YPF Profit Beats Estimates on Higher Prices and Production

YPF SA, Argentina’s largest oil producer, beat analysts’ estimates as fourth-quarter profit climbed 88 percent on increased revenue from sales and output.

Net income rose to 1.9 billion pesos ($241 million), or 4.89 pesos a share, from 1.02 billion pesos, or 2.59 pesos, a year earlier, Buenos Aires-based YPF said March 7 in a statement after the close of trading in New York. Per-share profit excluding some items beat the 4.75-peso average of three analysts’ estimates compiled by Bloomberg.

Argentine President Cristina Fernandez de Kirchner’s government on Feb. 25 agreed to pay $5 billion in bonds to Madrid-based Repsol SA to compensate for the 51 percent stake in YPF it expropriated in April 2012. Argentina seized the oil producer after its output declined at an average 6 percent rate for almost a decade. Oil and gas production climbed by 7.5 percent in the quarter compared with the same period a year ago.

“The company continued to halt declining output seen in previous years,” YPF said in the statement.

YPF boosted crude production by 6.3 percent in the quarter from a year ago, while natural gas output rose 10.2 percent, the company said. The company expects crude output to rise 3 percent this year, gas production to increase 6 percent, company executives said on today’s earnings conference call.

Cost Concerns

Raymond James analysts in a report led by Santiago Wesenack and Santiago Ruiz said the output increases are beneficial while expressing concern for rising costs.

“We expect total output to post positive growth rates at the exploration and production level, as the oil and gas growth trend consolidates,” Wesenack and Ruiz said in a report to clients today. “Moreover, we will be looking for a growth trend in operating expenses as exploration and production margins deteriorated this quarter for this reason.”

The company plans to focus on cost control this year and could eliminate projects if necessary to contain costs, Chief Executive Officer Miguel Galuccio said today on an earnings conference call.

YPF’s capital investment budget of $5.5 billion for 2014 could be cut after last month’s devaluation of the Argentine peso, Chief Financial Officer Daniel Gonzalez said on the same call.

Argentina devalued its currency 15 percent on Jan. 22-23 in the biggest drop since 2002.

YPF’s American depositary receipts were little changed at $28.35 at 10:52 a.m. in New York after earlier rising as much as 3.2 percent. The ADRs have fallen 14 percent this year.

Repsol Compensation

YPF is pledging to invest $37 billion through 2018 and is seeking partners to develop Vaca Muerta, an area in southwestern Argentina the size of Belgium that contains an estimated 27 billion barrels of shale oil. Vaca Muerta is the world’s fourth-largest deposit of shale oil and second-largest natural gas deposit.

Ending the dispute with Repsol should improve Argentina’s energy investment, YPF Chief Executive Officer Miguel Galuccio told reporters Feb. 25 in Buenos Aires. The agreement, less than the half of the $10.5 billion in compensation Repsol initially sought, marks the end of two years of wrangling over the unit.

“We played an important role in fostering the settlement between the republic of Argentina and Repsol,” Galuccio said on today’s call. “We believe we are all winners and we can put that distraction behind us.”

Debt Sales

YPF, after securing shale partnerships with Chevron Corp. and Dow Chemical Co., is seeking more international partners. The Argentine producer on Feb. 18 signed a memorandum of understanding with Petroliam Nasional Bhd., the state-controlled company from Malaysia, to jointly develop an area in Vaca Muerta.

YPF’s cash on hand at the end of quarter was 10.7 billion pesos, while debt increased by 5.8 billion pesos in the quarter to close at 21.2 billion pesos, the company said in the earnings report. The average cost of peso debt was 21.5 percent and 6.05 percent for dollar debt, it said.

The company is monitoring international markets watching for a window of opportunity to sell debt, Gonzalez told investors on today’s call. YPF raised $650 million in international bond market last year to develop shale deposits.