YPF Sociedad Anónima — FY2018 Form 20-F
Reporting period and context: Annual report for the fiscal year ended December 31, 2018, prepared under IFRS as issued by the IASB. The filing is not a standalone fourth-quarter report; separate Q4 financial results are not clearly provided. Unless stated otherwise, financial amounts below are in millions of Argentine pesos (Ps.). YPF is an integrated energy company operating primarily in Argentina; the Argentine Republic owns 51% of its shares.
Financial and operating performance
| Metric | FY2018 | FY2017 |
|---|---|---|
| Revenue | Ps. 435,820 | Ps. 252,813 |
| Gross profit / margin | Ps. 76,250 / 17.5% | Ps. 41,001 / 16.2% |
| Operating profit / margin | Ps. 43,780 / 10.0% | Ps. 16,073 / 6.4% |
| Net profit / margin | Ps. 38,606 / 8.9% | Ps. 12,672 / 5.0% |
| Operating cash flow | Ps. 125,058 | Ps. 71,974 |
| Cash used in investing activities | Ps. 82,251 | Ps. 55,242 |
| Cash and cash equivalents | Ps. 46,028 | Ps. 28,738 |
| Total loans | Ps. 335,078 | Ps. 191,063 |
| Working capital | Ps. 29,446 | Ps. 19,564 |
Revenue rose 72.4% in pesos, while costs rose 69.8%; the filing attributes much of the increase to higher peso prices and currency depreciation. Argentina’s peso depreciated approximately 101% against the U.S. dollar during 2018, and reported CPI inflation was 47.6%. These nominal peso increases should not be read as equivalent real or volume growth.
Net financial results swung to a Ps. 41,525 gain from a Ps. 8,798 loss, principally reflecting foreign-exchange gains on net peso monetary liabilities; higher interest expense partly offset this. Income tax was a Ps. 51,538 expense, mainly from deferred tax effects of exchange-rate changes. Total comprehensive income was Ps. 211,206, including Ps. 172,600 of other comprehensive income, largely reflecting appreciation of property, plant and equipment.
Cash used in financing activities was Ps. 43,656. Cash capital expenditure on property, plant and equipment and intangible assets was Ps. 88,293; total capital expenditures and investments were Ps. 97,493, with 79% allocated to Upstream. Current assets of Ps. 208,415 exceeded current liabilities of Ps. 178,969. Loans were 86% denominated in U.S. dollars, 82% at fixed rates, and 19% current; YPF reported compliance with debt covenants at year-end. Cash less total loans was approximately Ps. 289,050 net debt, without adjustment for other financial assets or liabilities.
Material changes and business developments
- Upstream operating profit increased to Ps. 22,483 from Ps. 3,877; Downstream operating profit fell to Ps. 7,818 from Ps. 15,813. Gas and Power operating profit was Ps. 16,786, including a Ps. 11,980 gain from revaluation of YPF EE after GE acquired a 24.99% interest.
- Production was approximately 193 million barrels of oil equivalent (mmboe), down from 202 mmboe in 2017. Oil production was broadly flat at 83 million barrels; natural gas production fell to 542 bcf from 567 bcf, and NGL production to 14 million barrels from 19 million.
- Proved reserves increased to 1,080 mmboe from 929 mmboe; the reported 2018 reserves replacement ratio was 178%, versus 9% in 2017. Additions were concentrated in Vaca Muerta and other Neuquina Basin projects.
- Refinery utilization declined to 88.81% from 91.73%. Domestic fuel sales prices did not fully keep pace with exchange-rate and international cost changes; fuel price stabilization arrangements ceased for YPF on June 30, 2018.
Outlook, risks, contingencies and unusual items
Management expected 2019 production to be approximately 2%–3% below 2018 on a boe basis, citing mature-asset divestments and lower-than-expected gas production. Planned 2019 capital expenditure was US$3.5–4.0 billion, mainly for Upstream. Management focused on shale oil growth, Vaca Muerta development, conventional-field decline management and cost efficiency; it cautioned that local pricing pass-through may remain difficult.
- Macroeconomic and regulatory exposure: high inflation, peso volatility, recession, interest rates, changing energy policy, fuel price controls, export duties and domestic supply priorities may affect costs, margins, cash flows and investment returns.
- Government receivables: at year-end, receivables included Ps. 27.0 billion of accrued, unpaid 2017 Natural Gas Additional Injection Stimulus Program compensation and Ps. 1.2 billion under a non-conventional gas program. The SGE later notified YPF of US$758 million in compensation eligibility; the filing said payment had not been received by its date.
- Legal and environmental exposure: a Maxus liquidating trust claim sought damages of up to US$14 billion; dismissal motions were denied in February 2019 and YPF appealed. A major Bandurria Sur well blowout and spill occurred in October 2018; remediation continued and environmental licences for affected pads were revoked. Other litigation and environmental liabilities could exceed provisions.
- Impairment and estimates: 2018 included a Ps. 39,837 million reversal of oil-asset impairment, partly offset by impairments of Ps. 28,326 million in Neuquina gas and Ps. 8,246 million in Austral gas. Reserves, asset values and deferred taxes depend on prices, costs, exchange rates, regulation and technical estimates.
- Audit and controls: Deloitte issued an unqualified opinion on the IFRS financial statements and internal control over financial reporting; management also concluded controls were effective as of December 31, 2018.
Key facts for investors to verify
- Whether the 2019 production and US$3.5–4.0 billion capital-spending outlook was achieved, and how much was directed to Vaca Muerta.
- Collection timing and terms for government gas-program receivables, including the US$758 million compensation and any waivers or payment instruments.
- Current status, potential exposure and insurance recovery relating to the Maxus claim and Bandurria Sur spill.
- How much of the reported profit and comprehensive income reflects foreign-exchange movements, asset revaluation, the YPF EE transaction and impairment reversals rather than recurring operations.
- Debt maturities, refinancing access and covenant headroom, particularly given the U.S.-dollar-denominated debt and Argentina’s currency and market risks.
- Reserve additions, development economics and future gas prices, including the assumptions underlying the reported 178% reserves replacement ratio.