YPF SA (YPF) 2014 Q2 法說會逐字稿

Welcome to the YPF Sociedad Anonima's second-quarter 2014 earnings conference call. My name is Loraine and I will be your operator for today's call. At this time, all participants are in a listen-only mode. (Operator Instructions) And later we will conduct a question-and-answer session. Please note that this conference is being recorded.

I would now turn the call over to Mr. Alejandro Chernacov. Mr. Chernacov, you may begin.

Great. Thank you, Loraine. Good morning ladies and gentlemen. My name is Alejandro Chernacov, Head of Investor Relations at YPF. I would like to thank you all for joining us today at YPF's second-quarter 2014 earning webcast. The presentation will be conducted by our CFO Mr. Daniel Gonzalez. During the presentation, we will go through the main aspects and events that explain our Q2 results, and finally we will open the call up for questions.

On slide 2. We will be making various forward-looking statements. So I ask you to carefully review the cautionary statement.

Moving to our agenda, today we will include the review of the second quarter's results, a brief description of our financial situation, an update of the status of the projects that are taking place in Vaca Muerta formation mainly in Loma Campana area, and, to sum up, a brief summary. So please, Daniel, you can go ahead.

Thank you, Alejandro. Thanks everybody for joining us today. This is going to be a review of what I believe is another outstanding quarter for YPF both from an operational as well as a financial point of view. Revenues in the quarter increased by 61% in pesos through a combination of higher volumes and prices. Operating income was up 168% and adjusted EBITDA grew close to 82% as margins improved in both business segments. Operating cash flow was particularly strong at ARS11.4 billion, and the -- as a consequence of this, leverage was essentially flat despite 67% increase in CapEx.

On the production side, the quarter was one where we fully consolidated YSUR, which is the former Apache, Argentina assets acquired in March of this year, therefore resulting in a total hydrocarbon production of 555,000 barrels of oil equivalent per day which represents an increase of 15.5% versus the same quarter of last year. The breakdown was plus 31% in natural gas and plus 5.6% in oil.

In terms of downstream, the business processed 292,000 barrels per day which represented a 91% utilization of our full capacity. And this refinery output was 20% higher than that of the same period of 2013 which as you may remember had been severely affected by the fire at our La Plata refinery. Market share continues in the high 50s as our brand continues to be the leader in the Argentine market.

Although as we all know we formally report in Argentine pesos despite the functional currency under IFRS being the US dollar, we decided to also show our most relevant income statement figures in US dollars to better explain the impact of the currency devaluation. So while the currency devalued or depreciated by 53% against the US dollar in the last year, revenue still grow 5% in dollar terms, EBITDA was up 42% in dollar terms and operating income was up 75% in this quarter. However, we will make the quarter to quarter explanations in the next few slides in pesos as usual.

Operating income for the second quarter of 2014 was ARS6 billion which is 168% higher than the second quarter of last year. Just as a reminder, the second quarter of last year we used the recurring results which excluded the non-cash provision of ARS855 million which was related to a claim arising from a failed gas export to Brazil that goes back to 2009. Revenues grew by ARS13 billion or 61% and the main drivers were the increase in the liquid fuels sold in local market for ARS7.2 billion, the increase in the natural gas sold in local market for ARS1.8 billion and the ARS1 billion increase in the fuel oils sold both locally and internationally.

Then there was a ARS459 million increase in petrochemical products and ARS380 million increase in exports which was mainly due to higher prices denominated in pesos.

Now the total costs grew by ARS9.7 billion which was 49%. The largest contributor, as usual, to the cost increase was depreciation which was up 74% or ARS1.9 billion, and this is a consequence of both increased investments and also to the fact that our assets are denominated in US dollars. You have the conversion here also.

Cash costs including purchases of crude oil and fuels on the other hand was only up 45% which was ARS7.8 billion. So that was a pace well below our revenue increase. Purchases included in those cash costs grew by ARS1.6 billion which was mainly explained by the price increase in Argentine pesos for the crude oil which was purchased in the local market. It is worth mentioning that during this quarter imports of diesel and gasoline decreased by 8% as lower imported volumes was partially offset by higher prices in pesos. But again, the important thing to take out here is the decrease in volumes which was significant. And we'll get into that in more detail soon.

Other cost of sales were up due to higher activity, including maintenance and service contracts of over ARS1 billion and also greater royalties. As in previous quarters, we also accrued the recovery from the insurance of our La Plata refinery this time for ARS420 million which was accounted for as less cost of sales in the bar chart that you can see in the slide.

The improved operating income was balanced in both businesses as we showed increase production in the upstream and increased processing and increased sales in the downstream and in both cases at higher prices in dollar terms and of course significantly higher in pesos. Now I will explain more detail each of them in the next few slides.

Upstream operating income reached ARS3.3 billion, showing a remarkable 129% increase over the same quarter of last year. Revenues in the segment grew by 63% which is primarily due to stronger sales of crude oil and natural gas and again, as I said earlier, at higher prices.

Now breaking down crude oil revenues and natural gas revenues, you can see that crude oil revenues increased by ARS5.2 billion as a consequence of both a 5.8% increase in crude oil prices in dollar terms and also a 5.6% increase in production growth. And to the dollar price of crude oil, the average was $75 in the quarter.

Natural gas revenues increased by 82% in the quarter and this was due to an outstanding 32% increase in production and again at high average sales price. On the production side, the most important contributor to the growth in natural gas was incorporation of the Apache assets which brought us an additional 6 million cubic meters a day.

Now the average price for natural gas in the quarter was $4.18 per million btu. This average price was slightly negatively influenced by the lower average price that we have over the -- coming from the Apache assets at $3.20. Costs increased by ARS4.6 billion, which was mainly due to cost of production increase of ARS2 billion driven by increased activity and higher expenses generally for contracted services for a little bit less than ARS1 billion, higher depreciation of ARS1.3 billion and then increase in royalties of ARS750 million which is directly related with the higher prices at the wellhead in dollar terms.

Let me clarify that these cost variances are related to YPF standalone and that the effect of the Apache assets and other subsidiaries are consolidated under that bar named affiliates in the graph that you can see in the screen. I would like to point out that during the second quarter of 2014, unit cash costs in dollar terms decreased 18% in comparison with same quarter of 2013. This was a consequence of both of the higher production and also the impact of the currency depreciation. I suspect we might give back a small part of this if inflation outpaces the evaluation in the next few quarters.

Production-wise we experienced an impressive growth this quarter vis-a-vis the second quarter of 2013, this being the fifth consecutive quarter in which we grow total production against the immediately preceding quarter.

Regarding crude oil production, the second quarter of 2014 was up 5.6% and we produced almost 241,000 barrels of oil per day. And in terms of natural gas, the increase in production as previously mentioned was 31.8% and the total production for YPF was 43.5 million cubic meters a day, again heavily impacted by the incorporation of YSUR.

As a result, in this quarter the total hydrocarbon production was up 15.5% and the total production was, therefore, 555,000 barrels of oil equivalent per day compared with 481,000 barrels of oil equivalent per day a year ago.

Now let's discuss in more detail the quarter's production figures. On the conventional side we had a (technical difficulty) quarter natural gas reflecting year-on-year increase of 4.5% mainly as a result of the drilling activity and the optimization projects primarily in Loma la Lata. On the other hand, the conventional crude oil production suffered a bit this quarter staying flat compared with the second quarter of 2013 and slightly down compared with the first quarter of 2014.

And this was mainly as a result of two events. First, the impact of the fire we had in Cerro Divisadero, in Mendoza on March the 21st which affected 10 oil fields and production which we estimated approximately 5,000 barrels of oil per day, and we expect to fully recover that production towards the end of the year. And second, we also suffered a flood in some of our fields in [Okena], Mendoza as a consequence of a big storm in April, therefore loosing approximately another 2,000 barrels of oil equivalent per day.

Now on the acquisition front, the light blue bar in your slide, you can see that the production from the Apache now YSUR was consolidated fully during the quarter and added a daily total hydrocarbon production of close to 50,000 barrels of oil equivalent per day which was approximately 10,000 of crude oil and 6 million cubic meters of natural gas.

The second portion of the inorganic growth impact came from the acquisition with it in the first quarter of 2014 of an additional stake in the Puesto Hernandez joint venture that we had with Petrobras where we already held a 61% stake and we became then the operators with 100% ownership of the field. And the production which was consolidated in the full quarter gave us an additional average of 3,700 barrels of oil per day.

On the other side, we now consolidate 50% of Loma Campana's production as opposed to 100% last year. That is why in the graph you can see a decrease in the crude oil in the second quarter of 2014 against the fourth quarter of 2013 from 9,500 thousand barrels of oil per day to 6,800 barrels of oil per day. The green portion of the bars represent the results from -- also represent the results from the Lajas tight formation which continue to be very positive. And we drilled another 12 wells there this quarter and reached a 3.3 million cubic meters of gas per day.

Now moving more specifically to the sale, operations are running as expected. We have 21 drilling rigs in Loma Campana including the four walking rigs that came in the last few months. Still waiting for another 15 rigs that have been secured and that will arrive during the next 12 months. This quarter, we drilled around 50 wells and plan to drill another 100 before the end of the year targeting Vaca Muerta formation of course. Since the inception of the project, we have already invested over $2 billion including the investments [footed] by Chevron of course and have drilled over 200 wells.

Gross production from unconventional areas reached 23,200 barrels of oil equivalent per day. And as you can see in the graph to the lower left side of the screen, it represented almost 25% increase over the production of the previous quarter. This was mainly as a result of connecting more wells coming from the north western sweet spot which in the map there is marked with a V.

Now let's take a look to the line chart on the right side of the slide. This will help us explain the evolution of vertical wells that we have drilled so far. There you can see the average of the first 12 months cumulative production of the vertical wells drilled in the different campaigns in 2011, 2012, 2013 and 2014. The top two lines in the graph represent the wells we drilled in the sweet spot in 2013 which is in [Oker] and then the tight well curve which is in red. And the good news here is that they are totally coincident.

The additional point I want to make here is that if you look at the short light blue line at the left, those are the 24 wells drilled in sweet spot this year and they are also delivering the same production results that the tight curve and that -- the one that we obtained in 2013 in the sweet spot. So basically what you can say is that today we already have 39 wells producing from the sweet spot with production history that proves our moral here.

Now in addition to that, we have drilled another 15 wells in the sweet spot that have just a couple of months of production and therefore we did not represent those in the graph.

Going back to the map in the left, we also highlighted an area with the capital H on the eastern part of Loma Campana. There we have already drilled three horizontal wells with 15 frac stages in average each and we are planning to drill another six to eight more before the end of the year. Results there show a consistent improvement in productivity and also a lower or a trend of lowering costs per well which will lead to a much aggressive horizontal drilling plan for 2015. I believe at this point that we will be drilling between 30 to 40 horizontal wells next year. Still we have only drilled 10 horizontal wells in total, so we don't feel comfortable that we have sufficient history and therefore we are not necessarily today providing indications neither of productivity or of cost per well.

In the downstream this quarter, the operating income was ARS2.9 billion showing an increase of 141% compared with the second quarter of 2013. And I again remind you that last year's second quarter results were hindered by the incident in the La Plata refinery, so the comparison is not always fair. Revenues were up ARS11 billion mainly due to higher average price in Argentine peso terms for gasoline and diesel which resulted in higher income of ARS2.5 billion in gasoline and ARS4.7 billion in diesel. Prices in dollar terms were up 4% for gasoline and 1% for diesel.

In addition, volumes of gasoline sold also increased this time by 6.2% while volumes of diesel sold decreased by 0.7%. The decrease in diesel had almost no impact on revenues due to the improvement in the mix of diesel products sold.

Fuel oil reflected increases in both the domestic and international markets to reach ARS2.2 billion showing an increase of ARS1.5 billion. And in the export market, flour and soils of the agro products increased ARS440 million and sales of jet fuel increased by ARS266 million.

Sales in the domestic and international markets for petrochemical products, by the way, reached ARS1.5 billion, increasing by almost ARD300 million and again driven higher prices in Argentine peso terms. So what you can see is that a consistent growth in revenues across all the different product base.

Costs increased by 54.5% (sic - see press release "54.6%") compared with the same period of 2013. And we highlight here first the increases in crude oil with transferred from YPF's upstream business segment of ARS5.7 billion and then the crude oil purchased from other producers for ARS1 billion, the higher prices and greater volumes of biofuels which accounted for almost ARS700 million increase and the high depreciation of ARS195 million.

This quarter's imports of diesel and gasoline dropped by 8% compared with the second quarter of last year from ARS2.5 billion to ARS2.3 billion. Imported volumes of gasoline dropped 52% while imported volumes of diesel dropped 34%. These volumetric impacts were partially offset by higher prices in -- but only in peso terms as the prices of the imported fuels in dollars were essentially flat. And this reduction in imports of course is directly related with the 20% increase in crude processed in our refineries during this quarter.

Now on the quarter, we also booked ARS420 million in insurance compensation due to the loss of margins that affected our business after the damage suffered in La Plata refinery in second quarter of 2013. And this is included in the bar chart under purchases and is in line with the accounting treatment that we've been having in the last couple of quarters.

During the quarter, volumes of crude oil processed were 292,000 barrels of oil per day, which is 20% higher than last year, and there should be a sustainable refining level for the following few quarters until we finish the new coking unit that we are projecting by -- for the end of 2015.

As you can see on the chart on the right, we continue to increase our total sales of refined products, 7% increase vis-a-vis the same quarter of 2013 mainly driven by gasoline, as I mentioned earlier, 6% increase and also driven by fuel oil with a 200% increase. And as we mentioned earlier, diesel was essentially flat with a small decrease.

Now this sales increase came from our own production as this quarter we had less imports than the previous ones, therefore slightly expanding the Company's margins.

We are proud to continue to deliver strong performance in sales in a challenging domestic market. YPF demand is strong and resilient, proving the strength of our leading brand in Argentina. In both diesel and gasoline, the blue line, which is YPF, performs better than the green line which is rest of the market. And even though we present here a monthly evolution, demand should always be read on a year-on-year basis as it is seasonal.

Now as I said, diesel demand has remained essentially flat with small declines and gasoline demand has been slowing down more sharply but also because it was coming from more significant growth rates in previous years.

During the second quarter, total CapEx for the Company amounted to ARS10.9 billion, which was 67% higher than the second quarter of last year. Upstream CapEx increased to a total of ARS8.7 billion which was 57% higher. And this level was similar to the level of the first quarter of 2014 in a way showing that we're starting to find a more stable level of CapEx. Most meaningful investments have taken place in Loma La Lata; in Loma Campana both the conventional and the unconventional; and in Rincon del Mangrullo where at the beginning of July we started up the pipeline connecting to the trunkline and we now have capacity to produce up to 3 million cubic meters a day, although I believe today we are producing in the range of 1 million cubic meters of gas per day.

Consequently we continue to ramp up activity and by the end of June the rig count was at 73 from which 61 are drilling for oil and 12 are drilling for natural gas. And in downstream, CapEx was approximately ARS1 billion and we continue to be in schedule with the most important investment which is the new coke unit replacement. That project is approximately half way now.

Now let's speak about our financial situation. We reached mid-year 2014 with a very solid financial situation, a larger gas cushion of $1.5 billion approximately, similar net debt. And given the EBITDA growth, we have a lower net debt-to-EBITDA ratio now at 0.9 times after being at 1 times in the previous quarter. Thus we continue to show a very strong balance sheet.

This quarter, we were free cash flow positive as we generated ARS11.4 billion of operating cash flow which was higher than CapEx. We had mainly two drivers for this growth in operating cash flow, the ARS5 billion increase in results including a depreciation increase and also a reduction of more than ARS2 billion in working capital.

Now having said that, I think this was a particularly good quarter in this matter and that's why we included first quarter operating cash flow figures also in this slide. So you can see that there was a ARS3 billion swing in working capital from the first quarter to the second one. So I think a normalized situation should be somewhat between the ARS6.7 billion operating cash flow in the first quarter and the ARS11.5 billion operating cash flow of the second quarter.

Part of the strategy that we had put out two years ago was also based in the increase in margins coming from both the upstream as well as the downstream, coming from production increase and also coming from price discipline. I think results speak for themselves, you can see that both EBITDA margins and operating margins moved up for at least four quarters in a row. EBITDA margins moved from the low 20s to the high 20s and almost touching 30% this quarter. And the same trend you can see in operating margins.

Now an important pillar of our strategy was EBITDA growth in dollar terms, which we have consistently delivered. 2013 versus 2012, we grew 20% in dollar terms. And in the first two quarters of 2014 on a year-on-year basis, we were up 16% and 42% respectively. So you can clearly see in the bar chart at the left how we went from a quarterly EBITDA averaging $800 million to $900 million per quarter in 2012 to around $1.2 billion per quarter in last at least four quarters.

As a result of a strong cash flow generation and the $1 billion dollar bond we issued in the beginning of April of this year, we ended up the quarter with a cash position that fully covers our next 18 months debt maturities. On top of that, I feel very comfortable with our ability to refinance most of the maturities coming due in the next couple of quarters as they are mostly bonds issued in the local market. So I continue to believe we are fully financed for the 12 -- next 12 months and still we have other sources of funding that we have not tapped.

As of the end of the second quarter, the average cost of Argentine peso-denominated debt was 28% as the increase in rates in the first and second quarter. Now it's a few points lower as rates have come down in the last few months. Now the average cost of dollar-denominated debt was 6.8%. The peso-denominated portion of our debt was 32% and the average life again increasing as almost four years now.

So in summary, another quarter moving in the right direction even under a much more challenging environment. We continue to increase results, expand margins despite the currency devaluation. We have increased oil and gas production by 15% as a result of a balanced mix of conventional and unconventional production coupled with inorganic growth with a smooth integration of the Apache acquisition.

We are not changing though our production guidance for the year which is 5% growth in crude oil and 18% growth in natural gas, although we do feel extremely comfortable that we would easily top the gas production estimates for the year. We had a strong operating cash flow which allowed us to continue to increase CapEx without increasing leverage and we ended the quarter with a very solid capital structure with significant cash reserves to provide us with the stability and visibility regardless the sovereign situation.

So with this, I would like to open up for questions. And thank you very much for your attention.

(Operator Instructions) Bruno Montanari, Morgan Stanley.

I have a few questions. First one on the gas production figure for the quarter excluding YSUR and unconventional, we continue to see the -- a sequential and annual growth. So could you talk a little bit more about the initiatives taken on these suits, if there are any particular assets that are contributing more with the growth and what we can expect from them into the next few quarters?

And then on the downstream segment, just wanted to confirm if there was already another price hike in August and if there has been any immediate effect on the pricing policy on the back of the recent development from the macro front in Argentina. And also how is the demand for fuels evolving now into the third quarter? Thank you very much.

Let me address the question on downstream. I will ask Alejandro to handle the one on natural gas.

No, there was no price hike in August. I think last time we increased prices was in early July. There aren't any changes right from the macro situation so far. And in terms of demand, we have witnessed a softening in demand, as I said in the presentation, more related to the gasoline demand, less so on diesel. But basically gasoline demand that had been up 10% last year has come down. I think in July the figures are like 6% down in the market. We have not disclosed our own figures. But I think that it's difficult to have visibility for the next of the year, but I think that we will continue to see a soft environment in terms of fuels sold locally.

This is Alejandro. Bruno, going back to your -- to the conventional natural gas question, as you said, we increased around 1.4 million cubic meters per day production of Q2 2014 against Q2 2013 on conventional. When you see these, it's widely spread actually through all basins, it's not just one special project that drove that growth. Though, of course, you should take into account that we are not only incorporating this quarter the Rincon del Mangrullo figures but we also started to lower the compression of the Loma La Lata field which we have been doing for a while already, and that has also performed with slower decline to actually the base of production that we had during this quarter. So to sum up, lower decline to the already existing fields plus activity in the widespread of our basins.

Got it. Thanks. And can we expect these trends to continue into the second half of the year?

As we always said with the conventional you should expect that. And also as Daniel mentioned in the call, there is the 1 million cubic meters coming from Rincon del Mangrullo which we are adding in second quarter. So you should continue to expect that similar trend.

Excellent. Thank you very much.

Not necessarily growing 4% year over year, but continue on a positive side.

All right, very clear. Thanks.

Frank McGann, BofA Merrill Lynch.

Two questions. One just in terms of expectations for non-conventional growth over the next several quarters, next 12 months, how you are seeing that developing.

And then cost, as you look at costs in the third and fourth quarter with recent labor agreements, do you expect to see a little bit of an acceleration in costs or do you expect to see costs remain under the good control they seem to have been so far?

No, I think that you will see a similar trend in the growth in the unconventional in the next few quarters as we are connecting a lot of the wells that we have been drilling and as you saw the drilling activity has not come down, still very aggressive.

Now on the cost side, I do think that it will depend a lot on the macro of course, right. But we were pleasantly surprised with an 18% reduction in dollar terms of our total upstream costs. I don't think that this trend will necessarily continue, but I think that we are at cost levels that we definitely feel that we can maintain in the medium and long term.

Okay. Thank you very much.

(Operator Instructions) [Andreas Sauria], Credit Suisse.

Daniel, Alejandro, I had three questions. The first one on the finance. Daniel, what's your strategy for the refinancing? Do you want to -- because you have such a large cash balance, would you rather wait before refinancing the maturities of 2015 or would you prefer to go and refinance sooner rather than later? I just wanted to understand little bit how you are thinking on timing.

Secondly, a little bit more on operations on the downstream side. You've performed much better than the market. Is this simply a reflection that you are investing while others are not or is it a result of any particular marketing strategy that you are pursuing in the downstream in fuel distribution?

And the third question, a little bit more macro maybe. What's your feel for the macro situation? And the angle I'm trying to come from is yesterday we are starting to see some more populist measures from the government. Do you think it's reasonable or how concerned are you that the government will start to implement more populist measure that will prevent price increases from the industry in the next year or so? Thank you.

Thanks, Andreas. On the financial question, I think the strategy is to refinance everything that comes to locally. We have made a strategic decision quite sometime ago of carry a larger cash cushion although that has a cost, that has a negative carry for us, but we believe it's important given that we not always have all financial windows open for ourselves or for companies generally in Argentina. So we will try to continue to preserve that cash cushion as much as possible. So whatever comes to locally, we'll try to refinance.

Then on the macro situation, let me the skip the second one for a second. We haven't sensed any change in terms of government policy frankly. I think what you are probably seeing is the government is focusing on trying to avoid as much as they can any negative implications on the real economy. So they will be taking measures in that respect. I don't think that that will have a direct impact in our pricing dynamic.

Remember that Argentina still has an important energy deficit which we are contributing to try to solve, to reduce at least in the short term. And that reduction in deficit is directly related with increased investments that will result in an -- in increased production and those increased investments will be difficult to fund if we cannot maintain in the medium term of course our pricing power in hard currency, in dollar terms. So for now I don't foresee any changes, which doesn't mean that you will see exactly same pace of price increases like the one that you have seen in the first quarter. But again, medium term you should assume that we will at least maintain our pricing power in real terms.

On the downstream, I think we have not necessarily gained significant market share. We have gained a couple of points. It's difficult to explain exactly where this is coming from because it's not that all the rest of refiners are having a similar behavior. There are some refiners which have shown weaker results than others and of course we will not get into a name-by-name basis. I think that all-in-all we have reduced our pricing gap with competition and still gained a couple of points of market share. So that speaks highly in terms of the brand recognition that YPF has, and I think the positive image generally that YPF has locally and that people are perceiving the new YPF as very positively again.

Okay. Thank you very much.

(Operator Instructions) [Gayo Garbahal], JPMorgan.

I think some of my questions were already addressed but I have just two follow-ups here. One on the conventional production, if you could -- two things here, if you could comment again on the reasons why the decline on this quarter after some sort of stability in the last couple of quarters and how do we see the third quarter going on to date? If you could share as we are about at the mid of the quarter already, so if you could just give us a sense on how do you see the third quarter to date specifically on the conventional oils production recovered.

And the second question is referring to financing. I understand that you guys are generating some interesting cash flow, but how do you see your requirements for new debt between now and the end of the next year? Do you plan to accept debt market and do you see any restrictions? How do you see the level of requirement and the conditions to raise those financing? Those are my questions. Thank you very much.

On the conventional oil production decline of the quarter, it was mainly due to the incident in Cerro Divisadero. In Mendoza, we had a fire which is not that significant but did affect 10 oil fields. And we are estimating that we lost production in average in the quarter of 5,000 barrels of oil per day. And we are slightly -- well, we have significantly recovered that not fully, but we will fully recover that before the end of the year.

The other effect was climatic effect mostly in the province of Neuquen which also had a negative effect that we are estimating in 2,000 barrels of oil per day in average. What we are seeing is, as I said, is that we are recovering production. So you hopefully will see an increase in conventional production in the next couple of quarters, but of course we are not -- never provide any updates intra-quarters, right.

And in terms of financing, we do not have any plans of accessing the international markets for now. Of course, the timeframe in your question is long one before the end of next year, well, I don't know. To be totally frank with you, we still do not have a budget for next year. But I think that we have enough visibility in terms of telling you, hey, for the next 12 months we are fully funded. And after that, we can always tap the local credit lines from the banking market which we have hardly used. We still have a committed line of credit of close to $1 billion from the Argentine treasury that we have not used. And of course we can always, if it comes to the worst situation, make change, make an adjustment in our CapEx going forward.

So we will continue to be very optimistic -- opportunistic and also optimistic, yes, regarding issuance in the markets. And if the situation, the sovereign situation gets resolved at some point, you should not be surprised if we go back to the markets just to rebuild our cash cushion again. But in the meantime if that window is still close to us, we don't need to resort to that to fund our operations at least for the next year.

Makes sense. Thank you very much for the answer. Thank you.

Andreas Sauria, Credit Suisse.

Just a couple, two follow-ups if I may. If you can comment on shale partnerships in general and if you have seen any changes due to the recent macro situation. And another question on the working capital change, is that related to the payments from the reimbursements from the government due the gas pricing formula and how is our situation today, has the government reimbursed you for all its due on the gas pricing formula? Thank you.

Thanks, Andreas. On shale partnerships, we have made public a few months ago that we were in conversations with Petronas and nothing new to report there. We are not in conversations regarding other shale partnerships. We don't need further shale partnerships at this stage. Remember that our strategy there is to try to de-risk as much as we can some of the acreage that we have and do develop with form outs but once we are ready to develop as opposed to just selling too early in the process.

So to the second part of that same question, does the macro situation have any impact, we have not sensed that it has any impact. We believe and I think most people believe that this sovereign debt situation is a temporary thing which of course is difficult to predict how long it will take. And when these partners make investment decisions, they are making 35-year investment decisions. So I think they are less concerned with these short-term events.

In terms of the working capital question, no, it is not related with the subsidy that we get on the price of natural gas. Actually the amounts outstanding in terms of collectables coming from this issue were essentially flat from one quarter to the next. What you can see on the picture or the snapshot at June the 30th is that we had a balance -- I don't recall exactly the balance -- of gas to be collected, but important thing is that on July 1st we collected most of it. So it came down again. So that is not part of the answer.

The answer has more to do with activity, with the imports of both products for our own investments and imports of own fuels that we have to sell. As I said, imports have come down significantly in the quarter, and in the same quarter of last year we have made some advances both for imports of products, but also on CapEx, a lot of that also related to the fire in the refinery that we started to rebuild right after the fire occurred. So those are swings which are normal in the course of business, so that we've been extremely candid in showing you what the operating cash flow figures were on the first quarter so that you can see that this positive swing in working capital from the first to the second quarter you should not necessarily replicate it going forward.

Okay. Thank you very much.

Bruno Montanari, Morgan Stanley.

One follow-up. Is there any news on the developments of talks about the YSUR gas price scheme? Any chance moving into YPF's 750 scheme with the government?

We don't have any news, Bruno. We are working on that direction. We are not only working, we are making substantial progress in that direction. So hopefully before the end of the next quarter, you will have news regarding this issue.

All right. Thanks a lot.

Frank McGann, BofA Merrill Lynch.

Just quickly on -- in terms of the proposed hydrocarbon law that I know is still very much in the works and there is -- nothing has been finalized. But I'm just wondering I know that YPF has been very active in supporting certain position. I'm just wondering how you see that and the importance that that has for your business as you go forward.

Well, Frank, we are not lawmakers. We support significant changes to the existing hydrocarbon law which is 45 years old. We believe it's good for investment going forward. We believe it provides some farewell coordination without the provinces loosing the ownership of the resources which is unquestionable or the ability to hand concessions which again is unquestionable. We strongly believe it's a positive -- would be a positive development for the industry.

Of course, we understand that these things attach a lot of interests and it's logical that there is plenty of debate, and unfortunately this is a public debate so you will hear -- you will continue to hear lot of noise. It doesn't have any short-term effect on our operations one way or the other. So I think that if for any reason it gets delayed or if it doesn't go through, it will not change the way we do business in the short term we believe. But if it does go through, I think it will have a very positive long-term effect in terms of investments, of much-needed investments into the sector. So we'll see. It's a process that still has several weeks to couple of months to see its evolution.

Okay. Thank you.

Thank you. And at this time I am showing no further questions.

Okay. Thanks, Loraine. And thank you everybody for your attention. Alejandro and his team and of course myself also are available to follow-up if anything has not come clear enough. So have a great day. Goodbye.

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