last five years.
It is worth highlighting that the year on year improvement in adjusted EBITDA was achieved across all our business segments on the back of a normalization and volumes produced processed and dispatch and an overall improved pricing environment.
In addition, certain operating extraordinary items that negatively affected last year's adjusted EBITDA. Our net person. This year also contributed to the outstanding year on year.
Net improvement.
On the Capex front.
We managed to fully execute our program of $2 7 billion announced at the beginning of the year.
Initially considered very ambitious and difficult to achieve.
However, after a somewhat slower than projected base in the first half of the year, we managed to accelerate in the second half and executing full and without <unk> efficiency as demonstrated by the evolution of the development costs at our shale oil per half that I will comment later on in the presentation.
And as projected.
Actual growth and meet our planning has commitments for the year.
Finally based on the solid recovery in adjusted EBITDA, our free cash flow before debt financing.
$882 million.
Allowing for a significant reduction in our net debt that closed the year at $6 3 billion.
Reaching the lowest level since the second quarter of 2015, and pushing our net leverage ratio down to one six times well below the threshold of two times that we have announced as our financial guidance during our last earnings call.
Our fourth quarter results also came in line with guidance, although below previous quarters, given the impact of the seasonal dynamics in natural gas prices on the back of the new plan gas.
As well as higher Opex expenses in the context of inflationary pressures on our cost base.
Revenues remained flat sequentially at $3 6 billion with.
With higher fuel sales and higher prices on products that correlated with Brent being fully offset by a reduction in natural gas revenues due to the impact of lower <unk> prices.
Total opex increased 12% sequentially, mostly driven by the impact of the evolution of the macroeconomic environment on our cost structure as general inflation and wage increases significantly outpaced the evolution of the currency.
In terms of adjusted EBITDA in total $834 million, 28% below the previous quarter, but standing 26% above the same quarter of 2019.
Within the business segments higher opex impacted across the board, while upstream was particularly affected by seasonality and natural gas and downstream benefited from higher process volumes and better pricing on products with high correlation to international prices.
It was negatively affected by higher fuels imports.
On the back on the FX front in Q4.
Executed the highest activity of the year deploying over 900 million with increases across all business segments, while maintaining our focus on upstream activities, which represented 77% of total investments.
Finally, these results translated into yet another quarter delivering positive free cash flow before debt financing the seventh in a row.
Selling $143 million in the quarter and leading to a decline by another $184 million in our net debt.
Focusing on our upstream business. We are proud to have achieved our goal of stabilizing our total hydrocarbon production after five years of continuous decline.
And on a sequential basis, we manage to continue expanding our oil production by three 2%. Although total production was down by two 3% due to program maintenance works at our subsidiary EMEA and certain gas pipelines that led to the curtailment of some gas production and negatively impacted Ngls.
Furthermore, looking into the evolution of total production and along the year, we have achieved remarkable growth of 14, 5% when comparing the fourth Q 'twenty one with the same period in 2020.
The sustained recovery in production along the year was driven by the impressive expansion coming from our shared blocks.
With <unk>, increasing by 62% all the while shale gas almost doubled in the year.
As a result shale accounted for 75% of our total consolidated production in Q4 growing from 21% only a year ago.
We are also proud to mention that net production in the fourth quarter out of our shale oil per half came our guidance provided during our 2020 earnings call a year ago at 53000 barrels per day.
Regarding prices within the upstream segment.
During the quarter natural gas prices were negatively impacted by the seasonal adjustments stipulated within the new <unk>.
Reducing natural gas prices to an average of $3 one per million Btu.
On the crude oil side, our average realization price increased by four 4% on a sequential basis prices as local crude continue being negotiated between local producers and refiners in a way to smooth out the impact.
The volatility in international prices into local bond prices.
In terms of activity within our unconventional upstream operations in the fourth quarter. We completed a total of 36, new horizontal wells in our operated blocks.
79 shale oil <unk> gas wells.
Although slightly below the activity performing in the previous quarter in which we have completed a record high of 44 new wells.
Fourth.
Quarter results rounded and impressive annual campaign as we have completed an all time record of 138 horizontal wells in the year.
Our previous record, which is there back in 2018 was at a significantly lower level of 91 wells.
As stated in previous calls and setting. These records we took advantage of the above average backlog of drilled but uncompleted wells that accumulated in 2020 on the back of the dynamic.
But we have also kept drilling activity high as well, although closing the year with Iraqi inventory is slightly below our target.
In terms of efficiencies during the fourth quarter, we continued achieving steady improvements in our performance on fracking and drilling speeds.
Averaging over 230 meters per day in drilling and over 180 stages per sub per month on fracking.
And we're not in a multi year evolution of our key operation operational metrics it becomes easier to understand the impressive reduction in development cost at our share loan core hub.
When comparing to five years ago, our shale oil development cost declined by more than 50% to an estimated average of seven $2 per barrel in Q4 2021.
Resulting in a full year estimated average of $8 <unk> well below the guidance provided.
Maybe a year ago of nine $2 per barrel.
Our operating improvements and development plans for our shale resources also contributed significantly to the evolution of reserves $1 1 billion barrels of oil equivalent recording the highest metric in five years.
More specifically proved oil reserves increased by 33%, while natural gas <unk> reserves expanded by 16%.
The addition of proved developed and undeveloped reserves totaled 393 million barrels of oil equivalent in 2021.
Mainly driven by the progressive developments and expansion of our unconventional operations, coupled with the effects of variations in prices and costs.
The addition of <unk> reserves during the year in relation to the total hydrocarbon production of 171 million barrels of oil equivalent.
Resulted in a reserve replacement ratio of two three times in 2021, the highest for the last 20 years.
Furthermore, net <unk> reserves increased by 57% in the year, achieving a remarkable reserve replacement ratio of over four times now representing almost 50% of our total reserves.
Our developments within our shale oil have unchain gas blocks, such as Hillary Hernan Rincon, among Lucia among others, having the largest contributors to these results.
On the other hand on the conventional side reserves additions were supported by the positive results achieved in the Gulf Coast Conservation with the expansion of tertiary recovery projects in Mondale, Asbury and the acceleration of the risking on Payless and travel and Daniela Liam.
Looking into our downstream operations domestic fuels demand was especially strong in the last quarter of the year, increasing 9% compared to the previous quarter and even suffice surpassing by 7% pre pandemic levels of 2019.
<unk>.
The increase was primarily driven by gasoline demand, which jumped 15% on a sequential basis.
Domestic diesel demand increased by 5%.
In terms of refinery utilization our processing levels have further recovered in the fourth quarter, resulting in a sequential increase of almost 6%, reaching an average utilization of 85%.
Even though this average is in line with 2019 levels, we are still well below historical averages of around 90%.
The reason for this being our need to still source about 20% of total processed crude from third parties in the middle of a complex negotiations with local producers.
Given the discount of local crude prices to rally international branches.
As a result during the quarter, we increased imports of premium diesel and to a lesser extent premium gasoline to fulfill local demand within our retail network.
Moving into fuel pricing in the local market during the fourth quarter, we maintain a prudent approach in the context of high volatility in international prices and the slow pace of the currency devaluation and the overall economic environment in the country.
Retail pump prices, which affect about 50% of our total revenues with a deterioration in average gasoline prices measured in dollars.
Average diesel prices remained flat benefiting from the continuation of our strategy to reduce discounts to the wholesale segments that permitted to mitigate the effects of the currency devaluation.
And more recently in early February we introduced a 9% price hike to regular fuels with an additional two percentage points on premium qualities.
With the depreciation of the currency and on the back of the consolidation of the rally in bond prices.
Separately during Q4, we continued benefiting from high prices on our products, but correlate with international prices, which represent about 20% of our total revenues.
These products include petrochemicals as well as lubricants propane and butane naphtha among others.
During 'twenty one we also managed to further increase the penetration of our app, reaching over $2 7 million active users by the end of December an increase of 75% compared to the previous year and Jamie.
Generating over 4 million transaction in December alone, representing 18% of total transactions compared to about 12% at the beginning of the year.
Switching to cash flow despite the reduction in adjusted EBITDA in the fourth quarter, we continued delivering very healthy operating cash flow on the back of positive working capital variation staying above the $1 billion, Mark and accumulating for $2 billion for the 12 months as of December 21.
The strong generation of operating cash flow combined with it.
But also resulted in a significantly.
He is actually in net debt as previously committed.
Cash management during the fourth quarter, we have continued with an active asset management approach to minimize it.
FX exposure in the context of still limited available instruments in the local market.
As a percent of total liquidity.
Finally.
We ended the year with a total liquidity of $1 1 billion in.
In line with our target.
With less average liquidity in the future.
Given that short term financial obligations have decreased significantly.
Total consolidated financial materials.
I wanted to less than $700 million.
The first time in many years that liquidity comfortably exceeded short term maturities.
Furthermore, the recent $300 million cross border Avi loan obtained by <unk>.
Hi, Jeff.
Either reduces.
Our short term financing needs.
This transaction.
Was possible after several months of work showcasing <unk> ability to access cross border.
Even though the central Bank has.
Extended regulations that limit the ability of fragile in companies such as white deaf to fully repay cross border financings that come due in June of this year.
It is our understanding of such regulations that the Catlin transaction.
Plywood such restrictions.
Anything less access to the official FX market to proceed with our international bond amortization in coming months.
It's worth noting that the significant reduction in net debt that took place during 2021, particularly reduced our exposure with relationship banks and the local market.
Those sources if needed in the future.
I will now switch back to <unk> to go through our <unk>.
Thank you Alejandro.
Before moving to the Q&A section I would like to provide you with a quick glance at the hour.
First and foremost we cellphone.
John Financial Prudency.
Uncertainties.
The economy together with you.
The impact on international oil prices will probably added two local volatility.
To maintain our focused effort to deliver profitable products some growth so any large.
And great measure financed through <unk>.
We are therefore committed to maintain our prudent financial approach.
Publishing and maximum net leverage ratio target of two times in line with rewards.
Close.
Sure.
Adjusting prices at the pump.
To counteract the effects of the depreciation of the currency, while also aiming to reduce at least partially the spread between local and international.
Who shall remain conscious of the Argentine economy reality that will probably make it difficult for our sector to fully truck routing international prices now.
We feel confident in our ability to fully execute our Capex program.
<unk> three 7 billion.
Which represent an increase of more than 40% when compared with the amount deployed in 2021.
These investments will once again be concentrated in our upstream activities, where we plan to deploy $2 billion.
One six of which going into our conventional operations.
Within the investments in unconventional who shall invest more than 50% on a net basis in our core hub shale oil operations.
Compass in the Loma Campana, La <unk> Chica, <unk> blocks and from now on including also our wireless 10 year broke.
Constituting the first shale oil block within our core hub to be 100% owned by us on where we have just connected to wealth during December with early promising results.
<unk> net investments in the core ops.
Operational and shining good about $100 million in facilities, including the third train within the oil treatment facility at La <unk> Chica, and a new oil treatment facility at <unk> with the remainder being devoted to drilling and completion activities.
In that sense, we expect to tie in close to 100, new wells during 2022.
Drilling activity should be somewhat higher to build back a slightly larger debt portfolio to prepare for further growth in 2023.
And we are also expanding our shale oil development beyond the core however.
In 2021, we signed just wanted exploitation permit in the north.
Portion of tobacco mortality window.
Forming a new.
Concession called the Buffalo El Toro, notably.
2014, and square kilometers, where we plan to tell you in six new wells in 2022.
As a result of these investments and on the back.
Back of the significant ramp up in production along 2021 were expected.
Our total hydrocarbon production to increase by about 8% year over year, representing the largest organic production growth for our company in the last 25 years, including an estimated 50% jump in shale oil.
Production coming from our core hub production out of the new Cana basin and taking into consideration future growth plans, we have decided to.
Bottleneck, the future of equation of oil and gas production out of Bakken Watertown.
We have created two new.
Two business units within our organization.
The efforts homes.
These teams.
Of identifying.
So we plan to enlarge processing.
And transportation capacity, including the interconnection to the recently announced new gas pipeline.
Raymond as well as investments.
Tied to enable further exportable opportunities to Chile.
As well as through deadline.
And.
Finally on the downstream segment, we will kind of plateau and the coastal refineries.
Okay.
To adapt to new fields.
Helping lower sulfur fuels.
Score <unk> insurance.
<unk>.
The estimated capex.
For this project will round the 150 to 200.
Million dollar range out of estimated capex of $800 million for our next four years.
With a reminder, investments within the segment for 2022 been deployed to finalize their attention.
Some of our refineries to process lighter crudes.
The regular maintenance of our facilities a continuation of the new brand in each initiative within our retail gas stations.
On efficiency sustainability initiatives.
Among others.
Before turning to the Q&A section I would like to once again tell you that I am, especially proud of the Ips scheme of the commitment under airports without whom the remarkable results achieved in 2021 would not have been possible.
And as always I also want to thank our clients for their fidelity on our investors partners and suppliers for their continued support.
We are now open for your questions.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
First question comes from the line of Bruno Montanari from Morgan Stanley . Your line is open.
Hi, good morning, Thanks for taking my questions I have three questions first.
Your budget for Capex this year to date, reaching $1 billion.
So I'm curious to what you are assuming on the budget happen.
With the oil price in Argentina.
<unk>.
Oil to remain at these 57.
Debt maturity, there is quite a bit of debt coming due in 2023 2025.
So today, what is the strategy of the company to cover those maturities YY I imagine youre doing that.
The amount of Capex to recover production.
And third.
Taking into consideration the very high level of oil prices today and has the company been approached by interested parties to acquire acreage <unk>.
And would you be willing to monetize a portion of the excess acreage to help bridge the funding requirement in the coming years. Thank you very much.
Thank you Bruno for the question.
Im going to take the equivalent of bolt on prices.
Local pricing portfolio.
And let me answer in a broader trend.
Okay.
Already commented during the presentation, we will continue monitoring the evolution of key variables.
Such as the depreciation of the currency.
That's an alloy prices.
To determine the merits for further adjustment at the time.
<unk>.
However, given the.
Expect to fully tracking dimensional prices, but rather.
Our lead.
We shall remain very conscious soft on their role in the economic situation in the country.
We are expecting.
Import parity.
Another is <unk>.
We began the reduction in the spread to import parity in early December .
Brendan.
On a per barrel.
Right.
Pleasingly in the last couple of months.
Spike on the backlog.
Last couple of weeks.
Hospitals and their spreads and higher.
Consequently, after bottoming at about 10%.
Retail for freedom.
By early December .
Talent pool poor quality has been increasing TEP close to that level.
The price adjustment performing.
Early February compensated with further upward here in terms of international prices.
To that point.
However, the most of everything.
280.
Further the thoughts one.
We would expect to remain active to maintain our.
Hello dollar margins are sustainable.
We'll be here, where even while others maintain evaluating the convenience.
With up to international bodies.
Yes.
All in all we expect to continue working.
In the call our active therefore with most doctors.
Lynn will ability to local consumer.
Okay.
Yes, <unk> to take data and then the second question yes.
And just to complement that as well on the agenda and context on our business.
We basically run out.
The project.
At the beginning.
Okay.
Sure.
Paul.
Crude oil prices and bond prices was taken at that time, so clearly when put into the economy.
Context of current prices.
Our Roger Wood.
We will be conservative.
In the center itself.
I would've assumed holding that back.
Of course.
Thank you I will say, we will need to be.
We are very prudent.
In monitoring the evolution of the volatility to see how that the.
The rally in international prices and the volatility brought on by the evolution of pricing globally will end up impacting both the local crude and farm prices on index sales effect, our our budget for the year.
Sure.
Then there into the maturity dates.
We're asking our debt maturities for 2020 to 25.
Or do we see that.
Shorter term, mostly 2023 and 2020 for maturity.
Within levels that we feel are very manageable for for basically for historical standards for what they are and what we expect.
Four our ability to manage them in the future.
We are in the order of $800 million to $850 million in each year.
Lee.
Availability, we have inventory.
International markets.
This was mentioned in the presentation.
During 2021 that was actually in net leverage allowed us to reduce very significantly.
The balances that we have outstanding we are financial institutions, mostly our mode.
Most.
11 relationship banks as well as the local market so in that sense.
And we see that we have ample room.
Of course, the remainder of 2002 is that it was taking careful because as you know.
<unk> already secured.
We know the rest of the maturities, including to a very manageable and then for 2000 during the three entering therefore, we feel that the availability of land that we would have at an institutional financial institutions broker.
Local and global as well as the Cape.
Capacity that we have picked up on the local market.
Should enable us to manage those maturities.
A fairly well then going into 2025 of course, we do have a bond maturity on our 2025 minute non international bond. So by that time, we would expect to be at four.
Proactive.
In managing those maturities well ahead of time.
Of course that will depend on the evolution of the international market as it relates to appetite for Argentina, and <unk> in particular, but we believe that we have time for that but of course, we monitor those opportunities very regularly and.
And we will access that market whenever we feel that is the right time to.
Proactively.
Finance or take care.
Debt maturity ahead of time.
Net surplus at the possibility of life.
While materializing.
And then finally on your question about opportunities for joint venture So divestments in brick and mortar as was commented in previous calls.
You'll see that devaluation.
Distortion that that we have the salary set potential interesting.
So the country.
Is there anyway.
Well apart so at this point.
That.
Relevant transact shares are probably not going to take place.
And so we are not taking that into consideration too as part of the financing sources for our Capex plans for 2022.
Sure.
Following <unk> in any material way.
Of course, if anything actually comes up in valuations income significantly.
<unk> significantly closer.
We will definitely entertain those conversations we believe that anything that could potentially.
Surely accelerate the development.
Of the dotcom work.
Our exploration.
It's positive.
At this point we are not.
Seriously considering any such alternative.
Your next question comes from the line of Konstantinos <unk> from <unk>. Your line is open.
Hi.
Good morning, and congratulations on your results.
I'd like to ask two questions today more related to your income statement.
<unk>.
338 million other cost for you on your upstream income statement.
Cost does it entail in Nevada, it increased so fast on a quarterly basis and also regarding downstream financials.
Could you shed some light on your margins on fuel imports.
It's positive.
Diesel.
Ultra ultra low sulfur diesel.
Gasoline imports for the local market. Thank you very much.
Okay.
Franklin County, now thank you for for your questions.
As it relates to your income statement question.
The other line of other.
Income or expenses.
It mostly relates.
Assuming we'll find out.
Drilling deeper into into the financial statements with some adjustments on the provisions for legal contingencies.
During the quarter.
So when you will go into that.
It mostly relates to that.
Also when comparing to the previous quarter also has firm.
Positive results in the third quarter.
Related to the.
Divestment of some real estate assets are generating they are anything other income in the third quarter.
But then when you look at specifically the charge in the fourth quarter as I said, its mostly related to the evolution of that.
Specific account on provisions for legal contingencies to engineer.
Or is that now.
Evolution has a mix of different things, but generally speaking it's <unk>.
The rest assessment.
In terms of provisioning our contingency.
By the end of the year.
And then on your question of.
Fuel inputs.
Clearly during the quarter and as was mentioned during the presentation.
We had increased.
We.
The Amar.
The amount and the volume of fuel inputs, primarily related with any significant growth in demand that we experienced in the quarter.
As was mentioned earlier in the presentation total demand fulfilled in the local market increased 9% in the quarter.
Part of that was sourced through higher processing levels, which increased by 6%, but then the remainder was taken care of through.
Clearly imports.
Mostly.
Clearly as you know we keep on acquiring.
About 20% of our crude purchases of our the total group profit from third parties.
And so also given the discount to international prices versus local crude prices.
On it.
It became a little tougher to source local prudent to further improve our processing levels with our refineries. So the remainder will search from imports.
And in that regard also the increased volume of imports, which.
Mostly for diesel which is the largest portion of our visa of our yearly inputs.
<unk>, representing about 20% of our total retail sales in the quarter.
That is significantly higher than the historical average of around 10%.
Of total Liza phase source through important inputs.
That amount those so that volume also included.
Specific.
Buildup in inventories that we adjusted in the fourth quarter given the.
Larger or higher average daily demand.
So when taking out that specific consideration for their <unk> inventories.
And looking into the evolution of local demand in the first quarter of each year.
Going forward, we would expect.
The average of imports versus total diesel demand.
You go down to about 15%.
And also take into consideration that that number also.
<unk>.
Basically counteracts the effect of <unk>.
Smaller.
The portion of Biofuels biodiesel, particularly in our diesel mix ultimately dwindle down from over 10% in the past two 5% given the adjustment in regulations. So also that is another source of demand for inputs.
We need to compensate that lower our proportion of biofuels in our in our oil field mix.
Our next question comes from the line of Andrea <unk> from Citigroup. Your line is open.
Good morning, everyone. Thanks for that Disinflation regulations from the financial results and ancillary consolidate very solid.
Our support this.
I have two questions and number one at the very beginning of the question. You said that you were revising upward EUR.
Is he made to one 5 million barrels of oil equivalent.
Sure.
Some projects can you say.
What type of projects is a magnet market cheap bank.
<unk> and Loma Campana among variety.
The second question is you are seeing at relevant inflation cost pressure in the absence segment in particular and the last one is if you can remind us how much is that we see are all about planned as of the end of last year.
<unk>.
Thank you Andres.
Sure.
On the EUR question.
It is very specific.
On the marketing partner on the Loma Campana block bodies.
Targeting.
Activity, specifically related to the <unk> segment of the moment Empanel block in that space.
Specific area, we adjusted.
Our type well and.
In the context of that turmoil for the well in EMEA.
500 meters of horizontal drilling vertical within 500 meters horizontal leg.
We have adjusted the average EUR by 17% higher to $1 5 million.
So it is very specific to provide well sorry for that.
And to that segment.
But clearly we are seeing DRAM and engineering that we are putting together and the extension in the average.
For example, on our pad wells that.
Overall <unk> are trending upwards.
And so clearly that helps also our improved development costs.
On our upstream costs.
Yes, definitely we are seeing inflation pressures both from.
Service inflation, particularly wage pressures and salary pressures.
Mostly then.
Those.
Those levels of inflation in salaries are running faster than the depreciation of the guarantee so in dollar terms we are seeing.
Pressure on our on our lifting costs.
Both in conventional and unconventional segments.
Simply to say that when you look at the the average lifting cost for the year.
We're still about 8% below 2019, when looking specifically at the fourth quarter on average.
We're relatively in line with 2019.
But then on that.
On the evening of the composition of that average lifting cost we can point out that our lifting cost on conventional blocks.
Went up.
Clearly on a yearly basis right in saying.
<unk>.
But that is primarily as a result.
<unk>.
The significantly lower production coming out of our unconventional activities.
Just to put it in context, our production when comparing the fourth quarter of 2021.
The average of 2019, our production on those fields came down by 25% of course more than compensated to a large extend with our increasing our in unconventional.
But then at the same time.
Our our lifting cost.
Went up.
In the lower propulsion.
So basically the.
<unk> unique on a unit basis it went up.
But.
But again.
Less than the reduction on the overall production and the opposite happened with our unconventional where we have significantly lowered on a per unit basis, when comparing to 2019.
Of course helped by the increased production out of those flocks we're at our.
Quarter, one was below $4 per barrel in unconventional amounts.
Which is a decline of about 25% when compared to the.
During 2019.
We will see pressure, but we are managing to keep our costs under control.
But of course going down the road if these inflationary pressures in dollar terms continue.
We even will be partially mitigated by the further increase in the overall proportion of shale on the total production portfolio, but definitely.
Cost pressures will likely be there.
And.
No I'm, sorry, and finally ill answer question on receivables.
From the plan gas.
I will tell you as of today.
Payments.
Our.
Very relevant for the most part regularize.
As you probably remember our payments from the new blend us Ali widening.
In two parts.
First day benefit first installment for 75% of your invoice.
Which has to happen within 30 days of invoicing and then there is the remaining 25%.
That is.
Already scheduled to be paid.
With some delays.
From from the specific regulation, another 30 days basically.
Using extra time for the authorities to.
<unk> came up with that final figure zone.
From the final figures are provided by each for the you said on that regard what we are seeing is that.
Payments on the initial 75% of our pretty much regularize Turner and we have a very minor delays of about.
Longer than one month.
But then yes on the drawing on the remaining 25% we do have some.
<unk> receivables that have accumulated.
As we only collected there.
25% for assurance of the invoices.
January and April of last year of 2021.
As a reminder, pending.
Pending payments that amounts to about $30 million as of today.
Our next question comes from the line of Regis Cardoso from Credit Suisse. Your line is open.
Hi, guys.
Hello, Pablo Thanks for taking my questions.
A couple of follow ups.
Two questions on topics, we've already got sort of Gladstone are touched on.
First is.
Considering the cost inflation.
I wanted to get a sense.
You believe you need price adjustments to make up for the cost inflation in order to achieve your EBITDA.
Expectations or.
I mean or whether you already embedded in the guide.
Guidance.
The expectation that you would have declining margins.
Back of that inflation rate.
And then still on the topic of the or the price adjustments.
Of course now.
Oil prices trending significantly higher.
At 110.
Darrell Brian how do you see this play out in Argentina.
You would be able chip that's true.
These higher prices or instead would you expect the growth.
Two funds.
Importation of diesel gasoline.
Sure.
The country might become.
June quarter throughout 2022.
And then just finally, if I may one question regarding the number of drilled and uncompleted wells.
Number of wells.
It has declined for a lot of uncertainty.
In 2020 to 43.
Just wanted to get a sense of.
How should we interpret this.
Because we are being more efficient in tightening up the wells or.
Or is it.
In any way something that you have less wells to put onstream now already or activity.
Has low down in the fourth quarter. Thanks.
Hi, Rajeev good morning, and thank you for your questions.
In terms of your first question about <unk>.
Cost inflation, and how we treated for budgetary purposes.
Of course, when we're putting together our budget.
The delivery of our own assumptions in terms of macroeconomic variables and how they will translate into our cost base and so when.
When we put out our guidance in terms of Capex and the potential free cash flow.
Effect of that Capex, saying that we might be in the neutral to slightly negative territory.
We do have contemplated our assumptions on inflationary pressures.
As I said that also contemplated conservative prices.
In terms of yields and good.
But.
And it's hard to say at this point, how both things will end up playing out.
But at least that are trying to answer your question at least that we we can say that we are taking into consideration the impact of inflation.
Shannon and how it plays out with our view on the devaluation of the currency during the year.
In terms of.
Their impact on our cost structure.
What I can say that clearly that generates an increase.
Just on our budget assumption diluted increase our cost base generally speaking.
And again that is considered in our assumptions for free cash flow generation and free cash flow for the year.
Then on the question of price adjustments on the evolution within the current context, clearly <unk> has already touched upon.
That issue in terms of our view.
Maybe specifically related to the current situation of prices high level and then what.
Look I would say that.
Again, repeating what cellular saying, we need to remain cautious and prudent in figuring out how the different <unk> play out.
We definitely and also as mentioned in the presentation.
We are very focused on at least maintaining our dollar margins and by that meaning that we should at least.
Gas prices.
To absorb the evolution of the currency.
And of course also aimed at reducing at least partially the spread to international prices.
How successful we are going to be in that it's still a question Mark and again not only defense.
On our Neal, but also on the general context of the macroeconomic situation in the country and the potential.
The manifest that that could have.
Of course this is also related.
And cash is an important correlation to the price of crude locally.
At the end of the day, both buyer will go together.
And of course as long as we cannot.
Fully clear.
Slates.
International policies to a bump.
That unfortunately also effects.
The pricing for local crude.
But again that.
It has been in constant negotiation between upstream and downstream months clearly we are mostly integrated but still on a net basis.
Similar because we still have about 20% of our group.
Of total crude from third parties.
That's a constant negotiation for the last few months between upstream and downstream.
<unk> gotten a little more tenths of course, given the current situation in the international prices.
But we are still hopeful.
And expect.
That was.
The consensus and the rationality, among all parties to sustain and to be able to continue sourcing.
The local demand.
In our fairway.
Sure.
Logical profitability.
For different segments, along the value chain.
And finally on your question about <unk>.
Yes, as I've mentioned during the presentation. The total balance was extra decline over the year.
Particularly in the fourth quarter.
We took advantage of the MLR, we explained that at the beginning of the year, we took advantage of the larger than usual.
DUC inventory that was a result of the mostly coming out of the pandemic.
To accelerate.
Production growth through further tightening and drilling activity. However, we get drilling activity high and Thats, how we still manage to keep a healthy level of ducks going forward.
But probably likely going to see some increases.
Inventory of Vacs, but marginally down the road because we feel that.
We have roughly speaking.
Level that provides enough flexibility to our operations when.
When looking at the number of drilling rigs and Frac sets.
We should have an operation beauty during the year and so.
Most likely you are going to be somewhere between this number on the figure of.
Published in the in the previous quarter somewhere in that range, we will manage our our DUC inventory on our shale operated shale blocks.
Your next question comes from the line.
Fernandez from the launch your line is open.
Good morning, everybody. Thank you very much for the materials and the time on the call.
Three questions I would like to go one by one if you don't mind.
My first question is related to the.
Refinery utilization might be this year.
<unk>, 90%, if im not mistaken on this last quarter.
This is important not only for the company, but also for the country from an FX perspective.
How high do you think you can go into 2022 in terms of utilization.
And would you expect perhaps older refineries that have been enacted during 2020 and 21 not owned by <unk> other refiners in Argentina.
Go online this year.
This higher utilization is going to translate into lower exports.
On the country ethanol crude exports.
Probably again.
Okay to start with a question.
Sure.
Yes, as mentioned utilization at our primarily to recover in the fourth quarter.
Part of that has to do with an increase in demand part of that also has to do with <unk>.
Lower utilization in the third quarter DRAM, some maintenance work earlier in London or the work that we were.
Executing during the quarter primarily between.
July and August .
So that pushed our utilization rate on average to 85.
And although improved from the previous quarters and coming out of the dynamic that is steel.
No the average of 90.
That we used to having the past.
And now how we expect that down the road it has to do with our just commenting before in terms of the negotiations between.
Downstream and upstream.
In terms of sourcing local crude.
To further increase the utilization rate on the refineries.
So based on that.
Randy the spread of local crude prices to export biodiesel.
Sure.
We brought on we would like to see but we really are not.
I'm not going to see a significant further increase on the early utilization rate of your refineries.
We also don't expect.
Local demand to continue increasing at the levels that we experienced in the fourth quarter actually for the first quarter, we had already seen demand being stabilized and potentially even a little lower than the fourth quarter.
Particularly in January local demand.
The accelerated and then it bounced back a little bit in February but overall in the first quarter, we are likely to see a little bit.
Lower demand.
Compared to the fourth quarter.
And then given that.
And along the same level of utilization rates at our refineries or potentially slightly higher during the year.
While we are likely on a fee that the.
Total imported volumes.
I'm going to remain high.
On a year to year basis higher than trying to anyone with a ramp up in imports.
Last year took place mostly in the fourth quarter.
So an average quarter, probably below what's happened in the fourth quarter because as we commented before the fourth quarter was also unusually high because of the buildup in inventories.
So most likely on average we are going to see lower level of imports compared to the fourth quarter, but on a year over year basis total volumes are likely to be higher than that going into anywhere.
Yes.
Okay.
Thank you and I don't know if you can touch a little bit on.
Oh.
What might be happening with some other areas.
The refinance in Argentina could go online to you or not.
Okay.
Well.
Generally speaking, we do know that some of our competitors are having some major <unk> for us.
As we speak.
So that can also generate some extra imported volumes beyond that we.
Particularly don't know of any specific.
Issues on the refinery.
System overall during the year.
So unfortunately no.
No more color that I can share at this point.
I will definitely tell to our downstream experts and if we have any particular.
Additional color, we will definitely we wrote to you.
Your next question comes from the line of Luis Carvalho from UBS. Your line is open.
Yes.
Thanks for taking the question.
And maybe even Q2 connectivity.
Just one on the cash flow.
<unk> hundred 90 <unk> presentation.
They're really helpful neutral 2000 <unk>.
Trying to reconcile the cash flow.
For the year.
Even considering significant increase EBITDA level.
We still see that income.
When we say cash position than the $1. One that you ended the year with.
As you have seen that to be paid.
The $3 $7 billion in cost savings.
Concerning the use of the cash flow in 2022.
Sure.
Demand for <unk>.
That makes sense considering that rollover.
And inbound preowned home, how you guys are doing.
Need to renegotiate the $700 million that you see.
In 2022.
And the second question is with regards to <unk> means that we need with Argentinian international.
<unk> launched the film.
Okay.
The module.
To achieve multi energy sector and the government subsidies.
In that front, so just trying to understand also how these agreements.
My impact.
Eight point negative.
The company aimed at century with regards to <unk> the freedom to point to.
For the international markets.
Pricing looking forward. Thank you.
And as from the launch your line is open.
I'm sorry, operator can you hold on one second because we need to answer this question.
Sure.
Turning to figure out from a funnel of Minneapolis.
Yes.
Sure.
Good morning.
To address your questions.
Clearly on the cash flow issue of course, we are not yet disclosing our budget in terms of adjusted EBITDA for the year.
I will move our renewals say that we are not expecting any significant increase.
Compared to that we saw and as you clearly say, we do have an ambitious capex plan.
That has to be refinanced our total cash expense for the year.
Power is expected to decline the average amount of debt.
Trended downwards.
Compared to the average of 2021 and then we have to say that we don't have some positive.
Working capital variations.
Variations.
Stepping in.
In intelligent view, mostly related with the collection of some.
Receivables that we still have in our balance sheet by December .
Part of that related to.
Gas distribution for example clients.
We are collecting during the year and some other working capital adjustments that we are now forecasting.
And then of course, we are also saying that we may end up having.
A relatively small negative free cash flow during the year <unk>.
It might require some incremental debt.
No. We are saying also that that incremental debt will be capped.
Not to exceed our net leverage ratio of two times.
During the meeting 2020.
And clearly on that regard, we as I said before yearend.
That the nominal maturity that we have been in the year.
Mostly taken therefore already and they're received.
Two a majority sell very small and we've adapted both our balancing outstanding.
<unk> with relationship banks as well as our exposure to the local market.
It's interesting.
Minimum.
For many years, we will feel that we have ample room and keeping that maximum leverage ratio of two times.
And if anything if for any reason our operating cash flow is not enough to do that.
And as we said last year that may affect our total capex plan for the year, but at this point, we feel confident that we should be able to fully fund.
There are $3 7 billion Capex beryllium.
Within the assumptions that I have just laid out.
And.
And regarding the potential impacts on the IMF negotiations.
Well clearly.
It's hard to say.
Generally speaking, we don't see that.
A direct impact on our particular business.
As you know.
Both on the side of crude oil local crude oil and corn prices. There are no subsidies can be eliminated with the real reduced by the government.
And on the side of potentially reducing subsidies on it on other segments.
So on some of our subsidiaries.
Nevertheless.
But.
I will tell you that it would be only marginal.
For us clearly.
The overall context of inflationary pressures related to to adjust the prices at the pump.
That also relates to the questions.
As before in terms of our mission or.
Views in terms of how we see our pricing evolving along the year with China.
Sorry heel tackled already.
Commented also briefly before.
So unfortunately, not much to say, we don't expect to see any significant impact.
Driving a specifically from the IMF negotiation or into our business.
His skill Fernandez your line is now open.
Thank you.
So basically two questions should be quick.
The first one is related to in your budget for 2022 of your guidance.
How much are you contemplating to get us inflows from working capital management.
And my other question is related to the while the new hydrocarbons law.
Probably not moving forward or at least is stalled.
And Congress.
It seems that the chapter on fuel dock upset.
B Penn for approval in a couple of months.
I don't know if you have any updates on that front.
Period.
Can you repeat your first question because we did the landlords interim cutoff on Laguna fully grasp.
Sure in your guidance in your budget, how much are you considering.
<unk>.
How much money is coming in due to working capital management.
Yeah.
Okay.
Yes.
Again, so we are.
Because if we specifically talk about working capital, we're putting to work full assumption so on adjusting rates et cetera.
Yeah.
Unfortunately.
Let me at this point in time not be so specific.
Because clearly we see some volatility and that's why we prefer to be prudent at this time are not fully disclosing our specific budgets in terms of adjusted EBITDA and.
And specific working capital what I can say is that.
He mentioned on Rich's question.
We would expect.
Some positive impact.
Not huge not major but we lose contribution.
Great.
And in terms of the law.
Yes.
Clearly.
As we speak.
We don't have.
And up happening with it.
Okay.
Danielle.
So news.
We would tend to say that it might be offshore project that was presented to congress might not actually be.
The approval basically we understand that there are some some concerns about the complexity and the technique.
The technicalities incorporated into that into that low.
Owing to our project.
But we will see.
We do expect to see maybe a shorter and more specific Brexit.
Brexit a law that will touch upon.
Certain aspects that need to be addressed in the near future part of that.
Fuel tax.
That you are asking about.
So we do expect that to be clarified and put forward in the near future.
To provide more stability and clarity in their way of anticipating the evolution of that component.
Great. That's all from my side, Thank you very much.
Sure. Thank you.
And your next follow up question is from Konstantinos.
Your line is open.
Thank you. Thank you very much.
Just a follow up on <unk> question on fuel needs.
Leads for the power generation segment.
Prices internationally.
As for LNG, so plenty forecasting a positive impact on.
The power sector gas OLED needs.
And does it perhaps means that you could score higher crack spreads on eventual additional volumes for diesel and fuel oil towards.
I apologize for this sector and.
Just one quick one.
You mentioned debottlenecking infrastructure for trading.
Trading volumes from a competitor of course could you share with us a ballpark estimate on the capex required to fulfill their scale and how much evacuation capacity with it.
Thank you very much and again congratulations on your results.
Okay.
Thank you we will continue for the comment.
Terry.
Second question.
And as you know total production.
And from oil producers.
Out of the Makena racing down very significantly in 2021.
One about.
250000 barrels per day in December 2020.
We will announce.
An average of about $320000 in December 2021.
The <unk> is another.
You'll not see feed.
Okay.
Both on three.
Incremental production, we do next.
Meaning.
And was the result of the Zambian CRE loan production.
Led by our company.
Increasing production by 62% over a year.
Reaching almost 140000 borrowers.
Growth in last December .
This is impacting production.
We'll have more pronounced.
Previously expected by the industry.
And that resulted in uneven to anticipate investment in midstream oil to Debottleneck and enabling the continues.
Spansion of local moniker.
This investment non proportional of annuities.
Yes.
The gallery.
Through our midstream subsidiary.
So on the value that we have 37%.
And again, we have a 30% participation.
In two different initiatives.
In the in the future on the values undergoing revamping of core compression as patients.
That have been idle for over 10 year.
We have a larger amount in 'twenty.
<unk> thousand borrowers.
Or about 10% of the liquidation capacity to political salad.
In the second quarter of this year.
<unk> is around.
Around the $50 million.
In addition, the revamping of the other four pump stations currently in operation and more than 500 millimeters of any renewed.
We expect it to further.
200, <unk> per day of additional capacity.
In 2023.
Neither capex 60 may be the biodiesel wallowing around.
444 $450 million.
On the storage capacity in Portugal solid.
By our subsidiary.
To provide further explore the flexibility through that one.
And Brian way worse.
Works are also meaningful <unk>.
The current facilities.
On the uncertainty on oil pipeline.
Both EMEA OTC.
We have also participation.
To put them back online expecting to cover the Paypal on running by the end of the year or beginning of next year.
We land new export capacity of about.
35000 borrowings per day.
We define our target after putting together a new oil buying.
Often about 130.
<unk> <unk> from the call.
But I'm not about to Fernandez.
Over.
100000 barrels per day in the second half of 2023.
The strategy that the industry is following we expected a portion of the production of falling more as it relates to your other question.
In terms of our sourcing extra demand from the power sector.
As commented before right we.
And the academic without that extra demand.
Seeing.
Probably a higher volume of imports during the year compared to last year.
And that relates to.
I would say.
Our rental utilization rates at the refineries.
Being limited.
Neither in the negotiations of the sourcing of local group.
So in that context.
I would say that any incremental demand from the power sector.
90 resource to further inputs.
That meeting is.
The shift in mix or required to switch a portion of natural gas or LNG.
Xtra liquid.
Slightly to further increase the volume of inputs and.
Of course.
Historically at those.
That segment.
Those have been provided so any any feels any liquids.
So with our system to power generators are priced at parity. So in that in that regard there are no restrictions.
But in.
Let's see.
Sure.
Further business opportunity coming out of that.
And there are no further questions at this time I'll turn the call back over to Sergio for some closing remarks.
Thank you very much guys for minority interest portfolio in like the F.
For your comments on reports on how the debate.
This concludes today's conference call. Thank you for your participation you may now.
[noise].