YPF - Q3 2024

Transcript

Operator (participant)

Hello, greetings, and welcome to the YPF Third Quarter 2024 Earnings Webcast presentation. All participants are in a listen-only mode at this time. Later, we will conduct a question-and-answer session. To ask a question, simply press star, followed by the number one on your telephone keypad. If you would like to withdraw your question, again, just press star, one. As a reminder, this conference is being recorded. At this time, I would like to turn the conference over to Margarita Chun, YPF IR Manager. Please go ahead.

Margarita Chun (Investor Relations Manager)

Good morning, ladies and gentlemen. This is Margarita Chun, YPF IR Manager. Thank you for joining us today in our Third Quarter 2024 Earnings Call. This presentation will be conducted by our CFO, Mr. Federico Barroetaveña, and our Strategy, New Businesses, and Controlling 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 CEO, Mr. Horacio Marín. Before we begin, please consider our cautionary statement on slide two. Our remarks today and answers to our 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 now turn the call over to Federico. Please go ahead.

Federico Barroetaveña (CFO)

Thank you, Margarita, and good morning, everyone. Let me start today's presentation by describing the main highlights of Q3 2024. First of all, we achieved a strong level of EBITDA, 13% up sequentially and even higher, 47% up interannually, despite the recent demand contraction and the extreme weather conditions in Patagonia during July that affected our conventional production. This positive result reflects the company's dedicated efforts since December and along this year to fully converge local fuel prices to international parity, in parallel with our focus on production efficiencies in our core asset, Vaca Muerta, where we can now share improved process and efficiency metrics across all the businesses. As a result of this, we produced 36% more shale oil than Q3 last year, now representing almost half of our total production.

Very important and in line with this interannual expansion, we became the largest oil exporter in the country, exporting roughly 40,000 barrels per day. We also made progress in the development of the key infrastructure project, Vaca Muerta Oil Sur Pipeline, also known as VMOS, that YPF is leading as a producers' consortium export initiative. Also, we advanced further with the Andes Project, and Max will share further details later. Now, let's move on to the quarter's result. Revenues reached $5.3 billion, 7% up sequentially, mainly driven by higher seasonal sales of gas, as well as growing oil exports to Chile and better fuel prices, which was boosted by higher gasoline demand. These effects were partially offset by contraction in diesel demand and oil prices, in addition to lower conventional production due to our Patagonia's operations affected by the extreme climate until early August.

Interannually, revenues increased by 18%, mostly on the back of a rebound in fuel prices, plus even higher oil exports, partially offset by lower fuel demand, which was exceptionally high last year in view of reduced prices. Adjusted EBITDA totaled almost $1.4 billion, 13% up sequentially, primarily due to the higher seasonal sales of gas, coupled with higher shale hydrocarbon production and better fuel prices, partially offset by higher costs related to Patagonia's weather conditions and cost inflation, besides lower export prices linked to Brent. Interannually, the increase was remarkable, growing the adjusted EBITDA by 47%, mainly boosted by the significant recovery of fuel prices, in addition to 29% expansion in shale hydrocarbon output, combined with lower imports of fuel, partially offset by higher costs and the weather impact mentioned before.

Net result grew significantly, posting roughly $1.5 billion, almost three times the previous quarter, mainly due to a positive income tax on the back of a lower devaluation expected for tax assets, so decreasing future tax payable. Interannually, besides this impact, the increase was even higher since Q3 last year was affected by an impairment charge in natural gas assets. Total hydrocarbon production averaged 559,000 barrels of oil equivalent per day, rising 4% sequentially and 8% interannually, driven by solid performance in our shale operations, which is our core business and focus since last December. This was partially offset by lower conventional output due to the conditions in Patagonia. In terms of investments, we deployed near $1.4 billion, 13% up sequentially, mostly on the back of higher activities in the upstream to ramp up shale oil production. Interannually, CAPEX was 7% down, mainly due to last year's inflationary context.

Notably, 73% of the quarter's investment was concentrated in the upstream, mostly for shale oil operations. On the financial side, we reported a negative free cash flow of $173 million. Although the adjusted EBITDA was similar to the deployment of our CAPEX, Q3 was mainly affected by higher debt service payment, partially offset by growing activity in upstream business, temporarily increasing accounts payable. As a result, we maintained net debt at $7.5 billion, but improved net leverage ratio to 1.5 times, fully aligned with the target of the year. Now, I turn the call to Max to continue with the quarter's operating performance.

Maximiliano Westen (Strategy, New Businesses and Controlling VP)

Thank you, Federico. Before starting with the quarter's performance, let me briefly update on the mature field strategy in order to exit from around 50 conventional blocks. The Andes Project that grouped 30 blocks has been achieving successful results. So far, we have executed nine SPAs for a total of 25 blocks. Also, we obtained the provincial approval for one of the clusters in the province of Chubut. Considering the positive performance, we recently decided to add seven blocks from the province of Tierra del Fuego to the Andes Project, so the total now amounts to 37 blocks. Regarding the blocks not included in the Andes Project, there are continuous ongoing negotiations.

Moving to the quarter's performance, during the third quarter, total hydrocarbon production grew by 4% quarter on quarter and 8% year on year, once again driven by shale contributions, which further continued its upward trend and now accounts for 55% of our total output compared to 46% in the third quarter last year. Net crude oil production recorded a new sequential 3% increase, averaging 256,000 barrels per day, on the back of a solid 11% shale expansion, minimizing the impact on the conventional production decline, which remained constrained in July by the extreme weather in Patagonia. Since the beginning of August, we were able to resume our operations and return to normal activity levels. Despite this contraction, it is worth highlighting that 9% of the conventional output came from tertiary production, increasing by 2% sequentially and minimizing this impact and the mature decline in mature fields.

Beyond crude oil, natural gas production grew 4% on a quarterly basis, mainly driven by the completion of the compressor plants and the GPNK pipeline and the seasonal peak demand, while NGL's production increased 7% due to the increased shale gas production and the productivity achieved after the optimizations implemented in the turbo expander located in the Loma La Lata block. Moving to lifting costs, we recorded $16.1 per barrel of oil equivalent in the third quarter, remaining essentially flat on a sequential basis, mainly due to higher hydrocarbon production, offset by higher pressure on our cost structure from quarterly inflation and lower conventional production mentioned before. In this sense, the lifting cost in our core blocks recorded $4.6 per barrel of oil equivalent on a gross basis, decreasing 2% quarter on quarter on the back of higher oil shale production.

Considering the evolution of inflation, which has been higher than the expectation, as well as the divestment of mature fields expected to be completed in the following months, we expect our target lifting cost for the year to be in the range of $15 per barrel of oil equivalent instead of the original $13. Regarding prices in the upstream segment, crude oil realization prices averaged $68 per barrel in the third quarter, 4% down quarter on quarter. Despite the decline in Brent during the third quarter, the local pricing environment remained steady. On the natural gas side, prices reached $4.5 per million BTU, driven by the seasonal winter price of pipeline gas. Now, walking through our shale activities, we continued focusing on operational efficiencies. The initiatives presented in March this year are showing important results.

In the third quarter, we drilled 50 wells but completed 67 wells and tied in 68 wells at our operated blocks, being all of them oil or horizontal wells. Also, let me highlight, in the first nine months, we tied in 41% more wells and completed 28% more wells compared to last year. These improved KPIs at our core activities are fully in line with the anticipated ramp-up in our shale oil production for the second half of the year. In this sense, in the third quarter, our shale oil production set a new year record, delivering 126,000 barrels per day, increasing by 11% sequentially and 36% interannually. 86% of the total shale oil output came from our core hub oil blocks, Loma Campana, La Amarga Chica, Bandurria Sur, and Aguada del Chañar.

In terms of efficiencies within our unconventional operations, we continued with high levels of drilling and fracking performance, averaging 314 meters per day of drilling and 240 stages per set per month on fracking. Considering all these metrics, we were well on track to meet our target of more than $120,000 per day on average for 2024. Let me highlight that our production in September has already surpassed the 130,000 barrels per day. Moving on to our downstream segment, processing levels averaged 298,000 barrels per day, recording once again refinery utilization rate of above 90%. It was mainly boosted by La Plata Refinery, where, after working on the efficiency initiatives, we obtained the highest quarterly record of processing levels in the last 10 years. On the other hand, last year was affected by programmed shutdowns at Luján de Cuyo and La Plata Refineries.

Fuel sales volumes were similar sequentially, good news since the 5% expansion in gasoline was partially offset by a 3% drop in diesel due to lower seasonal demand from industries. Interannually, fuel sales volumes declined by 9% since last year was affected by an exceptional high level of demand. On a cumulative basis, though, during the first nine months of the year, we managed to maintain local fuel market share at 57%, similar to last year. Regarding fuel imports, during the quarter, we only imported diesel, mainly preparing for the following stoppages, representing 4% of total fuel sales volumes compared to 7% in the third quarter last year. In terms of prices, during the third quarter, we continued mitigating the impact of the devaluation and fuel tax increases, as well as converging to international parities.

As a result, average fuel prices measured in dollars increased by 1% sequentially and 23% interannually, while the spread versus import parity became positive to 1% in the third quarter compared to negative 5% during the second quarter and 28% in the third quarter last year. As mentioned before, these are remarkable results we achieved after a continuous conviction to follow international parities. Lastly, efficiency-wise, we continued moving forward with our plan to improve our downstream margins. In that sense, we have identified and implemented a series of initiatives based on the optimization and maintenance stoppages processes and power and consumption in our industrial complexes, as well as improvements in products storage and contracts and logistic rearrangements, among others. I will now turn back to Federico to go through the quarter financial results.

Federico Barroetaveña (CFO)

Thank you, Max. Switching to the financial front, let's start with cash flow evolution.

Although our Adjusted EBITDA was similar to the deployment of our CAPEX, higher debt service and purchases of crude oil to third parties due to lower conventional production affected cash flows, but partially offset by the temporarily increased accounts payable in the upstream shale activities. As a result, Free Cash Flow came at a negative $173 million. In terms of financing, in Q3, we successfully issued a seven-year unsecured international bond for $540 million at a yield of 8.75%, and proceeded with the repayment of $334 million for the 2025 notes and $166 million for the 2027 notes, in addition to a $40 million exchange to the 2025 notes. With this new issue, we continue reducing refinancing needs and costs for 2025 and, at the same time, consolidating the overall spread curve of YPF.

In the local capital market, we issued a two-year dollar-linked bond for $185 million at a 0% yield, as well as promissory notes issued for $100 million, also at 0% yield, with maturities of up to 18 months. During this quarter, we also reopened the local syndicated market with a $300 million syndicated loan with three local relationship banks. After Q3, we issued two new dollar-denominated bonds, $125 million in dollar MEP at a yield of 6.5% and $25 million in dollar CCL at a yield of 7%, both with a tenor of four years. On the liquidity front, by the end of Q3, our cash and short-term investment decreased 14% sequentially to $1.2 billion, a lower level of cash aligned with our short-term needs and improved confidence in refinancing our schedule of debts.

Our net debt remained similar at $7.5 billion, and with better EBITDA quarter on quarter, we improved the net leverage ratio from 1.7 to 1.5. Regarding our maturity profile, as of the end of September, the company faces debt maturities in the next 12 months for $1.7 billion, mostly international bonds for $1 billion and short-term trade finance for almost $400 million, both with local and international banks. The remaining portion includes local bonds for $150 million and bank loans and other facilities for another $140 million. Now, let me comment on the progress achieved in the oil midstream expansions to unlock the evacuation capacity in the Neuquina Basin. Continuing our focus on growing oil exports, during Q3, we increased our sales to Chile, delivering 39,000 barrels per day through the Transandino pipeline, reaching net export revenues of over $200 million.

This volume is 37% more than Q2 and represents more than 15% of our total oil production. Regarding the evacuation to the Atlantic, the construction of the first tranche of VMOS connecting Vaca Muerta Formation to Allen achieved a 50% construction progress. Total CAPEX for this first tranche amounts around $200 million. We expect the first tranche starting capacity of more than 350,000 per day by Q1 2025 at Allen to be initially utilized by Oldelval's system, which connects to the province of Buenos Aires. In line with Oldelval's pipeline, where YPF share stake is 25%, it continues with expansion, expected to gradually add around 30,000 per day by year-end and roughly 215,000 per day by Q1 next year.

The VMOS first tranche shall be expanded to over 450,000 barrels per day by 3Q26 at Allen once the second tranche starts its operation, connecting also to the oil export dedicated port of Punta Colorada in the province of Río Negro. The plan of the second and most important tranche of VMOS is designed to reach commissioning capacity of 180,000 barrels per day by Q3/2026 and increasing capacity up to 400,000 to 500,000 barrels per day by 2027. This new pipeline will also be able to reach more than 700,000 barrels per day of design capacity if the basin requires it. Total CAPEX amounts to roughly $2.5 billion and includes the 440 km oil export dedicated pipeline, storage, and control room facilities, as well as monobuoys to operate VLCCs, the 2 million barrel mega vessels that will allow Argentina producers to have access to the Asian markets.

In terms of progress to date, we have signed term sheets with different producers for around 370,000 barrels per day. We also created the SPV that will develop the producers' consortium export pipeline, and we are preparing this SPV to apply for the RIGI as soon as possible. Also, before month-end, we expect to announce the initial shippers, where YPF expects to have around 30% to 40% of shipping and equity interest. The plan is for the SPV to award the EPC contracts for the pipes and the EPCM contracts for the export terminal to start construction between December and January. Regarding the project finance, we are developing the consortium agreements with the target to structure 70% debt and 30% equity. So far, we have received banks' LOIs in line with this purpose and indicating a strong international financial backing for the project.

So, with this, we conclude our presentation and open the floor for questions.

Operator (participant)

And just as a reminder, if you would like to ask a question, simply press star followed by the number one. Our first question comes from the line of Vicente Falanga from Bradesco. Please go ahead.

Vicente Falanga (Analyst)

Hi. Hello, Horacio, Federico, all YPF team. Thank you for taking my questions. I basically have two questions here. First of all, Horacio, if you can mention and share with us how was your roadshow to sell Argentina's LNG and Asia and Europe? How was the receptivity of potential buyers? And how was the process to potentially get equity investors to the LNG plant? That's my first question. And then my second question is on lifting cost, which right now is at $16 a barrel. I know the company has a target to get to $8 a barrel at some point next year. Seems a little bit far away. If you could provide a roadmap of how to get there? And then also, during the call, I think you mentioned something about $13 a barrel of lifting cost, but I missed the message there. If you could repeat it?

Thank you very much.

Horacio Marín (CEO)

Hello, Vicente. Thank you very much for ... Do you hear me? Because I have problems hearing you, okay?

Vicente Falanga (Analyst)

Yes, I can hear you well. Yes.

Horacio Marín (CEO)

This is Horacio Marín. I am in Austin because this evening I will receive a distinguished Alumni Award in the University of Texas from my Master of Petroleum Engineering. We have a little problem with the communication, but if you hear me from the telephone, it's okay. I didn't hear at the beginning. Could you repeat? Because I have a problem.

Vicente Falanga (Analyst)

Yes. No, the first question was if you could share how was your roadshow to sell Argentina's LNG in Asia and Europe, and how is the process to get an equity investor, possible equity investor to the LNG plant, and then my second is how to get the lifting cost from $16 today.

Horacio Marín (CEO)

Okay. Okay. To the LNG, I think I have to clarify a little bit. For investor on equity, maybe what you are more interested in is a little different than the off-takers. Investor, there are the companies of Argentina that they have the reserves, the gas reserve, plus Petronas is one that they have to decide at the end of December if it continues or not, but because our job is to maximize the shareholder value, we are continuing to discuss with super major to enter as an equity, and I cannot tell the name of the companies because it's confidential at that moment, and we are going to declare that when we have the final documents signed, okay? In what is about the off-takers, we went to India, as you know, and we went also to Europe.

And really, I'm very, very positive because we have a lot of NDAs signed. I think it's in the order of 14 so far, and MOUs with different companies and also countries. Like India, we are in the process of signing one of these MOUs for the big number of selling. And in all the travel to the different countries that we know that we were to Hungary, we have also in Italy, in Germany, sorry. And also we went to London. There are several companies. And in all the meetings, it was positive. That doesn't mean that we signed contracts. That means that we passed to the next phase, which is to sign NDAs, MOU, and start the negotiation as soon as it's possible. So for the LNG, I'm very positive.

The second question was about the lifting cost that you say how you can go to 18 to. I don't remember if I say you say 15, no?

Vicente Falanga (Analyst)

16, yeah.

Horacio Marín (CEO)

It doesn't matter. Yeah. It doesn't matter the number, which is okay. Yeah.

The answer is the reimbursement. We are going to be almost a non-conventional company from the next year and so on. That's why we can get down because the difference in the lifting cost from one to the other is huge. And that's why in the 4x4, YPF 4x4, what is first pillar and the second pillar, first pillar is concentrate our investment in the more profitable business, which is Vaca Muerta oil. Second, that is to work for a new ecosystem for very small companies, what we call mature fields. We are now in the process. That was a highlight trademark in Argentina that was two weeks or three weeks ago that they come to the fourth area.

So we are all in the process that the provinces, because it's a new process in Argentina, beginning from the new constitution in 1984, and the province has to sign from constitutional law to sign the approval. And that we are in that process that is new for everybody in the massive way that we are doing. So we are still, we have a very cronograma, very tight one. We still want to be out of the process in the beginning of next year for the 25 areas. And we are still in negotiation in one of the provinces, which is Santa Cruz. And also we make the number, the second and the two, that is for Tierra del Fuego permits. I think it's okay for you or you need more details?

Vicente Falanga (Analyst)

That is great. Thank you very much. And good luck on your master's. Thank you.

Horacio Marín (CEO)

Okay. Thank you very much.

Operator (participant)

Our next question comes from the line of Bruno Montanari from Morgan Stanley. Please go ahead.

Bruno Montanari (Executive Director)

Good morning, everyone. Thanks for taking my question. I have only one question. I wanted to explore a little bit how you were envisioning your free cash flow trends into 2025. So when could we start to see perhaps the free cash flow turn positive into next year or if that only happens in 2026? And if you could give us a hint of what your CAPEX plan looks like for next year, excluding the conventional assets, that would be very helpful. Thank you very much.

Horacio Marín (CEO)

Okay. Our idea is the same that it was, I think, with the first call, that this year the cash flow is neutral from an operational point of view because we have the mature field. Next year, with the majority of mature field out, we continue still thinking that we are going to have a neutral cash flow for all the companies, including the financing. We are working now in the budget 2025. Remember that YPF has plenty of assets, and we have partners, and we have 100%. And so after we have received the approval of the partner, I can be more in detail that I think it will be in the next call in April, but that is the way that we are thinking on that.

For next year, to be clear, we think we still continue thinking that we are going to be neutral, including all the company financing operational way. From the 26th going on, it will be positive cash flow. And the CapEx. Okay, sorry, the CapEx. We are going to maximize the CapEx in the non-conventional. We think that we are going to be in the order of the CapEx that we have this year, but it will be more in Vaca Muerta than in the other part. For sure, we are going to maximize the shareholders, and we see that there is a bottleneck. We are going to reduce the CapEx if necessary. Our work here is to be very efficient. So reducing the CapEx as much as possible because we have 14 rigs, but we are working in that issue a lot.

If you see that the tax increases, for sure, what we have to do is to reduce the CapEx if that happens, okay?

Bruno Montanari (Executive Director)

Perfect. Thank you very much.

Horacio Marín (CEO)

Thank you.

Operator (participant)

Our next question comes from the line of Daniel Guardiola from BTG. Please go ahead.

Daniel Guardiola (Executive Director)

Hi, good morning, Horacio, Federico, Maximiliano, Margarita. I have a couple of questions. The first one will be on infrastructure, and more specifically on midstream infrastructure. So in the case of the Duplicar expansion project, I would like to know if you can share with us what share of the additional capacity have you secured going forward? How do you see the progress of the construction of this pipeline, and when do you expect the pipeline to come online? And I would like to know also how ready you are to fulfill this capacity at this pipeline once it is ready, and if you're foreseeing a spare capacity in the pipeline in 2025 and perhaps in 2026. So that's regarding all the above Duplicar projects.

And regarding Vaca Muerta South, I would like to know if you can share with us when do you expect to start construction of the second tranche of the project? And also, it would be great if you can share with us if you already have secured all the required environmental permits to develop this pipeline. So those will be my two questions on infrastructure. And just a third one, if I may squeeze. During the last days, we saw YPF grabbing the headlines because of the legal dispute with Burford, and I would like to know if you can share with us an update on this legal dispute. Thank you.

Horacio Marín (CEO)

Okay. I will start from the end to the fourth, I think. Burford, if you remember that in Burford, we are out of the trials from the first circuit. And they will be next year in the second circuit. So I cannot answer for the Republic. That is confidential, and you have to ask the Republic. I have the same information that you have from the newspaper and because of the document that the United States government put in the public record, okay, in New York. That's for Burford. The other you say about the VMOS. In VMOS, we have all the permits, all the permits, environment, social, everything is done. We are going to pass in our board of directors of November the 14th, the internal approval of the board for that investment for the part of YPF.

We are a little delayed, I would say, two weeks because our first purpose, as you see in the media, was to sign everything for November the 14th, but because we have several companies working, a lot of lawyers, a lot of financing guys, and a lot of operational guys, I think we need a couple of weeks more, three weeks more, that it will be done. We have all the bidding process done. We have the tubulars, and we have also the bidding process for the civil work, and they will be given to the company as soon as we have the sign, but we will decide with all the partners next week who will be the winner of that process.

We don't see a delay of a couple of weeks only, I think, or three weeks, but we have in communication that we need to have the first delivery for the third quarter, I say, the beginning of third quarter of 2026. The other question that you asked me is about the other value. The other value, I don't know if you asked me, the other value, the one will be in December or January. The first part, I think, is 50,000 value for all the companies, and at the end of May, it will be done all the parts. We always follow in our processes to follow the capacity of the oil pipes. We try to fill up everything that. Remember that when you are an operational company, if you lose the capacity, you lose a lot of money.

If you have a little capacity, spare capacity, it's like it works as a secure, okay? But we are following that. We are following our production. We always try to follow the production with incremental capacity because they are in spikes. Every company will have a different situation. I don't know if you answered all the questions. I don't know if.

Daniel Guardiola (Executive Director)

Yeah, thank you, Horacio. Just a clarification. Can you share with us what percentage of the additional capacity do you have in Vaca Muerta? And just to confirm with you, how many barrels are you trucking right now just to make sure that once the pipeline comes online, you're able to fill your capacity as soon as possible?

Horacio Marín (CEO)

Yes. The daily production today, yesterday, the day before yesterday, now we are 50-50%, even though we have all the conventionals, okay? We are in 135,000 barrels a day. And for the end of the year, we think we are going to improve by a lot, I would say, in one month, okay? Because we will have new tight wells in, I think it's the order of 16, if I don't remember. But it will be more than 140,000 barrels a day at the end of the year. That is our purpose, okay? I don't remember the capacity of Oldelval. I don't know if you remember exactly the number. I don't remember. Sorry? Our capacity.

Federico Barroetaveña (CFO)

Yeah, it's about 25%, Horacio, and regarding trucking, it's marginal. It's about 10,000 barrels per day, so it's quite marginal.

Horacio Marín (CEO)

Okay. No, the 35, I remember, the 10,000 is not a lot. Okay. It's okay, Daniel, or you need more?

Operator (participant)

All right. Our next question comes from Andrés Cardona from Citigroup. Please go ahead.

Andrés Cardona (Director of Equity Research)

Thank you. Good morning, Horacio Marín, YPF team. I want to follow on one of the answers that you just gave to Daniel. You said that your exit production for this year will be 140,000 barrels a day. And it's quite a strong growth. But my question is about 2025. Don't you think the 160,000 average production for the next year could be a conservative assumption? And if you can provide some color about how relevant this upside could be?

Horacio Marín (CEO)

Okay. Remember that when you make forecast production, all with this uncertainty, and it depends on the different areas that you are going to invest, and it depends on the approval of the different partners that we have, but for everybody, you have to expect for next year that we will increase the unconventional production in the order of 30% to 40%. In that range, it will be the incremental production. That's why we can achieve our average of 160 that we talked to you in the first quarter, I think. It could be conservative, really. I don't know. I hope so. I hope so because we are going to make more money for you. But it's the number that we have today, okay?

Andrés Cardona (Director of Equity Research)

Okay, Horacio. And the second question that I have is, you have been talking about the potential, the residual Metrogas. You wanted to understand how this process should go, maybe also with the falling rates in Argentina and the maturity that you have in third quarter 2025, if there is not a window to perhaps prepay this debt issuing a new one. Is something that you are considering at this point?

Horacio Marín (CEO)

Okay. I will answer about Metrogas. From the beginning, I think when I started alone in my house to say what we have to do in YPF, we said that the affiliates have to be focused where we make value. And also, Metrogas is a distribution gas company that is not the core for YPF. From the beginning, I always said that we are going to sell Metrogas, and it's something that is logical from the law of Argentina. And it's totally logical that YPF must do that. In the last nine months I spoke, I don't know how many, maybe 100 times about that. That is a big number, but a lot of time talking for what is YPF 4x4 project or program. Always, as I said, Metrogas is in our range.

And to maximize, we need the moment that we can maximize the value for YPF. Because of the big, big, big improvement that we have in Argentina, and so the people think that that will be the moment, and it could be the moment. And that's why I was in the media when I was talking, I don't know, two weeks ago in a big meeting with people from the economical, the economy, private economy. So if now we have companies that put a good value that we think that is good for the shareholder, we have something in our mind, all the team of YPF, for sure, we are going to sell. But it's not that we start the process. We continue to talk about that. And it could be we have to decide when is the proper time to do that.

But again, I'm saying, if somebody has a good number and gives us an unsolicited offer, or we have offers that match our number, we must do a transparent bidding process for selling Metrogas to maximize shareholder value. From the maturity of the bond, I pass to Federico.

Federico Barroetaveña (CFO)

Hi, Andrés. Thank you, Horacio. Well, Andrés, we have just reduced our 2025 bond coming due in July by around 40% with the issue we did in September. So let's say it's not dependent on Metrogas. I think that the market is quite open now. Let's say we see several options to, let's say, cancel these maturities. We are just having 750 coming due in July. So we are much more confident now in having different alternatives to refinance this next year. Let's say we have international bond markets. We have also the possibility of doing prepayments of product, also local market, let's say. And that all depends on how Argentina is going to evolve. But in essence, let's say we are not linking in any way Metrogas to the bond maturities in next year.

Andrés Cardona (Director of Equity Research)

Thank you, Horacio. Federico.

Operator (participant)

Our next question comes from the line of Marina Mertens from Latin Securities. Please go ahead.

Marina Mertens (Head of Corporate Debt Research)

Hi, good morning. Thanks for taking my questions. My first question is on the downstream segment. How does the decision-making process to adjust prices at the pump work? Do you plan to maintain this parity to import parity? And then on the downturn in demand, do you think this has more to do with reduced economic activity or to factors such as the narrowing of the gap between prices in Argentina and in neighboring countries? And then I have another question. Do you plan at some point to show an Adjusted EBITDA, including the contributions from companies such as Profertil, Mega, YPF Luz? And if so, can you give us an idea of how much these companies could add to YPF's EBITDA? Thank you.

Horacio Marín (CEO)

Okay. Thank you for the question, Marina. As I said, we have a fair. Well, I cannot tell you the process because it's not the competition, how we are working. We have a fair process of pricing with the consumers. And so if the price goes up, we have to go up. If the price goes down, we have to go down. We have to work in a normal. We have to think that Argentina is today a normal country. And we have a way of maintaining the price as import parity prices as a normal one. So if the price goes up, it will be down. So regarding, I don't know, downturn in demand, okay, it depends. Now we are seeing it different. We are seeing that we are increasing in the last. Where we should lie, I'm talking about YPF. We are increasing. The demand is increasing, not decreasing the demand.

So we have to have a fair value price. And that is what we are doing, is to do that. And that's why I think it's one of, there are several reasons why we are successful in YPF. That is the prices, that is the good financing program, capital allocation, and efficiency. And that is our job. So we are very happy how we are working on that. As just EBITDA, including contribution for associated companies, is the second one. We have in our EBITDA approximately 300 from participations. And we are looking how to improve our EBITDA in the different companies, okay? YPF Luz is an excellent company, as the same as Profertil. And I don't know what is your purpose of the question, or maybe I didn't understand very well what you want from us or from me to answer. If you can clarify that.

Federico Barroetaveña (CFO)

Yeah. I think that the question is on consolidating the EBITDA. And the answer is, Marina, that we co-control these companies. So we cannot and we do not consolidate those on our financial statements. But let's say just to give you a sense of the EBITDA of YPF Luz for this last nine months, the EBITDA was 262, and Profertil was something in the range of 200 also year to date.

Marina Mertens (Head of Corporate Debt Research)

Okay. Thank you. Thank you very much.

Operator (participant)

Our next question comes from the line of Tasso Vasconcellos from UBS. Please go ahead.

Tasso Vasconcellos (Analyst for Equity Research)

Hi. Thanks for taking my question. Horacio, I think taking advantage here of this nearly one year in the position as CEO of YPF, could you share with us the main challenge faced so far and how different has been leading YPF as a state-owned company compared to leading a private company? And in this context, how have the interactions with the government related either to the investments, the assets on the investments, adjusting fuel prices, and so on? That's my question. Thank you.

Horacio Marín (CEO)

Okay. We are working, you know that I am a 61-year-old guy. I was working 35 years in a private company. We are working here as a private company. What we are doing is, I would say, a big change in management, management control, capital allocation, and investing in portfolio analysis, what is more efficient and more profitable for shareholders. And that is as simple as that, how we are working. And it's a big challenge. It's a big change. Yes, it's a big change. But you see the results. YPF is unbeatable. If you work as we are working, all the employees how we are working today. And really, I would like to say thank you for all of them for the effort that we are doing, everybody's doing, not only us, but all the employees. And so we see a big change in everything.

And the efficiency is the key for us. The productivity is the key for us. Profitability is the goal. The other is a medium to achieve the profitability. Big changes that we are doing. December 13, we are going to open a real-time intelligence center in YPF in Buenos Aires, where we have all the knowledge, and we are going to work as a major, super major, but in the real-time decision-making for all the drilling and completion. We don't need to go any more to the wells because we have the real-time everything, artificial intelligence inside. We have everything on that. This is a big change. The other that is more disruptive. I think that we are going to be. I think, and I can say because I was working on that, and I couldn't do that, but I say always in YPF, it must be done.

What is the Toyota [Well]? Toyota [Well] means we are working with Toyota, and we are making all the efficiency of Toyota has in the car industry, in the construction of the [well]. That will be very disruptive, I think, and we are seeing why we are doing that, because we have to reduce the whole cycle. We have to reduce the working capital of the company a lot. We are seeing major difference now, and we are going to have strategic partners, as Toyota do when they make the Hilux in Argentina or in all the world. That is the way that we are working today. As an industrial part, we are working for the efficiency in all the refineries, but La Plata, which is the biggest one.

I am from the La Plata City, and we have to have the best refinery in the operational margin point of view, and we have hundreds of initiatives, and we're on time and responsible to improve our margin, and that is the way that we have to do. We came to YPF to do something very, very extraordinary for the company, for the shareholders, and that is why we are working and what we are focused, okay? I don't know if I answered or I talked more than you wanted or less. I don't know.

Tasso Vasconcellos (Analyst for Equity Research)

No, that's clear. Thank you, Horacio.

Operator (participant)

Our next question comes from the line of Bruno Amorim from Goldman Sachs. Please go ahead.

Bruno Amorim (VP of Equity Research)

Hi, good morning. Thanks for taking my question. I have a follow-up on the outlook for production growth going forward. On the shale side, it's very clear. What's your view for 2025? You also have a guidance, you correct me if I'm wrong, but you have a guidance for 250,000 barrels per day shale oil production by 2027. So the question is, is this still a valid guidance, and what are kind of the upside risks here, and what are the challenges as well? To what extent does it depend on further improvements in midstream or not? So that would be my main question. And then just a quick follow-up on the conventional side of the production. I understand that's not your focus, but just so we have an idea, what's the expected decline rate going forward?

Is the 10% year-on-year decline that we saw in third quarter a good reference for the next few years or not? Of course, considering on a like-for-like basis without considering the divestitures. Okay. Thank you so much.

Horacio Marín (CEO)

Okay. Hi. From the guidance of the oil for our guidance for 2027, maintain value today. We are working to tie up all the company. It will be what we call the full development, and it's an iterative process. It's not as easy as if you make cash flow easy in Excel in five minutes. Because that means that you have to do in the proper way, taking out all the capital, and we are working. So maintain that guidance, but I try. I would like for April to—that I think is a more timely presentation that we can update it. And I promise that for that moment, I will update for everybody that guidance, okay?

For the part of the conventional, remember we'll have in the south. It will be managed by what is the biggest one that is producing on the order of 25,000 barrels a day. And now we have tertiary, secondary, primary, and it's an excellent part. And that you cannot expect that it's declining because we have more projects of tertiary to do. And it's working very well, the tertiary polymers in that area. We have in southern Mendoza some areas that we are not the operator, that also they have potential on that. And so it's not that you have to expect that it's going to really 10% per year independent of that investment. But I would say that that will be the two only that it will be the biggest one.

The other, I think, for YPF, for the industry and for the country, is better that they have small companies working. Remember that I started working in my career in major fields, and I know how to work in major fields and also in the biggest field. And you have to know when you have to go out, and the others can make more value, okay? And so don't expect that it will be the reaction as the others because remember that today we are 50 on 50. When we have only 50, it will be like almost we are going to be almost unconventional ones, and it's not the important. That production, it will be not as important as it was before the conventional for YPF. I don't know. The challenge is, I don't know which challenge you are talking about. The midstream, you say?

The midstream, I think we are in, as I explained, in a good shape to make the VMOS. When we have the VMOS, I think the VMOS, the Vaca Muerta South oil pipe, it will be a change for the country, not only for YPF. All the companies that they have assets in Vaca Muerta, they will improve the production. If you adapt the capacity that they will have VMOS, remember that for incremental capacity, they are only pumping units, and so the investment is not low. As I think we were not as emphasizing in the call at the beginning, but we say 360,000 barrels, but you have to adapt the winner of Exxon assets.

And so, the total production for the first phase will be much more than we expected at the beginning, at least when we started working in this project that we continue working in this project in YPF. We expect that the fourth phase to be lower appetite of the companies, but it seems that there will be a big increment. I don't know. Dependence on midstream, for sure. As every company, we are dependent on the Vaca Muerta South oil pipe. That's why we put so much emphasis during this year. And we are going to present the RIGI for, I think, in very, very short time. We have the company that we made for the RIGI, and we will present that. And as soon as all the documents are signed, it will be done, all the process to start that one.

We think that we are going to maintain that for the third quarter of 2026. After that, the dependency will be on capital, I think, prices of oil, as you were, and result of what's good. That is the thing that everybody wants, and it's our job. I think we are going to increase a lot of the production and be sure that we will work as much as we can to improve the production as much as you can in the lower time.

Bruno Amorim (VP of Equity Research)

Very helpful. Thank you so much.

Operator (participant)

Our next question comes from Leonardo Marcondes from Bank of America. Please go ahead.

Leonardo Marcondes (VP of Equity Research)

Hi, everyone. Thank you for picking my questions here. Most of them have already been answered, but I have a few here from my side. First one is on the newest well that you guys drilled. We saw the news that you guys have drilled the longest horizontal well in Vaca Muerta recently. So I was wondering if you guys could provide some color on what are the expectations for this well and if we should see wells like this one being the standard going forward. My second question is regarding the Exxon assets. We saw some news that Pluspetrol was the winner for these assets and that Exxon has already communicated the other participants about the results. So my question is, can you confirm that, or is the process still ongoing? Thank you.

Horacio Marín (CEO)

Okay. Yes. We drilled the longest well in Loma Campana Block. I think it was [LL1183], if I don't remember badly the name of the well. Okay. This is a trademark, but I'll tell you one thing for you that is, from the reservoir point of view, the longest well, the best from the profitability. But the question is sometimes it's a question of the cost. You have to see the cost, and you have to be more than the cost is the mechanical issue that you have. Because if you have the capacity of all the mechanical. So we always see also in United States, and we have in the order of 3,000 meters is the average that we have.

Why sometimes we drill so high those wells is to make we make there when you have the well increase a lot the investment, but when you have to make two wells that is one 3,000 and the other 1,000 or 1,500, we try to be a longest one, okay? But in general, our goal is 3,000 because we have optimized all the cost. We always try to go farther, okay? The farther you go, as an average, the better in general, the better if you have more profit, okay? That is in the first part. The second part of the question was disposal, what do you say? Disposal of disposal assets. What do you mean with disposal assets? Hello?

Margarita Chun (Investor Relations Manager)

Leo, can you repeat the second question, please?

Leonardo Marcondes (VP of Equity Research)

Sure. Sorry, apologies. I was on mute here. The second question is regarding Exxon assets, right? Exxon is selling their assets in Vaca Muerta, and we saw some news that Pluspetrol was the winner for these assets and that Exxon has already communicated to other participants in the process about the results, so my question is, if you guys can confirm that to us, or is the process still ongoing? Thank you.

Horacio Marín (CEO)

Okay. Remember that I have this information. ExxonMobil is confidential, and it's ExxonMobil that said what is the communicated to Pluspetrol. So Pluspetrol was the winner of the bidding process as they say, ExxonMobil. So that is confidential. It's not that I will not answer, but I have to ask to ExxonMobil what is the owner of the asset and is the only decision-making company for that, okay?

Leonardo Marcondes (VP of Equity Research)

That's very clear. Thank you.

Horacio Marín (CEO)

No, thank you.

Operator (participant)

Our final question comes from the line of Ezequiel Fernández from Balanz. Please go ahead.

Ezequiel Fernández (Equity and Credit Research Director)

Buen día, a todos. Ezequiel Fernández de Balanz. Can you hear me all right?

Horacio Marín (CEO)

Yes.

Margarita Chun (Investor Relations Manager)

Yes, we can.

Ezequiel Fernández (Equity and Credit Research Director)

Okay. Okay, great. So good morning, gentlemen, Margarita and Valentina too. Congratulations on all the operational upgrades, acceleration of shale completion, the higher utilization of refineries. It was great to see all that. I have four questions. I apologize for that, but I promise they will be quick, and maybe we can take them one by one. My first one is, what is your expectation for nationwide crude production in Argentina, which is now about 700,000 barrels per day for the end of 2025 and 2026? If you could share that, of course.

Horacio Marín (CEO)

In general, we are not doing well, we have, but we are not doing a forecast production official for that. The only thing that I can tell you is that the chamber, the oil and gas chamber of Argentina make it work, I think it was a year before, last year. And all the companies will pass our internal forecast, and that is one of my general presentations that they said that they can reach between 1.2 to 1.4 million barrels a day in 2025, sorry. That is what is in general. All the industry is the last official document. It was prepared by the oil and gas chamber what we call [inaudible] in Argentina.

Ezequiel Fernández (Equity and Credit Research Director)

Okay, sorry. That was 1.2, 1.4 for which year?

Horacio Marín (CEO)

Yes. Per day. 1 million barrels per day for all of Argentina. With the capacity of VMOS and Oldelval, you can reach from Neuquén plus, and remember that in Neuquén, you have OTASA that goes to Chile, Oldelval that goes to Bahía Blanca, and you have the VMOS that is going to Río Negro, and plus our oil pipes that go to our refinery, to the refinery in Luján de Cuyo. That is all the evacuation for Vaca Muerta. If you add up all of that, they give you in the order of 1.5 million barrels a day, or it will have all the capacity, the evacuation capacity of oil for Vaca Muerta and conventional fields of Neuquén.

Ezequiel Fernández (Equity and Credit Research Director)

Okay, but the CapEx forecast of 1.2, 1.4 for which year is it? 2026, 2027, 2028, 2030?

Horacio Marín (CEO)

Let me.

Ezequiel Fernández (Equity and Credit Research Director)

No, it's okay. Don't worry. I can take it with the IR team. No, I don't want to bother you.

Horacio Marín (CEO)

No, no, no. It's in 200. No, it's in 240. It's between [239], [240]. I know there is a bet the other day they were. I didn't mention that, but several were talking about that, and it's in that order for 240. And that it could be because of VMOS, okay? Because VMOS can be up to 2027, you can go up with the pumpings. So in general, people talking here for Argentina that they can reach the peak, even it could be big as the peak or that for 230. And that will say for 1. I think it's 1.2, 1.4. I don't remember. I think 1.2 is almost doubling the production.

In general, when you see 240 and you put in the oil and gas taking into account the LNG that is all doing by the company in equivalent barrels of oil per day is 2.2 times the actual production of Argentina or the real production of Argentina or the last one. That is the second.

Ezequiel Fernández (Equity and Credit Research Director)

Okay, perfect. Thank you. Yes. The second one is related to gasoline and diesel sales. We have been seeing them contracting all year long, of course, due to the economic activity and the new pricing levels. I was wondering, what have you seen in terms of your market share, and when would you expect for gasoline and diesel demand to start growing again?

Horacio Marín (CEO)

As I tell you, we are seeing. I compare with June. I don't like to compare with previous year because previous year was another country, another country, other prices, everything another. So I'm not comparing that because I think you mix up the numbers. But I compare what happened this year. And July, you can take out because it's like a driving season in Argentina because there is like a holidays, and people use a lot of cars, so you cannot look and compare that. But I compare with June, and I see that it's increasing the oil cost. And we are also increasing a little bit our market share. And there is in gas, in diesel, there is from YPF numbers, we see a lot of improvement in transportation.

And also, you are seeing that they are. I'm not the economic guy, but you see that everybody is saying and the numbers saying that Argentina is increasing now from out of the recession. That will be good news for the country and for us because we are going to have more selling or even that we are in. It's a mix-up because we look at our refinery percentage that we are in a very good shape, okay? We think that it will be sustainable. We see change. We see change when we are improving our sales, okay? The diesel, what is difficult for you, I tell you, what is difficult is because the farm is seasonal, and now it's not consuming a lot.

So when you see, you see flat, but you have to open the different markets for this B2B, B2C, the different one, transportation, also industry, and also the industry including flights, and you see that difference, okay?

Ezequiel Fernández (Equity and Credit Research Director)

Okay, perfect. Thank you. My third question is related to the cash flow statement. There is a $205 million inflow in the first nine months of 2024 related to asset sales. I wanted to maybe ask you if you can tell us if this is entirely related to the Andes Project and if it's only partial and you expect more proceeds to come in the final quarter of the year or the beginning of 2025.

Federico Barroetaveña (CFO)

I can take this as selling if you want. I think, Ezequiel, that what you are seeing are the sale of financial assets. So that's what you see in the statement of cash flows. These are financial instruments.

Ezequiel Fernández (Equity and Credit Research Director)

You're absolutely correct. I apologize for that. So I will move on to my fourth question then.

Horacio Marín (CEO)

For the major fields, it was not. We have a transparent process. We hire a company from the United States that makes auditing, and we have that number, and we compare with that number, and we will finish. We are going to open the total number.

Federico Barroetaveña (CFO)

But we are really in the expectations, okay? We are real. Maybe it depends on the end what we say and what is the last two promises. But we think that altogether it will be in the expectation because it's okay the number that we receive, okay? In some, we are much.

Ezequiel Fernández (Equity and Credit Research Director)

Perfect.

Federico Barroetaveña (CFO)

More. In some, we are less. It's usual because it's a lot of assets, okay?

Ezequiel Fernández (Equity and Credit Research Director)

Great. Thank you. My final one is related. Have you considered floating international bonds at the Oldelval and Vaca Muerta level? It might help you with getting some extra cash flows for the YPF holding and for CapEx.

Federico Barroetaveña (CFO)

If you want, I can take this one.

Horacio Marín (CEO)

Sorry?

If you want, I can take this one. Well, Ezequiel, we are working on the financing plan for Vaca Muerta Sur. It's going to be arranged on a project finance basis. So we are looking at different potential lenders from the international bank market. Principally, we have received LOIs for around $1.5 billion. So we believe that we have, let's say, good support and strong interest to finance this deal. We are working on the different project documents and arrangements we need to do in order to secure this project finance, but it will be a process that will take, let's say, some time. We are working first on consolidating the consortium with the other shippers.

Ezequiel Fernández (Equity and Credit Research Director)

Okay, got you. That's perfect. That's all from my side. And sorry for taking a little bit of time at the end of the call. Have a great week, guys.

Operator (participant)

Those are all of the questions that are queue.

Those are all the questions that are queue. So I'd like to turn it over to YPF CEO, Horacio, for closing remarks.

Horacio Marín (CEO)

Okay. Thank you very much for all the questions. We are really working hard to obtain those results, and I wish you were, I would say, happy with our show, and so that is my final remark today, and for the next quarter, we are going to present much more numbers and figures, and we will see you next, I think, in April. Thank you very much, everybody, for the questions, the support, because I'm thinking that we have a lot of support from you, and that helps a lot for the improvement of our company and the price of our share, and so we are saying thank you, and for our part, our entire management and employees are working very hard to improve our company and reach our goal of the YPF 4x4. That is our, I would say, path to the next four years, okay?

Operator (participant)

That does conclude today's presentation. Have a pleasant day.