Q2 2023 YPF Sociedad Anónima Earnings Call
Ladies and gentlemen, good morning, My name is Abby and I will be your conference operator today.
At this time I would like to welcome everyone to the Y P off second quarter 2023 earnings conference call.
Today's conference 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 that time simply prestige Starkey followed by the number one on your telephone keypad.
If you would like to withdraw your question Press Star one a second time.
Thank you and I will now turn the conference over to Pedro Carney Y P. F planning and finance manager you may begin.
Good morning, ladies and gentlemen, this is bad or gardening wipe if blending them finance manager. Thank you for joining US today, you know recycled water to enjoy three earning calls.
This presentation will be conducted by our CEO Pablo you Leno and our CFO Alessandro Lou you in the presentation. We will go through the main aspects and events that explain over second quarter results and finally, we will open up for questions.
Before we begin I would like to draw your attention to workout journey statement on slide two.
Take into consideration that our remarks today in answer to your questions May include forward looking statements, which are subject to risk and incentives that could cause actual results to be materially different from expectations contemplated by these remarks.
Our financial figures our state in accordance with ire forest, but during the call we might discuss some non <unk> measures such as adjusted EBITDA I will now turn the call. So Pablo Please go ahead.
Thank you Pedro and good morning to you all.
Let me start highlighting that this was another quarter in which we continue delivering a solid operational performance.
During the second quarter total hydrocarbon production.
Got it and that's G telecom borrowers avoid if we went into per day.
<unk> stable quarter.
Quarter over quarter, and increasing 2% on year over year race.
A&D is driven by a sound performance.
Now, we're a shade operations.
With regard to their I E. There I'm not expansion of <unk>.
18%.
I would also like to point out the positive evolution of our crude oil production.
Which continued to grow increasing by 1% sequentially and by 7% when compared to the safety of 2022.
Adjusted EBITDA reached $1 billion in the quarter, decreasing 4% sequentially and 34% compared to the second quarter of 2022.
The lower outcome compared to the previous quarter came especially on the back of a slight decline in domestic fuel prices in dollars stems and put our cost pretzels, mostly offset by higher seasonal natural gas sales.
And our bottom line came in at 300.
$80 million in the second quarter accumulating more than the $720 million during the first half of a year.
In terms of our invest ment activities, we continue ramping up our Capex plan.
Which expanded 6% sequentially.
82% on year over year basis, accumulating nearly $2 $7 billion during the first half of the year being.
Being on track to fully deploy our ambitious plan for 2023.
On the financial side free cash flow totaled it had a negative two.
$84 million, primarily driven by the Max sibling are women stagnant in April .
Taking our net debt to 6300 $12 million and increasing the net leverage ratio to one four times.
Excluding the impact of this agreement the free cash flow would have been flat during the quarter.
In this regard let me point out that on a second following the satisfaction of all conditioned on procedural steps.
White B S proceed with the payment of the settlement amount due under the trust settlement agreement.
All relevant actions against the company, including state and federal were finally dismissed.
Beyond economic results, let me briefly comment that during the second quarter, we achieved an important milestone regarding our key strategic goal of accelerating the monetization of our crude oil resource.
You in May the company have assumed strip to eliminate any ability to explore after 18 year. After John Sundy, an oil pipeline was successfully put back in operation, Although India ablation of kudos to Jim.
We also continue delivering currency of results in terms of well construction efficiency within our shale operations during the quarter, averaging 260 meters per day in drilling and 194 stages per seat per month on fracking maintaining most.
Of the efficiencies gained in previous quarters.
More recently in July we continue setting new records on drilling and fracking performance.
<unk> 295 meters per day in drilling and over 235 stage per site per month on fracking.
We strongly believe that maintaining our focus in the continuous improvement of our well construction operations in about a month that is key to maximize value generation for all our stakeholders.
Going forward I'll talk the global and local environments are full of challenge in coming months, we will have remaining commitment to explode the Hugo opportunities that we have Cabo plus <unk>.
In that sense. The cumulative results achieved in the first six months of free air permit us to reaffirm our growth strategy, while maintaining profitability and financially prudency.
The front of our decisions.
I now turn to Alessandro to go through some further details of our operating and financial results for the quarter.
Thank you Pablo.
Let me begin by expanding on <unk> comments about the evolution of our oil and gas production during.
During the quarter, our total hydrocarbon production averaged 513000 barrels of oil equivalent per day.
Growing very modestly compared to the previous quarter and increasing by 2% year over year.
Well production records at the new sequential increase of 1% during the quarter, representing the seventh consecutive quarter of oil production growth coupled with a strong internal expansion of 7%, which allows us to remain on track to meet our targets for the year.
Beyond crude natural gas and Ngls production remained stable on a sequential basis staying at 37 million cubic meters per day, and 43 barrels of oil per day, respectively.
The positive internal evolution in oil and gas production came as expected on the book.
Of our total shale production, which continued delivering solid results expanding by 18% on a year over year basis with a remarkable increase of 28% in our shale oil production.
On the conventional side, we managed to maintain our oil production stable versus the previous quarter, mainly as a result of our continuous focus on tertiary production, which increased 17% sequentially and 32% versus the same period of 2022.
The positive evolution in tertiary production came primarily from solid results in Milan until there's better our flagship project, which represents more than 70% of our EUR production and the evolution of the pilots deployed at such a winning Mendoza and then traveling toward.
Moving to costs lifting averaged $16 per barrel of oil equivalent across our upstream operations, 10% above the previous quarter, primarily due to higher maintenance and putting activity combined with an accelerated inflationary environment not fully compensated by the local currency.
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However, lifting costs for our Shiloh core have operations remained almost stable sequentially at a very competitive level of $4 $1 per barrel.
Regarding prices within the upstream segment crude oil realization prices averaged $63 per barrel in Q2 declining by 5% on a sequential basis.
This decrease however was less pronounced than that of Brent, thus, resulting in a compression of the spread versus export parity in the quarter.
On the natural gas side prices increased about 30% sequentially to an average of $3 $9 per million Btu as a result of the seasonal adjustments within the plan gas contracts.
So, meaning our shale activity during the quarter, we completed 41, new horizontal wells in our operated blocks, reaching a total of 79 completed horizontal shale wells during the first half of the year.
We also continued increasing the rhythm of drilling activity for large our inventory of DUC wells.
In that sense during the second quarter, we drilled a total of 46, new horizontal wells in our operated blocks, 20% more than the second quarter of last year 37 of which were in oil producing blocks are nine targeting shale gas align with our strategy of prioritizing the monetization of our shale oil opportunities.
The new <unk> during the quarter, Florida was shale production into further expansion on.
On a sequential basis, our shale oil and gas production increased by 2%, averaging 95000 barrels of oil per day, and 17 million cubic meters per day, respectively, representing 45% of our total hydrocarbon production.
And when compared to the previous year shale oil production recorded a remarkable expansion of 28% as mentioned before while shale gas increased by 10%.
Besides the continuous improvements achieved within our backend operations previously commented by Pablo during the second quarter, we set new records on drilling speed for a well with slim design at our level, China block, reaching 400 meters per day as.
As well as in fact designed well at Loma Campana, reaching 365 meters per day for a lateral length of over 4000 meters.
As a result.
Development cost within our core have oil operations remained stable versus the previous quarter at nine $8 per barrel of oil equivalent as improved efficiency and enlarged production permitted to compensate higher service studies.
Regarding investment in facilities required to unlock our shale production in May we put in operations and natural gas separation and treatment facility other incumbent mangled Osha expanding its production capacity by 2 million cubic meters per day.
Lastly in line with our commitment to make our operations more sustainable during Q2, we managed to test a pilot for switching one of the Frac sets operating at Loma Campana to run 100% on natural gas. The first of its class in Argentina, aiming at reducing about 40% the shield to equip.
And the missions in comparison to a set run on diesel.
Thus estimating a pro forma reduction of about 20000 tons of seal to equivalent per year.
As in the previous quarter, let me briefly comment on the progress achieved in the different initiatives aimed at unlocking the oil evacuation capacity of the Nokia innovation.
Regarding the equation to the Pacific the transcendent pipeline of the OTA OTC system was successfully put back in operations in May after 15 years of field activity, allowing us to resume structural Magneto oil exports.
As a result during Q2, we exported 550000 barrels of oil and going forward export volumes shall increase in the second half of the year once the Bakken wells in North pipeline is up and running and despite the stoppage that took place for 17 days in July on the back of heavy rains and flooding in nearby.
Areas.
As it relates to the new work and whatnot pipeline in Q2, we continue moving forward with its construction, which is at the 75% completion stage and is expected to start operations between September and October of this year on.
In that regard, let me point out that in May we entered into agreements with four strategic partners that joined our project and have contributed to its financing either through direct equity injections or through shipper pay prepaid contracts.
Moving to the projects to expand the evacuation capacity to the Atlantic although that has been making steady progress aiming at having about 20000 barrels per day of transportation capacity. During Q3 of this year as the second stage within the duplicate plus project.
In addition, Ot has continued moving forward with the construction of two new storage facilities of 50000 cubic meters each as well as with the offshore terminal at Portola silos.
Lastly, regarding the Bakken, what our South project during the second quarter, we achieved about 90% completion stage and the engineering design process for the new pipeline and export tell me now also being well advanced on the environmental impact studies required for the project.
Switching to our industrial and commercial segments domestic sales of gasoline and diesel remained strong during the quarter, increasing by 3% when compared to the previous quarter driven by an expansion of 9% in dispatched diesel volumes, mainly due to higher retail demand and seasonality.
<unk> in the agribusiness and power generation sectors, which was partially offset by a contraction of 6% in gasoline demand driven by the higher summer seasonal sales in Q1.
On a year over year comparison diesel demand decreased by 2%, particularly in the agribusiness segment, while gasoline sales rose 5%.
In terms of refinery utilization, we recorded another quarter with historical high processing levels, averaging 305000 barrels per day, which was essentially flat compared to the previous quarter and 6% above a year ago.
Despite processing levels combined with maximum conversion levels led to the highest levels of six month production of gasoline and middle distillates for the last 16 years.
As a result total fuel imports decreased significantly during the quarter, representing only 6% of total fuel sold in the period.
In terms of prices during the quarter, we continued aiming at mitigating to the largest possible extent the effect of the depreciation of the currency, while managing to reduce the spread versus international authorities, which continued in a downward trend during the period.
As a result average fuel prices measured in dollars decreased by 5% sequentially and stood at 8% below a year ago, whereas the GAAP between local fuel prices versus import parity declined to 13% during the quarter compared to 19% in the previous quarter and 37% in the second quarter of.
Last year.
Lastly, the downward trend in international oil prices of served during the period negatively affected the basket of refined products other than gasoline and diesel resulting in a reduction of 9% vis vis the previous quarter and 27% below a year ago.
On the financial front, the second quarter resulted in another period, delivering solid operating cash flow totaling almost one 3 billion.
The difference between the adjusted EBITDA for the period can be explained by positive working capital variations such as dividends collected from our subsidiaries and the monetization of a tax credit for income tax prepaid in full Q2 thousand 22.
That more than offset the cash deployed for the Max's settlement agreement.
The strong cash generation allowed us to almost fully fund our investment plan during the quarter.
Moreover, excluding the extraordinary negative financial impact of the Max was legal settlement. The operating cash flow would have cover not only our capex, but also interest payments and other cash expenses I won't have resulted in a balanced free cash flow for the quarter.
However, considering the full financial effect of the Max was settlement, our net debt increased to $6 3 billion and the net leverage ratio calculated as net debt over last 12 months adjusted EBITDA increased to one four times.
In terms of financing during the second quarter, we continued progressing on our financial plan by securing several trade related loans from relationship banks and tapping the local capital markets.
In defence during June we issued three year hard dollar denominated bonds for a total amount of $263 million with a 5% coupon.
All in all during the first half of the year, we have raised about $1 $3 billion, representing net new funding of over 700 million after deducting the debt amortization space during the period.
And more recently in August we signed an disbursed a new cross border Avi loan obtained from a group of financial institutions led by gas for a total amount of $375 million.
The new loan served as an early refinancing of the existing loan taken in early 2022.
Alleviating funding needs for the next year by $225 million and extending its average life by almost three years and also increasing the outstanding facility size by $150 million showcasing once again <unk> ability to access cross border funding.
On the liquidity front, our cash and short term investments increased to almost $1 $5 billion by the end of June compared to $1 3 billion as of the end of March as we pre funded part of the financing needs for the second half of the year.
And in terms of cash management, we have continued with an active asset management approach to minimize FX exposure ending the quarter with a consolidated net FX exposure of 13% of total liquidity down from 21% as of the end of the first quarter.
With this I conclude our presentation for today and open the call for your questions.
Yeah.
Thank you and at this time I would like to remind everyone in order to ask a question Press Star and then the number one on the telephone keypad.
And we will pause for just a moment to compile the Q&A roster.
We will take our first question from Ana <unk> with bank.
<unk> of America. Your line is open.
Thank you very much and thanks for the call today and thanks for taking my question.
Given the relatively flat production for the year, Although you did have strong growth in shale.
If you could give us some.
I don't know guidance framework for looking at the additional infrastructure that you're putting in place right. Now that you did review and what we should expect for year end.
My first question and then the second question is.
What will you be watching in terms of the upcoming.
Primary elections, and then presidential elections in terms of policies that could affect <unk> Ips. Thank you very much.
Okay.
Hi, good morning, and thank you for your questions.
As per your first question.
We briefly mentioned in the presentation.
<unk>.
In line with the guidance provided.
Earlier on in the year, we believe that the results so far.
<unk>.
Good a balanced always those those estimates so.
We would expect to continue focusing primarily in our in our growth in oil production. We continue to expect to be at around 8% growth year over year by the end of the year.
Which so far in the second quarter, we had a we ended up 7% above the second quarter of last year and so we expect to we still expect to be at around 8% for the full year and particularly we expect oil growth to accelerate in the second half primarily in the fourth quarter.
Broadly expect in the third quarter to be relatively flat and a further growth to materialize in the fourth quarter.
We expect our fourth quarter over the fourth quarter of last year.
We remain in line with guideline at about 10% growth.
On the other side on natural gas.
Given the lower demand that we.
That we saw in the first half of the year.
We will probably see.
Somewhat lower growth or actually.
It'll be probably relatively flat.
On a full year basis compared to last year.
That is seen as I said in terms of natural gas.
So basically the old infrastructure that is being deployed will so mostly the purpose of.
Allowing for these expansion in crude oil production.
When natural gas.
As presented before.
Earlier in the year, we are clearly prioritizing crews over gas and hence.
We are.
Again, not that much concern about the slower growth in natural gas that we expect for the rest of the year.
In terms of policy.
After the elections.
<unk>.
I believe I mentioned in the past that.
We.
It is hard to predict but we expect that given the.
Strategic plus.
Positioning that back I wanted to have and has been commented by several of the different candidates in.
In the presidential elections, we believe that our policy should remain supportive.
For the a constructive development of our sector.
Would you suspect that good as mentioned before in several locations could provide a significant swing in the balance of payment.
Through not only the substitution of gas imports.
But also through the further incremental.
Oil exports.
As all the Debottlenecking of.
The different producers in the in the basin.
In the new generation <unk>.
With our growth plans.
As was presented by <unk>, particularly in our view to double up our oil production in five years' time, so given those.
Given that opportunity, we would expect our policy to remain supportive.
For our sector.
Okay. Thank you.
And as a reminder, press star one if you would like to ask a question. If you are on speaker phone it may be necessary to lift the handset before pressing star one.
And we will take our next question from Walter <unk> with Santander. Your line is open.
Hi, Hello, good morning.
Two questions on the cost front the first one is.
Due to SG&A that.
At least for me it was.
Can you guys give me some pricing.
It has been taking a higher share of revenues in the last couple of quarters.
I would like to note for you is just on increases or payroll because has been increasing quite a lot of inflation.
A couple of quarters.
Outlook.
Most of the year.
If that if any actions.
But it could take to reduce cost.
Going to do something about that that is the first question. The second question is related to leasing costs.
We can see that the lifting cost in the cone hobbies relatively stable.
We.
Lead us to conclude that.
The conventional lifting cost is growing.
Is that because of the tertiary recovery cost you money on Julius Baer.
And if that is going to be.
Looking forward.
Thank you.
Yes.
Hi, Walter Good morning, and thanks for your questions.
As it relates to the first question on SG&A.
At least.
The way Im looking at the numbers and we can definitely come back to that later on but we see SG&A in the first in the second quarter growing sequentially at a similar pace that the average opex for.
For the company.
And definitely that.
That's a result of the agenda at all.
Context of increasing costs.
Primarily inflation running above the.
The devaluation of the currency in that pushing.
Our dollar costs higher generally in general terms.
Of head count, we have not experienced any particular swing.
And so I would tend to say that that's that's the result, primarily of the general cost pressures.
In line with the rest of the Opex.
In terms of lifting.
What I can comment is that clearly on the in the court have we managed to compensate the higher cost.
With the particular increase in AR in shale production, particularly shale oil.
That's comprehensive.
It's clearly what Manny what allowed us to manage to compensate the higher cost with with higher production and hence maintaining the lifting.
Relatively stable at the colt hub opposite to that in the in the rest of our upstream not only.
Conventional but also in shale gas blocks.
We have seen an increase in per unit costs.
Clearly related to.
On the one hand.
The incremental opex cost nominal opex cost in dollar terms.
Then also in conventional.
Particularly information on gas a reduction in total production. So all in all we can say is that as long as we continue to succeed in growing our total production base.
We will definitely expect to stabilize and at some point manage to reduce overall lifting costs.
On an aggregate basis.
For as long as we also managed to.
Get under control.
The different opex, particularly in the upstream segment.
Of course, that's a challenge.
But that's.
Something that we are clearly focused on in obtaining and in reaching efficiencies in our cost basis to to get our per unit costs stable.
Stable and ideally to decline.
Yes.
Thank you just a follow up would you expect an improvement in margins during the second half.
A year or stable.
Okay.
Well margins are based on different <unk> right.
So clearly.
We continue to see further cost pressures on the on the cost side.
And as I said, we are working across all our business units.
Got it.
Efficiencies to get cost under control.
And hence we would expect at least to maintain.
For the most part.
Opex.
We are working to maintain opex at least stable in the second half.
In terms of our revenues.
Well that will depend on different <unk> clearly the way we manage to.
The work on our pricing policy and also how the evolution of the of the currency takes place in in coming months.
Okay. Thank you very much.
Sure. Thank you Walter.
As a reminder, it is star one if you would like to ask a question and we will take our next question from Luis Carvalho with UBS. Your line is open.
Hi, everyone. Thanks for taking the question.
You have to talk to all of you.
Basically three three points that I would like to do here and you get a bit more color. The first one is the lifting cost trend.
We saw lifting cost close to.
$13 for I don't know for the last year and now we have added close to 16.
When you see some I don't know industry.
Meanwhile, on the service industry costs.
Sure so we'd like to hear in terms of one of your perspectives on the lifting cost.
The second thing is about the funding.
I mean the company.
Cash this quarter.
And.
Very comprehensive.
When you look to the project mainly on the on the logistics strong.
I would like to I don't know to have a bit more visibility how Europe .
Companies thinking about.
On the funding.
Meaning that by 2024.
Yeah.
Almost $1 $2 billion.
Sure.
Yeah.
Got that.
Ken can be postponed can be negotiated but just trying to understand you had sandy.
18 months.
Funding strategy and lastly, if I may on the pricing front.
The company did a great job.
Over the past year.
The gap.
But we will be domestic prices and import barrier.
I don't know.
30% last year, so an average of more as you pointed to 113% this year or the last three months. So just trying to understand how we should move forward.
Okay.
And the current oil environment.
How we can how can you guys.
What are you seeing in terms of.
Drives Burton.
Scenario for the next couple of quarters. Thank you.
Yes.
Good morning Louise.
Thank you very much for your questions, let me start.
With the last one in.
In terms of what to expect in terms of pricing as you have said we manage to.
Reduce the gap.
The international parity.
Over the last 12 months.
Reaching a low level of 13% gap in the second quarter down from 19% in the first quarter.
From over 30% in the second quarter of last year.
Clearly that was a combination of.
Our strategy to.
Increased prices in peso terms two at least.
Compensate for the evolution of the currency, which in the beginning of the year, we only managed to do it it partially successfully.
As our prices declined by about 8%.
By by the second quarter compared to the fourth quarter of last year.
But clearly given the downward trend in international prices that helped alleviating and reducing the gap between local prices and international prices.
Since.
Since the end of the second quarter given the recent rally.
In international prices both in.
In crude and in spreads.
We have seen the gap increasing once again.
The one hand, given that we have continued.
Going forward.
The increases of the bump that have not fully managed to pass through the evolution of the currency and hence by today, we are spending about 10% below.
Dollar prices of the end of last year, and then further to that given the rally in international prices our gap today, probably.
Closer to 30% international bodies.
So that will be the negative news now.
What we expect for the rest of the year, we would continue to.
To look for adjustments at the pump.
Trying to mitigate the evolution of the of the effects.
And to the largest parcel will extend to looking at reducing the gap to international <unk>. However, we are cognizant of the reality of the macro environment of the of the inflationary level and as we've been saying for several months now we will do.
The rest of the weekend, but maintaining in mind.
All of this of our client base and therefore, the ability of our of our products.
It is hard to predict mostly due to the volatility in international prices, how the gap to international prices will continue to evolve although we.
Continue to.
To look for.
Reducing that gap to the <unk>.
Lowest possible level.
Level.
In terms of.
Going to your second question in terms of funding.
As was mentioned in the presentation. We managed so far in this first half of the year to raised about $1 $3 billion.
Further to that we have raised.
On a net basis, even the pre funding or the early refinancing of the Caf led loan wechat provided for about $150 million in net funding.
We have added another.
Over $200 million roughly $250 million since the end of the second quarter and so with that we expect I would say two thirds of the funding program for this year too.
Two have already been secured and.
And further to that.
Given the early refinancing of the Caf loan we managed to reduce the total amortization for next year by about $225 million. So.
Roughly speaking.
Maturity profile for next year comes down from the $1 $2 billion to about one.
So we.
In terms of tackling.
Our needs for the next 12 to 18 months.
We will continue prioritizing.
Uh huh.
The local market, which are which we believe that provides an interesting arbitrage.
For funding costs.
And of course, we will remained.
We will remain vigilant on the opportunities that the international market could provide to expand the funding sources to fully secure the funding needs that we have for the next 18 months. So I would say that we have been tapping on relationship banks.
We believe that there is some further room there.
Although more limited and we do believe that still the local market can provide significant further opportunities and beyond that.
As mentioned, we will remain vigilant on opportunities in the in the international market.
Okay.
Finally on your first question about the lifting cost trend.
Two what I responded to the Walter.
We clearly seen.
And inquiries given the cost pressures.
Related to.
Related to the general inflationary trend that runs above the devaluation of the currency.
And again as we expect our production to grow significantly in coming months, particularly in the fourth quarter.
Spect to compensate any further cost pressures, although we will work towards stabilizing our nominal cost, but if anything any further cost pressures, we would expect to compensate that through.
Higher production levels and thus we would expect for the second half lifting cost to remain relatively stable.
Okay.
Yes.
And ladies and gentlemen, there are no further questions at this time, so I will now turn the call back to Mr. Alejandro <unk> for closing remarks.
Okay.
Well, thank you very much everyone for joining the call today.
Have a great day.
Yeah.
Ladies and gentlemen, this concludes today's call and we thank you for your participation you may now disconnect.
Yeah.
Okay.
Yeah.
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Okay.