YPF Sociedad Anonima

Good morning, and thank you for standing by, and welcome to the YPF third quarter 2020 earnings conference call. At this time, all participant lines are on the listen-only mode. After the speaker's presentation, there will be a question-and-answer session, and instructions will follow at that time. Please be advised that today's conference is being recorded. If you require any further assistance, please press star then zero. I would now like to hand the conference over to your host, Santiago Wessonak. investor relations manager. Please go ahead.

Good morning, ladies and gentlemen. This is Santiago Wisenach, YPF's IR Manager. Thank you for joining us today in our third quarter 2020 earnings call. I hope you are all safe. The presentation will be conducted by our CEO, Sergio Franti, our CFO, Alejandro Leo, and myself. During the presentation, we will go through the main aspects and events that explain our third quarter results, and finally, we will open for questions. Before we begin, I would like to present a statement on slide two. Please take into consideration that our remarks today and answer to your questions may include forward-looking statements which are subject to risk and uncertainties that could cause actual results to be materially different from the expectations contemplated by these remarks. Also, note the exchange rate using the calculations to reach our main financial figures in dollar terms. Our financial figures are stated in accordance to IFRS, but during the call we might discuss some non-IFRS measures, such as adjusted EBITDA. I will now turn the call to Sergio.

Thank you, Santiago. Ladies and gentlemen, good morning. Thank you for joining us on the call today. Let me start by saying that after the severe economic slowdown that took place after the eruption of COVID-19, the worst now seems to be behind us and the performance of the company has started to show signs of recovery. We are far from being back to normal levels but the disruptions that critically affected our activity and prices have started to subside. First and foremost, safety of our people is our top priority. As we have gradually started to resume activity, the index that measures the frequency of accidents per million hours at work stood at 0.19 during the first nine months of 2020. representing an improvement of over 50% when compared to the 2019 average of 0.43. Our COVID committee continue overseeing that critical services and operations are maintained with the utmost care for our employees, suppliers, and customers. Over 90% of our people whose positions do not require face-to-face interactions are still working remotely. Our success in adapting to the realities imposed by the pandemic was clearly showcased during the major maintenance works done at our La Plata Refinery through September and October. A total of less than 900 people worked on the task, way below the pre-pandemic estimate of 1,300 thanks to a fully revised strategy including a special night shift, bubble-type working groups, and introduction of innovative technological solutions that play a central role in optimizing resources and assuring health conditions. And now that it has concluded, I am proud to say that we successfully achieved this work in a safe environment and at a lower overall cost when compared to original estimates. Along this same line, our subsidiary YPF Luz resumed full activity at their construction sites and managed to reach COD on several projects between September and October for an aggregate of 411 megawatts of both thermal and renewable installed capacity. When including these projects, Now in commercial operation, YPF LUS accounts for total installed capacity of over 2.2 gigawatts with an additional 230 megawatts underway. Moving into our economic performance for the quarter, since the worst monthly record of April, when gasoline and diesel volumes contracted by 69 and 34 percent respectively, on a year-over-year basis, we have seen a gradual recovery in volumes as the lockdown has been flexibilized. Fuel cells had a positive sequential evolution in the third quarter and further out in October, we have seen demand recovery continuing, with gasoline contraction being close to 30% and diesel around 18% when compared to the previous year. Taking into consideration the positive demand trend, coupled with the agreement reached with unions and contractors, we were able to gradually start resuming upstream activity, which allowed for production stabilization on a sequential basis. During the third quarter, we rigged up 37 rigs, including drilling, workover, and pooling, and reopened all shale wells. As a whole, Production was flat quarter over quarter, which sailed back at pre-COVID levels of setting a contraction in conventional production. As I've just mentioned, the resumption in activity was supported by initial results of our cost-cutting effort. We have already reviewed 65% of all vendor contracts and revisited a good portion of our internal operating processes, achieving important savings in key activities. For instance, total cost for shale well is estimated to be 15% lower on aggregate, excluding potential additional savings for contracts still under review and further efficiency gains that we are working on. Another example can be found in our pooling intervention in conventional fields, where we have achieved significant reductions in the number of hours per intervention in addition to tariff renegotiations bringing pulling total costs down by over 30%. Additionally, the voluntary retirement program executed in the third quarter reaching all non-unionized workers resulted in a 12% headcount reduction in that labor segment, representing savings around $50 million per year. During the quarter, We have also pursued periodic price increases at the pump, raising by a cumulative 12% in Argentine pesos as of today. Our profitability improved sequentially, with adjusted EBITDA totaling $392 million during the quarter, a significant recovery compared to the $28 million of the previous quarter. Despite this partial recovery in profitability, we have continued prioritizing financial prudency. As a result, although higher compared to the previous quarter, capex remained at low levels and net debt decreased further. We have also taken an active liquidity management approach to mitigate currency exposure while minimizing cost of carry. Looking forward, we estimate full year EBITDA to end up around $1.5 billion, with a similar figure for CAPEX. As production is expected to contract in the fourth quarter due to preventive shutdown of well-surrounding fracking activity and programmed pipeline maintenance, average production for the entire year continues to be estimated at minus 10%, in comparison to 2019. In terms of capital allocation and portfolio optimization, we continue having active conversations with the strategic partners about potential farming in Vaca Muerta, while also analyzing some potential divestment opportunities in the mature conventional blocks. Finally, as we devise our plan going into 2021, We anticipate a more ambitious CAPEX program to turn around the production decline trend seen during the last five years. This will likely result in a need for net new funding that should stabilize and subsequently deliver in following years as cash flow generation capacity recovers from higher production and normalized demand environment. Furthermore, The new plant gas, which was announced a few weeks ago by President Fernández, should be formalized shortly and is expected to provide stability and incentives to develop our vast natural gas reserves. In summary, while the pandemic triggered unprecedented negative conditions, we did not stand still and have been working very hard to reemerge much stronger. With a linear and more efficient operation, and expect to show the full-scale benefits of these initiatives in the short term. Once again, thank you everyone for joining us today, and now I leave the floor to Alejandro.