YPF SA (YPF) 2022 Q1 法說會逐字稿

Good day. My name is Sophia, and I will be your conference operator for today. At this time, I would like to welcome everyone to the YPF First Quarter 2022 Earnings Webcast Presentation. Today's call is being recorded. (Operator Instructions) Thank you.

And I would now like to turn the conference over to Pablo Calderone. Please go ahead.

Good morning, ladies and gentlemen. This is Pablo Calderone, YPF IR Manager. Thank you for joining us today in our first quarter 2022 earnings calls. 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 first quarter results. And finally, we will open up the call for your 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 U.S. dollars. 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. Please, Sergio, go ahead.

Thank you, Pablo. Good morning, and thanks, everyone, for joining us this morning. We're just to report robust beginning of the year across our key operational and financial metrics, delivering on our ambitions and guidance for the year.

During the quarter, our total hydrocarbon production continued with a positive trend, bring it to market over 500,000 barrels of oil equivalent per day, a 5% increase from the previous quarter and 16% on a year-over-year basis on the back of yet another quarter of outstanding growth within our shale operations.

The production expansion contributed to a positive evolution in adjusted EBITDA, which reached almost $1 billion in the quarter, expanding 17% from the previous quarter and 27% on a year-over-year basis. This increase in adjusted EBITDA was also the result of a higher pricing environment for brand reference products, affecting about 20% of our revenues as well as higher average prices on our fuels domestic sales.

On the latter, during the quarter, we have managed local fuel prices going along the strategy commented during our last earnings call. Adjusting prices both at the retail and the wholesale segment in a way to compensate for the devaluation of the currency, while also managing to partially track rolling international reference prices. The overall positive operating results, coupled with lower net interest expenses, permitted our bottom line to come in positive territory once again.

Net income for the quarter stood at $248 million, remaining flat versus the previous quarter. In terms of our investment activities, we have made good progress towards our ambitious plan for the year announced in our last earnings call. Total CapEx amounted to $748 million in Q1, representing an increase of 53% on a year-over-year basis. Although this includes a slightly slower-than-expected campaign drill and completion within our shale operations, primarily on the back of COVID-related delays early in January and some weather-related restrictions in February, we have already regained speed and shall fully catch up in the second half, thus delivering on our full year CapEx guidance of $3.7 billion with some bias to the upside. In addition, we also remain confident in our ability to deliver on our production goals for the year and even considering the scenario of surpassing them, which shall result in the highest organic growth in the last 25 years.

On the financial side, the first quarter of 2022 represented the highest consecutive quarter delivering positive free cash flow, adding $391 million. This has allowed us to continue strengthening our balance sheet by reducing our net debt to $5.9 billion, pushing our net leverage ratio below 1.5x.

Let me close my remarks by saying that although the global environment remains highly volatile and local conditions continue to be challenging, we are very proud of the results achieved during the quarter and reinforce our view of the unique opportunities that lie ahead. In this context, we shall remain focused on delivering on our growth opportunities while maintaining profitability and financial prudency at the forefront of our decisions and doing so with a steadfast delivery on sustainability progress.

I now turn to Alejandro to provide you with some further details of our operating and financial results for the quarter.

Thank you, Sergio, and good morning to you all. Let me begin by expanding on Sergio's comments about the evolution of our oil and gas production during the quarter. Total hydrocarbon production continued with the expansion path that began a year ago, reaching 506,000 barrels of oil equivalent per day, showing a remarkable 16% increase when compared with the average production of the first quarter of 2021, and growing by 5% when compared to the previous quarter.

Crude oil production averaged 222,000 barrels per day, increasing by 3% on a sequential basis, while natural gas remained flat at 38 million cubic meters per day and NGLs recovered in a meaningful way to over 44,000 barrels a day as operations at MEGA's processing plant were fully restored after the program maintenance activities performed in the preceding quarter.

The positive evolution in oil and gas production came once again and as expected on the back of the very rapid increase in our shale production, both crude and natural gas, which almost doubled when compared with the same period of last year. And although our conventional production declined by 9% when compared to last year, the comparison to the previous quarter is encouraging as it declined by only 1%, helped, to a large extent, by the positive contribution of our operations at Manantiales Behr, which continues to reach new production records on the back of the continuous response from our EOR development plan.

Moving to costs. Unitary lifting costs averaged $11.70 per barrel, down 1% versus the previous quarter despite wage increases that impacted during the quarter as part of the previously negotiated conditions with the unions, combined with an overall accelerated inflationary environment and the slower pace of the currency devaluation.

Regarding prices within the upstream segment, average crude oil realization price increased by 2% on a sequential basis to $59 per barrel as local crude continues being negotiated between local producers and refiners in a way to smooth out the impact of the volatility in international references into local pump prices. On the natural gas side, prices remained flat at an average of $3.1 per million Btu.

Zooming into the evolution of our shale operations, during the quarter, we completed a total of 38 new horizontal wells in our operated blocks, continuing with the positive trend initiated at the beginning of last year. But although this compares positively with historical performance, we were behind schedule as we had originally projected to complete a total of 46 horizontal wells in the quarter. However, we have already regained momentum. As Sergio commented in his introductory remarks, and expect to catch up during the rest of the year, maintaining and even potentially exceeding our full year production guidance.

It is also worth highlighting that during the quarter, we drilled our first delineation well at the Lajas Este block, which is fully owned by YPF and is located outside our core hub in the Loma La Lata area. And we have just finished drilling a second well in the same block during April, targeting to fracture both wells in the third quarter and expecting to have initial production results before the end of the year.

Overall, new tie-ins during the quarter led our shale production into further expansion. On a quarterly basis, our shale production increased by 12% and 6% for oil and gas, respectively. And when compared to the previous year, total shale production almost doubled based on a staggering 140% expansion in shale gas, while shale oil increased by over 50%. Within the latter, production was led by the ramp on production in our core hub, which delivered over 60,000 barrels a day in Q1, including a very positive performance at our recently incorporated Aguada del Chañar block, that produced 3,000 barrels a day in the first 3 months of the year. It is worth highlighting that the coordinated initiatives between our midstream team and Oldelval have already started to render positive results.

Short-term oil evacuation restrictions have been lifted as the initial expansion works have concluded, putting in service the 4 pump stations that have been idle for the last 10 years, increasing total evacuation capacity by close to 20% to 42,000 cubic meters per day. And the coordinated efforts are now focused on the full expansion of the system. That should take total capacity to about 72,000 cubic meters per day with some further potential with the addition of polymers.

This major expansion is programmed in 2 phases. The first of which is expected to be up and running before the end of next year and the second phase by mid-2024. In terms of efficiencies within our shale operations, our technical teams continue to work relentlessly to introduce further operating improvements to counteract the effects of rising costs in the context of accelerating wage negotiations and higher materials.

As an example of these efforts, last week, we have completed our first full pilot of simultaneous fracking in Loma Campana, achieving very encouraging results, both in terms of speed, which was reduced by 28% or about 50 stages per month as well as in reducing fuel consumption and in turn, CO2 emissions, which declined by close to 20%.

Looking into our downstream operations. Domestic fuels demand remained strong in the first quarter of the year. Despite an average 5% contraction in diesel and gasoline sales versus the previous quarter based on seasonal factors, our total fuels dispatched exceeded pre-pandemic levels of 2019 by 6%. To meet this high demand, we managed to continue increasing processing levels at our refineries, which expanded 2% sequentially to an average of 283,000 barrels a day, taking the average utilization rate during the quarter to 86% with a higher 90% in March, in line with historical utilization levels.

It is worth highlighting that the evolution of our processing levels still depends on complex negotiations with local oil producers in the context of rallying international prices, given our reliance on crude purchases from third parties to run our refineries at full capacity. In Q1, total crude purchases from third parties represented 18% of total processed volumes, down from 20% in the previous quarter. As a result of the higher processing levels at our refineries, total imported fuels, although still above historical average, declined during the first quarter vis-a-vis the previous quarter.

Total imports of primarily diesel, and to a lesser extent, gasoline, thus represented 13% of total fuels sold in Q1, down from 15% in Q4 2021, but still well above the historical average of about 7%. And although these imports lead to marginal losses when measured against average fuel prices in the domestic market, we have, to a large extent, mitigate this effect by translating import parity prices to certain wholesale segments as well as jet fuel sales. Therefore, we have managed to minimize the economic impact while keeping our clients supplied, albeit having incremental disruptions in logistics and regular inventory management in certain regions of the country.

Regarding retail pump prices, which affect about 50% of our total revenues, during the first quarter, we adjusted prices in pesos by about 20%, driving dollar fuel prices higher by about 7%. This was in line with the strategy commented during our last earnings call, whereby we aim at mitigating the effects of the currency depreciation and partially follow the trend in international prices.

Furthermore, a few days ago, we adjusted pump prices one more time, this time by an average of 12%, further reducing the gap with international parities. In addition, during Q1, we have continued benefiting from the high pricing environment on our products that correlate with international prices, which represent about 20% of our total revenues. These products include petrochemicals as well as lubricants, jet fuel, propane, and virgin naphtha, among others.

And to continue benefiting from these segments, during the quarter, we launched a new premium lubricant, Elaion Auro, which has so far been well received by the market. On the back of the solid operating performance and positive pricing environment, the first quarter resulted in yet another quarter, delivering sound operating cash flow, which increased by 34% sequentially to $1.4 billion as positive working capital contributions that were anticipated during our last earnings call, added to the healthy adjusted EBITDA results.

This strong cash generation, even after netting the effects of our CapEx program, combined with the continued reduction in cash interest expense, resulted in free cash flow before debt financing of $391 million in the first quarter. We have, therefore, computed the eighth consecutive quarter of positive free cash flow, accumulating almost $1.7 million that serve to strengthen our balance sheet and provide us with the financial flexibility needed to continue tackling our ambition growth opportunities.

In terms of cash management, during the quarter, we continued with an active asset management approach to minimize FX exposure, considering the regulations currently enforced that prevent us from holding a larger portion of our liquidity in foreign currency. In that sense, in the context of limited available dollarized instruments in the local market and given the increase of our liquidity during the quarter, we ended with a consolidated net FX exposure of 28% of total liquidity. Nevertheless, if we consider the liquidity invested in inflation index instruments as a proxy hedge to currency exposure, the net exposure would fall to 20%.

Looking into our debt profile, let me highlight the continuous reduction in our net leverage ratio, which declined further in the first quarter to 1.46x. And given the incremental liquidity on the back of the robust free cash flow generated during the quarter, we have achieved a historical relationship between liquidity and short-term debt amortizations, now greatly exceeding short-term maturities and practically covering all the maturities coming due in the next 24 months.

It is also worth noting that during the quarter, we fully disbursed the $300 million cross-border A/B loan led by CAF. This financing also contributed to complying with Central Bank regulatory restrictions and thus permitted us to access the official FX market to proceed with the payment of the $260 million first amortization of our 2024 international bond that was due on April 4, without interference on the last day of March.

And before finishing our presentation, let me mention the recent upgrade to our local ratings communicated by FIX, which increased our local issuer rating to AA+ from AA, highlighting the continuous improvement in operating performance and financial metrics.

And with this, I conclude our presentation for today and open the call for your questions.

(Operator Instructions) Our first question will come from Frank McGann with Bank of America.

Just going back to your comments on Oldelval and the expectations for growth and it seems like you believe you can continue to accelerate growth going forward. Could you remind us or tell us what that incremental capacity on the pipeline, how much that will mean for your increases? What at least would be the potential increase in output that you could have to fill that as you look out over the next couple of years when you get to the year-end 2022, there were 72,000 cubic meters per day. And then in the second phase you -- that was 70s, I guess, at the end of the second phase.

But then also on the gas side, there's a new pipeline that we are expecting to start construction fairly soon. It's already in process, that is partially. And I'm just wondering how much do you think that will mean in terms of your ability to grow gas and when you expect to start to see that coming on stream?

And then lastly, looking even longer term, now it seems particularly with the European gas supply issues and high prices globally for gas pretty much across the board, what -- it seems like there's more real thought being given to trying to do an LNG project. And I was just wondering how you see that? And what you think that could potentially be over the next 5, 7 years?

Okay. Good morning, Frank, and thanks for your questions. On the first one, in terms of increasing transportation capacity for oil. We, as of today, we roughly have about 40% share in the transportation -- in the current transportation capacity of Oldelval. We would expect to remain about the same proportion for future expansions. So roughly speaking, based on the capacity that already is coming online by now, which is about 40,000 barrels a day, roughly speaking, 6,000 cubic meters a day of increased transportation capacity that has already come online, we would expect to fill up our proportion of that in coming months.

And then by next year, we would expect roughly the same for proportions to remain roughly the same. At least on our side, based on the expected incremental capacity of about an additional 200,000 barrels a day that should come online, a portion of which probably before the end of the year 2023 and the remainder by the first half of 2024. But of course, that will depend on the auction processes or actually the contractual processes that Oldelval will pursue in coming months and how the different producers, which have some type of first refusal to enter into contractual terms for those capacities will actually take them. But roughly speaking, we would expect to remain about 40% of the new transportation capacity -- to use about 40% of the new transportation capacity.

Moving to your second question on the gas pipeline. We are clearly not part of the construction of that, but rather the government is pursuing that. We are hearing that it's moving along relatively well. And so we still expect for a portion of the first phase to be available by the next winter -- by the winter of 2023, probably something in the order of 10 million cubic meters a day of incremental transportation capacity for gas out of Vaca Muerta for the winter of 2023. And we -- but we have not seen yet an auction for that incremental capacity. So that's still to be seen whether the government comes out with some opportunities to contract similar to the Plan Gas or something like that, that took place last year, we would expect something similar to the auction for the incremental capacity.

Of course, there is no specific information yet out in the market as to when that will actually happen. And depending on that, we will figure out our ability to deliver on the commitments that might be required and that will determine our ability to be part of that auction. And to what extent we will be able to be part of that auction.

So generally speaking, we would expect -- we still expect that the portion of the new transportation will be available next winter and then probably another 10 million cubic meters a day or something similar to that, probably available by the end of next year and actually ready for the winter of 2024.

And on a more longer-term basis, as you asked for LNG opportunities, we clearly are still a few years away, probably from such -- from the materialization of an LNG plant. As you know, that will take several years of construction, and it's a very, I would say, aggressive and challenging project in terms of the capital that it requires. But clearly, we are doing preemptive working on engineering and some conceptual analysis, but it would be very, at this point, to say whether -- or unlikely it is for such a project to materialize in the next few years.

So far, what I can say is that we are doing our analysis. We do believe that there is an interesting opportunity for the country and for YPF to move ahead with an LNG processing plant. And that will definitely provide further opportunities to monetize the attractive resources that we have, particularly in Vaca Muerta for natural gas to be able to export that to global markets. But at this point, it's very difficult to predict specific timing for such a project.

Okay. If I could just follow up on the gas side. In terms of -- if there are auctions and held, I don't know when, but how do you have the capacity to move pretty quickly to increase output in terms of projects that are -- that have had either additional capacity with a very short term or how much -- I guess my question is how much could you and how quickly could you add capacity to be able to take advantage of that?

Yes. That depends on -- that's why I mentioned, depends on how quickly they come with the auction and when they require the commitments to be online. Let's say, that if we need to put a capacity for next winter, for the winter of 2023, we will probably need to make -- to take a decision very soon as we'll probably have to put some new processing facilities for natural gas in place if we want to add a significant volume right. If we talk about a few million cubic meters a day, let's say, 2 million, 3 million, 4 million cubic meters a day of extra production, we will probably need to move quickly in establishing some new facilities to increase our total production in those amounts.

So we have the ability to do it. We still have the ability to do it. We would like to see the auction to come to market very soon to actually be able to deliver on that.

Our next question will come from Marcelo Gumiero with Credit Suisse.

Sergio, Alejandro, Pablo. Congratulations on the results. I have 2 questions as well. The first one on local prices. I mean you were able to adjust prices during the first quarter. And as you mentioned, just recently last week, you were able to push another adjustment. This is becoming pretty much good provided that international prices are going up right now.

My question is, how do you see the distance to import parity as of right now? And how much, I mean, prices would need to increase, mainly on the retail segment? And how -- I mean, how are you negotiating with maybe the government to, I mean, be able to implement those adjustments?

And then the second question on CapEx execution. So CapEx for the first quarter seemed a little bit below, let's say, the quarterly CapEx expected from the CapEx plan for the year, $3.7 billion. I just wonder, I mean, going forward, if we should expect activity to ramp up and then CapEx should meet the year -- the guidance for the year, or, I mean, provided that production is already very close to the expectations for the year. If we should see actually the CapEx a little bit below what you were initially expecting? That is it from my side, thanks.

Thank you, Marcelo, for your comments and for your questions. With respect to the first one, as already commented during the presentation, we have so far managed our pricing policy for domestic fuels in a way to translate the evolution of the currency and considering the local macroeconomic environment with pump prices in turns to reduce at least partially the spread to international reference prices.

And let me highlight that retail pump prices driven sales represent about 50% of our total revenues in Q1, while retail sales to wholesale clients represented about 10% of our total revenues. And in this context, it's relevant to mention that we have continued adjusting our different clients segments in a nonlinear way, passing through full import parity costs to some diesel wholesale segment, as well as to jet fuel sales, while other wholesale clients, were also adjusted beyond retail prices.

In that sense, we managed to increase our average fuel prices, measures in dollar terms by about 7% for the average of Q1 versus the previous quarter. However, given the heightened volatility in Brent prices and even more pronounced rally in cracker spreads the discount to international reference prices averaged about 30% during the quarter.

More recently on the back of the continuous rally in international prices, we adjusted prices once again, currently standing 27% above the average dollar prices for Q1, managing to slightly reduce the gap to international parity to around 25%.

Going forward, we will continue to address our pricing strategy, aiming at avoiding, enlarging the distortion relative to international reference prices. And we will pursue this considering the dedicated equilibrium that has so far been maintained in our domestic sector and the impact of our decisions on our clients and the ability to afford fuel costs within the local macroeconomic context. Alejandro, do you want to take the second?

Yes. Hi, Marcelo, I going to take your second question about CapEx. As we mentioned, the first quarter was a little bit slower than we had anticipated. And also when you consider the -- you just multiply that by 4, and you will be below the targeted CapEx for the year of $3.7 million. However, as we mentioned, that was -- that resulted from -- mostly from a couple of factors, external factors. One was some COVID-related delays at the beginning of the year in January, mostly, where there was a new eruption with an Omicron variant in Argentina, which affected our some of our upstream operations.

And then during February, we had some weather-related issues also in our upstream operations. So that basically resulted in some slower well activity, both in drilling and completion. As we mentioned in the presentation, we completed -- even though we had a good result in the number of completed wells in the quarter, we were below our expectations and our target. And the same happened with some facilities that we had a delayed start in some of our facility CapEx or facilities installation works, again, related to some logistic issues in acquiring some materials, but also mostly weather-related issues.

However, we have regained a lot of momentum already. We -- activity has already picked up. And we do expect to catch up with the lost ground that we had in the first quarter. And not only we continue to target the full $3.7 billion CapEx plan for the year, but also beyond that, we might see some potential increase beyond that as we see some further opportunities to -- mostly on our upstream operations to also accelerate a little bit further our activity. So that is not fully decided yet. Probably by the next quarter, we will have further information. But at this point, we see that possibility. So I would say that there is some upside bias potential to our total CapEx plan for the year.

Our next question will come (inaudible)?

Congratulations on your results. My question for you today is related to the Maxus case. Could you give us an update on the status? And perhaps an estimate on the important dates from now on? Thank you very much.

Sure. Hi, Konstantino and thank you for your comments. As you know, this is -- this is one of a relevant legal contingency that we have and which is based primarily on issues that go back several decades. But in terms of the important issues, as you also probably know, we have -- most of the recent information in our recent financial statements as well as in our recent 20-F. But basically, just in terms of the process, the fact discovery concluded in October of last year, and expert discovery began then and ended already in April of this year, and by now, we are at the instance of the summary judgment process, where the summary judgment briefing is ongoing and is expected to be completed by June 8, with a lot of arguments expected to occur by June 13. Beyond that, there is no trial date that has been set yet. So that is still to be defined.

And just to summarize our view as this lawsuit progresses and given the complexity of the claims and the -- I would say, the evidence that both parties are presenting and may continue to present, the company will definitely continue to reassess the status of this litigation and its impact on our results. And in that way, we will definitely also continue to defend ourselves in accordance with all applicable law and all our -- all defenses available to us.

Thank you. Just a follow-on question. You still rely for about 20% of your processing needs from third parties and important fuels. Do you see the Oldelval expansions easing these without the need to raise internal crude prices.

Let me see if I got the question correctly, we do continue to process about a little bit less in this quarter from crude from third parties, it went down from 20% to 18% this quarter. We do expect -- as our production continues to grow, we do expect that proportion to continue to be reduced over time, most likely expecting to be self-sufficient by the end of next year if things continue to go along the way we are expecting. And in that way, clearly, there is some communication in terms of local crude prices and local pump prices. And we -- as we have commented in the presentation, the local crude price somehow is a reflection of the ability to pass on price adjustments to the pump.

And at the end of the day, trying to maintain relatively healthy and stable margins within the downstream operations in Argentina. So that's generally speaking, the view. I'm not sure because I think I missed part of your question, but I guess I answered most of it.

And we will take our next question from Marina Mertens with AR Partners.

I have 2 questions. First, we have been able to increase prices at the pump 3 times this year, but still crude oil prices remain below $60 per barrel. So what can we expect from these pricing dynamics? And should we see in the short term an increase in the local crude prices paid to producers?

And second, are there any bottlenecks that could limit the increase in oil production as you did with gas that where transportation pipelines are already at full capacity.

And my last question is about the maturities in the following years. So you have already canceled this year's most significant amortization corresponding to the 2024 bond but still the schedule for the next 3 years looks challenging. So what is the strategy to cover these maturities?

Thank you for your questions. Let's go in order. In terms of the first one, we -- as I just mentioned, we tried to manage local crude prices in a privately negotiated way among producers and refiners, which is very challenging.

We do acknowledge the rallying international prices and the spread of local crude to international prices. But at the same time, as we generally mentioned, we do manage pump prices in a way to be consistent with the local macroeconomic environment and the ability of our clients to afford energy prices and fuel prices within this context.

So in that sense, as you mentioned, local crude prices were below $60 on average for the first quarter, that's when talking about Medanito prices, which is the major crude -- local crude processed in our refineries. And the answer or the specific answer in terms of the evolution of that price is that, yes, we are adjusting marginally those prices higher as we managed to improve dollar prices at the pump. And also on average, when we include also our wholesale segments as we manage to improve the average dollar price for all the fuels sold domestically, we are moving ahead in having some adjustments in the negotiations that we have with our providers of local crude.

So we would expect by -- probably by the end of this quarter for crude to be somewhere about 10% higher than the average of last quarter. But again, that's a constant negotiation and that depends on the ability to continue maintaining prices in a reasonable level in terms of dollar prices.

In terms of oil bottlenecks. We have mentioned in our previous call that given the very significant increase in production out of Vaca Muerta last year, not only YPF but also from the other producers, which continued earlier this year, as we have mentioned in our presentation, we were facing some bottlenecks. We were getting close to maxing out evacuation capacity, and that has been alleviated through this initial expansion that Oldelval put in place very recently, which increased total evacuation capacity by about 20%.

So given that, we are not expecting any bottlenecks in coming months. And given the further projects or the other projects that both ourselves and Oldelval have in the pipeline, we would expect bottlenecks to actually not happen, right, to basically to alleviate all evacuation restrictions as we move along in further increasing total oil production out of Vaca Muerta.

And finally, in terms of debt maturities, well, clearly, for the rest of this year, we have very small remaining maturities. Also, when we look at the next 12 months, we are at a very low, less than $400 million in total debt maturities. And as we mentioned in the presentation, for the first time in a very long time, we have a total liquidity that is enough to cover almost the next 24 months of maturity. So basically, when you include all the maturities that come due in 2023 and early 2024, we are not -- we are just above $1 billion in total debt maturities in the next 24 months.

So when we look at our profile, we are not seeing it as challenging. Of course, it's not -- we need to work on it and having average maturities of around $1 billion in '23. And we do need to take that seriously, but with normalized activity at YPF as we are seeing, we don't expect to have any major challenges to face that, particularly taking into consideration that we are at a very minimum level of total exposure with our relationship banks and with the local market. So we do have ample capacity to tap on those sources to take care of maturities if we end up needing to roll them over.

Then we do have higher maturities for 2025 in our schedule, and we will definitely continue to work or aiming at working in a proactive way to tackle our maturities early on to avoid facing short-term needs as we move along in coming months and years.

Our next question comes from Walt Chiarvesio with Santander.

Congratulations on the results. I have 2 questions. The first one is related to cost pressures and margin. We are seeing probably U.S. dollar inflation cost in Argentina across all the industry. And I would like to hear from you how are you seeing negotiations with unions or this cost inflation, how it's impacting the margins of the company?

On one side, related to that, if the import of fuels, for example, for agricultural sector is also impacting the cost structure of the company. So this is my first question.

And the second one, early not much a question about the kind of requirement if there is some ruling that YPF being the biggest shareholder of Oldelval, could you provide more information on the schedule to double capacity into '24 regarding schedule support or capital investment, if there is any possibility to, to get that from you guys?

Walter, thanks for your questions. In terms of margins, answer would be that -- and as we mentioned in our last earnings call as well, we do expect pressure from our cost side. Clearly, we are working continuously in further efficiencies, operating efficiencies, mostly to contract the effect of macroeconomic inflationary pressures, not only local but also international. As you know, the commodity prices are affecting also our material costs, primarily on the back of metals and the like.

And also, as you mentioned, wage negotiations in the context of devaluation of the currency running a little bit slower than inflation and salary increases that affects our total cost and our margins.

However, as we managed in the first quarter. We did manage to contain price pressures. We are not expecting to continue to be as efficient in managing those down the road. So we are likely to see some pressure in our cost basis. However, we continue to see healthy margins and we will not expect our margins to suffer in a major way, even though, as I said, we do expect further cost inflation in coming months.

In terms of union negotiations, we have announced that we agreed on a short-term basis. We ended the '21, '22 salary agreement earlier by March, and then we started a new salary agreement starting on April. And we, for now, only agreed on a short-term basis, and to revisit that in coming months. But we will see, depending on how inflation continues and our ability also to successfully maintain our margins, that will be an ongoing consultation with the unions probably in coming months.

And in terms of fuel imports, we managed to nominally or decline the total amount of -- the total volume of imported fuels in the quarter. As we mentioned in the previous quarter -- in our previous earnings result, fourth quarter total imports were higher, partially on the back of some inventory buildup, so we don't have that effect anymore.

But still, we are still having less biofuels in our total fuel blend mix. So that also requires some higher than historical average in terms of total imports. So all in all, we ended importing about 13% of the fuels that we sold, that declined from 15% the previous quarter, but still higher than the average of 7% that we have historically.

But again, part of that is the significant or the robust demand that we are facing that even though it has declined from the previous quarter, primarily on seasonal reasons, it's still came above pre-pandemic levels that we had in the first quarter of 2019. So we are facing that higher demand with higher processing levels, but at the same time, requiring some higher import volumes also because of the lower biofuels in the mix.

So all in all, when you look at it compared to the average prices in the domestic market, you can see some marginal losses there but we have been compensating that by adjusting prices on some of our wholesale segments, particularly diesel and also the jet fuel sales. So all in all, I would say that we have, to a large extent, mitigate those incremental costs from imported fuels.

And finally, on Oldelval, unfortunately, I don't have much more to say than we have already commented -- we -- our midstream team together with Oldelval working on the future expansions of the system. The -- we do expect -- we continue to expect that incremental capacity to come online, a portion of which by the end of '23 and the reminder in '24. But as of now, there is not much further information that we can provide.

Okay. So just to follow-up, and maybe to conclude, you think -- or can we conclude that the margins we saw in the first quarter had a kind of information that we could see for the year? Or do you think that it's projected to have better margins over the rest of the year? I understand that it should be lower, but just to...

Yes. It's -- when you look at the margins per se, it depends on so many variables that it would be hard to say. I would expect -- I would not expect significantly higher margins, although we are also entering a better seasonal period in terms of natural gas sales that also tend to affect our margins. But all in all, I would expect stable to slightly lower margins based on the information that we have right now.

Our next question will come from Andres Cardona with Citigroup.

Sergio, Alejandro, I just have a very quick question. You have a very interesting chart. You show your liquidity versus the next 12 months maturity. Your cash position, it's quite large versus the maturities. And I wonder if it still makes sense to have such a position in cash and what could be the alternative to optimize this position or maybe a target level and that's it. Thanks and congratulations for the very strong results.

And -- we -- yes, we are actually having -- our liquidity position is somewhat higher than our optimal that we see as of today as an optimum. Clearly, part of it has to do with the slower-than-expected pace of CapEx. And so we would expect somehow to work on that. And then we will -- as we move along the year, we would expect that overall liquidity to be normalized to a level similar to the $1 billion that we have commented in the past, that will be sort of the optimum level for us.

In the meantime, of course, we are actively managing that liquidity and also looking -- as I mentioned earlier, looking at opportunities to accelerate our CapEx plan to make an efficient use of that liquidity as well.

And our next question will come from Bruno Amorim with Goldman Sachs.

I have 2 questions. The first one, is it possible for you to help us reconcile the much higher cash flow from operations this quarter, which was around $1.4 billion? Significantly above adjusted EBITDA of $976 million. While in the prior quarters, we saw cash flow from operations, which was more similar to your EBITDA level around $1 billion per quarter.

And the second question is how should we think about the impact of the difference between the official exchange rate and the effective exchange rates in the market when looking at your numbers? Does it impact somehow or is there a mismatch between the share of revenues, costs and CapEx, which are exposed to the currency so that there could be any adjustment to be made when we -- once you got your actual free cash flow generation, doesn't seem to be the case by looking at your FX adjustments line in your cash flow. It does not seem to be a big deal, but just wanted to confirm that this is the case?

Yes, let me just start by the end by saying that there is no distortion generated by the different exchange rates as we basically pursue all of our activities and operations and registered in our financials, everything at the official FX rate. Basically, that's the one that we used to bring our exports into the country and also that's the FX that we use to pay for our imports and also to pay for our debt servicing. So at the end of the day, everything is done at the official FX. In terms of the reconciliation, it's mostly related to working capital variations to a very large extent.

As you probably recall in our last earnings call, when asked about also the reconciliation [which we planned], and at that time, mentioning that we were not necessarily expecting higher EBITDA than in 2021 for 2022, that's clearly changing as we move along and probably we are seeing some potentially better conditions or better cash flow generation during the year from an operating side.

But at that time, we also mentioned that we were expecting positive working capital contributions. And part of that is what is being materialized this quarter. It has to do with some suppliers that were paid in advance late last year. It also had to do with some tax credit that we are monetizing part of that in this quarter and also the collection of some past due receivables, some of them from the Plan Gas program, and some of them from other clients.

So a lot has to do with working capital. And then also the -- as typically happens, the reclassification of financial leasings and because of accounting issues that we have on every quarter and some also some reclassification of materials between OpEx and CapEx that we typically have. But the major or the largest explanation would come from working capital -- a positive working capital contribution in the quarter, again, as anticipated in -- when we were providing guidance for the year.

Our next question will come from Luiz Carvalho with UBS.

I have basically 3 questions here. The first one is with regards to the cash generation. At the beginning of the year, you presented that we were expecting a neutral to slightly positive cash generation throughout the year. And in this quarter, you delivered something close to $400 million. And just trying to understand if you see this level as we're currently looking forward due to the new environment of FX and the price increases/Brent, or -- I mean, if we can be, let's say, slightly impacted by the acceleration of the CapEx in the remainder of the year.

The second question is about capital allocation. Just trying to understand how your thinking with cash generation that you presented. And to my first question, how should we think about capital allocation in terms of increasing potential investments even further or after we reduce the -- let's say, the accumulated losses that you have potentially paying dividends over the next couple of quarters.

And lastly, I had a question about the mix between the domestic production versus import? I mean, you said, in a specific question about the import amounts, so just trying to understand how the dynamic might lay out, over the next, let's say a couple of quarters for us.

Thanks for your questions. In terms of a cash generation, just let me first clarify when we provided or discussed guidance during our last earnings call, we mentioned that we expect it to be neutral to slightly negative in terms of cash flow generation for the year. And by then, we said that if being on the negative side, we were going to do so in a financially responsible way by establishing a maximum net leverage ratio of 2x. So and at the time, we said we would not -- we would work to not exceed that. And if that meant reducing our CapEx plan, we would have -- we would do that. That clearly is changing. And as we are moving along the year and given the results of the first quarter, we are now expecting to be only neutral to slightly positive comp in terms of cash generation during the year. But as commented before, we are holding a larger than an optimum position in cash. We do expect part of that to be used along the year as we catch up with our CapEx plan.

And also, as mentioned, we are even considering the possibility of accelerating or exceeding our CapEx plan, given the healthier cash flow from operations. So all in all, given the adjustments that we could pursue along the year, we would expect to be in the neutral to slightly positive. So basically not anticipating to maintain this level of net cash generation in coming quarters.

And in terms of capital allocation, then clearly, as we are not expecting a huge net cash flow generation, I would say that -- or at least the higher-than-expected cash flow generation is going to be mostly dedicated to, first of all, comply with and then potentially exceed our CapEx plan to monetize the opportunities that we envision that we see on our -- particularly on our upstream operations, where we see tremendous opportunities to monetize our natural resources, hydrocarbon resources, particularly Vaca Muerta.

So as I started, I would say that the focus of the capital allocation will be to CapEx. And in terms of dividends, I would say that it's still a little bit too early to say. As you mentioned, we would still need to first reverse the negative cumulative earnings that we have in our balance sheet to then, first of all, have the regulatory ability to potentially distribute dividends and then take it to our Board to consider it more formally once the time comes. So I would say at this point, it's still too early. But to give you a summarized answer, the focus or the priority will likely go to CapEx.

And finally, on imports, with our ambition to relatively maintain the levels that we have seen in the last quarter, which is above average, mostly related with the still robust demand that we see, which runs above our processing capacity and also given the lower cut of biofuels in the mix. So given those, we would expect to remain roughly about the levels that we have seen in the previous -- in the first quarter.

Our next question will come from Ezequiel Fernández with Balanz.

I have 4 questions. Sorry, it's a little bit later in the call, but they should be quick. The first one is related to the outlook for conventional gas production. It is falling at a 15% annual rate for a couple of quarters now. If you will continue with strategy of replacing the conventional volumes for unconventional ones for that it make financial sense at a point in time to invest in reducing the decline. And I'll take the other questions later.

Okay. We go one by one. We are clearly putting some effort in stabilizing our conventional production, I would say we do see more opportunities to do so in oil that in natural gas. But that doesn't mean that we continue to look at ways to counterbalance or to counteract the natural decline in natural gas as well. So far in conventionals and as we've been commenting, we have been doing very good progress in tertiary production, but mostly related to oil, and that is particularly in Manantiales Behr, which continues to keep new records in production. In natural gas, we really are not identifying yet those clear opportunities, but we continue to look at potentially at ways to also at least minimize the decline on our natural gas -- on our conventional natural gas production.

Okay. Great. My second question is, well, much of the discussion regarding investments in the sector revolves around the upstream segment. But it looks like Argentina might need expansions in refining capacity in the -- at least in the medium term, so are you looking into any expansions maybe modular ones of the YPF processing capacity?

Well, we -- in terms of refined products, we are not envisioning any significant growth in coming years, but rather we see some stabilization and potentially some decline in a few years to come, given mobility issues. So what I would say is that we are not envisioning any major refining CapEx beyond what we have already started in terms of the revamping of our refineries, both the Lujan de Cuyo and the La Plata refineries.

Those CapEx plans are mostly related to adjusting the quality of our fuels by reducing the sulfur content of our fuels, but also we are adjusting the -- our processing capacity basically in terms of the crude blend that we can process, which basically that is the topping D at Lujan de Cuyo -- sorry, at the La Plata refinery. And that will allow us to increase our total refining capacity by about 10%. But that would be the only expansion in terms of production or processing levels that we envision for coming years.

Okay. My third question is related to the crude pipeline interconnecting Chile and Argentina, Neuquén to the Rivadavia region. Much has been discussed lately about reviving that pipeline. I don't know if you can comment on that?

Yes. We are working on that. Clearly, on our -- we are working on our side, and we understand that our partner ENAP is doing also -- is performing their needed works on their side of the frontier. The -- we are making good progress. We expect a portion of the total capacity that is available at the Trans-Andean pipeline to be available by early next year, even potentially very late this year. That will probably enable about 35,000 barrels a day of transportation out into Chile.

And we should also see the full potential of the Trans-Andean pipeline by late next year, once we put in place a new pipeline that we need to take production out of the -- our core hub or the center of Vaca Muerta, the center of Neuquén to the northern part of Neuquén to interconnect with the OTA, the Trans-Andean pipeline. That's a new 150 kilometers pipeline -- oil pipeline that we are putting together. We have already initiated the -- basically the project.

We have already acquired the materials, the pipes needed. And we expect that pipe to be up and running by the second half of next year, and that should enable the full export potential through the Trans-Andean pipeline, which should be a little bit over 100,000 barrels a day by the second half of next year, probably by the end of next year.

That's great news. And my final question, where are you thinking about tapping the local debt market for the remainder of 2022? And if so, for how much money?

Well, as I commented earlier, we are probably standing at one of the lowest levels of debt outstanding in the local market beyond the more longer-dated bond that we issued late last year. So we would, to be honest, we would love to tap the market to maintain our presence with the local institutional investor base.

However, as I commented before, we are running with a higher liquidity than what we consider to be our optimum level. And given that we, at this point, see it unlikely to tap the local markets in coming months and even potentially until the end of the year. But that will depend on how our CapEx opportunities evolve and how our liquidity evolves and that will end up dictating our potential need or capacity to enter the local market with new issuance.

And that will conclude the question-and-answer session. At this time, I'd like to turn the call back over to Sergio for closing remarks.

Okay. Thank you very much, guys, for your interest, for following YPF, for your comments and reports and have a good day.

And this will conclude today's conference. Thank you for your participation, and you may now disconnect.