Welcome to the Q1 2019 YPF Sociedad Anónima Earnings Conference Call. My name is Richard, and I'll be your operator for today's call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. [Operator Instructions] I will now turn the call over to Sergio Giorgi. You may begin.

Great. Thank you, Richard. Good morning, ladies and gentlemen. I'm Sergio Giorgi, Vice President of Strategy, Business Development and Investor Relations for YPF. I would like to thank you for joining us today. In this occasion, we'll present YPF's 2019 first quarter results. Before starting the presentation, let me first give you an update on the recent changes in our Investor Relations structure. Diego Celaá, who has been our IR manager for more than four years is moving to another position within the company, while Ignacio Rostagno has been designated as the new IR manager. Ignacio has been working in the finance department for five years in YPF, and he will assume Diego's responsibilities from now on. In this occasion, the three of us will be conducting the presentation. I wish Diego and Ignacio the best of luck in their new positions. Having said that, during the presentation, we will go through the main aspects and events that explain our first quarter results, our share and share our perspective for the year ahead before we start taking questions. We will be making forward-looking statements, so I ask you to carefully review the cautionary statement on Slide 2. Also, our financial statement figures are stated in Argentine pesos, based on International Financial Reporting Standards. In addition, certain financial figures have been adjusted to reflect additional information to let you better understand our key financial and operating results. Before we go through our operational and financial results for the quarter, I would like to provide some macro context to put things in perspective and better understand our performance on next slides. During the first quarter, the overall activity level in Argentina continue cooling down and the volatility in the peso combined with high inflation derived in a further deterioration of the economy.…

Thank you, Diego. Good morning, everybody, and thanks, Sergio. I'm very happy to join the team, acting in this position. I look forward to meeting you soon. Now moving on to analysis of the quarter's production. Total hydrocarbon production dropped 11.5% vis-à-vis a year ago to 486,500 barrels of oil equivalent per day. Let's look at this with more detail. Crude production in the quarter remained stable compared to a year ago at 226,000 barrels of oil per day. It's worth mentioning that due to mature fields divestment by the end of 2018 in Neuquén, Río Negro provinces, we lost 2,100 barrels of oil so if we correct for that, our oil production would have been slightly up. The good news here is that our shale oil production growth is now offsetting, like I mentioned, our production decline and we expect this trend to continue along the year and beyond. Procurements in natural gas production keeps on appearing during the first quarter. This resulted in a 20.6% decrease in our natural gas production compared to the first quarter of 2018, reaching 35 million cubic meters per day. Now if we hadn’t had to curtail our natural gas production for this quarter, it would have been only 1.3% below Q1 2018 figures. As already mentioned by Sergio, considering this new reality for the gas market that we believe will be there for some time, we took a few years of mitigation measures. As a first step from Q1 this year, we are limiting investments in natural gas to shaft those molecules that we are confident we would be able to sell in the market. In addition, we're activating several short-term and medium long-term levers to increase gas demand. For example, in Q1, we exported an average of 1.3 million cubic meters…

Thanks very much, Ignacio. In summary, this quarter, we continue improving our safety track record and describe sustainability as a core value for the company. And the same time we remain vigilant and willing to continue improving on both aspects. In terms of production, we have shifted our focus to accelerating our shale oil development while at the same time, we keep on reducing the development on operation costs. Early results in the two new development fields are showing that we might be able to replicate Loma Campana productivity and costs at a pace which might be faster than the one we originally expected. We are confident that we can achieve the oil production targets we set for our three shale oil developments for this year. We're also having very good results in other Vaca Muerta shale oil pilots and expanding the Vaca Muerta boundary, so the portfolio of future developments looks also in very good shape as well as infrastructure means to evacuate the production. On the contrary for the gas side, we will temporarily reduce in the investment level until we can increase the demand using all the short- and medium-term levers we already mentioned. And this will have a negative impact on the five-year production plan we originally planned for this fluid. We will give you more updates along the year. We have also managed positioning YPF in a potential new growth area, which is the offshore, and we have done so with international renowned partners with low commitments. The low unexpected natural gas production and revenues have affected our overall production and EBITDA figure for this quarter. Margins in the Downstream sector were strong during the first quarter, but further looking for this year, we are seeing a contraction in this figure. As similarly to what happened last year we are adjusting prices gradually to cope with international parity increase, but also with the macroeconomic situation, the softened demand and of course what our customer can pay for the products we sell. We had a strong cash generation this quarter, exceeding our investments and we are in good position to face CapEx commitments and short-term debts. We remain committed to keep a strict financial discipline and we'll be monitoring continuously the market to be able to react as soon as necessary. Now considering all the elements we have already shared with you, we would like to make a final point on the 2019 guidance we said in our last webcast. Basing our current prognosis, we expect to be in lower end of the $3.5 billion to $4 billion CapEx that we already mentioned, and to remain in the minus two, minus three production range we set for this year. It is challenging, but doable. Finally, we are modifying the EBITDA target to a level close to $4 billion. With that, we would like to address your questions.

[Operator Instructions] Our first question online comes from Mr. Frank McGann from Bank of America. Please go ahead.

Thank you. Good morning. Two questions if I could. One is just in looking at the gas situation, the quarter was unusually negative and reflected both weak prices and weak volumes as you've highlighted. As you look out over the next couple of quarters with the LNG exports that you'll have, even though they're limited, with the potential for expansion you indicated in storage – and perhaps you could provide a little bit more detail on how big that would be. But do you think that volumes relative to what you had in the first quarter can see some improvement, as we go through the rest of this year and perhaps into next year? And secondly, how are you seeing prices behaving as you go through the next several quarters into the colder months and how do you think the average price will be then perhaps for the full year? And then, one additional question if I might. The tax line had some very large charges and I understand those are related to some provisions that were made for amounts related to changes in abandonment costs, taxation, et cetera. I was wondering if you could provide a little bit more details on that and how that might affect – or how those taxes would be paid over the next several years?

Thank you, Frank. So considering the gas situation, yes, indeed the restrictions this quarter amounted 9.8 million cubic meters, which is much higher than we had last quarter – this quarter last year. Now we believe that the next two quarters we have much less impact on restriction, probably next quarter reducing 30% to 40% this value. And of course, reducing during the winter period. We might have the restriction coming back by the end of the year, and as we said before, we are still exporting gas to Chile, and we are going to kick-in the LNG exports by the third quarter of this year and this will have additional volume. Now the second question was related to average price. So the average price for this quarter was around $3.72 per million Btu, and that includes $0.20 of subsidies with – this value represents a 20% reduction from the $4.65 we had one year ago. So subsidies are fading out. They're impact on the gas price is coming lower. And the current pricing is somehow aligned with the structural gas excess that we have. Now moving forward, we expect that some operators restrict some investments in gases, as we are doing, and the market will find some new equilibrium, right? And the third question was related to tax, so I will let Diego answer that. Diego Celaá: Hello, Frank. Well, this quarter remember that in periods where we have a high devaluation, first we have these – all these financial and currency issues. We have the dollar as a financial currency. And all the assets and liabilities that we have there in our balance sheet, when we convert that into pesos, that actually has a gain that doesn't go to the P&L. But it actually goes to – we…

Our next question online comes from Bruno Montanari from Morgan Stanley. Please go ahead.

Good morning. Thanks for taking the questions. First one is on sales. Looking at your asset base, you have now some projects under development, a few pilots as well. So how would you rank them in terms of productivity? Is there a particular area which is performing better in terms of potential URs and returns? Just curious to see if different term of maturities are pointing to much different results based on your experience? Second question is about the refining margins. As you showed on the chart, they continue to be quite healthy even if they were above or at import parity in the quarter. But if we think about the level you are now, what type of contraction on a per-barrel basis can we expect? Again looking at the chart, in 2018, you started the year at $12 and finished at around $5 so is this a similar progression we could perhaps expect for 2019? And just a quick follow-up on Frank's question on the gas price. Specifically as we move into winter and understanding that there might not be excess capacity. In theory, LNG imports would be the benchmark, which is dramatically more expensive than the current price in Argentina. So how can we bridge the prices between what we are seeing in the spot market now and the import parity with LNG? How does the company see that playing out?

Okay. Thanks, Bruno. Coming back to the gas price. Difficult to say which will be the benchmark. I forgot to say that we are targeting average gas price for the year between $3.8 to $4 per million Btu. Concerning the shale, well, it's early to say which will be the best area in terms of productivity. As we showed during our last call, even on the same field we have a different type curves. So as long as we learn more on the shale, we will be defining different type curves and probably having more visibility. What we can say so far is that on the three developments we are doing, we're having very consistent results. We're happy, what we are seeing. And on the new pilots that we are doing as well we are having very good results. So we will be giving much more detail about this Vaca Muerta activity during the field trip we are going to be perform in around one month, so some of you will be coming. And we can get into much more detail. But what I can say now, it is too early to define if there is one best spot. There are probably plenty of them. We are happy with the results we're having both in the developments we are doing and in the pilots we are doing. And the third one was? Diego Celaá: Regarding downstream margins, Bruno. It's Diego. This particular quarter we have a very good margins, similar margins to the fourth quarter of last year. And compared to the first quarter, well, remember that in the first quarter of last year in 2018 regarding the evolution of prices and cost. For the downstream, all the purchases that – are doing on crude oil, prices went down close to 18% in dollar terms. While in the line of revenues, the most important product that we have, prices came down only 9% – or 8.5%, 9%. That is diesel. Now that we've seen that prices in dollar terms currently are slowly – or have slowly came down, we don't expect to continue seeing the same margins for the future quarters. They probably will be more in line with the average of last year.

All right. Thanks.

Our next question online comes from Vicente Falanga from Bradesco. Please go ahead

Hi, good morning Sergio, Diego. So, good morning, everyone. I had a couple of questions. First of all, it's a follow-up on Frank's question also. How much of the $100 million down-payment for the tax program did YPF already expend this quarter? And how much can we expect looking forward? And my second question, we understand your average cost of debt to be 7.5% based on your presentation. What average cost of debt do you believe you can refinance the $1.5 billion maturing this year given a relatively more risky situation in Argentina? Diego Celaá: Vicente, Diego again. Well, regarding the tax, the payment of close to $100 million as well in this first quarter, we only paid ARS 950 million of the first quarter. And then we have to pay another four quarters – monthly installments of, again, ARS 950 million each one. So we would have three installments in the second quarter and only one installment in the third quarter this year. Then regarding the financial, I will let Ignacio to address that question.

So concerning the debt cost, as we mentioned it's around 7.5%. Nowadays, as you may know, the market is quite volatile. So all these new maturities that we're renewing are in terms of straight facilities. As they are more short-term, they do not have the same cost as our long-term debt. So it's difficult to say exactly, but the cost – it's below the average of 7.5%. Again our maturities, our long-term maturities are bonds nowadays, are yielding around 10% but we don't foresee at least for now tapping the market. We're just monitoring.

Perfect. Thank you very much.

Your next question online comes from Luiz Carvalho from UBS. Please go ahead.

Hi, everyone. First of all Diego, good luck, all the best and Ignacio, welcome – count on us. I have basically three questions. Looking to the downstream results probably the best came from the noncore fuel. So I would like to try to understand how recurrent the yield to their volumes versus margins are here? And what will be the approach under the current environment and try to call close to parity as you mentioned yields are now 5% to 10% below? And if there was any impact from the use then on La Plata refinery? If you can try to help quantify that would be useful. Second question is about the shale OpEx. It's reducing considerably over the past couple quarters. I know that you're probably going to have a bit more details during the Vaca Muerta trade coming. But 5% – $5 per barrel seems very competitive. I would just like to try to understand, if there's any internal target for, say the year to the next five-year plan as you have for production growth that we might use in terms of, you had said, the future cost looking forward? And the last question is about the JVs. Last call I asked to Daniel about potential JVs and apparently nothing was happened. But at the end of the day, you signed an agreement recently. So I just would like to understand about the limitations, talking about years of course. But trying to understand, you had said the company strategy from now on, would you consider additional JVs and divestments? So now this is, let's say, out of the scenario now?

Okay. Thank you, Luiz. So concerning the shale OpEx, yes, it's very competitive. What I can say is that when we constructed our five-year plan, we based our assumptions on a $6 per barrel level, which is indeed already a challenging figure. We are extremely happy that we see this quarter that we were able to reduce it, and it's mainly a scale effect combined with the devaluation. Anyway, we are happy with the $6 per barrel figure and we still plan with that value, right? Considering the JVs. So as we already say a couple of times and regardless '19 being a challenging year I would say, we are not actively looking to perform new JVs, because we have the acreage we want to have with optionality we already mentioned. We have the means to the derisk this acreage, and we don't need now third party funds to accelerate growth. Now as we will be unlocking new developments based on the successful pilots we will have, maybe in the future we will reassess this, but it is not something we are working on at this time. Diego Celaá: Hi, Luiz, Diego. Let me address the first and the second question regarding downstream margins. And the La Plata incident. We are not seeing any change in terms of the volumes of our non-core products. We continue seeing the same volumes as we have been selling in the last year and the quarter also. In terms of the La Plata incident, there actually doesn't cost any significant or material effect to impact. Basically the main impact, if you want, was that we needed to do some additional imports of some products. But those are mostly the main consequence of that.

Yes, but can we try, sorry Diego, can we try to quantify in terms of the non-recurrent impact from the La Plata incident? And that would be helpful. Diego Celaá: Could be something around let's say $30 million probably, but that is because we needed to do some imports that has a higher price than the cost of refining that or processing the crude, no?

Okay, clear. Thank you very much. See you soon.

Our next question online comes from Pavel Molchanov from Raymond James. Please go ahead.

Thanks for taking my question. Can you give us more clarity on the timing of the Bandurria Sur JV entering into full scale development? Is that still planned for sometime by the end of 2019?

In Bandurria Sur we currently have two rigs working there. So we already started the development of southern tip, which is the one that we already derisked. While we continue piloting the rest of the pilots. So the answer plainly we are already in development mode on the southern part.

And when I think about the cost structure that you are currently reporting at Loma Campana. So $10 for development and $5 roughly for operating costs. Are those same numbers realistic targets for Amarga Chica and Bandurria Sur? And if not, what are the differences?

Well, as we said before, it is early days to say that we will be able to replicate the same efficiency levels that we achieved in Loma Campana. However, with information we have now we are in a good trend, right? So we probably will give you more information along the year when we have more wells and more production. But as we said before, in La Amarga Chica and in Bandurria just after a few months after starting the development, we achieved the development cost that we had in Loma Campana by the end of year, so this is coming fast. But it is still early to say how fast are we going to be able to replicate, right? And then we need to consider other things like different productivity, the quality of the rock, et cetera. So as we are in the same hub we have a lot of synergies and this will also help.

Okay. Last question for me. Can you give us an update on the wind power development and how much you plan to invest in that portion of your business in 2019? Diego Celaá: Pavel, Diego here. We continue to do with our vehicle YPF Luz there, and one construction of a farm wind. I don't have the amount to be expended this year in that project. But it is not something that YPF would contribute to that CapEx. And remember that now we have the consolidated business that is CapEx that is going to be carried out by YPF Luz, no?

Okay, very clear. Thank you. Diego Celaá: You are welcome.

Our next question comes from Lilyanna Yang from HSBC. Please go ahead.

Hi, thanks for the opportunity. I would like to ask about Mega. Petrobras has indicated it's selling, if you have any plans to increase espectero what would happen with the asset? Also very quickly would like to know if the federal government is paying on time, its $800 million in gas bills to you? And if the government is still paying on time the gas subsidized payment for the unconventional producers for the new fields? And lastly, could you give any updates if any on the Maxus legal dispute?

Thanks, Lilly. Yes, Mega, for those who are not aware it's a joint venture between YPF, Dow Chemical and Petrobras. It has a separation plant in Neuquén which can go up to 40 million cubic meters per day and a fractionation unit in Bahía Blanca, produce around 5 million cubic meters per day of ethane. And Petrobras have launched a divestment program, which includes this unit. So we have been notified by them the process has already been launched. And we are looking at it as we look at every opportunity that we have, knowing that we are partners there and we have a right of refusal there. So it's something that we follow, that we might participate or not, but we will certainly have a say.

Lily, this is Ignacio, I would take the question concerning the subsidies. As we mentioned in the presentation, we have collected so far concerning the planned gas 2017, $100 million in cash. The government has issued a bond for $650 million, so those are the installments. It's $25 million per month because it's a monthly installment, and again as I mentioned it has been $100 million so far. We expect to collect the $200 million for remaining 2019. And in respect with following planned gas, as you may know, we do not have so much interest on that planned gas. So far we have exited some part of 2018 but it's not material. Diego Celaá: I think that – Lily, Diego. Your third question was regarding Maxus, we haven't any significant update there. Remember that the supreme – the court has already dismissed – sorry, denied the motion to dismiss. So there we started answering the demand, and we are in the process of showing proof on starting the process. We don't have any significant outcome yet. And we don't expect to have it in the short-term.

Okay. Great. If I may ask one last quick question. You had a softer EBITDA guidance now. Are you also reducing your CapEx or they are going to be the same and you might increase leverage a little bit from current levels?

Yes. As we said Lilyanna, at the beginning of the year, we gave a target between $3.5 billion to $4 billion, CapEx. And today, with the investments we are delaying for the gas, we believe we will be in the low range so around the $3.5 billion.

Okay. Perfect. Thank you. Diego Celaá: Yes, okay.

Sorry, please go ahead. Diego Celaá: No, you mentioned the leverage there, but we continue seeing the – or we continue deciding very strictly on our finance discipline and we will keep the target, the leverage target below 2x.

Okay. Looking forward to see you soon.

And our last question comes from Pedro Medeiros from Citigroup. Please go ahead.

Good morning, everyone. Thank you so much for taking the questions. I just have two last questions. The first one is if you could comment on the start of the smaller scale LNG barge project with EXMAR. I think it was planned to start up in the second quarter of this year. Would you mind commenting on, how does this contract works? What's YPF's participation in the commercial part of the gas? And I understand the facility has roughly around 500,000 tonnes of LNG capacity per annum. But considering the demand seasonality in Argentina, how would you fit that capacity through the year? Like, any guidance on prices and how seasonality for the plant would work out? And my second question is – no, that's the only one. I don't need a second question. Diego Celaá: Thanks, Pedro. The FLNG barge is already in Bahía Blanca, has been commissioned. And we have performed the cool down of the tonnes. We are now testing the liquefying and process. So all is aligned to start liquefying and selling by the first quarter this year – by the third quarter this year. As we said, this will take up to 2.5 million cubic meters per day of gas, which is nice for us. But when we see the output of what it's going to be in terms of LNG compared to the rest of the world it's very low. So we will be selling this at the spot market. We already have conversations with potential off-takers.

Okay. But I understand you have signed a lease agreement with EXMAR for 10 years, right, for the facility?

That correct.

Okay. Perfect.

And thank you, we have no further questions at this time. I would like to turn the call over to Sergio Giorgi for closing comments.

Okay. So thanks to all to bear with us during this results call. And as always, if you have more questions, please do not hesitate to contact the team, now Ignacio and myself, and we will be eager to carry on the discussion. And for those that will be able to come to the Vaca Muerta trip, we wait for you, we'll be able to show you much details about what we are doing. Thank you very much, and have a good day.

And ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.