YPF SA (YPF) 2021 Q2 法說會逐字稿

Good day. And thank you for standing by. Welcome to the YPF 2Q '21 Earnings Results Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions)

I would now like to hand the conference over to your speaker today, Santiago Wesenack, IR Manager. Please go ahead.

Good morning, ladies and gentlemen. This is Santiago Wesenack, YPF's IR Manager. Thank you for joining us today in our second quarter 2021 earnings call. I hope you all continue to be safe. This presentation will be conducted by our CEO, Sergio Affronti; our CFO, Alejandro Lew; and myself.

During the presentation we will go through the main aspects and events that explain our second quarter results. And finally, we will open up for questions.

Before we begin, I would like to draw your attention to our cautionary statement on Slide 2. Please take into consideration that our remarks today and answer 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. Also note the exchange rate used in calculations to reach our main financial figures in dollar terms. Our financial figures are stated in accordance with IFRS, but during the call we might discuss some non-IFRS measures such as adjusted EBITDA.

I will now turn the call to Sergio.

Thank you, Santiago. Good morning, ladies and gentlemen. Thank you for joining us on the call today.

During the second quarter we delivered very strong financial and operational results. And profitability continued improving, even surpassing pre-COVID levels. Adjusted EBITDA for Q2 reached $1.1 billion, a 41% jump when compared to the previous quarter. And 14% higher than the same quarter in 2019. This improvement was partially supported by higher realization prices across the board, including not only pump prices that reached similar dollar levels to those registered on average in 2019, but also higher pricing for natural gas, petrochemicals and nonoil products. Besides, domestic demand for gasoline and distills continued their coverage trend despite the setback presented by the mobility restrictions temporarily reestablished since the last week of April until June.

During the quarter, diesel demand was almost back to the pre-COVID levels. Whereas gasoline demand was the most affected. It's still standing about 18% below pre-pandemic levels although keeping the recovery trend standing in July about 7% below. But our profitability improvement did not only come from improved prices. We have delivered the production recovery that was announced at the end of last year while prioritizing operational efficiency.

Despite the disruptions originated in the 20-day blockade in the Province of Neuquén during April, which had a significant impact in our operations, we managed to grow our total production by 6% sequentially in Q2, further growing by another 6% during July, reaching an average of 490,000 barrels of oil equivalent per day.

Shale production led this recovery as it jumped by 22% sequentially in Q2, primarily as a result of a 35% expansion in shale gas, and even higher 48% jump when considering only our operated areas, comfortably meeting our Plan Gas 4 commitments. On the crude oil side, shale oil production expanded by 7% while our efforts to mitigate natural decline in our conventional fields have also rendered very positive results, allowing for total conventional production to remain almost flat in Q2. Our tertiary recovery continues to prove its effectiveness.

For Manantiales Behr, total oil output grew 1% quarter over quarter with tertiary growing 14%. As a whole, production results in the first half of the year have met our guidance for natural gas and came 3,000 barrels per day ahead for crude oil. So casing the impact of our CapEx program and the benefits harvested from our operating efficiency plan.

During the quarter we had the highest number of rigs in operation since the pandemic started, and managed to tie in 41 wells, 21 of which were on unconventional segment. Not only this, we continued to incorporate top-notch technology and world-class techniques. In the last month we performed 2 similar frac pilots by fracking 2 wells at the same time in Rincon del Mangrullo and Loma Campana with encouraging area results. So we plan to expand its use to other locations as well. And our fracking speeding in Vaca Muerta has continued, setting new records. With 148 average fracs per set per month during the quarter furthered improved in July to 194. Plus in the case of 2 specific sets even achieving more than 200 fracs per month. Overall, we are maintaining our focus on cost reductions and consolidated structural efficiencies resulting on a global OpEx reduction across the company of 17% in Q2 or an even better 20% when normalizing for nonrecurring standby costs associated to the blockade in April.

Finally, on the financial side. For the fifth consecutive quarter our free cash flow before debt financing landed in positive territory, totaling $311 million, despite moving forward with our investment planned for the year. This in turn allowed us to continue reducing our net debt by an aggregate $600 million in the first half of the year, reaching $6.5 billion of net debt by the end of June, and leading to a steep reduction in our net leverage ratio now back within covenant limits.

Looking forward, given the robust results achieved during the first half of the year, we remain confident in our ability to execute our $2.7 billion CapEx plan. And in turn, we affirm our production targets for the year with a potential bias to the upside in the second half, providing for a better starting point for next year. In addition, we now have enough visibility for the remainder of the year to be able to provide the guidance for the full year adjusted EBITDA, which is expected to total $3.5 billion plus or minus 5%. While net leverage should continue to decline to around 2x or even less by the end of the year before.

Before leaving you with Alejandro, I would like to once again tell you that I am especially proud of YPF team of their commitment and their efforts. I also want to thank our clients for the fidelity and our investors, partners and suppliers for the continuous support. Thank you.

Thank you, Sergio, and good morning to you all. I am glad to say that our results for the second quarter have continued to show a very significant improvement. Our revenues increased by 26% sequentially, reaching over $3.3 billion in the quarter, mainly supported by higher realization prices across all the segments and the continuous growing trend in oil and gas production. However, our revenues still remain below prepandemic levels, standing 9% below the levels of the same quarter of 2019, mainly on lower volume sold of gasoline and net fuel prices at the pump measured in dollars, which stood on average about 5% below.

Going through the evolution of OpEx, although it expanded by 18% sequentially, it came 17% below prepandemic levels of Q2 2019, or an even larger reduction of minus 20% if we exclude nonrecurring standby costs related to the blockade in Neuquén during April. These results will confirm our continuous commitment towards maintaining structural cost efficiencies gained as part of our company-wide cost reduction program introduced last year.

Most specifically, during the quarter we managed to keep overall lifting cost per barrel of oil equivalent around 10% below prepandemic levels, but increasing by 5% sequentially as expected higher unit costs in the conventional fields surpassed the effects of lower unit costs in the unconventional side, where the average lifting cost student $4.60 per barrel of oil equivalent during the quarter.

On the back of the recovery in revenues and the focus on cost efficiencies, adjusted EBITDA for the quarter jumped 41% sequentially, reaching $1.1 billion or 14% higher than the prepandemic figure of the second quarter of 2019. Furthermore, our EBITDA margin increased by over 3 percentage points in the quarter to 32%, standing at the high end of our metrics for the past few years.

It is also worth mentioning that our net operating results for the quarter came at $310 million, almost doubling the result achieved in Q2 19. However, our bottom line continued in the [red] due to the registration of a significant deferred income tax liability resulting from the modification of the corporate income tax rate approved by Congress in June.

On the CapEx side, we have accelerated the implementation of our CapEx plan, particularly on the upstream side, as total CapEx expanded by 19% when compared to the previous quarter, with the upstream accounting for over 80% of the total of $580 million during the quarter despite the 20-day blockade during April that affected our operations in Neuquén.

Although we continue to be somewhat behind schedule, we remain focused on the execution of our investment program for the year. And as earlier mentioned by Sergio, still expect full implementation by year end. Finally, these results translated into another quarter, delivering positive free cash flow before the financing of $311 million, allowing for a further reduction in net debt to $6.5 billion by June 30.

Zooming in on the evolution of our upstream activities. Total hydrocarbon production expanded by 6% on a sequential basis even despite the affirmation road blockage in the Province of Neuquén. This expansion was primarily concentrated on natural gas, which grew by 7% versus the previous quarter as we focused our upstream activity in ramping up gas production to meet our commitments as part of the new Plan Gas. And to be able to do this, we managed to grow our shale gas production by 35% when compared to the previous quarter with an even more pronounced jump of 48% when looking specifically at our operative shale gas production, mostly led by the new wells [starting] in the Rincon del Mangrullo and Aguada de la Arena blocks while also increasing production at El Orejano after performing workover activities on several wells.

On the crude oil side, production also showed a positive evolution in the quarter, but with a more modest 1% growth as a 7% increase in shale oil which delivered a 48% jump year over year in our core hub more than compensated a small decline in conventional production. It is worth highlighting that the results of our continuous efforts in developing our shale resources, both crude and natural gas resulted in the first quarter in which shale production representing more than a quarter of our consolidated output, standing at 26% of total production during the quarter.

Regarding prices, within the upstream segment during this quarter we benefited from a significant recovery in natural gas prices, averaging $3.8 per million BTU, back in line with 2019 levels as seasonal adjustments within the (inaudible) contracts was also joined by better terms negotiated with other clients.

Separately, on the crude oil front, our average realization price increased modestly to $51.6 per barrel as local crude has continued being negotiated between local producers and refiners in a way to smooth out the impact of the volatility in international reference prices into local pump prices.

Moving into the next slide. Let me provide you with some operational highlights within our upstream business. During the first half of the year we have completed a total of 55 new horizontal wells, including 17 shale gas wells and 38 shale oil wells, the highest mark since the company introduced horizontal drilling back in 2015. This new record was not only the result of the ramp up in drilling rigs and track sets in operation since late last year. But even more importantly, the continuous improvement in operating metrics gained through the focused approach of our people in conjunction with the collaboration of our key contractors and the unions.

Examples of these operational improvements can be clearly found in the evolution of our track speed as we have managed to improve to an average of 148 stages per equipment per month in the second quarter, representing a 42% improvement when compared to the average of 2019, even despite the blockage during April that affected our operations. And this metric has continued improving up to the end of the quarter. During July, we have accomplished a new record by achieving an average of 194 frac stages per set with 3 sets in full operation and a fourth one on call.

Along the same line, on drilling speed for horizontal wells, well, the metric that measures the average meters drilled per day per rig declined to 156 during the quarter, down from 166 in Q1. When adjusting for the nonproductive time generated by the blockade, the adjusted figure will jump to 181, representing a 13% improvement versus the average for 2019.

And further, in late July we set a new record as we finished drilling a new well in Bandurria Sur in less than 20 days, including total depth of over 3,000 meters and about 2,500 meters of lateral length.

Switching to our downstream business. Domestic demand for our main refined products contracted 3% sequentially on the back of the new mobility restrictions introduced in late April, which included 10 days of strict lockdown during May. As a result gasoline demand, which is more retail-driven, contracted 17% on a sequential basis, returning to volumes well below prepandemic levels of minus 18% versus 2019. In contrast, domestic sales of diesel were supported by demand from the agricultural, industrial and power generation sectors, increasing by around 7% on a sequential basis, reaching levels almost flat versus pre-COVID levels, standing at only 3% below Q2 '19.

And more recently, in July, demand for both gasoline and diesel continued the positive trend that started in June as mobility restrictions were relaxed, landing at minus 7% for gasoline and the positive 5% for diesel when compared to the same month in 2019. As a result, our processing levels during Q2 have slightly decreased on a sequential basis, averaging 266,000 barrels per day, but increasing by almost 40% versus the same period of last year. This was also the result of lower availability at our La Plata refinery as we started a major maintenance at one of our catalytic converters in late May, a task that has been postponed from its original schedule earlier in March to minimize the impact from stronger-than-expected demand in late Q1.

Finally, with regards to prices for our main domestic refined products. During the quarter, we continued with an active pricing strategy at the time in line with what was publicly announced by the President of our Board earlier in March. These latest increases have allowed us to regain further dollar margin, taking our prices almost fully in line with 2019 levels. Our average net prices for the quarter mentioned in dollars expanded by about 15% sequentially, standing roughly 25% above the average net dollar prices for the same period last year.

It is worth noting that the recovery in profitability on the downstream segment during this quarter was also supported by better volumes and prices for other refined products, as well as petrochemicals and nonline products which have benefited from the recovery in global economic growth and the correlation with brent and other commodity prices.

Going forward, we shall continue monitoring the evolution of international and local crude and biofuel prices, as well as key macro-economic variables such as currency devaluation and inflation to define future pricing strategies, focusing on maintaining reasonable margins along the value chain.

Moving into our cash flow. The continued recovery in profitability permitted another quarter with strong cash flow from operations that total just north of $1 billion. This result allowed us to comfortably cover our investments and interest payments, and also provided for the possibility to further reduce our financial debt, which declined on a net basis by another $253 million during the quarter while maintaining our consolidated liquidity relatively stable within the proven target established earlier this year.

In terms of cash management, we have continued administering our liquidity with an active asset management approach to minimize FX exposure while also considering the corresponding cost of carry of such strategy. Given our efforts in this regard, during the quarter we were able to further reduce our net FX exposure, standing at the very low 6% by the end of June despite regulations currently enforced that prevent us from holding a larger portion of our liquidity in foreign currency.

Turning to our debt profile, the continuous deleveraging process mentioned before has permitted to not only reduce total indebtedness but also provide a significant relief in short-term maturities. Total short-term maturities as of June 30, mean those coming due within 12 months, stood at $1.1 billion compared to $1.6 billion by the year end 2019, and about half of the $2.1 billion that was due by December 2017. And within the total amount of short-term debt less than 40% is due under the 2024 and 2025 international bonds coming due in September of this year and during the first half of 2022, with the remainder being composed mostly of pre-export financing and local bonds.

Further to this, in mid-July we successfully tapped the local capital market with a $384 million 11-year dollar-linked bond with a coupon of 5.75% that was priced at par to fund practically all of our financing needs for the second half of the year. As a consequence of the lower net indebtedness coupled with our improved operating cash flows, the net leverage ratio calculated as net debt over last 12 months adjusted EBITDA declined from 4.9x in Q1 to 2.7x by the end of Q2, putting us back inside covenant ratios. All of these further contributing for us to feel fully confident on our ability to comply with our financial commitments and deploy the investments needed to continue delivering growth in oil and gas production.

Finally, we are proud to say that the hard work we have been doing achieving significant improvements in our operations and financial condition has been recognized by Moody's Argentina and FIX as reflected in the rating upgrades announced during July. In the case of Moody's, our long-term local credit rating was upgraded to AA-, while FIX upgraded its corresponding rating by 2 notches to AA.

And with this I finish our presentation for today. Now we are open for your questions.

(Operator Instructions) Your first question comes from the line of Bruno Montanari with Morgan Stanley.

I have 2 questions. The first one is a little bit more color about the CapEx deployment in the second half of the year. I understand that you are reaffirming the guidance, but looking at execution in the first half versus the implied one for the second half, the company would need to increase spend by around 60%. So I was wondering operationally this is a relatively easy thing to do because that's the level at which the company has not invested for a few quarters. So what needs to happen or what needs to change in terms of execution in order for CapEx to reach that level?

And in case you're both short of expectations on CapEx, if there are any implications for production targets either this year or next years -- or next year? And the second question is more about the timeline for further liability management for the 2022 maturities. You do have one of the international bonds due I think in the second quarter of 2022, so wondering if the plan is to hope that you are able to access the dollars and just repay that with the cash balance? Or if the company sees space to issue more dollar-linked debt in Argentina, or eventually try to do another bond repurchase and a rollover?

Good morning, Bruno. And thank you for your questions. Let me go with the first one. CapEx, yes, as you have just said we need to ramp up our activity in the second half. Clearly the first half was a little bit below or behind schedule primarily in the first quarter as we have mentioned in our previous earnings call, clearly as we -- it took a little bit longer to ramp up activity as versus what was expected. However, in the second quarter we feel much more comfortable with the evolution.

You need to bear in mind that we had the blockade in Neuquén for 20 days, which clearly affected our operations there with focus in Vaca Muerta and in general in the Neuquina basin. So when adjusting for that, we feel comfortable that the CapEx that we need to deploy in the third and fourth quarters are manageable. Of course it's a challenge. We are not going to say that it's not a challenge. But we feel comfortable that we can achieve and be up to the task. And that's why we are reaffirming our plan for the year, the $2.7 billion, being comfortable that we should be able to mobilize all the investment needed in the second half. Clearly we have already started with that. July already increased activity.

And the CapEx numbers for July are already surpassing the average for the previous quarter. And so I would tend to say that although it's a challenge, we feel -- we still feel comfortable that we should be able to fully execute it by year end. And because of that is that we are also reaffirming our target for production for the year. I would say that with a bias on the second half to the upside as -- again, as we are complying with the guidance for the first half, even though we were a little bit behind schedule particularly in the unconventional because of the blockade in April.

So with the expectations for all the well completion and tie-ins for the second half, we might be a little bit higher than the guidance provided, but so far we would just say that we reaffirm our target and with that small bias to the upside which will end up being a much better starting point for next year. So hopefully we will be able to deliver that. And hopefully we'll be able in the next earnings call to confirm that upside in a few months. In terms of liability management or debt maturities for 2022.

As mentioned in the -- during the presentation, we feel very comfortable now with the maturities that we have in front of us for the next 12 months. It's one of the smaller or the smallest amount of short-term debt in quite a few years. So now with $1.1 billion, most of it or a good chunk of it concentrated in bank facilities and -- sorry; and local bonds, for the total of 60% roughly. And 40% being in the hands of or being composed of international bond maturities. Those primarily related to the amortizations on the 25 -- on the July 25 -- sorry, the March 25 security, which are due in September and March of next year. And then the first amortization on the 2024 international bonds next April.

On top of that, we have also the full maturity on the peso-linked bond that was issued back in 2017 which expires in May of next year. All in all, we feel that with the local bond that was issued a couple of weeks ago, we have already prefunded our needs for the rest of this year. So if we concentrate only on the maturities for next year, which are roughly a little bit over $600 million in the first half, I would say that we feel very comfortable with the ability of refinancing the maturities coming on the international front with further facilities or further financing in -- with our relationship banks and with local bonds.

Clearly, by the end of this year the amount of total local bonds outstanding and bank facilities are going to be relatively low when comparing with the recent years averages. So we feel very comfortable that even not having access to international markets that we should be able to refinance those maturities coming on the international bonds with other sources of funding such as local bonds and bank facilities with relatively -- relatively easy.

Clearly on the foreign exchange potential restrictions, we feel that based on the liability management executed earlier this year, we should have already provided the cash relief or the foreign exchange reserves relief for the central bank enough to be able to access all the dollars that we will require to honor our commitments next year. But of course, and current regulations expire by the end of this year. So we don't know whether those restrictions will be extended or not. And if extended, we feel that based on the exercises that we already performed, we hope that we should be able to access the remainder dollars required to honor our payments.

Remember that the cash relief that we obtained through the liability management exercise earlier this year provided for postponement of about -- a little bit over $300 million in foreign exchange reserves requirement for 2022. And on top of that, we are also working on a potential cross-border facility together with a multilateral agency that if needed could provide also further sources of funding, also of foreign reserves or foreign currency, cross-border financing to also contribute to the repayment of the maturities for next year. So all in all, I would say that we are not expecting right now to do a specific liability management on the maturities for next year, but rather replacing some sources of funding with others, right?

Your next question comes from the line of Frank McGann with Bank of America.

Just to follow-up a little bit on the CapEx and production issue. Clearly, if your -- as you indicated, as you spend more in the second half and into the beginning of next year, you should have -- one would expect at least the potential for a nice acceleration in output. And I was just wondering how you're thinking of next year really as much as anything else. Could we see a pretty substantial pickup both on the oil and on the gas side as a result of the increased spending that you are seeing? And how do you think about the long term?

It's been so long since we could really think about the long-term given the pandemic and other issues, but you have a resource of course that seems to have just kind of unlimited potential if you have the capital to deploy. Do you see potentially very material upside here as we look out over the next 2, 3 years? And if not, when might we see that if you think we still could? And then secondly, just in terms of cost, obviously inflation remains pretty high. You've been pretty aggressive on the cost side as well. Do you see cost pressures building a bit at this stage?

Okay. Frank, thank you for your questions. Complementing on CapEx, yes, as you have mentioned, we do expect a significant increase or -- significant is a relative word, right? But we do expect continuous growth in oil and gas production into next year, particularly into oil, not that much into gas. As you probably know, the -- with the new Plan Gas the year-round demand for gas is pretty much satisfied. Then you have the peak seasonal demand during demand during winter months, which based on the current realities of midstream infrastructure as well as economics, it's hard to supply those -- that peak demand with local production.

And we still see, at least in the near future, that demand being supplied through the input of LNG and natural gas from Bolivia. So on that regard, even though we are seeing some incremental demand from other sources such as GNC, in English, well, natural compressed gas. We are seeing some extra demand or some further demand on that front. And we have signed actually some medium-term contracts on that front for an average of about 2 million cubic meters per day. So we are seeing some marginal incremental demand. But at least for the next few years we would not expect a significant increase in gas production. Hence, most of our activity will be focused on clearly maintaining current levels of gas, but then increasing total crude production where we see potential for further progress, particularly in Vaca Muerta, particularly in our hub core to compensate and more than offset the natural decline in conventional fields, even though we are continue to -- we continue to make good progress in mitigating the natural decline in mature fields, not only through secondary production but also through enhanced oil recovery. And we feel very comfortable with the further progress and further opportunities on that front as well.

So all in all, when looking into 2022, we do see some -- potentially some increase in CapEx, particularly as we also start pushing forward with the revamping in our refineries to not only adjust for further crude coming from Vaca Muerta and also to comply with new legislation and new demand trends in terms of quality of fuels. But then also we do see some potential pickup in activity on the upstream front as well. On the medium-term on expectations for the long run, I would say that so far we still don't feel very comfortable in providing much guidance. We are working on that front.

As you know, there's also been a lot of conversation and debate about the new hydrocarbon law, which we would also expect to be materialized or to see it being materialized before being able to fully decide what our long -- or medium and long-term strategy would be. But we have high expectations on that as well. And we will see to fine-tune our medium-term program in terms of CapEx ones that law ends up seeing the light. And on cost pressures, I would say that effectively inflation, it's coming, it stole on our costs, particularly as inflation runs higher than devaluation. So that is creating some pressure on our dollar-based costs, even though we have managed to still maintain the structural cost reduction.

As we have said in the previous earnings call, in the first quarter we had a 21% reduction in cost when compared to the first quarter of 2019. In this quarter when adjusting by the -- for the nonrecurring costs related to the blockade in April, we were sitting or we stood at about 20% below 2019 operating costs. Down the road, we might see some pressure there or we are seeing some pressure there. So we are doing our best to maintain the 20% reduction, although for the rest of the year we might see some degradation in that -- in those cost efficiencies and probably being closer to a range of 15% to 20% reduction instead of a full 20% reduction that we have as of today. But all in all, we are doing all our best to compensate those macroeconomic pressures with further efficiencies all across the board.

Your next question comes from the line of Anne Milne with Bank of America.

Congratulations on the good results. I was just hoping you could give us a little bit more of your perspective on prices for the second half of the year, given that there will be some elections coming up. And if the increases, you'll be able to keep closer to international parity that you've already achieved? My second question, I think you've answered, has to do with access to FX on the upcoming maturities. Very complete answer.

And then, I was hoping you could give us a little bit more information on what your expectations are for your listing costs and your all-in costs for the full year, and maybe end up with what is your investment plan or your CapEx committed on the ESG front, which is becoming increasingly important to investors?

Thank you, Anne. I'm going to take the question about pump prices. As we commented along our previous calls, have been adjusting prices at the pump since August of last year to accommodate our need to restore dollar margins to return to healthy cash flow generation. Such a realignment process (inaudible) stimulated an aggregate nominal price increase in pesos in the order of 60% which permitted to pass-through tax hikes, biofuel increases and leading to about a 40% improvement in net margins in pesos, taking our net contributions in dollars back to 2019 average levels.

This process resulted in a price mix that is currently well balanced when considering local crude prices that have been freely negotiated between producers and refiners at a variable discount to international reference prices to avoid passing through the volatility in Brent to the local pump. Therefore, the future evolution of pump prices will depend on the evolution of local crude as well as macroeconomic variables such as inflation and devaluation, which we will continue monitoring closely.

For as long as these key variables remain within expected parameters, we don't foresee any relevant adjustment in pump prices in the near future. And when you compare with respect to the import parity, in terms of the comparison to import parity, our local prices are currently about 10% to 15% below on average with gasoline being somewhat further discounted than diesel. However, as we mentioned before, pump prices are currently reasonable, set based on the pricing of local crude, which is allowing for healthy margins along the value chain without generating unnecessary pressures on local consumers.

Thank you, Sergio. Well, as you mentioned, I think the question on FX is -- I think it was fully answered right on or let me know if you need anything else there. And in terms of lifting costs, we do expect for the remainder of the year to remain relatively stable on average to the levels that we have seen in this last quarter in the order of $11 per barrel of oil equivalent. Clearly, we see a trend where the average lifting cost on the conventional side probably goes up a little bit by the end of the year, and that are being compensated by a further reduction in the lifting cost on the unconventional.

But all in all, we see that level of $11, probably in coming years being able to reduce that a little bit as we increase the share of shale on the overall mix. But all in all, we would tend to say that we would probably see it relatively stable as an increase in the conventional side is compensated by a further decrease in unconventionals and a further proportion of unconventional in the mix. And then on your last question on ESG.

In terms of specific CapEx, we don't have a specific amount allocated, although clearly we continue to work on the reduction of CO2 emissions, mostly through the reduction of flaring and methane emissions at our refineries. And very specifically, we continue joining the efforts or allowing for the efforts that are being devoted by our subsidiary, 75%-owned subsidiary YPF Luz, as mentioned in the past. Clearly we see YPF Luz as our strategic arm in the, I would say, in the marathon towards energy transition.

As you know, they have reached COD on a wind farm earlier this year, and they are expect -- on Los Perales for a little bit over 50 megawatts. And they are targeting COD on Cañadón León, another wind farm for over 100 megawatts for later on this year. And I would say that they are also working on other projects for -- probably for -- to be announced later this year or next year on the renewable side. So more specifically or very specifically, we continue to look on those investments as part of our general strategy on energy transition, while also analyzing of course CO2 reductions, emission reductions on our activities and other potential sources of energy transition as a strategic view for the medium and long term.

Your next question comes from the line of Marcelo Gumiero with Credit Suisse.

Congratulations on the results. Most of my questions were already answered, but I have a follow-up on CapEx as well. So I mean, looking forward (inaudible) expect the balance between YPF increasing Capex, increasing production and also deleveraging. Is the current level of debt (inaudible) at a comfortable level for YPF?

Another -- second question is on the new hydrocarbon (inaudible). I mean I know it's not clear so far, but if you could provide us with any update on any topics that are being discussed? (inaudible) the main topics that interest YPF (inaudible) anything is really helpful.

Thank you, Marcelo, for your questions. And I'm going to first start with the hydrocarbon law. As you know, there has been significant talk recently about the new hydrocarbon law that should be brought by the executive power to Congress in the near future with the objective of fostering investments in our sector to accelerate the profitable development of oil and gas reserves and resources that our country has, while also incentivizing investments in industrialization projects. This has included the explicit will from President Fernandez, who has publicly stated his intention to present a new bill to Congress this year.

As far as we understand, the executive power is consulting with several actors within the sector. We took other different builds with the intention of presenting a build project that provides the right [signals] to the broadest possible audience. Given our leading role in the industry, we are a key actor that is also maintaining an active dialogue with the government authorities, providing our own views on the matter. But we'll not be able to say at this point what the final bill to be presented to Congress and what would include and what the actual timing of such presentation could be.

But we would expect such new legislation to primarily provide the right incentives to accelerate profitable growth by dissipating some macro risks that currently distort the true opportunities that lie in our underground. With respect to our main focus or aspirations in terms of what the law might include, we are very much interested in the incentives to promote the investments by offering specific export quotas while also guaranteeing access to the FX market for a portion of such exports.

Although we are currently a net buyer of crude to supply our refineries, we do expect to become a net exporter in few years as we continue extracting the full potential of our Vaca Muerta blocks. In addition, we are also focused on the opportunities to expand our natural gas production. And to that extent, if the new law provides some scheme to allow year-round export to regional markets, could be very interesting. It would also be very interesting to see incentives to facilitate investments in mature conventional fields, where we see that there is still value to be extracted although economics make it more difficult to allocate capital.

Finally, some specific fiscal benefits that could speed up industrialization projects such as one being considered by Profertil or free up capital by monetizing tax credit would be very welcome. Alejandro, you are going to take the…

Yes. Thank you, Sergio. Marcelo, on your other question on CapEx versus deleveraging. As mentioned during the presentation, we are now expecting to be around or even below 2x leverage by the end of this year. That is a faster-than-expected deleveraging process than we have previously anticipated, clearly in line with the faster recovery in profitability, which allowed us also to continuously reduce the net debt. For the medium term, we do see that level of 2x leverage as reasonable based on the opportunities that we have to further develop our resources on a very profitable way.

So we do not see a need to further delever or we do not see the convenience of further delevering because we do see that we can add more value for our shareholders by maintaining this level of indebtedness or leverage to maximize the potential growth as soon as possible, primarily from Vaca Muerta resources. So clearly we'll be adjusting opportunities on the CapEx side, which are plenty, to the realities of our cash flow generation in a way to be as cash neutral as possible in coming years, maintaining that level of -- or trying to the best possible to maintain that level of 2x leverage relatively stable.

Your next question comes from the line of [Constantino Populus] with [Point A].

Congratulations on your results. I'd like to ask a follow-up question regarding your net international trade balance. Right now and then for quite some periods your international trade balance has been negative, mainly due to imports of premium refined products such as premium gas diesel oil and premium gasoline. Now you mentioned you aim to be net exporters of crude oil.

And with demand rising in Argentina after the pandemic restrictions have eased, what's your guidance or what's your view on your trade balance? Are you going to keep importing premium diesel and gasoline? Or is it something that should be growing better in the next years? And again, congratulations on your results.

Thank you, Constantino, for your congratulations. On your question, when you look at the broader trade balance, we are and we've been for the past few years, structurally a net exporter, not of fuels or not of hydrocarbon related specifically. But when looking at the full spectrum of all of our exports, including other type of refined products as well as non-oil products, on average we've been a net exporter in the order of, I would say, on average $500 million to $1 billion a year, all in all. We do expect that to continue. And again, we do see incremental activity on the nonoil side. And so we do expect to continue to be a net exporter down the road.

But looking specifically into your question about fuels, we do see a structural need in the country, once demand completely stabilizes, to continue importing some, particularly premium diesel, in line with what we have been doing in the past. And so we would expect to continue doing that. We would not see as efficient to invest in further refinery capacity to supply that excess demand when that actually takes place. Bear in mind also that there's a lot of debate also on the long run as to what demand for refined fuels could be. So at this point we would not see a need for the country to invest in expanding refinery capacity.

But as mentioned before by Sergio, when answering also about the question about the hydrocarbon law, we do see ourselves as becoming a net exporter of crude, primarily in a few years, not in the very short term, but in a few years, as we continue expanding our production in Vaca Muerta, which further compensates the natural decline in the mature fields. We do see YPF being a net exporter and the whole country being a net exporter in a very significant way. Probably that will take a few years, but we do see that possibility and that would be -- that would more than compensate the imports of refined products, which might include premium diesel and to some extent some premium gasoline as well.

Your next question comes from the line of [Matthias Insul] with UBS.

On the regulatory framework, can you provide on how the new Plan Gas is moving forward? And how have negotiations and payments been done for the program? I mean, production has ramped up, but just on the financial side of the things.

And also, how YPF is seeing the interest in activities in Argentina by other companies that could either lead to a divestment from YPF as was in the past or potential partnerships? And if you can also provide on how YPF's strategy to optimize the company's portfolio has been advancing in the past few months?

Matthias, thanks for your questions. Regarding the new Plan Gas, as you have just said, clearly we have experienced a tremendous ramp-up in activity which led to a significant increase in production, as mentioned during the presentation, which allowed us to not only comply but exceed our commitments that were a challenge. As we had mentioned in the previous call, we have put ourselves in an interesting challenge which required a significant resumption in activity in natural gas production.

And the good thing or the good news is that we were up to the challenge, managing to increase our production in the Neuquina basin to a little bit over 31 cubic meters -- million cubic meters per day on average for the period of May to July, which was the one that was to -- basically to comply with based on the contractual agreements on the new Plan Gas which were a little bit below that, about 1 million cubic meters per day below the mark that we have achieved. So on the production side we managed to be up to the task.

On the financial side, although, as we had said before, there were some delays at the beginning of the program, then the government paid on time the bill for the April subsidy. And now, in terms of the specific monthly bill for May, they are running a few days behind schedule that should have been fully paid or the 75% preliminary payment was due in late July. So we are about 10 days behind schedule. As far as we understand, the -- well, the payment instruction was already issued by an authorized by the Secretary of Energy. So it should be a matter of hours, if not days, for us to collect on that amount, which is close to $14 million, 1-4. It's about ARS 1.2 billion, so about $14 million. And we should be able to -- or we should be collecting that amount very soon.

So with that, the other thing that the government is running behind schedule on the payments on the remainder 25%, the balances for all of the previous months. We understand that it's just an administrative issue. They need to end up compiling all the final details and information to be able to finalize their assessment of the different bills presented by each company. And with that, we are also hearing that in coming days and weeks, we should have the news of the government finally paying those amounts that as of today are overdue. All in all, it's about ARS 300 million that are overdue from those receivable 25%. So it's not a big amount, roughly a little bit over $3 million.

So we are not at all worried about that amount for now. And as I said, we do track very closely the bill payment or the subsidy payment for May, which is a more relevant amount. And as far as we understand, even though they are running a few days behind schedule, we understand that that should be fully paid in the very near future. And I'll leave Sergio to answer the question about portfolio allocation.

Thank you, Matthias, for your question about portfolio management and allocation. As we commented, we continue focusing our strategy on our core oil and gas activities, prioritizing the rapid development of our valuable reserves with a particular focus in Vaca Muerta. In that regard, given the significant improvement in our ability to generate healthy cash from our operations, we are not actively looking for divestitures to fund our CapEx plan, but rather to contribute to an optimized capital allocation. We therefore continue having active conversations with key international players for the possibility of entering into new farming agreements in Vaca Muerta, but do not foresee any relevant deal to be concluded in the near future as valuation assessments continue to be well apart.

In addition, along the same lines that we commented during our last calls, we are also analyzing and having some preliminary dialogue with potential interested parties on a group of mature conventional areas that might be subject to some form of (inaudible) investment. In this particular case, we are prioritizing capital allocation under the assumption that there could be assets with further potential to be developed by a focused new player that shall render benefits to all parties, including the provinces that should capitalize from renewed investments in the assets, leading to incremental oil and gas production and hence more royalties.

In summary, our strategy going forward will be focused on optimizing capital allocation, analyzing all potential opportunities, including not only these investments but also potential strategic new investments with a clear view on prioritizing the profitable and rational development of our world-class resources.

Very comprehensive. And congratulations on strong results.

Your next question comes from the line of Ezequiel Fernandez with Balanz.

This is Ezequiel Fernandez from Balanz. It was great to see these results, and thank you for the very complete materials, as always. I have 3 questions. First, if you could comment a bit on the new biofuels law and what the reduction in mandatory fuel cuts and the prohibition for oil companies to get involved in biofuel production mean for YPF. Second -- and going back to what Anne Milne asked about fuel pricing and you commented as well, we should see fuel prices at the pump at the same level measured in pesos at least till year-end.

And maybe going into a bit more detail on that, what do you think it could imply for the internal crude prices measured in dollars on the downstream spread in the second half? Basically, who might absorb more of the expected FX devaluation till year end? And my final third question is related to conventional crude production. What are you planning there in terms of maybe secondary or tertiary recovery efforts?

Ezequiel, thank you for your comments and your questions. Very briefly on the first question about biofuels. We do see it constructively, the new law, basically reducing the capped requirements with biofuels, taking it down to 5%, which -- that's very reasonable. And of course that also alleviates some supply pressures we have seen on the particularly on bio diesel where producers were not being able to deliver all the volumes required by the downstream segment. So all in all, we do see it as very constructive.

And of course that will permit a healthy stabilization of both markets, right, of the biofuels market and clearly on the refinery side as well. And with that, we don't see at this point any particular challenge given these new requirements on not being able to integrate the biofuels into the general downstream chain. In terms of pricing, what you're asking is a very delicate question, right? And we see ahead a very delicate balance.

As we have mentioned in the presentation, the local crew has not been fully tracking international reference prices, particularly under the -- basically on the understanding both on the producer's side and as well as downstreamers. Clearly we have a different reality by being fully integrated. But clearly the value chain is to have some equilibrium. And in general, the market understands that the local economy today cannot fully absorb the complete evolution of international prices into our pump.

Down the road, for as long as these variables remain relatively stable, as Sergio had mentioned, we do not expect any relevant increases in peso terms at the pump. As you clearly state, that would imply some degradation of our dollar margins between now and the next few months. Of course, we do expect this under some particular expectations in terms of what the evolution of the FX will be. And that's why, as Sergio mentioned, if the micro variables evolve in a different way than what we are anticipating, we will probably revisit or we will have to revisit our strategy in terms of pump prices.

But then -- clearly then it's a delicate balance and delicate equilibrium on how the industry will continue negotiating the local crude, probably maintaining the differentials that you currently see, maybe reducing it marginally if international prices remain as strong as they are today, although clearly in the industry you will find very different views in terms of what the evolution of international crude prices will be in coming months. So we would expect that delicate balance to be maintained in coming months with all actors, with all relevant actors being up to the challenge and contributing to maintaining a reasonable equilibrium all along the sector, all along the value chain. And if things evolve in a very different way, of course that will require a revisiting of the general strategy.

And finally, on the conventional production side, as we've been mentioning, we are very focused on tertiary production. We are expanding investments, both on pilots and also full development on different blocks. Clearly our stellar figure there is Manantiales Behr, where, as Sergio mentioned, we have reached already 5,500 barrels of oil per day in production in the last quarter. So we continue making very good progress there, and we are further expanding that to other blocks, not only in Chubut but also in the province of Mendoza, for example, and in Santa Cruz. So we expect to invest a significant amount of money, probably in the order of $100 million just on enhanced oil recovery in coming months to continue fostering tertiary production. And through that continue mitigating the -- or at least partially mitigating the steep natural decline in conventional fields.

And just to round up with that, as Sergio mentioned also, right, we are -- we have expectations also in terms of potential incentives in the new law that will also contribute not only for us but also other players to continue investing in conventional assets. As Sergio said, we do see further potential on those assets. And maybe on the optimization of our portfolio. Those are not the key opportunities for YPF as we do see even more interesting opportunities in shale. But no matter than that we continue having a big portion of our production, roughly close to 75% of our production coming from conventional. So of course we cannot look aside and forget the efficiencies and maintaining as high as possible production in our mature and conventional fields.

There are no further questions. This concludes today's conference call. Thank you for participating. You may now disconnect.