Business context and reporting period
YPF Sociedad Anónima is Argentina’s integrated energy company, with upstream, downstream, gas and power operations concentrated primarily in Argentina. This Form 20-F reports the fiscal year ended December 31, 2017, and presents annual—not standalone fourth-quarter—results. Financial statements are prepared under IFRS in Argentine pesos; amounts below are in millions of pesos unless indicated otherwise.
Financial and operating performance
| Metric | 2017 | 2016 | Change or context |
|---|---|---|---|
| Revenue | 252,813 | 210,100 | Up 20.3% |
| Gross profit / margin | 41,001 / 16.2% | 32,796 / 15.6% | Margin improved 0.6 percentage points |
| Operating profit (loss) | 16,073 | (24,246) | Returned to operating profit |
| Net profit (loss) | 12,672 | (28,379) | Returned to net profit |
| Net financial results | (8,798) | (6,146) | Net loss increased |
| Operating cash flow | 71,974 | 49,183 | Up 46.3% |
| Investing cash flow | (55,242) | (66,174) | Lower cash use year over year |
| Cash and cash equivalents at year-end | 28,738 | 10,757 | More than doubled |
| Working capital | 19,564 | 4,760 | Improved |
| Total loans | 191,063 | 154,345 | Up 23.8%; 77% denominated in U.S. dollars |
| Shareholders’ equity | 152,533 | 118,661 | Increased |
Cash capital spending on property, plant and equipment and intangible assets was 59,618, compared with 64,160 in 2016. Separately, the filing reports capital expenditures and investments of 59,065 for 2017; the filing’s figures use different presentations and should be reconciled.
Operations and segments
- Reported hydrocarbon production was approximately 203 million barrels of oil equivalent (mmboe), or 555 thousand boe per day, down 3.9% from 2016. Oil production fell to approximately 83 million barrels; gas production was approximately 568 bcf.
- Proved reserves declined to 929 mmboe from 1,113 mmboe, and the reserves replacement ratio fell to 9% from 46%.
- Downstream revenue was 196,309 and operating profit 15,813, compared with operating profit of 3,093 in 2016. Upstream revenue was 116,694 and operating profit 3,877, versus an operating loss of 26,845 in 2016.
- Gas and Power revenue was 60,880. The filing gives different 2017 segment operating-profit figures—3,259 in the detailed discussion and 3,529 in the business-segment table—so the value is unclear in the filing text.
Material changes versus the prior year
- Revenue growth reflected higher peso prices for fuels and natural gas, along with increased sales volumes for gasoline and some other products. Cost of sales rose 19.5%, to 211,812, while gross margin improved.
- The swing to operating profit was strongly affected by a 2017 impairment reversal of 5,032, following a 34,943 impairment charge in 2016. The 2017 net result also included a 3,969 income-tax benefit.
- Operating cash flow increased, while investing cash outflow declined. Total loans rose by 36,718; most debt was in currencies other than the peso, exposing the company to peso depreciation.
- The peso depreciated approximately 18.4% against the U.S. dollar in 2017, while Argentina’s reported CPI rose 24.8%. The peso-denominated statements therefore require careful interpretation alongside the company’s U.S.-dollar functional currency.
Outlook, risks and unusual items
- Management expected 2018 production to be approximately 2%–3% below 2017 on a boe basis and forecast capital expenditures of about US$4 billion, mainly for upstream and unconventional development.
- Management cited continued efficiency and cost reductions, investment in Vaca Muerta and market-based fuel pricing. It cautioned that production, pricing, costs and investment plans depend on market conditions and the ability to obtain financing.
- Argentina’s government owned 51% of YPF. Inflation, currency movements, regulatory changes and possible renewed exchange or capital controls were identified as risks. Approximately 22% of debt was sensitive to interest-rate changes.
- Government payment exposure is material: receivables under the natural-gas incentive program included 13.4 billion pesos of accrued unpaid payments as of year-end, representing twelve months of accruals. The filing said no additional payment had been received for those amounts by the report date.
- Production and reserves face mature-field declines, lower replacement, commodity-price and cost sensitivity, and execution risk in unconventional projects. The filing estimated that a 10% decrease in crude reference prices used for reserves would reduce proved reserves by about 12.3%.
- Legal and environmental contingencies include the Maxus Entities’ Chapter 11 proceedings and potential alter-ego claims against YPF entities, as well as other litigation. The filing states that adverse outcomes could materially affect results; it does not provide a clear estimate for all such exposures.
- The board proposed a 1.2 billion peso dividend in March 2018 for shareholder consideration. Payment was not assured and remained subject to approval and the company’s financial needs.
Most important facts for investors to verify
- Reconcile the segment operating-profit disclosure for Gas and Power (3,259 versus 3,529) and the different reported production and capital-spending measures.
- Assess how much of the 2017 profit recovery reflects recurring operations versus the impairment reversal and tax benefit.
- Check collection timing and terms for government-related receivables, particularly the unpaid natural-gas incentive balances.
- Review debt maturities, U.S.-dollar exposure, covenant headroom and the funding assumptions behind the 2018 US$4 billion capital plan.
- Evaluate reserve revisions, production decline, reserve replacement and the economics and partner funding of Vaca Muerta development.
- Track the status and potential financial consequences of the Maxus proceedings and other material legal, environmental and concession-related contingencies.