Q3 2023 YPF Sociedad Anónima Earnings Call

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Ladies and gentlemen, thank you for standing by my name is Bob It should all be a conference operator today at this time I would like to welcome everyone to the wide P. F. <unk> 23 earnings webcast presentation.

At this time all lines have been placed on mute to prevent any background noise.

I'll now hand, the call attitude Margarita Chin head of Investor Relations manager you May begin your conference.

Okay.

Okay.

Good morning, ladies and gentlemen, and welcome to Y P. S. Third quarter 2023 earnings call. My name is Mallory that children and I am the investor relation manager L. I P F.

Let me start by saying that it's my pleasure to have J O P F. The largest and leading energy company in Argentina.

This presentation will be conducted by our CEO, Mr. Pablo Giuliano and our CFO Mr. Alejandro live during.

During the presentation, we will go through the main aspects and events that explain the quarter results.

And by issues, our senior management has to Prerecord. His presentation I will now be available for the usual Q&A session. However, the IR team will be open for any further questions.

Before we begin I would like to draw your attention to our cautionary statement on slide two.

Please take into consideration that our remarks today and answers to your questions may include forward looking statements.

Which are subject to risks and uncertainties that could cause actual results to be materially different from the expectations contemplated by these remarks.

Our financial figures are stated according to IMF forest, but during the call we might discuss some ammonia furnace measures such as adjusted EBITDA.

I will now turn the call to Pablo Please go ahead.

Thank you Mike.

Good morning to you all let me start highlighting that this wasn't all that quota.

We continue delivering a solid operational performance total hydrocarbon production.

Five candidates.

Any thoughts on borrowed the 40 equivalent per day, rising, 1% sequentially and 3% on year over year basis.

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As seen on the crude oil production, we've recorded a slight sequential decline of 2% mainly in our shale operations.

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Adjusted EBITDA reached $926 million in the quarter, decreasing 8% sequentially and CDA comparing to the Q3 of 2022.

The lower outcome compared to the previous quarter game, especially on the back of lower domestic fuel prices in dollar terms, mainly triggered by the strip devaluation in mid August not fully pass through in the retail segment.

And downward trend in the prices of other refinery problems, although gasoline on lease up partially offset by higher seasonal sales.

And our bottom line came in.

At a loss of $137 million in the Q3, particularly affected by an impairment charge in our natural gas assets.

$506 million pre tax.

Primarily on the back of lower long term expected prices as a result of increased competition and potential over supply in the domestic natural gas market in coming years.

Our revised outlook for the local natural gas market for biopsies hours that they should give you of but our Europe <unk> seen oil.

<unk> discussing demos for profitable opportunities in the short term and medium terms, leading to lower expected natural gas production volumes in coming years compared to our previous forecast.

In terms of our investment activities, we continue deploying our aggressive capex plan during the quarter, which increased 15% sequentially and 36% on a year over year basis accumulating more of them.

For $2 billion during the first nine months of the year.

With regard to the Capex target for 2023, we expect to end with a slight upward the aviation as a result of higher costs in dollar terms.

On the financial side free cash flow was a negative three.

<unk> hundred $79 million as expected.

As the deployment of our investment plan was not fully compensate.

By the cash flow from operations.

Our net debt almost six $7 billion and increasing our net leverage ratio to one seven times.

For the full year, we expect that the combination of the slightly higher Capex mentioned it before together with a lower adjusted EBITDA level for a full year compared to our previous internal estimated to result in the leverage ratio exceeding the ceiling.

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Of 175 times provided at the beginning of the year.

Also remaining with him.

Rent levels.

On a final note let me briefly comment on the recent developments related to the disruption in the normal supply of fuels to consumer on fuel prices increases.

During the Q3, we recorded the highest level.

Ever dispatched of diesel and gasoline, which extend ever photo during October.

Additionally, since the end of July we have been executing program maintenance stoppage at our <unk>, our refineries, which combine it with a lower portion of biofuels and the length due to reduced availability in the local market and some delays in the railroad.

Our process for important fields in October dresser.

Dresser, our supply logistic in certain regions of the country.

However at <unk>, we led.

Brooke sector, if four to face these exceptional demand.

Hi through higher than historical imports, particularly in October and a significant inventory drawdown that allowed us to normalize the local supplier during the first days of November.

In terms of local fuel prices.

September.

We introduced two price adjustment at the pump.

One in late October.

In my early aiming to compensating an increase in biofuel prices and more recently last week by an average of 10%.

Therefore in conjunction with the government policies that extend during October tax for phones on imported gasoline and diesel we managed to mitigate to a large extent.

The economic impact of imported volumes, we're running above normal levels managing to partially reduce the gap of local fuels prices to international parity.

Going forward.

Although the global and local environments are full of challenge in coming months.

We will remain committed to exploit the huge opportunity that we have ahead of us.

In that sense. The cumulative result achieved in the first nine months of the year permit us to reaffirm our oil growth strategy.

While maintaining profitability and financial prudency at the forefront of our decisions.

I now turn to Alessandro.

To go through same for details of our operating and financial results for the quarter.

Thank you Pablo.

During the quarter, our total hydrocarbon production grew modestly compared to the previous quarter, but still resulted in an increase of 3% on a year over year basis.

<unk> production recorded a slight sequential decline of 2%, mainly due to interference effects of newer construction activity or existing production in our shale oil fields.

With some delays on our program for new times.

But later in October we have recovered our healthy growth trend, surpassing the 100000 barrels per day average for the first time in our shale oil production being on track to meet the total oil production target of the year.

Beyond crude natural gas production increased 3% sequentially to 38 million cubic meters per day.

Similarly, driven by demand seasonality.

While Ngls production increased by 9% quarter over quarter.

The positive interaction evolution in hydrocarbon production came as expected on the back of our total shale production, which continued delivering solid results.

Funding by 16% year on year, mainly led by our shale oil production.

On the conventional side crude oil production was 1% below the previous quarter, mainly driven by the natural decline of our mature fields, mostly compensated by our tertiary production, which increased 9% sequentially and 30% versus the same period of 2022.

The positive evolution in tertiary production came primarily from Milan <unk> block our flagship project that represents almost 70% of our EUR production.

Whether with the solid results of the pilots deployed a touch awaiting Mendoza annual traveling to wood.

Moving to costs lifting averaged $15 $6 per barrel of oil equivalent across our upstream operations, 2% below the previous quarter, primarily driven by the evolution of macroeconomic variables, while lifting costs for our <unk> operations remained almost stable.

Holly at very competitive level of $4 $2 per barrel.

Regarding prices in the upstream segment crude oil realization prices averaged $61 per barrel in Q3 declining 4% sequentially, mostly driven by a contraction of Ms. Anita crude oil price, which was set at $56 per barrel as of mid August based on an agreement between.

Local refineries upstream companies and the secretary of energy.

Partially offset by growing crude oil exports.

On the natural gas side prices increased about 9% sequentially to an average of $43 per million Btu as a result of the seasonal adjustments within the plan gas contracts.

Assuming into our shale activity during the quarter, we completed 38, new horizontal wells in our operated blocks, reaching a total of 117 completed horizontal shale wells during the first nine months of the year.

We also continued increasing the reason of drilling activity to enlarge our inventory of drilling but uncompleted wells.

In that sense in Q3, we drilled 47, new horizontal wells in our operated blocks, mostly oil producing blocks and only one targeting shale gas alignment with the aforementioned strategy of prioritizing our shale oil opportunities accumulating a total of 141 drilled horizontal shale wells.

During the first nine months of the year.

The 4% higher than the same period of 2022.

It is also worth noting the remarkable inter annual expansion of our shale oil production of 20%.

Averaging 92000 barrels per day during the quarter.

And despite the minor sequential contraction of our unconventional oil production recovering in Q3 more recently in October based on preliminary figures shale oil production jumped 11% to over 100000 barrels per day, accumulating an increase of 68% over the last two years.

In terms of efficiencies within our shale operations in Q3, we continued setting new quarterly records on drilling and fracking performance.

Averaging 297 meters per day and drilling another 217 stages per sub per month on fracking, increasing by 14% and 12%, respectively when compared to the previous quarter.

It is worth mentioning that during September we achieved the highest drilling speed for one well in our other Chinese block, reaching 450 meters per day for the well of over 3200 meters of horizontal length, which was fully drilled in 14 days.

As a result.

Average development cost for our core have oil operations remained stable at $10 $1 per barrel of oil equivalent.

We strongly believe that maintaining our focus in the continuous improvement of our well construction of operations in Bakken Walter is key to maximize value generation for all of our stakeholders. In addition, we are moving forward with the strategy of exploring new shale opportunities beyond backer Morita.

In that regard in September we were awarded with two new shale exploratory concessions in polar Micah last Susannah and they'll component to este blocks to explore the potential in coming years.

And more recently in October we started drilling the first ever horizontal well at the <unk> formation in El <unk> block.

Now, let me briefly comment on the progress achieved in the different initiatives aimed at unlocking the oil evacuation capacity of the network innovation.

Regarding the evaluation to the Pacific during Q3, we continued growing oil exports to Chile through the transaction pipeline totaling one 7 million barrels of oil, which represented 8% of our total oil production and 13% of our mezzanine oil output totaling net export revenues of around 135 million.

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Moreover, the Bakken whatnot pipeline is nearing completion as we started filling the line pack a few days ago, and we expect it to be fully operational during November.

However, since the shale oil to be exported through the new work and whatnot pipeline presents a lighter quality than behavior oil currently being exports to Chile. The export growth enabled by the new pipeline is expected to be gradual likely to start increasing as of early next year as our client shall be testing its refining process.

In response to its lighter crude mix.

Moving to the projects to expand the evacuation capacity to the Atlantic.

<unk> added 20000 barrels per day of evacuation capacity to the system last month as planned reaching 300000 barrels per day of transportation capacity.

In addition, Ot has continued moving forward with the construction of two new storage facilities or 50000 cubic meters each as well as the export terminal at Port <unk>.

Lastly, regarding the Bakken water South project.

During the third quarter, we began the design competition process for the new pipeline and export terminal and obtained the environmental permits for the first tranche of 102007 kilometers that will connect Loma Campana to Washington, the town, where the entrance of the existing wholesale wireless network is located.

Switching to our industrial and commercial segments as commented before domestic sales of gasoline and diesel reached the highest level ever dispatched in any given quarter jumping, 3% when compared to the previous quarter driven by an expansion of 5% in gasoline demand and 2% in <unk>.

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The latter mainly due to higher retail and transportation sales, partially compensated by lower power generation demand.

On a year over year comparison diesel demand remained essentially flat while gasoline sales recorded a strong expansion of 6%.

In terms of refinery utilization processing levels at our refineries averaged 276000 barrels per day declining by 1% year over year, and 10% quarter over quarter, primarily driven by two program maintenance stoppages at <unk> refinery during July and August and the shutdown of a topping.

Unit at La Plata refinery, which started in September as the final stage of the revamping project that will increase our processing capacity by around 5% by the end of this year.

And despite the lower processing levels, we were able to meet the historical high fuel demand recorded in the quarter through higher imported volumes and a significant drawdown of inventories.

On a cumulative basis, though during the first nine months of the year, we managed to process 296000 barrels per day, 5% higher than the previous year, while achieving a record high production of gasoline and middle distillates through maximizing our refinery conversion levels.

In terms of prices average local fuel prices measured in dollars decreased by 7% sequentially and stood at 18% below a year ago, mainly triggered by the discrete devaluation in mid August not fully pass through in the retail segment. In contrast to wholesale diesel prices that were fully adjusted.

To compensate for the lower retail adjustment the federal government implemented some initiatives such as temporary tax refunds on imported fuels deferred payment on employee social social security contributions and export duties on oil and refined products that positively impacted on our cash flow temporary neutrally.

<unk> the negative economic effect of the lower price adjustments. Consequently, the contraction in local fuel prices in dollar terms combined with an upward trend in international gasoline and diesel prices.

Started in the widening of the gap to an average of 27% during the third quarter significantly higher than the 13% reported in the previous quarter.

Nevertheless, after the two last pumping increases introduced in late October and early November we managed to reduce the gap back to levels of around 20%.

Lastly, the average price for our basket of refined products other than gasoline and diesel dropped by about 6% vis vis the previous quarter and 30% versus the same period of last year.

With the downward trend in international prices of petrochemical and certain refined products.

Switching to the financial front cash flow from operations in the third quarter amounted to almost $1 4 billion.

7% higher than the previous quarter.

Despite the sequential contraction in adjusted EBITDA in the third quarter higher cash flow from operations was the result of a negative noncash inventory valuation recorded in Q3 as well as other positive working capital variations such as a temporary deferred payments of part of the purchases of crude oil from third parties through the first days of October.

However, given the continued deployment of our ambitious Capex plan together with our regular interest payments in the quarter free cash flow came at a negative $379 million.

Consequently, our net debt increased to almost $6 7 billion and a net leverage ratio calculated as net debt over last 12 months adjusted EBITDA increased to one seven times.

In terms of financing during the third quarter, we continued advancing our financial program by securing both local and cross border trade related loans obtained from relationship banks and by tapping the local capital markets are very attractive financing costs.

In that sense in September we issued a five year dollar linked bond for $400 million of zero percent.

More recently in October we issued three year dollar inbound for almost $130 million.

And recorded a negative funding cost of minus 10% benefiting from the currency arbitrage in the local market.

Moreover, as already mentioned during the previous call in August we disbursed across border. They belong led by gas for $375 million.

As an early refinancing of an existing loan increasingly start outstanding facility size by $150 million and extending its average life by almost three years.

All in all during the first nine months of the year, we've been able to raise about $2 3 billion.

Representing net new funding of over $1 2 billion.

After deducting the debt amortization paid during the period.

On the liquidity front, our cash and short term investments remained stabled at almost one $5 billion by the end of September.

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 only 2% of total liquidity down from 13% as of the end of the second quarter.

With this we conclude our presentation for today and for any further questions. Please contact the IR team have a good day.

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Good morning.

Okay.

Thank you ladies and gentlemen, this does conclude today's conference call you may now disconnect.

Thank you.

Thanks.

Okay.

Okay.