YPF Sociedad Anonima

Good day and thank you for standing by. Welcome to the YPF first quarter 2021 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Santiago Wesenach, IR Manager.

Good morning, ladies and gentlemen. This is Santiago Wesenach, YPF's IR Manager. Thank you for joining us today in our first quarter 2021 earnings call. I hope you all continue to be safe. This presentation will be conducted by our CEO, Sergio Fronte, our CFO, Alejandro Leo, and myself. During the presentation, we will go through the main aspects and events that explain our first quarter results, and finally, we will open up for 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 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 used in calculations to reach our main financial figures in dollars. Our financial figures are stated in accordance with IFRS, but during the call we might discuss some non-IFRS measures, such as adjusted VDA. I will now turn the call to Sergio.

Thank you, Santiago. Good morning, ladies and gentlemen. Thank you for joining us on the call today. First and foremost, let me highlight that health and safety of our people and business partners remains our top priority. As the COVID pandemic still impacts our region, we have continued working under a strict set of guidelines, both for our employees and contractors, to ensure the protocols continue to be followed and precautionary measures to prevent contagion are not relaxed, thus assuring operational continuity and the achievement of our business plan. going into the economic and operating results for the first quarter ypf has made a robust start to 2021 leaving one of our toughest years behind and giving a step forward towards recovery and growth we have attained a solid rebound in profitability with adjusted evita reaching 767 million dollars increasing over three times sequentially and coming just 10% below the levels reached a year ago. This improvement was mainly due to a significant comeback in demand for gasoline and diesel, higher realisation prices and the materialisation of cost efficiencies resulting from the company-wide cost-cutting plan put in place last year. We are now focused on fully consolidating these efficiencies making each dollar spent significantly more powerful. As we kept ramping up activity, we completed 48 wells, 34 of which were in the unconventional segment, resulting in the quarter with the most completed horizontal wells since YPF started the development of Vaca Muerta. This, coupled with the better than expected initial performance on the recently connected wells, allowed for our total shale oil production to jump by 20% sequentially, backed by our core hub where output reached its record high in March and has already been outpaced in April, producing almost 43,000 barrels per day. On the conventional side, we managed to mitigate natural decline and grow by 1% sequentially, as we continue to have very good results by applying both secondary and tertiary recovery methods. As an example, production at Mananteles Ver, a 90-year-old block, continues growing and achieving new records, with additional production for tertiary recovery reaching 4.8 thousand barrels per day in the first quarter, and ever higher 5.4 thousand barrels per day more recently in April. As a whole, total oil production expanded by 4% on sequential basis to 208 thousand barrels per day in the first quarter, being well on track to meet our guidance for the whole year. despite recent disruptions originated in the 20-day blockade in the province of Neuquén, which partially affected our operations and investment activities in the region. On the back of this positive start of the year, our financial situation improved beyond our initial forecasts. Despite moving forward with our investment plan for a year, we delivered a positive free cash flow of around $280 million. This, in turn, allowed us to reduce our net debt during the quarter, down by over $300 million, reaching $6.7 billion, a level not seen since 2015. The first quarter provided encouraging results. making us more confident in our ability to fully execute our capex plan for the year and in turn achieve our production targets nevertheless the near future remains challenging ongoing and future mobility restrictions on the back of the evolution of the pandemic as well as macro volatility will probably continue to dictate the general business environment requiring us to be even more focused in consolidating and further identifying efficiencies to become linear while we remain quick to react to the evolving landscape and keep on delivering value to our shareholders. Let me end by saying that I am particularly proud of our employees. of their commitment and their efforts. I also want to thank our clients for their fidelity and our investors, partners and suppliers for their continued support. I believe the challenges ahead are still many, but I am confident of what we have achieved so far and this first quarter represents the first step towards getting back on a profitable growth cycle. Now I leave you with Alejandro, who will go into further detail on our first quarter 2021 results.

Thank you, Sergio, and good morning to you all. I will now go to our main financial results for the quarter that, although still somewhat impacted by the effects of the pandemic, had a solid recovery even beyond our initial estimates. Top of the list Our revenues jumped by 17% sequentially, primarily on the back of a very strong recovery in gasoline sales and improved net prices at the pump. However, our revenues are still well below pre-pandemic levels, standing at minus 7% versus Q1 2020, and an even larger minus 20% when compared to the same quarter in 2019. as average net prices stood about 15% lower than those in 2019, and volume sold of gasoline and diesel, although showcasing a very solid recovery this quarter, ended about 6% below when compared with pre-pandemic levels. On the back of the significant jump in revenues, adjusted EBITDA for the quarter totaled $767 million, more than four times that of the previous quarter, and just 10% below Q1 2020. This result was further helped by the consolidation in OPEX efficiencies, which declined by 21% when compared to the previous year, pushing our EBITDA margin higher to 29%, in line with historical levels. Based on this solid recovery in adjusted EBITDA, and despite being quite on track on the execution of our CAPEX plan, our free cash flow before debt financing totaled $284 million, allowing us to further reduce our net debt, which ended the quarter at its lowest level since 2015, at $6.7 billion, declining by almost $900 million in the last 12 months. Zooming into our cost structure, as mentioned before, and fully in line with our comments during the last earnings call, our total OPEX was down by 21% compared to Q1 2020. Clearly, the result of the company-wide cost-cutting plan launched last year. And going forward, although we still see room for some additional savings, particularly in relation to our development costs at Vaca Muerta, The main goal in coming months shall be to consolidate the efficiencies achieved so far, making these savings long-lasting. More specifically, during the quarter, we managed to further reduce our overall lifting costs to $10.5 per barrel of oil equivalent, representing a reduction of 8% compared to Q1 2020. And in the case of our downstream segment, we have captured a significant reduction in refining and logistic costs per barrel, which were down by 12% year-over-year, averaging $9.3 for each processed barrel. Separately, on the capex side, although total capex for the quarter was about $50 million below the previous quarter, activity in the upstream segment expanded by 17%, in line with the objectives laid out during our last earnings call in terms of focusing activity on the upstream segment, particularly in shale oil. And we have also managed to put this activity forward more efficiently, which is particularly evidenced by the continuous reduction in the average development cost for our core shale oil hub, reaching an average of $10.2 per barrel of oil equivalent in Q1 2021, dropping by 14% year-over-year and in line with our full-year target announced in the previous earnings call of $9.2 per bottle of oil equivalent for the full year 2021. Although total hydrocarbon production was down by 14% year-over-year in Q1, it expanded by 3% on a sequential basis, as the normalization in NGL more than compensated the decline in natural gas production together with a 4% increase in crude production and a more specific 20% jump in shale oil. Furthermore, during April, we have marked a new production record at our core shale oil hub, totaling almost 43,000 barrels per day of net oil production, even despite the 20-day blockade carried out by healthcare workers in the province of Neuquén that partially affected our operations. Beyond Vaca Muerta, Conventional production increased by 1% sequentially, as we continued mobilizing pulling equipment and doing it in a more efficient way, while also managed to offset natural decline through secondary and tertiary recovery techniques. It is worth mentioning that Manantial Sber reached a new quarterly record, with production averaging 24,000 barrels per day, increasing by 15% year-over-year, thanks to the innovation and top-notch technology that allow us to improve the oil recovery factor. Particularly on EOR, tertiary production at this field averaged almost 5,000 barrels per day during the quarter, compared to just about 700 barrels per day a year ago. This quarter was also characterized by a stronger pricing environment across the board. Our crude oil realization price averaged $50 per barrel, 3% higher than the previous year, and 25% up sequentially, partially reflecting the rally in international prices. However, this increase is not fully correlated with the rise of Brent, as a transition scheme has been agreed between producers and refiners in the local market to smooth out the evolution of international crude prices, thus minimizing volatility and allowing for a gradual pass-through to the pump. leaving room for reasonable margins within the downstream portion of the value chain. On the natural gas side, prices were also higher both on a sequential basis and compared to the previous year, as this was the first quarter under the new planned gas scheme. Our average realization price was $2.9 per million BTU, compared to $2.8 for Q1 2020 and $2.4 in Q4. Moving into the next slide, let me go a little deeper into the upstream activity performed during Q1. This quarter, based on the ramped-up activity and our focus in Vaca Muerta, we managed to complete 48 wells, 34 of which were unconventional wells, and more specifically, 25 in our core shale oil hub. This has marked a new record in terms of quarterly completed horizontal wells in Vaca Muerta ever, showcasing our renewed commitment to accelerate the development of this world-class asset. At the same time, as Sergio mentioned in his introductory remarks, we continue with our resumption in activity in a more efficient way, making each dollar we spend more powerful. As a clear example of this, we have continued achieving a steady improvement in monthly frac stages per equipment, reaching an average of 139 stages in Q1-21, representing a 34% improvement compared to the average of 2019, and 24% higher than the average of 2020. On the conventional side, we also continue to make very good progress. A good example of this continues to be the reduction in pooling intervention time. as total hours per intervention in Q1 came at 22% below the average for 2019 and 8% below the average for 2020. Switching to our downstream business, as previously commented, demand for refined products had a very solid start of the year, with a faster than expected recovery. Domestic sales of gasoline and diesel increased by more than 5% on a sequential basis in Q1, and almost 4% when compared to the first quarter of 2020, when the initial outburst of the pandemic had a negative impact for about 10 days in March. Nevertheless, when compared to full pre-pandemic levels of Q1 2019, local fuel sales in the first quarter were 6% below, while recent renewed mobility restrictions have further affected demand, with preliminary April figures ending at minus 11% for gasoline and minus 6% for diesel when compared to the same period of 2019. However, even though local mobility restrictions could further affect demand for refined products in the country, Strong international prices for both crude and refined products provide an attractive opportunity to compensate lower local sales with export demand, something that was not viable in 2020 as global demand collapsed simultaneously. As an example, in the first four months of the year, we have already exported over 400,000 barrels of gasoline to Bolivia, while we are also evaluating potential exports to other regional markets in coming months. In terms of refinery utilization, processing levels have recovered to levels very close to pre-pandemic, averaging 273,000 barrels per day in Q1, only about 1% below the same period of last year and the average for all of 2019. Finally, with regards to prices for our main domestic refined products, we have continued with an active pricing strategy at the pump. While the increases in the first quarter were primarily oriented towards compensating tax increases and passing through regulated increases in biofuels, the net effect permitted us to stabilize our net prices in dollars and, more recently, regain some margin. However, our average net prices for Q1 2021 measured in dollars, although expanding by about 10% sequentially, still stood about 11% below the average realized prices for the same period last year. Going forward, I was publicly announced by the President of our Board back in March to provide predictability to our clients, We have targeted a 15% net increase during a three-month period, with the last hike expected at some point this month. This should result in reasonable net prices in dollars that shall have their correlation with the gradual normalization of local crude prices. Furthermore, beyond May, we shall continue monitoring the evolution of international crude prices, as well as local key variables such as inflation and devaluation, to define future measures in terms of price normalization, focusing on maintaining reasonable margins along the value chain. Turning to cash flow, the recovery in profitability during the quarter led to an increase in our cash flow from operations that more than covered our investments and interest payments, allowing for the possibility to further reduce our financial debt, given our defined strategy of maintaining liquidity relatively stable. This resulted in negative net borrowing of $246 million during the quarter and a total reduction of our net debt of $324 million sequentially, while maintaining our consolidated liquidity almost unchanged at about $1 billion. Furthermore, we have recently negotiated a fully committed short-term revolving credit facility with a local financial institution, denominated in pesos for an amount north of $40 million equivalent, that provides us with extra flexibility to manage our liquidity more efficiently. And in terms of cash management, we have continued administering our liquidity with an active asset management approach to maintain FX exposure within certain limits while also considering the cost of carry of such strategy. As a result, as of March 31st, our net FX exposure related to our liquidity position stood at around 20%, even though central bank regulations continue to require all liquidity to be held onshore for companies like ours that have regular access to the official FX market for imports and cross-border debt servicing. Moving into our debt profile, although we have already commented the results of the global exchange offer executed earlier this year during our previous earnings call, it is worth briefly highlighting once again the debt service relief achieved for this year and next one, totaling close to $600 million while, at the same time, smoothing out our maturity profile for coming years. Looking forward, with no major bulk maturities in the near term, and with most of the maturing debt for the rest of this year composed mainly of local loans and bonds, having less than $250 million in cross-border maturities, and most of them trade-related, we feel very comfortable in our ability to efficiently roll over maturing debt and, if needed, tap the local market for net new funding. Although we have managed to further reduce our net debt and despite the recovery in profitability seen during the first quarter of the year, our net leverage ratio calculated as net debt over last 12 months EBITDA remained unchanged at 4.9 times, as the full effect of the pandemic is included in the rolling 12-month use for EBITDA calculation purposes. However, we expect net leverage to significantly decrease in the near future, as 12-month rolling EBITDA recovers, provided that market conditions continue to normalize and no particular contingencies materialize. Before taking your questions, let me once more thank you and the whole investor community for your continuous support. Now, we are open for your questions. Thank you.

As a reminder, to ask a question, you'll need to press star 1 on your telephone keypad. Again, that's star 1 to ask your question. Please stand by while we compile the Q&A roster. Your first response is from with Morgan Stanley. Please go ahead.

Hi, good morning everyone and thank you for taking my questions. My first question is on Plan GAS. I just wanted to touch base on the receivables from this plan. If the government is paying them on time, what is the current amount of receivables outstanding and what options does the company have in case the government fails to pay these incentives on a regular basis going forward? And then my second question is on asset sales. In previous calls, I remember that we have already discussed the possibility of YPF entering into new firm down agreements in Vaca Mereta, as well as the possibility of potential divestments from non-core mature fields. I just wanted to understand the status of these studies and discussions with international players and the company's perception of the current appetite of foreign investors to resume deploying capital in the country.

Thank you. Hi, Guilherme. Good morning and thank you for your questions. In terms of the planned gas receivables, so far we have accumulated in the first quarter about $10 million in specific receivables from the government in terms of subsidies. In terms of collections, we have not actually collected on them yet, although it's relevant to mention that regular payment scheme takes between 60 and 70 days between the end of the month, of the actual month, and the specific collection. So what we can say is that we are about a month behind schedule. We attribute that mostly, and we hope that will be the case, we attribute that mostly to the initial implementation of the program, which had some administrative issues and some back and forth in terms of information that had to be provided to the Secretary of Energy. But the good news is that last Friday, last week, at the end of last week, the first payment note was issued authorizing the Treasury to actually pay for the month of January, and that should be collected in coming days. So we expect once the process was finally, you know, fine-tuned, that collections for the following months will work as planned by the scheme, by the program, and so we would expect no further delays in collections down the road. It's important to note that the first quarter is clearly off-season, so the amount It's clearly not that relevant. As I said, for the full quarter, the total amount of receivables is in the order of $10 million. So the first payment was issued, the first note for payment was issued last Friday for an amount of just north of 160 million pesos, and that is 75 percent of the amount that should be collected for January. and uh and so as i said we we expect the the system to normalize in coming months in case uh the the actual payment doesn't take place there is an automatic scheme whereby producers can take once the payment notice was issued which has happened already for january Producers have the right, we have the right to actually use that payment notice against taxes that we have to pay, different taxes that can be used. So this can be used as a credit, a fiscal credit towards tax payments. So generally speaking, once the payment notice was executed, you have no further payment risks as you can take that immediately to net out tax payments. So that's basically the general scheme, and we expect down the road the flow to normalize and collections to happen on time. And then on your second questions, I will let Sergio to answer on asset divestments.

Yes. Let me, Alejandro, take this question. And thank you, Guillermo, for your question with respect to the potential divestments of assets. As we commented in the past, we are focusing on strategy and capital allocation in our core oil and gas activities. and in optimizing our portfolio. And in that regard, cash generation through the investitures of non-core assets would provide an additional capital to allow a more rapid deployment of resources into oil and gas for the business. A concrete example of this strategy is the sale of two real estate assets in recent months that will provide us with more than $50 million. On the other hand, and also as we commented in previous calls, we continue with having active conversations with key international players for the possibility of entering into new farming agreements in Vaca Muerta. However, it's hard to predict whether closing of any new agreement might take place in the near future, as valuation assessments seem to be well apart. And with respect to mature conventional areas, along the same lines that were commented during our last earnings call. We are also working, although it still is a preliminary stage, on a group of mature conventional areas that might be subject to some form of divestment. In summary, our strategy is to continue analyzing our portfolio of non-operating, non-strategic assets and shall move forward with the monetization if a potential deal valuation results recent. It's OK?

Thank you, Sergio.

Operator? Your next response is from Barbara Halberstadt with JP Morgan. Please go ahead.

Hi, thank you for the opportunity and congratulations on the results. I just wanted to follow up on your maturity schedule for the next months into the end of the year and beginning of 2022, given the effects restrictions, if you could just confirm to us what are your expectations in terms of the exposure you have to these restrictions, if you could confirm the amount for that so that would be helpful and also on the on the investment side there's been of course a lot of focus and activity on shale with the capex increase from the last quarter, but production increasing not to the same extent. So I just wanted to understand from the investments that have been done this quarter how much we're expecting it to reflect in future production for the second half, or we should be looking at the investments in the other quarters for the increase you expect for second half. Thank you.

Thank you, Barbara, for your questions. So in terms of the maturity profile and coming maturities and the impact from the FX regulation, Well, as shown in the presentation, we have just a little bit less than a billion dollars for the rest of the year, actually less when taking out the April, but let's say that from April to December, around $950 million on a consolidated basis, and then the first quarter of next year is relatively small, with just north of $100 million in in a coming maturity so all in all it's about a billion dollars uh for the 12-month period from april to march uh we feel uh that coming maturities are are not uh significant uh or that don't pose a significant risk in terms of rolling those over as you've seen we in the first quarter we have reduced the amount of debt in a significant way by about 300 million dollars probably the second quarter will be relatively stable, and then probably we will need to take some net new debt in the second half, but probably not as we had expected in our announcements in the previous call or the guidance in the previous call. We expect the amount of debt that will be required to be significantly less than previously anticipated. In terms of FX restrictions, we don't have major maturities exposed on that front. As you know, current regulations provide for some limitations in terms of debt repayment until the end of this year. but with some exceptions. One of those exceptions are maturities coming from liability management exercises executed recently to actually refinance coming debt. So the most relevant maturity that we have, which is about just south of $45 million on the amortization on our 25 March 25 international bond will be the first installment out of that. That was the one coming out of the liability management executed in July of last year. But that particular amount is not subject to the regulations as provided by specific exemptions from the central bank. So the remainder of the maturities affected between now and the end of the year are about $25 million, composed of two installments on a bank loan, on a cross-border bank loan, for about $80 million. and then about $6 million on the local bond issued in hard dollars. So, all in all, we don't expect any major complications to solve those issues, particularly on the installments on the bank facility. The first installment out of that was already refinanced last December within a similar scheme. And so we don't expect coming maturities in June and December for $9 million each to be a problem at all. And then the bond maturity of $6 million in October, again, it's only $6 million in the local market. We don't expect to face any major issue to resolve that. Then on your CAPEX question, clearly it's – The relationship is not linear, right? First of all, you have about a six-month lag between the time where you put your investment into place and the actual production coming out. But that is considering the full cycle of the investment. However, on a regular basis, you have a combination of a portion of your capex that goes towards completion of wells that were in the middle of the process. You know, as you know, we've been commenting on the stock or the inventory of drilling but uncompleted wells that we had that, you know, coming out of the pandemic, we were having a stock of an inventory of about 80 wells. We have reduced that inventory, that backlog, very significantly. As of today, we have just 34 remaining dark wells from that period. Although we have created new backlog from new different stages of development, of construction of new wells. So as of now, we are at about a little bit north of 70 wells in our backlog. So that's why it's not very linear how you can translate investment into production. Nevertheless, of course, we, you know, the improvement in production primarily in our core hub in shale oil, that was, that has an effect from the completion of wells in late 2020 and also during this first quarter. So I would say that about close to 50% of the production increase during the quarter or close to 5,000 barrels per day are the result of the new wells that were put into place and in operation in recent months. And the reminder is mostly reduction in losses, basically through pooling intervention, and also the positive result from the evolution of our tertiary production at Manantial Sber, that we have been commenting also in the past, and as Sergio mentioned, and as was mentioned during the presentation, it's up also... in a significant way, particularly when compared to the first quarter of last year, right, going to about 5,000 borrowers a day when comparing to less than 1,000 borrowers a day in the first quarter of 2020.

I hope that's very clear.

Okay. Thank you, Barbara.

Thank you. Your next response is from Frank McGann with Bank of America. Please go ahead.

Okay, thank you very much and good day. I was just wondering if you could give us some update on what you're hearing about the hydrocarbons law and what you currently think that will mean for YPF. And then maybe if you could also just talk a little bit about in the past you've had a lot of advantages being able to source crude when you need it in the local market. I'm just wondering how that is today with the current pricing changes or the pricing changes that have been made recently in the local market.

Jorge Mancilla- Okay. Hello, Frank, and thank you for your question. I'm going to take the first one related to the hydrocarbons law. As you know, President Alberto Fernandez has publicly stated his intention to present a new hydrocarbon law to promote investment in hydrocarbons in the country. to Congress this year. And also there have been active conversations between government and the industry. As far as we understand, there should be three main goals in the new law. The first one is to incentivize further investments in the upstream segment. particularly in crude, to generate structural incremental volumes that will not only ensure that the local demand is met, but further provide for extra production to increase exports. To this end, we understand the project should contemplate guaranteeing some minimum exportable volumes based on incremental production and granting some minimum access to the foreign exchange market in relation to these exports. The second goal, we think, is to encourage the execution of hydrocarbon industrialization in the country, projects such as LNG fertilizers and renewed refined infrastructure. through some form of tax benefits that in turn will contribute to substitute high-value imports and generate exportable surpluses and significantly improve the quality of fuels. And the third goal is regarding natural gas. We understand that the law should go beyond what has already been implemented as the new Plan Gas 4 and focus on incentivizing the production of gas under a scheme that allows producers to export 365 days a year, enabling for long-term contracts while ensuring the supply of the local markets. We think that these are the three main goals that the law has. And with respect to the impact in YPF, As I mentioned, this hydrocarbon law will provide specific benefits to the industry as a whole, and of course this includes YPF as a part of the oil and gas industry. Some of those could include the possibility to gain oil export credits that could be freely traded in the local market, long-term contracts, as I mentioned, to export gas, plus incentives to enable oil and gas industrialization projects that are currently in our portfolio, such as revamped infrastructure to improve fuel quality and some URI incremental production. Additionally, the law may include holistic revision of fuel taxes adjustment in a more proportionally way linked to how prices evolve. And of course, a specific focus on conventional projects to accelerate production, enabling some blocks to grow from pilot stages to development mode. And with respect to conventional, I think we think that conventional production will be also considered with a specific benefit for additional production that reverts the natural decline of mature fields. This is the conversation that we have with the governments. And also, as I mentioned before, all the industry had some conversation with government officials. But of course, and just to clarify, while we have an active and constructive dialogue with government, authorities who are not aware of the timing of the actual measures that the executive power might end up presenting to Congress.

Okay, Frank, in terms of your second question about sourcing crude in the local market, in the first quarter we had a similar percentage to our recent historical average in the order of 20%. I think the exact number, the precise number was 21%. so roughly in line with the historical averages. Of course, there is some pressure from local producers, non-integrated producers, to push prices upwards, following closer the evolution of international reference prices. But as commented during our presentation, there's been a constructive and reasonable dialogue between refiners and producers. You know, in that negotiation, we act as a refiner, clearly based on our net capacity. purchases of crude to third parties, primarily to our main partners. And in that sense, I think there is a general understanding that we need to smooth out the evolution, the rapid evolution that international prices had because of the difficulties to translate and to pass through those international prices to the pump in a faster way. So I think there has been, as I said, reasonable dialogue, constructive dialogue. We managed to, so far, negotiate with the local producers relevant discounts to export parity. But, of course, it's a dynamic process. In that process, also, most producers also have been having the ability to export a portion of their production, capturing the full benefit of export parity in that portion of their production, and in that way sort of compensating the lower domestic prices. Down the road, we expect this reasonable dialogue and agreements to continue as we move along the year, clearly in a difficult year in terms of macroeconomic environment. And our ability to keep on adjusting prices at the pump, of course, will dictate also ourselves and the rest of the refiners, right? The ability to push prices upwards at the pump. If international prices stabilize at this level, so continue to grow, of course, that ability to adjust prices at the pump will dictate our ability to pay higher prices to local producers. But that is still very unclear. We will have to see how everything evolves down the road.

Okay, great. Thank you very much. Sure. Thank you.

Thank you. Your next response is from Marcelo Gomerio, Credit Suisse. Please go ahead.

Good morning, and thank you for taking the questions. I have two questions here. One is a follow-up. So first question about sales volumes. I mean, we saw domestic consumption at 10% above the first quarter of 2020, and almost flat compared to 2019. However, total sales were flat, almost flat, which reflects lower exports in the first quarter. My question is, did the domestic volumes fully recovered from COVID and should we expect exports to stay low going forward? And the second question is a follow-up question about CAPEX. When you commented on how many drilled but uncompleted wells you still have at the end of the quarter, my question is, I wanted to understand if CAPEX could be lower than the guidance or production could be higher than the guidance for 2021. Or, I mean, if there is no... This is not the case. I mean, guidance is still in place for 2021. Thank you again for taking the questions.

Thank you, Marcelo. In terms of demand, what we've seen in the first quarter was a faster than anticipated recovery in local demand versus pre-COVID, versus pre-pandemic. The ramp up in demand that we had anticipated And we commented that in the last earnings call, we were expecting the full year to be about 10 to 15% below pre-COVID, ending the year by December closer to 5 to 10% below pre-pandemic. However, in the first quarter, we've seen a more rapid recovery. being at, yeah, as you mentioned, and probably closer to pre-pandemic in the case of gas oil, on average, and about an average 5% or slightly more below pre-pandemic in gasoline. However, based on the new mobility restrictions imposed by the government on the back of the second wave of COVID here in Argentina, What we've seen in April and mostly in the second part of April and the first week of May is a comeback or a setback in that recovery, whereby we are seeing demand for gasoline and sales of gasoline probably closer to 15% to 20% below pre-pandemic. And not that much in the case of gas oil. because of the increased demand, the seasonally increased demand from mostly the agricultural sector. So what to expect down the road? We continue to believe that by the end of the year, we should be at about 5% to 10% below pre-pandemic. So we will expect the coming months to still have somewhat of a lower demand demand scenario or demand environment vis-a-vis pre-pandemic and then recovery probably by the spring once probably mobility restrictions will start to be flexibilized. But again, this is all very premature and so we are sticking with this idea that by the end of the year we will probably remain about 5 to 10 percent below pre-pandemic. And in terms of CAPEX and production guidance, so far during the first quarter we are slightly behind schedule on our total CAPEX versus what we had anticipated, although we expect to recover that in coming months. even though April was also a setback given the 21-day blockade in the province of Neuquén, which partially affected our operations, primarily construction in that area. But we still stick to the guidance provided earlier in terms of the total capex for the year. And in that sense also in the guidance for production, based on our estimates, the first quarter came a little bit over our guidance or the portion of that quarter for our guidance. However, because of the impact that the April blockade will have on production and also this delayed schedule for CAPEX, we will then adjust probably the second and the third quarter will come a little bit lower than our previous plans. and then being fairly unplanned for the full year. So basically, in summary, and not to complicate things too much, we still believe that the full $2.7 billion capex for the year should be and remains our target. And the same goes for total production to be relatively stable year over year. However, being about 5% higher in crude and about 7% to 8% higher in natural gas when comparing the second half of this year to the second half of 2020.

All right. Thank you very much. Very clear. Sure. Thank you.

Thank you. Your next response is from Constantinos Papalia with Puente. Please go ahead.

Hi, everyone. Good morning. This question is with respect to pump prices for diesel and gasoline. How much room for price adjustments do you estimate for the next quarter? Can we expect prices to recover to early 2020 levels? And a second question, again related with prices. With elections approaching on the third quarter and foreign exchange pressure on the peso, how exposed is your EBITDA under a major devaluation scenario? Thank you very much.

Thank you, Konstantinos. Tough questions that you ask. Clearly, pump prices are hard to predict, of course. we've been following the strategy that we've been commenting so far trying to regain dollar margins as and mostly as international crude prices continue to rally we have continued with our active strategy in terms of adjusting prices higher however we are very cognizant of the overall delicate macroeconomic environment, particularly inflationary pressures. So that's why, back in March, the president of our board announced, to provide some visibility for our consumers, announced a three-month target, which was for 15% on aggregate, that was announced in three installments. We have already performed two of those. One should happen during the rest of May. And so we are on target on that front. Down the road, of course, it will depend on whether, you know, the, first of all, the elasticity, the price elasticity of demand. And we, you know, we are back at more, you know, closer to historical averages, still down, you know, versus when you compare to the period of 2017 to 2019, the most recent years. yes we are still down on on dollar terms about 15 to 20 percent so there's still some room uh to recover a little bit further there uh same when comparing to import parity we are somewhat between 10 to 15 below import parity you know closer to 10 but uh of course it depends on the the exact uh uh you know depends on the volatility of of international prices um So going down the road, yes, we expect to... to at least maintain similar levels on the ones that we have today, although we cannot, you know, guarantee whether that will be possible. And, of course, there will be pressure, as I mentioned before, from the price of local crude to push for further price improvements in the downstream segment so that, you know, in pump prices so as to maintain downstream machines. But all of that is hard to predict. And definitely in terms of the potential impact on a significant devaluation. Yes, we are always subject to that. And of course, in the long run, as has been demonstrated, prices tend to correlate very well and maintain some reasonable dollar margins. However, in the short term, of course, our prices are in pesos, right? And it's positive when, for example, things happen like in the first quarter of last year when international prices collapsed. our margins improved, and that allowed for the barril criolle also to protect the price of local crude. But then the other side of the coin is when international prices rally or when you have a significant devaluation of the currency, there is some lag to adjust our pump prices, and then you have some temporarily negative effect on your cash flow generation. But again, we don't know what will happen with the evolution of EFX. And so far, at least in the near future, we expect our dollar margins to remain relatively stable.

Well, thank you. Thank you very much. And again, congratulations on very, very solid results. Have a great day.

Thank you. Thank you.

Thank you. Your next response is from Ezequiel Fernandez with Violence. Please go ahead.

Hi, good morning, everybody. Yeah, hi, good morning, everybody. Thank you for the materials, as always. And yes, it was great to see the turnaround in output. Congratulations. So I have two basic questions. The rest have been already asked. Regarding working capital cash sources, I believe that you previously indicated in the last quarter that that you could get $500 million even during this year. In view of the first quarter results, do you think you will effectively need that much, or should we expect something lower? And the second question has to do with the current discussion in Congress regarding biofuels. If you could tell us a little bit of what you think is a healthy biofuel cut for diesel and gasoline for the industry.

Hi, Ezequiel. Good morning. In terms of working capital, clearly, and as commented during the last call, there are several factors affecting our working capital. All in all, we anticipated that amount also has to do with some tax receivables that we have and some collections in general. So we still believe that... It is reasonable to anticipate an amount close to that, between $400 million and $500 million for the full year. And so far, we have been collecting on the latest portion of the original planned gas installments, which is about $25 million per month. So the first quarter, we continue collecting that, and I think we have just one remaining installment to collect, and that's it. But then, so as I said, there are several factors affecting our working capital. But generally speaking, we should still be seeing an improvement in working capital in the order of $400 million to $500 million for the full year. In terms of whether we need it or not, I think we commented briefly during our presentation. We feel more confident now in terms of our, based on how the year has started and, you know, the way we are seeing our cash flow generation ability. We see less need for net new funding. We are anticipating a significantly lower amount of debt than previously expected. And as clearly seen in the evolution of our net debt in the first quarter, And so, of course, if that working capital actually doesn't materialize in full, that should not derail in any significant way our plans for the year. So I would say that we are less at risk on our CAPEX plan when related to working capital or the reduction in our working capital, generally speaking. In terms of biofuels, I think it's a complicated question. Of course, there's a lot of debate in general in the industry in terms of the What's the impact on biofuels, on sustainability in general, on climate change? There are different views and there are two sides of that library. So it's impossible to say what's the exact impact percentage of biofuel cut that is reasonable. Of course, you know, for us, the lower the better. Our business, that is a pass-through, and we would rather not have any biofuel cut, but we understand that there are different views to that. So we are more passive on that situation, and of course, and as was commented earlier, When our president of the board announced the price adjustments of the pump back in March, he commented also that part of that price adjustment was related to a pass-through of the increased biofuel prices. As you know, those are regulated and based on the STIP regulations, increase that was announced in biofuels. That's why, you know, a portion of our pump prices increase was mostly to compensate for the incremental costs on our fuel purchases. So, all in all, I would say that we don't have a very, you know, a company message or a company target, but definitely we would look for adjust our prices accordingly for whatever decision ends up taking place on that front.

That's great. Thank you very much. That's all from my side.

Thank you. Your next response is from Luis Carvalho of UBS. Please go ahead.

Hi, thanks for taking the question. I just would like to come back to one cash flow discussion. So you had, I would say, a good quarter, and let's say that you can deliver maybe that close, let's say, to $3 billion. You have a CapEx of 2.7, cash of close to, I don't know, $1 billion, and that to be paid close to $9.50. So that will give you something close to $400 million cash by the end of the year. So, just trying to understand if this cash flow breakdown makes sense to you. And secondly, what is the minimum cash amount that you need in order to run the company? That would be my first question. The second question is, you had somehow, at least in our forecast, a bit better results on the downstream business, on the back of the volumes and also the margins. just trying to understand a bit better how recurring they are and what are the risks. I think that you already mentioned part of the difficulties in order to follow the international prices, below between 10% and 15% below the import parity. Just trying to understand how recurring VAT deductions were. Thank you.

Thank you, Luis. Good morning. Thank you for your questions. In terms of cash flow, Well, generally speaking, as you know, we are still not providing guidance for full-year EBITDA, not because we don't want to, but clearly because we still believe that there are too many uncertainties down the road to make us comfortable in providing such a guidance. We are trying to be very coherent in the guidance that we provide and what we deliver. And that's why we don't want to move too fast on that front, given the type of fear that we have ahead of us. In any case, I think the portion that you missed on your cash flow analysis is the interest payment portion. And I think that it's important to say that we see our interest payments going down this year when compared to the recent past, to historical averages for the last few years, mostly as the stock of debt was coming down. And also, we are doing good progress in terms of reducing our cost of financing after the debit exchange. Financial institutions that are our main partners have been offering lower rates. Just, you know, we are getting closer to 5% to 6% on average for our short-term trade finance line when comparing to an average of about 7% at the same time last year. So that's good news. And also the overall reduction in the stock of debt plus the – cash relief that was obtained during the exchange earlier this year. So all in all, the cash portion or our cash interest payments are coming down in a significant way this year. So generally speaking, as of today, we feel very comfortable with roughly $1 billion in liquidity that we have. That is the consolidated liquidity that we entertain, that we have at the end of March. During the last call, we have said that we expected that liquidity to be around $1 billion plus minus 10%, and we are exactly at the same level by the end of the first quarter. To be completely honest, based on the revised short-term maturity profile, basically the lack of bulk maturities in coming months, and the way we see the cash flow from operations, we may even consider reducing that amount of liquidity. But we are reviewing that for the rest of the year. So, you know, just as a feeling or as a sense that we feel very comfortable right now in our ability to, first of all, roll over maturing debt, which is, as I said, doesn't have any concentration. The only major concentrations that we have is a local syndicated loan that matures now in June for an amount of $250 million. We were presented with a refinancing proposal, and we are analyzing it, but maybe not even taking the full amount, because we don't feel that that's the best financing alternative that we have in hand. We are looking at several financing alternatives, mostly local, but some cross-border as well, for the second half. makes us more confident in our in the financial front so because of all of that and let me sorry for being a little bit long on my answer but so we feel that cash flow should be better for the year than previously anticipated that's why you know the comment in the previous earnings call was that We were anticipating taking on a relevant amount of net new funding to be able to execute in full our CAPEX plan, and that's why we put some risk on our CAPEX plan based on our financing achievements. I would say that today we are less at risk from the financing side. We don't see that much requirement of net new funding or not net new funding at all for the year as a whole. And so we feel more confident and probably even considering reducing the stock of liquidity to reduce our cost of carry and our net FX exposure on the liquidity side. And in terms of your downstream margin question, When you calculate the average per barrel equivalent per barrel processed for the quarter, it's at about $8.50. Of course, that is a mix of several things. It includes petrochemicals in there. So it's a mix of refining logistics, petrochemicals, and non-fuel exports of agricultural products. So it's a mix of many things. But roughly speaking, that number, it's a little bit below average from a historical perspective. So we do expect that number to to improve a little bit, at least in the near future, and hopefully stay there for the rest of the year and hopefully for the future. But we are getting closer to historical averages on our downstream segment. But as I said, that $8.50 per barrel, a little bit below average, and probably improving a little bit in the near future.

Okay. Thank you.

Thank you.

There are no further questions in the queue at this time.

Thank you very much, guys, for your interest, for following YPF, for your comments, for your reports. Have a good day.

This concludes today's conference call. Thank you for participating. You may now disconnect.