Welcome to the Q1 2018 YPF Sociedad Anonima Earnings Conference Call. My name is Richard, and I will be your operator for today's call. [Operator Instructions] I will now turn the call over to Mr. Diego Celaá. Mr. Celaá, you may begin. Diego Celaá: Great. Thank you, Richard. Good morning, ladies and gentlemen. My name is Diego Celaá, Head of Investor Relations at YPF. I would like to thank you for joining the YPF first quarter 2018 earnings webcast. The presentation will be conducted by our CFO, Mr. Daniel Gonzalez; our VP of Strategy and Business Development, Mr. Sergio Giorgi and myself. During the presentation, we will go through the main aspects and events that explain our first quarter results. And finally, we will open up the call for questions. We will be making forward-looking statements, so we ask to carefully review the cautionary statement on Slide 2. Our agenda today will include the highlights of the quarter, the review of operations, the first quarter financial results, our brief description of our financial situation and a brief summary to conclude. Also, our financial statement figures are stated in Argentine pesos in accordance with international financial reporting standards, IFRS. In addition, certain figures have been adjusted to reflect additional information to let you better understand our key financial operating results. Please Daniel, go ahead.

Well, thank you, Diego. Good morning, everybody. First let me introduce you all to Sergio Giorgi who is here with Diego and me today and has taken on the responsibility for Investor Relations in addition to his role of VP for Business Development. Sergio reports directly to me. Has joined us a year and half ago from Total, where he held different positions in different parts of the world. He has a solid technical and business background that I'm sure will be additive to what we have been doing in Investor Relations so far. Diego will continue with his job as a IR Manager where he is doing a great job, but now reporting to Sergio. Let me say a few words about this quarter before Sergio and Diego take you through all the details. This was a strong quarter in almost any aspect. Revenues were up by 33% in pesos on very strong demand of gasoline and diesel and a recovery of prices. EBITDA was up by 45% even before accounting for the nonrecurring gain derived from our dilution in YPF Energía Electrica our power generation subsidiary. And although operating cash flow was somehow below last year's, again we had a positive free cash flow and leverage ratio was therefore down to less than 1.9 times. Hydrocarbon production was 4% below last year but in line with our budget and slightly above the last quarter of 2017. Sergio will walk you through some of the good things we are doing in shale and to better understand where the upstream is going to. So please Sergio go ahead, and I will resume at the end of the presentation and sit down for questions.

Good morning, everybody, and thanks Daniel for the introduction. We just like to point that I am very happy to join this team and I’m sure we’ll have several opportunities in the future to meet each other and have little conversations. I have been working in the oil and gas industry for over 25 years, different responsibilities, operations, exploration, development, offshore, onshore and conventional, business development and strategy and I hope this will help me bring interesting perspective to the messages we'll be sharing with you. Now we will continue with the next point in the agenda the review of our operations. So let me start sharing with you the slide on safety. As you can see in the chart our injury frequency rate in the first quarter 2017 is in the low range of the last 10 years showing that all the action that we have been taking over the last years regarding safety measures are paying off. We will continue updating this information in our future presentations. Crude oil production in the first quarter decreased 2.7 to 227.6 Kboed. As explained in previous quarter, this decline reflects a reduction in activity of the last year and the natural decline of some mature fields. Natural gas production showed a decrease of 3.5%. We produced 43.7 million cubic meters per day, while NGL production decreased by 14% producing 47,000 barrels per day. As a result, total hydrocarbon production dropped 4.2 vis-à-vis same quarter of 2017 to 549.6 Kboed. Putting this into perspective, it is important though to highlight as Daniel mentioned that total production has increased 1% to the last quarter 2017, we are affirming that production has stabilized in line with our expectations. Now let me provide an update on our shale gas and shale oil operations. Net shale…

Thank you, Diego. Well first let me tell you that the results of a quarter slightly exceeded our plan for this quarter and actually give us confidence to reaffirm our guidance to increase EBITDA by 10% this year in dollar terms and to experience our production decline in the 2% area. Demand is still strong. Actually April figures reaffirmed the good performance of the quarter. And our market share remains pretty much unchanged. During the quarter we have been catching up with fuel price increases to reflect the increase in international crude oil prices and also to reflect the devaluation of the peso which was especially steep this quarter. However the recent spike in the effects would have cost a 10% increase that the industry in agreement with the government has decided to postpone in order to avoid a negative effect in our client base and the overall economic activity. We agreed to make up for these lower prices during the next two months during the second half of the year. That's what we're going to be making the recovery. And if this were insufficient the government has agreed to compensate the oil refining industry for such a shortfall. Our financial situation is strong and we have had raised substantially all of our refinancing needs of the year in December. So we continue to enjoy a solid cash position and additionally we have positive free cash flow. Production of oil and gas that had been weaker than expected last year stabilized and was in line with our budget actually April was above budget. Production growth in the next few years will come from the shale as we have repeatedly said and the result that we shared with you today proved that this development can be profitable if we replicate in the rest of convert what we have done in Loma Campana and El Orejano. We expect to accelerate the shale development and that is why we are engaged in so many pilot projects also we showed you today. And finally in line with our vision to make YPF a modern energy company we have strengthened the pipeline of projects in our power generation vehicle and continue to see plenty of additional growth ahead there. So with this, I would like to finalize our presentation and open it up for questions for all three of us. Thank you.

[Operator Instructions] Our first question on line comes from Mr. Frank McGann from Bank of America. Please go ahead.

Just I was wondering in terms of the Vaca Muerta developments and tight gas developments, as you look forward for the rest of this year and into next year. Any specific areas that you think that you will be able to - that will be the key drivers of the growth that you’re talking about? And secondly just in terms of cost, I was wondering what types of additional cost improvements you think you might be able to achieve perhaps a little bit more extended union agreements or new service competition or service supply and infrastructure that could be helping to reduce costs both over the near term and longer term.

I will try to answer to that question. So first of all, all our growth in Vaca Muerta and tight gas is located [inaudible] as you know. What we are focusing now is to accelerate the pilots that we have. So we can this year arrive to verify the of two to three new developments. In terms of diesel sale, earning sale we like to have optionality so we are focusing both in gas and oil and we have this optionality and we like it. So we will be able to focus on the most profitable parts. And as I said before, in terms of tight gas we continue well developments in Estación Fernandez Oro and Río Neuquén. We also Sierra Barrosa, which is our [inaudible] assets. And we see this as our growth area in terms of unconventional shale. In terms of cost, as we said we are continuously reducing our development cost and this comes from different ways, one of them is in terms of efficiency, in terms of operations, we are drilling longer laterals and this is reducing our costs, productivity is increasing so this is a good combination and this on the technical part. And I would say contractually efficiency part we are seeing reduction in our new contracts and we continue working with unions in order to have smooth operations in Vaca Muerta. So all in all we have achieved so far a cost reductions and we believe we will continue this stuff.

Let me add one thing to Sergio's comments and that is the positive effect in cost of the devaluation of peso right. Remember that the OpEx is at least two-thirds or more peso denominated. So in dollar terms the evaluation that we just experienced should help continue to drive down the cost in addition to the real cost reductions and efficiency improvements that Sergio laid out.

[Operator Instructions] Our next question on line comes from Mr. Luiz Carvalho from UBS. Please go ahead.

First Daniel congratulations on the appointment and Sergio also good luck M&A position. Basically two questions here, Daniel starting from a very top strategic level, I'd like to know now the CEO of the company, what will be you main goals if I can little max, three to five years and is there any strategy? I wouldn’t say change but adjustment that you would like to make and what are the main challenges you see in this new role. Second question, I mean as you just mentioned in the prepared remarks talking about the recent Argentina developments and the government inflationary concerns [inaudible] mentioned about the agreement and via to the postponement of the price increase, how can we see the – really the – I am going to say the price, the price that just looking forward. My questions is, okay that you postponed for additional two months, but let's say that Argentina situation do not get better, I mean worldwide FDA, but you’re actually to pass through the say price policy to the final - to the domestic consumer and on a monthly basis and so on. And second if I may ask, I really appreciate if you have more visibility about the price adjustments in our website. If you should communicate from the company or something like this. Thank you.

Thank you for comments and the questions. Let me say that there is no change in strategy at all coming from my appointment. I have been with the company for six years and I was clearly part of the team that had put together strategy. So that will not change. What we are doing of course and we actually committed to you all is update our strategic plan every year, we’re in the process of doing that and around the beginning of the last quarter of the year or the end of the third quarter of this year, we are going to be laying out the changes which should be on a course of business kind of changes not more than that. Main goals of course is to grow what we have seen from our production perspective in the last year and a half and from our reserves perspective is that the upstream business has been stagnant and what we have shown in the five-year plan is that we believe that we have the resources in order to change that and to see meaningful growth going forward. I am very optimistic regarding this, everything that we have said today and what we are doing is aligned with this, because as we said, all of that growth will come from unconventional especially from the shale and the results keep getting better. Quarter-after-quarter both from productivity as well as from cost perspective they keep getting better and better. So growing and growing in upstream specifically is part of the goal. Downstream as you know it's very aligned dependent on the local economy. Fortunately the local economy has been doing good and specifically our volumes have been doing excellent and we believe that we have the platform in order to replicate this year-after-year.…

If I may just one follow-up regarding the costs and I know that’s probably for Sergio but from the initial labor agreement signed with the unions. I mean so far what are these two improvements that we can see from a cost perspective. I mean are all of them being implemented or can we have further I am going to say achievement in terms of cost reduction from that end? Thank you.

No, I think if you are referring to the cost reduction coming from some of the productivity provisions that we included in last year’s agreement. I think those are coming slowly okay. We have some of that, which are reflected in the reduction of costs that we have been showing, but as we have been saying this agreement was not so much about the short-term gains of labor cost reduction, but about a change in trend and having all of our labor force focused on productivity. Okay, which is going to be positive to us and to them as well. Right because that is the only way that we can assure sustainable growth for the industry. So I’d say labor relations are in a very good moment. A labor or union leaders have been constructive. You know that we have an agreement for labor or for salary increases that was put in place in the last month that provides for 15% increase in salary in two installments April and October and of course with revision at the end of the year based on inflation. So if inflation is higher than this 15%, we might have to chip in with some additional increase, but the good news here again is that we always talking about salaries moving in line with inflation. So if we can really be more efficient and more productive that means that labor cost in real terms will come down okay.

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

Congratulations Daniel and Sergio wish you the best of luck in your new roles. Thanks for taking my question. I really would like to take this opportunity to understand better the downstream dynamics especially now that the new agreement is in place. So can you comment whether there will be any sort of impact to the upstream side of the value chain as well. And if there is not how will refiners cope with an eventual increase in crude prices and devaluation of effects let’s say in case that happens because I know it’s only two months, but things can get ugly pretty fast right. It’s a margin’s business so if you can comment on that I would very much appreciate? Thank you.

That’s a very good question. First the agreement is just between the refiners, so initially it doesn’t involve the upstream operators, which doesn’t mean that at some point individually we refiners might try to get better prices for the crude that we buy locally okay. But that’s normal supply and demand dynamics. So that I’m not concerned with the other thing which is relevant to have in mind is that as Diego said during the presentation this quarter was one of the best quarters in terms of margin of our downstream segment actually the best in the last five years if I don’t recall wrong. So we are starting from a good base. At the end of the day you are absolutely right okay. It’s not sustainable over the long-term, that’s why the agreement was put together after a short-term agreement okay by which any shortfalls that we have during the course of this two month period will be recovered okay. So I think everybody understands that what you are saying is absolutely right. At some point, we need to make sure that we have the appropriate margins in the downstream segment otherwise we would not be able to make the investments that the segment needs. So give us the benefit of the doubt I think in the last few years especially in last few months we have shown pretty clearly how we have been adjusting our prices to what was going on with crude oil prices and with the FX generally. And the fact that we are putting this in sort of parentheses for a couple of months doesn’t mean that we are changing the strategy. So as I said, give us a benefit of doubt we are very focused on profitability at a company level and at our downstream segment level also.

Thank you Daniel for the answer very clear. If I can just make a follow-up can you comment a little bit what is the position right now in terms of your positioning relative to import parity prices in Argentina and if you could also compare or describe to us how has the competition been in these few months so far that – that you have had free prices I mean have trading companies organized themselves and started bringing in products has that pressured market share has it not logistic barriers were actually higher than you thought I mean how are you seeing the downstream pricing dynamics? Thank you.

Well the second part of your question, yes we have seen more activity from traders clearly that’s why I was referring to a competitive market the one that we are in. Having said that our market share was actually up if you look at once slide in the presentation that shows a market share of the quarter vis-à-vis the previous two years and we almost 1% vis-à-vis 2017. Both in diesel and gasoline a little bit below 1%, but again very, very strong. So we have a platform that we believe puts us in a very competitive position to fight traders or fight the rest of our competitors are locally. Our objective is not market share. Our objective is profitability and that’s why we have always been very careful in not gaining market share at the expense of prices. We have never done that nor at least in the last five, six years since I am around. And we don’t expect that to change in the future, but we acknowledge that it is a more competitive market than before. Regarding your first part of the question on import parity and where we stand we are approximately 10% to 12% below import parity.

Our next question on line comes from Muhammad Ghulam from Raymond James. Please go ahead.

My first question is around currency. Can you tell us what effect the following pesos is having on your business and how management is dealing with it.

Sure well, as long as we can over the medium term continue to pass through the effects or the effects to prices. In fact the evaluation has a positive effect on our numbers because we have a good part of our cost structure, which is denominated in pesos okay. And that’s actually part of what you have seen with the numbers of the first quarter of the year. There is a portion of our prices, which are fully dollar denominated like natural gas sales, like exports, like sales of petrol chemical products, or jet fuel and others and there are other parts of the business like gasoline or diesel, which are very highly correlated with the dollar or with the medium and long-term, but as we have just discussed over the short-term we might have some lag in terms of that pass-through okay. But in general terms the evaluation is a good thing for the company. From a pure financial perspective what I can tell you is that we have more debt denominated in pesos than cash denominated in pesos that means that also we benefit from the evaluation of a currency.

One other one on labor issues. In the past you had labor issues anything going on right now or have those mostly been addressed at this point?

Well that is dynamic situation. It’s very difficult to say that those are behind us clearly we are not having any meaningful issues today, but that does not mean that we might not have those in the future. It’s something that we manage on a daily basis. It does take a portion of my time and my priorities and that we have a great team of people dealing with that. And as I said in one of the previous questions we have found that the union leaders have been very constructive. So from time to time we will have issues. We don’t expect anything extraordinary or anything significant that can derail our plans.

Our next question on line comes from Florencia Torres from TPCG. Please go ahead.

Thanks for the result and also to take my question. Just a question regarding the Upstream business regarding production. I remember that in the earnings call of 2017, you mentioned that production is expected to decline around 2% or 3% after their positive trend quarter-over-quarter basis during this quarter, what is your target or guidance regarding production.

Well production actually as you mentioned quarter-to-quarter important this time is that in the first quarter we have seen production just 1% above the production of last quarter of last year so that is actually positive because we are affirming that production has stabilized and we continue having this outlook of production for the rest of the year seeing that in the second half of the year we will see production again coming up. Guidance for this year, now we are in the minus 2 time area. So, it’s in line with what we have already said in the past.

Our next question on line comes from [inaudible] from Citi. Please go ahead.

Just one quick question. Is there any impact to the plain gas receivable agreement announced earlier this year because of the evaluation or is it fully dollarized just want to confirm that. Thank you.

No effect at all. That agreement has fully dollarized so we are going to be collecting that in 30 installments starting next year and all of those installments are fully dollar based.

Our final question comes from [inaudible]. Please go ahead.

Regarding the agreement, you’re going to wait two months to do price hikes. I would like to understand how you plan to schedule the hikes and how much is going to be each month during the second half of 2018.

The reality is that we don’t have a number to give you. What we want is to just make sure that we make up for the price increases that we haven’t done or that we will not have done in the next couple of months during the second half of the year. If we are going to be doing it on equal installments or not has not been defined. It will depend on many factors including competitive factors and thus including how international crude oil prices does behave, right. So if crude oil prices come down then we have less of pressure to increase prices initially. If crude oil prices go up, we might have more pressure to increase fuel prices initially. So all we can say at this point not because its confidential just because we have not defined anything further than to what I am telling you now, is that we expect to fully recover those effects during second half. And again the agreement also says that the government will determine mechanisms before the end of the year for us to recover whatever we have not been able to recover in the second half of the year. So clearly acknowledging that the objective here is the refiners do not suffer any damage based on this postponement of price increases.

And just a follow-up question. During these two months you are going to have some increases in cost the dollar denominator or caused by inflation. I would like to understand how much are margins going to contract due to these agreement?

Well, yes there are some costs that are dollar denominated, but also remember that we have plenty of revenues, which are dollar denominated. There is agreement this regarding gasoline and diesel we export our products, we sell natural gas locally, so there a lot of other products, which prices are dollar denominated and will probably offset, I don’t have a precise number, but in general terms I would say that pretty much offset the increase in dollar denominated costs. So you might see some short term pressure on margins, but as an integrated company, I think that margins should not have any meaningful decline.

And finally how much of your revenues are dollar denominated? Do you have a percentage.

40% of revenues are dollar denominated. But again the other 60% has a very high correlation with the dollar or with the medium term, okay. So when we look at the company for the next few years, we believe that close to 100% of our revenues are dollar denominated over the long term.

At this time I am seeing we have no further questions.

Okay. Thank you everybody for the call. And as usually Sergio, Diego or Pablo, myself we are all available if there are any follow-up questions. Have a great day.