YPF Second-Quarter Profit Climbs on Higher Sales

YPF SA, Argentina’s largest oil company, posted second-quarter sales that beat analysts’ estimates as production increased.

Crude output gained 5.6 percent in the quarter to 240,900 barrels of oil equivalent a day from a year ago while natural gas production rose 32 percent, Buenos Aires-based YPF said in a regulatory filing yesterday. Sales climbed 61 percent to 35.3 billion pesos ($4.3 billion), beating the 31.5 billion-peso average estimate of three analysts compiled by Bloomberg.

More than two years after President Cristina Fernandez de Kirchner’s government expropriated a 51 percent stake in YPF from Repsol SA, the producer increased gas output by 10 percent and crude by 8.5 percent in the first half of 2014, government data show. YPF and Chevron Corp. are jointly developing part of Vaca Muerta, a Connecticut-sized formation in southern Argentina considered the world’s second-largest shale gas deposit and fourth-largest shale oil field.

“YPF’s positive results during the quarter were mainly driven by strong production data,” Santiago Weseneck, an analyst at Raymond James Argentina in Buenos Aires, who rates the stock outperform, said in an e-mail before the report. Increased fuel prices in the quarter “supported downstream results.”

Price Increases

The government said in February it would pay producers $7.50 per million British thermal unit to encourage drilling, up from an average of $2.50 in 2011. YPF raised fuel prices twice in the quarter, 5.4 percent in April and 3.8 percent in May. Fuel prices have climbed 37 percent this year.

“For the fifth straight quarter we’ve increased production,” Chief Executive Officer Miguel Galuccio said in posts on the company’s official Twitter page. “With work, professionalism and investment we’re growing, something that benefits the country.”

YPF is proving to be resilient to the country’s second default in 13 years after Argentina missed a July 30 interest payment of $539 million. YPF said Aug. 1 it will generate enough cash to finance operations for the next 12 months and it has access to new funding sources.

Fuel Imports

Net income increased to 1.5 billion pesos, or 3.89 pesos a share, from 535 million pesos, or 1.36 pesos, a year earlier, YPF said in the filing. The figures missed the per-share profit of 5.84 pesos, excluding some items, the average of three estimates compiled by Bloomberg.

Selling expenses rose 53 percent in the quarter, primarily on the price increase in Argentine peso terms for crude oil purchased domestically, YPF said in the filing. Imports of diesel and gasoline decreased by 8 percent in the period. Net financial debt fell 2.3 percent to 34.7 billion pesos.

YPF has five buy, five hold and one sell recommendations from analysts, according to data compiled by Bloomberg. Its American depositary receipts gained 1 percent to $33.76 at the close in New York. The ADRs, which each represent one ordinary share, have more than doubled in the past year.

YPF plans to refinance its local debt when it matures, Chief Financial Officer Daniel Gonzalez said today speaking to investors on a conference call. The company cost of peso debt stands at 28 percent while the dollar denominated debt costs 6.8 percent. The average debt maturity is about 4 years and the company isn’t planning to tap international debt markets. It may issue bonds locally or explore local credit lines from banks.

Vaca Muerta

“We have secured finance for our investments during at least the next 12 months,” Gonzalez said. “We have no need to tap the international market.”

Along with its partners, the state-controlled company has invested more than $2 billion in the Vaca Muerta shale formation, Gonzalez said. YPF has 21 rigs at the Loma Campana shale area out of a total of 73 in Argentina, he said. The rigs have drilled 200 wells, and YPF plans to drill another 100 in the second half of the year, including horizontal wells. The company will drill between 30 and 40 horizontal wells in 2015.

Investments in the shale expansion will continue after output drove the fifth straight quarterly increase as conventional production fell after an unexpected fire in Mendoza and bad weather in Neuquen basin.

Before it's here, it's on the Bloomberg Terminal.