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Actionable news in YPF: YPF SOCIEDAD ANONIMA,

YPF Sociedad Anonima - The Way To Play The Argentinian De-Risking

Summary

In the medium term, YPF will still enjoy oil prices higher than international prices.

Vaca Muerta holds a considerable upside for YPF.

Argentina should be de-risking under the new administration.

At current oil prices, many would say that you should stay away from the sector. That attitude, I would argue, would be the reason why taking a deeper look at the sector may be worthwhile as there might be some interesting opportunities. One of such opportunities I believe to be is YPF Sociedad Anonima (NYSE: YPF), the Argentinean national oil company offering an upside of 60% with a target price of $26.00/ADR.

As you might know by now, I like to understand the value of a company by its economic spread (ROIC - WACC); generally, I would focus on the ROIC leg of the equation, but in the case of YPF, the current political changes in Argentina may also have a significant effect on the WACC side of the equation. While there are many factors that will enhance the business economics in the coming years, such as the increase of horizontal wells in Vaca Muerta as those are more profitable than vertical wells, I believe that there are two main catalysts that will drive the stock price in the next 12 months - those are the local oil price and the de-risking of Argentina.

The Company

YPF is 51% owned by the Argentinean government and is the second largest gas producer and fourth largest crude oil producer in Central and South America. Under the oil operation, the entire production and 3rd party crude is refined at its refineries and 89% of those products are sold domestically (84% at domestic prices and the rest at international prices). 55% of the exported oil is sold at international prices while the remaining includes export taxes as well. YPF owns 143 production concessions and exploration permits, 56 at 100%. Its most important concession is Vaca Muerta where it has a concession on 12,000 sq. km. YPF's production represents 41% of Argentinean oil production and 33% of gas production. In the gas business, YPF produces, purchases, imports and sells in the domestic market (55% residential, 27% industrial and 18% to power plants). Half the refining capacity of Argentina is owned by YPF, specifically 55% of both gasoline and crude processing, 58% of diesel and 34% of gas stations in the country.

Vaca Muerta

Argentina is home to the third largest shale resource globally following the United States and China. Most of these resources are located in Vaca Muerta, the basin of Neuquen. Estimates indicate that the technical...


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