YPF Tells Investors to Await Runoff Vote for 2016 Guidance

  • Management wants to see devaluation level to approve budget
  • CFO sees spending cut from $6 billion to closer to $5 billion

YPF SA, Argentina’s largest company, declined to provide guidance for 2016 spending and cash flow as the oil producer is uncertain about how much the country’s currency will be devalued by a new president.

"We believe that there will be some sort of real devaluation of the currency, meaning that the currency will probably devalue beyond inflation level next year," Chief Financial Officer Daniel Gonzalez told investors during a conference call to discuss third-quarter earnings. "We don’t know at what level that will be, we need to wait to see."

Net income slid to 1.85 billion pesos ($193 million), or 4.72 pesos a share, from 3.2 billion pesos, or 8.17 pesos, a year earlier, the Buenos Aires-based company said in a statement Thursday. Excluding one-time items, per-share profit missed the 5.42-peso average of five analysts’ estimates compiled by Bloomberg.

President Cristina Fernandez de Kirchner’s government has set domestic oil prices above international levels in a bid to lure investments in exploration and production, but since August hasn’t allowed YPF to boost gasoline prices that are worth increasingly less in dollar terms as the peso weakens.

The move to appease voters in a presidential election year is crimping margins from processing crude that YPF buys at as much as $75 per barrel. International benchmarks are trading at less than $50. YPF, which has a 60 percent share of the retail gasoline market, has increased prices for the fuel by 4.6 percent so far this year, while the peso has slumped 12 percent, eroding profits to the company, Gonzalez said.

Depending on the extent of the real devaluation and knowing how much of it the new administration will allow the 51 percent state-controlled company pass through to pump prices, the management will be able to finish its 2016 budget, Gonzalez said. The guidance will probably be given sometime in December, he said.

Election Runoff

Ruling party candidate Daniel Scioli will face opposition’s Mauricio Macri in a runoff on Nov. 22. While neither candidate has promised current management team would stay, Scioli has vowed to largely keep domestic energy price structure to make Argentina energy self sufficient. Juan Jose Aranguren, former Shell Argentina CEO and currently Macri’s energy main adviser, has said becoming energy self sufficient at any cost shouldn’t be a target.

While impossible to provide an exact guidance for 2016 spending, Gonzalez said it will be closer to $5 billion, 16 percent lower than the amount to be spent this year.

YPF’s crude oil output rose 1.3 percent while natural gas production decreased 1.4 percent in the quarter, the company said. Sales rose 7.1 percent to 40.9 billion pesos.

In the downstream sector, which includes refining and marketing, sales rose 2.6 percent to 36.7 billion pesos, lagging the government’s 14 percent annual inflation rate. Private analysts estimate consumer prices have actually risen about 25 percent.

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