YPF SA (YPF) 2012 Q4 法說會逐字稿

Welcome to the YPF Full Year 2012 and Fourth Quarter Earnings Conference Call. My name is Sandra and I will be your operator for today's call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session

(Operator Instructions)

I will now turn the call over to Gabriel Abalos. Gabriel, you may begin.

Thank you, Sandra, good morning, ladies and gentlemen. My name is Gabriel Abalos, head of IR department in YPF. I would like to thank you for joining YPF Webcast presentation where we will discuss our 2012's full year and fourth quarter results. The presentations will be conducted by our CEO, Mr. Miguel Galuccio. Together with us we also have our CFO, Mr. Daniel Gonzalez. During the presentation, we will revise the main aspects and events of the full year 2012 and the fourth quarter results in detail.

Before I hand over the presentation to Miguel, I need to let you know that we will be making various forward looking statements, so I ask you to carefully review the cautionary statement on slide two. Please, Miguel, go ahead.

Thank you very much, Gabriel. Good morning, everyone and thank you again for joining YPF full year 2012 earnings Webcast. This morning I will be going through the key issues and achievements we had during the year 2012 and then Daniel will deliver a detailed explanation of the quarter results and a brief description of our financial situation. Finally, we will open up for calls -- the call for questions.

First of all, let me start by saying that during this transition year, I believe we end up having a very good run with very positive operation and financial results of which I feel very proud. I took over as the CEO of YPF on May 7th and by the beginning of June, I was formally appointed also as the chairman of the board.

But then our (inaudible) the company where enough (inaudible) period had had more than five consecutive year of downward production with declined rate that (inaudible) over 5% per year and in our start in Q1 2012, which was the starting point of this new management, the company was producing 487,000 barrels of oil equivalent per day after a drop in production of as much as 3.5% in only that quarter.

In the downstream side, YPF was only processing 265,000 barrels per day in our refineries out of a total capacity of 320,000 per day. I also found a very frustrating financial situation with a small amount of cash and almost all of the debt maturing in the very short term and an important (inaudible) to change of control provisions.

Our contractors, mainly oil service companies, a cornerstone of oil invest company in a grow mode, were not aligned with YPF goals. Among other reasons because their tariff has not been asserted since 2010. A poor relationship with labor unions, which have result in a long-term strike only few quarters earlier.

So let me start with the (inaudible) production, the blood of our oil company. In 2012, we accomplished a change in production (inaudible) a reversion of these trends. I believe we've established a very (inaudible) of continued production growth. In 2012, YPF only suffered a decline in the total hydrocarbon production of 0.6% to 485,000 barrel of oil equivalent per day.

This is a result of an increase in crude oil production of 2.2% and a decrease in natural gas production of 2.3%. The decline in gas of 2.3% need to be put in context as the company has been it's gas production (inaudible) gas production decline by over 10% in 2011 as high as 12% two year earlier.

So with regard to our (inaudible) activity, we recover almost full capacity levels. During 2012, we process around 288,000 barrels per day mainly driven by the ramp up we did in the second semester of the year, reaching 299,000 per day or 4.9% more than in the same period in 2011. The refining project are inline with the plan.

During 2012, we conclude this (inaudible) project of (inaudible) and [La Plata] refineries to improve the quality of our refined products. We start up the diesel hydro treatment plant in (La Plata) and we moved forward with the construction of the new coking unit which we expect to be fully functional by the end of 2014 are in both diesel and gasoline production.

Even though we consider the catalytic (inaudible) form a part of our chemical business, it is completely integrated with our (inaudible) operation. As once it is finished and operational by middle of 2013, we will have more gasoline and production out in the market.

Now let's look at the revenues. We exceed ARS67 billion in 2012. This was 19.5% above the previous year driven by a solid demand of our products in the domestic market and underscoring the importance of having a diversified revenue mix and a fully integrated company. In the 12 month period, diesel sales increased by five billion pesos due to a 30% hike in the average prices in the local currency that offset a decline in demand of 6% although we increased our market share to 57%.

Gasoline volumes rose by about 6.3% throughout 2012 and an average price also increased by 25%. (inaudible) volumes (inaudible) in the domestic market went up by 108% in the current year with an average price increase by 25% compared with 2011.

One thing, which you want to highlight, and it's extremely important for the future of the oil company and also for the whole industry in Argentina is a new (inaudible) of the gas prices. During the whole year, natural gas prices stood a similar level in comparison to the previous year, but in the last quarter, there was a positive increase from $2.65 by million of Btu in the Q4 of 2011 to a $2.82 per million of Btu.

This was a consequence of the agreement that we signed with the planning and strategic coordination commission of the national plant of hydrocarbon investment to incentivizing section of the new natural gas volume to the domestic market with state that will be receive $7.50 per million of Btu for all the additional gas that we produce.

Only the month of December of 2012 we experienced ARS64 million pesos in additional revenues coming from this price increase and we expect approximately another ARS500 million in revenues divide by for the incentive during 2013.

Now let me refer briefly to our financial result for the years and I want to make sure that I focus the most in the cashflow generation. Therefore, I'm satisfied to announce that our operating cashflow was ARS17.3 billion, 36% higher than the previous year. Revenues, which are not showing in this slide, were up almost 20.

EBITDA was also above last year, reaching 18.1 billion pesos, a growth of 21% year over year and unfortunately, reported net income is not showing that the same impressive performance and have declined by 12%. The main reason behind the reduction in net income has to do with the negative performance of our control and no control affiliate, mainly (inaudible), which represent a negative variation of 1.2 billion pesos between this year and the last year.

Now let me show what we have done with such an strong cashflow generation. We started the year with a very low cashflow -- cash base of ARS1.1 billion and generate an additional ARS70.3 billion.

On the top of this and despite having most of the (inaudible) debt in the short term, we were able to refinance all the debt and raise an additional 2.7 billion pesos. Therefore, we were able to find our CapEx of ARS16.4 billion and build up a cash cushion of ARS4.7 billion.

With this cash position, will allow us to comfortable place the first half of 2013. Very important part to highlight regarding our debt position is the favorable condition that we have been able to achieve. Longer term, low leverage, heavier weighting of peso debt and low average rates.

In the year 2012, the company had total (inaudible) of 153 million barrels of oil equivalent of which 107 correspond to liquid and 46 correspond to natural gas. The overall result replacement ratio was 86% composed by the -- an inclusion 106% liquid and a very shy 59% in natural gas.

The performer in natural gas is not surprising that the company has only one (inaudible) driven natural gas well we had to cover and I'm very optimistic that this picture will be very different one year from now as we actively develop conventional sources and starting to (inaudible) some of our non conventional resources on the gas basins.

The graph at the right side of the slide show a dramatic increase in activity, growing drilling rigs by 80% in less than one year. And total CapEx in the (inaudible) business reached ARS12 billion, 34% above the previous year. This increase in activity -- this increased activity without any doubt will result in increase of (inaudible) and production in the years to come.

Now I would like to spend a few minutes on (inaudible). We continue full (inaudible) containing our (inaudible) and moving forward on the understanding of three windows of oil, wet gas and gas. We move north in the oil window as you can see in the slide, the dark blue balloon represent the two wells we drilled just north of (inaudible). In (inaudible) continuing the tension of the core area to those block. We continue far north in the (inaudible) and drill another positive well which can be seen in the light blue balloon, finding another core area and add it to the well drilling between both of these two core areas, we are confident that this window and the core area continuing -- is continuing -- (inaudible) to the north.

(inaudible) gas window, we drill four positive well and we have confirm that the shale gas potential in the basin which we plan to continue exploring during the years to come and which has (inaudible) and no conventional gas well (inaudible) with very promising results.

I will move to the formation border. We were sure surprised that the very encouraging results. We continue expanding to develop as you have seen highlighted by this (inaudible).

Now let's focus a bit on the development phase we start this year. We're going to drill around 130 wells as part of our pilot project. We are making progress in our learning curve to find the key to turn (inaudible) into a highly profitable shale development as fast as we can. Inline with this, we finished the first (inaudible) reservoir simulation model leaded by YPF team together with a top North American shale experts.

We were able to increase initial production due to improved fracking (inaudible) and by managing the (inaudible) imposed by these earlier fractures. (inaudible) completion contract generating savings and efficiencies and economy of scale that we will see further increased during 2013.

From 2011 to our last well, we reduced completion costs of around 20% and increase the average amount of frac, which are saving in total around 10% of our well costs. We change the drilling metals to multiple drilling simulating efficiencies and (inaudible) from one up to three stage frac per date and the last well that we just drill has reach five stage of fracking.

All in all, I think the progress in (inaudible) is looking good (inaudible) is everything everybody was expecting and even more, so to be able to put this into value, we are focusing in the well costs reduction, completion deficiency and the EUR of each well.

Now I would like to turn the presentation into Daniel.

Thank you, Miguel. Good morning, everyone. Before moving on to the detailed explanation of the fourth quarter results, I will quickly comment on 2012 full year operating income.

Operating income total ARS7.9 billion pesos in 2012, which was 9.9% higher than that of 2011. This was mainly driven by a better operating result obtaining our upstream business as well as higher revenues reached in the downstream business mainly as a consequence of higher sales in the domestic market as mentioned before. Because of a price increase in crude oil that went from $59 in 2011 to $70 in average in 2012, the downstream business, despite the higher revenues was -- showed a decrease of ARS1.4 billion in operating income.

On the cost side, we believe we could have done better as we were not able to fully transform our revenue and EBITDA increase in the same level to the operating income increase. However, a good part of the reason behind this decline has to do with the performance of our non (inaudible) control affiliates like (inaudible) and YPF Holdings, as shown in the graph. Absent that negative effect from the affiliates, operating income would have increased similarly than revenues and EBITDA. In the case of holdings, this charge is directly tied to the progress we are making toward limiting our (inaudible) exposure.

Now moving onto the fourth quarter results, our operating income in the fourth quarter increased by 81% to ARS1.8 billion. EBITDA increased by 65% and net income increased by 90% in the quarter. We experienced a strong revenue increase of 26% as we had higher prices of approximately 20% both in the diesel and gasoline products, which are our two most (inaudible) products and higher domestic volumes which were four and 10% higher than the previous quarter. Also as gasoline demand increased 10% and fuel oil more than 300%, while diesel demand softened by four% in the quarter.

The increased in cost of sales is related to two main factors; one, the increase in average crude oil from $66 to $69 in the quarter and second, the increase in service contractors as many tariffs have not been updated since 2010 and we proceeded to adjust them to more realistic levels. Also higher depreciations affected our results by more than ARS 400 million. Fourth quarter 2012 results in upstream were up because of the higher crude oil prices we just referred and was probably offset by a cost increase that we just mentioned.

Now moving on to the refining and marketing, we can see the other side of the same coin. The higher crude oil prices paid to our upstream business and to third parties had a negative impact that fully offset our revenue increases. However, crude oil prices have been stable for 12 months and therefore we should not see a similar negative comparison in the next few quarters.

We are satisfied with the dynamic -- the pricing dynamic of this business sectors -- segment, sorry, as our sales price continues to evolve at sustainable rates. The chemical business presented a very healthy 40% increase in operating income as a consequence of higher exports of methanol, alcohol and solvents.

Moving on to CapEx, CapEx were up 37% in the quarter mostly in upstream both in conventional and unconventional. Downstream and chemicals continued with a respective projects, coke unit, CCR and others. Moving to the financial situation, in the past there was a lot -- there were a lot of questions regarding our ability to finance our plan. I believe we have been very successful so far in funding our needs and pre-funding some of our 2013 needs under very convenient terms and conditions.

Since we re-entered the markets back in September, we issued approximately ARS11.3 billion in the local market at different maturities with different currencies both on a fixed and variable rates. We addressed both institutional as well as the retail market with equal success.

In the fourth quarter, we raised a net financing of four billion pesos that coupled with our cashflow generation of ARS 4.7 billion allowed us to finance our increased CapEx and build the cash cushion that Miguel referred to earlier. Our average interest rate is now 5.8% in dollars and 18.9% in pesos.

This next slide on the maturity of the financial liability so indebtedness is expressed in US dollars and intends to show how we have lengthened the average life of our debt to 3.5 years and spreading our maturities to avoid large refinancings. And starting with a cash position of close to $1 billion, which was more than enough to cover the refinancing, needs of all of 2013.

The last point I would like to make before handing it back to Miguel is that we changed the currency profile of our debt and we now have approximately 50% of our debt denominated in pesos which is better aligned with the revenue stream. Miguel?

Thank you, Daniel. So let me close by saying that in 2012 we successfully execute the five impact plan that I outlined very early during the 2012. We stopped the production decline, increasing our drilling activity. We stabilized our financial situation. We closed a couple of very important long-term milestones like the extension of the concession in certain provinces and the increase in the (inaudible) price of gas. We made substantial progress in (inaudible). We've put in a lot of time and my own personal effort to improve our relationship and communication with the labor unions.

For 2013, the challenge is to move on to a growth mode, but no growth at any cost. I intend to preserve the profitability of this company and I will have all the (inaudible) to relay or eliminate project if it's needed. The CapEx plan is aggressive and I believe we can implement and still maintain a sound capital structure. I also intend to put a lot of pressure on the organization to make sure that our cost base remain under control, which is the challenge in the growth environment like the one we are in.

Suddenly some of our subsidiaries have not performed as expected and we have dragged out -- and have dragged down our results. As opposites of the past, we intend to manage them actively and pursue the organization and financial and regulatory changes as it needed.

With this, I would like to end my presentation and open up for questions. Thank you very much.

Thank you. We will now begin the question and answer session. (Operator Instructions). Thank you and the first question is from [Craig Megan] from Bank of America-Merrill Lynch. Please go ahead.

Okay. Good morning. Yes, just two questions, if we could. One is you had announced negotiations and memorandums of understanding with both Chevron and (inaudible) and we were just wondering what the status of those is because they should be getting fairly close to the time limits that you had stated.

And then secondly, in terms of production goals for 2013, do you think you can show actual growth in the -- for the full year this year? And what are the -- you know the early trends that we're seeing in the first quarter for both oil and for gas?

Yes, thank you, friend, for the questions. Yes, let's start with the (inaudible). So let me give you a (inaudible) with Chevron. Chevron we have a good line of closure in (inaudible) not mistake it in two months time. We are basically progressing as (inaudible). We have Chevron team that we put in place late last year and have started to go back and forth between Houston and Buenos Aires almost twice a month.

This team from Chevron have confirmed by the technical evaluation that we have done and I think last week they finalized a common economic model with our team.

So basically, the Chevron deal is moving ahead (inaudible). I will have to say that probably you and others have realized that the difficult that Chevron have had here would (inaudible) -- yes -- the problem that they have in (inaudible) and therefore probably to establish this project, the economic model or the business model that we will use will not be the farming one that we were expected. So you will probably expect that there will be some modification to the business model. The decision of Chevron of going forward with this project is still -- are still as they were at the end of last year.

With (inaudible), we have less pressing schedule because Chevron is basically farming in (inaudible) area, that is a core area where we are targeting to drill 130 wells this year. Those wells -- these pilot projects have already started and that was the plan since when Chevron come in with farming in the project and take care of the capital that is part of that project that we have put in the first place.

Now (inaudible) is in a different area with a completely different schedule. (inaudible) is also progressing as expected. I understand because we have moved from the phase of presenting the technical and geological and economical models to the (inaudible) team, now I think they are interacting with their partner in China. So this is the last information that I have of the progress of the (inaudible) project.

As per the rest, the question was on production goals. Well look at -- I mean we have a very aggressive CapEx schedule for 2013 and inline with that CapEx investment, we have -- we are aiming for target of production of four% increases in oil and one, 1.2% increase in gas. Of course, as I mentioned before, the CapEx deployment will depend of the conditions of the market in term of pricings for rigs, pricing for services and all of the other things that make us grow profitable.

If we have any project where we believe the prices from the markets are not the right ones or we have to slow down for efficiency, I will not hesitate in a slowdown and therefore, I will adjust the production targets.

If I could just follow up maybe on that last point, are you seeing difficulty getting rigs at good prices or you know getting the headcount you need to grow the business?

We have increased our rig fleet and we have almost doubled our rig fleet in the last six months, therefore we have been able to find rigs. Many of the rigs we have to do a quite a big refreshment in order to bring into the safety standard that are used to. Therefore, as we said we are reaching probably the limits in the local market of the number of rigs that we can raise and probably the next bunch are most likely will come from (inaudible).

Of course the negotiation with rigs that come from (inaudible) is going to be probably be tougher than the one that we have had in the local market.

Okay. Thank you very much.

You're welcome.

Thank you and the next question is from Marcus Sequeira from Deutsche Bank. Please go ahead.

Two questions; the first one is on Valley announcement yesterday that the company had to cancel the Colorado project and I had seen that you guys had the -- a contract with them for tight gas. So just wondering if -- because I understood that you -- that the contract had already been signed, so I just want to understand if there was -- you know if there is anything that or any penalties that you guys could receive from Valley or -- and also if there is any chance that you could renegotiate with another company to see if there's gas. And then, just following up on CapEx for this year, you know assuming no JVs which I notice is a very conservative scenario, but just assuming no JVs, what is your expectations of additional funding that you would need to get to complete your investment program for this year? Thank you.

All right. And thanks, Marcus, for the questions. So I will handle the first one and I will let Daniel to answer the second part of your question. So with regards Valley JV and pro -- don't quote me because I don't have probably all of the details with me here, but this JV have allow us to fully delineate the area, okay? And basically now we were moving into the phase of development. So the delineation of that area, first of all, is very encouraging. So we have -- we are expecting very good output of gas production from the project.

Now the next decision that Valley will have to make if they continue investing in this project since as you probably have read as I read yesterday, they are canceling the project that is basically -- it was going to be sourced from that field. Therefore, the decision is on Valley's side. We plan to develop that area. We will continue develop that area with them or we can develop that area sole risk. Again I do believe that area is very encouraging. I do believe now with the new price structure that we have of $7.50 per million of Btu, we have all the conditions for us to speed up the development of that area.

Thank you. Just a quick follow up on that area. Is the pipeline infrastructure available so that you can move the gas to other areas where the consumption is? Or you know the -- because if I understand it correctly, that gas was for the Valley project. So if now that Valley is out, can you sell to somebody else? (inaudible) this gas --

Yes, Marcus, it's interconnected. We have -- I would say that on the gas, we have three (inaudible) my last revision. This is definitely one. So this area is in (inaudible), it's connected to the system. For us, it's very (inaudible) that you put that gas into the system and to get the incremental gas that will bring the incremental price. We have another one that is in (inaudible) that require a pipeline, but also is very close to be connected to a pipeline that (inaudible) has where also we can increase that production very quickly.

So there's two or three projects where we can get a good output of production -- of gas production very quickly and this one is definitely one.

With regards, Marcus, to your question on CapEx program for 2013 and the additional financing needs. The CapEx budget for the year, it's approximately $5 billion and considering that we started the year with a little bit less than $1 billion in cash, that we have already raised $350 million of more financing, that we have the local lines of credit which are completely unused and we intend to use them, plus other sources of financing that we have already secured.

We believe that we are still $500 million short for the last few months of the year in order to fund all of our needs and frankly, we are very confident that that is a level that we can manage without any problems.

Perfect. Thank you, guys, very much.

You're welcome.

Thank you and the next question is from Gustavo Gattass from BPG. Please go ahead.

Hi, good morning, guys. I had a couple of questions. The very first one, Miguel, maybe you can help me understand. I just wanted to try to look at your reserves and try to understand from the point of view of the reserves, how we should think about let's say the pools of resources that YPF has to tackle right now?

I have to admit to you I was expecting to see with a greater activity that you guys were putting on perhaps a bit more reserves coming into the books this year. And I just wanted to understand, have we seen let's say any of the potential for additional reserves that could come from I don't know more aggressive in field drilling or something like that?

Or is this what YPF really has to work on for now and from now on, it's perhaps the Valley project and then the unconventionals? How should we think about the reserves book and the potential to grow more production from it for now? That's question number one.

And the second one, I just wanted to check with regards to the gas stimulus program. I just wanted to figure out how quickly things change from what we saw in December. Was December a full month contribution? Or was that a partial? Or I don't know, are we going to be seeing a very big step kicking in as calendar year 2013 kicks in to achieve the $500 million? Those were the two.

All right. Well, thank you, Gustavo and again I will handle the first part of the question and I will leave the second part to Daniel. It's a very good question and I will try to give you a flavor of how I see it. Or definitely just when you look at YPF resources, you should expect that somehow those resources are going to material (inaudible) in the year to come. How and how quickly that is basically the question.

We're still having a very important portion of our overall activity on the conventional resources. We also will see that in 2013 there's going to be more resources going into water flat and some special recovery pilot. This definitely will bring new reserves in to our books.

Now for me, the two main sources of reserve will come from extension of concessions, OK? And we had one in 2012 and of course the new composition of YPF, our close relationship with the providences give us -- put us in probably a much better position than the one that we had before in order to bring those to a realization.

Now the second part of the reserve is related with unconventional, but as for today, the unconventional been pretty much focused on the (inaudible). Now when you look at the unconventional, the key will be to find the right way and the right pace to book the reserve and when you look at the into the industry today, where are the (inaudible) that people are using to book unconventional resources, you will see that the industry have not yet find a way or a best practices to move forward into having a rational booking of the reserve.

We are looking into -- I have take -- I will set very rational approach to the matter and of course because also part of bringing the partners and bringing the JV is finding and we are discussing a part of our -- after these questions (inaudible) JV finding a common way in those JV of how we are going to develop the reserve and how we are going to book them.

So I would not like to tell you more than that today. I have to tell you that we have the resources. We have very encouraging resource, but we will look into which will be the most rational way of pooling the reserve into the book. I'm not going to go and push reserve into the book because I want to raise the value of (inaudible), that's not my way. I want bring value of (inaudible) because we are developing (inaudible) with wells that product well and we will (inaudible) that create good economics.

Gustavo, regarding your question on the new gas price. Yes, December was a full month, but I don't think it's really representative for the future for two reasons. One is seasonality; December is summer and you will start seeing much higher effect in the winter. And the other one is that the way this price mechanism works is that (inaudible) base gas declines at some rate that we can just use as an example, let's say 7% per year.

So in 2013, you will see that the weighted average of price is going to be much higher than in December and in 2014, higher than 2013 and on and on. Right? While the base continues to decline and we replace that base or that old gas with new gas and in addition to replacing it, we grow as Miguel said, by at least one% this year and continued growth in the future.

And now if I could just follow up on that. When you look at that curve, is that curve a monthly curve that declines? Or for example, do you have a base number that is much lower as soon as you get into January 2013? Just so that we can understand the mechanics of it.

No, the base is a little bit below what we were producing in December, okay? And from then on, you decline at a given rate which we have not disclosed exactly what that is, but let's say in average approximately seven% per year. OK? That's the way it works.

Okay. Perfect. Thank you.

Thank you and the next question is from [Alejandra Arandas] on (inaudible) BBA. Please go ahead.

Hi, good morning. Just wanted to ask you, what can we see looking forward for (inaudible) prices? What dynamic do you have in mind?

Well, Alejandra, probably you know very well for us today here it's more important the prices that we manage to put at the gas station than the crude oil pricing. Now as I mentioned before, we have very good price increases both in our diesel and gasoline during 2012. I am expecting we will have similar prices, increases during 2013. Therefore I will say that if we continue with the same pace, you will see that probably that will push the crude oil price a bit up.

The other economics that you have here with the crude is the price of (inaudible) is the crude that is on demand in the market and of course, during 2012, I think we were the only company that increased their output of (inaudible) crude. So if due to the refinery configuration and due to the demand at the gas station, the demand of (inaudible) need to increase then also you can see an increase of crude pricing.

Now YPF as a fully integrated company, we do our (inaudible) in the downstream side or the upstream side in different -- what really matter for us is the price at the gas station.

Okay. Okay. Thank you very much.

Thank you. The next question is from Jamie Sommerville from TD Securities. Please go ahead.

Yes, hi, good morning. I just wanted to follow up on some of the reserve questions that have already been asked. The discussion was generally forward looking. I just wanted some clarification on what has actually been booked to date. Can you confirm that the reserves that have been booked exclude -- essentially exclude any unconventional? Or have you started to book some small amounts of unconventional reserves? And if you have, to what extent?

Yes, Jamie, unfortunately, we are not going to make any disclosure of our reserve number here. I give Gustavo I think a general feeling of what I see is the potential of the reserve growth for YPF. I can add to you that we are creating a new methodology to book unconventional reserves something that many companies are today trying to put in place. But I'm not going to disclose any detailed reserve number here.

Okay. Fair enough. I have another question if you don't mind, which is just with regard to your comments about availability of service equipment going forward. To what extent does YPF account for a very large percentage of the demand for service equipment? And to what extent are your cautionary comments with regards to service equipment availability going through 2013, to what extent is that also based on a view of increasing activity from other companies in Argentina?

Yes, well so far we've been quite comfortable on service equipment. We have mainly most of the service companies here, some of them been present for many years. They have been very diligent reacting to the increase of activity. I will said that something that was (inaudible) of was to be able to push -- to bring the right level of technology that we need to have good performance in our completions, particularly in the unconventional oil phase. I have to said that we are today having a state of the art fracs here in Argentina and they are reacting extremely well.

With regards to the rigs, same comment I had before. I think the rig fleet in Argentina is I will said a big part of the rig fleet in Argentina is a bit out of date. So we have put a lot of effort bringing some of the rigs up to the standard. We put out a tender -- an international tender. We have a lot of our presentation from international companies like (inaudible) and so on, okay?

They are very interesting. They have not become with a proposal on one rig; they have been coming with proposal of five rig package. So I will said that probably the second phase for us is to bring some of the rigs into the market.

Okay. Thank you very much.

So Daniel is reminding me here yesterday in the board, we approved basically bringing another additional 15 rigs, that is the tender that I mentioned to you before into our fleet. OK? So so far, we are doing quite well with equipment. To be honest with you, a bit more concern about the people site even though people are coming in, we know many of them are green hats in the industry have no growth at that pace for many years.

Thanks again, Cecil.

Thank you. This concludes the question and answer session of today's conference. I will turn the call back over to Mr. Gabriel Abalos for any closing remarks.

Ladies and gentlemen, thank you very much and we probably see each others in the next quarter review. Appreciate your presence. Bye.

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