YPF Sociedad Anónima
Q1 2020 Earnings Call Transcript

Published: 13 May 2020

[Operator:]

Welcome to the Q1 2020 Sociedad Anónima S.A. earnings conference call. My name is Richard and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions].I will now turn the call over to Sergio Giorgi. You may begin.

[Sergio Giorgi:]

Thank you. Good morning ladies and gentlemen. My name is Sergio Giorgi, Vice President of Strategy, Business Development and investor Relations of YPF. Thank you for joining us today. In this occasion, we will present YPF's 2020 first quarter results.Before we begin, please review carefully the cautionary statement on slide two. We will be making forward-looking statements that refer to our estimates, plans and expectations that could differ materially due to factors we note on this slide. Also, note that exchange rate calculation used to reach our main financial figures is in U.S. dollars. As you will know by now, we are currently in transition period between CEOs at the company.So before starting the presentation, we will have some brief comments by Guillermo Nielsen, YPF Chairman and Sergio Affronti, the new CEO and then both, Ignacio Rostagno, Head of IR and myself, will be conducting the presentation and answering the questions.Please, Guillermo, go ahead.

[Guillermo Nielsen:]

Thank you, Sergio, for your introduction. Welcome and thank you very much to all of you, the investors that are listening to you today as well as the media that is covering this meeting. During the recent YPF Shareholders' Annual Meeting, which took place two weeks ago, I depicted how the COVID pandemic and the drop in oil prices was affecting our operations and strategy and how we had quickly reacted to preserve our cash flow and the value of our company as well as which steps we plan to take once the scenario has stabilized in order to keep delivering products to our clients and creating value for our shareholders. The speech I gave at that shareholders' meeting as well as the rest of the meeting documents are available on our website for your reference and things have not changed that much since last week. So I would rather direct you to look in at this material in our website.Now, I am proud to introduce to you the newly appointed CEO, Mr. Sergio Affronti, which will be conducting the company on a daily basis, facing a scenario as no other scenario in the history of the oil and gas industry. But I am very confident that Sergio joining the management team will be able to successfully lead YPF during this time.I will leave you with him so that we can move on to the first quarter earnings. Thank you very much.

[Sergio Affronti:]

Many thanks and good morning everyone. We are going through unprecedented times given the COVID-19 pandemic. So first and foremost, I wish that you and your families are staying safe. After 27 years in the oil and gas industry, having held several business and management positions both internationally and in Argentina, I am thrilled to be back at YPF, a company in which I started my career in 1993 and to have the chance to work again with so many wonderful people that I have seen grow over the years. I have been here for little more than a week now, working closely with Daniel and the rest of the management team to ensure a swift and effective transition to take the actions that are necessary in the current environment.One of my most important tasks is to redefine the company strategy that will build on a strict capital allocation process to ensure sustainable growth. Deleveraging the company to strengthen our balance sheet will be a cornerstone of our strategy ready. Redefining the company strategy will surely require modifications in our organization. We will go back to basics, reevaluate our portfolio and generate the basis for future growth by refocusing on our roots as a highly efficient world-class oil and gas operator.By doing so, I am confident that we will become a company that is more solid, resilient and true industry leader with a strategic relationship with the Argentine government, the provinces and all our stakeholders. We are uniquely positioned to leverage a large scale resource with both conventional and shale developments with a strong foothold in the domestic market with growing energy needs. The opportunity to lead the way to transform Argentina into a net exporter of energy aligns us with broader interests of the industry and our country.In the current environment with low commodity prices and depressed demand, I am not shy to touch this point. I am fully aware of the company's current situation and the urgent need to improve efficiency across our upstream and downstream operations, both in CapEx and operating costs. We need to become leaner to be able to move fasterI would like to thank Daniel on behalf of all YPF employees and our Board members for all these years of hard work and dedication, first as CFO and then as CEO. And we all wish him the best in his future endeavors.I look forward to building a strong relationship with the investor community and we will certainly have time over the next months to get to know each other better. But because I have only been here for a week, I apologize but I will not be answering questions today.Please, Sergio, go ahead.

[Sergio Giorgi:]

Thank you. As you all know, we are leaving in unprecedented situation with the outbreak of the Coronavirus pandemic. Therefore, before moving to the main highlights of the quarter, I would like to share with you the three main action lines that we have taken to cope with this challenging situation. As Guillermo said, protecting our people is not a priority but it is the value.For this reason, one of the three main action lines we launched is related to the safety of our personnel, clients, suppliers, communities and operations. And in order to ensure we take decisive actions in real time, we are creating an ad hoc COVID committee led by our Vice President of Environment, Health and Safety. This committee is coordinating all actions and protocols on a daily basis. We are following strict health and safety protocols and updating them accordingly.The results so far are impressive and we are very happy to have planned ahead and invested accordingly so that more than 97% of the positions that do not require face-to-face attention having filled through remote work, connecting with each other using top technology and just maintaining a few skeleton crews in the field and sites while maximizing the use of off-site control rooms.The second action line is linked to adapting our operations. We defined a business continuity plan in close combination with the different business units. Here too, we have been very dynamic as we managed stopping very quickly and in a safely manner all drilling and completion activities across the country. We ensured early storage capacity for the excess oil and refined products. For crude oil, we hired three barges at very competitive rates securing around 1.5 million barrels of additional storage capacity. Besides, we stopped purchases oil through third parties and adjusted our production and refineries' utilization to the demand by operating only two of our three refineries.In April, the average utilization was 47% without processing crude at the Plaza Huincul refinery. Fortunately, as of last week due to the recovery in demand, we resumed operations in Plaza Huincul and our three refineries are now operating reaching at 55% utilization rate as of last week. We managed as well to export crude oil and refined products compensating local demand reduction. Despite this context and following strict protocols, we maintain fully operational our retail network.The third action line is linked to preserving our balance sheet with strong focus on cash. This COVID situation, we fund on our balance sheet with $1.16 billion of cash and equivalents in hand. Of course and linked to the isolation measures taken in the country, our sales and therefore cash generation were affected almost for one day to another due to the drop in demand. This situation negatively impacted our working capital position as we still have disbursements to do for the previous month's operations.Indeed, sales volume dropped initially more than 60% and our cash position was affected but this has now stabilize and the good news is that it seems that we have reached a bottom in sales by mid April. We already started to see an increase in sales of around 10 percentage points we have not yet restarted activities for which we will adopt a gradual approach linked to the path of the recovery in demand, prioritizing cash and also considering that we have oil and refined products in storage, some curtailed production and even some drilled but uncompleted shale oil wells. We will see these impacts on the results of the second quarter.As Sergio said, we are working on identifying significant OpEx and CapEx reduction opportunities across the whole company and we are in the process of reviewing those with him. These reductions will go on top of those we identified at the beginning of the year as we are now focusing more on cash preservation than growth. In the financing front, we are working successfully with banks to keep on refinancing short term maturities and tapping the local market.Ignacio will comment later on what we did in the quarter and how we are facing this challenging context. With these, I will let him carry on with the presentation and will join back for the concluding remarks and Q&A.

[Ignacio Rostagno:]

Thank you Sergio. First I would like to highlight that we maintain our commitment to ESG priorities. In this line, the injury frequency ratio improved again this quarter to an all-time record of 0.16. Concerning our main operational and financial figures of the quarter, they were partially impacted by the monetary isolation measures implemented across the country in mid-March 2020.Production, as we will show later, came at 510,000 barrels of oil equivalent per day which represents a 5% increase compared to first quarter of 2019, as we continue increasing our net shale production. However, compared to the previous quarter, it dropped 3%, mainly as some production services were not available due to the lockdown and we experienced some losses in Mendoza province due to climate effects.Regarding our crude oil realization price, it averaged $48.5 per barrel, almost unchanged quarter-over-quarter, but below last year's first quarter prices. As a consequence of the excess supply, natural gas market prices were also below the previous year's realization price. Indeed, our selling price average $2.8 per million BTU, including $0.11 of subsidies compared to $3.7 per million BTU one year ago.Regarding our main financial figure in dollar terms. Total revenues show a reduction of 15% year-over-year to $2.8 million, mainly driven by lower demand and lower prices for our main products gasoline, diesel and gas. Adjusted EBITDA was down by 17% in dollars, maintaining EBITDA margins stable at 30%. IFRS 16 and IAS 29 effects are not included in our adjusted EBITDA and financial debt.In addition, it is important mentioning that our adjusted EBITDA does not include $104 million from the acceleration of the promote of Schlumberger's stake in Bandurria Sur following the sale of its stake to Shell and Equinor in January 2020. Capital expenditures were around $600 million, mainly focused on our upstream business. Finally, operating cash flow stood strong at $961 million allowing to end the quarter with a similar cash position that we were in the beginning of the quarter.As mentioned, total hydrocarbon production came 5% higher than the previous year. Crude oil production showed a minor drop to 225,000 barrels of oil per day. It is worth mentioning that by the end of July 2019, we completed the divestment of mature fields that represented an average of 0.8 thousand barrels per day in the first quarter of 2019. Despite being in oversupplied gas market, our gas production increased 10% to 38 million cubic meters per day. This is mainly linked to our strategy of regaining natural gas market share.Consequently, we were able to reduce the production curtailments from 9.5 million cubic meters per day in the first quarter of last year to only 1.1 million cubic meters per day this year. In turn, NGL production increased 8% to 45,000 barrels per day given the lower restrictions in natural gas production.Moving now to shale. As shown in the graph on the right, production continues to increase every quarter and now represents 23% of our total production, compared with 15% in the first quarter of 2019. Net shale production reached a record high of 117,000 barrels of oil equivalent per day, 63% higher than the same quarter last year. Production at our three shale oil development fields increased during the quarter, driving net shale oil production to 43,000 net barrels per day as we connected a total of 22 new shale horizontal wells.This new production represents a 41% increase compared to the first quarter of last year. In addition to those new wells, before the lockdown we were operating with 13 drilling rigs with which we built up on shale oil inventory at three of our uncompleted wells, 71 for shale oil and 10 for shale gas. In fact, some of them are already fractured and only need to be connected. Once the lockdown is lifted and it is safe to return to the operations and the market conditions are set, we can complete those wells and bring additional production. This would help reducing CapEx and have available production with shorter cycles of cash generation.Changing to our downstream business. Until Argentina entered their lockdown, demand of our main products of this business, gasoline and diesel, was very similar to last year's level for the month of January and February. Since mid-March, the fuel market was negatively impacted with a sharp decrease in demand of 80% for gasoline, while diesel volumes dropped by 50%. The diesel reduction was partially mitigated by wholesale with a strong agro business activity explained by the harvesting season. As a result, gasoline and diesel sales during the quarter ended up decreasing 10% and 8% respectively, compared to the first quarter of 2019.As said, with the quarantine process getting flexible, we are seeing a recovering in volumes and a positive trend. We ended up April with a decrease of 72% in gasoline and 38% in diesel compared to the same month of 2019. Our aggregate market share during the quarter slightly dropped but remains strong at 55%. And particularly, market share for our premium products remained above 60%. Besides, local sales of our refined products such as jet fuel and fuel oil were also affected by lower demand driven by the shut down. However, we were able to increase our export volumes by 13% compared to the quarter last year with higher sales of fuel oil and virgin naphtha, among others.As mentioned, we immediately reacted to the falling demand when the lockdown started and adjusted the processing levels. Therefore, during the quarter, we processed on average 275,000 barrels of crude oil per day with the utilization rate of 86%, down from 191% in the previous quarter. Analyzing the quarter figures, with utilization average 90% in the first two months of 2020, but then decreased to 77% in March. However, when compared to the first quarter of 2019, the utilization rate increased by 2% as last year volumes were affected by incidents in the Topping D furnace of La Plata Industrial complex power outage in La Plata and Luján de Cuyo industrial complexes.Moving to the chart on the right. We can see that gasoline and diesel prices were slightly above the prices of the previous quarter at the 90-day freeze in prices decree expired by mid-November and we did some catch-up with import party and stay at those values.Turning to cash flow. The cash generation from our operations in the first quarter of the year reached a total of $961 million, levered by the $851 million of EBITDA and working capital collections. Here we can see our plan gas 2017 collections that were canceled for approximately $75 million in the quarter. Financial discipline is one of our key priorities. During the quarter, our investments effectively paid reached $792 million, almost 10% below last year's quarterly average levels. This CapEx payment carries $118 million from the last month of 2019 investment program plus $70 million of materials already purchased for future CapEx. In addition, by the end of January, Schlumberger sold their stake at Bandurria Sur to Equinor and Shell which triggers acceleration in cash of the promote for their initial entrance at that block in 2017. Then, our cash flow from operations was enough to fulfill our CapEx although not enough to face interest payments. During the quarter, we tapped the local market twice for an amount of approximately $220 million regarding the trade facilities which are our main bulk of maturities in the short term. We have rolled over a considerable amount of them and have not seen any significant reduction in those lines. Our cash position by the end of the quarter is helping us to go through the current challenging scenario and we will continue working on initiatives to reduce CapEx and OpEx to strengthen our balance sheet.When looking ahead, the scenario is exigent. Our efforts will be focused on rolling over our short term maturities as we have been doing for the last quarters. Then more than half of our debt matures in more than four years. In fact, the average life of YPF on loan basis is more than 5.5 years. Our target is preserving liquidity. We believe our nominal debt is in manageable levels as our leverage ratios stood slightly above 2.2 times net debt to adjusted EBITDA.We are productively working in different finance initiatives. We are working closely with banks seeking their support to rollover the banking facilities when explaining them our cash preservation strategy and the resilience our business has. These facilities are quiet itemized in terms of counterparties, including local and foreign lending. But we can see our next significant debt in the capital market is a $1 billion bond during March 2021. Our objective is and has been for the last month to rollover the maturity and market conditions. We still have almost a year to do so. Under this scenario, we are monitoring the market to do leverage in management when conditions are to be met.With this, Sergio will say some concluding remarks.

[Sergio Giorgi:]

Thank you Ignacio. As you can see, our first quarter results were aligned with our previous expectations. The current situation force us to reshape our 2020 approach. For this reason, we are withdrawing our previous 2020 guidance. During this presentation, we have shared with you the three main strategic action lines we have taken to cope with this unprecedented situation.We will continue protecting the safety of our people, clients, suppliers and contractors as it is at these particular times that we need to stand by our values. We will be adjusting CapEx and OpEx along all business units and corporate units. We will continue adapting our crude processing levers to demand and stocks. We will follow a strict capital allocation process investing in those most profitable ventures. Finally, as we mentioned during this presentation, liquidity and cash preservation and our priorities while we will continue monitoring our short term maturities.With that, we would like to address your questions. In this occasion and considering that we are still working on adjusting our future plans, looking at different scenarios, we are requesting to focus your questions in relation to the first quarter results. Thank you.

[Operator:]

[Operator Instructions]. Thank you. Our first question on the line comes from Luiz Carvalho from UBS. Please go ahead.

[Luiz Carvalho:]

Hi everyone. Thanks for taking the call. And welcome and good luck to the new management. Looking forward. I basically had two questions, if I may. The first one is trying to understand your liquidity position. Over the 2020 and 2021, the company has something close to $3 billion in debt expiring and with the cash position of close to $1.1 billion, $1.2 billion, from the first quarter, right. Of course, you have cash generation but when we saw the last business plan, company was almost free cash flow breakeven with the oil price at $60. So I just would like your help to try to consolidate or reconsolidate, you would say, the cash availability and cash generation versus the debt that you have expiring over the next two years? The second question is about the criollo barrel creation. Today, there are some news from the government stating that or giving more details about how this work in terms of the adjustments and terms, so that's going to be on a quarterly basis and if Brent exceeds the oil price of $45 for 10 consecutive days, the domestic reference price will no longer be valid. So how do you understand this would work with your, I was going to say, upstream part of the business and match that with the downstream potentially pressure if you are not able to pass through the higher oil price to the domestic market. So I am just trying to understand what is the final balance to the company here with a higher oil price, how to say, upstream but as a consequence, a bit less, a bit of a pressure on the refining margins looking forward and on top of that, the potential depreciation of the currency? Thank you.

[Sergio Giorgi:]

Thanks Luiz. I hope that you and your family are safe now. So let's start by the barrel criollo. First of all, okay, let's clarify that establishing the barrel criollo, a minimum price for oil, we still have to see the final decree. With the government initiative where we, YPF, of course, we are involved as one of the several stakeholders. Having said that, any decision concerning oil or even fuel prices are of course of strategic importance for YPF as we are both producers and refiners. So we look at that with much detail.In general, the main idea of this initiative would be, under the current disruptive scenario, to assure that temporary minimum supporting price for local oil that would provide all the players of the industry with some short term visibility and incentive to plan investments ahead based on their revenue generation capacity. So what we know so far, well, there would be a minimum price for local oil, $45 is being mentioned as the price for Medanito, adjusted then by quality and an obligation for the refineries to purchase local crude requirements based on demand and after using their own oil, right. So these minimum price will exist until Brent reference price catch up with local price and would be revisited periodically.In addition, export tax will go to zero, if international prices are under this minimum price with a maximum of 8% when the local prices are equal to international. And on top of that, there would be no local fuel tax increases until October. This is what we know so far.In terms of potential estimate to short term impact for YPF, it is still quite early to model it. We still need to see the final document and we will track the evolution of demand over the next weeks related to the flexibilization of the quarantine in the country. Remember that in normal operating conditions, we purchase around 20% of the oil we refine, give or take 50,000 barrels per day. But this is not the case today as we are not refining at full capacity and we are not purchasing any third-party oil and probably will not be doing that for some time as we have more than 7.2 million barrels of oil in stock as well a considerable amount of refined products in stock.So we need to see how the demand is recovering. Then we need to use the oil and the refined products that we have in stock. We need to reopen our curtailed production. We need to reduce the amount of the drilled uncompleted wells and then we will be in a position depending on demand of purchasing third-party oil.Now under the current uncertainty, we have different scenario, but it is difficult to give a date when we are going to resume purchasing oil through third parties. It would take a couple of months and probably we will start purchasing less volumes compared to those we were purchasing before the crisis until the demand catch up, right. So that's we can say about the barrel criollo.Now for this your second question about liquidity position. Ignacio will comment on that.

[Ignacio Rostagno:]

Yes. Hi Luiz. While we have shown in the presentation our objectives and of course one of that is to cope in terms of strengthening the balance sheet. I would say that this situation found us fortunately in an accepted amount of cash and equivalents in hand. Of course, with this lockdown that we are currently going through, we have been affected, I would say, by the working capital. But at the same time, we are now seeing a stabilization, as we said, with a gradual recovery of the demand. So we expect to see a recovery and regain cash generation in the upcoming terms.Seen this more globally, as you mentioned, we have withdrawn our guidance. It's true that we are not going to see the same situation or the same expectations that we have before. But the cash preservation for us is a key priority and in that sense, we are adjusting and we are focusing on reducing and adjusting our CapEx in order to try to reach to levels of being even in terms of cash flow and cash generation. So that hasn't changed. And in fact, it is what we are working on right now, no.

[Luiz Carvalho:]

Okay. And just a follow-up, Ignacio, if I may. There has been quite a recurring question from my end, I mean, over the past conference calls. How do you see the divestments or potential divestments in this scenario? Of course, the potential buyers may have lower upside for some of the assets. But is divestment a potential that can show a way to make raise more cash in order to, I don't know, would, let's say, the current or the lower generation, cash generation for the short term

[Ignacio Rostagno:]

Yes. Luiz, as you know we always have a series of divestments ongoing and planned. Let's talk about the last one that we have done. So over the last, let's say, the last three weeks we have closed the transaction for the farmout of the offshore block CAN 100 with Equinor and we closed the transaction and we have been paid and we expect to close the transaction for the sale of 11% of the Bandurria Sur transaction even this week. So we have not seen any change in the appetite of our buyers. And of course, now we are planning ahead of what are going to be the next few years of divestments. You know, as I said before, that we will have opportunities to optimize the portfolio and we will continue on such deals.

[Luiz Carvalho:]

Okay. Thanks Sergio. Thank you Ignacio. And hope everyone is safe.

[Operator:]

Thank you. Our next question on the line comes from Vicente Falanga from Bradesco. Please go ahead.

[Vicente Falanga:]

Thank you very much, Sergio and Ignacio. Wish you all plenty of success. Hope you and your families are healthy. I have two questions here. First of all, how is YPF's utilization of its storage capacity right now? I know you mentioned 7.2 million barrels. Wondering how much does that represent out of the total storage capacity? And what can you expect to output in the second quarter? And then just a follow-up on Luiz's liquidity question. As we approach the end of the year, if Argentina's country risk remains excessively high, does it makes sense for you to try and issue bonds to replace the $1 billion, more or less, of dollars in bonds maturing in 2021? Or are you going to try to pay these up? Thank you very much.

[Ignacio Rostagno:]

Yes. Thank you Vicente. So let me give you a bit more detail on how storage capacity. So we have today around eight million barrels of oil storage capacity, of which we are using around 90%, so give or take 7.2 to 7.5 million barrels of oil that we are storing. That include three cargos that we have with 1.5 million of light oil. And that's what we have in terms of oil storage. We have been doing as well some exports. We exported 1.5 million of Escalante and Cañadón and Seco crude. Because of their low sulfur quality, they are very well demanded and under the current context of depressed demand, they are still, I would say, demanded internationally. So we took the opportunity to export that.In terms of refined products, we have approximately 40 million barrels of storage capacity and we are approximately around 75% of capacity. And this includes, of course, our refineries, tanking and pipelines. Thus we can say regarding the storage capacity, we are seeing now that the demand of fuels is increasing and this week the country is flexibalizing the quarantine in the majority of the province. So we see that the tendency of the demand is going to increase. So we believe that the internal storage, probably the worst is behind us right now.The second question was related to liquidity.

[Guillermo Nielsen:]

And I can take that. Hi Vicente. So concerning liquidity question, in fact, we are very active and even the weeks and month, we have been analyzing and monitoring the market. Of course, the situation is more difficult, let's say, to do something. But we expect to tap the market at least the local one that we have been doing so this year with good results. And of course, in terms of future, for sure, that if we see a good recovery in terms of oil the sovereign and the possibilities are there, for sure we will be doing something.

[Vicente Falanga:]

Great. Thank you guys. Just I don't know if you can comment on the output for the second quarter? If there's are expectations that you guys are observing already in April and May? Thanks.

[Guillermo Nielsen:]

Yes. I forgot about that, sorry. So there's no one answer to that, because it depends on several variables. As you know, we have some curtailed production today approximately, let's say, between 10% to 12% of our production is curtailed. It will take 30,000 barrels. Half of that is in Loma Campana and the other half it's in other conventional assets like Puerto Hernández and Chihuido. And as we said, we have as well some, a considerable inventory of drilled and uncompleted wells in shale oil around 70 wells. So we will be adjusting with demand. And as we said before, it is difficult today to give one number, because we have different scenarios. It will depend, one, how the quarantine is flexibalized and the demand catches up. So we can not give one number. And this is why we have withdrawn the guidance, right.

[Vicente Falanga:]

Yes. This was super helpful. Thank you. Thank you Sergio Ignacio.

[Operator:]

Thank you. Our next question on line comes from Regis Cardoso from Credit Suisse. Please go ahead.

[Regis Cardoso:]

Hi everyone. Good morning. Hope you all your families are safe. Sergio, I hope you all the success in the new role taking over the company. Thanks also Sergio and Ignacio for the presentation. So if we could just maybe go back on the impacts of the COVID-19 lockdowns, if you could maybe comment for the second quarter so far, what was the lowest point and what was the recovery you have seen so far in terms of impacts to your upstream production, so the production curtailments you had to do as well as refinery utilization rates? I would appreciate an update on that front. Also, you mentioned, so second question, right You mentioned that you would adapt both your OpEx and particularly CapEx to this new tougher reality in order to preserve cash. That is very good to hear. We do believe financial discipline is paramount at this moment. But it will likely have impacts in terms of production curve in the medium term. So is there any comment you can make in terms of how do you balance out those CapEx savings and the impact in terms of declined rates for the production curve? Thanks.

[Sergio Giorgi:]

Thanks Reggie. Reggie, so okay first one impact of COVID. As we said during the t presentation, we have like three main objectives for the short term. The first one, of course, is linked to the safety of our operations, our people, our clients and our providers, right. So based on that, as we said, we defined a COVID committee which is chaired by our ESG manager, which is following this situation on a daily basis and we are adjusting protocols to ensure that we are and we remain safe, right.For this reason, for instance, once the quarantine was put in place, we stopped all of our drilling, fracturing and completion and workover operations in a safe manner and as well the construction activities and we just kept skeleton crews on the sites and at the same time, we managed to keep our retail network open, right. And we are happy, in fact, because more than 95% of the people that usually work at the office have been able to work at home and we are happy as well that we have invested last year in all the technology that is needed to achieve that, right. So that's, I will say, on the ESG, I would say, objective.The second objective is related to adapting our operations to the current situation, right. So the first thing that we did is, with all, I would say, the lines, the upstream, downstream and gas and power, we established a business continuity plan. And as I say before, first of all, in the upstream, we stopped all the drilling operations in a safe manner. We just kept a few pulling units for critical maintenance, skeleton crews at the fields. We adjusted production levels to demand and storage capacity, as I said before. And as well we stopped majority of the construction activities in terms of infrastructure.In the downstream, we have been very quick in increasing storage capacity, as I said, with the three cargos that we hiring at very low pricing. We adjusted the refinery capacity at a certain time. We stopped one of our three refineries. But it is now working again. And I would say, we kept open our retail. That's in terms of operations.And the third impact, of course, or the third objective is linked to the cash preservation. As we said before, this crisis, I will say, found us with a more than $1.1 billion of cash and cash equivalents in hand. And of course a link to the quarantine, we have our sales and therefore the cash generation. In fact, it's almost from one day to another. At the beginning of the quarantine, our fuel sales went down between 70% to 80% and the diesel sales between around 50%. And we still had to pay the bill for the previous months, right. So we have affected, we have been affected in our working capital, give or take, let's say, 20%. But now, this has been stabilized, as I said before. For one side, we have stopped all the main CapEx activities, because we are not drilling or completing wells and at the same time, demand is recovering, right. Now that, I would say, mainly related to the impact of COVID.Your second question was related to CapEx and OpEx. Well, as we said, first of all, if you compare, the first thing I have to say is that we have to identify CapEx and OpEx reduction, I would say, opportunities all across the chain, right. In the upstream, of course, they are related to drilling and completion activities but as well some infrastructure. In the downstream, mainly pushing one year new specifications project and as well delaying some other projects and reducing the marketing budget. In gas and power by pushing the majority of the project, we are just going ahead with gas storage project because we already injecting there and this is a good business for us.And as well, we have identified OpEx reductions across the chain and this includes, I would say, salaries for all the employees as you have been hearing probably since yesterday. Now I can not give you now one number of how we are going to reduce this number. If you remember, the previous guidance that we gave was around $2.8 billion for the year that we have withdrawn since. If you look at the CapEx for the first quarter, it was just below $600 million and we just been affected there like half of one month. And this month, we are already one-third of the quarter, where we have been not doing drilling or completion activities.So you can consider that this quarter, the second quarter, the CapEx will probably much lower than the first quarter. Now looking ahead, we have to deal with uncertainty. We need to look at how the money is recovering. We need to look at our cash preservation strategy and then we will define on a case-by-case basis. But this all that I can tell you for the time being.

[Regis Cardoso:]

Thanks Sergio. A very complete answer. If I may just follow-up very quickly, you mentioned demand falling some 70% at its trough, how did that affect your refining utilization and production? I mean, you have a number, right, in terms of utilization rate drop to as low as 60% or even below that and if you have, like, the latest one, just so we have an idea how well that has recovered? That's one follow-up. And the second is just whether you, in those revisions you are studying for CapEx, if you believe that demand could decline in -- I am sorry, if production could decline in any of the scenarios or if you believe, in any case, you will be able to either maintain or increase production? So just those two follow-ups. Thank you.

[Sergio Giorgi:]

Okay. So today, more or less, in terms of production, we have around 10% to 12% of our production is curtailed. As I said before, around 30,000 barrels of oil per day and half of that is in Loma Campana, having at the request of our partner. And the other remaining half is mainly coming from conventional fields, that Chihuido and Puerto Hernández, right. So in terms of refining, I would say that at the worst, our refining capacity was at 50% and is now recovering. So last week, we were between 55% to 60%. So it's already increasing and we will see how this is catching up with a partial reopening of the country and the flexibilization of the quarantine, right.Now, how is going to be the production of the year? It's a very tricky question. And one thing that we can say is that once we have to put again in place our production, as I said, half of this production is coming from Loma Campana, where we can increase, we can start the production very quickly. We just need to ensure that we would follow the choking up procedure. So once we decided to open up production, between seven days to 10 days later you are already producing those wells. And you know what happen when you stop an unconventional well, pressure starts to build up and at the beginning you have a little bit of more production than you had before stopping and then it stabilizes. So we can plan ahead and put all these production again very quickly.And the second half, let's say, is conventional fields. When you are still producing conventional fields where you are injecting water, well, water has a little bit more mobility than the oil. So at the beginning you have more water coming and this will take, let's say, around 20 days to stabilize and then you will find the same production than before.Now there are plenty of variables to define how much are we going to be producing by the end of the year. So I can not give you a number but you also need to add to the question that we have a considerable amount of drilled but uncompleted wells in the shale oil in our three main developments around 70 wells. Some of them are already fractured. So we just need to drill out the platform and connect. So we can increase production very quickly considering what I just said and the curtailed production. That's all I can tell you so far.

[Regis Cardoso:]

Very clear. Very helpful. Thank you very much and stay safe, all.

[Operator:]

Thank you. Our next question on line comes from Pavel Molchanov from Raymond James.

[Pavel Molchanov:]

Thanks for taking that question. You talked a lot about the decline in demand within Argentina. I am curious what has been happening with the export of natural gas to Chile and any other countries where you have been having some gas exports in recent years?

[Sergio Giorgi:]

Hi Pavel. As you know, early in 2019, when we saw that there was an excess gas in the system, we decided to activate levers to increase the gas demand, right. And these levers include exporting gas to Chile again, bringing along a floating LNG unit to export gas, but liquefied gas. And as well other levers like underground storage and long term levers that are not included in your question. So yes, in fact, we exported gas to Chile. We exported LNG. Now we are entering in the winter season. So winter season, those exports are reduced and will eventually stop.

[Pavel Molchanov:]

Understood. Let me also ask about the ESG strategy. I think it was late last year you announced some low carbon initiatives including YPF Ventures with Sustentator and so forth. To what extent have these projects been curtailed due to the capital, well, CapEx cutbacks that you have talked about?

[Sergio Giorgi:]

Okay. Thanks for that question. So first of all, our ESG strategy is in full motion. As we mentioned during the last quarter results, we have been tracking our performance against our peers and we have been doing, our teams have been doing an excellent job doing that. Remember that the first time that we compare ourselves with the MSCI index, we were kind of bottom line and we realized that this wasn't because we are bad, but because we were not telling what we were doing. So we started doing hard work. And in 2018, we catch up and got, I would say, just in the middle of the line, in the average, just above the average of our peers. And during the last MSCI qualification, we qualify again and we were in the top 15%. So we are very happy with that. It's in full motion. And now, as I said before, we are analyzing CapEx and OpEx reduction all across the chain, so it probably will get impacted. But it's still early to give figures, right.

[Pavel Molchanov:]

Okay. Thank you very much.

[Operator:]

Thank you. Our next question on line comes from Bruno Montanari from Morgan Stanley. Please go ahead.

[Bruno Montanari:]

Hi. Good morning. Thanks for taking my questions. And good luck to the new team. And hope everyone is safe and healthy. A follow-up on liquidity. How long do you think you can wait before taking the final decision for the bond refinancing next year and perhaps that the company might need to take on higher costs debt? So I assume you are not going to wait until March, right. So when do pull the plug and decide on what to do finally? And a second follow-up on CapEx. Aside from COVID and the oil price, just thinking about the operations, what would be the lowest CapEx you can do without having any serious operational problems? So how low can you go? And if I can throw in a third one quickly, are you seeing any type of working capital pressure because of extended payment terms from your client base for any chance? Thank you very much.

[Sergio Giorgi:]

Yes. So yes, related to the CapEx, as I said before, we withdraw our guidance because we are recalculating, right. So we can go as low as is necessary. And of course, operational progress would be more related to OpEx rather the CapEx. But this is something that we are reviewing. So I am afraid, I can not give you a number, because we are still revisiting and looking at different scenarios. We still need to see how the demand is catching up and revisit investments all across the chain. So I am afraid I can not give you more information concerning that.And the second was concerning liquidity.

[Ignacio Rostagno:]

Yes. Liquidity and the bond. Hi Bruno. Yes, specifically speaking about a deadline, there's not a deadline, though. We are not imposing as a deadline. We are actively looking different alternatives. Of course, the good thing that we have is that we still have our advantage of almost a year until it matures, okay. So in that sense, we have time. We don't have a deadline that we have to impose. We will be monitoring the market as long as this time passes and we look forward to doing liability management as we have already mentioned.Then in terms of working capital, if you want to say, we are actively managing it, okay. We have mentioned about the cash preservation strategy. And in that sense, we are looking on analyzing, I will say, every dollar and peso that enters into the company and the one that goes out with top care into that, no. So that's the way that we are dealing with all the working capital itself.

[Bruno Montanari:]

Got it. Thank you.

[Operator:]

Thank you. Our next question on line comes from Barbara Halberstadt from JPMorgan. Please go ahead.

[Barbara Halberstadt:]

Hi. Thank you for the questions and the presentation today. I just wanted to follow-up on the liquidity. Actually, you mentioned you tapped the market for just over $200 million in the quarter. If you could give us a little bit more color on the terms for the local bond that you have been placing and also give us just more of an update on how much you have been able to issue locally, year-to-date, on top of the $200 million? Thank you.

[Ignacio Rostagno:]

Hi Barbara. Thanks for your question. In terms of the issuances that we did, they were all local, okay. We tapped the market in the quarter twice. The market, the local markets, you may know, it doesn't have the same penetration as the international market. But so far, we have been successful in reaching to this market. I would say that the issuances our more short term. They are based more on peso rather than dollar, although also we issued some dollars, but mainly it's pesos. We have tried to extend the maturities but we are seeing that still the market is quite short in terms of the terms, no. So basically that's the idea over the local market. We will try to maximize the access to this. We see that there is some appetite. Of course, in this current situation, we will probably need to some sentiment but we will keep on focusing on this market as long as we have this opportunity to take advantage of.

[Barbara Halberstadt:]

Thanks Ignacio. And just a quick follow-up. How much have you issued year-to-date locally? Or the $200 million is just for the quarter, right?

[Ignacio Rostagno:]

Yes, that's for the quarter. Then we did another issuance of around $25 million in April.

[Barbara Halberstadt:]

Thank you.

[Operator:]

Thank you. Our next question on line comes from Anne Milne from Bank of America. Please go ahead. If your line is muted, please unmute.

[Anne Milne:]

Okay. Thank you. Yes, it was muted. Good morning. Thank you very much. A couple of questions. I was wondering if you could tell us how all of your activities affected your lifting cost and your cash production cost for the quarter and what your cash breakevens were? Another question I have is on the natural gas market which has been very competitive. How has this affected all of this? Prices seem to have gone even lower. Maybe you could tell us what you are doing to sort of guarantee minimum price levels there? And I guess have you, well this week one of the rating agencies, S&P, lowered their convertibility and transferability risk in Argentina. YPF was downgraded. When you have had to repay some of your trade creditors, have you had to use your own money offshore? Or have you been able to access foreign exchange from the Central Bank? Thank you.

[Sergio Giorgi:]

Hi Anne. Yes, so concerning the natural gas market, as we have been saying since early 2019, there is more gas in offer than demand and this is why we have been activating all those levers. I just mentioned short term and medium and long term levers. And of course, this has been reflected in prices, right. So yes, we have seen a decrease in prices in the natural gas market.Now if you look at what happened on this first quarter compared with the previous year, you will see that we have gained market share and this was a commercial decision that we took in order to reduce the curtailments. And if you are trying to remember that in the first quarter of last year, we were curtailed around nine million cubic meters per day and you will see that on this quarter, right. So of course, this has a consequence in prices and we believe that the market would eventually stabilize. And the good news of this is that we and our competitors as well, we have demonstrated that we can develop shale gas fields at competitive prices below import parity, but probably at higher prices than the prices that we have seen under the last gas tenders, right.Second question was related to breakeven. So we don't provide, okay, we don't provide one breakeven. So what we have been saying so far is that in our shale oil fields, specifically in Loma Campana, we have given $30 per barrel breakeven. And of course there, we have very competitive development costs, around sometimes below $10 per barrel. We have an OpEx that is around $5 per barrel.And drilling wells in Vaca Muerta, we have been very efficient doing that. Just to give some figures. Drilling a 2,500 meter horizontal well and fracing it with around 38 fracs is costing us approximately $11 million, all included from drilling to connection. It will take us approximately 200 days to drill a four well and connect four well paths and 300 days for a six well path.So this is the numbers that we are providing. And of course, we have identified a series of improvements that we need to do to keep on reducing our development costs, right. So far, we know and we have proved that Vaca Muerta has an excellent productivity, sometimes higher than the U.S. analogous and we need to continue working in reducing our CapEx and our OpEx.And the third question was related to?

[Ignacio Rostagno:]

Hi Anne. This is Ignacio. Concerning your question related to access, let's say, to the FX. In terms of all the refinancing activities, I would say, generally speaking in terms of services that are provided from abroad, we do not have any restriction or problem at all to access the official FX. So that's what we have been doing with no problem at all and that's the current situation, no. We don't expect any change in that sense.

[Operator:]

Thank you. Our next question on line comes from Walter Chiarvesio from Santander. Please go ahead.

[Walter Chiarvesio:]

Yes. Hi. Good morning. Thank you for taking my call and wish all the success to Sergio. My first question is regarding, I heard from other companies and in the press that some E&P players are selling crude oil at very low prices even below $20. And my question is regarding that. Why isn't more room to improve benefit by buying through third parties at very low prices while trying to cut more own production in order to increase the margin versus the pump price? That is one. The second is, I saw in the press this morning that the government plans to freeze the pump prices for six months until October. And in your case means that the implied price of the crude oil wouldn't be really $45, if that happened because even if the currency, we rule out currency jump, this could jump in the official FX, even following the crawling peg movement that the Central Bank is following, we should expect depreciation of the currency from now until October by no less than 10% or 15%. So the real price is not $45 per barrel. So how do you think that will evolve in the future in your case? Those are my two questions. Thank you.

[Sergio Giorgi:]

Hi Walter. So on your first question, let's say that we are currently not purchasing oil through third parties as we said. We are managing stocks and we took the opportunity to buy some crude at lower prices, as you said, but today it's more a question of demand, right. So we still have some curtailed production. We still have some oil in stock and we still have some refined products in stock. So we take into account all these and of course try to do the best economic decision in real time, right.Your second question was mainly related to barrel criollo. Well, I have been saying already a lot of things about that. And it is still too early and we still need to read the decree and see all the dynamics to see how this will play. And as we always do, we will manage these. But the first thing that we need to do is to see how the demand is recovering and what's the use of our stocks and how do we stop curtailment.

[Operator:]

Thank you. And our final question comes from Andrew De Luca from Barclays. Please go ahead.

[Andrew De Luca:]

Yes. Hi. Good morning everyone. Thanks for taking my question. So I wanted to follow-up on liquidity. You guys have been mentioning the importance of preserving cash. But your comments suggest that you have likely seen a deterioration in liquidity since the end of the first quarter. So my question is, can you just provide us with a degree of how much it's deteriorated since first quarter? Maybe where it stands today? Or where it ended in the month of April? And then the second question I had is, you mentioned that you refinanced some bank facilities during the quarter. Can you just clarify these facilities were rolled under the same terms?

[Ignacio Rostagno:]

Hi Andrew. Yes, concerning what we have been mentioning about the reduction, I would say, due to mainly working capital. And Sergio mentioned it already, we are saying that around 20% and has been impacted in our cash. And nowadays that we are seeing a recovery in demand, then working capital is starting to regain again, no. We will keep on, as I mentioned, actively managing our working capital to restore more liquidity in that sense. Now given that at the same time, we are not having new expenditure in CapEx, no.Then in terms of the facilities that we have rollover. More or less, we are on more or less the same terms. We have seen slight increase in grades and years but we have also seen is a reduction in terms, more for trade facilities. We are doing it and rolling over them around, I would say, 180 days. But that's more or less the terms. We haven't seen any material change in those ones.

[Andrew De Luca:]

Great. That's helpful. Thank you.

[Operator:]

And at this time I see we have no further questions, I would like to turn the call over to our presenting team for closing comments.

[Sergio Giorgi:]

Okay. So thank you very much for attending this conference and as always, our IR team. Ignacio, Soledad and myself, we are available for catch up later. So stay safe and see you later. Thank you very much. Good bye.

[Operator:]

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