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YPF S.A. (YPF) Q3 2019 Earnings Call Transcript

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YPF earnings call for the period ending September 30, 2019.

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YPF S.A.  (YPF -0.41%)
Q3 2019 Earnings Call
Nov. 08, 2019, 8:30 a.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Welcome to the Third Quarter 2019 YPF Earnings Conference Call. My name is Paulette, and I will be your operator for today's call. [Operator Instructions] Later, we will conduct a question-and-answer session. [Operator Instructions]

I will now turn the call over to Ignacio Rostagno. You may begin.

Ignacio Rostagno -- Investor Relations Manager

Great. Thank you, Paulette. Good morning, ladies and gentlemen. This is Ignacio Rostagno, IR Manager. I'd like to thank you for joining us today. In this presentation, we'll present YPF 2019 third quarter results. The presentation will be conducted by our CEO, Daniel Gonzalez; Sergio Giorgi, VP of Strategy, Business Development and Investor Relations; and myself. During the presentation, we'll go through the main aspects and events that explain our third quarter results. And finally, we will open up the call for questions.

We'll be making forward-looking statements. So I ask you to carefully review the cautionary statement on Slide 2. Also, although our functional currency is the U.S. dollar, our financial statements figures are published in Argentine pesos based on international financial reporting standards. In this occasion to let you better understand our key financial and operating results, unless otherwise explained, the calculation of the main financial figures in U.S. dollar is derived from the calculation of the consolidated financial results expressed in Argentine pesos using the average exchange rate for each period.

With this, I would like Daniel to start with the presentation.

Daniel Cristian Gonzalez Casartelli -- Chief Executive Officer

Thank you, Ignacio, and good morning, everybody. Although I typically do not participate in the quarterly calls, this is clearly a very particular moment and we know there are several questions out there, so we wanted to make sure that we remain as visible as we have always been.

If anything, this quarter is saying a few things about YPF. First, that we are clearly going through a difficult operating environment; then, that management is reacting rapidly and making tough decisions; and third, that YPF is incredibly resilient.

With regards to the operating environment, the unexpected results of the primary elections of August and the political volatility that followed resulted, among other things, in a significant devaluation of the currency and a spike in inflation. In addition, an already slow economy, where we obtain 90% of our products, deteriorated further. To make things worse, the government came out with a broad 90-day price freeze for fuels and crude oil. At the time of the freeze, as Sergio will be showing during the presentation, fuel prices are pretty much converged with international prices.

We reached out to you at that moment on the same day of the announcement, by the way, to explain the implications, and the measures that we would be taking to minimize the negative impact. The negative trajectory of natural gas prices is also part of our challenging environment for us. And although this is not new, and we have been preparing for this for several quarters now, it does affect our revenue base and our growth plans for the near future.

But I want to highlight that we reacted rapidly with the objective of protecting cash. We explained to the government, the negative effects of the measures they have taken and proposed different alternatives to try to reduce this effect. We pushed out investments but kept untouched those that have to do with safety, reliability and sustainability of our operations.

We passed through to the value chain part of the effects of the freeze, by the way, this entails engaging in negotiations with several thousand contractors and suppliers. We reached out to all of our partners to review our plans for next year, reconfigured the rig count to make it more consistent with a softer 2020. We paid down the $300 million Swiss fund maturity at the end of September without any difficulty and we rolled over the short-term debt that came due. But among everything else, we kept the team focused on execution.

All of this in full alignment and with full support of our Board of Directors from the Chairman of the Board himself, especially given the fact that we had to make unfriendly and bad decisions. And as I say, the company has shown its resilience because under these difficult circumstances, we were still able to deliver close to $1 billion of EBITDA. A positive free cash flow before interest and production in line with our original budget.

The government gradually flexibilized the terms of the freeze with a full liberation of wholesale prices and with two pump price adjustments during the period. We expect the decrease -- that decided that freeze not to be renewed when it expires next week. Ignacio and Sergio will go through the details of the quarter, but I wanted to provide this context under which I believe we obtained extraordinary results.

Now I'd like to share with you our safety metrics. As you can see in the chart on the left, the current injury frequency rate, an indicator that measures the number of people injured every million hours worked keeps improving and positioning us at an all-time low. Having said this, during the quarter, we had a well-controlled incident in one exploratory gas well under production in the Loma La Lata field. After deploying our contingency plan and a quick response task force, about three weeks of efforts, we managed to control the well and secure the location with no people injured nor any effect on the environment, besides, of course, the gas that was burned during the period.

And although I am very proud of the commitment and the response of the YPF team to control the incident, I also believe there are lessons to be learned in order to avoid these high-potential incidents as safety of our workers and the integrity of our operations are top priorities for us. On the ESG side, we recently published our 2018 sustainability report, which is available in our website, both in Spanish and in English.

Our vision of sustainability involves multiple internal and external aspects of our operation and everyday business management, such as making people's safety a priority, ensuring that everyone in our supply chain complies with our safety and environmental rules and aligns with our corporate values, working with local communities on an ongoing basis and promoting innovation in both our operations and market products and services.

Lastly, we will continue tracking our ESG scoring under the Dow Jones Sustainability Index to benchmark our progress internally and against our peers. RobecoSAm, the firm we hired to assess our sustainability practices and reporting, will provide our results by the end of the year. While we are also looking forward to the MSCI ESG ratings update, where we expect to keep on improving our performance. Moreover, we're also being advised by the sustainability team at The Bank of New York Mellon on these issues, and please feel free to contact IR -- our IR team should you have any questions on these aspects.

With this, I will let Ignacio and Sergio continue with the presentation, and I will come back at the end for conclusions and Q&A.

Ignacio Rostagno -- Investor Relations Manager

Moving into our main financial figures, measured in U.S. dollar, in this third quarter, they were negatively impacted by decreasing the local crude oil and fuel prices and devaluation. The local average exchange rate variation was almost 60% when compared with the same quarter of 2018. Total revenues saw a reduction of 13%, mainly driven by lower demand and lower prices for our main products, gasoline and diesel. They were also affected by a 22% decline on our natural gas revenues as a result of a 10% reduction in prices.

In terms of operating costs, particularly lifting and refining costs, in absolute terms, they increased by 8% and 22%, respectively. The increase in the lifting cost was mainly driven by higher workover activity tending to improve the production performance of certain mature fields. The high refining costs were driven by higher maintenance work on conversion units compared to the third quarter of last year that did not affect our processing volumes. However, for the first nine months of the year, refining costs only increased by 5% year-over-year.

Royalties, which is the only cost component fully denominated in dollars, was down by 27%, driven by lower natural gas and crude oil prices in dollars. In turn, crude oil purchases were down 27% also driven by lower crude oil prices. As a result, adjusted EBITDA was down by 15% in dollars, maintaining EBITDA margins close to a 30% level. IFRS 16 and IAS 29 effects are not included in our adjusted EBITDA and financial debt.

Despite the challenging macro context, our operating cash flow reached $1.2 billion increasing by 19% year-over-year. The cash flow generation was enough to cover our investments for the quarter totaling $810 million, 5% lower compared to the third quarter of 2018. The reduction in capex was driven by the devaluation of the currency and capex reduction initiatives across the different business segments.

Besides, as we will show later, we are also able to maintain our production stable at 530,000 barrels of oil equivalent per day compared to the third quarter of 2018, and continue increasing our net shale oil production.

As we did in previous quarters, we are focusing the analysis of the adjusted EBITDA of each of our business segments to provide a better understanding on how they contribute with the cash generation of the company, putting aside the impact on depreciation and amortization and impairment, which are, in fact, non-cash effect.

Focusing on the adjusted EBITDA, as said, a 15% decrease year-over-year was mainly driven by the freezing and devaluation effect. Compared to the third quarter of 2018, lower operating results were obtained in our Upstream segment, which showed a decrease of $345 million in adjusted EBITDA. We had drop of 23% in revenues, driven by lower crude oil and natural gas prices while cash costs of these business segment decreased by 12%, mainly driven by lower royalty payment.

The Gas & Power segment showed a decrease of $60 million, mainly due to lower average prices and costs related to the floating LNG berths, we did not have last year. On the other side, the Downstream business segment showed an increase of $118 million compared to a year ago. Revenues of this segment decreased by 8% due to lower sales in the local market, mainly affected by lower gasoline and diesel sales on both lower prices and a slight decrease in demand, although we had higher revenues from exports. The lower revenues were offset by a decrease in the quarter mainly explained by lower crude oil and biofuel purchases and lower import of fuels that were partially compensated by an increase in the refining cost.

This quarter, we added an impairment charge net of taxes of ARS31.1 billion. That is $540 million at an exchange rate of the end of the period. This exceptional charge is mainly the consequence of the new gas market dynamics with lower gas prices. This price trend is incorporated in the projections for the coming months, all of which impacts on investment and activity, causing the deterioration in the value of the assets for the recorded charge.

As I mentioned, the cash generation in the third quarter of the year reached a total of $1.2 billion, a 19% increase over the cash flow of a year ago. This increase was mainly due to lower working capital needs, partially offset by a lower EBITDA in dollars. During the third quarter, our investments effectively paid reached $804 million, 10% below our third quarter 2018 levels. Upstream capex in 2019 third quarter amounted to $681 million, 3% below 2018 third quarter levels.

Drilling and workover represented at 67% of the upstream capex, followed by buildup of facilities, with at 25%, and exploration and other activities, 8%. During the quarter, we drilled and put into production a total of 109 new wells, of which 33 are not operated by us. Downstream capex amounted to $63 million, 45% lower than Q3 2018. 58% of this amount was invested in refining, 22% in logistics, 17% in marketing and the rest in chemicals. Our financing activities amounted to $796 million include the repayment of the CHF300 million bond in September, interest payments of $243 million, almost $50 million dividend and around $90 million of leasing payments. Still, our cash position remains strong, and to ensure a medium-term liquid cash investments at $1 billion at the end of September 2019.

In April, we started collecting the installments of the bond issued by the government for the 2017 planned gas accruals. During the quarter, we have received approximately $75 million improving our working capital. By year-end, we shall have collected $300 million, out of the $760 million total. We are committed to align our cash generation with our capital expenditures as the financial discipline is one of our key priorities. As we can see in the graph on the right, we are funding our capex program with our own cash generation, reaching more than $0.5 billion during the nine-month period of this year.

As Daniel explained the current currency context found the company in a strong financial situation, enough to cover the debt maturities pipeline for the next year, which are not significant. Indeed, despite the overall macro scenario, we paid a maturity at the CHF300 million loan and have successfully managed to work on rolling over our short-term maturities, which most of them are credit facilities. Going further, we can't experience any significant reduction in the ranking facilities. Forward looking in 2020, we have around $660 million of debt maturities related to trade financing. In addition, we have an international gasoline bond maturing in July and minor local coupons.

Our next significant maturity in the capital market is the $1 billion bond due in March 2021. We are regularly monitoring the market for a potential liability management transaction. Our leverage ratio stood at 1.98 times net debt to adjusted EBITDA within our 2 times target for the year, while the average life of the debt remains in the six-year area. The average interest rate in pesos increased to 55.8% while the average cost of our debt in dollars remained fairly stable at 7.6%. This is also important to highlight that although capital controls have been reinstated by the Central Bank, they do not prevent the company of accessing the official foreign exchange rate of exchange rate market to pay any debt terms.

With this, Sergio will explain our operational results. Thank you.

Sergio Fabian Giorgi -- First Deputy Market Relations Officer & Business Development Vice President

Thank you very much, Ignacio. Total hydrocarbon production reached 530,000 barrels of oil equivalent per day this quarter, remaining stable vis-a-vis a year ago and increasing by 2% versus last quarter.

Let's look at this with more detail. Crude oil production amounted to 227,000 barrels of oil per day, which represents a 1% increase on a quarter-over-quarter basis and remained flat compared to last year's third quarter. But it would have been also higher if we exclude the production associated to the mature fields divestment performed by the end of 2018.

Gas production amounted to 44 million cubic meters per day, representing a 9% increase quarter-over-quarter, mainly driven by higher winter demand and remained flat compared to last year's third quarter.

Finally, NGL production increased 6% to a total of 28,500 barrels per day when compared with 2018 third quarter. When we break down the sources of our total production, we can observe that shale production growth contributed with 44,400 additional BOEs per day. And the good news is that this growth by itself is offsetting both the conventional production decline and the tight production decline is that one mainly related to a redirection of investment from gas to oil due to the current gas market environment.

Fueled by the shale production growth, our unconventional production represents now 35% of our total production. And we will come back to that in a few moments. But first, we would like to highlight a few elements of what we have been doing on the conventional side that still represents 65% of our production.

Specifically, in the conventional side, we remain focused in continuing identifying new fields for primary development in improving our secondary recovery results by increasing the amount and the quantity of water injected and based on the positive results of our polymer injection pilot, and expansion of dispersion and recovery technique into other fields in order to improve the recovery factor.

Just to mention a few examples on new primary developments, we can mention the Llancanelo heavy oil field in Mendoza province, where after agreeing a royalties reduction scheme with the province, we are able to FID the first ever field development in the country using low-cost multilateral wells with five horizontal branches. We have successfully drilled one of those wells, are currently drilling a second one and plan to drill up to 15 of them dramatically reducing the surface footprint of this development from 75 to just 15 locations.

In addition, this heavy oil will be used for blending purposes with a much lighter [Indecipherable] oil in our Lujan de Cuyo refinery. Also, in Mendoza province after successful exploration and first delineation campaign, we are currently finishing a second delineation campaign in the Cerro Morado Este field with positive result and producing around 1,300 barrels of oil per day during this early stage. We will be testing a water injection scheme during the next 12 months to then define the best way forward. With the current understanding, a potential field development plan would include more than 200 producing wells and 100 injecting wells and increase current production by 10 times or even more if the polymer injection scheme is positively tested.

In the secondary recovery area, we continue identifying opportunities in mature fields, with zones not properly treat [Phonetic] by water injection. For example, in Chihuido de la Sierra Negra field located in Neuquen province and which used to be one of our main producing areas, by the end of this month, we will be start doing low-cost water injection wells to increase the oil production recovery of this field. We have mentioned in the past the positive results achieved with the tertiary recovery pilots in Chubut province, where we are increasing the number of polymer injection plant. In addition, we have also achieved positive results in Mendoza province and will deploy in this [Indecipherable].

Finally, we continue with our exploration efforts aiming to discover new resources and new plays. We are glad to announce that we have recently reached an agreement with Equinor, the Norwegian major, by which they will farm in into our CAN 100 deep exploration block, purchasing a 50% stake with a cash and carry consideration. We are happy to join forces with international renowned deep offshore operator in order to explore this potentially prolific Atlantic margin block.

Additionally, we have received expression of interest from other top international companies and are, therefore, jointly launching a second farm-out with the idea of retaining each one, a third of preferred share.

Moving now to unconventionals, our net production in the third quarter of the year surpassed, for the first time, the 100,000 BOE per day milestone, reaching 102,000 BOE per day, which is a 77% increase compared to a year ago and a 25% increase quarter-over-quarter. Net shale oil production showed an increase of 55% compared to the third quarter of last year. Shale oil represents now 16% of our total crude oil production.

During the quarter, we connected a total of 32 new shale horizontal wells and used 18 drilling rigs. Our operation is mainly focused in the three shale oil developments, Loma Campana, La Amarga Chica and Bandurria Sur, but also in continued derisking our exploration acreage in order to grow and mature the future development portfolio.

In Loma Campana, the 50/50 JV with Chevron, we have six drilling rigs working. Gross production reached 42,000 barrels of oil per day. And for the first nine months of the year, we have added 20 new wells.

In La Amarga Chica, the 50/50 JV with Petronas, we have seven drilling rigs. Gross production reached 12,000 barrels of oil per day, and we added 12 new wells in the first nine months of the year.

In Bandurria Sur, the JV with Schlumberger, we have four drilling rigs. Gross production reached 5,000 barrels of oil per day. And in the last days, we have connected a new four wells spud. We also continue with exploration and derisking activity in our shale acreage.

On the right-hand side of the slide, we can see the sustained productivity improvement achieved year-on-year in all of our main shale oil developments and also few of the very promising results we are achieving with the derisking campaign.

For example, in Bajo del Toro block, the JV with Equinor, where after successfully putting two horizontal wells into production with very good productivity results, we are planning to drill four more wells in order to have enough information to define new shale oil development plan there, or for instance, in [Indecipherable], south of Loma Campana, with three months of outstanding production results.

We continue searching to improve efficiency and profitability. As we can see here, the development cost and OpEx in Loma Campana is remarkably low. As of today, three additional rigs of those under contract have been upgraded to high stack to allow drilling faster and longer horizontal wells. We have already drilled 3,400 meters horizontal length well in Bandurria Sur and are currently drilling a 4,000-meter one.

On the completion side, we are switching to high-density completion with an average of 60 meters separation between stages in order to improve productivity. All the wells connected this quarter have more frac space. Moreover, we keep analyzing the use of nearby sand to continue reducing costs.

As a result of these metric, we continue improving our breakeven in Loma Campana that is now in the lower end of the $35 to $40 per barrel. Our focus is to keep working on the development costs, both in drilling and completion, while improving our operating expense metrics. Whereas we do not control oil and gas prices, we do control our breakeven and, therefore, our main focus is remaining the most profitable shale operator of the basin and the partner of choice.

Now let's look into more detail, the gas market and production. On the left-hand side of the slide, we can see that we have managed keeping a flat production during the third quarter of this year compared with the third quarter of last year, and that we have managed coming back again to our historical production levels.

However, we can also see that fueled by the excellent results obtained with Vaca Muerta shale gas developments, we have now a new reality in the gas market, which can be summarized as having more gas offer than demand outside of the winter season, which had already led to gas curtailment and tensions in price.

We have been mentioning in previous communications all the levers that we have activated to cope with this new reality, and we would like now to provide some updates. First, as we already mentioned and supported by the optionality of our shale acreage, we redirected investments originally planned to gas field toward oil field. We have also started exporting gas to Chile this year and are actively looking to increase our share of gas export in the future as there are still availability in the existing infrastructure.

We started the construction of a new underground gas storage project that will be functioning in 2020 and will allow us to better cope with the summer and winter swings, therefore, reducing curtailment. And we will be exporting our first LNG cargo ever before in the next phase from our Tango floating LNG unit, while we also continue working toward finding a long-term solution to further increase gas demand, which is a sizable LNG terminal.

Finally, we have requested offers for the expansion of the Profertil urea plant capacity, a JV we have with Nutrien, and we will be evaluating those offers under market conditions during the first half of next year. The dynamic in the natural gas market, together with an increased supply, have put pressure on prices. The gasoline station price for this quarter was $4 per million BTU compared with $4.5, one year ago. Nonetheless, by the end of the quarter, the price was closer to $3.5 per million BTU.

Moving down to our Downstream business segment, during the third quarter of 2019, the utilization rate of our refineries increased 2.6% versus the third quarter of 2018, reaching a total of 297,000 barrels of crude oil processed per day and 90% refinery processing level.

Regarding sales, total volumes remained fairly stable compared to the same period a year ago, as lower volumes in the local market were partially offset by higher exports. Indeed, total volumes in the local market decreased by 2%, driven by a lower demand for our main products, diesel and gasoline.

Moving deeper in the analysis, gasoline sales reported a 2% decrease compared to last year, driven by a lower demand for our premium gasoline, with a decline of 9% in volumes, partially offset by higher volumes of regular gasoline. Diesel sales decreased 6% compared to the third quarter of 2018, driven by lower demand of both regular and premium products with the latter dropping 5% compared to last year.

I would aggregate market share during the quarter, slightly dropped, but remained strong at 56% in line with historic levels. In particular, market share for our premium products, Infinia Gasoline and Infinia Diesel, remained above 60%.

Downstream adjusted EBITDA per refined barrel for the first nine months of the year reached $11 per barrel, slightly above last year's levels but still below previous year's figures. Price for gasoline and diesel were reduced in dollar terms due to the freezing prices and the devaluation of the peso. This was in part offset by higher volumes processed and lower costs, mainly driven by lower crude oil purchases.

We use import parity as the reference where local prices should converge. The dotted line shows the evolution of import parity, and the full line represents the evolution of the blended price of our fuels in pesos since the beginning of the year 2018. The graph shows that at the beginning of the quarter, we were able to close the gap with import parity. However, after primary presidential elections, with the devaluation of the peso and weaker demand, our blended price went below import parity, and in August 16 decreased $5 to $6 fuel prices for a 90-day period.

Since then, the industry engaged with the government to smooth the path to the maturity of the restriction period. Firstly, we obtained liberalization of the wholesale prices, which allow us to gradually adjust prices on that segment.

Afterwards, in September and November, the government allowed to increase the prices at the pump by 4% and 5%, respectively, totalizing a 9% increase since the measure was put in place. But still, our prices have remained below import parity with a 15% to 20% gap. Once the 90-day period expire, we expect to continue performing price adjustments to gradually close the gap with import price.

Complementing what we have shown concerning the gap of our fuel prices when compared with import parity, the following chart shows that the local fuel prices at the pump in U.S. dollars are currently at low historical levels.

With this, I will ask Daniel to continue with some closing remarks.

Daniel Cristian Gonzalez Casartelli -- Chief Executive Officer

Well, thank you very much, Sergio. In summary, despite the macro situation, we performed well and managed to generate a considerable amount of free cash flow from operations necessary to maintain our financial discipline and keep on investing to develop Vaca Muerta. We are seeing good results in the shale production, and our effort will be on improving productivity while continue to reduce costs in the play.

We remain focused on accelerating our shale oil developments and will concentrate our investments in the three core shale oil areas, Loma Campana, La Amarga Chica and Bandurria Sur.

On the gas side, we will continue to limit our investments until we see we can allocate every molecule of gas we can produce at competitive prices. In the meantime, the objective is to protect our share in the local market, minimize the curtailment and continue to increase exports.

As said, we view the freeze in prices as a temporary measure the government had taken. Fuel prices are currently at historic lows, and we believe in a gradual recovery that allows the continued investment that this sector needs.

With recent developments, we are providing new guidance for the rest of the year. We expect EBITDA in the $3.7 billion area, capex of approximately $3.2 billion, production decline in the 3% area and net leverage in the 2.15 times area.

We believe long-term growth is not being affected by the events of the last few months, as Vaca Muerta continues to be a priority, not only for us and the rest of the industry, but also for the recently elected government. We might see a little growth in 2020, as we are putting together a plan for next year, with a priority in maintaining our sound balance sheet that is the only way to assure that long-term vision growth.

With that, we would like to address your questions. Thank you very much.

Questions and Answers:


Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Bruno Montanari from Morgan Stanley. Please go ahead.

Bruno Montanari -- Morgan Stanley -- Analyst

Good morning. Thanks for taking the my questions and thanks for the presentation, Daniel. I have a few questions. The first one is what would be the company's wish list, or if you're seeing any signals of upcoming energy policy into the new government, so what would you like to see to make sure that the investment climate remains supportive into the coming years?

Second question related to that is since the price decrease were announced and the government or the election outcome, what has been the reaction of the IOCs you work with? And how do you read their appetite to continue investing in Vaca Muerta in the coming years?

And finally, thinking about the gas situation, how would the company frame the potential increase in LNG investments with the bulkier size facility you guys were planning? And if I may ask just a quick follow-up on the subsidies receivables that Ignacio mentioned, just to make sure I have the right numbers, that would be great. Thank you very much.

Daniel Cristian Gonzalez Casartelli -- Chief Executive Officer

Good morning, Bruno. Thank you for your questions. Well, let's start from the third question, which is the easiest one. Regarding LNG investments next year, they are negligible, OK? We have our floating barge already in operation. That doesn't require any additional investments. And we're only doing engineering regarding a large-scale LNG project, which with everything going on, I think in a way, gets pushed out, let's say, a year. But we will continue looking at the project, continue doing some engineering, but it would not require any significant capex next year.

In terms of the reaction from our partners, obviously, we are still defining the plans for next year with each of our partners. One of the first things we did is reaching out to each of them, share our views and concentrate plan for next year. And what I can tell you, without getting into any details because actually the detailed investment plan or work plan and budget for next year has not been fully approved, is that in all cases of the large shale oil developments that I mentioned, we're increasing capex next year vis-a-vis this year.

Okay. So I think, collectively, our partners and us are in agreement that the very successful results that we are seeing more than offset the negative implications of this short-term price freeze. And as you know, we make decisions thinking of the next 20 years to 35 years of each block, right? So that's definitely good news.

In terms of the wish list, again, we are not going to be getting into any details now because we don't have any visibility on who are the people within the new administration that will be key. And I think from that end, because I'm sure there are questions regarding that, we all need to be patient. As we know, the President-elect has not yet announced his cabinet. So thinking about who is going to be key in energy and what kind of agenda they have in mind is something that we will have clarity on in the next few weeks. But again, I think that we need to manage our anxiety here.

What we want is a very gradual recuperation of our prices, OK? We are and have always been extremely sensitive to the importance of fuel prices in any given country. And we will continue to act very responsibly as we have done in the past. But clearly, without the right price incentives, it's going to be difficult to see the investments needed to develop Vaca Muerta as a whole.

And I think the new government, if anything, they agree with the outgoing government and with the government that we had four years ago of the importance of the development of the shale for Argentina. So reasonable prices, I think it's a good summary of what's on our wish list.

In terms of receivables, Ignacio?

Ignacio Rostagno -- Investor Relations Manager

Yes, in terms of receivables, concerning the planned draft 2017, that's the financial debt that the government actually has. We have collected so far $235 million, OK? It's more or less $25 million coupon per month.

Bruno Montanari -- Morgan Stanley -- Analyst

And the total exposure you mentioned that was around $700 million. What was that? Sorry.

Daniel Cristian Gonzalez Casartelli -- Chief Executive Officer

No, that was the original plan, of which, as Ignacio said, a good part of that, close to half of it, is going to be collected by the end of next year. If they continue to work with a monthly payment, as they have done very diligently this last year.

Bruno Montanari -- Morgan Stanley -- Analyst

Got it. Perfect. Thanks a lot.


Our next question comes from Frank McGann from Bank of America. Please go ahead.

Frank McGann -- Bank of America Merrill Lynch -- Analyst

Okay, good morning. Just one question. There's talk that the new government is preparing a new law that would help to provide security for investment in Vaca Muerta and other factors related to new investments in non-conventional. I was just wondering if you are working with people within the new government to try to define that, and what your expectation is as to what that potentially could include or should include?

Daniel Cristian Gonzalez Casartelli -- Chief Executive Officer

Hi, Frank. Well, as I said, there's still not a clear person within the Fernandez administration that we can have a detailed discussion regarding this potential new law. We believe it's a great idea if they do that, I'm sure that if they have that in mind, we and the rest of the industry will have the opportunity of providing advice or a list, at least, of things that we believe are helpful.

Definitely, we have very high expectations for that. And as I said previously, if anything, the President-elect has mentioned in many occasions how important development of Vaca Muerta will be for his government. And if that comes together with a law or not, we don't know yet. Hopefully, we will have some clarity in the next few weeks. But as I said, let's be patient and optimistic.

Frank McGann -- Bank of America Merrill Lynch -- Analyst

Okay. Thank you very much.


Our next question comes from Luiz Carvalho from UBS. Please go ahead.

Luiz Carvalho -- UBS -- Analyst

Hi, good morning. Daniel, thanks for your transparency at the beginning of the call. I really appreciate it. And I'll talk about what seems [Phonetic] to be some questions that evolve with the recent political change, but maybe how the company can react to some of these new scenarios, right?

Looking to your last slide, you mentioned four -- basically five interesting points, right? But then, first, talking about a bit more focus on the unconventional. Second, you also put natural gas, I mean, to a certain extent, in a bit more in the spotlight, even though you have some more higher subsidies. You mentioned about the challenging price scenario, which is nothing really new. You mentioned about, I'd say, something that called my attention that has been the kind of the current question from my side in terms of the portfolio management. And also, you updated the guidance, right? So if you may help us to try to give a bit more details on each of these topics and how they match with the neutral to negative free cash flow this year, next year, that will be very, very good in each of the topics.

The second question is about the freeze in the oil and fuel prices that should end next week, as you commented on the call. Has the industry been talking to the newly elected government regarding the fuel price policy in the country, or not at this moment? We haven't seen -- I mean, lots of comments from the new president and energy advisors stating that it doesn't make sense for us to choose to focus on the international prices. So just wanted to try to actually to get a few more details on how you're seeing this challenge, and how this could also match with year-to-date Vaca Muerta investment in the long term? Thank you.

Daniel Cristian Gonzalez Casartelli -- Chief Executive Officer

Well, good morning, Luiz. Unfortunately, it's been very hard to hear. It's very noisy, your line. Regarding the last question, regarding pricing going forward, and what kind of interaction we've had with the new government taking office, I think the answer is the same to the previous two questions, which is we don't know exactly who we will be talking with. I think that the message from us and the rest of the industry is clear, and we will continue to make it clear. There's a commitment from all of us to continue to invest. All we need is prices that gradually adjust toward international prices as we had been seeing, and we were getting there and converging there by mid this year before the price freeze put us playing catch up again.

Regarding all the previous points, the only thing that we heard clearly from you was something regarding negative free cash flow. And that, we can tell you that's not the way that we are planning next year. We are planning next year with flat free cash flow -- a breakeven from a free cash flow perspective, considering interest, OK? So we are basically assuming that our debt will remain essentially flat.

Now this is just a vision for now, and it's not yet a plan because that's going to be embedded in our budget for next year, that will only be approved by the Board in December, as we do every year. And once we have that approval, we'll make sure to reach out to you all to provide you guidance with regards to next year.

So how does a flat free cash flow interact with all the previous years? Well, it's possible that some of the growth that we were previously envisioning for 2020, it's pushed out a year or so, OK? Other than that, we will continue focusing on Vaca Muerta, as I said, with probably more focused than before, because the core areas of the shale oil window are the ones that are going to be getting most of our investment within Vaca Muerta, and as I previously said, significant increase in capex and in production, of course, from those areas.

When we come out with reserves -- and that we do it once a year, it's going to be by, let's say, in late February, early March, you will be able to see how relevant the shale oil developments have become of our total reserve -- of our total proven reserves, OK? So again, proving the case that we are going in the right direction. And the way to go for us, especially next year, is a concentration on Vaca Muerta oil without neglecting the rest. Sergio spent quite some time during the presentation, going through the different things that we're doing and in conventionals, not only from a drilling perspective, but also from a secondary recovery and tertiary recovery perspective.

So we have a nice portfolio. We intend to develop it, maybe at somehow slower pace next year than we had previously intended, and that has to do with the macro situation, more than anything else. You mentioned Metrogas, also still very unclear how the situation with the utilities generally will evolve. It's not a key driver for us. It has never been. It's a nice asset to have, and we will do what we have to do in order to optimize its operations and its margins. But again, I understand the questions, but unfortunately, we don't have yet a lot of answers. Hopefully, in the next few weeks as the agenda for next government is clearer, we will be able to start providing some of these answers.

Luiz Carvalho -- UBS -- Analyst

Okay, thank you. And sorry about the background noise, there's was a fire drill in the building. Thank you very much.


Our next question comes from Regis Cardoso from Credit Suisse. Please go ahead.

Regis Cardoso -- Credit Suisse -- Analyst

Good morning, Daniel, everyone. Thanks for taking the questions. And I think congratulations for the results. It was quite an achievement to maintain the solid results through the tough times. And I think at this point in time, I mean, following the results in the election and the stress that has caused to the capital market, the increase in your -- the market's perception of your risk, which translates into higher youth maturities, and so on. I mean, the financial discipline you've had really has paid off because it appears you could otherwise be in a very tough position right now if you needed liquidity in the short term.

So this is for me the biggest concern now. I wanted to discuss with you, how do you think about this access to liquidity going forward. What are your liquidity sources? And what are the levers you have to maintain leverage under control and guarantee that YPF won't find itself in any sort of liquidity shortage? Thank you.

Daniel Cristian Gonzalez Casartelli -- Chief Executive Officer

Well, thank you, Regis, for that. I completely share the concern. Luckily, it's not a new concern to us. It's something that during the last eight years has always been a priority to keep a sound balance sheet. And at times, had rainy days, like the ones that we've just seen. It's definitely been a differentiating factor. The way we are dealing with this going forward, I think, has several legs. First is, as I said, planning a year in which we are not going to be increasing debt, OK?

Now from a ratio perspective, the ad ratio increases slightly and now it will depend on our ability to keep EBITDA flat next year, or if we see a small decline, you might see a small increase in the ratio. But still starting from this year, from two times, very reasonable ratio going forward. So it's not just about short-term liquidity. It's also about long-term balance sheet, the way we are looking at it.

In terms of our short-term liquidity, we have been able to raise some money in the local markets recently. As Ignacio has said, we have not had any difficulties at all in rolling over all of our trade finance. We have not seen any of our short-term bank facilities go away. So we believe that we are in a very good situation to face, which by the way, are very low maturities next year, OK? So it is reasonable to assume that we will be absent from the international capital markets for quite some time, and we are not looking at doing anything there.

We have been absent from the local capital markets for last few years, maybe that's something that we might like to revisit again. But it's not something that we see as a problem, again, because we're starting from a very, very good situation. And remember with $1 billion cash position that we are not intending to use because, as I said, we expect to roll over all of our short-term debt coming due.

Regis Cardoso -- Credit Suisse -- Analyst

Thanks, Daniel. If I may just a follow-up on that one. Because I mean, for one side, it's very important to keep the leverage stable, but we would also like to see production at least stable or growing, right? So you don't risk finding yourself in a visual cycle where your cash flows would be compromised by declining production. So that all boils down, I guess, to capex efficiency. And I wondered if you could maybe comment on what do you think is roughly the level of capex required to maintain production flat? And if you could, maybe, what is the sensitivity for each 1% production growth or something that sort you might have on top of your mind. Thank you.

Daniel Cristian Gonzalez Casartelli -- Chief Executive Officer

Well, yes, I fully agree with your views regarding production going forward and trying not to affect -- the reduction in capex not affecting production growth capacity, if you want. And although we cannot talk about specific plans for next year because we have not yet presented them to the Board, and therefore, they have not yet been approved. We are not foreseeing a situation of production decline at all for next year, OK?

Maybe, yes, in natural gas, for decision that we took earlier this year of slowing down those investments in order to prevent additional cuts, but for crude oil with that additional capex that I mentioned, we will be putting into La Amarga Chica, Loma Campana and Bandurria Sur. I think that we will start -- not start, but continue to see the significant production growth coming from unconventionals that we have been seeing in the last few quarters.

I think that is very impressive. Hopefully, you found the same, to see a 77% production increase year-over-year. So what I'm saying is with a level of capex that's definitely going to be below this year, and as I said, I cannot tell you how much below this year, not yet. We should be in a position to keep production at least flat, but likely seeing growth in crude oil production.

Regis Cardoso -- Credit Suisse -- Analyst

Thank you, Daniel.


Our next question comes from Santiago Wesenack from AER Partners. Please go ahead.

Santiago Wesenack -- AER Partners -- Analyst

Hello, everyone, and thanks for taking the question. Just a follow-up on the regulation. But on the short term, specifically, on resolution types and takes, taking into consideration that oil prices are going down 25% year-over-year. While gasoline, it's only down 9%. And actually, diesel is sharp, of course, it's because of the wholesale market. But it seems like the upstream segment is paying most of the cost of the regulation. So if we assume that next week the resolution as it is, is not extended, what would be YPF's strategy to be -- to increase price of oil to take it back to export parity? And how do you see the market -- the pump prices adjusted to that? Thank you.

Daniel Cristian Gonzalez Casartelli -- Chief Executive Officer

So thanks, Santiago. Well, decrease 566 [Phonetic] will expire next week. And as we said, we don't believe that there's going to be any extension. I do not necessarily agree that the impact is more on one segment than the other. It depends a lot on how you calculate that. You can calculate that as what kind of catch up, that the segment needs in order to reach import parity, in the case of fuels, export parity in the case of crude oil. And there you will see that the catch up is not that different. You can measure that in terms of what kind of return on investment -- invested capital each of the segments has.

And in that end, I can tell you that the invested capital that we have in the downstream is very, very significant. And the maintenance capex that you need to put into the downstream segment is also significant. Moreover, we need to make significant investments to reduce the sulfur content of our fuels, and we will be making those investments in next few years, which, by the way, there was an extension in the time by which we need to comply, which is good news because it will allow us to push out some investments there. So I think that breakdown between upstream and downstream and who gets affected the most is one that we do not necessarily share.

Now as I said, once the decree is over, we will be very responsible in how we increase prices. We are very aware of the social and economic situation in Argentina. We care about our clients, not just for the short term, but for the long term. So we will do what needs to be done, but always being sensitive to the needs of our clients, as I said.

What will happen in the crude oil sector and the upstream part of the equation, we don't know yet. We are not price centers there. We do buy some crude oil locally, and we buy that at the same price as the rest of our competitors do. So that will depend. The logical thing is to assume also a gradual recovery in crude oil prices, pretty much in line with a recovery in downstream prices. What we want is a healthy, integrated industry and not just one sector making money and other sectors being broke. And I don't think anyone wants that.

Santiago Wesenack -- AER Partners -- Analyst

Okay, perfect. Thank you for taking the time.


Our next question comes from Pavel Molchanov from Raymond James. Please go ahead.

Pavel Molchanov -- Raymond James -- Analyst

Thanks for taking the question. So you highlighted the three areas of Vaca Muerta where you are already producing commercially. Historically, you have only disclosed cost and well data for the Loma Campana. And I'm curious if in 2020, you plan to begin reporting the same kind of information for Amarga Chica and Bandurria Sur?

Daniel Cristian Gonzalez Casartelli -- Chief Executive Officer

Hi, Pavel, absolutely, yes. For Vaca Muerta in general for different areas within Vaca Muerta, and including, in some cases, for those areas that are only in pilot mode. That is something that we did not do in the past. I think that hopefully, what you're seeing from our presentations is that we are gradually providing more details.

Acutally, in this presentation, Sergio provided IPs for one well, which is only three months old. That's something that we've never done. But it's to try to show that we are seeing positive results in other areas of Vaca Muerta, which are again, a consequence of the delineation effort that we have been doing these last couple of years. And that, hopefully is going to be paying off in the next few years.

So the answer to your question is definitely, yes. And of course you can talk to the IR team with what kind of information -- you can help us out in terms of letting us know what kind of information would be helpful for you. I cannot guarantee that we will be providing 100% of that, but will definitely be a guidance I will take into account.

Pavel Molchanov -- Raymond James -- Analyst

Understood. Let me also ask about the low carbon. You highlighted this as a priority. You clearly want a higher ESG score as a company. Will low carbon be a greater portion of the capital program in 2020 as compared to previous years? I know you cannot say what the capital program will be, but at least as a percentage, should this be a larger portion?

Daniel Cristian Gonzalez Casartelli -- Chief Executive Officer

Well, a good part of that will come from YPF Luz, from our power-generation vehicles, that as you know, we co-control with GE. Fortunately, none of that capex comes out of YPF because that company finances itself. But just to give you a clue, that's a company that, today, has like 100 megawatts of wind power, and it's going to 450 megas of wind power.

And then we have a transformational or what we call a transformation initiative. You know that we have a transformation office, and this is an initiative that involves, not only our three business segments, but a good part of the corporation that has to do with energy efficiency throughout our operations. And that we are tracking very, very closely. That's probably a subject of a call-in itself, improving the efficiency of our operations. And obviously, also focusing on reduction of emissions, generally, CO2 generally and methane specifically.

Now in addition to that, what I can say is that we will be investing -- we will take $100 million next year that have to do with reducing the sulfur content of our refineries. Let's not go directly to the carbon question, but it has to do with our sustainability effort overall.

Pavel Molchanov -- Raymond James -- Analyst

Okay, that's helpful. Thank you very much.


Our next question comes from Pedro Medeiros from Citigroup. Please go ahead.

Pedro Medeiros -- Citigroup -- Analyst

Hey, good morning. Congratulations on the results. Thank you so much as well for like I have for my French words on the group disclosure and opening up with these remarks. I have a couple of follow-ups, OK? The first one is that we have read in the local news some specific reports showing that fracing activity have been materially reduced in the last few months. So I just wanted to hear a little bit color on that, like -- just as some guidance on short-term potential production for the fourth quarter.

My second question is also aiming for -- to understand the environment in the short-term for gas prices in dollar terms, OK? It's part of the freeze and the volatility in the currency. I just wanted to understand how has gas price has been behaving in the last few months and whether that brings any risk of impairment to gas reserves by the end of the year? Those are my two questions. Thank you.

Daniel Cristian Gonzalez Casartelli -- Chief Executive Officer

Thank you, Pedro. Regarding fracing activity generally for the industry, yes, we have also seen deceleration or a reduction in activity in the last few months. There are a few other players that have put their drilling rigs on standby mode. It has not been our case, not thus far, at least not in the shale oil areas. What we have been reducing, if anything, has to do with our shale gas operations, and that is part of a different decision that was taken quite some time ago and has nothing to do with the price freeze.

It is likely though that we will see some reduction in activity next year, vis-a-vis, what we experienced this year, definitely a reduction regarding what we were all expecting would be 2020. Because the things that we're hearing so far is that activity generally will come down.

In terms of our own activity, as I said, still early to say exactly how or what is going to be our rig count for unconventionals for next year. It will be below this year, no question about that. But as I said, with a focus on those three shale oil areas in which in each of them, we are going to be seeing significant capex investments or increase in capex vis-a-vis last year, OK?

Now with regards to gas prices and how we have behaved, well, they have clearly come down quarter-after-quarter. As Sergio mentioned, although the average for the quarter is $4, the average for September, is more like $3.50, and the average in the fourth quarter is going to be below $3 per million BTU, OK?

We are not yet providing guidance for next year, but we will clearly see prices next year below this year. And that's coming from each of the segments within the natural gas market in Argentina. And as long as there is excess supply of natural gas, a good part of the year, this behavior of natural gas prices is logical.

I think that we will see that oversupply of natural gas outside of the winter will slowly go away as many or most, or I'd say, even each one of the upstream players has been reducing its investments in natural gas. And because of the high decline rates that unconventionals have, you will see a reduction, a gradual reduction in natural gas production in Argentina, with lower production, is going to be less excess supply, and we believe that prices will gradually go back to normality, quote-unquote.

Pedro Medeiros -- Citigroup -- Analyst

Okay. Thank you so much, Daniel.


Our next question comes from Daniel Guardiola from BTG Pactual. Please go ahead.

Daniel Guardiola -- BTG Pactual -- Analyst

Hi, good morning. I have a very good -- and it's related to the announced focus on financial discipline. And I would like to know if you could share with us some color on the company's dividend policy under the current uncertain environment?

Daniel Cristian Gonzalez Casartelli -- Chief Executive Officer

Well, Daniel, as much as that is a great question to ask, unfortunately, I cannot give you a precise answer because that will be part of the discussions that we're going to be having at the Board by the end of this year. And I'd say maybe even with the shareholders early next year. So we have always intended to keep a predictable dividend policy.

We were expecting, in our last business plan, some growth in dividends that maybe gets pushed out with new reality. And it will depend a lot, of course, in the cash situation, as we have said many times during this presentation and the Q&A session, protecting, preserving the cash and keeping a sound balance sheet is a priority to us. And if that requires not increasing a dividend for now, we will make that recommendation to the world.


Our next question comes from Mimi Lilyanna Yang from HSBC. Please go ahead.

Mimi Lilyanna Yang -- HSBC -- Analyst

Hi, thank you for the opportunity. Could you give us an indication of the capex plan in dollar terms for 2021 or combined for the three crude development areas on shale. I, of course, understand they might change soon, but as of now, what you have had in budget? And also the other question is really regarding the underlying gas price assumptions that you used for the gas active impairment. Thanks.

Daniel Cristian Gonzalez Casartelli -- Chief Executive Officer

Thank you, Lily. Well, unfortunately, I cannot give you any figures regarding capex for next year because, as I said, the plan needs to go through the Board first, and that will happen in December. All I can say again is that for those three crude oil areas in the shale oil areas that are under full development, there's going to be an increase in capex in each one of them, OK? Of how much, I'm not yet, in the position to disclose.

With regards to your second question and regarding the natural gas prices used for the impairment test, all I can say is that we have used prices for next year, which are below this year, totally in line with our expectations today and that we have kept long-term prices pretty much unchanged in the $4 per million BTU area. Because, as I said in the previous question, we do believe that eventually, with reduction in natural gas prices -- sorry, natural gas production, natural gas prices will go back again to the $4 area.

Mimi Lilyanna Yang -- HSBC -- Analyst

Thanks. Just a follow-up on the first question. So the increase in capex or the acceleration in capex, should I assume a higher number of wells or something else?

Daniel Cristian Gonzalez Casartelli -- Chief Executive Officer

Yes, you should assume a higher number of rigs, and therefore, a higher number of wells. But again, good for -- or the answer has to do with the wells are not exactly the same wells that we drilled this year, and definitely very different to those that we were drilling in the previous years. In terms of the length of the lateral, in terms of number of frac stages per well and in terms of what we call high-density completions, the intensity of the proppants that we put in each of those frac stages.

So in a way, what we are saying is we are finding a recipe for lower development cost of unconventionals, generally, and that has to do with a significant increasing productivity coming from these things that I have just outlined. So it's not linear. That's what I'm trying to say, the increase in capex with increase in well.

Mimi Lilyanna Yang -- HSBC -- Analyst

Okay, great. Thank you.


And we are showing no further questions.

Daniel Cristian Gonzalez Casartelli -- Chief Executive Officer

Okay. Thank you very much to all of you for participating on the call. And as we always say, please, feel free to follow up with Sergio and Ignacio and the rest of the team at your convenience. Have a great day.


[Operator Closing Remarks]

Duration: 73 minutes

Call participants:

Ignacio Rostagno -- Investor Relations Manager

Daniel Cristian Gonzalez Casartelli -- Chief Executive Officer

Sergio Fabian Giorgi -- First Deputy Market Relations Officer & Business Development Vice President

Bruno Montanari -- Morgan Stanley -- Analyst

Frank McGann -- Bank of America Merrill Lynch -- Analyst

Luiz Carvalho -- UBS -- Analyst

Regis Cardoso -- Credit Suisse -- Analyst

Santiago Wesenack -- AER Partners -- Analyst

Pavel Molchanov -- Raymond James -- Analyst

Pedro Medeiros -- Citigroup -- Analyst

Daniel Guardiola -- BTG Pactual -- Analyst

Mimi Lilyanna Yang -- HSBC -- Analyst

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