YPF 4Q24: Macro Tailwinds and Strategic Progress Offset a Weak Quarter
Shale Expansion, Export Capacity Growth Key to Long-Term Performance
Executive Summary
We maintain our Outperform recommendation on YPF. In our view, improving macroeconomic conditions in Argentina should provide a supportive backdrop for the company’s operations. This, combined with the company’s strategic focus and progress on expanding unconventional, lower-cost production and investing in infrastructure, particularly export capacity, is expected to enhance YPF’s credit profile and drive outperformance in its bonds over the next 9–12 months.
Preferred bonds: We favor the YPFDAR (Caa1/B-/CCC) 8.500% 2029 unsecured bonds, YPFDAR 9.000% 2029 unsecured bonds, YPFDAR 9.500% 2031 secured bonds, and YPFDAR 8.250% 2034 unsecured bonds. These bonds are trading wide to the overall YPF, LatAm BB, and EM BB curves. Additionally, they offer an attractive yield pickup compared to sovereign debts of similar duration.
YPF posted weak 4Q24 results. Adjusted EBITDA dropping 38.6% QoQ and 22.5% YoY to $839 million, missing consensus by 19.7%. The decline was driven by weaker Upstream performance amid lower crude prices ($65.7/b, -3.8% QoQ) and a 49.8% QoQ drop in seasonal natural gas sales, dragging Upstream EBITDA down 23.8% QoQ. The Gas & Power segment also struggled, with a 46.5% QoQ decline in natural gas sales causing EBITDA to plunge 75.1%. Despite a 10.3% QoQ revenue decline, cost of goods sold rose 2.1% and operating expenses surged 76.3%. Lifting costs reached $17.3/boe (+7.4% QoQ) partially due to inflation, though shale core hub costs fell 8.1% QoQ to $4.2/boe. Consequently, the adjusted EBITDA margin contracted 8.1 pp QoQ to 17.6%.
From a credit perspective. YPF’s results showed weakening fundamentals, with LTM EBITDA down 5.0% and total debt rising 4.6%, and a significant drop in LTM funds from operations. Gross leverage increased 0.2x QoQ to 2.1x as of December 2024, while net leverage worsened 0.1x to 1.8x, and cash interest coverage declined 0.2x to 4.2x. However, liquidity improved after the $1.1 billion issuance, which facilitated the repayment of YPF’s 2025 bonds, effectively reducing short-term debt and increasing cash on hand.
YPF reaffirmed confidence in its strategic execution, achieving key milestones in shale operations, mature fields divestments, and fuel pricing adjustments. The VMOS oil export pipeline remains on track for 3Q27 completion, set to boost crude export capacity to 550 kbpd, with potential expansion to 700 kbpd by 2028. YPF, holding a 27% stake, has committed 120 kbpd of the initial 445 kbpd and aims for 180 kbpd by 4Q26. The primary challenge remains the significant capital expenditure required, including $3.0 billion for VMOS, to support these initiatives.
Upstream segment. In 4Q24, YPF’s upstream revenues declined 12.3% QoQ, primarily driven by a 43.9% drop in gas revenues due to lower seasonal gas sales. Upstream revenues were also pressured by a 0.5% decrease in oil revenues, mainly due to lower prices, though partially offset by higher oil volumes. Upstream EBITDA for 4Q24 totaled $597 million, down 23.8% QoQ, with the Upstream EBITDA margin contracting 4.6 pp sequentially to 30.3%. The decline in EBITDA was primarily driven by lower seasonal gas sales impacting revenues and higher total costs.
Downstream segment. Downstream revenues in 4Q24 totaled $4.0 billion, down 2.5% QoQ. The sequential decline was primarily driven by a downward trend in international prices, which impacted local fuel prices and crude oil exports, partially offset by a gradual recovery in local fuel demand. Refinery utilization stood at 90.0%, up 1.7 pp, which resulted in 304 kbbl/d of processed crude, an improvement from 298 kbbl/d in 3Q24. Downstream EBITDA declined 14.7% QoQ to $382 million in 4Q24. The Downstream EBITDA margin contracted 1.4 pp sequentially. The decrease was primarily driven by lower international prices, which affected YPF’s fuel prices, as well as an extraordinary environmental provision.
Positive macroeconomic expectations. Argentina faced significant macroeconomic challenges in 2023 and 2024, with the economy remaining in recession as GDP contracted in seven of the last eight quarters. However, market consensus anticipates a strong recovery, projecting growth of 3.3% in 1Q25, 6.8% in 2Q25, and 3.8% in 3Q25. Despite the downturn, unemployment has remained stable below 8% and is expected to stay in the low-7% range in the coming quarters. Inflation, a persistent challenge in recent years, has shown meaningful improvement, falling below 100% for the first time in two years. Market expectations indicate a continued decline, with quarterly inflation projected to fall below 30% by the end of 3Q25 and to around 27% by 2Q26.
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