YPF - Earnings Call - Q4 2024

Transcript

Operator (participant)

Good morning and welcome to the YPF fourth quarter and full year 2024 earnings conference call and webcast. All participants are in a listen-only mode. After the speakers are marked, we'll conduct a question-and-answer session. To ask a question, you'll need to press star followed by the number one on your telephone keypad. As a reminder, this conference call is being recorded. I would now like to turn the call over to Margarita Chun, YPF's IR Manager. Please go ahead.

Margarita Chun (IR Manager)

Good morning, ladies and gentlemen. This is Margarita Chun, YPF IR Manager. Thank you for joining to our full year and fourth auarter 2024 earnings all. Before we begin, please consider our cautionary statement on slide two. 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. During the presentation, we will go through the main aspects and events that explain the annual and Q4 results, and then we will open the floor for Q&A session. Today's presentation will be conducted by our Chairman and CEO, Mr. Horacio Marín, our CFO, Mr.

Federico Barroetaveña, and our Strategy, New Businesses, and Controlling Vice President, Mr. Maximiliano Westen. I will now turn the call over to Horacio. Please go ahead.

Horacio Marín (Chairman and CEO)

Thank you, Margarita, and good morning to everyone present on this call. Let me begin by highlighting that 2024 was a transformational year of YPF. We had deployed our 4x4 plan designed to increase the value of the company. In the upstream segment, we are reshaping our oil production matrix, leaving conventional mature field and targeting to increase our shale oil production share from 50% to a minimum of 80%. As of today, we achieved significant progress in the majority of the total of 49 mature blocks. We signed FPAs for 24 blocks, and we are in the final stage of agreement to transfer and/or revert 18 blocks located in the province of Santa Cruz and Tierra del Fuego. On the other hand, we are already the largest shale oil producer of the country, and we continue expanding in the coming years, reallocating and concentrating our investments on Vaca Muerta.

In parallel, we are leading the midstream project development of VMOS, a new oil export dedicated pipeline, engaging and consolidating the effort of all major producers in Argentina to ramp up production to 180,000 barrels per day in the second half of 2026, jumping to more than 500,000 barrels per day by the second half of 2027. The construction has already started, and YPF's initial capacity will be 120,000 barrels per day, accounting for 27% stake and expecting to reach more than $3 billion of additional export by the second half of 2027. In the downstream segment, despite challenging macro contexts, we returned to a 100% free market where we were able to fully normalize local prices of fuels and convert them to international parities. On the other hand, along 2024, we have been implementing multiple operational efficiency measures to enhance productivity across all businesses.

In the upstream segment, our daily and completion speed for a conventional well of 2024 are already near 25 targets, so comfortably exceeding 24 targets. In this sense, last month, we achieved the highest lateral length drilling speed for one shale well in Angostura Sur block, surpassing 1,747 meters in 24 hours. This lateral length is equivalent to 5,731 feet. We believe further improvements will be achieved through our new real-time intelligence center inaugurated last December. This new technology and process optimization plan will allow YPF to continue increasing the day-to-day efficiency by taking real-time data-driven decisions in drilling and oil completion activities in Vaca Muerta with Starlink connectivity. This has been a transformational change in the upstream business of YPF, moving from a monitoring room to a real-time decision-making process center. Thanks to this, we expect to materially improve our oil contraction costs in the near future.

Moreover, we carry out the Toyota Well project based on the efficiency of the car industry to reduce the time of our oil contraction cycle, reducing our working capital and increasing our profitability from the acceleration in production. Our target by 2025 is to decrease by 30% of the oil contraction cycle from 312 days in 2023. As initial stage, we developed two prototype lines to be implemented on a large scale in Vaca Muerta in the near future. The results are promising. We reached an average of 24% reduction at this initial stage.

In the downstream segment, we reached a record high in the processing level of our refineries, exceeding 300,000 barrels per day in 2024 and exceeding the year with 318,000 barrels per day in December, with a refinery utilization of 92%, mainly driven by the revamping of our La Plata refinery, which increased its capacity and improved the quality of the fuel by reducing the sulfur content. In addition, we achieved a record high production level in 2024, 5,605 cubic meters per day of premium diesel and 13,915 cubic meters per day of gasoline. Regarding downstream efficiency, during 2024, we created a specialized industrial team to target and monitor the efficiency and productivity goals by implementing a series of initiatives, such as the optimization of our refinery output, maintenance shutdowns, and power consumption in our industrial complexes, as well as a comprehensive improvement in product storage and logistics contracts.

All in all, we record a total saving of $475 million in 2024. Moreover, we will inaugurate our downstream real-time intelligence center in mid-March, combining artificial intelligence to boost our efficiency metrics. This center will be the first in Argentina. In terms of financing, YPF took the lead in reopening the markets of Argentine corporates. In January 2024, we successfully issued an international bond market of seven-year bond of $800 million. Following this, we executed two additional bond transactions, $540 million in September and $1.1 billion last January. This progressive strategic approach enabled us to effectively lower yields to 8.5% while increasing tenor. Moreover, in the local market, we successfully arranged the first syndicate bank transaction in more than four years, setting another reopening. Argentine corporates. We secured a $400 million term loan structure in two and three-year tranches with participation of 16 financial institutions.

Finally, we changed the authorization matrix of the company, changing internal procedures and increasing the control of process compliance. Moving on to the next slide, let me highlight that through our exit from mature field, we are achieving the transformation of YPF since we managed to reduce losses, allocate capital efficiently, and focus on Vaca Muerta, our most profitable asset. Let me also clarify that this is a new process with no precedent in Argentina since the owner of the resource at the provinces, and the approval requires several provincial authorities to complete each process. Now, let me briefly update on the progress we made so far. In the province of Mendoza, we already completed a transaction of Santangelo cluster. In Mendoza North, after having received all provincial approvals, we are in the final stage, expecting to close it within the next two weeks.

In Mendoza South cluster, we already obtained the assignment approval, and we expect the extension approval of the concession to be done the next week. Immediately after, we will close the transaction with the buyer company. Regarding the province of Río Negro, we completed the transaction for the Estacion Fernández Oro cluster. In Señal Picada Punta Barda cluster, we are in the final stage of negotiation, targeting to execute the SPA during March and while the closing should be no later than April. In the province of Neuquén, we already received all the provincial approvals for Neuquén Norte and South cluster, just waiting for the corresponding decrees. In Puesto Hernández cluster, we have initiated discussions to transfer or revert it back to the province.

Focusing on the province of Chubut, we already completed the transaction for El Trébol Escalante and Campamento Central Cañadón Perdido clusters, while we are very advanced with the process of transferring or reverting Restinga Ali to the province. Regarding the non-operating position in Chubut, we are in ongoing negotiation. Lastly, in the province of Santa Cruz and Tierra del Fuego, we are making progress in negotiation, targeting to transfer or revert the remaining assets back to the provinces. In summary, during these 12 months, we have achieved a material progress with no precedent in YPF and Argentina. This is the most transformational project that YPF needs to eliminate losses and inefficiencies. I continue to be committed to move forward with this project to be finished in the next few months.

Now, to begin with numbers, I'm pleased to share a quick overview of our key accomplishments obtained during this first year. I'm proud to report that YPF has accounted for near one-third of Vaca Muerta shale oil production, achieving an impressive output of 122,000 barrels per day in 2024. This marks a 26% increase compared to 2023, and it's fully in line with the annual target we raised to the markets in March 2024. Moreover, as of today, our net production is above 150,000 barrels per day. Looking ahead, we anticipate sustained growth in 2025, concentrating our efforts on our most profitable asset, shale oil from Vaca Muerta. Also, let me highlight that as operator, YPF produced more than half of Vaca Muerta shale oil production in 2024.

The competitiveness of YPF is now more evident to the market based on the unique shale production scale and synergies that the company now consolidates between upstream and downstream segments. In line with this production ramp-up, we almost tripled our oil export revenues in 2024, achieving near $1 billion and averaging 35,000 barrels per day. In Q4, we jumped to 41,000 barrels per day, representing roughly 20% of the country's oil export and making YPF the largest oil exporter of Argentina in 2024. In the downstream business, during the entire year, the company has been consistently adjusting local fuel prices to be in line with international prices. As a result, we narrowed significantly the gap to import parities, decreasing from 20% in 2023 to just 2% in 2024, despite the significant devaluation that took place in December 2023, while our market share remained strong at 56%.

Also, the recovery in price coupled with the series of efficiency initiatives mentioned before that resulted in a better comprehensive refining and marketing EBITDA margin of $13.7 per barrel, growing 24% compared to 2023. This margin includes refinery, chemical, petrochemical, logistical, and lubricants. In parallel with the increase in exports, we reduced the fuel imports significantly in 2024, mostly due to demand contraction and refinery capacity expansion. It is also worth mentioning that 2023 was affected by extraordinary demand driving by local prices considerably below import parities. During 2024, in line with price recovery, demand declined, particularly in the first half, but gradually improved during the second half, plus the improvement in refinery capacity mentioned before. All these positive outcomes have contributed to a 15% growth in the company's EBITDA in 2024 compared to 2023.

However, let me clarify that 2024 figures could have been higher, but it was negatively impacted by two important factors. Roughly $300 million negative EBITDA from mature fields and around $85 million on low EBITDA from the Patagonia weather impact on conventional production. We are confident that this factor will be almost permanently eliminated once we complete our exit program from mature field during 2025. In terms of investment, we deployed $5 billion in 2024, reducing by 5% compared to 2023 and successfully meeting our target of $5 billion. Despite the total CapEx remaining almost stable, the breakdown changed significantly, lowering conventional activities, particularly in mature fields, and redirecting toward our cold shale operation, facilitating a ramp-up in shale oil production. Therefore, around 64% of the total CapEx of 2024 was allocated in the unconventional assets, reaching an annual growth of 28%.

On the financial side, we reported a negative free cash flow of $760 million in 2024. Our improved EBITDA during this year was driven by the strong performance of our shale oil asset and recovery of refining margins, as well as tighter CapEx compared to the previous year. Nevertheless, 2024 was affected by around $685 million negative impact, which consisted of $433 million from mature field net of proceeds, $166 million of import payment deferred from 2023, and $85 million from Patagonia weather.

Now, I will turn the call to Maxi.

Maximiliano Westen (VP of Strategy, New Businesses, and Controlling)

Thank you, Horacio, and hello to everyone. Turning to our annual and fourth quarter financial results, revenues reached $19.3 billion in 2024, marking an 11% annual increase, mainly driven by the rebounded fuel prices and a rise in oil exports.

These gains were partially offset by a contraction in fuel demand, which was exceptionally high during the second half of 2023 due to reduced fuel prices coupled with more than a 200% gap between the official and the parallel FX rate. Adjusted EBITDA totaled $4.7 billion in 2024, reflecting a 15% annual increase, mainly boosted by higher revenues and hydrocarbon production. However, as mentioned before, 2024 was affected by mature fields and Patagonia weather, while 2023 was impacted by a high level of fuel imports and a wide gap to import parities. Net results improved substantially, posting a gain of $2.4 billion in 2024 compared to a loss of $1.3 billion in the previous year. In 2023, the company recorded a non-cash impairment charge from mature fields, while in 2024, there was a positive income tax accrual driven by lower future tax payables.

Investments and free cash flow were also explained in the previous slide, and as a result, our net debt rose to $7.4 billion, a 9% increase from 2023, but we successfully reduced our net leverage ratio to 1.6 times, fully aligned with the target. Now, let me briefly explain the quarter financial results. Fourth quarter revenues were 10% down sequentially, mostly due to the lower seasonal sales of gas and international reference prices, partially offset by higher demand of fuels. Fourth quarter adjusted EBITDA was 39% down sequentially, primarily explained by lower revenues said before, reduced value of inventories of fuel and oil in line with price, and marginally a $60 million of extraordinary environmental provision in the downstream segment, partially offset by shale oil expansion and recovery of Patagonia conventional.

In the bottom line, in the fourth quarter, we reported a net loss of $284 million compared to a net gain of $1.5 billion in the third quarter, mainly attributable to a lower EBITDA impairment and a one-off cost related to mature fields, as well as reduced deferred income tax benefits. Fourth quarter investments remained stable compared to the previous quarter, while in terms of free cash flow, we saw a positive turnaround reaching $64 million. Although EBITDA was not fully compensated by CapEx, we collected overdue natural gas receivables and proceeds from certain mature fields, in addition to paying lower debt service. Now, moving on to the upstream performance, our total hydrocarbon production amounted to 536,000 barrels of oil equivalent per day in 2024, an increase of 4% versus 2023, mostly boosted by the remarkable growth in shale output, representing 53% of the total compared to 46% in 2023.

Also, let me mention that 22% of the total hydrocarbon production came from mature fields, which amounted to 117,000 barrels of oil equivalent per day in 2024. Crude oil production reached a 6% annual growth in 2024, reaching 257,000 barrels per day on the back of a solid 26% shale expansion, more than compensating the lower conventional output decline significantly affected by reducing mature fields' productivity and extreme weather in Patagonia during almost two months. Beyond crude oil, natural gas production grew 3% in 2024, reaching 37.4 million cubic meters per day, mainly driven by the expansion of the Neuquén Basin evacuation capacity through the Perito Moreno gas pipeline and the following commissioning of the compressor plants in the same pipeline during July. Focusing on the fourth quarter, natural gas production remained essentially flat interannually, while declining sequentially, mainly due to the off-peak season.

Let me mention that moving forward, our focus for the long term is to grow natural gas exports on a large scale. Therefore, we are not aiming to expand our share in the local market. Lastly, NGLs production in 2024 stood at the same level versus 2023, averaging 43,000 barrels of oil equivalent per day. Fourth quarter NGLs production decreased by 29% sequentially, mainly due to the maintenance at mega facilities. Moving to lifting costs, we recorded $15.6 per barrel of oil equivalent in 2024, remaining similar to 2023, as the lower productivity from mature fields and Patagonia weather were partially offset by the ramp-up in shale hydrocarbon production. Excluding mature fields, our total lifting cost could have been below $9 per barrel of oil equivalent.

Very remarkable, during 2024, the lifting cost in our core hub blocks recorded $4.2 per barrel of oil equivalent on a gross basis, reinforcing our 4x4 strategy to focus the entire company on its core production. Fourth quarter total lifting cost illustrates the lower productivity of mature fields, increasing 7% sequentially, while core hub blocks on a gross basis posted 8% reduction thanks to its outstanding productivity and operational efficiencies achieved along 2024. Regarding prices in the upstream segment, our crude oil prices rebounded to an average of $68 per barrel in 2024, 9% higher than 2023, while during the fourth quarter, it was almost $66 per barrel, reflecting a sequential contraction of 4% aligned to the downward trend in Brent.

On the natural gas side, prices reached $3.7 per million BTU in 2024, similar to 2023 and in line with planned gas contracts, while the fourth quarter decreased by 30% sequentially, mostly due to the planned gas off-peak season price. Now, walking through the performance of our shale activities, the steady focus on operational efficiencies allowed us to completely surpass the initial targets set for 2024 in last March. In this sense, during 2024, we drilled 207 and completed 189 horizontal wells at our operated blocks, increasing 14% and 17% respectively versus 2023. Regarding tight ends, in accordance with our shale oil production target for the year, we accelerated the activity, reaching 195 tight end horizontal wells at our operated blocks, representing a remarkable growth of 29% versus 2023.

Moreover, we continued setting new records in shale oil production, delivering 138,000 barrels per day in the fourth quarter, growing 10% sequentially and 26% interannually. As a result, we achieved the annual production target of more than 120,000 barrels per day in 2024. 85% of total shale oil output for 2024 came from our core hub oil blocks, Loma Campana, La Amarga Chica, Bandurria Sur, and Aguada del Chañar. This outstanding performance along 2024 reaffirms our confidence on our shale production ramp-up plans and the recent commitments on the upcoming midstream expansions of Oldelval and VMOS.

In terms of efficiencies within our unconventional operations, as Horacio anticipated at the beginning of the presentation, we fully surpassed the targets set in March 2024 for drilling and fracking performance during the year, averaging 309 meters per day of drilling in our core hub fields and 235 stages per set per month of fracking for the unconventional operations. Zooming into the evolution of our hydrocarbon reserves, total proved reserves, according to the SEC criteria, grew by 2% in 2024. The increase was mainly on the back of a 13% increase in our Vaca Muerta shale reserves, which now represents 78% of our total P1 reserves, partially offset by decline in conventional reserves. Proved reserves addition totaled 250 million BOE, driven by the progressive developments and expansions of our unconventional operations, particularly in Aguada Pichana Oeste, Loma la Lata Norte, and La Calera blocks.

It was partially offset by higher total hydrocarbon production, a downward revision of 17 million BOE, mainly due to the strategy change in drilling schedules, as well as a 13 million BOE reduction, mostly due to lower enhanced hydrocarbon recovery and the divestment of conventional blocks El Trébol Escalante and Santangelo. It is worth noting that proved developed reserves recorded an annual expansion of 3% in 2024, mainly explained by development activities, new extensions, and discoveries mentioned exceeding the annual production. On the other hand, proved undeveloped reserves increased by 1%, mainly because new additions offset the volumes developed in drilling of new wells. Considering the shale hydrocarbon production ramp-up in 2024 and the development of our shale reserves, the reserve replacement ratio increased to 1.9 times, with an 8.3-year reserve slice. Regarding total proved reserves, this ratio was 1.1 times, with 5.6 years of reserve slice.

Important also to clarify that excluding mature fields, the total organic ratio for our proved reserves improved to 1.5 times, with 6.8 years of reserve life. Finally, since the SEC proved reserves do not encompass the huge potential of Vaca Muerta, let me tell you in advance that we're going to share our inventory of wells in Vaca Muerta during our investor day, which will take place on April 11 in the New York Stock Exchange. Moving on to our downstream segment, during 2024, the company has been constantly updating fuel prices to converge to international parities and mitigate the impact of the currency devaluation while preserving the market share. As a result, we were able to reduce the gap of import parity from 20% in 2023 to only 2% in 2024.

In line with price recovery and several operational efficiencies achieved during the year, refining and marketing EBITDA margins in 2024 was $13.7 per barrel, achieving an improvement of 24% compared to 2023. However, fuel sales volumes decreased by 7% along 2024 to 13.9 million cubic meters, mainly because 2023 was affected by exceptionally high levels of demand driven by low prices, especially in the second half of the year. Despite this, demand started to slightly increase in the second half of 2024. During the year, YPF maintained a strong fuel sales market share of 56%, fully in line with our historical levels and leadership in the market. In terms of processing levels, it was 301,000 barrels per day in 2024, 2% higher than 2023 and surpassing our annual target.

This was mainly driven by the revamping of Topping D at La Plata Refinery in November 2023, combined with the completion of additional works within the new fuel specification project framework. In addition, we also expanded our oil pumping capacity from Puestos Hernández to Luján de Cuyo Complex during 2024. It is worth mentioning that the utilization rate remained around 90% in 2024. Now, let me provide a brief update on the progress achieved in the oil midstream expansions to unlock the evacuation capacity in the Neuquén Basin. By the end of 2024, Oldelval achieved a total transportation capacity of 330,000 barrels per day, and during this month, its capacity will jump to 540,000 barrels per day. YPF holds 25% shipping stake in Oldelval. It is worth mentioning that the filling process will be gradual, aligning with the production ramp-up and after successfully passing the testing period.

We plan to use this additional capacity to deliver our shale oil to La Plata Refinery. Achieving another major objective that the management team targeted for 2024, last December, we formally announced the signing of the project documents and initial shipping commitments to start construction of VMOS, together with the major oil producers of Vaca Muerta. The project consists of a 440 km oil export-dedicated pipeline and a marine terminal capable of receiving VLCCs to deliver Vaca Muerta shale oil to Asian markets. YPF initial shipping capacity will be 120,000 barrels per day, roughly 27% of over 450,000 barrels per day committed capacity at COD targeted by 2027. The design of the pipeline allows to further increase the capacity to roughly 700,000 barrels per day if needed. The construction of the facilities already started last January and now follows with contractors' mobilization, earth-moving works, and line pipe delivery.

In parallel, VMOS is making progress on two key avenues: first, the RIGI application for governmental approval, and second, the process to secure project finance, targeting 70% debt and 30% equity. On this front, VMOS has just mandated five international banks for an initial syndicated loan of $1.7 billion.I will now turn the call over to Federico to go through the financials.

Federico Barroetaveña (CFO)

Thank you, Max. Switching to the financials, let's start with cash flow evolution. In 2024, we posted a negative free cash flow of $760 million. First of all, although our CapEx of 2024 was lower than 2023, it was not fully offset by the improvement in our adjusted EBITDA. It is important to highlight that this annual EBITDA includes two negative effects: around $300 million from mature fields and about $85 million from severe climate in Patagonia.

From a cash flow consideration, in 2024, we also recorded a negative $133 million from mature fields, which includes a negative $269 million of additions of assets held for sale, net of $136 million of divestment net proceeds. Finally, when analyzing the company cash performance during 2024, we must consider that we paid $166 million of temporary deferred import liabilities from 2023, collected lower dividends from affiliates, and disbursed higher debt service. In terms of financing, in Q4, we issued $2 bonds with a tenor of four years, totaling $150 million at a yield ranging between 6.5% and 7%. Also, we added $100 million of syndicated loan and around $60 million of short-term trade financing facilities. After the closing of 2024, in January, we successfully issued a nine-year unsecured international bond for $1.1 billion at a yield of 8.5%.

The proceeds were mainly allocated to refinance the $757 million of the 2025 notes and to acquire 54% of Sierra Chata block, one of the most prospective Vaca Muerta shale gas block. Regarding the 2025 notes, we executed a cash tender offer, prepaying $315 million and the may-hold call options for the balance in February. Additionally, last month, we issued $2 MEP local bonds, $140 million with a two-year tenor at 6.25% and $60 million with a six-month tenor at 3.5%. With these last international bond issuance, we successfully completed our initial plan to de-risk the company debt profile, aligning it with our 4x4 plan. The company now faces less than $1 billion of manageable and mostly local maturities during 2025, consisting of $400 million of short-term trade facilities with local and international banks, $281 million of mainly export-backed bonds, $147 million of local bond, and $51 million with CAF.

Having achieved the refinancing of our 2025 bond early this year and considering that most of our 2026 maturities consist primarily of bank trade lines and issuance with the local capital markets, as of today, we do not need to re-enter the international bond market until approaching the 2027 bond maturity. On the other hand, following the upgrade in sovereign rating, as well as country risk improvement and current perspectives, two global rating agencies have just raised YPF trade rating. Moody's upgraded from Caa3 to Caa1 with a stable outlook, and S&P upgraded from CCC to B-. On the liquidity front, by the end of 2024, our cash and short-term investments increased 9% versus previous year to $1.5 billion, in line with our net debt increase, which amounted to $7.4 billion.

Despite the increase in net debt, higher adjusted EBITDA reduced the net leverage ratio from 1.7 to 1.6 times, in line with the target for the year. Now, I will return the call to Horacio for final remarks.

Horacio Marín (Chairman and CEO)

Thank you, Federico. Before concluding our presentation and jumping to the Q&A section, let me briefly announce that after important knowledge, results, and experience of the new management team during this first year, on April 11, we will be holding our Investor Day at the New York Stock Exchange. There, we will present our five-year plan and go through the main drivers of our 4x4 plan, focusing on our financial and production outlook, including certain sensitivity analysis, productivity metrics in Vaca Muerta, and the progress of our main projects, among other key aspects of our strategy. This presentation will be led by YPF executive team, followed by a Q&A session.

We are pleased to invite you to our Investor Day and look forward to your participation. Finally, let me close today's presentation by saying we are confident that investors have appreciated the significant agenda that YPF has deployed along last year in almost all critical areas of the company, focusing primarily on profitability and growth. We are very focused in making value and putting YPF as one of the best energy companies. This has been just the beginning. We will continue driving our 4x4 plan during 2025 with even more knowledge, confidence, and conviction. With this, we conclude our presentation and open the floor for questions.

Operator (participant)

As a reminder to ask the question, please press star, followed by the number one on your telephone keypad. Our first question comes from Andres Cardona from Citigroup. Please go ahead. Your line is open.

Andres Cardona (Reporting and Financial Analyst)

Hi. Good morning, everyone.

Horacio, looking forward to the strategy update. My question is about the Vaca Muerta South expansion and how we should expect the ramp-up. How confident are you to adding the 180,000 barrels by the fourth quarter of 2026? Because when talking with some industry players, they do not seem to count with those volumes by then. They only expect to see the incremental capacity by the third quarter of 2027. Yes, we want to understand why is the different perception and why are you so confident to deliver by the fourth quarter of 2026.

Horacio Marín (Chairman and CEO)

Hi, can you hear me? I was mute. Sorry, sorry. I do not know who talked mute. Now, you are hearing me? You are here? Yes. Hello?

Andres Cardona (Reporting and Financial Analyst)

Yes, thank you. Okay. Okay. I am sorry.

Horacio Marín (Chairman and CEO)

I was mute. I do not know why.

We are very confident that with VMOS, we are going to deliver in the fourth quarter of 2026 and also in the second half of 2027. We are very excited that all the partners are in. We finished with all are in, so the tariff will be very low comparing what we expected at the beginning because we expect more than 500,000 that was, I do not know how you say, the committee for everybody. What I can answer you explicitly for the fourth quarter, I do not know which person you are talking about, but I am talking about the production of YPF. We are going to deliver that. I think that with the efficiency that we have, production that we have, the team that we have in the [upstream], I think we can deliver more, but I expect that, okay?

I'm very confident that from YPF, we are going to deliver what we say.

Andres Cardona (Reporting and Financial Analyst)

Thank you.

Operator (participant)

Our next question comes from Daniel Guardiola from BTG Pactual. Please go ahead. Your line is open.

Daniel Guardiola (Executive Director of Equity Research)

Hi. Thank you. And good morning, Horacio, Federico, and Max. Thank you for your presentation. I would like to touch on two topics. One on prices and the second one on the Sierra Chata acquisition. On prices, I would like to know, guys, if you could please share with us at which price you are currently selling your crude. Considering that recently we saw a very significant bearish movement in our prices, I would like to know if you can share with us at which levels of prices you would consider to start reducing your CapEx for 2025.

In this environment, if you're considering to hedge a portion of your expected production for 2025. That's on prices. The second one is a very short question on Sierra Chata. Can you please share with us, guys, what is the price that you pay for the acquisition of this stake of Exxon in this field, and what is the expected ramp-up in terms of production? Thank you very much.

Horacio Marín (Chairman and CEO)

Okay. Because I'm a very transparent guy and we have a problem with the microphone, I will ask people that have better English than me because at the beginning, I understood .

Margarita Chun (IR Manager)

[Foreging Language] Dani, I couldn't hear you the last part of the first question. Okay.

Horacio Marín (Chairman and CEO)

We have a problem because if Margarita doesn't understand me, we have a very bad microphone.

Margarita Chun (IR Manager)

The quality of the microphone, we are sorry. I'm going to go more happy, okay? Yes.

Daniel Guardiola (Executive Director of Equity Research)

Okay. Horacio, can you share with us at which prices are you selling your crude right now?

Margarita Chun (IR Manager)

¿Qué dijo? The price of the crude oil.

Daniel Guardiola (Executive Director of Equity Research)

Yeah. At which prices are you selling your crude right now? Your oil right now. Sorry.

Margarita Chun (IR Manager)

The crude oil.

Horacio Marín (Chairman and CEO)

Yeah, yeah. What we have is the what is the gasoline, our prices in the import quality product. [I was in EPG the other, no, the other day.] I will say two or three months ago, and what I said to everybody that we are going to increase the price of gasoline when the price of oil goes up, and we are going to go down when the price goes down. And why that? Because we try to maintain the import quality of product, okay?

What is the price that we sell when we export? Export quality. What's the price that we buy? Export quality. What's the price of the gasoline? Import quality of product. I don't know how to answer that question. Sorry.

Daniel Guardiola (Executive Director of Equity Research)

I mean, Horacio, considering that oil prices are below $70 in terms of brands, at which levels are you selling right now your oil?

Horacio Marín (Chairman and CEO)

No. No. Remember that the oil, when you sell the oil, there is a time frame when you make an average of the price, okay? I don't know if the price of the oil will be if it will be more, I would say, three months, we are going to sell in the export quality, and the price will go down $5 compared with last week. The same will happen with the gasoline.

In the gasoline, we have a strategy that I know is very clear because our competition, if I explain, then we have how we work. We have a, like I say, procedure to put the prices to avoid, I would say, short spikes. I would say spikes up, spikes down. Majority because Argentina was not a country to, in general, from now on, it is like this. I am sure that will continue with this president, that we are going to be open, and free market. In that way, people are not accustomed to go up, go down, go up, as in the United States or Europe. We prepare a procedure to avoid spikes so people will not be nervous. At the end, for YPF, it is almost the same, okay?

Daniel Guardiola (Executive Director of Equity Research)

Thank you, Horacio. At which prices?

Horacio Marín (Chairman and CEO)

Yeah. Sorry. Sorry?

Daniel Guardiola (Executive Director of Equity Research)

I just want to ask you, at which level of oil prices will you consider to start reducing your CapEx for 2025?

Horacio Marín (Chairman and CEO)

Okay. Remember, we are going out almost, I would say, it's not your question, but I think in two, three months from now, we are almost out of all the material field. You can calculate with your Excel simple way of seeing YPF that we are receiving for very low prices. Also, if that happens and the Brent goes down, down, down, down, down, and maintains, for sure, we are going to have changes, okay? For sure. I don't think that today is the day to do that. If it continues going down and it maintains, for sure, we will see. Remember what [Horacio Marín] always says is capital is strict capital allocation.

Daniel Guardiola (Executive Director of Equity Research)

Okay. The last question was on Sierra Chata. Yeah.

Thank you, Horacio. And on Sierra Chata? Sierra Chata, yes.

Horacio Marín (Chairman and CEO)

With Sierra Chata, it was very difficult to see there because remember that we buy a company. But what I can tell you that we think that we make a very, very good business because all, I would say, all the undeveloped call you as you want, resources or reserves, because this is unconventional, right? We buy in two cents per million BTU, what I think is a very good price.

Daniel Guardiola (Executive Director of Equity Research)

Thank you. Thank you, Horacio, and guys, and team.

Operator (participant)

Okay. Thank you. Our next question comes from Bruno Montanari from Morgan Stanley. Please go ahead. Your line is open.

Bruno Montanari (Executive Director and Equity Research Analyst)

Hi. Good morning, everyone. Thanks for taking my questions. The first question is about your free cash flow profile for 2025.

I know you will give more color on the investor day, but just focusing on next year, the company has been, in a way, pointing to neutral cash flow in 2025. I wanted to confirm if that is still the plan, if the base case is for neutral cash flow in 2025. My second question is if you can provide us with an update on the LNG project, when we could expect the final investment decisions for both the Golar project and then the YPF-led project. My third question is about your lifting costs. I assume that part of the cost increase in the fourth quarter was because of the strong peso. Wondering what we can expect now in the first quarter of the year in terms of lifting costs. Thank you very much. .

Horacio Marín (Chairman and CEO)

Okay. Free cash flow when you talk on CapEx, I'm going to present on April 11, Investor Day. All that in very detail. You can ask the question that you want there. As we said, the free cash flow will be neutral. It depends what you call neutral. We think we are going to deliver that idea. It will be minus plus what is logically missed is the company, okay? But I'm going to present we are going to present, but personally, I'm going to present that on April. Update of LNG, we are in a very good situation. We will see there. Also, I will explain in more detail on April 11 because at that moment, I think we will have a better way and will be more sure what I have to deliver. I am very positive with the Argentina-LNG project.

Very positive that Argentina and YPF itself will deliver this project for us, for the country, and for the Sierra Falls, okay? The last is the cost. As you see, we are maintaining the cost because we work every day in efficiency. Our goal every day that I come 6:45 is to deliver efficiency. You cannot imagine how is the guy of the [BPO of Spain]. Every day, I go to him, and I do not know how he loves me today because every day I go and we are working in efficiency line by line. That is why we are very good on that. I do not know if there is another one.

Bruno Montanari (Executive Director and Equity Research Analyst)

No, that was it. Thank you. I do not know. Okay.

Operator (participant)

Thank you. Our next question comes from Tasso Vasconcellos from UBS. Please go ahead. Your line is open.

Tasso Vasconcellos (Equity Research Analyst)

Hi, Horacio. Hi, Federico. Hi, Margarita.

Thanks for taking my questions here. Let me start with one here on the M&A activity. We are actually seeing some increased activity in Argentina. Exxon recently sold their assets and actually acquired Sierra Chata. Recent news also indicate that both Total and Equinor could eventually evaluate selling their assets as well. We know that Raizen is looking for a potential buyer for its refinery in Argentina. Amid this contest here, YPF is for sure a potential buyer for these assets, right? No, not sure if you're interested. Maybe split the questions here into parts. The first one, does any of these assets actually interest YPF at all, or do you like one better than the others?

Maybe the second part of the question, if not these specific assets that I just mentioned here, any other ones that you would be interested in acquiring in Argentina at the moment? These are my questions. Thank you.

Horacio Marín (Chairman and CEO)

Okay. The first in the capital allocation in Raizen, [from my start here], I always hear that Raizen, but I'm not the person to answer that. Ask to Raizen or Shell, but I cannot answer that. Even if you are interested to see if we are going to want to buy a new refinery, the answer is no, okay? We have so far, you know that we have 58% of the market share. We have it.

I think we are very good in, we are improving a lot, not very good, improving a lot in the refinery sector, YPF, but it's not in our thinking that we are going to increase. Not that. The second part, we say the Equinor or the other, it seems so. I have no official that. Even some will say, but in what is the, remember our role, the active performance management, if there's something that is in Vaca Muerta that I would think is in the core, in a very core. And because now we are very selective, I would say very core. The base price, always we are going to see. But it's not the moment today that I say you that that one. It depends also on, remember, the active portfolio management and the strict capital allocation. We will see at that moment. That is not for sure.

Everybody that sells there, that sells very good assets, see YPF as one of the possible active guys to take over that. I cannot answer exactly, but as always explained, if something is very good, we will see pricing, we will see all that. If we think that we make value for Sierra Falls, you will see YPF in that process. I do not know if I answered the question and you need more detail. I have no idea.

Tasso Vasconcellos (Equity Research Analyst)

I think it is very clear. Appreciate it. Thank you. Okay.

Horacio Marín (Chairman and CEO)

Thank you.

Operator (participant)

Our next question comes from Leonardo Marcondes from Bank of America. Please go ahead. Your line is open.

Leonardo Marcondes (VP of Equity Research)

Hi. Good afternoon, everyone. Hi, Horacio, Federico, and Maximiliano. Thank you for picking my questions here. I have two from my side, specifically on the upstream segments.

The first one, we know that YPF is the largest player in Vaca Muerta and that the company also owns many blocks in this same area, right? My question is, could you provide a color on what's the company's current well inventory? I mean, how many drill-ready wells you guys have and how many years would it take for YPF to drill all these wells, considering the company's current capacity to tie-in wells per year? My second question is, with the conclusion of the divestments, what should we expect from the development of Vaca Muerta? More tie-ins per year, higher RRR, and additionally, the company has improved a lot, the development of Vaca Muerta, right? Like the better frac speed and so on. What is the target there? What else can be done to improve these metrics even further? Thank you. Okay.

Horacio Marín (Chairman and CEO)

Thank you for all the questions. I try to follow, okay? Remember that I am a [guy], okay? First, when you say I will say summarize, when you say well inventory, I will explain that in much more detail on April 11. As I say, roughly in numbers, are you sitting or you're eating up?

Leonardo Marcondes (VP of Equity Research)

Yeah, I can hear.

Horacio Marín (Chairman and CEO)

Yeah. Okay. Okay. We have in the order of 10,000 wells. You can say 50, but I would say gross, okay? Inventory is a gross inventory. I would say that it's in the order of 50% of oil, 50% of [light], but this is a roughly number that I have in my mind, okay? On April 11, we will have there the full development of all YPF, and I will answer in detail at that moment, okay?

Now, if you see, we are drilling in the order in 2028, we drill in the order of 200 wells. The capacity of time in, no, I do not see it as a problem. Sometimes it is a question of the [belt and belt] that there is. Also, the first year was the way that YPF had before, the way of working with the partners. Now, what we are working is to have all the budget tied with the first with the partners, and after we fill up with our 100% blocks, sorry, 100% blocks. Why we are in that? Two reasons. The more important reason why we are in the order of 200 wells is because we try not to invest and have ducks, okay? Our idea is to make properly.

Now, because of the capacity that we have, the incremental that we see for all the evacuation way, it's not the number. When the demos will be finished, and after it's a question of oil or CapEx, at that moment, we will increase the activity in the oil, for sure. The other was the conclusion of this investment of the other company. You say, for example, to have the idea you are talking about of Exxonmobil and the others? The allocation of CapEx.

Leonardo Marcondes (VP of Equity Research)

No, no. I mean.

Horacio Marín (Chairman and CEO)

Okay. Okay. Okay. Okay. It's okay. I now understood. Okay. When we reduce all the mature fields, and we did in 2024 also, we reduced a lot the investment, much as we could, and we put in Vaca Muerta.

The idea of this memory is to try to maximize Vaca Muerta and not going to more than we need to fill up all the capacity that we have today, okay? For next year, we put for 2025, you're in a $5 billion for all YPF, which is almost maintaining the investment that we had the year before, and we are very confident in incremental of production in Vaca Muerta. After we admit for the reserve replacement ratio, the reserve replacement ratio is, remember that we have to do, and it's the way to do the 1.9. Why that? Because it's a rule. In fact, you have to have a rule. If you make physics, I will say the physics, I will explain that later in April 11, that is for locations.

There, I can explain block by block how many locations that we have, and you can make a very good, you will have a good feeling of what we have in hand and the possibility of YPF to increase, and this wonderful company can increase in the next years, okay?

Leonardo Marcondes (VP of Equity Research)

That's very clear. Thank you.

Horacio Marín (Chairman and CEO)

No, thank you.

Operator (participant)

Our next question comes from Vicente Falanga from Bradesco. Please go ahead. Your line is open.

Vicente Falanga (Analyst)

Thank you very much, Horacio, Federico, and Max. I had two questions, basically. First one on the fourth quarter results. To what extent did the filling of the Oldelval expansion affect the fourth quarter results? Some of your partners in Vaca Muerta highlighted that because of the fill-up of Oldelval, production did not convert into revenues.

I wanted to understand if that's the case for YPF, and do you have an estimate of how much? The second question. Okay. Sorry. Sorry. Oh, go ahead. Just one very quick one. With the asset sales for the mature fields hopefully being concluded by the middle of this year, where can we expect the lifting costs to fall to immediately? Thank you very much.

Horacio Marín (Chairman and CEO)

Okay. The Oldelval result, if there is delay or not, it doesn't change a lot today for YPF. Why? Because I don't know if we were very clear one day that we explained how we see the evacuation figure or the evacuation map for us. Now we export for Chile, for Chile, okay? And the Oldelval for us is internal consumption, okay? They are not affected a lot in our case, okay?

It could affect, I don't know, who company because I'm not looking all the company all day. I'm looking only YPF. It could be affected if we delay the demos, not here, okay? That is the answer there. With the mature field, hopefully I'm sure that also hopefully I'm sure, I'm sure, okay, that we are going to be very out there. Our lifting coordinate goes to very low number, which is nine? No, nine because it's nine. Nine because also we have two more mature fields that are the best that you can have in the one is in we have only two, but in the fourth, look at the [half-core] that we are in the range of four. We are very resilient from the future.

That was the initial idea when we came to YPF, that it will reduce the go out of the mature field because it was not for YPF. That was not the logical way of working for this size of the company. Reduce the lifting cost a lot as we are doing, and be resilient for very low prices. When the price goes up, we make a lot of money. That is the way that we see YPF.

Vicente Falanga (Analyst)

Great. Thank you. That is clear, Horacio. Thank you very much.

Horacio Marín (Chairman and CEO)

Okay.

Operator (participant)

Our next question comes from Guilherme Martins from Goldman Sachs. Please go ahead. Your line is open.

Guilherme Martins (Equity Research Analyst)

Thanks so much for asking my questions. I have two quick ones from my side here. The first one is on your guidance for shale oil production, right?

Please correct me if I'm wrong, but you said you're currently running roughly 150,000 barrels of oil in shale, right? While your guidance for 2025 is something above 160. It could seem as quite conservative given your current run rate. I know you mentioned you'll provide further details on your investor day on April, but as of today, do you see room for maybe an upward revision of this target? My second question is on capital allocation. If you could please share your thoughts on why you think global EMPs are seeking to divest from Argentina and Vaca Muerta, and what are the competitive advantages you believe YPF has over those players? Thanks so much.

Horacio Marín (Chairman and CEO)

You are anxious like me, okay? I'm anxious, okay? Really. I'm very anxious. April 11, 40 days from now, more reasons to nothing.

I will explain there, but I would like to answer. Today, not today, but yesterday or the day before yesterday, the production of Vaca Muerta was 156,000 per day. If you see the guidance on 2025, you can realize that we are investing $3 billion there. I'm very confident that we are going to pass the guidance, okay? That is the first question. Second question, capital allocation in the investment in Vaca Muerta. I explained that before, I think. If the opportunities come and we see that some part is better than we have, we are going to do what we call active portfolio management. What we are going to do is to take this and maybe in the full development, if we see that we are not making value for the shareholders, we will sell the others, okay? That is the way of work, okay?

I think that's what I have to work and what you want from me to do, okay? Okay.

Guilherme Martins (Equity Research Analyst)

Thank you.

Horacio Marín (Chairman and CEO)

It's okay? I answer?

Operator (participant)

Sorry to those that are still in queue. We are out of time for questions today. I would like to turn the call back over to Horacio Marín for any closing remarks.

Horacio Marín (Chairman and CEO)

Thank you very much for all the questions. Thank you very much for your help. We will see in April 11 where you can have hands of questions. We are going to be on live there. We can be up to midnight if you want, okay? Thank you very much.

Operator (participant)

This concludes today's conference call. Thank you for your participation. You may now disconnect.