YPF Profit Surges 87% as Price Gains Counter Costs

YPF SA, Argentina’s largest energy company, said third-quarter profit climbed 87 percent on higher revenue from sales and production, beating analyst estimates.

Net income increased to 1.4 billion pesos ($237 million), or 3.6 pesos a share, from 756 million pesos, or 1.92 pesos, a year earlier, Buenos Aires-based YPF said in a statement after the close of trading yesterday. That’s above the per-share profit excluding some items of 2.37-pesos estimated by Santiago Wesenack, who covers YPF for Raymond James SA in Buenos Aires.

President Cristina Fernandez de Kirchner’s government seized a 51 percent YPF stake from Madrid-based Repsol SA in April 2012 after the company’s output had declined at an average 6 percent rate for almost a decade. Argentina expropriated YPF to stem fuel imports that doubled to $9.4 billion in 2011 and cost the country $10 billion in 2012.

“Increased sales of fuel and natural gas triggered the results,” YPF said in the statement. Sales climbed 40 percent to 24.2 billion pesos “mainly due to an increase in volume sold and higher prices.”

YPF increased crude output by 3.4 percent in the period from a year ago, while natural gas output rose 4.7 percent, the company said. YPF’s oil and gas production increased for six and five consecutive months, respectively, the company said Nov. 1.

Chevron Partnership

YPF, after securing shale partnerships with Chevron Corp. and Dow Chemical Co., is seeking more international partners for a $37 billion, 5-year expansion plan to develop the Vaca Muerta shale formation at the world’s second-largest shale gas deposit and fourth-largest shale oil reservoir in Argentina’s Patagonia region.

YPF increased cash on hand by 1.8 billion pesos in the quarter to 6.9 billion pesos, having received $300 million from Chevron for the joint venture. While debt increased by 2 billion pesos in the period, the net total debt was unchanged at 19.2 billion pesos. The average cost of peso debt was 19.89 percent and 5.4 percent for dollar debt.

“For next quarter, we expect oil and gas pricing to continue its upward trend and total output to post positive growth rates at the E&P level, coupled with a hike in diesel and gasoline prices,” Raymond James’s Wesenack said in a note to clients dated today.

Investment Incentives

Vaca Muerta is a Connecticut-sized area in southern Argentina that contains at least 23 billion barrels of oil, according to a report by independent auditor Ryder Scott.

Argentina said July 15 it will offer energy companies incentives if they invest $1 billion or more over a five-year period.

YPF has signed preliminary Vaca Muerta development accords with Corp. America run by Argentine billionaire Eduardo Eurnekian and Bridas Corp., a joint venture of the billionaire Bulgheroni brothers and China’s CNOOC Ltd.

YPF also has approached Petroleos Mexicanos, the world’s fifth-largest crude producer, to develop an area in Vaca Muerta. On Nov. 1, Pemex Chief Executive Officer Emilio Lozoya said he is “very disappointed” with Repsol’s performance as negotiations between the Spanish oil producer and Argentina’s YPF are yet to be resolved.

Buyback Program

The earnings report was released after the close of regular trading in Buenos Aires yesterday. The market in Buenos Aires is closed today for a bank holiday. YPF’s American depositary receipts gained 6.8 percent to close at $21.35 in New York. The ADRs have increased 47 percent this year.

YPF said in a separate filing yesterday that its board approved increasing the per-share price it will pay for a buyback program to 270 pesos from 160 and to $27 from $18 for the ADRs. YPF’s board also approved selling as much as 800 million pesos of bonds at the same meeting.

(YPF is scheduled to have an earnings conference call today at 8:30 a.m. New York time. To access the webcast: http://www.ypf.com/InversoresAccionistas/Paginas/Home.aspx)

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