Welcome to the third Quarter 2019 YPF Earnings Conference Call. My name is Paulette and I will 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] Please note that this conference is being recorded. I will now turn the call over to Ignacio Rostagno. You may begin.

Great. Thank you Paulette. Good morning ladies and gentlemen. This is Ignacio Rostagno, IR Manager. I'd like to thank you for joining us today. In this occasion, we will present EPS 2018 third quarter results. The presentation will be conducted by our CEO Daniel González, Sergio Giorgi, VP of Strategy, Business Development and Investor Relations and myself. During the presentation, we'll go through the main aspects and events that explain our third quarter results. And finally, we will open up the call for questions. We'll be making forward-looking statements, so I ask you to carefully review the cautionary statement on slide 2, also although our functional currency is the U.S. dollar. Our financial statements figures are published in Argentine pesos International Financial Reporting Standards. In this occasion to let you well understand our key financial and operating results unless otherwise explained the calculation of the main financial figures in U.S. dollar is the right for the calculation of the consolidated financial results expressed in Mexican peso is in the average exchange rate for each period. With this, I would like Daniel to start with the presentation. Daniel González: Thank you, Ignacio and good morning everybody. Although I typically do not participate in the quarterly calls, this is clearly a very particular moment and we know there are several questions out there, so we wanted to make sure that we remain as visible as we have always been. If anything this quarter saying a few things about IPS: first that we are clearly going through a difficult operating environment; then that management is reacting rapidly and making tough decisions; and third that YPF is incredibly resilient. With regards to the operating environment the unexpected results of the primary elections of August and the political volatility that followed resulted among other things…

Moving into our main financial fees measured in U.S. dollar. In this third quarter, they were negatively impacted by decreasing the local crude oil and fuel prices and devaluation. The local average exchange rate variation was almost 60% when compared with the same quarter of 2018. Total revenues stood a reduction of 13%, mainly driven by lower demand and lower prices for our main products gasoline and diesel. They were also affected by a 22% decline on our natural gas revenues as a result of a 10% reduction in prices. In terms of operating costs, particularly leasing our refining costs, in absolute terms, they increased by 8% and 22% respectively. The increase in the lifting cost was mainly driven by higher work over activity tending to improve the production performance of certain mature fields. The high refining costs were drilled by higher maintenance work on conversion units compared to the third quarter of last year that did not affect our processing volumes. However, for the first nine months of the year, refining costs only increased by 5% year-over-year. Royalties, which is the only cost component fully denominated in dollars, were down by 27%, driven by lower natural gas and crude prices in dollars. In turn, crude purchases were down 27%, also driven by lower crude oil prices. As a result, adjusted EBITDA was down by 15% in dollars, maintaining EBITDA margins close to a 30% level. IFRS 16 and IAS 29 effects are not included in our adjusted EBITDA and financial debt. Despite the challenging macro context, our operating cash flow reached $1.2 billion, increasing by 19% year-over-year. The cash flow generation was enough to cover our investments for the quarter, totaling $810 million, 5% lower compared to the third quarter of 2018. The reduction in CapEx was driven by…

Thank you. Thank you very much Ignacio. Total hydrocarbon production reached 130,000 barrels of oil equivalent per day this quarter. Remaining stable vis-à-vis a year ago and increasing by 2% versus last quarter. Let's look at this in more detail. Crude oil production amounted to 227,000 barrels of fall per day which represents a 1% increase on a quarter-over-quarter basis and remained flat compared to last year's third quarter. But it have been also higher, if we exclude the production associated to the mature fields divestment performed by the end of 2018. Gas production amounted to 44 million cubic meters per day representing a 9% increase quarter-over-quarter mainly driven by higher winter demand and remained flat compared to last year's third quarter. Finally NGL production increased 6% to a total of 28500 barrels per day when compared with 2018 third quarter. When we break down the sources of our total production we can observe that shale production growth contributed with 44.4 additional BOEs per day. And the good news is that this growth by itself is offset in both the conventional production decline and the tight production decline is that one mainly related to a redirection of investment from gas to oil due to the current gas market project. Fueled by the shale production growth, our unconventional production represents now 35% of our total production. I will come back to that in a few moments. But first we would like to highlight few elements of what we have been doing on the conventional side that still represents 65% of our production. Specifically in the conventional side, we remain focused in continuing identifying new fields for primary development, in improving our secondary recovery results by increasing the amount and the quantity of water injected and based on the positive results of…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Bruno Montanari from Morgan Stanley.

Good morning. Thanks for taking my questions, and thanks for the presentation, Daniel. I have a few questions. The first one is what would be the company's wish list? Or if you're seeing any signals of upcoming energy policy into the new government. So what would you like to see to make sure that the investment climate remains supportive into the coming years? Second question related to that is since the price decrease were announced and the government or the election outcome what has been the reaction of the IOCs you work with? And how do you read their appetite to continue investing in Vaca Muerta in the coming years? And finally thinking about the gas situation, how would the company frame the potential increase in LNG investments with the bulker size facility you guys were planning? And if I may ask just a quick follow-up on the subsidies receivables that Ignacio mentioned just to make sure I have the right numbers that would be great? Thank you very much. Daniel González: Good morning, Bruno. Thank you for your questions. Well, let's start from the third question which is one, regarding LNG investments next year. They are negligible, okay? We have our floating barge already in operation. That doesn't require any additional investments. And we're only doing engineering regarding large-scale LNG projects which with everything going on I think in a way gets pushed out let's say a year. But we will continue looking at the projects, continue doing some engineering, but it would not require any significant CapEx next year. In terms of the reaction from our partners, obviously, we are still defining the plans for next year with each of our partners. One of the first things we did is reaching out to each of them, share our…

Yeah, in terms of receivable concerning the plan gas 2017 that's the financial debt that the government [indiscernible] has. We have collective cited so far $235 million. And our rumors have more or less $25 million coupon per month.

And the total exposure you mentioned that was around $700 million. What was that sorry? Daniel González: That was your original plan, of which as Ignacio a good part of that close to half of it is going to be collected by the end of next year, if they continue to work with a monthly payment as they have done very diligently this last year.

Got it, perfect. Thanks a lot.

Our next question comes from Frank McGann from Bank of America. Please go ahead.

Okay, good morning. Just one question. There's talk that the new government is preparing a new law that would help to provide security for investment in Vaca Muerta and other factors related to new investments in non-conventional. I was just wondering if you are working with people within the new government to try to define that. And what your expectation is as to what that potentially could include or should include? Daniel González: Hi, Frank. Well, as I said there is still not a clear person within the Fernández administration that we can have a detailed discussion regarding this potential new law. We believe it's a great idea if they do that, I'm sure that if they have that in mind we and the rest of the industry will have the opportunity of providing advice or list of things that we believe are helpful, definitely we have very high expectations for that. And as I said previously, if anything the President Elect as I mentioned in many occasions how important development of Vaca Muerta will be for his government. And if that comes together with a law or not, we don't know yet. Hopefully we will have some clarity in the next few weeks. But as I said let's be patient and optimistic.

Okay. Thank you very much.

Our next question comes from Luiz Carvalho from UBS. Please go ahead.

Good morning, everyone. [Indiscernible] appreciated. And I’ll talk about some questions that involve the recent political change, but maybe how the company can react to some of these new scenarios. So looking to your last lag, you mentioned four, basically five interesting points rather then; first. talking about a bit more focus on the unconventional. Second, you also book natural gas. I mean to certain extent and a bit more on the top line even though you have some more higher subsidies. You mentioned about the challenging price scenario, which is nothing really new. You mentioned about new play, something that called my attention that has been kind of the current question from my side in terms of the portfolio management and also the updated guidance, right? So, if you may help us to try to give a bit more details on each of these topics and how they match with a neutral to negative free cash flow this year, next year that will be very, very good in each of the topics? The second question is about the freeze in the oil and fuel prices that should end next week as you come in on the call. Has the industry been talking to the new elected government regarding the fuel price policy in the country or not, at this moment, we haven't seen many lots of comments from the new person or any advisory study that it doesn't make sense fortitude to fall the international prices. So, just wanted to try to actually get a more details on how you've seen this challenge? And how this could also match with particularly Vaca Muerta investment in the long-term? Thank you. Daniel González: Well, Good morning, Luiz. Unfortunately, it's been very hard to hear. There's very noisy your line. I --…

Okay. Thank you and sorry about background noise, there was a Daniel González: Thank you very much.

Our next question comes from Regis Cardoso from Credit Suisse. Please go ahead.

Good morning, Daniel, everyone. Thanks for taking the question. And I think, congratulations for the results. It was quite an achievement to -- I mean, maintain the solid results through the tough times. But I think at this point in time, I mean, following the results and the election and the stress that has caused to the capital market, the increase in your percept -- the market's perception of your risk, which translates into higher yield maturities and so on. I mean the financial discipline you've had really has paid off, because it appears it could otherwise be in a very tough position right now, if you needed liquidity in the short term. So my -- this is for me the biggest concern now. I wanted to discuss with you, how do you think about this access to liquidity going forward? What are your liquidity sources and how -- what are the levers you have to maintain leverage under control and guarantee that YPF won't find itself in any sort of liquidity shortage? Thank you. Daniel González: Well, thank you, Regis, for that. I completely share the concern. Luckily, it's not a new concern to us. It's something that in the last eight years has always been a priority to keep a sound balance sheet. And at times, at rainy days like the ones that we've just seen, it's definitely been a differentiating factor. The way we are dealing with this going forward, I think, has several legs. First is, as I said, planning a year in which we are not going to be increasing debt. Okay? Now from a ratio perspective, the ad ratio increases slightly or not will depend on our ability to keep EBITDA flat next year, or if we see a small decline you might see…

Thanks. And If I may, just a follow-up on that one, because I mean, for one side it's very important to keep leverage stable, but we would also like to see production at least stable or growing. Right? So you don't risk finding yourself in a vicious cycle where your cash flows would be compromised by declining production. So that all boils down, I guess, to CapEx efficiency. And I wondered if you could maybe comment on what do you think is roughly the level of CapEx required to maintain production flat? And if you could maybe what is the sensitivity for each 1% production growth or something that sort you might have on top of your mind? Thank you. Daniel González: Well, yes, I fully agree with your views regarding production going forward and trying not to affect the reduction in CapEx, not affecting production growth, capacity, if you want. And although, we cannot talk about specific plans for next year, because we have not yet presented them to the Board and therefore they have not yet been approved. We are not foreseeing a situation of production decline at all for next year. Okay? Maybe, yes, in natural gas for decision that we took earlier this year of slowing down those investments in order to prevent additional cuts. But for crude oil, with that additional CapEx that I mentioned we will be putting into La Amarga Chica, Loma Campana and Bandurria Sur. I think that we will start -- or that -- not start but continue to see the significant production growth coming from unconventionals that we have been seeing in the last few quarters. I think, it's a very impressive hopefully you found the same to see a 77% production increase year-over-year. So, what I'm saying is, with a level of CapEx that's definitely going to be below this year and as I said, I cannot tell you how much below this year, not yet, we should be in a position to keep production at least flat but likely seeing growth in crude oil production.

Thank you, Daniel.

Our next question comes from Santiago Wesenack from AR Partners. Please go ahead.

Hello everyone, and thanks for taking the question. Just a follow-up on the regulation. But on the short term specifically on resolution price it takes, taking into consideration that oil prices are going down 25% year-over-year. While gasoline, it's only down 9%. and actually this is up of course is because of the wholesale market. But it seems like the upstream segment is paying most of the cost of the regulation. So if we assume that next week the resolution type it takes would not extend it? What would be YP's strategy to be -- to increase price of oil to take it back to export parity? And how do you see the market -- the pump prices adjusted to that? Thank you. Daniel González: So thanks Santiago, it will decrease by 66 will expire next week and as we said, we don't believe that there's going to be any extension. I do not necessarily agree that the impact is more on one segment than the other. It depends a lot on how you calculate that. You can calculate that as a what kind of catch up that's the segment needs in order to reach import parity in the case of fuel, export parity in the case of crude oil. And there you will see that the catch up is not that different. You can measure that in terms of what kind of return on invested capital each of the segments has and in that -- and I can tell you that the invested capital that we have in the downstream is very, very significant. And the maintenance CapEx that you need to put into the Downstream segment. It's also significant. Moreover, we need to make significant investments to reduce the sulfur content of our fuels and we will be…

Okay, perfect. Thank you for taking the time.

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

Thanks for taking the question. So you highlighted the three areas of Vaca Muerta where you are already producing commercially. Historically, you have only disclosed cost and well data for the Loma Campana. And I'm curious if in 2020, you plan to begin reporting the same kind of information for Amarga Chica and Bandurria Sur? Daniel González: Hi, Pavel, absolutely yes. For Vaca Muerta in general for different areas within Vaca Muerta and including in some cases for those areas that are only in pilot mode. That is something that we did not do in the past. I think that -- hopefully what you're seeing from our presentation is that we are gradually providing more details actually in this presentation Sergio provided IPs for one well which is only three months old. That's something that we've never done, but it's to try to show that we are seeing positive results in other areas of Vaca Muerta, which are again a consequence of the delineation effort that we have been doing these last couple of years. And that hopefully is going to be paying off in the next few years. So the answer to your question is definitely, yes. And of course, you can talk to the IR team with what kind of information you can help us out in terms of letting us know what kind of information would be helpful for you. I cannot guarantee that we will be providing 100% of that, but will definitely be guidance that will take into account.

Understood. Let me also ask about the low carbon. You've highlighted this as a priority you clearly want a higher ESG score as a company. Will low carbon be a greater portion of the capital program in 2020 as compared to previous years? I know you cannot say what the capital program will be but at least as a percentage should this be a larger portion. Daniel González: Well, a good part of that will come from YPF Luz from our power generation vehicles. That as you know we control energy. Fortunately none of that CapEx comes out of YPF because that company finances itself. But just to give you a clue that's a company that today has like 100 megawatts of wind power and it's going to 450 megas of wind power. And then we have a transformational or what we call a transformation initiative. You know that we have a transformation office and this is an initiative that involves not only our three business segments but a good part of the corporation that has to do with energy efficiency throughout our operations. And that we are tracking very, very closely. That's probably a subject of our colony itself improving the efficiency of our operations. And obviously also focusing on reduction of emissions generally CO2, generally and methane specifically. Now in addition to that what I can say is that we will be investing give or take $100 million next year that have to do with reducing the sulfur content of our refineries but not go directly to the carbon question that has to do with our sustainability effort overall.

Okay. That’s helpful. Thank you very much.

Our next question comes from Pedro Medeiros from Citigroup. Please go ahead.

Hey, good morning. Congratulations on the results. Thank you so much as well for like I echo my French words improve disclosure and opening up these remarks. I have a couple of follow-ups, okay? The first one is that we have read the local news some specific reports showing that tracking activity has been materially reduced in the last few months. So I just want to hear a little bit more color on that like -- and just as some guidance on short-term potential production for the fourth quarter. My second question is also aiming for -- to understand the environment in the short-term for gas prices in dollar terms, okay? It's part of the freeze and the volatility in the currency. I just wanted to understand how has gas price has been behaving in the last few months and whether that brings any risk of impairment to gas reserves by the end of the year. Those are my two questions. Thank you. Daniel González: Thank you, Pedro. Regarding fracking activity, generally for the industry, yes we have also seen deceleration or a reduction in activity in the last few months. There are a few other players that have put their drilling rigs on standby mode. It has not been our case, not thus far at least not in the shale oil areas. What we have been reducing if anything has to do with our shale gas operations and that is part of a different decision that was taken quite some time ago and has nothing to do with the price freeze. It is slightly though that we will see some reduction in activity next year vis-à-vis what we experienced this year, definitely a reduction regarding what we were all expecting would be 2020. Because the things that we're hearing…

Okay, thank you so much, Daniel.

Our next question comes from Daniel Guardiola from BTG Pactual. Please go ahead.

Hi. Good morning. I have a very good -- and it is related to the announced focus on financial discipline. And I would like to know if you could share with us some color on the company's dividend policy under the current uncertain environment.

Well. Daniel, as much as that is a great question to ask. Unfortunately, I cannot give you a precise answer, because that will be part of the discussions that, we're going to be having at the Board, by the end of this year. And I'd say, maybe even with the shareholders, early next year. So, we have always intended to keep a predictable dividend policy. We were expecting in our last business plan some growth in dividends that maybe gets pushed out with a new reality. And it will depend a lot of course in the cash situation. As we have said, many times during this presentation and the Q&A session, protecting, preserving cash and keeping a sound balance sheet is a priority to us and if that require not increasing at the end for now. We will make that recommendation to the world.

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

Hi. Thank you for the opportunity. And could you give us an indication of the CapEx plan, in dollar terms for 2021 or combined for the three crew development areas on shale? I of course understand they might change soon. But as of now what you have had in budget? And also the other question is, regarding the underlying gas price assumption that you used for the gas active impairment. Thanks. Daniel González: Thank you, Lilly. Unfortunately, I cannot give you any figures regarding CapEx for next year. Because as I said, the plan needs to go through the board first and that will happen in December. All I can say again is that, for those three crude oil areas in the shale oil areas that are under full development there's going to be an increase in CapEx, in each one of them, okay? Of how much, I'm not yet in a position to disclose. With regards to your second question and regarding the natural gas prices used for the impairment test, all I can say is that, we have used prices for next year which is below this year, totally in line with our expectations today. And that we have kept long-term prices pretty much unchanged, in the $4 per million BTU areas. Because as I said in the previous question, we do believe that eventually with reduction in natural gas prices -- sorry natural gas production, natural gas prices will go back again to the $4 area.

Thanks. And just a follow-up on the first question, so the increase in CapEx for the acceleration in CapEx, should I have seen a higher number of wells or something else? Daniel González: Yes. You should assume a higher number of rigs and therefore a higher number of wells. But again, good out of the answer has to do with the wells are not exactly the same wells that we drilled this year. I'm definitely very different to those that we were drilling in the previous years. In terms of the length of the lateral, in terms of number of tax pages per well, and in terms of what we call high-density completers, the intensity of the program that we put in each of those frac stages. So in a way what we are saying is, we are finding a recipe for lower development cost for unconventionals. Generally and that has to do with a significant in productivity coming from I think I have just outlined. So, it's not linear. That's what I'm trying to say, the increase in CapEx with increasing well.

Okay, great. Thank you.

And we are showing no further questions. Daniel González: Okay. Thank you very much to all of you for participating on the call. And as we always say, please feel free to follow-up with Sergio, Ignacio and the rest of the team at your convenience. Have a great day.

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