YPF Sociedad Anónima (YPF) Q1 2024 Earnings Report, Transcript and Summary

Thank you for standing by. My name is Kathleen, and I will be your conference operator today. At this time, I would like to welcome everyone to the YPF First Quarter 2024 Earnings Webcast Presentation. [Operator Instructions] Thank you. I will now turn the call over to Margarita Chun, Investor Relations Manager. Please go ahead.

Good morning, ladies and gentlemen. This is Margarita Chun, YPF IR Manager. Thank you for joining us today in our fourth quarter 2024 earnings call. This presentation will be conducted by our CFO, Mr. Federico Barroetavena; and our Strategy, Business Development and Control Vice President, Mr. Maximiliano Westen. During the presentation, we will go through the main aspects and events that explain the quarter results. And then we will open the floor for Q&A session, together with our senior management. Before we begin, I would like to draw your attention to our cautionary statement on Slide 2. Please take into consideration that our remarks today and answers 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 presentation, we might discuss some non-IFRS measures, such as adjusted EBITDA. I will turn the call over to Federico. Please go ahead.

Thank you, Margarita, and good morning to all of you. Before moving to the purpose of this call, as you may know, the company's functional currency is U.S. dollar. And since 2022, we have reported annual financial statements in both currencies U.S. dollar and Argentine peso. The company believes that reporting in U.S. dollars provides general investors with a better understanding of the company's business and activities and analysis of our financial performance. Accordingly, as of this quarter, the company took the initiative to start reporting quarterly financial statements also in both currencies. Now let me start the presentation by highlighting that this was a quarter in which we were able to deliver a solid beginning of the year across all our key operating and financial metrics. Revenues amounted to $4.3 billion in Q1, growing by 3% sequentially and 2% inter-annually mainly on the back of better fuel prices in the domestic market and higher exports of oil, partially offset by demand contraction in local fuels and fertilizers. Also in Q4, our subsidiaries with functional currency in Argentine peso were affected by the deval of mid-December. Adjusted EBITDA recorded a strong evolution during Q1, totaling $1,245 million, 15% up sequentially, mostly driven by the aforementioned factors, in addition to a decreased OpEx after the devaluation and lower imports of fuel combined with higher processing levels at our refineries. These effects were partially offset by reduced FX regime for exporters and lower replacement cost of our inventories. Inter-annually, adjusted EBITDA growth was even higher, particularly boosted by a remarkable 7% expansion in oil production while exporting 23,000 barrels per day to Chile in Q1. The strong operating results enable our bottom line to become positive at $657 million in Q1, which also almost doubled the $341 million of Q1 '23. Total hydrocarbon production reached 526,000 barrels of oil equivalent per day, pricing 3% sequentially and inter-annually driven by a sound performance in our shale operations, particularly in shale oil, which recorded 21% inter-annual increase. In terms of our investment activities, we started the year deploying $1,252 million, decreasing by 15% sequentially and 4% inter-annually mainly due to the devaluation impact mentioned before. More than 50% of the quarter investment was concentrated in shale operations, in line with our strategy for the short term. On the financial side, free cash flow totaled a negative $394 million as the deployment of our CapEx payment of imports deferred from 2023 and debt service were not fully compensated by the positive cash flow from operations, taking our net debt to $7.2 billion while maintaining the net leverage ratio at 1.7x fully aligned with the target of the year. Going forward, we will continue monitoring the evolution of Argentina's macro context, particularly the cost inflation evolution. We will concentrate our efforts to exploit the opportunities that we have ahead of us, reaffirming our shale oil-oriented growth strategy and focusing on generating value for our shareholders while maintaining financial prudency in our decisions. I now turn the call over to Max to go through the operating results for the quarter.

Thank you, Federico. Let me begin by expanding on Federico's comments about our Upstream segment. During the first quarter, total hydrocarbon production grew by 3% quarter-on-quarter and year-on-year, driven by shale contribution, which continued on an upward trend now representing almost half of the total output. Zooming into crude oil, total output continued high in the range of 255,000 barrels of oil per day on the back of shale growth of 21% year-on-year, offsetting the marginal decline in conventional fields. Also, let me mention that on the conventional side, 9% came from tertiary production, increasing by 34% inter-annually and minimizing the impact of natural decline in mature fields. Beyond crude oil, natural gas and NGL production grew by 6% on a sequential basis on the back of demand recovery, delivering above 36 million cubic meters per day and 42,000 barrels of oil equivalent per day, respectively, both figures similar to the first quarter last year. Moving to lifting cost, it reached almost $13 per barrel of oil equivalent in the first quarter, 16% below the previous quarter, primarily driven by the sharp devaluation in mid-December 2023, increased production and cost efficiency, such as tariff reduction on supply chain. It also impacted the lifting cost at our shale core-hub blocks that stood at $3.4 per barrel of oil equivalent on a gross basis, 15% down quarter-on-quarter, way below the already competitive range of $4 that we recorded during the last year. Regarding prices in the Upstream segment, crude oil realization prices averaged $68.3 per barrel in the first quarter, representing a strong recovery of 15% quarter-on-quarter, mainly as a result of better pricing landscape in the local market. On the natural gas side, prices remained essentially flat at $3 per million BTU, mostly derived from the off-peak season price of Plan Gas. Tuning into our [ sale activity ]; during the first quarter, we drilled 43 new horizontal wells in our operated blocks, mostly oil producing blocks and only one targeting shale gas. We also completed 29 wells, all of them oil. Moreover, we tied in 39 wells being 92% of oil. All these metrics are aligned with the company's strategy to monetize shale oil opportunities in the short term together with the ongoing oil midstream expansions. It is also worth noting that shale oil production achieved once again a new record high, delivering 112,000 barrels per day with a 3% sequential growth, accumulating an increase of 60% over the last 2 years. 87% of our shale oil production came from our core-hub oil blocks Loma Campana, La Amarga Chica, Bandurria Sur and Aguada del Chanar. In terms of efficiencies within our shale operations, the first quarter, we continued setting new quarterly records on drilling and fracking performance, averaging 290 meters per day in drilling and 219 stages per set per month on fracking. These are improvements of 23% and 12% respectively versus the first quarter 2023 and fully in line with the guidance we announced during the last annual call. It is important to mention that during last February, we achieved the highest drilling speed for one well in [indiscernible] block, reaching 475 meters per day for a well almost 4,000 meters of horizontal length, which was fully drilled in 15 days. As a result, we posted another quarter of competitive development costs for our core-hub oil operations at $10.3 per barrel of oil equivalent, which is slightly above sequentially due to higher activity to accelerate the development of our core-hub blocks rather than Loma Campana, which is our flagship block in Vaca Muerta. Inter-annually, the improvement was mainly due to a restated figure for the first quarter 2023, especially on the back of a lower performance driven by parent-child effects. In addition, we move forward with the strategy of exploring new shale opportunities beyond Vaca Muerta. In that sense, a few days ago, we finished drilling the first horizontal well at El Cerrito block and [indiscernible] formation, which is the second largest unconventional resource in Argentina after Vaca Muerta. We will advance with the completion in the following months to continue exploring its potential in the coming years. On the conventional side, a few days ago, we started drilling the first offshore ultra-deepwater well Argerich, located 35 kilometers from the Port of Mar Del Plata in the province of Buenos Aires. We expect drilling works will take around 2 months. Before moving to the next section, let me update on the progress made in Andes project that aims at optimizing the portfolio of conventional assets in our Upstream business. We have already appointed the bank to manage this process and move forward with our virtual [ data room ] last month. We expect to receive offers by June on track with the project's time line. Now let me briefly comment on the progress achieved in the oil midstream expansions to unlock evacuation capacity in the Neuquina Basin. Regarding the evacuation to the Pacific during the first quarter, YPF continued growing all exports to Chile through the Trans-Andean pipeline, which is also connected to our core-hub blocks through the Vaca Muerta North piling. We exported almost 23,000 barrels of oil per day, which is 22% more than the fourth quarter, representing 9% of our oil production and totaling net export revenues of around $155 million. We expect to increase export volumes gradually in the coming months, also raising the mix of shale, which is even lighter than the conventional oil of the Neuquina Basin since our client successfully completed the testing of its refineries to process the lighter crude oil mix. Switching to the evacuation capacity to the Atlantic on the one hand, [indiscernible] estimates to add around 45,000 barrels per day to its system by year-end and 200 more by mid-2025. On the other hand, YPF is leading the Vaca Muerta South project, a completely new pipeline with export terminal, reaching an initial capacity of over 180,000 barrels per day by 2026, and amounting to more than 360,000 barrels per day by 2027, '28. During the quarter, we obtained the environmental permits for the whole project and launched the EPC tender expected to be awarded by year-end. Keep in mind that this project has the possibility to expand to more than 700,000 barrels per day by adding pumping stations. Switching to our downstream operations in terms of refinery utilization, processing levels averaged 301,000 barrels per day, increasing by 4% sequentially since the fourth quarter was negatively impacted by program maintenance stoppages at La Plata refinery. Inter-annually, processing levels declined by 2%, mainly because during this quarter, La Plata refinery was affected by [indiscernible] Terminal unavailability to deliver crude oil which was partially restored by the end of the first quarter in addition to heavy rains and flooding in nearby areas. This effect was offset in part by better performance at Lujan de Cuyo refinery, where we recorded the highest monthly processing mark in March. Consequently, we reached more than 90% of refinery utilization factor. Regarding the domestic sales of fuels, total dispatch volumes decreased by 11% quarter-on-quarter, mainly because of retail demand contraction and lower diesel seasonality, dropping 14% in diesel and 7% in gasoline. Inter-annually it was only 2% down as a result of 4% contraction in diesel affected by lower industrial and agri business activity while gasoline remained almost flat. It is worth mentioning that despite fuel demand drop in Argentina, YPF was able to gain market share, growing 8% in gasoline and 3% in diesel inter-annually, capturing almost 60% of local fuel market share. Moreover, and quite important for the downstream margins, lower demand of fuel was translated into lower imports, representing only 4% of total fuel sales volumes compared to 12% in the first quarter 2023. In terms of prices, during the first quarter, YPF continued adjusting local fuel prices aiming at mitigating the impact of the devaluation while managing to reduce the spread versus international parties. As a result, average fuel prices measured in dollars increased by 11% sequentially and 5% inter-annually, narrowing the gap to import parity to 7% in the first quarter compared to 20% in the previous quarter. On the other hand, local crude oil price recovered in the first quarter were Medanito price averaged $68 per barrel, representing a discount of 10% versus export parity compared to 24% in the fourth quarter of 2023. Thanks to all of you. This is all on my end. I will now turn back to Federico to go through our financial results for the quarter.

Thank you, Max. Switching to the financial front, cash flow from operations in Q1 amounted to almost $1.1 billion. Despite the increase in adjusted EBITDA, negative working capital variations affected Q1. There were temporary deferred payment of imported goods and services from last year to Q1 and some delays in the collection from certain gas clients. Given the deployment of our capital expenditure, coupled with a regular interest payments free cash flow came at a negative $394 million. Consequently, our net debt increased to $7.2 billion while maintaining a stable net leverage ratio of 1.7x. In terms of financing, during Q1, we issued an amortizing 7-year export secured bond or $800 million with a yield of 9.75%. Part of the proceeds was disbursed to prepay in cash, 40% of the 2024 notes for $138 million, while the balance of $208 million was fully paid at maturity on April 4. Additionally, we continue securing trade facilities, both with local and international banks and paid at maturity almost $100 million of principal amortizations of international notes. On the liquidity front, our cash and short-term investments increased 15% sequentially to $1.6 billion by the end of March, primarily as a result of the new bond issuance. Finally, when looking into our debt profile, I would like to highlight that our [ healthy ] liquidity position comfortably covers our debt amortization for the next 12 months. So with this, we conclude our presentation and open the floor for questions.

[Operator Instructions] Your first question comes from the line of Luiz Carvalho of UBS.

Can you hear me well?

Yes, we can hear you.

And congratulations on the results. I have basically 2 questions here. The first one, if you can give a bit more color and provide an update on the divestment process? How do you think that the development has been going so far? What are the potential, I would say, milestones that we should look in the next, I would say, in the next couple of quarters. The second question is more related to cost reduction. I think that part of the, let's say, the strategy is to, I don't know, optimize the, let's say, the asset portfolio, but you may have good opportunities to streamline into the cost overall. So I would like to get a bit more details how the company is seeing, I would say, the cost reduction journey.

Thank you, Luiz. We will start with the first question regarding the divestment process.

Yes. Thank you very much. This is Max speaking. I'm going to update you on the divestment process. First, let me mention that we are on schedule on what we explained during the last call. The progress that we made between the last call and this one is that we've -- yes, we -- between April 16 and 19, we went to a road show that started here in Buenos Aires. We -- in the Canadian Embassy -- then we've had a meeting in the U.S. in Houston and in Calgary. With the meeting in Calgary, we finished our premarketing stage. The following week, we've opened a VDR at this stage, what I can say is that there are many CAs and a lot of companies working already with the information that we disclosed in the VDR. So we are quite bullish about this process. And the other thing I can mention is that we are expecting offers or proposals during mid-June, targeting to close on these transactions during the second half of the year.

Thank you, Max. And regarding the second question regarding efficiency, cost reduction in the quarter. We have here Feder, our CFO.

Thank you, [ Bruno ]. I believe that your question is trying to focus more on the impact on the devaluation along the first quarter and how this is going to be affecting us further along the rest of the year. So let me tell you that so far, since the new government took office in December, we see that the main focus has been stabilizing the macro following the implementation of these some sharp measures. Now during this quarter, the key developments that we have seen are mainly: number one is that monthly inflation more than helped from 26% in December to about 11% in March. Second, the FX gap between the official and parallel has tightened from over [ 200 ] to approximately 20%. This is the lowest level in 4 years. Then the [indiscernible] drop from 2,000 basis points to 1,200 basis points. And again, this is the lowest since 2020. And then the [ Net ] Central Bank reserves have increased by about $10 billion since December 2023. And we expect to become -- let's say the expectation is that they become positive shortly. So all-in-all, and finally, and probably as a key driver behind all these results, what we observed is that during the first quarter, the government implemented a strict fiscal policy that achieved fiscal surpluses in each consecutive month for the first time since 2008. Now and probably going to the root of your question, looking for the rest of the year, according to the Market Expectation Survey of the Central Bank, the [indiscernible] in Spanish is now forecasting on the one hand, a reduction in monthly inflation credit from 9% in April to 5% by the end of the year. This will result in a total inflation of approximately [ 160 ] towards year end, which compares positively with the [ 211 ] we had in 2023. Now on the other hand, in terms of FX evolution, the same survey expects the continuity of the current [indiscernible] with some converging adjustments during the second half of the year, but now with the indication that this will be done without considering discrete hikes. Now all-in-all, Bruno, assuming that this scenario where inflation remains above currency depreciation the company and the management will continue to monitor strictly all key cost variables looking for industrial efficiencies in order to mitigate its impacts on margin.

Okay. If I may, just a follow-up on this one. If you can maybe provide a bit more general update in terms of the -- you already mentioned about the fuel price [Technical Difficulty] but also with regards to new innovations being [Technical Difficulty] in the country at the moment and how I would say, you see YPF positioned to potential, I don't know, adjustment of the regulatory framework looking forward.

Basically, I understand Bruno, you are -- you would like to have our views on the new legislative measures that are being discussed now in the Congress.

Yes, exactly [Technical Difficulty].

Okay. Excellent, excellent. Well, Bruno, as you know, the new administration brought a radical transformation and the regulation agenda. This was implemented through the Decree 70 and the Bases Bill both currently subject to the review and approval by the Congress. Now regarding the Bases Law, the draft Bill declares a public emergency in several [ months ]. This is for a period of one year, and it delegates a series of legislative powers to the executive branch during this emergency. Now specifically for the oil and gas industry in general and to YPF, the new bill aims to restore the economic balance in the energy sector by introducing 3 main objectives. In our view, number one is it removes almost all restrictions of the hydrocarbon sector aiming to correlating prices to import and export parities. Then it creates an incentive regime for large investment called [indiscernible], which especially is critical to YPF, to YPF and to the entire gas industry for the Argentine LNG project. And lastly, the deal reaffirms that international trade of oil and gas should be free of any restrictions. In this sense, it is important to highlight that as the oil market is not formally regulated in Argentina, this new regulatory framework is not a necessary enabler to continue developing our shale oil resources in Vaca Muerta. Anyhow, the main impact on our business is related to the development of the LNG project, as I said which depends on the new incentive regime for large investment projects.

Your next question comes from the line of Bruno Montanari of Morgan Stanley.

I have 3 on my side here. The first one on Vaca Muerta Sur, so is the final investment decision taken for the pipeline? And do you have a firm interest from other oil producers already to [ beat ] equity partners in the project? And I was wondering how does Vaca Muerta Sur would compare or compete with the potential further duplication of Oldelval, which could be also on the table here? The second question is about the gas receivables collection. So I was wondering if you could share with us the amount, which is currently due -- and if you were also having those offers to be paid with bonds at a haircut. And the third one, if you could comment on the free cash flow outlook for the coming quarters. You began the year maybe with a little bit heavier negative free cash flow. So the question aims to check whether those pressures could subside now in the coming quarters.

Thank you, Bruno. We will start with the first question regarding Vaca Muerta South and Oldelval expansion. Here, we have Max with us, our VP of Strategy.

Thanks Bruno for the question. No. So far, the Vaca Muerta Sur is progressing as expecting. All of the midstream projects actually are advancing as expected and are on track to debottlenecking our production capacity in Vaca Muerta. With this we expect Oldelval's first stage to be completed by the end of this year. This will be a key milestone actually, adding about 45,000 barrels per day of operation capacity in Vaca Muerta, reaching a total capacity of 345,000 barrels from the original of 225,000 barrels. Now for further stages, we will reach a total evacuation of 540,000 barrels. Regarding -- I think you asked Vaca Muerta Sur. What was already FIDs was what we call [indiscernible]. This is already in construction and the [indiscernible], which is the main trunk line all the way from [indiscernible] to the port with a new port facility. What we can tell you at this stage as we already got the environmental permits for this project. This was a key milestone for this. And we are working and in discussions with the rest of the industry. What I cannot tell you much about this, but there's a lot of interest in participating in different levels of this project. So it's on track, and we don't see any delays on this project. And sorry, and I think you also asked your second question was about further expansions in Oldelval, right? So we believe that Vaca Muerta Sur is the most competitive evacuation for the -- to monetize the crude in Vaca Muerta. This is because in the port where we are foreseeing to have the facilities we can get to that port with VLCCs, which are -- have much more competitive transportation cost per barrel. So we believe that this will be -- this is the most efficient [indiscernible] system. And that's why YPF wants to pursue this project on top of or as a priority on any other project.

Thank you, Max. I don't know if it was clear, Bruno, for you, and we can go with the second question. The second question was about the gas receivables. Max, if you can --- Fede, is answering the question, our CFO.

Okay. Hi Bruno. Well, as you know, this issue is somehow marginally I would say for YPF considering the magnitude of our account receivable and EBITDA. As it is publicly known in recent weeks, [indiscernible] has not been able to meet its obligations with upstream companies and power generators for the months of December, January and February. Total figures for YPF is that out of a total receivable of $160 million, we had the past due of around -- it's probably 50% of that was past due. Now last Wednesday, the Secretary of Energy issued Resolution 58, which establishes an exceptional payment regime for [indiscernible] past due amounts. This resolution provides that December and January will be canceled with the government bond due 2038. All-in-all, considering this and based on the best estimate of the company, the group has recognized a total charge of $55 million, of which $29 million were considered charge to our operating income and the balance corresponds to our subsidiaries, YPF Luz and Barragan Power Plant. So based on this, yesterday, YPF signed an agreement with [indiscernible] by which on the federal due amounts were immediately canceled and the bonds shall be delivered in the coming days. In addition, this agreement provides that moving forward payments will be done in accordance with the contractual schedule.

Got it. Quick follow-up. On this $29 million, was this charged in the first quarter already?

Yes.

Okay. And you did not normalize for that when you presented your EBITDA. Is that correct?

It impacted the EBITDA. It was in the line of the commercialization cost. So it is included in the EBITDA. If we wouldn't have this impact, it would have been $30 million higher. Well, we can go with the last question of Bruno. His question was about the free cash flow, the negative cash flow that we started with the year and the pressure or maybe the outlook for the coming months.

Okay. Well, the -- what would happen in the first quarter Bruno, it's a combination of, I would say, 3 factors. Number one, let's say, the composition of the negative free cash flow is, number one, the payment of interest of the company that amounted to probably half of that. And then the rest is composed out of 2 main issues. One is this delay in payments that we just mentioned on gas receivables. And the other one is that if you remember, by the end of last year, we have deferred payments of imports of goods and services that we canceled along the first quarter with or through buying securities from the government that allowed us to cancel this past-due payables. So that was a combination during this quarter. Now moving forward, even though we expect a strong recovery in our EBITDA levels during 2024 -- this on the back of new fuel pricing strategy already implemented and our growing shale oil production, we expect the CapEx target of $5 billion for 2024, and that will push the free cash flow into the negative territory. And this will be more or less in line with the same range that happened in 2023. Nevertheless, as the expansion of EBITDA levels should be higher than the increase of our net debt, we should be ending the year with a net leverage ratio below 2023, that means something in the range of 1.7 to 1.7x.

I don't know Bruno if we answered your questions?

Your next question comes from the line of Daniel Guardiola of BTG.

I have a couple of questions here. My first question is on the asset disposal plan. And I heard you mentioned that you already did a road show in Canada and Houston and Argentina. And I wanted to ask you if you could provide us the feedback you have received so far from potential buyers of these conventional fields. And also, potential pushback that maybe you have received from government entities or provinces in Argentina, where these fields are located. So that's my first question. And the second one is on Exxon exit or disposal plan, and I wanted to know if YPF is actively looking into these assets that Exxon is planning to sell in Argentina.

Thank you, Daniel. We can start with the first question.

Hi Daniel. How are you? Well, regarding the asset disposal plan, we are -- we call it the Andes project. The feedback that I can tell you we got is we are already working there above 70 companies working that signed CAs and are working in the VDR. This is above our expectations on processes where I've worked in the past. I've never seen that many companies. So I think that the market was expecting and looking forward to this process. On the potential push what I can tell you is that we -- for this project, we started -- and Horacio, our CEO, started from the very beginning, working with all of the different stakeholders with the Governors, governments, different governments with the unions and with everyone else before going out to the market. So we did the homework before going out and we don't see -- so far, we haven't had any pushback on the clusters that are published in the -- or released within the Andes project. And regarding the Exxon process, there's not much I can tell you. The only thing I will tell you is one of our pillars is Vaca Muerta. We're going to focus on our most -- on our assets that have the highest margins. And we are becoming -- and we are continuously looking to any opportunity that has synergies within our operations where we want to grow. So that's what everything I can comment at this stage.

Okay, great. And if I may squeeze just another one very quickly. You did mention during the call that you drilled or you're planning to drill an ultra-deepwater well offshore in the northern part of Argentina. And if I'm not mistaken, this is an extension of a major discovery that was found in Namibia 2 years ago by Shell and Total. I don't know if you can give us a notion of how big this new frontier could be for Argentina?

Sure, Daniel. Maybe you're referring to the Argerich.

Yes, that one. Exactly.

I go for it. It's not in northern part of Argentina. It's -- the Argerich is the first ultra-deepwater exploration well in Argentina, and it's located about 300 kilometers offshore from the City of Mar Del Plata, this is Buenos Aires at the water depth of 1,500 meters. The block is called [indiscernible] in the North Argentinean Basin. We started drilling this well by -- at the end of April, and we are -- we do have a 35% equity stake, the operator of the well is Equinor who is one of our partners in this joint venture. The other one is Shell with 30%. And this is an exploratory well, but what I can tell you is we are -- its targeting a very big structure. The potential of this we -- I cannot tell at this stage, but of course, we are looking for something very quite material. We are looking -- you mentioned something about Namibia. What we are looking here is the same [Technical Difficulty] what's the translation of -- mother rock from Namibia and that's true. And we're going to be drilling this well during the next 2 months. And our estimation is that we could, of course, after -- if we have a discovery, then we need to do want -- to assess this, but we're targeting at the end of the road to produce maybe about 200,000 barrels per day. But this is, again, it's exploratory. So this is only in case of having a discovery and good results and the appraisal wealth.

Your next question comes from the line of Alejandro Demichelis from Jefferies.

Yes. A couple of questions please. First one is, Max, I think you talked about the pipeline, the [indiscernible] pipeline. Could you give us some indication of the cost of the project from, say, [indiscernible] plus the port? That's the first question. Second question is when you update us on the strategy you indicated bringing 3 extra rigs by the end of this year. Could you please indicate how you're progressing on that? And can we see some acceleration in your Vaca Muerta developments?

Thank you, Alejandro. We can start with the first question maybe with Vaca Muerta South, the tranche, the first and second tranche costs.

[indiscernible], which is already FID, it's going to cost about $250 million. the [indiscernible] between the pipeline and the terminal, it's going to cost about $2.2 billion. And the second one, I'm not sure if I heard it right, but I think you asked about our acceleration in Vaca Muerta -- in our development plans in Vaca Muerta. Is that right?

Yes, and potentially bringing some new rigs to the basin to Argentina.

Perfect. Yes. So we are currently drilling with 14 rigs, and we are planning on adding the 15th rig by June, I think -- and by June. And also, we are going to be working with 4 frac fleets in order to accelerate. So, so far, we are with the guidance that we provided last -- in the last call, we are on track, and we are going to plan on -- and we are -- sorry, and with this is -- yes, I don't know if I addressed the question.

Okay. So just to be clear, of the 3 rigs that you mentioned that you were adding this year, you already have 2 working and you have one extra coming in June.

That's correct, yes.

Okay, great. And sorry, are you seeing a potential to bring more rigs than that?

Yes. But yes. But at this stage, we cannot -- because we may -- we get to -- we may get to a bottleneck by the end of this year. So we are carefully accelerating. Once Oldelval system is the -- yes, once not fully debottleneck, but once the first stage of this -- adding the capacity by the end of the year is COD-ed, then we will be able to accelerate and further grow next year.

Your next question comes from the line of Bruno Amorim of Goldman Sachs.

And congratulations on the results. Just wanted to follow up. I think you have made it very clear what's the plan for this year and next. Just wanted to ask your thoughts on when shareholders should expect to receive dividends. I understand you're going through a turnaround process you're investing for the future. But I just wanted to hear from you when you think the company will start paying meaningful dividends to shareholders as a result of all the measures that you are implementing?

I'll take it, Max. Hi Bruno, thank you for your words. Well, in terms of dividend strategy for this year and for next year, considering and given the strong growth in prospects of our shale oil development, particularly for the upcoming years. Dividend payments shouldn't be or are not a top priority for this immediate to next year. However, we do believe that we have to normalize, and we are conscious that we need to normalize dividend payments down the road, considering that the company has not distributed dividends to shareholders for more than 5 years. So we are quite conscious of this. And so even though it is too early to comment, we may consider and we are considering and we will -- it's one of our drivers to reassume dividends as soon as possible. So this year, I would say that we know that it's going to be negative free cash flow. We are expecting next year to be -- to target for a much more neutral year in terms of cash flow. And definitely, 2026 should be a year in which will be our top priorities to reassume this dividend leaving this dividend situation. So we have in our agenda, normalizing this situation, as I explained. Right now, we understand that the way to maximize the value to our shareholders is to improve as much as possible and to reduce as much as possible the monetization of the Vaca Muerta reserves. And in order to do that we need to heavy invest along this year. But we have this in our agenda. It will be one of our priorities.

Your next question comes from the line of Marina Mertens of Latin Securities.

I have 2 questions. The first one regarding the pricing dynamics of the pump. So considering that the government has delayed the adjustment to the tax on liquid fuels, do you consider there could be any potential constraints to implement further price increases at the pump? And the second one, given the progress in the project Andes to divest these mature fields. Could we expect YPF to proceed with any other sale of noncore assets?

Thank you, Marina. We can start with the first question.

So regarding the prices, since the end of last year, we have been developing an active fuel price recovery strategy that resulted in prices increasing at the pump are almost about -- yes, almost about 200% in Argentine pesos. That allowed us to translate the discrete devaluation that took place in mid-December of last year and to increase prices in dollar terms, reducing the discount to international parties to -- down to 7%. Although local macro variables and the normalization of international spreads could reduce future results due to that, we are addressing a demanding cost reduction and margin improvement plan in our downstream business in order to sustain business margins. That's where we are focusing. Besides, it's hard to predict, mostly due to the volatility in international prices, the company still needs to preserve the prices both to compensate for the evolution of our Argentine pesos and to adjust to local prices to import parity levels. Regarding the process Andes, I think that this is -- we are -- the answer -- the short answer is yes, but we have -- but not now. I mean we are focusing on the project Andes at this stage.

Your next question comes from the line of Leonardo Marcondes of Bank of America.

My first question is regarding the natural gas segment. Is the rise in natural gas prices from Metrogas for residential use already embedded into your estimates for the year? And what could we expect from this increase in terms of results for the next quarter? My second question is regarding the stock variation we saw during this quarter. I was wondering if you could provide a bit more color on the dynamics that led to this impact of around $125 million this first quarter. And maybe if I can do a third one here? It seems that the drilling and the frac efficiency has significantly improved this year already, right? So I was wondering if you could provide a bit more color on your target for this trillion frac speed metrics? And what has been done to improving so fast?

Thank you, Leo. We can start with the first question regarding the tariff adjustment of Metrogas and the view on the outlook of the year. Just give us one second.

Yes. So the tariff adjustment is -- what I can comment is that it was transitory and allowed us to Metrogas to pay for all of its operating costs and any financial interest that they had to pay for. That's all on the -- and the second question, sorry, I.

Yes. And the second question was about the stock variation in the quarter. Maybe, Leo, you can detail a little bit more about that because you know the stock variation, we cannot have a fundamental analysis about it. It depends on the macro condition in Argentina. So maybe we cannot share a deep opinion from our management regarding that.

Sure. Maybe we can discuss this impact as critical, but maybe just to highlight here, I wanted to understand maybe the dynamics that led to this impact of around $125 million in this quarter from this effect. What has led to -- what has impacted this line because it was somewhat strong rate, so.

Well, that is a general reaction in the market. The new management study is just by the last -- by the end of December last year, and there have been many good news in the company regarding the pricing in the downstream business, the Andes project, there have been many news about it.

It's just to understand, Leo -- are you referring to the reduction in the operating cost along this quarter? Is that because -- we didn't understand well probably your question.

Well, under the total other costs here, we saw a very strong stock variation. But maybe we can discuss this because it's more accounting discussion than a strategic one, right? So maybe we can leave to discuss this afterwards.

Yes. Leo, maybe I got your question. This is a stock variation inventory, right? Because I understood. Yes, yes, okay. You know there have been [indiscernible] evaluation so that is why this is an exceptional evolution in the stock variation. Also, you have to consider that in terms of OpEx, since the new management started there have been some cost efficiency already achieved. In the Upstream business, there have been some tariff reduction in the transportation also in the Downstream business. So in that sense, I think if we have to analyze specifically the inventory, I have to tell you that the main variation reason was the exceptional devaluation.

Very clear, very good. Apologies for the confusion here. [Technical Difficulty]

Yes. So your last question was about drilling and fracking efficiency improved and compared to the targets that we announced in March, right?

Well, regarding that, during the first quarter, we've improved our drilling speed materially from -- we got to 290 meters per day. That's 9% above the last quarter. So that sequentially. And regarding the frac speed, we also improved about 11% to 219 stages per sector month. So due to that, that's where we are putting most of our efforts in the unconventional business in order to accelerate, but we're very focused on efficiency.

We can go with the last question since we are running out of time, maybe.

Your last question comes from the line of Ezequiel Fernandez of Balanz. Ezequiel Fernández López: Good morning, everybody. This is Ezequiel Fernandez from Balanz. Thank you very much for the materials that the IR team provided -- very complete to get the quarterly picture. I have 4 questions, but they should be quick. Sorry if it's a little bit lengthy on the final one. So we already discussed a little bit the noncore sales, potential sales. I was wondering if you have any specific plans for YPF Luz Profertil and YPF Lithium. And I would like to go one by one of the questions, if you don't mind.

On these assets, at this stage, no, we don't have any plans. Ezequiel Fernández López: Okay, great. My second question is related to some of the midstream upgrades in place. I understand that there are no ports in Argentina at the moment that can receive VLCCs. I was wondering if there is any work being done on any of the existing ports or if it's something that you will leave for the Vaca Muerta fuel pipeline.

Yes, we can start with that question. Keep in mind that Punta Colorada is a port that used to be used by the mining industry. And in our case, we are building an offshore facility, not exactly using the Port.

Yes, that's the case. So this will work only for the new infrastructure system, which I commented, which is Vaca Muerta Sur. And in Punta Colorada offshore of it, this is -- VLCCs will be able to get to that port. Ezequiel Fernández López: Okay. That's great news. And I have 2 more questions on the downstream side. The first one here is -- there seems to be intentions by the government to fully liberalize prices and for eventually internal prices, crude prices in Argentina to match Brent with the applicable discounts, of course and then for anybody to be able to import fuels. If that situation materializes, I think that puts the general downstream sector in Argentina, a little bit, I wouldn't say in a bind, but it's going to be hard to compete with reported fuels. How do you see that? Do you agree with that view or [indiscernible] should be fine in that scenario?

Well, in order to answer these specific and detailed questions, I will use the opportunity that we have together with us here Mauricio Martin. He is the Vice President of Downstream and commercialization. So he will be giving a much more detailed answer to you. So I'll pass the microphone to him.

Good morning, everyone. According to your question, we are increasing our local prices according to our philosophy of converging to the import parity levels. Together with that, we are also increasing the local price -- crude oil prices, just matching both streams in order keep our market supply with local fuels. In that sense, of course, for the future, in the future, we are going to reduce our international prices. And that's because we are deploying in downstream sector and a strong optimization plan in order to increase our productivity. And because of that, we are going -- we intend and we are making huge efforts in order to keep our margins green. And in that way, I assume that during this current year, we are going to save $2, $3 per barrel in order to keep that margin in value. Ezequiel Fernández López: Okay. So you think those $2, $3 per barrel [indiscernible] would keep local refiners or at least the competitive the YPF refinanced [indiscernible]. Okay. Perfect. My final question on the downstream side is this discussion is a little bit muted in Argentina, but outside, it happens everywhere, which is the impact of electric vehicles in local fuel demand. I don't know if you have any preliminary estimates about when will this start to be a relevant factor for YPF.

Thank you for your question. It's quite interesting. We are constantly viewing what the electric cars are making [Technical Difficulty]. We have the time machine I said, because we are looking at what is happening in Europe, what is happening in U.S. and of course, in Latin America. So for our current business plan, that the electricity -- the electric vehicle is not an easy for us. Nevertheless, we are deploying some electric chargers through our station just as a pilot and just for to foresee what is the impact of these new mobility model. But for us, it's not an issue. Nevertheless, we are constantly surveying what is happening around the world.

That concludes our Q&A session. I will now turn the conference back over to Margarita Chun and Federico Barroetavena. Please go ahead for the closing remarks.

Well, thank you, everyone, for participating in this call. We appreciate the questions and we talk next time, next quarter. Thank you very much.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.