YPF Sociedad Anonima

Ladies and gentlemen, thank you for standing by. At this time, I would like to welcome everyone to the YPF first quarter 2023 earnings webcast. 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 would like to ask a question at that time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star one. Thank you. It's now my pleasure to turn today's call over to Pablo Calderone, the Investor Relations Manager. Sir, please go ahead.

Good morning, ladies and gentlemen. This is Pablo Calderone, YPS IR Manager. Thank you for joining us today in our first quarter 2023 earnings call. This presentation will be conducted by our CEO, Pablo Yudiliano, and our CFO, Alejandro Leo. During the presentation, we will go through the main aspects and events that explain our first quarter results. And finally, we will open up the call for questions. Before we begin, I would like to draw your attention to our questionnaire statement on slide 2. Please take into consideration that our remarks today and answer 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 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 Pablo. Please, Pablo, go ahead.

Thank you, Pablo, and good morning to you all. We are glad to report a solid beginning of the year across our operational and financial metrics, where our total hydrocarbon production continued with a positive trend, bringing to market over 511,000 barrels of oil equivalent per day. representing an increase of 2% on a sequential basis and 1% when compared with the same period of 2022. Moreover, I would like to highlight the evolution of our crude oil production, which as commented during our strategic outlook presented a few weeks ago, is the focus of our short-term growth strategy. recording a 3% sequential increase and a robust 7% interannual expansion. Adjusted EBITDA remained strong in the quarter, surpassing once again the $1 billion mark, expanding 12% from the previous quarter and 5% on a year-over-year basis. Sequential improvements come as a result of higher hydrocarbon production and higher processing levels at our refineries. Accompanied also by lower OPEX, partially offset by lower realization prices of our refinery products when comparing to the previous quarter. The solid operating results permit our bottom line to come in positive territory once again. with net income reaching $341 million in Q1. In terms of our investment activities, we started the year investing $1.3 billion, 78% higher than the first quarter of 2022. On track to meet our ambitious plan for the year, where the main focus was once again directed to shale operations, which concentrated more than 50% of the total investment. On the financial side, free cash flow was almost flat during the first quarter at a negative $17 million, stacking our net debt to $6 billion, resulting in a flat net leverage ratio at 1.2 times. On a final note, Let me briefly comment on the positive recent developments related to the international legal contingencies. In the Peterson and Eaton Park case on March 31, the New York court found that YPF has not contractual liability and always no damage to the claimants and according dismissed plaintiffs claim against YPF. We believe this ruling to be of significant value to dissipate to a large extent our potential contingencies and should plaintiffs appeal the decision. YPF will continue to defend itself in accordance with applicable law. In the Maxus case on April 6th, YPF and Repsol signed a settlement agreement with the Maxus Settlement Trust providing for a full release and discharge of all claims in exchange for payment of $287.5 million each, subject to the satisfaction or waiver of certain conditions, including court approvals and other procedural events. We are convinced that these legal decisions represent a fair and reasonable outcome for YPL. and will allow the company to continue focusing on generating value for all our stakeholders. In summary, we are pleased with the result achieved during first Q23, and although we know it is a year full of challenges, we believe we have taken the initial step to deliver on the ambitious goals we set for the year. I now turn to Alejandro to go through some further details of our operating and financial results for the quarter.

Thank you, Pablo. Let me begin by expanding on Pablo's comments about the evolution of our oil and gas production. During the quarter, our total hydrocarbon production delivered 511,000 barrels of oil equivalent per day. highlighting a strong interannual expansion in our crude production, reaching the highest quarterly mark since 2016 at 238,000 barrels per day. And beyond crude, natural gas production increased 2% on a sequential basis, while NGLs remained essentially flat. The positive evolution in oil and gas production on a sequential basis came once again, and as expected, on the back of the solid increase of 6% in our total shale production. Moreover, during this quarter, our total conventional production remained flat when compared to the previous quarter, mainly as a result of our continuous strategy of extending tertiary production, which recorded an expansion of 7% versus the previous quarter and almost 50% against the same quarter of 2022. In that sense, In Manantiales Verre, our flagship project, tertiary production represents almost one-third of the total production of the block, and in the other three pilots being deployed at Chachagüen in Mendoza, El Trebol in Chubut, and Los Perales in Santa Cruz, we have continued harvesting promising results. Moving to costs, lifting averaged $14.6 per barrel of oil equivalent across our upstream operations. representing a minor increase when compared to the $14.5 in the previous quarter. More particularly, for our shared core hub operations, lifting costs increased by about 8% as higher activity and energy costs during the quarter overrun the expanded production, but still remaining at a very competitive level of $4 per barrel. Regarding prices within the upstream segment, Crude oil realization prices averaged $67 per barrel in the first quarter, representing a minor increase compared to the previous quarter, but leading to a significant reduction in the discount to Brent prices, which declined by about 7% in the same period. On the natural gas side, prices remained sequentially flat, averaging $3.1 per million BTU, aligned with the planned gas prices for the summer season. Zooming into our shale operations, during the quarter, we completed 38 new horizontal wells in our operated blocks. We also continued increasing the rhythm of drilling activity to enlarge our inventory of drilled and uncompleted wells. In that sense, during the first quarter, we drilled a total of 48 new horizontal wells, 34 of which were in oil-producing blocks and 14 targeting shale gas. representing a new quarterly record mark in terms of drilling activity. It is also worth noting that during this quarter, we continued with the strategy of developing Vaca Muerta beyond our core hub blocks. In that regard, during the first quarter, we tied in four oil wells at our fully-owned Loma Amarilla block, and we have just finished drilling one well at Las Tacanas block, targeting natural gas production. The new tie-ins during the quarter led our shale production into further expansion. On a sequential basis, our shale oil production increased by 9%, and our shale gas production expanded by 4%, averaging over 92,000 barrels of oil per day and about 17 million cubic meters per day of gas. And when compared to the same period of 2022, shale oil production expanded by 31%, aligned with our strategy of accelerating the monetization of our shale oil operations. In terms of efficiencies within our shale operations, during the quarter, we lost some ground in terms of the development costs at our core hub operations, averaging $9.9 per barrel of oil equivalent, primarily on the back of continuous cost pressures, although operating metrics remain healthy. And it is also fair to highlight that the development cost for our core hub operations reported in previous quarters was revised slightly upwards as a result of some retracted tariff adjustments, as well as updated EOR estimates of some specific wells, based on actual productivity recorded in recent months. Finally, regarding our investment in facilities required to unlock our shale oil production, in January, we put in operations our third crude oil treatment facility in Vaca Muerta. located at Bandurria Sur, with an initial processing capacity of 4,000 cubic meters per day, which is targeted to be expanded to 12,000 cubic meters per day during the year. Let me now briefly comment on the progress made in relation to the midstream oil projects aimed at unlocking the evacuation capacity of the Neuquina Basin. First, regarding the expansion of the existing system to the Atlantic, Odelbal has made steady progress on its second stage of expansion, aiming at adding about 20,000 barrels per day of transportation capacity to the system, expected to reach commercial operation during the third quarter of this year. In addition, OTE has achieved solid progress in the critical path of its expansion project, having initiated the preliminary works for the construction of two new storage facilities of 50,000 cubic meters each and the offshore terminal at Puerto Rosales. In terms of financing, on top of the large portion of the total capex to be funded through prepaid ship or pay contracts, both companies, Old El Val and OTE, tap the local capital markets with three-year local notes of $50 million each, thus securing a further portion of the funding required by the projects. Moving to the Pacific route, The Transandino pipeline of the OTA-OTC system responded well to the in-line inspection test, resulting in only minor repairs that were already executed. Thus, the pipeline is now in operating conditions to resume exports to Chile in coming weeks, after over 15 years of being idle. In addition, we have continued making good progress in the construction of the Vaca Muerta Norte pipeline that will allow us and other producers of the basin to direct the crude oil produced in the core operations of Vaca Muerta to the Transcendent Pipeline and further north into our Lujan de Cuxo Refinery. The project is at about 60% completion and is expected to start operations between September and October of this year. Finally, we have also achieved solid progress on the engineering design process for the Vaca Muerta sewer pipeline and export terminal, having achieved about 70% completion. In addition, we are progressing steadily with the environmental impact studies for the full project. It is important to highlight that even though the project is and will continue to be led by YPF, we have already initiated conversations with other major players of the Neuquina Basin who already showed interest in participating in the project. Switching to our downstream operations, Let me start by highlighting that in 2023, the company has decided to reorganize the business segments considered for financial reporting by separating the downstream activities into those related to the mainstream oil refining, transportation of oil and refined products, and petrochemical production into a new segment called industrialization. From the commercial activities of refined and petrochemical products, natural gas, and trading activities, that were grouped into another segment called commercialization. This segment reclassification is aligned with the organizational change that separated this business under the leadership of two different vice presidents. Now, regarding our domestic sales of gasoline and diesel, total dispatch volumes decreased by 3% when compared to the previous quarter, driven by a contraction of 6% in diesel sales, mainly due to the lower seasonal demand in the agribusiness that was particularly affected by the severe drought that the country experienced in recent months, and partially upset by a 2% increase in gasoline demand, which set a new quarterly record. In a year-over-year comparison, diesel demand remained almost flat, while gasoline sales stood 7% above a year ago. In terms of refinery utilization, the revamping of a topping unit at the La Plata refinery that eliminated bottlenecks in the processing of light crude oil, accompanied by the revamping of the pump's tension, Puesto Hernandez, in the Neuquina Basin, allowed us to increase processing levels to 307,000 barrels per day, 5% higher than the previous quarter and 9% above a year ago, achieving the highest quarterly mark in the last 13 years. In addition, during the quarter, we managed to maximize our refinery conversion levels. reaching a record of gasoline and middle distillates production. However, in spite of the higher refinery output, total fuel imports increased during the quarter, representing 12% of total fuel sold in Q1, in order to build up inventories that remain below historical average levels in the preceding quarter. In terms of prices, During the first quarter, we continued with our strategy of adjusting prices of local fuels in a way to mitigate, to the largest possible extent, the effect of the depreciation of the currency, while reducing, or at the minimum avoid extending, the gap between the pricing of local fuels vis-a-vis international parities. Consequently, average fuel prices measured in U.S. dollars decreased 3% sequentially but stood 16% above Q1 2022. And the gap between local fuels prices versus import parity declined to an average of about 20% in the first quarter, while further declining to about 15% in April, and more recently, during the first days of May, to a smaller discount of about 10% on the back of the continuous general downward trend in international prices. Finally, on the financial front, the beginning of the year resulted in another quarter delivering sound operating cash flow, which increased 12% sequentially to about $1.5 billion on the back of the higher adjusted EBITDA, coupled with positive working capital contributions. This strong cash generation was almost enough to fully fund our investment plan, payments of interest, and other expenses. resulting in a slight negative free cash flow of just $17 million. And despite this minor negative free cash flow that led to a marginal increase in our net debt to $6 billion, the higher 12-month rolling adjusted EBITDA permitted to maintain our net leverage ratio flat at 1.2 times. In terms of financing, during the first four months of the year, we have already raised over $1 billion. through tapping the local capital markets in two occasions, in January and in April, and by securing several trade-related loans from relationship banks, obtaining net new funding of over $500 million, $294 million of which took place in Q1, and the balance during April. It is worth highlighting that this funding took place at very attractive financing costs, benefiting from the arbitrage in the local market, as demonstrated by the negative funding cost of minus 5% achieved on our recent two-year dollar-linked local notes. Furthermore, during March, we entered into a fully committed short-term revolving credit facility denominated in pesos with three local financial institutions for an equivalent of $120 million. It is worth noting that this is a product that is not widely available in our local market but that we eagerly pursue as it provides us with flexibility to manage our liquidity more efficiently. All in all, these financings provide the right platform to secure our funding plan for the year, including the liquidity required for the settlement of the Maxus legal case. On the liquidity front, our cash and short-term investments increased to $1.3 billion as of March 31st. compared to 1.1 billion as of the end of December of last year. And in terms of cash management, we have continued with an active asset management approach to minimize FX exposure, considering the prevailing regulations that restrict our ability to hold assets abroad. In that sense, in a context of limited available dollarized instruments in the local market, and given our increased liquidity, we ended the quarter with a consolidated net FX exposure of 21% of total liquidity. Finally, when looking into our debt profile, I would like to highlight that our healthy liquidity position comfortably covers our debt amortizations for the next 12 months, given a very manageable debt profile for the rest of the year. And with this, I conclude our presentation for today and open the call for your questions.

At this time, I would like to remind everyone, in order to ask a question, press star followed by the number one on your telephone keypad. Your first question comes from the line of Walter Chiviresio with Santander. Your line is open.

Hello. Good morning, Sergio and Tim. Congratulations for the results. I have two questions. If you could first develop a little bit more on the export potential for the company. I understand that the company has a global deficit in the short term, but still, if there is some potential of export, even the connection to the Transamvino pipeline, if you can provide some details on the volume you think that you can deliver to this pipeline, this year and the next one, for example. That is one thing. And the other thing is, what do you see in the next six months regarding pump prices, given that we are in an electric year, inflation is running high, and probably the company is receiving some pressure. This is a question, of course, from the government to try to keep pump prices stable. Thank you.

Well, good morning, Walter, and thanks a lot for your questions. Let me address first the question about the export potential. As was recently announced in the media, we have reached an agreement with ENAP to take advantage of the availability now of the Transandino pipeline that after several months of work and after performing inline inspection should be back in operations in coming weeks. This is a milestone, a key milestone given the over 15 years that that pipeline has been idle and that clearly is on the back of the increased production not only based on YPF's production, but also from all the other players in the Noquina Basin and in the country as a whole. So we believe that that will continue to expand the total export potential of the country, and more specifically for YPF, that should allow us to become a structural exporter once again. So as mentioned, there is a short-term agreement. to start with a volume of up to 40,000 barrels a day that should start to be pumped as early as the first days of June, so in a few weeks from now. And out of that volume, YPF will probably have a share of about 40 to 45%. That total volume should increase over time, primarily on the back of the new pipeline that we are building, the Vaca Muerta Norte pipeline that will connect the core hub with Puesto Hernandez. That should allow total pump volumes to increase. And at the first stage, we believe that that volume will probably be in the order of about 70,000 barrels a day or so before the end of this year. And hopefully, over time, that should continue to grow as we move along the following months until probably the end of 2024 to the total capacity that the TransSandino pipeline has of about 110,000 barrels a day. So we believe that that's going to be a structural improvement and a structural export potential both for YPF and for other players in the New Guinea basin. Given that, we so far continue to purchase about 20% of the total crude that we processed in our refineries, but clearly as we continue to expect our oil production to increase in coming months and in coming years, as was also presented in our strategic outlook a few weeks ago in New York, we would expect total purchase volumes to decline over time, while at the same time we increase our exports. And so over time, and as we said, probably in five years from now, we are expecting to reach a percentage of about 35 to 40 percent of our total production to target the export markets, while we reduce our net purchases to a level of about 5 to 10 percent of the total processing volumes. That, as mentioned, just to be clear, that's over time within the next five years. Moving to your second question, to prices, as was commented during the presentation, so far we managed to increase prices in several locations, for the most part once a month. We are trying to, at the minimum, keep track of the evolution of the currency and trying our prices in dollar terms, our net prices in dollar terms as stable as possible. So far, we have managed to achieve that. And as mentioned during the first quarter, the average of our net dollar prices was just 3% below the average for the fourth quarter, even though international prices came down further than that. That continues to be the case so far. For the following months, we expect to continue with that strategy of doing or moving or adjusting prices in a way to compensate for the evolution of the currency to the largest possible extent. Of course, being conscious of the global environment or the local environment in terms of macroeconomic reality and the inflationary pressures. We will remain conscious of that, but still trying to adjust prices in accordance with the evolution of the currency and, of course, maintaining a healthy relationship with international prices as well.

Thank you very much. Thank you. Thank you.

Your next question comes from the line of Carlos. Maurice with Morgan Stanley. Your line is open.

Hi, everyone. Thanks for taking my questions. I have two questions. The first question is about funding. Can you talk about your funding requirements and strategy for the 2023 and 2024? The second question is about FX devaluation. How is YPF preparing the company in the event of a sharp currency devaluation? How do you see fuel prices evolving in that scenario to ensure margins remain healthy? Thank you.

Good morning. Thank you, Carlos, for your questions. In terms of funding, as commented during the presentation, we have started the year on the right footage. We have already, in the first four months of the year, have already raised over a billion dollars, tapping mostly the local capital markets and relationship banks as expected and as commented as it was our funding plan for the year. With those exercises, we have already reached a net funding of about $500 million. And we expect to continue with a similar strategy for the remainder of the year. We clearly have tackled the most relevant international amortizations that we had during the year, so we only have left a smaller amount of international cross-border amortizations for the following months. And so in that regard, we expect to continue to mostly focus our exercises in the local market where, you know, clearly we see very competitive financing costs. As commented also, you know, both in the January and the April local bonds that we issued, we achieved very interesting funding costs. And also increasing our trade lines. On top of that, there is also possibility, a high probability of enlarging, refinancing and enlarging the CAF-led AV loan that was secured last year. We are working on potentially extending that loan, both in terms of tenor and in terms of size, and that we expect to finalize negotiations and documentation for that in coming weeks. So all in all, you know, clearly mostly focused on the local market and in trade lines, but then also looking into other instruments such as this enlargement of this AB loan potentially. For the next year, clearly still too early to say, but most likely we believe that there will still be room for us to continue to tap on these two main sources. Of course, we will keep an eye on the international markets as well, depending on how our international bonds perform. We might definitely consider tapping the international markets at some point. In terms of the potential impact of significant effects devaluation, clearly it's difficult to know whether that's going to happen and when. But, of course, we have our sensitivity analysis. What I can comment on that is that although the steep devaluation of the currency will definitely erode our revenues as it impacts a large portion of our revenues, which are related to pump prices, roughly speaking, in the order of 55% to 60% of our total revenues come from the sale of fuels in the local market. which are priced in pesos, but it's also fair to know that a large portion of our costs, both CAPEX and OPEX, is also denominated in pesos and should also in that case benefit from a potential devaluation of the currency. So all in all, we would say that the net – there is a net impact, negative impact that the devaluation will have on the differential between revenues and costs. But that will also depend on our ability to pass that potential devaluation through to pump prices in a rapid way. So we would expect, and as commented on the pricing strategy, we would expect to be able to do that in an efficient and rapid way. But that, of course, will depend on the general environment that will prevail at the time. And, of course, depending on our ability to actually do so, that will result in the net impact that we will end up seeing in our cash flow generation.

Again, if you'd like to ask a question, press star. followed by the number one on your telephone keypad. Your next question is from the line of Paula LaGreca with TPCG. Your line is open.

Hi, good morning, Alejandro. I have a couple of questions. First, I would like to know how our Blind Diaspora Collections Day is doing. Can you tell us how much money is being collected? And then, A follow-up on this one is, if collections continue to deteriorate based on other earnings calls of peers, let's say to 115 days, how is it going to impact the plant-improved production?

Hi, Paula. Good morning, and thanks for your questions. Clearly, we have seen some deterioration in collections, particularly related to the plant gas, where we have seen some further delays in collection. But from a nominal perspective, this amounts on the lower seasonality of the plant gas invoicing. So in terms of actual working capital during the first quarter, we had a positive effect because we've been collecting on high seasonal invoices while the delays took place on lower seasonality invoicing. So from a net working capital perspective, it was a positive variation in the first quarter. Down the road, we definitely expect and we are doing our best to try to collect and to get the normalization of the collection on the plant gas. In terms of CAMESA delays, we are not seeing any major impact there. But all in all, and as you probably recall, our focus is on crude oil production. which clearly has no relationship whatsoever to these collection timeframes because of course we monetize that through pump prices and there we see no delays in collections. And then also now as we are going to move forward with a portion of our production being exported, also it's completely separated from the realities of what is more a natural gas issue related to both CAMESA and the government payment on the planned gas program. So I would say that all in all, of course, it could potentially have an effect in future working capital balances. It does not affect our production growth plans or our investment plans. it has less of an impact on YPF than it might have in other companies that have a larger proportion of gas in their businesses or in their plants. So I would say that so far we are not seeing or expecting any relevant impact in our activities or in our investment decisions, and we continue to focus mostly on assigning most of our capital investment to our crude oil opportunities.

Understood, thank you. And then I have another question that is regarding the contract with Enab. If you could tell us what was the price agreed of Kuroi, or in terms of revenue, how much is it going to represent in the second quarter?

Yeah. Well, in terms of the commercial agreement, it's a formula, but that basically relates to export parity prices. at Puerto Rosales, and on top of that, it adds some logistics premium, basically taking into consideration to share the benefit of the improved logistics that both sides will have, both the suppliers, not just YPF, but the other producers as well, versus an app that is substituting imported crude from sea imports to this inland imports through pipe. So basically it's going to be an export parity plus pricing on this commercial agreement, at least for this initial agreement that is for the first two months. In terms of impact for revenues during the second quarter, it's going to be very marginal because, as mentioned before, We are only going to start pumping in the first days of June, so it's going to be only less than a month of exports that will actually be recorded in the second quarter. And even in the third quarter, it's going to be limited to this smaller amount or this smaller volume until the Vaca Muerta Norte pipeline is up and running, which is expected at some point in late September or early October. we should start seeing the full benefit of these new exports into Chile by the fourth quarter of this year, where it should start representing around 10% of our total production.

Perfect. Thank you so much.

You're welcome, Paola.

Your next question comes from the line of Luis Gaviria. Carvalho with UBS. Your line is open.

Thanks for taking the question. I have basically two here. The first one is about infrastructure bottlenecks. I know there has been some discussions about, you know, the construction of pipelines and, of course, how this will tie in terms of the production growth over the next couple of years. So if you may, I don't know, give a bit more color in terms of what are the main challenges that you're seeing in terms of potentially I don't know, suppliers or, I don't know, licenses and so on would be great. The second question, you know, in the past, I mean, Argentina announced some specific rules for the export on, you know, agri or soft commodities in terms of, I would say, accessing the FX rate, for example, right? And the company, you know, YTF has, you know, potentially becoming larger exporter of oil. So it would be great to hear your views on the conditions that the company is seeing in terms of the rules to follow to match additional levels of oil exports and potential revenue dollars from now on. Thank you.

Hi, Luis. Good morning. In terms of bottlenecks or pipeline expansion, again, as commented, we are seeing very good progress and we are very comfortable with the progress that we are achieving directly and indirectly, right? Because some of these projects are being executed directly by YPF and some of them by third parties like our participating companies, Olleval and OTE. In both those cases, we are making good progress. As expected, the Transcendent Pipeline should be up and running and in operations now in late May, early June, so that's a key milestone. We are making good progress on the construction of the Vaca Muerta Norte Pipeline, which we are still seeing or expecting COB in early fourth quarter or late September, early October, so we are making good progress there. Clearly, access to or the flow of imports is somewhat more troublesome these days, of course, but at the end of the day, the relevancy of these projects finally get things moving and we are not expecting any major impact from this particular situation in the finalization of these projects. And then in terms of Old El Val and OTE, again, we follow that from our side, but clearly those projects are being run by those companies, and we are seeing good progress there, both in terms of the actual construction or the actual works that are being performed, as well as the financing. You know, as we mentioned, both companies tap the local market and they are making good progress in terms of their financing as well. So at this point, we feel comfortable. We believe that the potential restrictions or noises related to imports, we so far don't expect them to have a significant impact in the evolution of these projects. And then finally, Vaca Muerta South or Vaca Muerta Sur project. We are making good progress on the engineering. That's a project that should help or contribute to the bottlenecking of Vaca Muerta from 26 onwards. And so clearly we do have time, but of course that doesn't mean that we don't need to continue to making good progress and keeping a close eye to that project in the current, you know, right now, not just in the future. So in that case, we are also making good progress. We are finalizing the environmental studies and we expect the public hearings for environmental approvals to take place in coming months. So that should be a key milestone for that project that goes into a new territory and involves potentially a new port. That will be a milestone to follow or to watch. Once that is done, then the rest of the project will be mostly related to construction. In those fronts, we feel comfortable with the progress that we are making. In terms of export regulations, Well, the Secretary of Energy has already allowed for firm exports into Chile to clearly take advantage of the Transcendent Pipeline, and then in terms of currency regulations, we at this point don't expect any specific regulation related to crude exports, but rather to be affected or to be within the current regulations that require exporters to bring dollars into the country and to sell those at the official effects. Although, and as you know, there is another regulation that was enacted last year, not yet fully implemented, that provides for specific benefit or access to the official effects to oil and gas companies for several uses. related to our incremental production compared to the base year in 2021. So that should provide for a specific benefit, not just related to exports, but mostly related to increased production. That should be a great tool to access and to manage FX access. But yet, we are still waiting for the full implementation of that regulation, which is still lacking.

Okay, now it's super, super. Thanks very much and very clear. Thanks for the answers.

Thank you, Luis.

Your next question is from the line of Marcelo Gumiero with Credit Suisse. Your line is open.

Good morning, everyone. Thanks for taking my questions. I have two from my end. The first one is on costs. So we saw you know, lifting costs almost flat sequentially, but I mean, coming from an increase compared to the last year. I would like to know, I mean, how do you see lifting cost evolution looking forward into 2023 or 2024? I mean, as we advance and have more, you know, unconventional production in the mix, should we expect lifting costs to reduce? And the second question is on fuel imports. So we saw an increase of imports despite an increased refinery utilization rate. You explained that you were like building up inventories during the quarter. I mean, I just wanted to understand what should we expect from that side going forward? I mean, should imports go down or should YPF keep the current level? Thank you very much.

Good morning, Marcelo, and thank you for your questions. In terms of costs, we are working hard in trying to contain cost pressures. And clearly, we've been mostly successful during the first quarter. However, we continue to see cost pressures affecting our overall performance. But as you have said, the higher proportion of shale or unconventional within our total portfolio should allow us to, over time, decline the average lifting cost for our total upstream operations. All in all, even within both sides, clearly unconventional, we've been We have seen our costs in previous quarters increasing, and that was mostly related to the decline that we were experiencing in production. As far as we managed to maintain production stable within crude, conventional crude, and mitigate to some extent the decline in conventional natural gas, we should also see or be able to contain the increase in lifting cost there to a large extent. And so while we do that and we increase the share of total shale within our portfolio, then, as you have said, even though we might continue to see some cost pressures, we would expect the average lifting to trend downwards over time. And in terms of fuel imports, clearly, as you mentioned, the main reason for having continued to have a relatively large percentage of imports related to our total sales was mostly related to the buildup in inventories. We are now at the average historical inventory level, so we got to a point where we are comfortable with inventory levels. But for the following quarters, particularly the third quarter, we might also see import levels relatively high compared to historical averages, mostly because of program maintenance on our refineries. So I would say on average for the year, we should be close to somewhat below the current level of imports, but with some potential reduction in the second quarter, but then probably some increase again in the third quarter. But that will also depend on the overall level of demand and whether we, beyond the program maintenance, how we continue to perform on our processing capacity, which, as commented, will reach a historical high in the first quarter, and we will do our best outside or besides this program maintenance to maintain processing levels to the maximum possible extent.

Awesome. Very clear. Thank you very much.

Thank you.

Your next question is from the line of Ezequiel Fernandez with Balance. Your line is open.

Good morning. This is Ezequiel Fernandez from Balance. Thank you to the whole YPF finance team for the materials and for staying late in the call to take my questions. I have three questions. I would like to run them one by one, if you do not mind. The first one is related to the Vaca Muerta South project that you mentioned. If you could provide us a little bit more details about potential pipe capacity, port upgrades, if this is going to be geared toward SWF MAX or VLCC exports, anything that might be worth mentioning.

Hi, Ezequiel. Good morning. Well, let me address it with information that we can comment at this point. This is a project that is still on a design stage, although we are moving fast with it. As we commented, we are well advanced with the engineering design process. And so far, what we expect this project to be is a project that could be expanded over time in a way to address the growing need for evacuating Baca Muertas production from 26 onwards. And so far, we are looking at a project that could go from a minimum flow of about 30,000 cubic meters a day to be expanded to a total of about 120,000 barrels a day once it's fully expanded. Sorry, cubic meters per day. So, from an initial of 30,000 cubic meters a day to a total of 120,000 cubic meters a day once it's fully expanded. And that will be an efficient way from a capital perspective to handle that and move along with that project while we and the rest of the industry will likely continue to see the expansion of Vaca Muertas operations from 26 onwards. In terms of the design of that project, we are seeing the pipeline that will, for the most part, go parallel to the existing Old Del Valle pipeline, but then connect to a new port further south. Location is still being fine-tuned, but most likely, and as commented before, it's going to be a new port in an area in the province of Rio Negro. where we can exploit or we can take advantage of natural deeper waters that should allow for the entrance of BLCCs and hence making exports more efficient. So that's the general idea of that project.

That's great. Now, sorry, but I would like to go into another project that you might not be able to fully comment on, but regarding the offshore initiatives in either the austral basin or off the coast of the province of buenos aires what else can you share about this initial maybe testing wells and if they're going to be geared toward gas or oil and anything on economics would be would be useful too

Yeah, economics is definitely still too early to comment. What we are seeing there is clearly on the project outside of the coast of Buenos Aires, of Mar del Plata, that's a key project where we are targeting to drill the first deep water exploratory well ever in Argentina. That's a project that is in the block Can 100. and where we are partners with Equinor and Shell, and that's a project that is being – or a block that is being operated by our partner, Equinor. So as mentioned, we are expecting and working towards being able to drill or to start drilling before the end of the year or at the latest early next year. And we – well, we have high expectations for such a project. but there's still much work to be done to be able to comment on all the potential that we expect there. Even though, as we have already disclosed or mentioned, we are targeting resources in the order of 7 billion barrels of oil, so clearly the focus there is oil, and so the expectations are very high for that project. And in terms of the Austral Basin, we are looking into some opportunities there to enter into some existing concessions that some other players have. We are looking into that, and in that case, mostly for gas. But again, there it's an analysis that we are performing, and it's a little too early to comment.

Okay, great. And I don't know if you have anything to add on Petronas and the LNG project.

Well, not much to add. We continue to work together with them in performing both the technical and economic analysis to get us comfortable with the final investment decision. As previously commented, we are Still away, you know from from that decision. There's still much work that has to be done and You know our best we will expect to have to enter into an FID Not before the the end of next year So there's as mentioned still much work to be done there to be able to move on with the actual Development of the project.

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

Sure. My pleasure.

There are no further questions at this time. I will now turn the call back over to management for closing remarks.

Well, thank you very much, everyone, for joining this call and for your continued support. And we definitely remain open for any further questions that you may have. And have a great day.

Ladies and gentlemen, thank you for participating. This concludes today's conference call. You may now disconnect.