Q3 2022 YPF SA Earnings Call
Yeah.
[music].
Okay.
Okay.
Good evening gentlemen, good morning, My name is Abby and I will be your conference operator today.
I would like to welcome everyone to the Y P. F <unk> third quarter 2022 earnings call.
Today's call is being recorded and 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 the star key followed by the number one on your telephone keypad.
If you would like to withdraw your question just simply press star one once again.
Thank you and I will now turn the conference over to Pablo Calderone, you May begin your conference.
Good morning, ladies and gentlemen, this is probably looking at that might be it by every measure.
Thank you for joining yesterday.
Quarter 2022 earnings call at this presentation will be conducted by our CEO , Paula Giuliano and our CFO Alessandra.
During the presentation, we would go through the main aspects and events that explain our third quarter results and finally, we will open up the call for questions.
Before we begin I would like to draw your attention toward cash flow statement on slide two.
Please take into consideration that our remarks today in answer to your question.
Forward looking statements, which are subject to risk and uncertainties that could cause actual results to be materially different from the expectations contemplated by different remarks, all right.
So no the exchange rate using calculations to reach our main financial figures in U S dollars.
Our financial figures are stated in accordance with <unk> Srs, but during the call. We may discuss certain non <unk> measures such as adjusted EBITDA I will now turn the call to <unk>. Please.
Please go ahead.
Thank you Pablo.
Good morning to you all let me start highlighting that this wasn't I'll note that while the squad, which we continue delivering solid operation financial results remaining on track to meet our ambitious target for the year.
We maintain healthy profitability levels gain further operating efficiency and consolidate 18, the tremendous progress that.
<unk> achieved in our unconventional abrasions.
During the quarter total hydrocarbon production remains stable when compared to the previous quarter, but cash accumulated a very healthy growth of our 90% comprised the first nine months of Jimmy Choo with the same period of last year, primarily us.
Breast health very positive performance in our <unk> operations.
Objective.
Remained strong reaching one 5 billion the last quarterly Mark for the second quarter in a row, representing an increase of 50% on that year over year basis.
And while improvements continue staying there we saw of the increased hydrocarbon production levels, coupled with improving pricing across our business segments.
Lastly, offset by an increase in total opex, mostly driven by cost Bristow in local currency that continues to run Tiger.
FX depreciation.
Okay.
The solid.
We saw a muted our bottom line to come in positive territory. Once again with net income reaching $678 million accumulating over one 7 billion during the first nine months of the year.
Yes.
In terms of our investment activities, we continue ramping up our capex expanding 27% on a sequential basis and 71% when compared with the same quarter last year.
While in close to $1 $2 billion in the quarter and accumulating two 9 billion as of September being on track to fully deploy our updated targets for the year.
On the financial side free cash flow was positive once again for a <unk> consecutive quarter up 262 million logos accumulating close to 1 billion year to date.
Slide into further strengthening of our balance sheet as our net debt declined to $5 7 billion.
Our net leverage ratio down below one two times the lowest since the second quarter of 2015.
One final note.
Let me briefly comment on the recent presidential decree in relation to the expansion of <unk>, thus far on a potential new plan gasify, we expect that that is important.
We've reduced the country needs to import LNG income, yes based on the availability of our new evacuation capacity once Nestor Kirchner pipeline is up already.
Also provides further stability on pricing that lead to continued incentivizing the profitable development of our robust and Thats, what I got from subs.
In summary, we have continued advancing towards achieving the targets that we set for this year, Jamie bidding on financial and operating results. While we continue to have strength in <unk>.
Even more challenging goals for the future.
I know, Tom <unk>, who will.
Some details of our operating and financial results for the quarter.
Thank you Pablo.
Let me begin by expanding on public comments about the evolution of our oil and gas production.
During the quarter total production remained essentially flat when compared with the previous quarter. The recording a 2% increase year over year boosted by a strong 7% expansion in our crude oil production, which averaged 225000 barrels per day in the third quarter.
And more recently in October we have resumed sequential growth as preliminary production figures came up 232000 barrels per day.
Beyond growth natural gas production increased 2% on a sequential basis, while ngls were down by about 9%.
Relatively affected by program maintenance activities of Mega during the months of August and September .
The positive evolution in oil and gas production on a year over year basis came once again and as expected on the back of the very solid increase in our shale production, both crude and natural gas.
On the other hand on the conventional side, we have continued advancing our strategy of extending tertiary recovery techniques.
In that sense. It is worth noting the progress achieved so far in the mainland gallons per block currently operating eight polymer injection units living into new production records achieved every quarter.
As well as the promising results from this key three pilots beyond mine until as Baer being deployed at checkout win in Mendoza and travel into wood and loss paralysis in Santa Cruz.
Moving to costs lifting averaged $13 $6 per barrel of oil equivalent across our upstream operations remaining virtually stable versus the previous quarter.
However, when we segregate lifting cost for our shale oil have operations, although remaining at a very low level of $3 $7 per barrel.
<unk> reported a 5% sequential increase primarily due to the combination of higher maintenance activities and general cost pressures.
Regarding prices within the upstream segment.
The realization price averaged $67 <unk> per barrel in Q3, increasing by about 4% on a sequential basis, thus, reducing the gap to Brent prices, which declined by about 13% in the same period.
Although still priced at a discount to export parity.
On the natural gas side prices increased by 13% quarter over quarter to an average of $4 $4 per million Btu.
Supported by the seasonality factor included in the blast Gus for between the months of May and September .
Assuming into the evolution of our shale operations during the quarter, we completed 36 horizontal wells in our operated blocks, reaching a total of 112 completed wells year to date.
During the quarter. We also continued increasing the rhythm of drilling activity to alert our inventory of drilled uncompleted wells.
And that connection during Q3, we drilled a total of 47 new horizontal wells.
Eight of which were in oil producing blocks and nine targeting shale gas.
We are presenting a new quarterly Mike in terms of drilling activity.
It is also worth highlighting that during the quarter, we continue with our strategy of developing <unk> beyond our core hub blocks.
In that regard during the months of September and October we tied into wells at our fully owned lack access to block and we have just finished drilling the first delineation well at the Lama, Malaysia block also 100% owned targeting to fracture it before the end of this year.
Overall, new teams during the quarter led our shale production into further expansion delivering healthy growth rates and making fresh new quarterly production records.
On a quarterly basis, our shale production increased by 4% and 11% for oil and gas respectively.
Averaging 77000 barrels a day in shale oil and $17 1 million cubic meters. A day you can share with us.
And when compared to the previous year shale oil production expanded by almost 50% while shale gas increased by 22%.
The latter being less impressive as last year's third quarter shale gas production.
<unk> experienced a significant ramp up that was required to deliver on our challenging commitments under plan last fall.
In terms of efficiencies within our shale operations during the third quarter, we continued setting new records on drilling and fracking performance, averaging 259 meters per day and drilling another 210 stages per sub per month on fracking.
<unk> by 29% and 13%, respectively, when compared to the same quarter in 2021.
As we have been flagging in previous calls this constant improvement in operating metrics is the result of the joined the efforts of our technical teams and key contractors that work relentlessly to introduce further efficiencies to our operations.
As a result average development cost within our core have oil operations decreased by 15% on a year over year basis to $8 $1 per barrel with a margin a sequential increase driven by rising cost pressures.
It is also fair to highlight that the development cost of our shale core have operations from previous quarters.
By slightly upwards as a result of some retracted tariff adjustments as well as updated your estimates of some specific growth based on actual productivity recorded in recent months.
Finally, as an example of the productivity improvements that we have been achieving over the last quarters. During Q3, we drilled the first screen design wells with over 4000 meters of lateral length.
Our gas field, when Continental bank Russo setting a new record in terms of horizontal length for a well with slim design.
All the while we have continued to extending the use of similar product.
Technology.
Switching flow without some business domestic sales of diesel and gasoline remained strong in the quarter as dispatch volumes increased by one 7% when compared to the previous quarter and stood at 11% above a year ago and pre pandemic levels of 2019.
Diesel sales recorded a marginal sequential increase setting a new quarterly record driven by higher retail and industrial demand.
Actually compensated by lower seasonal sales within the Agri business sector in terms of refinery utilization, despite the lower crude oil processed compared to the previous quarter due to a scheduled maintenance stoppage at our plus a wrinkle refinery during the quarter, we achieved production records of gasoline and Midland escalates through maximizing.
Our refinery conversion levels.
However, in spite of the higher refinery output.
Fuel inputs increased during the quarter, representing 13% of total sales sold in Q3 in order to meet the very strong demand levels as well as to rebuild our inventories that were drawn down in the preceding quarter on the back of some disruptions in the normal supply of diesel primarily during may and early June .
In terms of prices during the third quarter, we continue with our strategy of adjusting prices of local fields in a way to gradually reduce the minimum avoid extending the gap between the pricing of local fuels vis vis international prices.
Average prices for local fuels measured in dollars increased by 5% in Q3 versus the previous quarter.
After September 30, we have continued with this strategy, while remaining very conscious of the impact that our pricing policy has on the affordability of our products by our clients and the effects on the Bravo inflationary context.
We therefore introduce two additional price adjustments at the pump one in early October primarily aiming at compensating a nice increase in fuel taxes and more recently last week by an average of 6% managing to maintain average prices fairly stable in dollar terms, despite the faster devaluation of the effects.
Furthermore, when we compare the evolution of local fuel prices without a <unk> over the last 12 months both measured in dollar terms. We concluded that local prices have Chuck input party to reference is fairly well during that timeframe.
Bakery clothing, some periods with delays response, given the heightened volatility in global prices.
Not only in crude but also in the spreads of refined products, particularly heating oil. Moreover, during the third quarter. We have continued benefiting from our high pricing environment on the basket of refined products other than gasoline and diesel which represents between 15% and 20% of our total revenues when the average <unk>.
<unk> for this basket declined by about 2% versus the previous quarter amidst the decline of 13% and brand. It remained about 45% above the average for the third quarter of 2021.
On the financial front, the third quarter resulted in another quarter, delivering solid operating cash flow, which increased by almost 19% sequentially to about $1 6 billion.
On the back of positive working capital variations besides similar adjusted EBITDA levels.
This strong cash generation permitted to not only fully fund the ramped up activity and our investment plan.
Also levered free cash flow into positive territory for the 10th consecutive quarter totaling $262 million and accumulating $2 2 billion since the second quarter of 2020 in turn decide to further strengthen our balance sheet and provide us with the financial flexibility needed to continue to tackling our.
Our ambition growth opportunities.
On the liquidity front, our cash and short term investments increased to $1 3 billion of sub September 30, compared to $1 2 billion as of the end of June and in terms of cash management. We have continued with an active asset management approach to minimize FX exposure considering the prevailing regulations that restrict our.
Our ability to hold assets abroad.
In that sense in the context of limited available dollarized instruments in the local market and given our increased liquidity. We ended with a consolidated net FX exposure of 31% of total liquidity.
Nevertheless, if we consider the liquidity invested in inflation indexed instruments as a proxy hedge to currency exposure the net exposure falls to 22%.
Looking into our debt profile the positive free cash flow generated in the quarter led to a further reduction in net debt to $5 7 million.
Taking the net leverage ratio further down to less than one two times, which as already mentioned by Paolo is the lowest mark registered in the last seven years.
Therefore, as our financial situation has continued improving I would like to highlight as in the previous quarter, but our healthy liquidity position comfortably covers our debt amortizations for the next 18 months, given a very manageable debt profile with just $50 million coming due before year end and another 900.
41 million coming due in 2023 and.
And before ending our presentation, let me mention the recent upgrades to our local ratings communicated by fix which increased our local issuer rating by two notches to AAA as well as the change in outlook of our local ratings from Moodys to positive from stable in both cases, highlighting the continuous improvement.
And operating and financial performance as well as the tremendous growth opportunities ahead of us.
And with this I conclude our presentation for today and open the call for your questions.
Okay.
Yeah.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad and we will pause for just a moment to compile the Q&A roster.
Okay.
We will take our first question from Walter <unk> with Santander. Your line is open.
Yes, hi, good morning.
Congratulations for the results and thank you for taking the questions.
Although.
I have two questions if I may the first one.
Based on the Capex plan for the next couple of years on the 35 you made.
My particularly interesting.
Yesterday mentioned that we are seeing in refining and marketing.
Should we see that looking forward.
It is only upside.
There are listed as related.
Two the drilling speed in the shale.
<unk> blocks.
There is an acceleration of.
Well, let's.
47, new trade was more natural gas probably desperation.
And if this could be considered as a new norm.
Nearing 50 wells per quarter, or two or 200 wells per year.
The euro for the upcoming future.
Thank you very much.
Hi, Walter.
Thanks for your question and for your congratulations.
<unk>.
Okay.
Let me start by quickly addressing.
Capex for the next few years.
As we commence data I think in the previous call as well.
We do.
Believe at this point, even though we are still undergoing the budget process for next year.
We do believe.
The improvements were back on waste operations, primarily present us with a very attractive opportunity to ramp up.
Our capex activity and probably highlight even more ambitious capex plan for next year.
After that.
And of course that is also we believe possible given the.
Further flexibility that we have in our capital structure.
Given the significant reduction in net leverage that we have experienced in the last few quarters.
So all in all we believe that the capital efficiency gained along the learning curve and pick up work in the last few years position us.
They're very attractive.
Point to accelerate the development of that operation.
Liquidity is a multiplex otherwise.
Also could you.
Advancing.
Our capex plan in developing the opportunities seem tertiary production in our conventional fields and all the while also we.
<unk> are undergoing.
<unk> increased multiyear capex on our downstream operations given the.
Revamping of our refineries to reduce the sulfur content of our fuels.
And if you add to that also the investments that will probably be needed to be deployed in the.
Midstream area.
To further debottleneck by commodity.
So all in all we expect Capex for the next few years to be.
Somewhat more ambitious.
Don.
The level that we had seen in 2022 and the one that we.
We're expecting to fully deployed in 2022 or just over $4 billion.
So unfortunately I cannot comment any further than that at this point given that we are going undergoing our budget process for next year.
But generally speaking as I said, we will probably expect to have a larger.
For next year and the years after that.
And then in terms of the.
The new norm for drilling activity.
Well clearly it is related to lease.
Spansion plan or acceleration in our Capex plans.
And two in two ways right on the one hand, we expect to deploy further capital into our upstream operations in primarily into our unconventional operations.
All the while we are also improving the overall drilling speeds.
All five of.
Our operations through operating efficiencies.
So all of that combined.
I would probably imply that yes.
I would not be able to tell you a specific number but most likely we are going to get.
Closer to the level that we have seen in this quarter in terms of new well activity.
And probably also incorporating another drilling rig.
In the first quarter of next year, probably for a total of 15 drilling rigs in our back on with operations.
So I would say that including all of that you would probably see similar to slightly higher.
Drilling activity in coming quarters.
Perfect. Thank you very much one follow up question.
Given the increasing capex.
Wouldn't play also about.
Nevertheless, the company holding piece as well.
Third the level of two times or hold or.
You should keep the.
Or do you expect to keep the leverage level that we are seeing now.
Okay.
Well part of the process that we're undergoing is as I mentioned before the budget for next year and we have to present that to our board.
But most likely we would expect even though we havent more ambitious plan probably for next year.
We would probably expect to reduce.
The maximum leverage.
We should be.
<unk>.
Willing to accept.
To fully deploy that Capex plan.
But I would say.
Two final comments back, but most likely we would expect to the same way that at the beginning of this year, when we announced our Capex plan for 2020 due we had expressed that we were going to.
Look for that to push for that for as long as we remained below two times net leverage.
Most likely that cap level will be reduced for next year, given the levels of deliveries that we have already achieved.
But.
I will not be able to comment yet on that final number but that most likely is going to be lower than the two times.
Thank you very much.
Sure.
And we will take our next question from Frank Mcgann with Bank of America. Your line is open.
Great. Thank you very much two questions if I could one just on costs and cost pressures you obviously have these.
The issue with Argentine inflation, but you also have.
At least globally oil service cost inflation I was wondering if you could comment on what Youre seeing.
And.
And how you see that developing over the next 12 months also if you could bring into that.
The issue that was mentioned excuse me in the press release related to the negative effect net effect you have because of the of the.
Difference between the the.
The official exchange rate and other other exchange rates and then secondly, just thinking a little bit longer term, obviously over the next two to three years with the new pipeline capacity coming on stream. Both on the oil side is on the on the gas side that's.
And that should provide.
The basis for some pretty meaningful growth I'm, just wondering longer term youre resources seem to have significantly more potential I was just wondering.
Or are there already discussions going on for further.
Increases in capacity over time, and how would your discussions related to.
A potential LNG projects play into that and how are those advancing.
Okay.
Thank you Frank for your questions.
In terms of.
Fresh.
Sure.
Yes, definitely we are seeing them coming from both sides from the.
Real appreciation of the effects basically given the.
Local inflation running higher.
Evolution of the effects and by the way.
We get.
I would say the macroeconomic inflation pressure in our dollar based.
Or the equivalent of lower costs.
Something that is under one <unk>.
Second to that.
We are also experiencing.
Some pressure.
From our international service providers and clearly also from imported.
Some imported goods primarily from.
Some raw materials related to.
Both maintenance and Capex activity.
But we also see some pressure there so.
All in all what we have seen in this.
In the case of what Opex, which has increased about 34%.
A combination of.
Increased activity, but also.
Sure.
Local inflation as well as international cost pressures.
And that number was similar to VX.
On an internal motivations was similar to the restart of the second quarter rate of 30.
34% higher than.
In the same quarter of the year before so we will see that.
Those two sides of of cost pressures, we are working on that.
Depending on the future.
Lucian of the local inflation versus the effects.
That will.
Probably the way we have been seeing.
In the last few weeks the currency has to evolve in a similar fashion than the than the inflation. The recent inflation figures. So in that sense, we might not see.
Or at least we are not seeing further acceleration in the.
Sure.
Cost pressures from local inflation running high devaluation, but we are still experiencing.
Inflation coming from.
The goods and services.
So all in all we expect to partially at least partially mitigate those cost pressures through further operating efficiencies, although clearly that is becoming.
However, as we get to closer to <unk>.
The plateau in terms of how further we can get in operating efficiencies, but so far we.
We have continued making good progress on that front, both on our capex activity as well as in some of our operating costs as well.
Yeah.
And in terms of your second question about future capacity.
Yes definitely.
We have commented in the past that.
We do see the opportunity to fully deploy all went back on with our resources given the.
The capital efficiency that we have already achieved and for that we will be further debottlenecking.
But what of that both in gas and oil clearly the government through the next location that pipeline is taking care of the debottlenecking of our commodity to fully supply.
Local consumption needs.
But then.
If we manage to move forward with the.
Project, the LNG project that we have commenced.
Although we have announced a few weeks ago, a couple of months ago together with our partner Petronas, which is still at the at and analysis stage.
Definitely that will require further pipeline capacity to be able to.
Further evaluate the increase natural gas production to supply a potential LNG plant.
That will definitely probably required a dedicated gas pipeline in pes, we move forward with such a such a project in coming years and in case of crude.
We do believe that even though we.
Industries.
And going through all the <unk> model the.
The expansion of the current system as well as the.
Restating of the transcendent pipeline into Chile, probably in early 2023 on top of all of that we believe that the industry will require further evacuation capacity.
And for that we have.
For some time been working on a whole new project Midstream project, which we call back amortize soon which would probably imply.
A whole new oil pipeline.
<unk> backup to the Atlantic and broadly.
Airport.
To manage the export capacity, so we would expect.
To have news on that project relatively soon.
That's a project that we believe that should be up and running by late 2025 or early 2026, So we need to start moving on that.
Asap.
Okay.
And then in terms of LNG any any thoughts on.
Are discussions going on that is that really could become something that's viable.
Okay.
Yes.
We have announced together with Petronas.
A joint agreement or an Mou to jointly study.
The the.
Two potential of such a project in the two minutes of such a project. We believe that clearly we have already demonstrated the.
Productivity of <unk> and the economically viable exploitation of the natural gas resources.
Clearly, putting together an LNG plant of large scale energy LNG plant the way that we.
Thinking off.
<unk> takes many engineering as well as economic and financial analysis to come up to final <unk>.
<unk> decision, so we would expect.
Undergoing that process.
Chinese effort together with our main partner with Petronas, and we would expect to have.
Some type of decision.
Before the hopefully before the end of next year that that would be the timeframe for coming up with a with a final decision there.
Okay and the end of 2023.
To supplement 23.
The expectation.
Okay. Thank you very much.
Terrific.
And we will take our next question from Marcello from narrow with credit Suisse. Your line is open.
Good morning, everyone and congratulations on the results and thank you for taking my questions.
Many of them were already answered but.
I might have one here.
In terms of EBITDA guidance for the year I mean, we saw that you have been posting really good results. So far almost $4 billion EBITDA so far in 2032.
How does that compare with the guidance of.
Don.
For the year.
Do you believe you could surpass or exceed the guidance.
And the other question is on.
Fewer imports.
We saw a higher mix of imports to supply the strong demand.
The third quarter.
I Wonder I mean, what should what should we expect in terms of.
Going forward into the fourth quarter.
Results I mean.
Demand is to you at the store level.
How does the return of Plaza <unk>.
Effect wipe gifts capacity to produce.
So that was great.
Question sticky village.
Hi, Marcelo Thanks for your questions and for your congratulations.
On your first question the guidance for.
For the remainder of the year.
We stick with the guidance of $5 billion, which was an area 5 billion area in terms of full year EBITDA.
We do believe that the cumulative nine months.
Heavy industrial followed 4 billion position us really well to fulfill that guidance and most likely.
The area concept of the 5 billion it slowly.
Over $5 million below $5 billion. So we are.
Very confident that we should be able to to be somewhere above 5 billion.
But still within the area of that number we expect.
The fourth quarter to be.
<unk> to be relatively similar.
In terms of the agenda.
Business concept.
So quarter on the second quarter, but then you definitely need to take into consideration the seasonality of our natural gas business clearly the seasonality factor on our planned gas long term gas contracts.
Which was the usage.
In a significant way prices.
Our natural gas sales during the summertime.
And that is from October onwards until until.
April or May I don't recall exactly I think until April .
So clearly in the fourth quarter has a lower seasonality factor on our planned gas contracts and then also.
As we mentioned before we do expect it to.
You'll see some further cost pressures in the in the fourth quarter. So that also shipped.
Reduce broadly our EBITDA numbers for the fourth quarter comparing to the third quarter.
So all in all I would say that.
The agenda and all our general Looseness Boe's similar with those two main aspects affecting poorly David Duffy here for the fourth quarter.
But then sticking with the with the generic guidance for the full year.
Okay.
And in terms of your second question about our fuel inputs.
We do expect the fourth quarter numbers to come in.
A little below.
One is that we that we saw in the third quarter.
Primarily from a reduction in diesel inputs.
No we will probably see total fuel inputs to be below 10% once again in the fourth quarter.
Particularly given that in part of the the inputs of diesel in the third quarter were related to.
Building back inventories that we had to draw back drawdown sorry in the second quarter at the end of the second quarter.
And also where we are seeing some slowdown in the total demand for the seller primarily coming from the agribusiness sector both on on seasonality factors.
And also mostly related to the.
Lack of humidity.
In.
In the soil.
Which is affecting the regular activity in the agribusiness sector.
As we speak.
So when when combining those factors, where we see most likely.
Diesel imports.
Total volume means ports of diesel coming down in the fourth quarter compared to the third quarter, taking our total.
Clearly inputs as I said below 10%.
Okay. Thank you very much.
Sure.
And we will take our next question from Konstantinos.
With <unk> your line is open.
Thank you good morning, and congratulations on your results I'd like to address some questions regarding your views for the medium and long term.
So regarding 2023.
Would you share with us your view on what the fuel sale.
In case, there is a macroeconomic recession.
How resilient are your local market sales to a decrease in industrial activity.
In such a scenario.
Also your production plants and.
Second question looking ahead, when do you expect to reach full self supply in your refining means and how do you expect to finance the upstream growth necessary to reach that point.
Our production facilities prepare to handle production growth. Thank you very much.
Hi, Konstantinos.
Well.
The rest of your questions.
The first one in terms of our outlook for 2023.
In essence, the reality in case of macroeconomic recession or slowdown and I think the what I would say is that.
Of course.
Mostly on the diesel side, you'll see diesel volumes or diesel demand.
With a significant correlation with economic activity with an elasticity that is our one.
So clearly economic activity.
A relevant impact on total diesel demand.
So in that prompt if we work and less so in.
And the demand for gasoline.
So if under your scenario of a slowdown in economic activity or even a recession scenario, where we would see most likely is diesel demand being affected and in that regard probably reducing the total needs for.
Imported fuels, mostly diesel imported diesel.
As you probably know the countries are net importer of these fell on average by about 20% or 10% on gasoline.
So a reduction in.
In economic activity.
We'll probably with you as the total country needs for imported diesel and to a lesser extent our.
Hopefully put the gasoline.
If you want to have a very severe.
And remember that the country inputs are up 20% and elasticity slightly above one in terms of diesel demand versus economic activity.
You could absorb all the <unk>.
We've used economic activity just by reducing the amount of inputs. If you want to have a very severe economic.
A crisis or a recession, which we don't have at this point in our in our view for 2023.
Then even you will still have some question in our refining capacity utilization capacity.
To still not have a significant impact on our whole efficiency.
As you probably know.
At this point right now we are running up.
Hi.
Capacity utilization levels of close to 90%.
And in the past that number averaged between 80 and 90 having.
<unk> or average cost efficiencies. So we would say that we still have some flexibility even beyond cutting back on inputs.
We will not have a significant impact in our at all.
Efficiency.
Okay.
And in terms of your.
Second question.
How about.
How we expect to be self sufficient in terms of our needs for crude oil.
We have commented on that in the past and we still believe that we should be able to.
Given our expectations on crude production growth in the next few years, we would expect to be self sufficient sometime between late 2023 or early 2024.
So generally speaking we we still believe that that is the case.
<unk>.
We are clearly working and investing on all the facilities.
That we'd need to have in place to be able to actually deliver on that type of.
Ramping up production or production growth.
That's part of the.
As I commented in the beginning of the Q&A session of the ambitious plan that we have ahead of us, which basically encompasses not only the well.
Activity, but also all the infrastructure that is needed to accommodate that increase production. So we believe that all of that is is manageable and within our our ability.
That was very clear thank you very much.
My pleasure.
As a reminder to star one if you would like to ask a question and we will take our next question from Daniel Guardiola with BTG. Your line is open.
Hi, good morning.
Sure.
The presentation I just have a couple of questions.
My first question is related to the Nestor Kirchner pipeline.
Tim if you could share with us.
How does it progress of this project.
As expected.
When are you expecting guys for just break to come online.
Opportunities for <unk>.
From the conclusion of these projects.
My second question is regarding capital allocation.
We have seen very strong FTF generation during the last three quarters actually positive in all of them and I wanted to know if you have if you have consider may be for next year to start implementing.
Shareholders' remuneration program, either distributing dividends are putting in place a buyback program.
Those are my two questions.
Okay.
Thank you Danielle.
In terms of the NES location of pipeline.
No we're.
<unk> is not involved in the construction of the pipeline but of course, we do.
We do follow very closely the evolution of it and we will talk to.
Two different companies and more than that so.
At this point, we believe that even though it is challenging but.
But we still believe that.
They have the ability.
To have the pipeline up and running for the winter of next year.
Sometime around June .
And as I said, we.
The likelihood of the actual tons is we cannot actually comment on that but we believe that technically speaking.
It is doable.
Not not.
Many.
There is no much flexibility for anything to go wrong.
Our view, but if everything goes as plan, we believe that technically speaking they have the ability.
To have the pipeline as I said up and running by by early.
The early stage of that.
Winter of 2023.
Yeah.
And and in terms of your second question the capital allocation and of course related to that clearly as Pablo mentioned in his introductory remarks.
Last week, we saw the enactment of the <unk>.
Decrease.
That proposal or comments on the expansion of the existing players and probably a new plan gas to filling up that pipeline. So we believe that that's definitely good news.
And that should also imply that there is confidence in getting the pipeline up and running for the next winter and and of course, we would look into any formal announcement of such a.
And you blend gas at either the extension of the of the existing going us to definitely consider our our participation inside China in such opportunities.
And then on your second question about the capital allocation for next year.
I think first of all it will depend on how our final budget.
<unk> is built up.
Approved by our board as I mentioned before.
We do have probably a more ambitious.
Capital expenditures planned for next year.
Which Mike.
We saw.
In a slightly negative free cash flow for next year of course will depend on how we continue.
Developing our capacity to generate operating cash flow, but all in all we do believe that next year.
End up being a negative free cash flow year.
But steel.
Would not imply that.
We the company might not ones here any.
For more.
Distribution I.
I should say in any form most likely potentially didn't.
To our equity holders.
But I would say that that's not up for management to decide at the end of the day.
Management may make a recommendation, but it would be something that our board of directors will have to consider and decide.
And so again I think it's a little early to comment on that given that we have not.
A final budget approved for next year, but then I would say that given the.
Significantly improved capital structure.
That should be something that the company could could consider for next year.
Yeah.
We will take our next question from Mr. Fernandez with Belmond. Your line is open.
Hi, Good morning, everybody. Thank you very much for the July call material.
The result.
Three questions I would like to go one by one if you do not mind.
So my first one during the last five years and of course, excluding 2020.
Investment in facilities.
Related between $500 million and $700 million per year.
And beyond Big project like <unk> did audio coming along would.
Would you expect the pace.
Of the investment in more specific or area specific facilities.
To progressively come down in the medium term, let's say five years or should it continue at similar levels or maybe even higher.
Hi, yes.
Well.
When you talk about facility, it's a combination of different things right on the one hand you have the.
Maintenance capex and in data to Capex related to our materials.
Conventional fields and on the other hand, you have the buildup of new facilities related to wood.
Back on operations.
So when you when you combine the two.
I would say that most likely.
Total investment.
And facilities on our upstream operations will likely.
Remain strong and probably continue to increase in nominal terms as we continue to progress in building up our total.
Production capacity, but what about all the while.
We continue having.
Integrity.
The inability of our material operations in at the top of our hand as well.
So when you combine all of that I would say that most likely you will see.
Total facilities investments in next in the coming years.
Nominally increasing.
And at the same time, then you have some infrastructure investment in downstream and midstream.
That should be more of.
Specific.
Location of capital most slightly within the next three years as we finish the multiyear investment in the revamping of our.
Both <unk> and <unk> refineries and all the while we also.
<unk>.
Midstream investments, but mostly not.
On white BFS balance sheeting itself so.
Good portion of the midstream investment in terms of pipeline.
Go into our balance sheet directly by dry.
In the balance sheets of the different vehicles.
That basically deploy.
Or actually perform the capital investments so on those on those projects.
Okay.
Great that was very clear my second question is related to <unk>.
Comments included in the press release precisely regarding upgrades.
Yeah.
Which could lead to expected higher production of fuel if im not mistaken.
Don't know if you could share with us.
How much additional volumes this program could bring on the refining side.
Sure.
The multiyear investment in the refineries.
Mostly related not to increase the total production capacity by two other mostly at improving.
The quality of our fuels, but reducing the sulfur content.
At the same time managing.
A different mix in terms of groups that.
Driving.
That are capable of processing basically to contemplate the increased proportion.
<unk>.
Lighter crudes coming from but I'm worried about into the general mix of crudes being processed.
So those are the main aspects of the of the investments however, given particularly the latter part that I mentioned the different mix and feels it's had in groups.
That will end up resulting in somewhat expanded.
Total capacity.
In terms of gasoline of middle Distillates production. So all in all we would expect that by the time that we finish with the summary of the investment program, which is probably going to be by the end of 2025.
We should see total.
Production.
Capacity of gasoline a meaningful escalates to go up by about 10% to 15%.
Okay.
10 to 15 great.
Thats very helpful.
My final question is sorry, if I go back to the LNG topic and I know this is still in preliminary stages.
Do you think that unrestricted export permit.
Which of course would allow an eventual LNG export facility to operate year round.
Absolute prerequisite to go forward with your project.
Okay.
Well definitely for a large scale LNG facility.
The types that we are considering.
Definitely mean.
To have the ability to run on a 365 day basis.
Which at the same time and I think I briefly mentioned at the beginning of the Q&A session.
Which probably require a dedicated gas pipeline too.
Two supplied I'm not sure how you got to feed the LNG plant so in that case.
Given that we see ample resources.
To further expand in a significant way the total.
Gas production for the country.
For as long as you have dedicated midstream.
Facilities, such as a dedicated gas pipeline.
We would not ambition.
A meaningful.
Problems to actually have the ability to run at 365 day basis.
But the quick answer to your question will be that definitely.
A large scale LNG plant.
Require to have the ability to run.
On a year round basis.
That was that was very clear. Thank you very much that's all from my end.
Sure.
Yeah.
And with no further questions I will now turn the call back to Mr. Alejandro <unk> for closing remark.
Well, thank you very much all.
For for joining in and four continue to to track the evolution of our results.
We hope to see you or hear you next time.
Have a great day.
Ladies and gentlemen, this concludes today's call and we thank you for your participation you may now disconnect.
Okay.
[music].