YPF Sociedad Anonima

Good morning. My name is Chris, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the YPF Q3 2021 earnings webcast presentation. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star, then the number 1 on your telephone keypad. And to withdraw your question, please press star 1 again. Thank you. Santiago Wesnak, IR Monitor for YPF, you may begin.

Good morning, ladies and gentlemen. This is Santiago Wesnak, YPF's IR Manager. Thank you for joining us today in our third 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 third 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 U.S. dollars. Our financial figures are stated in accordance with 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. Good morning, ladies and gentlemen. Thank you for joining us on the call today. The three months ended last September. constituted yet another quarter with strong financial operational results, all the while our operations and businesses continue to move into the post-pandemic new norm. As we move forward with our focused approach towards delivering sustainable recovery, adjusted EBITDA was above the $1 billion mark for the second consecutive quarter. These results came on the back of a benign pricing environment primarily on brand-related products and natural gas, while we managed to continue recovering our oil and gas production, increasing 7% since the last quarter and 17% year-to-date while containing cost pressures. CAPEX activity continued to be primarily concentrated in developing our unconventional resources. reaching a historic record in terms of completed horizontal shale wells in any given quarter since the beginning of Vaca Muerta's development. At the same time, we maintain our focus on achieving further operational efficiencies and pushing our technical boundaries to the next level, securing further gains in drilling and fracking speeds while also recording the longest well ever drilled in Vaca Muerta with a horizontal leg of over 4,100 meters at our Loma Campana block. In terms of shale production, growth came mainly from the natural gas side based on the tie-ins accomplished during the previous quarter and early on in the third quarter, increasing shale gas operated production by 166% year to date. This temporary prioritization of natural gas was tactically aimed at complying with our seasonal commitments within the planned gas program and allowing for further long-term contracting outside of it, generating a significant recovery in stable and predictable revenues for this segment. On the other hand, while shale oil production grew by 5% during the quarter, recent tie-ins have permitted to resume growth momentum, with preliminary data for October presenting growth of 17% versus the average in Q3, reaching a new record high in shale oil production of 61,000 barrels a day. In addition, domestic demand for gasoline and diesel continued the recovery trend after mobility restrictions were fully lifted by the end of the second quarter, with preliminary data for October showing demand for both fuels being at or slightly above pre-COVID levels of 2019. During the quarter, we kept moving forward with our sustainability and energy transition agenda. We are making progress in concrete actions to reduce emissions and improve efficiency in our oil and gas business, such as the startup of a new ETVE unit in Lujan de Cusco refinery and the beginning of works to revamp gas processing plants in Loma La Lata. Additionally, we are also advancing our new energies portfolio. Our power subsidiary, YPF Luz, made very good progress on the final stages of the new 120 megawatts wind farm at Cañadón León, expecting COD before the end of this month. We will finish the year with almost 400 megawatts of renewable generation capacity, positioning YPF Plus as the second largest renewable generator in Argentina. Besides, the company already delivered growth of 114% on its renewable generation when comparing to cumulative nine months of 2021 with the same period of last year, and still we have new projects in pipeline. Plus, YPF is one of the largest buyers of renewable energy, with about 30% of our power purchases coming from renewable sources, showcasing our clear commitment towards reducing our carbon footprint. We have also decided to gradually increase our participation in a local distributed solar company to enlarge the offering of renewable energy solutions to our clients. And we are putting forward nature-based solutions like forestation projects as the one we have in Neuquén Province. On this topic, I had recently the honor to co-chair the Energy and Resource Efficiency Task Force within the B20, which presented policy recommendations to the G20 heads of state aiming at accelerating orderly and just energy transitions. In that sense, we highlighted the role of low-carbon solutions like natural gas, in addition to renewables, which will be crucial for some countries in their net zero journey, and in our case, the strategic potential that our vast shale gas resources have to contribute to the process of regional and global decarbonization. As a final comment on my introduction to our third quarter results, it's also worth highlighting that despite moving forward with our CAPEX plan, we managed to deliver positive free cash flow before debt repayment for a sixth consecutive quarter. This, in turn, allowed us to continue reducing our net debt, resulting in a steep reduction in our net leverage ratio returning to historical healthy levels. And finally, looking forward, although we remain cautious on the back of local macroeconomic uncertainties that could test our ability to adjust fuel prices in the near term, the robust results achieved so far permit us to revise our adjusted EBITDA guidance for the year upwards to a range of 3.8 to 3.9 billion dollars. We also reaffirm our guidance for full-year capex of $2.7 billion and our oil and gas production targets for the second half. The latter, with some upside, particularly in crude, where shale oil production could end the year above previous expectations, providing for a better entry point into 2022. Before leaving you with Alejandro, I would like to once again tell you that I am especially proud of the YPF team, of their commitment and their efforts. I also want to thank our clients for their fidelity and our investors, partners and suppliers for their continuous support. Good morning to you all.