Q2 2022 YPF SA Earnings Call
Hello, and thank you for standing by my name is Regina and I will be your conference operator today at this time I would like to welcome everyone to the Y P. S. Second quarter 2022 earnings webcast presentation. All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question Press Star One again I would now like to turn the conference over to Paolo Caledonia, <unk> <unk> IR manager.
Sir Please go ahead.
Good morning, ladies and gentlemen, this is wiped.
<unk> I've got them money.
Thank you for joining us today.
<unk> got plenty to do.
Earnings call.
Today, we will have some introductory remarks.
He was CEO Pablo Iuliano.
Then our CFO Alessandra will go through the main aspects the whole second quarter results.
Before we begin I would like to draw your attention to our cashless payment, but a light too please.
Please take into consideration that our remarks today and answer to your question May include forward looking statements, which are subject to risks.
That could cause actual results to be materially different from expectations contemplated by these remarks.
Also know the exchange rate using calculations to reach our main financial figures in U S dollars.
Our financial figures are stated in accordance with idea for Rev. But during the call we might discuss but no negative for rest measures such as adjusted EBITDA.
Now, let me turn the goes to Belo Ullianna.
Thank you Pablo good morning, and thanks, everyone.
Every one for joining today.
I'm delighted to be with you for the first time to report our second quarter results.
Before getting into a specific right.
Like to begin my remarks by thanking all of now former CEO .
Who two years ago trusted me to rejoin <unk> to lead our unconventional liberation.
Thank you took the helm of the company at an extremely difficult time, not only for white deer from Indiana.
For all of the economies worldwide.
<unk> through the strong with a firm determination successfully.
The company back on the path of profitable growth.
Therefore, the positive result that we are presenting today.
The outcome of such a strong leadership on the starting job performed by the mall.
Chinese telephone and data on more than 40000 people that indirectly contributed with us.
Hum.
We will continue working to deliver on our ambitious targets.
How would you like to also express how proud and honored I am to affirm the responsibility to lead the largest integrated energy company in the country with my firm commitment and that of the entire board of directors.
Executive team of tuck in <unk> to the next level.
By growing consistently in a profitable way to become a net exporter of energy within the next two years.
All the while we maintain a program comparative production strategy.
Having set the uncertain viability of our operation.
For front of our day to day decisions.
Now.
Moving into the very purpose of this call. Let me start highlighting that this was a very robust quarter.
We continued delivering solid operational and financial results, we continued expanding our profitability gaining further operating efficiency and consolidating their production will grow.
We have been delivering for over a year later AG.
Most border on the tremendous progress.
Has been gaining in our Bakken with operations in the post pandemic.
We therefore.
Very comfortable with our ability to deliver on our ambitious guidance issued at the beginning of the year.
Justman them to establish more challenging goals as Alejandro legal accrual by the end of his remarks.
Now the call to Alessandro to go through our results for the second quarter.
Thank you Pablo and good morning to you all.
During the quarter, our total hydrocarbon production average.
<unk> hundred 4000 barrels of oil equivalent per day remaining essentially flat vis vis the previous quarter, but consolidating a 9% growth when compared to the previous year.
Similarly, leveraging on the very positive performance of our shale operations.
Adjusted EBITDA reached a strong quarterly mark of $1 5 billion expanding.
Expanding 54% from the previous quarter and 38% on a year over year basis.
This outstanding increase in adjusted EBITDA was primarily the result of higher prices across the board, including those for fuels sold in the local market other refined products, so locally and abroad and the seasonal increase in the average realization price for our natural gas production.
In addition, the sustained oil and gas production and the increased refining processing levels.
<unk> contributed to the inter annual improvement in adjusted EBITDA.
On the negative side, however, total opex jumped 34% when compared to the same quarter of last year, primarily as a result of the overall accelerated inflationary environment. The wage agreement negotiated with the unions and the incremental transportation and energy costs, given the increased activity levels.
In turn the strong operating results translated into the highest quarterly bottom line in the company's history with net income reaching $798 million accumulating over $1 billion in net income during the first six months of the year.
In terms of our investment activities Capex totaled $932 million in Q2, representing an increase of 25% on a sequential basis and 61% on a year over year basis, accumulating almost one $7 million in the first half of the year.
After a slower start in the first quarter given the second quarter. We have gained momentum and then now expecting not only to meet but even probably surpass our initial investment plan for the year given some additional activity we are planning for the second half.
Finally on the financial side free cash flow was positive for the ninth consecutive quarter of $310 million accumulating over $700 million during the first half of the year.
This in turn translated into further strengthening of our balance sheet as our net debt declined to $5 8 billion.
Pushing our net leverage ratio down to one three times.
Focusing on the evolution of our oil and gas production during the quarter.
Although total production was relatively flat versus the previous quarter. We have continued to expanding our crude oil production, which averaged 225000 barrels per day in the quarter.
On the other side natural gas production declined slightly while Ngls had a five 7% contraction primarily as a result of transportation constraints in our non operated area Luckily that that should be completely lifted during the course of August .
Nevertheless, our investment plan for the year is allowing us to keep their annual production growth at a healthy pace with total hydrocarbon production standing 9% above the same quarter in 2021 and.
And more recently resumed sequential growth with preliminary production figures for July increasing to 512000 barrels of oil equivalent per day.
Moving to costs.
<unk> average $13 $3 per barrel of oil equivalent across our upstream operations, an increase of 14% versus the previous quarter, primarily on the back of wage increases that impacted during this quarter, probably appealing activity and increased energy costs combined with an overall accelerated inflationary.
And the slower than expected pace of the currency depreciation.
However, when we segregated lifting costs for our Shiloh core hub operations, we managed to achieve a 5% sequential reduction to $3 $5 per barrel.
Efficiencies implemented during the quarter combined with higher levels of production more than compensating the general cost pressures.
Regarding prices within the Oxford segment average crude oil realization price increased by over 10% on a sequential basis to $65 per barrel.
As price increases in local fuels during the quarter made it possible to improve prices of local crude although steel price at a discount to export parity.
And on the natural gas side prices increased by almost 30% to an average of $39 per million Btu on the lack of the seasonal adjustments within the plan gas contracts.
More specifically with regards to our shale operations, both shale oil and shale gas continued showing remarkable growth compared to the previous year, while also marking fresh new quarterly production records total shale oil production averaged 70000 barrels.
Today in Q2, while shale gas averaged $15 5 million cubic meters per day, increasing by 5% and one 2% respectively.
And when compared to the previous year shale oil production expanded by almost 50% while shale gas increased by over 80%.
In terms of activity during the quarter, we completed a total of 29, new horizontal wells in our operated blocks, reaching a total of 67 completed wells during the first half of the year.
Furthermore, during this quarter, we increased the risk of feeling activity beyond completion activity to enlarge our inventory of drilled but uncompleted wells in order to recover operating flexibility in line with what we have anticipated during the last earnings calls.
That sense during Q2, we drilled a total of 38, new horizontal wells 34 of which were in oil producing blocks, representing the second highest quarterly mark in terms of drilling activity.
During Q2, we also established new records in terms of horizontal legs drilling a four well pad in Loma Campana, which contains the three largest wells in all of that comparator at over 4400 meters of horizontal length.
And it is also worth highlighting that during the quarter, we drilled a second pan India, whether the China block, which is our newest development within our shale oil hub fully owned by <unk>.
In terms of efficiencies within our shale operations during the quarter, we achieved further significant improvement.
Movements in drilling and fracking performance.
Averaging 248 meters per day, and drilling and over 200 stages per cent per month on trucking.
Increasing by 13% and 23%, respectively, when compared to the previous quarter and setting new quarterly records for both metrics.
This came as a result of the continued efforts of our technical teams in collaboration with our key contract.
Factors that keep working relentlessly to introduce further operating improvements to counteract the effects of rising costs in the context of accelerating inflation.
Consequently average development cost within our core hub operations decreased by almost 20% when compared to the same quarter last year, reaching a new record low of $7 $1 per bandwidth.
Switching to our downstream operations domestic sales of diesel and gasoline increased by 6% when compared to the previous quarter.
Driven by record high diesel demand, which led to the highest level ever dispatched of diesel in any given quarter jumping over 12% versus the previous quarter outstanding 15% above pre pandemic levels of the second quarter of 2019.
This is total diesel demand was mainly the result of high seasonality in the agribusiness sector, which combined with increased demand from certain industrial segments, such as mining and transportation and the higher the unusual demand in provinces the border with some of our naval countries.
It is fair to comment that these historical this high diesel demand stressed our supply logistics in certain regions of the country, particularly in late May and early June , causing some disruptions in the normal supply to consumers.
However, at the IPF, we led a broad sector effort to phase these exceptional high demand through increased processing levels higher than historical inputs.
The portion of Biofuels, and the blend and drawing on inventories.
Managing to gradually restore the normal supply of diesel.
On top of that it is worth noting that during the first half of the year, we achieved a record high production of gasoline and middle distillates through maximizing our refinery conversion levels in order to partially reduce dependence on inputs.
In terms of prices during the quarter, we continued with our strategy to gradually reduce the gap of local fields to international priorities, maintaining a dedicated approach to avoid stressing affordability of our products by our local clients.
Average prices for gasoline increased by 11% in Q2 versus the previous quarter when measured in dollars, while average diesel prices advanced 24%, combining combining higher increases both on retail and wholesale segments.
And this will price increases were more pronounced in premium diesel when compared to regular quality aiming at aligning the format with import parity prices.
Therefore, and in conjunction with the government policies that introduced temporary tax refunds from imported diesel we managed to mitigate to a large extent the economic impact of imported volumes running above normal levels.
In addition, during the second quarter, we have continued benefiting from our high pricing environment on the basket of refined products other than gasoline and diesel that have high correlation with international prices would represent close to 20% of our total revenues and increased about 25% versus the previous quarter.
Further on this topic it is worth highlighting that during the quarter. We continued strengthening our commercial relations in the Asian market further enhancing international demand for our non fuel refined products.
Cash flow from operations in the second quarter amounted to $1 3 billion.
33% higher than the same quarter last year, but slightly below the $1 4 billion recorded in the previous quarter.
Despite the higher adjusted EBITDA level for this quarter lower cash flow from operations compared to the previous quarter was the result of a positive non cash inventory adjustment recorded in the quarter as well as a negative working capital valuation primarily based on seasonal factors in the natural gas segment.
Nevertheless, free cash flow opinion positive territory for the ninth consecutive quarter, accumulating almost $2 billion EMEA instead of a ramped up activity in the deployment of our investment plan for the year.
On the liquidity front our.
Our cash and short term investments financial market in June which affected the market value of a portion of our investment portfolio, particularly silver.
Total liquidity with marking to market our entire financial investment position.
However, this impact was not fully reflected in our financial since a portion of our position in salary and bonus are booked on an accrual basis as they are expected to be held to maturity.
Therefore, the net impact recorded in our consolidated liquidity was less than 2%.
Nevertheless market performance. After June 30 has improved further leading to a normal fully recovered market value of our entire investment portfolio compared to the situation before the market volatility started.
Turning to our debt profile positive free cash flow in the second quarter led to a further reduction in net debt to $5 8 billion.
Taking the net leverage ratio further down to one three times.
Part of the gross debt reduction in the quarter came from the prepayment of official eliminated syndicated loan for the equivalent of about $82 million as part of a proactive strategy to minimize the cost of carry of our global financial position.
Therefore, actual financial situation continued improving I would like to highlight as in the previous quarter, but our healthy liquidity position comfortably covers our short term financial maturities.
<unk> doubling the amount of debt coming due within the next 12 months as we have less than $150 million coming due until the end of this year and just north of $900 million coming deal all along 2023.
It is also worth mentioning that during this quarter, we entered into an interest rate swap to hedge our exposure in relation to the software based cash loan that was fully disbursed by the end of March thus, leaving us with no relevant exposure to global interest rate movements.
Finally, before going into the Q&A I would like to provide an updated guidance for the rest of the year.
Better than expected economic performance, so far in 2022 enhanced our cash flow generation and also left us with a more constructive outlook for the rest of the year.
In this context, we have reviewed our investment plan expanding among others our budget for the upstream segment, adding to our drilling and completion combined impact of Malta as well as incorporating incremental activity in the Gulf for us on closer basin.
We are therefore, anticipating an increase of full year capex budget by about 10% to above $4 billion.
This expanded capex activity should in turn allow us to achieve further oil and gas production growth raising our year over year target for hydrocarbon production growth by about one percentage point.
And even more relevant increasing our end of year oil production target by about 6% now estimating an average of about 230 to 235000 barrels per day in the fourth quarter leveraging on an estimate of 85 to 90000 barrels per day in shale oil production in that period.
In addition, we are introducing guidance for full year, adjusted EBITDA, which we expect to land in the area of $5 billion, assuming no major macroeconomic distortions affect our operations in coming months.
Finally, even though we are adjusting our capex plan outputs, we feel confident in our ability to maintain net leverage within current levels estimating to end the year with a net leverage ratio not higher than its current level of one three times compared with our previous commitment to stay below two times.
With this I conclude our presentation for today and open the call for your questions.
At this time I'd like to remind everyone in order to ask a question simply press star followed by the number one on your telephone keypad.
For just a moment to compile the Q&A roster.
Our first question will come from the line of Frank Mcgann with Bank of America. Please go ahead.
Hi, Good morning. Thank you a couple of questions if I could one just in terms of.
The second half I'm, just wondering what price increase of $73.
So far.
And what Youre seeing in terms of the environment given.
Sanction pressures in international prices coming down a little bit of how you see that.
Need for price increases.
And then secondly.
Could you could you comment on.
The benefits of additional transportation capacity that youre seeing particularly on the oil side over the next couple of years, how much incremental production.
We'll be able to bring on stream.
Order to fill your share of that capacity. Thank you.
Good morning, and thank you Frank for your questions.
Well to start commenting on our views for the second half.
So far in terms of prices.
However, its prices as of today are a little bit higher than the one site that we averaged in the second quarter.
Primarily in the case of diesel we are running about 10% higher.
I know on a gasoline we are just slightly below that.
That basically is a result, primarily of the final assessment of the most recent adjustment that we performed in the month of June .
In which we only adjusted prices for diesel and natural gas segment.
Going forward, we expect to continue with our strategy we have been deploying.
In.
During most of this year basically.
Trying to.
For the at the minimum adjust prices in a way to compensate for the evolution of the currency depreciation and Florida as long as possible to continue reducing the gap with international authorities.
So far we see ourselves in.
Much comfort our situation in diesel.
The combination of the reduction in international our brand prices.
Has translated into a lower in propriety for resale and also for gasoline and combining that with the increasing in DSO we are.
Significantly closer to international probably decent average primarily being aligned fully aligned on our premium quality.
Cell products.
Both on retail, where we are practically align and wholesale segments, where we are slightly above import parity in the case of gasoline, where we are having a higher distortion higher GAAP.
We expect to be able in in the near future to broadly introduce price adjustments of the pump in a way to not only compensate for the currency evolution, but also too.
Reduced at least partially the the current gap that we're having with with international bio diesel and gasoline. So all in all we would expect.
As I said to continue.
Sure.
With attachments for as long as possible, but keeping.
Clearly at constant.
Look.
I mean looking into how the overall macroeconomic environment evolves and clearly as mentioned during the presentation.
Making sure that our price adjustments.
Turning to fear.
The possibility on the affordability of our of our products by our local clients.
So clearly yes.
Also mentioned cost pressures related to your the second leg of your first question inflationary.
Pressures.
We are seeing.
Our global inflation environment in Argentina, running higher volume and the devaluation of the currency.
We have recently close the waste agreements with the unions for the period that goes from April 22 to March 'twenty three.
That was <unk>.
Naval shaded at a nominal level of 79% for the entire period.
Well, it's still to be seen.
That ends up landing VSAT is inflation.
As for the next few months, where we expected wage increases to have.
We already fixed based on those negotiations.
Beyond that we will continue to analyze how the rest of the inflationary environment affect our cost structure.
And in that sense also.
We will also be taken into consideration too.
For our strategy in terms of pricing for local heroes.
And in terms of your second question.
Our views for the midstream.
Projects that will continue to bring further evacuation of transportation capacity on line.
What we have already achieved at least for the white the upside we see and with the beginning of 2021, we have seen an increasing about 50% of our total evacuation capacity out of <unk> that is a combination of the.
The project that was already put aligned by all the environment in terms of their for pump stations that there has been idle for many years and that our marketing operation since April .
Increased.
Total evacuation capacity for the life of the loan by about 25%.
And then on top of that.
We have benefited from.
Sorry.
Additionally, evacuation capacity related to the.
Ultra expectation to our refinery.
In industrial look on the crucial.
Through reversion of some oil pipeline flows at that both Mark and whatnot and also through some gainful transportation.
Basically through swaps of oil with some other players so based on all of that we have already seen an incremental capacity of about 50%.
In the last 18 months and going forward will we see that the combination.
All the while expansion through.
About 300 kilometers of loops.
Also the.
The update of the other Florida pump stations that are that will have a connecting candidly Atlantic at the total salad.
Okay, bringing further capacity alignment probably are firstly.
Early next year.
By the end of the first quarter.
Whereby we also expect the final contribution of the total expansion of through those loops, which should take.
The current capacity of about 44000 cubic meters per day.
That pipeline to a total of about 72000 cubic meters per day.
And that should be gradually through.
The FERC.
Part of that in the first quarter of 2024 and the final leg in the first quarter of 2025 and <unk>.
Addition to that.
<unk> mentioned in previous call putting back in operation.
Transferring in the pipeline that we jointly own together with an app and with Chevron.
Okay currently undergoing a full analysis of the state of that of that pipeline.
We expect to have it.
No major situation.
<unk>.
The banking operation in early 2023, and then in combination with the newer pipeline that we are that we are starting to build before the end of this year that should be already in operations in the second half of next year.
That should probably add.
Total of about.
70000 to 100000 barrels a day in additional transportation capacity out of Bank of America.
By the.
So that's basically it.
On the next couple of years.
The the projects that we are identifying to be able to grow our total.
Well production.
Okay, great. Thank you very much.
There.
Our next question will come from the line of Bruno Montanari with Morgan Stanley .
Good morning, Thanks for taking my questions I have.
Three if I may the first one talking a little bit about <unk>.
And on <unk>.
Mentioning for a while now the progress.
So just wondering if you could give us an idea of how much more production you can extract from that area.
You can apply similar techniques to other areas.
Again, what type of production.
Come from there, which would be a nice complement unconventional.
And then second question is about meso. So just to confirm is the situation now.
With that logistics and demand normalized or are you still running the refinery is a little bit harder in 14.
And then the third question.
Curious about your comments on the on the newer longer wells that you.
<unk> recently drilled.
Are you in a position to talk about EUR differential for those super low.
More normal type wells you were running now thank you very much.
Hi, Bruno Thanks for your question.
In terms of.
Further our production.
Growth.
We are going to see in Milan dealers, there so far a continuous.
Providing.
Very positive results.
We have.
Two.
Redeploy some of the existing injection units that rotating them in.
All of that is producing.
Barry.
Positive results.
So we would expect.
That trend to continue but.
It's hard to predict exactly.
How further production growth we are going to see we are going to see there.
In terms of further opportunities we are deploying new pilots in other areas such as <unk> travel for example.
So far.
Rendering Michelle positive results.
And so we would expect to.
Doug.
Probably masked a process of magnification on some of those projects.
By by the end of this year and early next year.
B.
If we talk about the total potential that we see in.
Between now and then.
Generally speaking.
In terms of your.
Second question on <unk>.
Question on <unk>.
On logistics on our downstream operations.
Clearly the.
The supply of our strains that.
We faced in the.
In the peak of late.
Late May and early June car already subside.
Dow us through a combination of things as we have mentioned in the in the call but.
Clearly we are now.
Running on higher levels of imports compared to the second quarter.
Clearly that's been managed also in positive economic way given the.
Adjustments on premium gravy, so to international parity extreme poverty.
And so now we will be clearly the deployment.
Last mile.
Our transportation and logistics, which is running at practically full capacity given.
Given our increased market share as well so it's a combination of record high diesel volumes this budget.
Which is part of the total increase in overall demand and also our higher market share on diesel.
So we are doing our best in in expanding our.
Last mile transportation capacity basically due to adjust our logistics, but generally speaking the supply constraints have been with us a very significant way.
Whereby we have seen some constrain both on regular quality entertainment quality in late May and early June in terms of supplier disruptions.
At our gas stations and now all of that has declined very significantly where we are not having any relevant.
Disruption in premium quality.
And also having reviews disruptions by about 40%.
In in regular diesel.
So all in all we are in a much comfort out much more comfortable situation today, but still faced.
Facing.
The potential risk given the overall tightened.
The demand environment and running our capital logistics.
Last mile Transportation logistics.
At full capacity.
Trying to.
I mentioned before incorporate.
More trucks.
Into our fleet to be able to further expand our logistics capacity.
And finally on our longer wells.
Still early to say we are clearly.
Pushing our boundaries forward.
So.
Plus it will given the some technology that was acquired.
In in late 2019, and early 2000 training it's Neil.
Equipment, which is called <unk>, which is the only equipment that is available here in the in the Argentine market and as shown by our wholly owned subsidiary ISR a seven kilometer.
I actually mentioned that because I was yesterday.
At the local events oil and gasoline here.
Ken and the bonus of Mccann away at our company have a stimulator of that system, which is pretty impressive that kind of work with like pressure on the wells and also has the ability to rotate stopped us on horizontal length of over 3000 meters without any major issues.
In one run so clearly that is a differentiation factor for.
Having that equipment available, which is allowing us to ROE and expand the boundaries of total horizontal legs.
In our wealth.
Terms of EUR.
As I said, we should probably a way to have further response from this.
Longer wells to be able to come up with.
And estimate that we feel confident and comfortable in sharing with you.
Okay, great. Thanks for that.
Your next question will come from the line of Luis Carvalho with UBS. Please go ahead.
Yes.
Hi, Thanks, Thanks for taking the question you had basically two questions here. The first one is about the.
Lifting cost and we saw.
Somehow increase.
I see.
Last year and sequentially quarter over quarter, So just trying to understand the trend.
As in the past, it's impossible Sunpower staple slashed choppy.
The second question is about the Dafna choosy now and congrats on managing down the past couple of quarters.
Looking to 2023 to 25, you have some increase of $2 $5 billion.
On bad debt.
It's expiring soon just just trying to understand a bit better.
What will be the agenda.
Management here in terms of extending.
Extending the maturity of this debt.
In order to try to assist with that.
The cash flow.
Thank you.
Okay.
Yes.
Thank you Luis for your questions.
In terms of lifting.
Clearly what we are seeing is.
A different trend in that in conventional versus unconventional.
Whereby the production growth in our shale operations in unconventional is allowing us to continue reducing.
Overall lifting cost of our operations there and.
The proportion of shale within our total production mix.
We would expect that.
Two to continue helping the app.
Lifting cost on the <unk>.
Posit side.
The combination of the inflationary pressures.
In pesos and with a slower evolution the devaluation of the currency clearly translated into dollar denominated cost pressures.
And the.
Declining production of low clearly signet at significantly lower pace decline, we would see.
In our conventional operations should we not had.
The contribution of <unk> and also the further efforts that we're putting on secondary production.
Clearly the impacting in our lifting cost for convention is would be.
We will be then will be even worse.
But so combining those two factors and we will continue.
Continuous expectations for inflation running our devaluation of the currency during the rest of the year.
Combining all of that we would expect the overall lifting cost to remain relatively flat in the second half compared to the second quarter.
So we have just releasing.
So basically.
We would be we should be able to counteract the effects of higher inflation.
Through the high proportion of shale stabilization of our production and conventional.
On the higher production in our shale operations.
I'm going to your second question in terms of our debt maturity profile.
We clearly see a jumping in maturities in 2020 five.
Of course, and Vcs are mostly related to.
International bonds.
While on the other hand in 2023 and 2024, we have only a portion of about 60% of the maturity DSR based on international volume of Amortizations on the remainder of the.
Local bonds.
And bank financing, so we clearly see.
Embedded ability.
Situation in and refinancing rolling over.
Advanced.
Bank financing further to that we mentioned in previous calls.
Look out for the local capital markets and to our country.
Major financial institutions that are remain relationship banks, so we see ample capacity to raise financing their prerogative that should allow us to rollover.
Net debt is coming due from international launch in 2023, 2024 basically replacing.
Exposure to the international capital markets through new exposure in the local capital markets and through our relationship banks. So.
So for the most part we would expect that event.
Even if we can see that clearly we don't have a budget for 2023, yet, but even if we assume that we could potentially move into an even more ambitious capex plan next year.
We believe that.
If we continue to manage to grow our production in the way that we are capped so far being doing in priority project for next year.
In the years to come as mentioned in the previous call.
We are expecting to double our oil production by 2026, so that clearly implies that we continue to expect to grow our production gradually along the years.
So we ran that.
Which should allow us to continue to have a healthy cash flow generation cash flow from operations.
The combination of that.
That increased cash flow.
Flow generation should allow us to do we.
Cash flow neutral.
<unk>.
When taking into consideration on Capex.
<unk> and interest expenses.
But we've clearly it's still too early to say, we would say that.
You should be.
Okay.
Easy to be were lower.
The capacity that we have in that.
Exposure in our relationship.
Thanks, and then if we were to.
To have a negative free cash flow.
Either would be because we have.
That additional debt or otherwise, we will adjust our capex plan.
Two.
In line with our cash flow generation.
So all in all what I would tell you that we remain very optimistic in terms of being able to manage.
Along the lines of growing our production.
Through ambitious.
Further our.
Increasing our capex plans that should be tackled through operating cash flow in the next coming years.
And maintaining a prudent financial approach as we committed.
The guidance in terms of net leverage clearly given the current level of one three and the expectation is to remain within one three times.
For this year.
That provides us further room in case, we need to increase our leverage next year.
Clearly if we see that.
The opportunity in in the different markets.
Okay, if I may.
We've just opened up here in terms of cost of debt.
And then maybe the company situation is getting better from a balance sheet perspective.
Still the country's situation and somehow.
Our connected more challenging right so.
How do you see.
The capacity to finance in pharmacy is assumable.
The cost of that off these potential refinancing.
That's true.
Alright.
So far the local market continues to provide a very nice IBD attractive arbitrage in terms of.
Cost of debt. So that you replaced from the international markets, where the local market given current conditions. It would imply a cost and total cost reduction in our cost.
Cost of finance on the other hand, when you look at bank financing. The most recent experience that we had was with the top level.
Transaction.
Which clearly was slightly above our average cost of debt, but not significantly higher so all in all I would say that we are.
We are constructing in terms of being able to maintain our average cost of debt in the range of seven 5% to 8%, but that will also depend on the overall.
Interest rate environment of course as of today, we have no whenever an exposure has mentioned in the presentation are available on exposure to value our total interest rates.
The loan that we have on body of rates, which was the gaslog has.
So we have no exposure to variable interest rates.
And in terms of the refinancing it will depend on how the local market continues to perform and whether it continues to provide a potential arbitrage.
International financing.
Okay very clear thank you very much.
Sure.
Your next question.
With credit Suisse. Please go ahead.
Okay.
Great. Thank you very much for taking my questions. Most of my questions were actually already answered.
One follow up maybe.
The Capex side. So you have updated the guidance for the year for 2022.
It seems at least for any that we should expect capex facilitating this second half of the year right.
Just I was just wondering I mean, what drives that acceleration from some.
Some additional color.
What are the prospects.
Okay.
If there is any effect of maybe capex inflation there.
Overall comments on what you expect in terms of Capex for the second half of this year. Thank you very much.
Okay.
Hi, Hello.
Thanks for your question.
Fortunately a portion of the Capex increase is related to inflation pressures.
But to the largest extent increased activity that we are protecting for the second half.
Both of their portfolio.
From us than anticipated in the first half that is allowing.
Us too.
Dissipate some activity that was.
Expected for next year and that is a combination of.
Increased drilling and completion activity in our shale operations, primarily in oil in our core hub.
Whereby we are expecting to drill over to drill and complete.
Our 20 additional wells when we provided guidance for the year, we anticipated about 100.
Completing our filing in about 100 wells in our forecast we are moving now to probably over 120, so that is increasing.
Our total activity there by about 20%, which also.
Correlates with the comments that we made in terms of increased.
Oil production expected for the fourth quarter of this year in our.
Or Shane operations, so probably we are rating, even though we have not provided guidance specifically before on what we had expected in terms of.
Shale oil production.
Today, we introduced.
The number of 35% to 90000 in terms of net production for <unk> 85 to 90000 barrels per day in our <unk>.
Total net.
Shale production.
Which is clearly a significant increase versus our previous estimate and that is related to the staff increase our completion.
So that is.
Incremental drilling activity.
In some of our shale gas blocks, primarily in London data and then finally, we are also.
Moving forward or else.
Dissipating.
The construction loss of some facilities in <unk>.
Primarily in the water and Latina block.
We were projecting for the next couple of years to build June .
One was expected for the.
The first half of <unk>.
To deliver on our planned gas commitments and then we also have a second run.
Second solid processing plant.
Protected for 2025.
That second plant.
This year.
Why we are part of the incremental Capex is related to that facility and the Ada for that is to be ready to supply.
Further further production for the gas production.
For the four window Newell evacuation capacity coming in line through the institutional pipeline.
Bofa level hopefully next year, so we will not be ready to be able to supply part of that incremental capacity as well.
I would say mostly.
Drilling and completion and some facilities in the.
In our shale operations, primarily oil, but also selling gas.
And then also we are.
Accelerating the construction of the oil pipeline that I mentioned before the pipeline that connect.
Next our our shale oil hub operations.
The northern part of Nokia <unk> to be able to supply both our refinery and look at kind of the push on also to connect with their cancer pipeline to export to China. So.
So we are also bringing some of the Capex that will also aid generic projected for next year for that pipeline forward to this year. So thats basically the main aspects of the Capex increase.
As I mentioned at the beginning Unfortunately, a portion of that also relates to <unk>.
Inflationary pressures cost pressures.
Alright, Thank you very much Greg here.
Next question comes from the line of Konstantinos <unk> with Cowen. Please.
Go ahead.
Good morning, and congratulations on your results I'd like to pose a question on your refinery diet.
Focusing capex in Panama, which produces blood, Sweden has done easily.
That means that you will need to purchase.
Purchase proportionally more oil.
And then another question.
Sure.
Since a significant portion of <unk> revenues are denominated in Texas could you give us your view of the impact of a steep devaluation on the company's financials.
Let's say what could we expect if the peso fell by 30% overnight. Thank you very much.
Hi, <unk> first of all thanks for your congratulations.
In terms of the refinery diet.
The evolution of the portfolio of light crudes versus heavy crudes evolves over time.
I would say that in the long run we are preparing for that higher proportion of lighter crude through the revamping of our refineries the topping D.
That will improve or modify the diet to be able to process a higher proportion of lighter crudes.
Really the millennial group vis vis a heavier goods so in the short run.
We have been managing.
Efficiently to welcome back.
And as I mentioned as was mentioned in the presentation.
We even have the highest.
Refinery margins.
In terms of production margins or efficiency in the history of our refineries during.
During the second quarter, so we've been through.
I would say through smaller adjustments of our refining processes, we've been able to manage the higher proportion of light goods and in the long run.
Sure.
The part of the major.
Annual.
Investments that we are doing in our refineries Boston both of them into 100 Couche on the La Plata.
Allow us to process.
A higher proportion of lighter crudes in the mix.
In coming years.
And then.
On your second question.
Well, let me just say that yes, clearly as you have mentioned.
Our revenues.
A good portion of our revenues I would say roughly 60% of our revenues.
Peso denominated in the short term vessels eliminated those shortly.
Revenues that come from.
Sales of fuels in the local market.
On top of that roughly 35% to 40% is dollar denominated which is the combination of the basket of other refined products that do rises.
And then also in natural gas sales, which are dollar denominated.
So when you look specifically into the peso denominated revenues.
It will also depend on the ability that we would have to adjust prices accordingly.
No.
Doing sensitivity analysis.
A pretty complex because it depends on that are related to translate.
Any significant devaluation into.
<unk> prices and into local fuel prices.
And then also.
Portend, a portion of our costs, both opex and Capex.
It's also a peso denominated so.
The revenues are partially hedged.
Through the impact the positive impact that devaluation is steep devaluation, we have in our cost structure, which is roughly about 60%.
Speaking of combined Opex, and Capex, roughly 60% to 70% peso eliminated dependent on weather.
We look more into capex into Opex.
So <unk>.
Clearly for us as long as the steep devaluation is not pass through immediately to fuel prices are going to have a negative impact, but then the full impact will depend on the velocity the speed in which we managed to adjust prices accordingly.
And then how much that is compensated with.
The savings.
The reductions in our total costs.
And finally on our liquidity.
Yes.
E roughly.
Cash has increased.
By the end of the second quarter was slightly below 30% and of course clearly that they are we will also have some impact in terms of a deterioration in our.
Our liquidity position.
That was very clear thank you very much.
Sure.
Our next question will come from the line of Andres Cardona with Citi. Please go ahead.
Okay.
Good morning, everybody needs help one question about your <unk>.
Guidance by $1 billion.
Essentially we would ask what are the key assumptions for Q penetration.
Realization prices.
The adjusted EBITDA.
Downstream was 21 $1 that bottleneck.
I believe so I would like to understand what are your assumptions for the second half of the year for this key by our utilization base liquid balance sheet adjusted downstream.
The EBITDA margin.
Okay.
Hi, Andreas.
Generally speaking we would expect.
<unk>.
Assumed in our guidance is to have relatively stable.
Prices and margins in dollar terms for the second half, but we are seeing as I mentioned in terms of.
Pricing strategy.
We would expect to be able to continue adjusting our prices in a way to compensate for the devaluation of the currency.
And further to that.
Expecting too.
And provided in the near term to reduce at least partially they got that we have today in gasoline.
So.
Based on that.
We would assume a fairly stable pricing of crude in the local market.
That's why broadly maintaining margins bolstering segments that relatively stable in the second half to what we have seen in the in the second quarter.
But again that all depends on how the different <unk> continued to evolve in.
In coming months, both in terms of international prices and in terms of the key local macroeconomic dynamics I just saw inflation and devaluation, but generally speaking that is short term.
<unk> business unit.
Thank you we go to $100 crude Appalachian <unk> strong second quarter.
On the guidance, which is wholesale registrar.
Thank you very much.
Your next question will come from the line of <unk> Fernandez with Merrill Lynch. Please go ahead.
Okay.
Hi, Good day everybody.
We see this again for lenders from balanced so.
It's great to see such results I joined on Ddos Andre Congratulations.
And thanks to the Investor Relations team for the very complete material to take that from more of your time on the call.
She'd be quick one by one that would be great.
The first one is a follow up on the door Constantino.
<unk>.
Okay.
If I understood correctly, you need to.
Build on our pilots that connect but more to do.
But to go through the numbers.
Is that correct and therefore capacity would be available to other players in Argentina or you would be dedicated just exports from.
Maybe it might be a co chairman.
First of all thank you Gil for for your congratulations on Puerto Rico provides.
The information in the best possible way to help.
To help your jobs, so thanks for recognizing that.
In terms of.
Your question.
Okay.
One is the transaction pipeline is is putting service, which we expect that to happen unless.
Some surprise.
Takes place once we finish.
The passing of the intended gen intelligent equipment that is.
Undergoing the inspection of the pipe.
And that is going to take place in the in the coming weeks.
And he has been finalized.
Finally relatively soon.
Assuming that is.
That is.
As expected we.
Should be able to have that pipeline back in operation by the end of this year early next year.
So the first volumes that will be.
Of.
The reversion in the existing pipeline is already taking place and that we are finally, putting in service.
Through new pumping equipment.
And that should be of a level in the first quarter of next year that will probably allow for.
Our total export capacity of about 5000 cubic meters per day.
Certainly.
First quarter of next year.
Beyond that.
And clearly the total.
Capacity of the transaction pipeline is.
Difficultly higher than that.
At at 18000 barrels Saudi at 18000 cubic meters per day about 110000 barrels a day of total capacity for the OTA Hotel.
So on Sunday and pipeline.
The way to achieve the total capacity or in a way to get towards our total capacity.
See the need to have these new oil pipeline that we have already.
<unk> started to move forward with and construction should start.
In the next couple of months.
That is a pipeline that we know so not only served to connect to the total Sunday, but also.
<unk>.
A larger proportion of oil from bank of America, our refinery and look at nickel shell.
We therefore to go beyond this initial 30000 borrowers that we expect to be of a lower foreign export capacity early next year.
And again, we don't see the need for these new oil pipeline, which we call back on more of an OPEC.
Not that it is in.
In a very creative.
We do need that additional pipeline to be online to be able to expand beyond the initial 5000 cubic meters a day.
Probably a level of around 11000 cubic meters a day by the end of next year and in terms of export capacity to China.
Basically that's not going away or our understanding is that's not going to be available only for <unk>, but also likely for other producers that night during also.
Joining us in the effort of.
Putting together finally, putting together this new pipeline, which goes up not so far.
This is a project that is being 100% led by the idea.
Okay, that's great.
Thank you and my second question is related to you talked about a little bit.
Yes.
Before.
Local debt in the second half how much do you think you might need to rates.
Clearly our clients as of today is.
Not to tap the markets in the second half at all.
Okay.
Non core non core areas through mature.
<unk>.
Okay.
In terms of M&A activity.
On the one hand in terms of.
<unk>, we are not planning any major.
Sections, clearly we do.
Annualized.
Communities for joint ventures, such as the one that was.
Published.
With an App for example.
That clearly.
It's something that we constantly explore opportunities, but not in a way too.
Allow us to move forward with the development of a commoditized, we feel that today our capital structure.
No.
Financial condition allows us to move forward with our projects.
Without the need to divest to farm out.
Any significant area in brick and mortar, but we definitely constantly look into opportunities to have further partnerships.
Our key relationships.
In terms of the noncore matured assets.
We continue to look into that.
It's something that is.
And efficient portfolio management.
That allows us to also focus our attention in the key in our key operations.
Are both back out of that and then also in conventional is in those areas, where we see.
Potential for tertiary production for Europe , so beyond that.
We are constantly looking into the possibility of.
Divest or disinvest in some of the other mature areas that are non non key noncore for us.
But there is no specific schedule now.
No timeframe to move forward with any particular transaction. We at some point we were looking into some portfolio that was considered to be put up for four potential this investment.
Moving target, it's a dynamic and it also depends on the agenda in a market environment and our need to to release cash flow for our electric power operations to APL, adding a more comfortable situation. So there is no need to urgently move forward.
But there's always.
Opportunities are there are always opportunities to have an efficient management of the portfolio and so we will constantly look into that and move forward. If we see any specific opportunity to to this investing in a particular area that makes sense not only for us for a potential acquirer for the problems as well right. If there is.
For some niche operator to make.
Perform and more efficient operation of some material area, we will definitely look into moving forward with that.
So it was very.
Thank you very much pro forma.
Sure. Thank you.
We have no further questions at this time I will turn the conference back over for any closing remarks.
Well. Thank you very much everyone for joining us today and thanks for your congratulations we are very proud of the results that we have achieved and we hope to continue having you on board following our names in element in the future. Thank you very much I have a great day.
Ladies and gentlemen, this concludes today's call. Thank you all for joining you may now disconnect.
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Yes.
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