YPF expects 2018 to be a 'turning point' in shale oil & gas

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Monday, March 5, 2018

Argentine state oil company YPF expects 2018 to be "a turning point" where shale oil potential can finally begin to be unlocked amid a 3.9% decline in overall hydrocarbon production and diminished reserves last year.

"The worst is behind us... We are expecting growth in shale oil and gas production of 35% plus this year compared to the previous year," said chief financial officer Daniel González in the firm's earnings conference call this week.

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He added that increased production "will also come from Santa Cruz province, where we didn't have any drilling activity last year, but we have started drilling in the last couple of months and we will have two dedicated rigs."

González also pointed out that YPF's Magallanes project with Enap will come online in the second quarter of this year, adding to the projected increase in production.

"YPF has a total acreage of close to 5.5mn acres, reaffirming that the potential in Vaca Muerta is actually huge," González said, while describing the company's plans to increase its operations in the world's second-largest shale formation this year, including one project with Norway's Statoil.

It was in the downstream segment where the company saw its strongest results, with 20.3% revenue growth last year compared to 2016, particularly due to the hike in sales of gasoline (7%) and diesel for commercial use (3.7%).

The firm bounced back into the profit in 2017 following the loss seen in 2016, with earnings of 12.7bn (US$628mn), the company announced in its 2017 financial results presentation, turning around a 28.4bn-peso loss in 2016.

Fourth-quarter profit rose to 11.96bn pesos compared with 1.78bn pesos in the same quarter of 2016, while revenues were up 12.2% year-on-year to US$3.98bn in the same period.

The company's adjusted Ebitda rose 14.7% to 66.8bn pesos in FY2017, driven by a 20.3% increase in revenues, which was partially by one-time gains in 2016, a 35.5% increase in purchases and a 16% increase in production costs.

Last year's improved performance was attributed to the company's adaptation to new industry regulation and the country's improving economic conditions, despite a 3.9% drop in oil gas and production during 2017. The loss in 2016 was attributed to weak global crude prices and the deterioration of physical assets.

YPF is owed US$780mn by the Argentine government in unpaid natural gas subsidies during 2017, González said. "I would rather not comment at this point on what kind of payment tenure we are anticipating or what kind of interest rates we have in mind, but... in the next few weeks we will be able to provide more details," he said.

González also said YPF's electricity division Energía Eléctrica, which is being partly sold to General Electric, has been valued at between US$1.1bn and US$1.24bn. YPF plans to sell 25% of the subsidiary to GE and is in advanced talks with another firm to sell a further 24.5%.