YPF Sociedad Anónima

Moat: 3/5

Understandability: 3/5

Balance Sheet Health: 2/5

YPF S.A. is an integrated oil and gas company, primarily operating in Argentina. Its business spans across the exploration and production of hydrocarbons, refining and marketing of petroleum products, as well as in petrochemicals and other related activities.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Overview

YPF’s business activities can be broadly segmented into two main areas:

  • Upstream: This segment focuses on the exploration, development, and production of crude oil and natural gas. YPF holds a significant presence in Argentina’s main hydrocarbon basins.
  • Downstream: This segment deals with the refining of crude oil into various petroleum products (gasoline, diesel, jet fuel, etc.) and their distribution and marketing. This segment also includes the company’s petrochemical activities, primarily the production of ethylene and related products.

Revenues Distribution

Based on the latest financial information provided, a comprehensive breakdown of the revenues can be derived from different aspects of the business:

  • Sales in the domestic market: In 2023, revenues were approximately $10.7B USD
  • Sales in the international market: In 2023, revenues were approximately $1.6B USD

Trends in the Industry

  • Transitioning Energy Landscape: The global energy sector is undergoing a significant transformation. The demand for renewable energy sources is growing, coupled with increasing pressure to reduce carbon emissions. As a major oil and gas player, YPF is impacted by this shift and must adapt its operations and investments accordingly.
  • Geopolitical Instability: The energy sector is highly sensitive to political and geopolitical events. Conflicts, sanctions, and national interests can all influence energy prices, demand, and supply. YPF, as an Argentinian company, is vulnerable to these shifts, and especially the Argentinian government’s political meddling and pressure.
  • Technological Advancements: New technologies are constantly being developed in oil and gas exploration and production. These technologies can increase productivity, reduce costs, and improve operational efficiency. But these technologies are not free, which is a factor when you do an analysis of a company like YPF.
  • Price Volatility: Oil and gas prices are highly volatile, subject to factors including global supply, demand, geopolitical events, and economic conditions. This volatility can lead to unpredictable fluctuations in YPF’s revenues and profitability.

Competitive Landscape

YPF operates in a competitive industry, both domestically and internationally. The company faces competition from various national and international players, including:

  • International Oil Majors: Companies like Shell, ExxonMobil, BP, and TotalEnergies are major competitors, particularly in the downstream sector. They often have greater financial resources and technological capabilities, which means a higher degree of scale and efficiency, making it tough for YPF to compete.
  • National Oil Companies: Some countries also operate state-owned oil companies that can compete with YPF in some instances. These state-owned entities often enjoy government subsidies, preferential policies, and local market advantages which creates an uneven playing field.
  • Domestic Refineries and Retailers Other companies in Argentina can also compete with YPF in the domestic market

What Makes YPF Different

  • Dominant Domestic Player: YPF has the largest integrated operation in Argentina, giving the company a significant presence and market share in the country.
  • Extensive Infrastructure: The company owns and operates an extensive network of pipelines, refineries, gas stations, and distribution channels across Argentina, giving it a competitive edge in infrastructure and access to markets.
  • Political Ties: YPF has some government ties. While these ties can be both a benefit and a detriment, it’s always interesting to analyze the impact of this on YPF’s financials.

Financials In-Depth

Revenue

YPF’s revenue stream is primarily tied to the price and volume of oil and gas sales. Therefore a lot of the company’s results depend on the commodity price of oil and gas. The total revenue for YPF in 2023 was about 12.3 billion USD, a decline from the 15.4 billion USD posted in 2022. The revenue decrease can be attributed to a drop in prices over 2022.

Profitability and Margins

The profitability and margins of YPF’s business operations are highly tied to the price of oil and gas. The company’s margins are also affected by the price spread between crude oil and refined products. Therefore volatility in the industry will heavily affect its profit margins.

  • In 2023, YPF had an operating profit of 2.4 billion USD, against a profit of around 5.9 billion USD in 2022, representing a substantial loss in profitability.
  • The company had a net loss of 1.2 Billion dollars in 2023.

Cash Flows

The company’s cash flow statements are difficult to predict, as they are tied to volatile commodity markets. Cash flow from operations was approximately $3.8B in 2023 which represents a decline of over 6 billion USD in comparison to 2022’s operating cash flow of 10B USD. The major source for the decline is primarily because of the decline in revenue. The company had free cash flow of 0.2 billion USD in 2023.

Balance Sheet

  • Debt Load: The company has a large debt load with about 10.7 billion of long term debt as of December 2023. High debt load will increase the company’s vulnerability to risks.
  • Asset Base: YPF has a huge asset base comprised of exploration assets, refineries, gas stations, pipelines, and other infrastructure. However, the value of its oil and gas reserves is subject to economic and commodity pricing factors.
  • Equity: YPF has a net equity of around 3 billion, which is extremely little when you compare that to its asset base.

Legitimate Risks to the Moat and Business

  • Government Control and Intervention: YPF is still partially owned by the Argentinian government, and their level of involvement can pose risks. Governments can impose price controls, change regulations, and impact business decisions. Any political instability could greatly harm the prospects of YPF.
  • Commodity Price Volatility: The prices of oil and gas are extremely volatile. Therefore significant swings can seriously impact YPF’s profitability. Additionally, demand for the hydrocarbons changes frequently with evolving preferences of society.
  • Rising Production Costs: Production costs, especially for complex projects and offshore exploration, continue to increase. These costs can eat into margins and the long-term profitability.
  • Technological Disruption: New technologies that can disrupt old technologies and methods are always a risk. The company must always be adaptable to new trends and technologies to stay afloat.
  • Environmental Regulations: The company must also face the increasing regulatory scrutiny with environmental regulations. Fines and the costs to comply with regulations can reduce profitability.
  • Economic Instability in Argentina: Argentina is a highly volatile economy with extreme levels of inflation and currency fluctuations. The situation has made it much more difficult for companies like YPF. The Argentinian currency has consistently depreciated, making it more difficult to repay dollar debts and reduce cost when measured in dollars.

Business Resilience

YPF has a high level of resilience and can probably survive over many years, but there are some risks. The company’s strong position in the domestic market, particularly with its infrastructure, is a strong safety net. Additionally, YPF’s ability to tap into the needs of the energy sector, and its presence across various parts of the value chain gives it a relatively high degree of flexibility. However, the constant changes in the energy landscape mean that it must adapt and grow or be rendered irrelevant.

Moat: 3/5

YPF has a moderate moat. Its large presence in the Argentinian market gives it a scale advantage and high barriers to entry, its extensive infrastructure can also give it an edge over smaller competitors. It has some competitive advantages which are hard to replicate, and has some economic “pull” from certain aspects of its operations. The main factors that limit its moat are its political ties and the volatility of its sector, along with the low pricing power.

Understandability: 3/5

The business is moderately complex, and the company’s value creation depends on several different factors. However, the overall operations are simple to understand. Some factors, like currency exchange and tax structures are difficult to understand, but one can get the overall premise of this complex business in some time.

Balance Sheet Health: 2/5

The health of YPF’s balance sheet is concerning due to its substantial debt load and small equity base. However, YPF is a highly liquid business that can generate cash flow to pay off debt. Additionally, some of its revenue is tied to long-term agreements which reduces uncertainty. However, volatility in the industry and the risk of debt default make it quite weak.