Q1 2022 YPF SA Earnings Call
One of them.
Thank you Sergio and good morning to you all.
We begin by expanding on <unk> comments about the evolution of our oil and gas production during the quarter.
Total hydrocarbon production continued with the expansion that began a year ago, reaching 506000 barrels of oil equivalent per day, showing a remarkable 16% increase when compared with the average production of the first quarter of 2021 and growing by 5% when compared to the previous quarter.
Crude oil production averaged 222000 barrels per day, increasing by 3% on a sequential basis, while natural gas remained flat at 38 million cubic meters per day.
And Ngls recovered in a meaningful way to over 44000 barrels a day as operations have made us processing plant were fully restored after the program maintenance activities performed in the preceding quarter.
The positive evolution in oil and gas production gain once again unnecessary unless expected.
On the back of the very rapid increase in our shale production, both crude and natural gas, which almost doubled when compared with the same period of last year.
And although our conventional production declined by 9% when compared to last year. The comparison to the previous quarter is encouraging as it declined by only 1%.
To a large extent by the positive contribution of our operations at <unk>, which continues to reach new production records on the back of the continued response from our EUR and development plan.
Moving to costs unitary lifting cost averaged $11 $7 per barrel down.
Down 1% versus the previous quarter, despite wage increases that impacted during the quarter as part of the previously negotiated conditions with the unions combined with an overall accelerating inflationary environment on the slower pace of the currency devaluation.
Regarding prices within the upstream segment.
Average crude oil realization price increased by 2% on a sequential basis to $59 per barrel and local crude continues being negotiated between local producers and refiners in a way to smooth out the impact of the volatility in international references into local pump prices.
On the natural gas side.
<unk> remained flat at an average of $31 per million Btu.
Assuming into the evolution of our shale operations during the quarter. We completed a total of 38, new horizontal wells in our operated blocks continue with a positive trend initiated at the beginning of last year.
But although this compares positively with historical performance, we were behind schedule as we had originally projected to complete a total of 46 horizontal wells in the quarter.
However, we have already regained momentum.
<unk> commented in his introductory remarks, and expect to catch up during the rest of the year, maintaining and even potentially exceeding our full year production guidance.
It is also worth highlighting that during the quarter, we drilled our first delineation well at the lack access to block, which is fully owned by <unk> and is located outside of our core hover in the low molecular diarrhea.
And we have just finished drilling a second well in the same block during April targeting to fracture both wells in the third quarter and expecting to have initial production results before the end of the year.
Overall, new teams during the quarter led our shale production into further expansion.
On a quarterly basis, our share production increased by 12% and 6% for the oil and gas respectively.
And when compared to the previous year total shale production almost doubled based on a staggering 140% expansion in Shanghai, while shale oil increased by over 50%.
Within the latter production was led by the ramp in production in our core hub, which delivered over 60000 barrels a day in Q1, including a very positive performance at our recently incorporated our or their channel block that produce 3000 barrels per day in the first three months of the year.
It is worth highlighting that the clothing active initiatives between our midstream team and all the value have already started to render positive results.
Short term oil evacuation restrictions have been lifted as the initial expansion awards have concluding putting in service for pump stations that have been idle for the last 10 years.
Increasing total evacuation capacity by close to 20% to 40 to 42000 cubic meters per day.
And the coordinated efforts are now focused on the full expansion of the system that should take total capacity to about 72000 cubic meters per day with some further potential with the addition of polymers.
This major expansion is program in two phases, the first of which is expected to be up and running before the end of next year and the second phase by 2024.
In terms of efficiencies within our shale operations. Our technical teams continue to work relentlessly to introduce further operating improvements to counteract the effects of rising costs in a context of accelerating wage negotiations on higher materials.
As an example of these efforts last week, we have completed our first full pilot of simultaneous fracking in Loma Campana achieving.
Achieving very encouraging results both in terms of speed, which was reduced by 28% or about 50 stages per month as well as in reducing fuel consumption and in turn <unk> emissions, which declined by close to 20%.
Looking into our downstream operations domestic fuels demand remained strong in the first quarter of the year.
Despite an average 5% contraction in diesel and gasoline sales versus the previous quarter based on seasonal factors. Our total fuels dispatched exceeded pre pandemic levels of 2019 by 6%.
To meet this high demand, we manage to continue increasing processing levels at our refineries, which expanded 2% sequentially to an average of 283000 barrels a day.
Taking the average utilization rate during the quarter to 86% with a higher 90% in March in line with historical utilization levels.
It is worth highlighting that the evolution of our processing levels still depends on complex negotiations with local producers in the context of rounding international prices given our reliance on crude purchases from third parties to run our refineries at full capacity.
In Q1 total crude purchases from third parties represented 18% of total processed volumes down from 20% in the previous quarter.
As a result of the higher processing levels at our refineries total imported fuels, although still above our historical average declined during the first quarter vis vis the previous quarter.
Total imports of primarily diesel and to a lesser extent gasoline best represented 13% of total fuels sold in Q1 down from 15% in Q4, 2021, but still well above the historical average of about 7%.
And although these imports lead to marginal losses, when measured against average fuel prices in the domestic market. We have to a large extent mitigated this effect by translating import parity prices to certain wholesale segments as well as jet fuel sales.
Therefore, we have managed to minimize the economic impact while keeping our clients supplied.
Having incremental disruptions in logistics and regular inventory management in certain regions of the country.
Regarding retail pump prices, which affect about 50% of our total revenues during the first quarter, we adjusted prices in pesos by about 20% driving dollar fuels prices higher by about 7%.
This was in line with our strategy commented during our last earnings call whereby we aimed at mitigating the effects of the currency depreciation and partially follow the trend in international prices.
Furthermore, a few weeks ago, we adjusted from prices one more time this time by an average of 12% further reducing the gap with international parity.
In addition during Q1, we have continued benefiting from the high pricing environment on our products that correlate with international prices, which represent about 20% of our total revenues.
These products include petrochemicals as well as lubricants jet fuel propane and Virgin naphtha among others.
And to continue benefiting from these segments during the quarter, we launched a new premium lubricant.
Aldo, which has so far been well received by the market.
On the back of the solid operating performance and positive pricing environment. The first quarter result, 4% sequentially to $1.
So the working capital contributions.
That was anticipated during our last earnings call I alluded to the healthy adjusted EBITDA.
Combined with a continued reduction in gas.
Cash interest expense resulted in <unk>.
And free cash flow before financing of $391 million in the first quarter.
We have therefore completed the eighth consecutive quarter of positive free cash flow accumulating almost $1 $7 million that serve to strengthen our balance sheet and provide us with the financial flexibility needed.
Two continued tackling our ambition growth opportunities.
In terms of cash management during the quarter, we continued with an active asset management approach to minimize FX exposure.
Hitting the regulations currently enforced that prevent us from holding a larger portion of our liquidity and foreign currency.
In that sense in the context of limited available dollarized instruments in the local market and given the increase of our liquidity during the quarter. We ended with a consolidated net FX exposure of 28% of total liquidity.
Nevertheless, if we consider the liquidity invested in inflation indexed instruments as the proxy hedge to currency exposure net exposure would fall to 20%.
Looking into our debt profile, let me highlight the continuous reduction in our net leverage ratio, which declined further in the first quarter to 146 times.
And given the incremental liquidity on the back of the robust free cash flow generated during the quarter.
We have achieved a historical relationship between liquidity and short term debt amortizations now greatly exceeding short term maturities and practically covering all the maturities coming due in the next 24 months.
It is also worth noting that during the quarter, we fully disbursed the $300 million cross border ready loan led by gas.
This financing also contributed to complying with central Bank regulatory restrictions and has permitted us to access the official FX market to proceed with the payment of the $260 million first amortization of our 2024 International bond that was due on April 4th without interference on the last day of March.
And before finishing our presentation, let me mention the recent upgrade to our local ratings communicated by fixed which increased our local issuer rating to <unk> plus from that late highlighting the continuous improvement in operating performance and financial metrics.
And with this I conclude our presentation for today and open the call for your questions.
And as a reminder, that is star one to ask the question.
Our first question will come from Frank <unk> with Bank of America.
Please go ahead.
Yes.
Okay. Thank you.
Thank you very much and good day.
We're going back to your comment on all the volume.
The expectation for growth and it seems like you believe you can continue to accelerate growth going forward could you remind us.
Or tell us what the.
That incremental capacity on the pipeline how much that will mean for your.
The increases.
It will be the potential increase in output that you can have to fill that.
As you look out over the next couple of years when you.
To the.
Thank you.
The seventies I guess at the end of the second phase, but then also on the gas side.
New pipeline that you can.
And to start construction fairly soon ability in process.
Okay.
Sure.
And I'm just wondering how much you think that will mean in terms of the ability to grow gas and when do you expect to start to see that coming coming Onstream and then lastly, looking even longer term now it seems to be with the European gas supply issues in high prices globally for gas pretty much across the board.
Well it seems like there is more.
We acquired being given to trying to do an LNG project and I was just wondering how you see that and what that you think that could potentially mean.
Over the next 357 years.
Okay.
Good morning, Frank.
Thanks for your questions.
On the first one in terms of increasing.
Transportation capacity for oil.
We as of today, we roughly have about 40% share in the transportation.
The covenant transportation capacity of four level.
We would expect.
To remain.
About the same proportion for future expansions, so roughly speaking.
Based on the capacity outerwear is already is coming online.
By now which is about 40000 barrels today, roughly speaking 6000 cubic meters. A day of increased transportation capacity that has already come online we would expect to to fill up our proportion of that.
In coming months.
And then by next year.
Based on the expected Incrementals.
The capacity of about an additional 200000 barrels a day.
That should come online a portion of which are below obviously.
Before the end of the year two.
2023, and the remainder, thereby by the first half of 2024.
But of course at that.
We'll depend on.
The auction processes are actually the contractual processes that all the while we'll pursue in coming months and how the different producers, which have some type of first refusal.
To enter into contractual terms for those capacities.
We'll actually.
Take them, but roughly speaking we would expect to remain around 40%.
Of the new transportation capacity to use about 40% of the new transportation capacity.
Moving to your second question on the gas pipeline.
We were clearly not part of the construction of that.
The government is pursuing that.
We are hearing that it's moving along.
Relatively well and so we've we still expect.
A portion of the first phase three array level by the next winter by the winter of 2023, probably something in the order of 10.
Million cubic meter today.
Incremental transportation capacity for gas.
What accounted for the winter of 2023.
And.
But we have not seen yet an.
An option for that incremental capacity.
So that's still to be seen whether the government comes out with.
Some uh huh.
Opportunities to contract stimulatory appliance plus year, we would expect something.
And similar.
To the auction for the incremental capacity of course, there is no specific information yet.
Out in the market has to win.
We will actually happen and depending on it.
With that we will figure out our ability to deliver on the commitments that might be required and that will determine our ability to be part of that auction.
To what extent, we will be able to reap out of that option.
But generally speaking we would expect that we'd still expect.
Ah.
That that portion of the new transportation will be available at broadly available by.
At the end of next year.
Actually ready for the winter of 2024.
And on a more longer term basis as you ask for LNG opportunities.
We clearly.
There are still a few years away broadly from FEMSA.
No.
As you know that will take several years of construction.
Its severity.
I would say aggressive and challenging.
Project in terms of the capital that is required.
But clearly we are doing preemptive working on an engineering.
Some conceptual analysis.
But it will be ready.
Whether or not likely this for such a project to materialized in the next few years.
So far what I can say is that we are doing our analysis. We do believe that there is an interesting opportunity for the country and for <unk> to move ahead with with an LNG processing plant.
And that will definitely.
Provide further opportunities to monetize.
The attractive resources that we have particularly in back up more time for natural gas.
To be able to export that to to global markets.
But at this point it is very difficult to.
Predict specific timing for such a project.
Yes.
Okay. Thanks, if I could just follow up on the gas side.
In terms of.
If there are auctions and upheld.
Yes.
You have the capacity to move pretty quickly to increase output.
In terms of projects that are.
Got it.
Okay.
I guess my question is how much could you and how quickly could you add capacity to be able to take advantage.
Okay.
Yes that depends on that's why I mentioned it depends on how quick.
Quickly they come to the auction.
When they require the commitments to be online.
Let's say that if we need to put in.
And capacity for for next winter for the winter of 2023.
We would probably need to make to take a decision very soon.
As we were broadly.
We have to put some new processing facilities from natural gas in place if we want to add.
Significant volume right, if we talk about a few.
Million cubic meters today, and let's say two to three 4 million cubic meters a day of extra production.
Rolling into two more quickly.
Establishing some new facilities.
To increase.
Our total production.
In those amounts.
So.
We have the ability to do it we still have the ability to do it.
Yes.
And like to see the auction to.
To come to market very soon.
To actually be able to deliver on that.
Okay. Thank you very much.
Sure.
Yes.
Our next question will come from Marcello.
Credit Suisse.
Please go ahead.
Thank you very much good morning, sorry, if you already talked a little Pablo Thank you for taking my questions and congratulations on the results.
Two questions as well.
First one on local prices.
You were able to.
<unk> prices during the first quarter and as you mentioned.
Just recently last week, you were able to push in another adjustment.
I mean pretty much.
Good provided the debt threshold prices are.
Going up right now my question is how do you see that.
The distance Shreveport Barrick as of right now.
How much I mean.
Rice's would lead to increased mainly on the retail segment.
And how I mean, how are you negotiating shading we've.
The government <unk>.
Dave, which we implement those.
<unk>.
And then the second question.
On Capex execution.
Capex for the first quarter seemed a little bit below let's say quarterly capex expected from the Capex plan for the year, the $3 $7 million.
I just wonder I mean going forward, if we should expect activity to ramp up and then capex should mute.
You're.
The guidance for the year or I mean provided that production is already very close to the X.
<unk> for the year.
We should see actually the capex a little bit below.
No.
Initially expecting.
That is that is it from my side. Thanks.
Thank you Marcelo for your comments and for your questions.
With respect to the first one.
As already commented during the presentation.
We have so far managed our pricing policy for domestic fuels.
In a way to translate the evolution of the currency on.
Considering the local macroeconomic environment.
Yes.
Assessing.
To our rules at least partially.
The spread for international reference prices.
Let me highlight.
Retail prices driven sales represent about 50%.
Of our total revenues in Q1.
While retail sales to wholesale clients where.
Represented about 10% of our total revenues.
In this context.
It's irrelevant to mention.
We have continually adjusting our different clients.
In our segments.
Non linear our way.
Buffy through 40 import parity cost through some diesel wholesale segment.
As well as to jet fuel sales.
While other wholesale clients, who are also adjusted Brazilian retail prices.
Uh huh.
In that sense.
We managed to increase our average fuel prices measured in dollar terms.
About 7% for the average of Q1, but to the previous quarter.
However, given the heightened volatility in Brent prices suddenly were more pronounced rally in crack spreads.
The discount to international reference prices average about 30% during the quarter.
Okay.
More recently on the back of the continuous rally in international prices, we adjusted prices. Once again currently standing at 27% above the average dollar prices for Q1.
Managing to slightly reduce rig up to international parity to around 25%.
Going forward, we will continue to address our pricing strategy.
I mean, I'm always in enlarging the distortion relative to international reference prices.
Sure.
Four zero this considering the dedicated delivery on that has so far been maintained.
In our domestic sector.
The impact of our decisions on our clients.
The ability to afford their fuel costs.
In the local macroeconomic context.
Okay.
Yes.
101.
Okay.
The second half.
Yes, Hi, Marcelo.
I mean I'll take your second question about <unk>.
Capex.
Hugh.
We mentioned.
The first quarter was a little bit slower than we had anticipated.
Also when you consider the.
If you just multiply that by four and it will be below the targeted capex for the year of <unk> 7 million. However, as we mentioned that was.
That resulted from mostly from a couple of factors external factors one was some COVID-19 related.
As of the beginning of the year in January mostly.
Where there was an interruption.
Omnicom variant in Argentina.
Thanks, David.
Some of our upstream operations and then during February where we had some weather related issues also.
Upstream operations, so that basically resulted in the <unk>.
Some slower well activity both in drilling and completion as we mentioned in the presentation, we completed even though we have.
Good.
We saw that in the number of completed wells in the quarter.
Were below our expectations and our targets.
Same happened with some facilities that we had a delayed starts in some of our facility capex facilities installations of works.
Again related to some.
Some logistic issues seen in acquiring some materials, but also mostly weather related issues. However.
We have <unk>.
Again, a lot of momentum already.
Activity has already picked up.
We expect to catch up.
The last graph.
The ground that we had in the first quarter.
Not only we continue to target the full $3 7 billion Capex plan for the year.
Also beyond that.
Might see some.
Some potential increase beyond that as we see some opportunities too.
Mostly on our upstream operations.
So accelerate.
Further our our activity so that is not fully decided yet.
Probably.
The next quarter, we will have further information.
At this point, we see that possibility. So I would say that there is some upside bias potential. So the total capex plan for the year.
Alright, thanks, guys.
Our next question will come from Scott. Thank you from Barclays.
Please go ahead.
Good morning, and congratulations on your results.
Question for you today is the maintenance of the Max's case could you give us an update on the status.
And then on the important days from now thank you very much.
Sure.
Hi, Carlos container and thank you for your for you.
As you know this is.
Sure.
This is one off.
Of our relevant legal contingency that we have.
Which is based primarily on issues that go.
Go back.
Several decades.
But in terms of the important issues.
As you also probably know we have.
Most of the recent information.
In our recent financial statements as well as in our recent 20-F.
But basically just in terms of the process.
The fact discovery concluded.
October of last year.
Expert Discovery began then and then data already on April of this year and by now we are at the instance of the summary judgment in process.
The summary judgment briefing is ongoing and is expected to be completed by June <unk>.
With that allow humans.
Expect it to occur by June is no trial date has been set yet.
So that is still two to.
Defined.
So our view.
This lawsuit progresses.
And Sandy I would say the.
Evidence that both parties.
Our presenting and May continue to present.
The company.
We are definitely continuing to reassess this.
<unk> litigation and its impact on our results.
And and in that way.
We definitely also continue to defend ourselves in accordance with all applicable law and in all our all defense is available to us.
Thank you.
The following question is stimuli about portfolio and about 20%.
Processing needs.
For FEMSA, an important fuel <unk>.
Meanwhile, expansions easing.
Without the need to raise internal crude prices.
You very much.
Okay.
Let me see if I got the question correctly.
We will continue to.
To process about and then with less in this quarter.
From growth from third parties.
It went down from 20% to 18% this quarter, we do expect us.
Our production continues to grow we do expect that proportion.
To continue to be reduced over time.
Most likely expecting too.
To be self sufficient by the end of next year.
Things continue to go along the way we are expecting.
And in that way.
Clearly there is some in.
In terms of.
Local crude prices and local pump right.
I mentioned in the presentation.
The locals.
Somehow Isa reflection.
Off the ability to pass on.
Price adjustments to the pump and at the end of the day trying to maintain.
Relatively healthy and stable margins.
The downstream operations.
Jim Vena, so thats generally.
Generally speaking the view I am not sure because I think I missed part of your question, but I guess I understand most of it.
And we will take our next question from Marina Martin Thanks, Aaron.
Please go ahead.
Hi, Thank you good morning, and thank you for taking my questions I have.
Yes, correct.
We have been able to increase right.
The bank's three times this year.
Crude oil prices.
We now provide.
Right. So what can we expect kind of this time.
And should we see this year.
Tim.
The increase in there.
Thank you Spencer.
Yes.
Thanks, Tom.
Thank you.
Thanks, Sean.
Got it.
Sounds good.
Sure Thanks, Sean pipeline.
Already at full capacity.
And my last question is about your interest in the following year.
And so you have already canceled this year more significant.
Corresponding to the first one.
Okay.
Three years ago.
So what is the strategy.
Sure Randy.
Keith.
Thank you.
Hi, Martina and good morning, and thank you for your questions.
<unk>.
So let's go in order.
Terms of the first one.
<unk>.
As I just mentioned.
We tried to.
Manage.
Local crude pricing.
And privately negotiated way among producers and refiners.
We achieved very challenging we do acknowledge the rally in international prices on this brand.
Local crude to international prices fell at the same time.
As we.
But generally mentioned.
New manage pump prices in their way.
To be consistent with the local macroeconomic environment and the ability of our clients.
Two to afford.
Energy prices and fuel prices.
In this context, so in that sense as you mentioned local crude prices were below 60 on average for the first quarter.
When talking about mezzanine surprises, which is D.
The major accrue local crude processed in our refineries.
And.
The answer specific answer in terms of the evolution off of that price is at.
Yes, we are.
Adjusting.
Marginally those prices higher.
Yes.
We managed to improve.
Dollar prices at the pump.
And also on average when we include our wholesale segments.
As we managed to improve the average dollar price for all the fuel sold domestically.
We are moving ahead in or having some adjustments.
In the negotiations that we have with our providers of local crude so we would expect.
By probably somewhere about 10%.
Higher than the average.
Over the last quarter.
Okay.
But again, that's a constant negotiation and it depends on the on the ability to continue maintaining price you've seen there.
In a recent 11 in terms of dollar prices.
In terms of.
Oil oil bottlenecks.
We have mentioned in our previous call that given the.
Very significant increase in production out of <unk> last year alone.
If you have but also from the other producers, which continue earlier this year as we have mentioned.
Foundation.
We're facing some bottlenecks.
We were getting close to maxing out evacuation capacity and that has been alleviated through the DC Michelle.
<unk>.
Expand capacity by about 20% so given.
Dan.
Seeing any bottlenecks in the coming months.
And even the further projects or the other projects at both our.
So they will have.
<unk>.
In the in the pipeline.
We would expect.
Most of the next two to actually not no cap and right to basically to alleviate oil evacuation restrictions.
Should we move along in further increasing our total oil production out of our out of bank of America.
And finally in terms of debt maturities.
Well clearly for the rest of this year, we have very very small.
Meaning maturities.
So when we look at the next.
12 months.
We added at the very low less than $400 million.
Yeah.
Total.
Debt that matures.
And as we mentioned in the presentation.
For the first time in a very long time, we have total liquidity that.
Is enough to cover almost the next 24 months of maturity so basically.
When you include all the maturities that come due in 2023 in early 2024.
We are not.
Just have a $1 billion.
In total debt matures in the next 24 months, so when we look at our profile.
We are not seeing it as challenging of course.
It's not.
We need to work on it and having average maturities of around $1 billion and 23%.
We do need to take that seriously, but we with normalized activity at the IPF.
Seeing we don't expect to have any major challenges to face that particularly taking into consideration that we are at a very minimum level of total exposure with our relationship banks and with the local market. So we do have ample capacity to tap.
Those sources to take care of maturities, if we end up needing to roll them over.
Then we do have a higher maturity.
For 2025, and I will schedule and.
We will definitely continue to work on.
Or aiming at working on it.
Active way to tackle our maturities early on to avoid facing.
Short term needs as we move along.
In coming months and years.
Thank you.
Our next question comes from.
Ill turn the ACO with Santander.
Please go ahead.
Yes.
Morning.
Listen to the results I have two.
Two quick ones related to all three.
Sure.
Our margin.
Ian Brody.
You've got inflation cost.
Gross loan industry.
<unk> hundred 90 <unk> premium.
Do you see.
Neo tissue.
Yields on these costs.
Cost inflation.
Impacting the margins of the company.
One site.
Thank you for that.
The E P.
That's number two.
Recruitment on Keystone.
Okay.
Does the company.
<unk>.
My first one is do you think of.
One.
Thank you very much if we assume that you're kind of requirements.
We've already done.
Right.
Be careful.
All the models.
We'll provide more information.
On the scalability doubling capacity.
Our core <unk>.
The cadence of boat shows.
Can be done.
Got it.
Sure.
In the 12 months.
Hi.
Walter.
Good morning, and thanks for your questions in terms of margins.
And so it would be that.
And as we mentioned in our last earnings call as well, we do expect pressure from.
Sure.
Our cost side clearly we are working continuously in further efficiencies operating efficiencies, mostly to counteract the effect of macroeconomic inflationary pressures.
Not only local but also international as you know the commodity prices.
That affecting also our material costs.
Imagine the lack of metals.
On the light.
And also as you mentioned wage negotiations.
In the context of.
Devaluation of the currency, you're running a little bit slower than inflation and salary increases.
Thanks.
Our total costs on our margins however, as we.
Managed in the first quarter, we did manage to contain price pressures we are not.
Expecting to.
To continue to be a sufficient and managing those down the road. So we're likely to see some pressure in our in our cost bases. However, we continue to see healthy margins and.
We would not expect to our margins to suffer in a major way even though.
As I said, we do expect further.
Cost inflation in coming months.
In terms of.
The Union negotiations, we have announced that we we agreed on a short term basis.
We.
And in the 'twenty to 'twenty, one 'twenty two.
Salary agreement earlier by by March and then we started a new.
Salary agreement starting on April and we for now only agrees on a on a short term basis and to revisit that.
In coming months.
We will see depending on how inflation continues and our ability also to to successfully maintain our margins.
Be patient with our unions, probably in coming months.
And.
And in terms of fuel imports, we managed to to nominally.
Decline the total amount of the total volume of imported fuels in the in the quarter as we mentioned in the previous quarter our previous earnings result.
Fourth quarter total inputs were higher.
Partially on the back of some inventory buildup. So we don't have that effect anymore.
But still we are still high.
Having less.
So that also requires some higher than historical average in terms of total input.
Yes.
So all in all we envy the importing of about 13% of the fields that.
But we sold that.
<unk> declined from 15% in the previous quarter, but still.
On the average of 7%.
We have historically, but again part of that part of that is the significant or the robust demand that we are facing that even though it has declined from the previous quarter, primarily on seasonal reasons. It steel.
He came.
Above pre pandemic levels that we had in the first quarter of 2019.
So we are facing that higher demand.
Your processing levels.
But at the same time, requiring some higher input volumes also because of the lower biofuels in the mix. So.
So all in all.
When you look at EBITDA compared to the average prices in the domestic market you can you can see some marginal.
Losses there.
But we have been compensating that by adjusting prices on some of our wholesale segments, particularly diesel and also the <unk> field sales.
So all in all I would say that we have to a large extent mitigated those those incremental costs from <unk>.
Imported fuels.
And finally on <unk>.
Unfortunately, I don't have much more to say than we have already commented.
We our midstream team together with all while working on the on the featured expansions of the system.
The new <unk>, we continue to expect that incremental capacity to come online.
A portion of which are by the end of 'twenty fee and the remainder in 'twenty four.
But.
As of now there is no much further information that.
We can provide.
What do you think you can pull up.
Maybe to conclude.
Sure.
And we can move people to yield.
Okay.
There are markets over the rest of the year.
Sure.
The lower <unk>.
Much of the.
So people booking.
Yes.
When you look at the margins per se it depends on so many variables.
It will be hard to say I would expect I would not expect a significantly higher margins. Although we had also entered in a better seasonality in terms of natural gas sales that also.
And then to affect our margins, but all in all we expect stable to slightly lower margins.
Based on the information that we have right now.
Okay. Thank you very much.
Yes.
Our next question will come from RJ <unk> with Citigroup.
Please go ahead.
Hi, good morning, it's understandable in this half.
Quick question you have.
Another interesting.
Chuck.
Ubiquity.
This is the next 12 months maturity.
Your cash position is.
Quite large.
The maturity chart I won't believe it still makes sense to have such a big position cash on what could be lucky to optimize this position or maybe a target level.
On.
Good morning, and thank you Andres for you from the regulations.
Yes.
Yes, we are actually.
Charlie having our liquidity position is somewhat higher.
None of our optimal.
Doug.
What we see as of today is an optimum.
Clearly part of it has to do with.
The slower than expected pace of Capex.
And so we would expect.
Somehow to work on that and then we will as we move along the year.
We would expect that that liquidity to be normalized to a level.
Similar to the 1 billion that we have commented in the past that we will be.
Sort of the optimum level for us in the meantime.
Of course, we are actively managing that liquidity and.
And also.
Looking as I mentioned earlier looking at opportunities to accelerate our Capex plan.
To make an efficient use of that liquidity as well.
Okay.
Okay.
And our next question will come from Bob <unk> with Goldman Sachs.
Please go ahead.
Alright. Thank you. Thank you very much good morning, everybody I have two questions. The first one.
Is it possible for you to help us reconcile the much higher cash flow from operation.
This quarter, which was around one $4 billion.
Significantly above adjusted EBITDA of 970 <unk> in the prior quarters, we saw our cash flow from operations, which was more seamless your EBITDA level around $1 billion per quarter and the second question.
How should we think about the impact of the difference between deal fee show exchange rate and the effective.
Exchange rates in the markets when looking at your numbers does it impact from how our ease their amused match between the shelf God. Your actual free cash flow generation doesn't seem to be the case by looking at your FX adjustments line and your cash.
Cash flow does not seem to be.
But just wanted to confirm that this is the case. Thank you very much.
Good morning.
Sure.
So stop by the by the end.
By saying that there is no distortion generated by the foreign exchange rates.
Yes.
We basically.
So all of our activity.
In our financials everything.
The official FX rate base.
Basically that's the one that we used to.
To bring.
Our exports into the country and also that's the.
The FX that we use to pay for our inputs and also to pay for our debt servicing so at the end of the day everything is going to be the official effects.
In terms of the reconciliation.
It's mostly related to working capital variations due to a very large extent.
As you probably recall in our last earnings call.
When asked about also the reconciliation.
Okay.
And at that time mentioning that we were not necessarily expecting.
Hi, David.
Then.
2021 for 2022.
That is clearly changing as we move along and probably we are seeing some potentially better conditions for better cash flow generation during the year from an operating side.
But at that time, we also mentioned that we would expecting positive working capital contributions and and part of that is for this being materialized. This quarter. It has to do with.
Some suppliers that were paid in advance our late last year and it also has to do with some tax credit.
That we are monetizing.
Part of that in this quarter.
Also the collection of some.
Past due receivables some of them from the planned gas program.
And some of them from other from other clients. So.
That has to do with working capital and then also the.
As typically happens the regasification of financial leasing.
Every quarter.
Some also some reclassification of materials between Opex and Capex that we that we typically have about.
The major or the largest.
Okay.
Financial would come from from working capital positive working capital contribution in the quarter again as anticipated and when we were providing guidance for the year.
Thank you very much very clear.
Our next question will come from.
Hello, Thank UBS.
Go ahead.
Hi, good morning, Thanks for taking the question.
Two questions. The first one is with regards to cash utilization.
You may have.
We presented that Youre expecting.
Neutral to slightly positive cash generation throughout the year and this quarter, you delivered something close to $400 million.
Just trying to understand.
Big level.
Looking forward.
<unk> environment.
All right.
Price increases right Brian .
Or I mean, if.
If we can.
Slightly impacted by the acceleration of the Capex and the remainder of the year.
Second question. Please.
Okay.
Yes.
Catching relationship that you presented.
Yeah.
My first question, how should we think about capital allocation.
The potential in basketball.
Or after.
Okay.
We have essentially paying dividends.
A couple of quarters and lastly on.
Question.
Yes.
The net.
Production.
More.
Yeah.
Thanks.
More.
So just trying to understand how this might play out over the next couple of quarters as well. Thank you.
<unk> good morning.
Thanks for your questions.
In terms of cash generation.
Just.
Let me first clarify when when we provided or the cost guidance.
During our last earnings call.
We mentioned that we expect it to be neutral to slightly negative.
In terms of cash flow generation.
For the year.
And by then we said that.
Being on the on the negative side, we were going to do so in a financially responsible way by establishing a maximum net leverage ratio of two times, so and at the time, we said we would not we would work to not exceed that and if that meant reducing our capex plan.
We would.
We will have we will do that.
That clearly is changing and as we are moving along the year and given the results of the first quarter. We are now expecting to be on the neutral to slightly positive.
In terms of cash generation during the year.
But.
But as commented before we are holding a larger than on an optimum position in cash and we do expect a part of that to be used along the year as we catch up with our Capex plan.
And also as I mentioned, we are even considering the possibility of accelerating or exceeding our capex plan.
Given the the healthier.
Cash flow from operations.
So all in all.
Given the adjustments that we could pursue.
Along the year, we would expect to re in the neutral to slightly positive.
So basically not.
Not anticipating to maintain this level of net cash generation in coming quarters.
And in terms of capital allocation, then clearly we are not expecting a huge net cash flow generation.
I would say that or are these the higher than expected cash flow generation is going to be mostly dedicated to.
First of all our comply with and then potentially exceed our Capex plan.
To monetize.
The opportunities that we envision that we see on our particularly on our upstream operations, where we see tremendous opportunities to monetize our natural resources hydrocarbon resources, particularly like in Watertown. So I'll start that I would say that the the focus of the capital allocation will be capex.
In terms of dividend, so I would say that it's still a little bit too early.
To say.
As you mentioned, we would still need to first.
Reverse.
A negative cumulative learnings.
That we have in our balance sheet.
To then first of all have that regulatory ability to potentially distribute dividends and then.
Take it to our board to consider it.
More formally when the time comes so I would say at this point, it's still too early.
But to give you a summarized answer.
Yeah.
The focus so the priority will.
We'll likely go to Capex.
And finally on imports.
We we do ambition to money to relatively maintain the levels that we have seen in the last quarter, which is above average mostly related with the still robust demand that we see.
Which runs all of our processing capacity.
And also given the lower cost of Biofuels in the mix so given those.
We would expect to remain roughly about the levers that we have seen in the previous in the first quarter.
Okay. Thank you very much thank you.
Sure.
Thank you.
Yeah.
Okay.
Our next question will come from.
Sandoz with Ballard.
Please go ahead.
Hi, good morning, everybody and thank you.
On the call and.
I have four questions sorry.
Yes.
Call.
They should be quick.
The first one is related to the outlook for conventional gas production.
It is falling at a 15% annual rate.
So a couple of quarters now.
You will continue with strategy, replacing the conventional volume.
Unconventional ones or that would make financial sense.
At a point in time.
Invest in reducing the decline.
<unk>.
I'll take the other question please.
Okay. We go buy one.
One.
Joining us again.
We are clearing.
Excluding some effort in stabilizing our conventional production I would say, we do see more opportunities to do so in oil.
At the natural gas.
But that doesn't mean that we continue to look at ways to counterbalance to counteract the natural declining in natural gas as well.
So far in conventionals.
And as we've been commenting we have been doing.
But he would progress in tertiary production, but mostly related to oil and that is.
Particularly in Milan, <unk> matter, which continues to keep.
Keep directly.
<unk>.
Net.
Absolutely.
Yes.
Identifying yet.
Those those.
There are opportunities, but we continue to look at.
Initially.
Ways to torso.
At least minimize the decline on our natural gas and our conventional natural gas production.
Okay. Great. My second question is while much of the discussion regarding investments in the sector revolves around the upstream segment.
But it looks like Argentina might need expansions in refining capacity.
Our belief in the medium term. So are you looking into any expansions maybe modular once of the.
Processing capacity.
Well we.
In terms of refined products, we are not envisioning any significant growth in coming years.
But rather we see some stabilization and potentially some decline in a few years to come given mobility issues.
So what I would say is that we are not envisioning any major.
Refining cash.
Opex.
And what we have.
<unk> already started in terms of the revamping of our refineries, both <unk> and <unk>.
Plateau refineries.
Those capex plans are mostly related to adjusting the quality of our fuels by reducing the sulfur content of our fuels, but also.
We are adjusting the.
Our processing capacity basically in terms of the crude blend that we can process.
Which basically that is the topping D.
At La <unk>.
Sorry.
That refinery and and that will allow us to increase our total refining capacity by about 10%.
That would be.
The only expansion in terms of production.
Processing levels that we that we envision for coming years.
That's great. My third question is related to.
The <unk>.
Crude pipeline interconnecting, Chile and Argentina.
<unk> region.
Much has been discussed lately about reviving that pipeline I don't know if you can.
Comment on that.
Yes, we.
We are working on that.
Clearly on ours, we are working on our side and we understand our partner and not easily also.
Performing they're needed works on their side.
Of the frontier.
The.
We are making good progress we expect.
A portion of the total capacity that is available at the turnaround in pipeline to be available.
By early next year, even potentially maybe late very late this year.
Ali.
Naval about 35000 barrels a day of.
Of transportation out into Chile.
And and we should also see the full potential of the transcend in pipeline.
By late next year once we put in place a new pipeline that we need to.
<unk> production out of the our colt hub or the center of that amount at the center of <unk> to the northern part of Logan to Interconnectivity, both R&D transcend and pipeline.
That's a new 150 kilometers pipeline oil pipeline that we are putting together.
We have already.
Initiated.
The basically the project we have already acquired the materials the device needed and we expect that pipe to be up and running by the second half of next year and that should enable the full.
Export potential through the uncertainty and pipeline, which should be a little bit over 100000 by rest of the day.
By the second half of next year probably.
By the end of next year.
Yes.
Great.
My final question.
What are you thinking about tapping the local debt market for the.
Remainder of 2022.
Or how much money.
Well as I commented earlier, we are already standing at the one of the lowest levels.
Debt outstanding in the local market beyond the.
The more longer dated bond that we issued late last year.
So we would do.
So we honestly, we would love to tap the market to maintain our presence with a local institutional investor base. However, as I commented before we are running with a higher liquidity than than what we consider to be our optimum level and given that we at this point see it unlikely.
<unk>.
To the local markets in coming months, and even potentially until the end of the year.
But that will depend on how our capex opportunities evolve and how our liquidity levels and that will end up retaining our potential needs or capacity to enter the local market.
With a new issuance.
Okay.
Yeah.
That's great. Thank.
Thank you very much that's all from my side.
Sure. Thank you.
Okay.
And that will conclude the question and answer session. At this time I would like to turn the call back over to Sergio for closing remarks.
Okay. Thank you. Thank you very much guys, Florida or in various derivative portfolio and <unk>.
Or your comments on reports on and have a good day.
And this will conclude today's conference. Thank you for your participation and you may now disconnect.
Okay.
[noise].