YPF Sociedad Anonima

Good day and thank you for standing by. Welcome to the YPF 2Q21 Earnings Results Conference 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 will 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 zero. I would now like to hand the conference over to your speaker today, Santiago Wesenach, IR Manager. Please go ahead.

Good morning, ladies and gentlemen. This is Santiago Wesenach, YPF IR Manager. Thank you for joining us today in our second quarter 2021 earnings call. I hope you all continue to be safe. This presentation will be conducted by our CEO, Sergio Affronti, our CFO, Alejandro Leo, and myself. During the presentation, we will go through the main aspects and events that explain our second 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 using calculations to reach our main financial figures in dollar terms. 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. During the second quarter, we delivered very strong financial and operational results, and profitability continued improving, even surpassing pre-COVID levels. Adjusted EBITDA for Q2 reached $1.1 billion, a 41% jump when compared to the previous quarter. and 14% higher than the same quarter in 2019. This improvement was partially supported by higher realization prices across the board, including not only pump prices that reach similar dollar levels to those registered on average in 2019, but also higher pricing for natural gas, petrochemicals, and non-oil products. Domestic demand for gasoline and diesel continued the recovery trend despite the setback presented by the mobility restrictions temporarily re-established since the last week of April until June. During the quarter, diesel demand was almost back to the pre-COVID levels, whereas gasoline demand was the most affected, still standing about 18% below pre-pandemic levels, although keeping the recovery trend standing in July about 7% below. but our profitability improvement did not only come from improved prices. We have delivered the production recovery that was announced at the end of last year, while prioritizing operational efficiency. Despite the disruptions originated in the 20-day blockade in the province of Neuquén during April, which had a significant impact in our operations, we managed to grow our total production by 6% sequentially in Q2 and further growing by another 6% during July, reaching an average of 490,000 barrels of oil equivalent per day. Shale production led this recovery as it jumped by 22% sequentially in Q2, primarily as a result of a 35% expansion in shale gas an even higher 48% jump when considering only our operated areas, comfortably meeting our planned gas for commitments. On the crude oil side, sale oil production expanded by 7%, while our efforts to mitigate natural decline in our conventional fields have also rendered very positive results, allowing for total conventional production to remain almost flat in Q2, but tertiary recovery continues to prove its effectiveness. For Manantiales Verde, total oil output grew 1%, quarter over quarter, with tertiary growing 14%. As a whole, production results in the first half of the year have met our guidance for natural gas and came 3,000 barrels per day ahead for crude oil. showcasing the impact of our CAPEX program and the benefits harvested from our operating efficiency plan. During the quarter, we had the highest number of rigs in operation since the pandemic started and managed to tie in 41 wells, 21 of which were on the conventional segment. Not only this, we continue to incorporate top-notch technology and world-class techniques, In the last month, we performed two single-frack pilots by fracking two wells at the same time in Rincon del Mangruzo and Loma Campana. We did encouraging early results, so we plan to expand its use to other locations as well. And our fracking speed in Vaca Muerta has continued, setting new records, with 148 average fracks per set per month during the quarter, further improved in July to 194. Plus, in the case of two specific sets, even achieving more than 200 tracks per month. Overall, we're maintaining our focus on cost reductions and consolidating structural efficiencies, resulting on a global OPEX reduction across the company of 17% in Q2, or an even better 20% when normalizing for non-recurring standby costs associated to the blockade in April. Finally, on the financial side, for the fifth consecutive quarter, our free cash flow before debt financing landed in positive territory, totaling $311 million, despite moving forward with our investment plan for the year. This, in turn, allowed us to continue reducing our net debt by an aggregate $600 million in the first half of the year, reaching $6.5 billion of net debt by the end of June and leading to a steep reduction in our net leverage ratio, now back within covenant limits. Looking forward, given the robust results achieved during the first half of the year, we remain confident in our ability to execute our $2.7 billion CAPEX plan And in turn, we have filmed our production targets for the year, with a potential bias to the upside in the second half, providing for a better starting point for next year. In addition, we now have enough visibility for the remainder of the year to be able to provide the guidance for a four-year adjusted VIDDA, which is expected to total $3.5 billion, plus or minus 5%. while net leverage should continue to decline to around two times or even less by the end of the year. Before leaving you with Alejandro, I would like to once again tell you that I am especially proud of YPF's team, of their commitment and their efforts. I also want to thank our clients for their fidelity and our investors, partners, and suppliers for the continuous support. Thank you.