UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 20-F

 

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2020

Commission file number: 1-12102

 

 

YPF Sociedad Anónima

(Exact name of registrant as specified in its charter)

 

 

Republic of Argentina

(Jurisdiction of incorporation or organization)

Macacha Güemes 515

C1106BKK Ciudad Autónoma de Buenos Aires, Argentina

(Address of principal executive offices)

Federico Máquez

Tel: (011-54-11) 5441-5100

Facsimile Number: (011-54-11) 5441-3726

Macacha Güemes 515

C1106BKK Ciudad Autónoma

de Buenos Aires, Argentina

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

 

 

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of Each Class		Trading Symbol		Name of Each Exchange on Which Registered
American Depositary Shares, each representing one Class D Share, par value 10 pesos per share		YPF		New York Stock Exchange*
Class D Shares		N/A*		New York Stock Exchange*
		YPFD		Bolsas y Mercados Argentinos S.A.

 

*	Listed not for trading but only in connection with the registration of American Depositary Shares.

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

The number of outstanding shares of each class of stock of YPF Sociedad Anónima as of December 31, 2020 was:

 

Class A Shares			3,764
Class B Shares			7,624
Class C Shares			40,422
Class D Shares			393,260,983
			393,312,793

 

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ☒    No  ☐

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    Yes  ☐    No  ☒

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or an emerging growth company. See definition of “accelerated filer,” “large accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer  ☒		Accelerated filer  ☐		Non-accelerated filer		☐
				Emerging growth company		☐

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.    ☒

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

U.S. GAAP  ☐		International Financial Reporting Standards as issued by the International Accounting Standards Board:  ☒		Other  ☐

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17  ☐    Item 18  ☐

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)    Yes  ☐    No  ☒

 

 

 

TABLE OF CONTENTS

 

		Page
Conversion Table			4
References			4
Disclosure of Certain Information			4
Forward-Looking Statements			4
Oil and Gas Terms			5
PART I			7
ITEM 1.        Identity of Directors, Senior Managers and Advisers			7
ITEM 2.        Offer Statistics and Expected Timetable			7
ITEM 3.       Key Information			7
Selected Financial Data			7
Risk Factors			8
ITEM 4.        Information on the Company			31
History and Development of YPF			31
Business Organization			33
Upstream Overview			36
Downstream			70
Gas and Power			79
Research and Development			87
Competition			88
Environmental Matters			88
Property, Plant and Equipment			97
Insurance			98
Legal and Regulatory Framework and Relationship with the Argentine government			99
ITEM 4A.    Unresolved Staff Comments			150
ITEM 5.        Operating and Financial Review and Prospects			150
Overview			151
Presentation of Financial Information			151
Segment Reporting			151
Summarized Statement of Comprehensive Income			151
Factors Affecting Our Operations			152
Macroeconomic conditions			152
Critical Accounting Policies			161

 

1

		Page
Off-Balance Sheet Arrangements			176
Research and Development, Patents and Licenses, etc.			176
ITEM 6.        Directors, Senior Management and Employees			177
Management of the Company			177
Board of Directors			177
Senior Management			183
The Audit Committee			185
Disclosure Committee			187
Compliance with New York Stock Exchange Listing Standards on Corporate Governance			189
Compensation of members of our Board of Directors			190
Supervisory Committee			190
Employee Matters			195
ITEM 7.        Major Shareholders and Related Party Transactions			196
Related Party Transactions			197
Argentine Law Concerning Related Party Transactions			198
ITEM 8.       Financial Information			198
Financial Statements			198
Legal Proceedings			199
Dividend Policy			199
Significant Changes			199
ITEM 9.       The Offer and Listing			199
Shares and ADSs			199
Argentine Securities Market			200
ITEM 10.     Additional Information			204
Memorandum and Articles of Association			205
Directors			207
Dividends			209
Amount Available for Distribution			210
Preemptive and Accretion Rights			212
Voting of the Underlying Class D Shares			212
Certain Provisions Relating to Acquisitions of Shares			214
Material Contracts			216
Exchange Regulations			218
Taxation			235
Argentine Tax Considerations			235
United States Federal Income Tax Considerations			240
Documents on Display			243

 

2

		Page
ITEM 11.        Quantitative and Qualitative Disclosures about Market Risk			243
ITEM 12.        Description of Securities Other than Equity Securities			244
PART II			245
ITEM 13.        Defaults, Dividend Arrearages and Delinquencies			245
ITEM 14.        Material Modifications to the Rights of Security Holders and Use of Proceeds			245
ITEM 15.        Controls and Procedures			245
ITEM 16.			246
ITEM 16A.    Audit Committee Financial Expert			246
ITEM 16B.    Code of Ethics			247
ITEM 16C.     Principal Accountant Fees and Services			248
ITEM 16D.     Exemptions from the Listing Standards for Audit Committees			248
ITEM 16E.     Purchases of Equity Securities by the Issuer and Affiliated Purchasers			249
ITEM 16F.     Change in Registrant’s Certifying Accountant			249
ITEM 16G.   Corporate Governance			249
PART III			250
ITEM 17.       Financial Statements			250
ITEM 18.       Financial Statements			250
ITEM 19.       Exhibits			250

 

3

Conversion Table

1 ton = 1 metric ton = 1,000 kilograms = 2,204 pounds

1 barrel = 42 U.S. gallons

1 ton of oil = approximately 7.3 barrels (assuming a specific gravity of 34 degrees API (American Petroleum Institute))

1 barrel of oil equivalent = 5,615 cubic feet of gas = 1 barrel of oil, condensate or natural gas liquids

1 barrel of oil, condensate or natural gas liquids = 0.159 cubic meters

1 kilometer = 0.63 miles

1 million Btu = 252 termies

1 cubic meter of gas = 35.3147 cubic feet of gas

1 cubic meter of gas = 10 termies

1,000 acres = approximately 4 square kilometers

References

YPF Sociedad Anónima is a stock corporation organized under the laws of the Republic of Argentina (“Argentina”). As used in this annual report, “YPF,” “the Company,” “we,” “our” and “us” refer to YPF Sociedad Anónima and its controlled companies or, if the context requires, its predecessor companies (“Repsol”). “YPF Sociedad Anónima” or “YPF S.A.” refers to YPF Sociedad Anónima only. “Repsol” refers to Repsol S.A., its affiliates and consolidated companies. We maintain our financial books and records and publish our financial statements in Argentine pesos. In this annual report, references to “pesos” or “Ps.” are to Argentine pesos, and references to “dollars,” “U.S. dollars” or “U.S.$” are to United States dollars.

Disclosure of Certain Information

In this annual report, references to “Audited Consolidated Financial Statements” are to YPF’s audited consolidated statement of financial position as of December 31, 2020, 2019 and 2018, YPF’s audited consolidated statements of comprehensive income for the years ended December 31, 2020, 2019 and 2018, YPF’s audited consolidated statements of cash flows for the years ended December 31, 2020, 2019 and 2018, YPF’s audited consolidated statements of changes in shareholders’ equity for the years ended December 31, 2020, 2019 and 2018 and Notes 1 to 38.

Unless otherwise indicated, the information contained in this annual report reflects:

 

•

for the subsidiaries that were consolidated using the global integration method at the date or for the periods indicated, 100% of the assets, liabilities and results of operations of such subsidiaries without excluding minority interests (which are disclosed separately), and

 

•

for those joint operations whose results were consolidated using the proportional integration method, a pro rata amount of the assets, liabilities and results of operations for such joint operations at the date or for the periods indicated.

For information regarding consolidation, see Note 2.A to the Audited Consolidated Financial Statements.

Certain monetary amounts and other figures included in this annual report have been subject to rounding adjustments. Any discrepancies in any tables between the totals and the sums of the amounts are due to rounding.

Forward-Looking Statements

This annual report, including any documents incorporated by reference, contains statements that we believe constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may include statements regarding the intent, belief or current expectations of us and our management, including statements with respect to trends affecting our financial condition, financial ratios, results of operations, business, strategy, geographic concentration, reserves, future hydrocarbon production volumes and our ability to satisfy our long-term sales commitments from future supplies available to us, our ability to pay dividends in the future and to service our outstanding debt, dates or periods in which production is scheduled or expected to come on-stream, as well as our plans with respect to capital expenditures, business, strategy, geographic concentration, cost savings, investments and dividends payout policies. These statements are not a guarantee of future performance and are subject to material risks, uncertainties, changes and other factors which may be beyond our control or may be difficult to predict. Accordingly, our future financial condition, prices, financial ratios, results of operations, business, strategy, geographic concentration, production volumes, reserves, capital expenditures, cost savings, WACC (weighted average cost of capital) investments and ability to meet our long-term sales commitments or pay dividends or service our outstanding debt could differ materially from those expressed or implied in any such forward-looking statements. Such factors include, but are not limited to, currency fluctuations, foreign exchange controls, inflation, the domestic and international prices for crude oil and its derivatives, the ability to realize cost reductions and operating efficiencies without unduly

 

4

disrupting business operations, replacement of hydrocarbon reserves, environmental, regulatory and legal considerations, including the imposition of further government restrictions on our business, changes in our business strategy and operations, our ability to find partners or raise funding under our current control, the ability to maintain our concessions, and general economic and business conditions in Argentina, as well as those factors described in the filings made by YPF and its affiliates with the Securities and Exchange Commission, the Comisión Nacional de Valores (Argentine National Securities and Exchange Commission, or “CNV”) and any stock market, as applicable, in particular, those described in “Item 3. Key Information—Risk Factors” and “Item 5. Operating and Financial Review and Prospects”. YPF does not undertake to publicly update or revise these forward-looking statements even if experience or future changes make it clear that the projected results or condition expressed or implied therein will not be realized.

Oil and Gas Terms

Oil and gas reserves definitions used in this annual report are in accordance with Regulations S-X and S-K, as amended by the U.S. Securities and Exchange Commission’s (“SEC”) final rule, Modernization of Oil and Gas Reporting (Release Nos. 33-8995; 34-59192; FR-78; File No. S7-15-08; December 31, 2008) and relevant guidance notes and letters issued by the SEC’s Staff.

The reported reserves contained in this annual report include only our proved reserves and do not include probable reserves or possible reserves.

The following terms have the meanings shown below unless the context indicates otherwise:

“acreage”: The total area, expressed in acres or km2, over which YPF has interests in exploration or production. Net acreage is YPF’s interest in the relevant exploration or production area.

“basin”: A depression in the crust of the Earth formed by plate tectonic activity in which sediments accumulate. Continued sediment accumulation can cause further depression or subsidence.

“block”: Areas defined by concession contracts or operating contracts signed by YPF.

“concession contracts”: A grant of access for a defined area and time period that transfers certain entitlements to produce hydrocarbons from the host country to an enterprise. The company holding the concession generally has rights and responsibilities for the exploration, development, production and sale of hydrocarbons, and typically, an obligation to make payments at the signing of the concession and once production begins pursuant to applicable laws and regulations.

“crude oil”: Crude oil with respect to YPF’s production and reserves includes condensate.

“field”: One or more reservoirs grouped by or related to the same general geologic structural feature or stratigraphic condition.

“formation”: The fundamental unit of lithostratigraphy. A body of rock that is sufficiently distinctive and continuous that it can be mapped.

“gas”: Natural gas.

“hydrocarbons”: Crude oil, natural gas liquids and natural gas.

“surface conditions”: Represents the pressure and temperature conditions at which volumes of oil, gas, condensate and natural gas liquids are measured for reporting purposes. It is also referred to as standard conditions. For YPF these conditions are 14.7 psi for pressure and 60 degrees Fahrenheit for temperature. All volume units expressed in this report are at surface conditions.

 

5

Abbreviations:

 

“bbl”		Barrels.
“bbl/d”		Barrels per day.
“bcf”		Billion cubic feet.
“bcf/d”		Billion cubic feet per day.
“bcm”		Billion cubic meters.
“bcm/d”		Billion cubic meters per day.
“boe”		Barrels of oil equivalent.
“boe/d”		Barrels of oil equivalent per day.
“kboe/d”		Thousand barrels of oil equivalent per day.
“cm”		Cubic meter.
“cm/d”		Cubic meters per day.
“dam3”		Cubic decameters (thousand cubic meters).
“GWh”		Gigawatt hours.
“HP”		Horsepower.
“km”		Kilometers.
“km2”		Square kilometers.
“liquids”		Crude oil, condensate and natural gas liquids.
“LNG”		Liquefied natural gas.
“LPG”		Liquefied petroleum gas.
“mbbl”		Thousand barrels.
“mbbl/d”		Thousand barrels per day.
“mcf”		Thousand cubic feet.
“mcf/d”		Thousand cubic feet per day.
“mcm”		Thousand cubic meters.
“mcm/d”		Thousand cubic meters per day.
“mboe”		Thousand barrels of oil equivalent.
“mboe/d”		Thousand barrels of oil equivalent per day.
“mm”		Million.
“mmbbl”		Million barrels.
“mmbbl/d”		Million barrels per day.
“mmboe”		Million barrels of oil equivalent.
“mmboe/d”		Million barrels of oil equivalent per day.
“mmBtu”		Million British thermal units.
“mmcf”		Million cubic feet.
“mmcf/d”		Million cubic feet per day.
“mmcm”		Million cubic meters.
“mmcm/d”		Million cubic meters per day.
“mtn”		Thousand tons.
“MW”		Megawatts.
“mts”		Meters.
“NGL”		Natural gas liquids.
“psi”		Pound per square inch.

 

6

PART I

 

ITEM 1.

Identity of Directors, Senior Managers and Advisers

Not applicable.

 

ITEM 2.

Offer Statistics and Expected Timetable

Not applicable.

 

ITEM 3.

Key Information

Selected Financial Data

In January 2021, the SEC issued Final Rule Release No. 33-10890. This rule, which became effective on February 10, 2021, adopts amendments to modernize, simplify and enhance certain financial disclosure requirements in Regulation S-K. Specifically, the amendments eliminate, among others, the requirement for Selected Financial Data. The Company early adopted the amendment resulting in the elimination of Selected Financial Data (Item 301).

 

7

Risk Factors

The risks and uncertainties described below are those known by us as of the date of this report. However, such risks and uncertainties may not be the only ones that we could face. Additional risks and uncertainties that are unknown to us or that we currently think are immaterial also may impair our business operations.

Summary Risk Factors

The following summarizes the principal factors that make an investment in our company speculative or risky, all of which are more fully described in the Risk Factors below. This summary should be read in conjunction with the Risk Factors below and should not be relied upon as an exhaustive analysis or discussion of the material risks facing our business.

Summary Risks Relating to Argentina

 

•

The Argentine Republic owns 51% of the shares of the Company.

 

•

Our business is largely dependent upon economic conditions in Argentina.

 

•

The evolution of the Argentine economy is largely dependent on the sustainability of its public debt, including that owed to the IMF and the Paris Club.

 

•

Certain risks are inherent in any investment in a company operating in an emerging market such as Argentina.

 

•

Failure to adequately address actual and perceived risks of institutional deterioration and corruption may adversely affect Argentina’s economy and financial condition.

 

•

The Argentine economy has been and could be adversely affected by economic developments in other markets.

 

•

The implementation of new export duties, other taxes and import regulations could adversely affect our results.

 

•

We may be exposed to fluctuations in foreign exchange rates.

 

•

Variations in interest rates and exchange rate on our current and/or future financing arrangements may result in significant increases in our borrowing costs.

 

•

We are subject to exchange and capital controls.

 

•

Changes in Argentine tax laws may adversely affect the results of our operations, financial condition and cash flows.

Summary Risks Relating to our Business

 

•

We are exposed to the effects of fluctuations in the prices of oil, gas and refined products.

 

•

An outbreak of disease or similar public health threat, such as the ongoing COVID-19 pandemic, which has had and may continue to have material adverse consequences for general economic, financial, and business conditions, could materially and adversely affect our business, financial condition and results of operations.

 

•

Our domestic operations are subject to extensive regulation.

 

•

Limitations on local pricing of our products in Argentina may adversely affect our results of operations.

 

•

Uncertainty and illiquidity in credit and capital markets may impair our ability to obtain credit and financing or obtain them on acceptable terms.

 

•

A significant percentage of our cash flow from operations is derived from counterparties that are governmental entities.

 

•

We are and could be subject to direct and indirect import and export restrictions, which have affected our results of operations and caused us to declare force majeure under certain of our export contracts.

 

•

Our reserves and production may decline.

 

•

Our oil and natural gas reserves are estimates.

 

•

Oil and gas activities are subject to significant economic, social, environmental and operational risks and to seasonal fluctuation of demand.

 

8

•

Our business depends on complex, long-term and capital intensive projects, including those related to the development of our unconventional oil and gas reserves.

 

•

We may not have sufficient insurance to cover all the operating hazards to which we are subject.

 

•

Argentine oil and gas production concessions and exploration permits are subject to certain conditions and may be cancelled or not renewed.

 

•

We may incur significant costs and liabilities related to environmental, health and safety matters.

 

•

Climate change and energy transition could affect our results and access to capital.

 

•

We face risks relating to certain legal proceedings.

 

•

We may be responsible for significant costs and liabilities depending on the outcome of the adversary proceeding against the Company and certain of its subsidiaries and other entities filed by the Maxus Energy Corporation Liquidating Trust (the “Liquidating Trust”) in the Delaware Bankruptcy Court

 

•

Our business depends to a significant extent on our production and refining facilities and logistics network.

 

•

We may be subject to organized labor action.

 

•

Our performance is largely dependent on recruiting and retaining key personnel.

 

•

We may suffer information technology system failures, network disruptions, and breaches in data security that could negatively affect our business, financial position, results of operations, and cash flows.

 

•

Our derivative risk management activities could result in financial losses.

 

•

Our actual production could differ materially from our forecasts.

 

•

We have limited control over the day to day activities carried out on properties that we do not operate.

 

•

We could be affected by violations of anticorruption, anti-bribery, anti-money laundering and other national and international regulations.

 

•

If we fail to comply with the covenants set forth in our credit agreements and indentures or upon the occurrence of a change of control, we may be required to prepay our debt.

Summary Risks Relating to Our Class D Shares and ADSs

 

•

The market price for our shares and ADSs may be subject to significant volatility.

 

•

Certain strategic transactions require the approval of the holder of our Class A shares or may entail a cash tender offer for all of our outstanding capital stock.

 

•

Capital controls imposed by Argentina may impair your ability to receive dividends and distributions on, and the proceeds of any sale of, the Class D shares underlying the ADSs.

 

•

We may not be able to pay, maintain or increase dividends.

 

•

We are traded on more than one market and this may result in price volatility; in addition, investors may not be able to easily transfer securities to take advantage of pricing opportunities for trading between such markets.

 

•

Under Argentine law, shareholder rights may be different from other jurisdictions.

 

•

Actual or anticipated sales of a substantial number of Class D shares could decrease the market prices of our Class D shares and of the ADSs.

 

•

You may be unable to exercise preemptive, accretion or other rights with respect to the Class D shares underlying your ADSs.

 

•

You may be unable to exercise voting rights with respect to the Class D shares underlying your ADSs at our shareholders’ meetings.

 

•

Shareholders outside of Argentina may face additional investment risk from currency exchange rate fluctuations in connection with their holding of our Class D shares or the ADSs.

 

9

Risks Relating to Argentina

The Argentine Republic owns 51% of the shares of the Company.

The Argentine Republic owns 51% of the shares of the Company (see “Item 4. Information on the Company—Legal and Regulatory Framework and Relationship with the Argentine government—The Expropriation Law”), and consequently, the federal government is able to determine all matters requiring approval by a majority of shareholders, including the election of a majority of directors. We cannot assure you that decisions taken by our controlling shareholder would not differ from your interests as a shareholder (including the pricing policy of all our main products), and thus affect our operational decisions (see “Item 4. Information on the Company—Legal and Regulatory Framework and Relationship with the Argentine government—The Expropriation Law”, “—Risks Relating to Our Business—Our domestic operations are subject to extensive regulation” and “—Risks Relating to Our Business—Limitations on local pricing of our products in Argentina may adversely affect our results of operations”). Presidential elections take place in Argentina every four years and legislative elections every two years, resulting in the partial renewal of both chambers of Congress. The next presidential election is scheduled for October 2023 and the next legislative elections are scheduled to be held on October 24, 2021. The result of presidential as well as legislative mid-term and full term elections may lead to changes in government policies that impact upon the Company. We cannot give you any assurance as to whether such changes will occur or as to their timing, nor can we estimate the impact they may have on our business.

Our business is largely dependent upon economic conditions in Argentina.

Most of our operations, properties and customers are located in Argentina, and, as a result, our business is to a large extent dependent upon economic conditions prevailing in Argentina. The changes in economic, political and regulatory conditions in Argentina and measures taken by the Argentine government have had and are expected to continue to have a significant impact on us. You should make your own assessment about Argentina and prevailing conditions in the country before taking an investment decision in us.

The Argentine economy has experienced significant volatility in past decades, including numerous periods of low or negative growth and high and variable levels of inflation and currency devaluation. No assurances can be given that the Argentine economy will grow or as to when the country will emerge from recession on a sustainable basis, especially in light of the crisis resulting from the ongoing COVID-19 pandemic and the measures adopted by the Argentine government to deal with the effects of the COVID-19 pandemic, which impaired the Argentine economy during 2020 and has heightened the uncertainty about the evolution of the Argentine economy in 2021 and subsequent years, to an extent that cannot be estimated as of the date of this annual report (see “—Risks Relating to Our Business —An outbreak of disease or similar public health threat, such as the ongoing COVID-19 pandemic, which has had and may continue to have material adverse consequences for general economic, financial, and business conditions, could materially and adversely affect our business, financial condition and results of operations”). If economic conditions in Argentina were to deteriorate, or the economy were to continue to contract, if inflation were to accelerate further, or if the Argentine government’s measures to attract or retain foreign investment and international financing in the future to incentivize domestic economy activity are unsuccessful, such developments could adversely affect Argentina’s economic growth and in turn affect our financial health and results of operations.

For a discussion of the evolution of the main variables that affect Argentina see “Item 5. Operating and Financial Review and Prospects—Factors Affecting Our Operations—Macroeconomic Conditions—Overview”.

Argentine economic conditions are dependent on a variety of factors, including, but not limited to, the following:

 

•

international demand and prices for Argentina’s principal commodity exports;

 

•

stability and competitiveness of the Argentine peso against foreign currencies;

 

•

competitiveness and efficiency of domestic industries and services;

 

•

foreign and domestic investment and financing;

 

•

level of foreign exchange reserves in the Central Bank of the Argentine Republic (“BCRA” or “Central Bank”);

 

•

adverse external economic shocks;

 

•

evolution of the COVID-19 pandemic and results of the measures adopted by the Argentine government in response;

 

•

changes in economic or fiscal policies implemented by the Argentine government;

 

•

labor disputes and work stoppages, which may affect various sectors of the Argentine economy;

 

•

the level of expenditure by the Argentine government and ability to sustain fiscal balance;

 

•

the level of unemployment;

 

10

•

political instability and social tensions, such as land-takings and claims in areas where we operate; and

 

•

interest and inflation rates.

The Argentine economy is also sensitive to local political developments. During 2020, the Argentine government communicated a series of measures intended to introduce institutional reforms, improve social and economic conditions, increase the country’s foreign currency reserves and stabilize the exchange market and reduce inflation. See “Item 10. Additional Information—Exchange Regulations” and “Item 5. Operating and Financial Review and Prospects—Factors Affecting Our Operations—Macroeconomic Conditions—Overview.”

We cannot predict the ultimate impact of any measures that the Argentine government has adopted or may adopt in the future (including any measures related to the energy sector), or whether those measures will have the effects pursued. Uncertainty with respect to government policies may lead to additional volatility of Argentine stock market prices including, in particular, companies that operate in the energy sector, given the degree of state regulation and intervention in this industry. Additionally, we cannot guarantee that the current policies and programs that apply to the oil and gas sector will not be modified in the future. See “—Risks Relating to Our Business—Limitations on local pricing of our products in Argentina may adversely affect our results of operations”, and “—Risks Relating to Our Business—We are exposed to the effects of fluctuations in the prices of oil, gas and refined products.”

Argentina has experienced repeatedly, including in recent years, periods of high inflation. The National CPI variation was of 36.1% in 2020 and 53.8% in 2019. There can be no assurance that inflation rates will not be higher in the future. Although Congress has passed the 2021 National Budget including a National CPI forecast of 29.0% for 2021, private estimates stand well above this level.

If the measures adopted by the Argentine government fail to correct Argentina’s structural inflationary imbalances, inflation may continue or increase and have an adverse effect on Argentina’s economy and on our business, financial condition and results of operations. Inflation can also lead to an increase in Argentina’s local currency-denominated debt and have an adverse effect on Argentina’s ability to service its debt, mainly in the medium and long term when most inflation-indexed debt matures.

In addition, weaker fiscal results could have a material adverse effect on the Government’s ability to access long term financing, which, in turn, could adversely affect Argentina’s economy, the level of foreign exchange reserves and financial condition and, indirectly, our business, financial condition and results of operations. Regulatory and policy developments in Argentina that occurred in recent years, including the litigation of the Argentine government with holdout bondholders, and the restructuring of the Argentine public debt held by private creditors during 2020 have led to considerable volatility in the market price of our shares and ADSs. See “—Our business is largely dependent upon economic conditions in Argentina,” “—The evolution of the Argentine economy is largely dependent on the sustainability of its public debt, including that owed to the IMF and the Paris Club” and “Item 5. Operating and Financial Review and Prospects—Factors Affecting Our Operations—Macroeconomic Conditions.”

Argentina’s economy is also vulnerable to adverse developments affecting its principal trading partners. See “The Argentine economy has been and could be adversely affected by economic developments in other markets.”

On the other hand, a substantial increase in the value of the Peso against the U.S. dollar would adversely affect Argentina’s economic competitiveness. A significant real appreciation of the Peso would adversely affect exports and increase the trade deficit, which could have a negative effect on GDP growth and employment, as well as reduce the Argentine public sector’s revenues by reducing tax collection in real terms.

Additionally, as a consequence of the emergency measures which the Argentine government adopted during or after the 2001-2002 Argentine economic crisis, foreign shareholders of companies with operations in Argentina began arbitration proceedings against the Argentine government before the International Centre for Settlement of Investment Disputes (“ICSID”) pursuant to the arbitration regulations of the United Nations Commission on International Trade Law (“UNCITRAL”). Outstanding claims against the Argentine government before ICSID under UNCITRAL regulations may entail new awards against the Argentine government, which in turn could have a substantially adverse effect on the Argentine government’s ability to implement reforms and to foster economic growth. We cannot assure you that in the future the Argentine government will not breach its obligations.

The evolution of the Argentine economy is largely dependent on the sustainability of its public debt, including that held owed to the IMF and the Paris Club.

During the second half of 2019, the international market began to show signs of doubts as to whether Argentina’s debt would continue to be sustainable. For this reason, country risk indicators reached high levels, which in turn caused a significant decrease in the price of Argentine sovereign bonds.

 

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On February 5, 2020, Congress enacted the Debt Sustainability Bill (as defined herein) authorizing the Executive Branch, acting through the Ministry of Economy, to engage in transactions and negotiations with Argentina’s creditors to restore the sustainability of its public external debt. In September 2020, Argentina settled an exchange offer targeting its foreign currency bonds governed by foreign law and subsequently settled, also in September 2020, an exchange offer targeting its foreign currency bonds governed by domestic law. See “Item 5. Operating and Financial Review and Prospects—Factors Affecting Our Operations—Macroeconomic Conditions—Sovereign debt restructuring.”

On March 13, 2020, the Minister of Economy addressed a letter to the Paris Club members expressing Argentina’s decision to postpone until May 5, 2021 the U.S.$ 2.1 billion payment originally due on May 5, 2020, in accordance with the terms of the settlement agreement the Republic had reached with the Paris Club members on May 29, 2014 (the “Paris Club 2014 Settlement Agreement”). In addition, on April 7, 2020, the Minister of Economy sent the Paris Club members a proposal to modify the existing terms of the Paris Club 2014 Settlement Agreement, seeking mainly an extension of the maturity dates and a significant reduction in the interest rate.

As of the date of this annual report, the Argentine government has initiated negotiations with the IMF in order to renegotiate the principal maturities of the U.S.$ 44.1 billion disbursed between 2018 and 2019 under a Stand By Agreement, originally planned for the years 2021, 2022 and 2023. We cannot assure that the Argentine government will be successful in its negotiations with the IMF, which could affect its ability to implement reforms and public policies and boost economic growth. We also cannot predict the impact of the outcome of that negotiation on Argentina’s (and indirectly our) ability to access the international capital markets. Moreover, the long-term impact of these measures and any future measures taken by the current administration on the Argentine economy remains uncertain.

In spite of the restructuring of the Argentine public debt carried out in 2020, the international markets continued showing signs of doubts as to whether Argentina’s debt is sustainable and, therefore, country risk indicators remain high. There can be no assurances that Argentina’s credit ratings will be maintained or that they will not be downgraded, suspended or cancelled. Any credit rating downgrade, suspension or cancellation for Argentina’s sovereign debt may have an adverse effect on the Argentine economy and our business operations (see “—Risks Relating to Our Business—Uncertainty and illiquidity in credit and capital markets may impair our ability to obtain credit and financing or obtain them on acceptable terms.”). As such, any adverse effect on our business due in part to changes in Argentina’s credit rating may adversely affect the market price and trading of our securities.

Certain risks are inherent in any investment in a company operating in an emerging market such as Argentina.

According to a Morgan Stanley Capital International (“MSCI”) release, Argentina is considered an “emerging market.” Investing in emerging markets generally carries risks. These risks include political, social and economic instability that may affect Argentina’s economic results which can stem from many factors, including the following:

 

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high interest rates;

 

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abrupt changes in currency values;

 

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high levels of inflation;

 

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exchange and capital controls regulations;

 

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wage and price controls;

 

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regulations to import equipment and other necessities relevant for operations;

 

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changes in governmental economic or tax policies; and

 

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political and social tensions.

Economic and market conditions in Argentina and in other emerging market countries, especially those in Latin America, influence the market for securities issued by Argentine companies. Volatility in securities markets in Latin America and in other emerging market, as well as potential increases in interest rates in the United States and other developed countries, may have a negative impact on the trading value of our securities and on our ability and the terms on which we are able to access international capital markets.

We cannot assure that none of the factors listed above and the perception of risk in Argentina and other emerging markets may not have a material adverse effect on our ability to raise capital, including our ability to refinance our debt at maturity, which would negatively affect our investment plans and consequently our financial condition and results of operations, and also have a negative impact on the trading values of our debt or equity securities. We can give no assurance as to potential adverse impact of the factors discussed above on our financial condition and/or results of operations. See “Item 4. Information on the Company—History and Development of YPF.”

 

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Failure to adequately address actual and perceived risks of institutional deterioration and corruption may adversely affect Argentina’s economy and financial condition.

A lack of a solid and transparent institutional framework for contracts with the Argentine government and its agencies and corruption allegations have affected and continue to affect Argentina. Argentina ranked 78 of 180 in the Transparency International’s 2020 Corruption Perceptions Index and 126 of 190 in the World Bank’s Doing Business 2020 report.

Additionally, the Argentine economy is sensitive to local political events. Such political events could generate uncertainty and be adverse for the development of a stable market for business in the country, which could affect the Argentine economy and, indirectly, the business, results of operations and financial situation of the Company. As of the date of this annual report, there are various ongoing investigations into allegations of money laundering and corruption being conducted by the Office of the Argentine Federal Prosecutor.

The Argentine economy has been and could be adversely affected by economic developments in other markets.

Financial and securities markets in Argentina, and also the Argentine economy, are influenced by the effects of global or regional financial crisis and the market conditions in other markets worldwide. Global economy instability such as uncertainty about global trade policies, the deterioration of economic conditions in Brazil (Argentina’s main trading partner), most recently mainly due to the outbreak of COVID-19, the withdrawal of the United Kingdom from the European Union (“Brexit”), the deterioration of the economies of Argentina’s other major trading partners, such as China or the United States, geopolitical tensions between the United States and a number of foreign countries, negotiations between Russia and Arab countries (in the framework of the group known as OPEC+) with respect to oil production that affect oil prices, idiosyncratic, political and social discords, terrorist attacks, sovereign debt downgrades, a pandemic disease, including the result of the ongoing COVID-19 pandemic, could impact the Argentine economy and jeopardize Argentina’s ability to stabilize its economy, among others. See “—Risks Relating to Our Business—An outbreak of disease or similar public health threat, such as the ongoing COVID-19 pandemic, which has had and may continue to have material adverse consequences for general economic, financial, and business conditions, could materially and adversely affect our business, financial condition and results of operations.” Although economic conditions vary from country to country, investors’ reactions to events occurring in one country sometimes demonstrate a “contagion” effect in which an entire region or class of investment is disfavored by international investors.

Consequently, there can be no assurance that the Argentine economy and securities markets will not be adversely impacted by events affecting developed economies, other emerging markets or any of Argentina’s major trading partners, which could in turn, adversely affect our business, financial condition and results of operations, and the market value of our ADSs. Furthermore, a significant devaluation of the currencies of our trading partners or trade competitors may adversely affect the competitiveness of Argentina and consequently adversely affect Argentina’s economy and our financial health and results of operations.

The implementation of new export duties, other taxes and import regulations could adversely affect our results.

In 2002, the Argentine government established export taxes on certain hydrocarbon products by Law No. 25,561 of Public Emergency, for a period of five years. That period was extended through January 7, 2017, when export duties on hydrocarbon products ceased to apply. On September 4, 2018, Decree No. 793/2018 established a 12% duty through December 31, 2020 on the export of all merchandise included in tariff positions of the Common Mercosur Nomenclature. The export duty, which initially could not exceed 4 pesos per U.S. dollar of the taxable value or the official FOB price, as applicable, has since been extended and suffered various modifications. As of the date of this annual report, the general rate stands at 8%, and it is scheduled to remain unchanged until December 31, 2021. In addition, Decree No. 488/2020, published on May 19, 2020, sets a sliding scale for export duties for hydrocarbon products ranging from 0% when the price of Brent remains at or under U.S.$ 45/bbl to 8% when the price of Brent reaches or exceeds U.S.$ 60/bbl. As of April 12, 2021, Brent crude oil price was near U.S.$ 63/bbl. See “Item 4. Information on the Company—Legal and Regulatory Framework and Relationship with the Argentine government—Decree No. 488/2020.”

We cannot assure you that taxes and import/export regulations of this nature will not be modified in the future or that other new taxes or import/export regulations will not be imposed.

We may be exposed to fluctuations in foreign exchange rates.

The continued devaluation of the Argentine peso during the past years has also had and continues to have a negative impact on the economy, and has also led to an increase in inflation, which in turn has a direct impact on real wages. In addition, our results of operations are exposed to currency fluctuations, and any devaluation of the peso against the U.S. dollar and other hard currencies may adversely affect our business and results of operations, see “—Risks relating to Our Business —Limitations on local pricing of our products in Argentina may adversely affect our results of operations.”

 

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In 2020, the Argentine peso continued to depreciate against the U.S. dollar and other major foreign currencies. According to Communication “A” 3500 of the BCRA, the peso/dollar exchange rate stood at Ps. 84.15 per U.S.$ 1.00 as of December 31, 2020, evidencing a devaluation of the peso of approximately 40.5% from its value of Ps. 59.90 per U.S.$ at December 31, 2019 (compared to 58.9%, 102.2% and 17.4% in the years ended December 31, 2019, 2018 and 2017, respectively). As a result of the Argentine peso’s increased volatility, the Argentine government and the BCRA implemented several measures to stabilize its value, including, among others, stronger exchange regulations (see “—We are subject to exchange and capital controls”), an increase in short term interest rates and the sale of foreign currency reserves made by the BCRA. The main effects of the devaluation of the Argentine peso on our net profit, expressed in pesos, are related to (i) deferred income tax related mainly to fixed assets, which we expect would have a negative effect; (ii) increased depreciation and amortization resulting from the reassessment in pesos of our fixed and intangible assets; (iii) exchange rate differences as a result of our exposure to the peso, which we expect would have a positive effect given our net liability position in pesos (due to the fact that our functional currency is the U.S. dollar); (iv) higher revenues generated by the sale of products that priced by reference to international prices quoted in U.S. dollars (see “—Risks Relating to Our Business—We are exposed to the effects of fluctuations in the prices of oil, gas and refined products” and “Item 5. Operating and Financial Review and Prospects—Factors Affecting Our Operations—Macroeconomic Conditions”), and (v) higher costs generated by expense items priced in U.S. dollars. In addition, the majority of our debt is denominated in currencies other than the peso; consequently, a devaluation of the peso against such currencies will increase the amount of pesos we need to cover our debt service obligations. Furthermore, given the restrictions imposed by the BCRA to access the exchange market, specifically since the publication of Communication No. 7,030 of BCRA, the majority of our cash and cash equivalents are denominated in pesos and, therefore we may be affected upon exchange rate variations. See “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Cash and cash and equivalents.” We cannot predict whether, and to what extent, the value of the Argentine peso may depreciate or appreciate against the U.S. dollar or other foreign currencies, nor the way in which we will be able to pass those variations to the prices of our products and how any such fluctuations could affect demand for the products we offer, thus affecting our business.

Variations in interest rates and exchange rate on our current and/or future financing arrangements may result in significant increases in our borrowing costs.

Under our financing arrangements, we are permitted to borrow funds to finance the purchase of assets, incur capital expenditures, repay or refinance other obligations and finance working capital. As of December 31, 2020, approximately 10% of our total debt is sensitive to changes in interest rates. As of December 31, 2020, approximately 7% of our total debt accrue interest based on LIBOR rates plus a spread. See “Item 11. Quantitative and Qualitative Disclosures about Market Risk—Interest rate exposure.” Consequently, variations in interest rates could result in changes in the amount required to cover our debt service obligations and in our interest expense, thus affecting our results and financial condition. Furthermore, the Company usually refinances its debt at maturity, as such, an increase in market interest rates as of such dates could result in an increase in our interest expense for the future. In addition, interest and principal amounts payable pursuant to debt obligations denominated in or indexed to U.S. dollars are subject to variations in the Argentine peso/U.S. dollar exchange rate that could result in a significant increase in peso terms in the amount of the interest and principal payments in respect of such debt obligations.

In addition, on July 27, 2017, the Financial Conduct Authority (the “FCA”) announced its intention to phase out LIBOR rates by the end of 2021. As of December 31, 2020, approximately 7% of our total debt accrued interest based on LIBOR rates plus a spread. If a published U.S. dollar LIBOR is unavailable after 2021, the interest rates on our debt which is indexed to LIBOR will be determined using various alternative methods, any of which may result in interest obligations which are more than or do not otherwise correlate over time with the payments that would have been made on such debt if U.S. dollar LIBOR was available in its current form. At this time, no consensus exists as to what rate or rates may become accepted alternatives to LIBOR. Any alternative to LIBOR could have an adverse effect, which may be material, on our financing costs, and as a result, our financial condition, operating results and cash flows.

Additionally, we are exposed to the fluctuations of the interest rates applicable to our indebtedness indexed to variable interest rates. We may also incur additional variable-rate debt in the future. Increases in interest rates on variable-rate debt would increase the Company’s interest expense, which would negatively affect our financial costs.

We are subject to exchange and capital controls.

In the past, Argentina imposed, exchange controls and transfer restrictions substantially limiting the ability of companies to retain foreign currency or make payments abroad. Beginning in 2011, foreign exchange controls were imposed restricting or limiting purchases of foreign currency and transfers of foreign currency abroad. Since 2011, oil and gas companies (including YPF), among other entities, were required to repatriate 100% of their foreign currency export receivables.

 

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In December 2015, certain exchange controls were eliminated and in May 2017, the BCRA derogated the regulations relating to restrictions on exchange rate transactions, settlement of foreign exchange transactions, and the provisions of Decree No. 616/05, except for those regulations relating to information regimes, surveys or similar informational matters relating to foreign exchange transactions.

In September 2019, the Argentine government reinstated foreign exchange controls, which among other things, significantly curtailed access to the official foreign exchange market by individuals and entities.

In accordance with BCRA Communication “A” 6844 (as amended and supplemented), exporters are obligated to repatriate, and settle in pesos in the local exchange market, all the proceeds of their exports of goods and services since September 2, 2019 and the BCRA reinstated the export proceeds monitoring system, setting forth rules governing such monitoring process and exceptions thereof.

Moreover, pursuant to the current foreign exchange regulations, the ability for Argentine residents to access the foreign exchange market to exchange foreign currency and to transfer it abroad to make payments of profits and dividends to non-resident shareholders was only allowed to the extent certain conditions were met or to the extent prior BCRA approval was obtained. See “Item 10. Additional Information—Exchange Regulations.”

Further restrictions to access the official foreign exchange markets were imposed during 2020, with a view to reducing the loss of international reserves generated by a greater demand of US dollars by residents.

On April 2020, the Argentine Central Bank issued Communication “A” 7001 (as amended by Communication “A” 7030, amended and supplemented from time to time, “Communication 7001”) setting forth certain limitations on the transfer of securities into and from Argentina.

Pursuant to Communication 7001 access to the Argentine foreign exchange market for the purchase or transfer of foreign currency abroad (for any purpose) shall be subject to Argentine Central Bank’s prior approval, if the individual or entity seeking access to the Argentine foreign exchange market has sold securities which settled in foreign currency or transferred any such securities to foreign depositaries during the immediately preceding 90 calendar days. Further, Communication 7001 sets forth that the individual or entity must undertake not to perform any such sale or transfer during the succeeding 90 days after such access.”

In August 2020, the BCRA enacted Communication “A” 7106 (as amended by Communication “A” 7230 and as further amended and supplemented from time to time, “Communication “A” 7106”, establishing certain requirements to access the local exchange market by the non-financial private sector and financial entities for purposes of repayment of cross-border financial debts, in particular, for the payment of principal outstanding amounts in loans and securities having amortization payments scheduled between October 15, 2020 and March 31, 2021 for principal amounts exceeding U.S.$ 1,000,000 and between April 1, 2021 and December 31, 2021 for principal amounts exceeding U.S.$ 2,000,000, with certain exceptions specified in the regulation. Particularly, the payment of principal amounts pertaining to loans and securities subject to the regulation should be part of a refinancing plan that must be previously filed with the BCRA, which must provide that (i) only 40% of the principal amount owed and payable shall be paid through the local foreign exchange market on or prior to December 31, 2021; and (ii) the remaining 60% must be refinanced so the average life of the debt is increased for a minimum of two years.

On January 7, 2021, to address the need to comply with Communication “A” 7106 as it related to our Class XLVII Notes due March 2021, and also to ease our financial commitments for the next two years, we offered holders of all our outstanding foreign-law governed securities maturing between 2021 and 2047, for a total face value of approximately U.S.$ 6.2 billion, an offer to exchange their notes for certain new notes. On February 8, 2021, the Company announced that holders representing more than 30% of such securities had participated in the exchange and that the BCRA considered such exchange to meet the requirements of Communication “A” 7106. See “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Loans.”

It is not possible to guarantee that the period covered by Communication “A” 7106 will not be extended or reinstated in the future by the BCRA or that other regulations with similar effects will be issued that would limit the ability of the Company to access the official foreign exchange market to pay its foreign currency financial obligations when due, which in turn could have a negative impact on the Company and its business and operations. See “Item 10. Additional Information—Exchange Regulations.”

Furthermore, as a consequence of the aforementioned deepening of exchange controls, and the level of foreign exchange reserves in the Central Bank, the difference between the official exchange rate, which is currently utilized for certain commercial and financial

 

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operations, and other informal exchange rates that arose implicitly as a result of certain operations commonly carried out in the capital market pursued to access foreign currency (dollar “MEP” or “cash with liquidation”), has increased during 2020, creating a spread of approximately 67% with the official exchange rate as of December 31, 2020 and 79% as of April 12, 2021. See “Item 10. Additional Information—Exchange Regulations.”

The impact that current and any new exchange regulations may have on the Argentine economy or on our operations is uncertain. We cannot assure you that exchange regulations will be relaxed or replaced or even if additional restrictions will be imposed and whether the Argentine government will maintain the current foreign exchange regime or create multiple exchange rates for different types of transactions, substantially modifying the applicable exchange rate at which we acquire currency to service our outstanding foreign currency-denominated liabilities or to pay our imports. Any restrictions on transferring funds abroad imposed by the Argentine government could (i) negatively impact foreign investment and international financing in our country and have an adverse effect on the Argentine economy and, in turn, adversely affect the business, results of operation and financial condition of the Company; (ii) undermine our ability to pay dividends on our ADSs or make payments (of principal or interest) under our foreign-currency-denominated outstanding indebtedness, as well as to comply with any other obligation denominated in foreign currency, and may have a material adverse effect on our ability to raise capital, including our ability to refinance our debt at maturity or our ability to obtain financing and execute our capital expenditure plans. For more information on exchange restrictions see “Item 10. Additional Information—Exchange Regulations.”

Changes in Argentine tax laws may adversely affect the results of our operations, financial condition and cash flows.

On December 29, 2017, the Argentine Congress enacted Law No. 27,430, which reduced the corporate income tax rate from 35% to 30% for fiscal years beginning on or after January 1, 2018 and 25% for fiscal years beginning on or after January 1, 2020. Additionally, the distribution of dividends is subject to a 7% tax rate related to financial results from fiscal years beginning on or after January 1, 2018 and 13% tax rate for the distribution of dividends related to financial results from fiscal years beginning on or after January 1, 2020.

On December 23, 2019, the Argentine Congress enacted Law No. 27,541 which declared a public emergency in economic, financial, fiscal, administrative, social security, tariff, energy, health and social matters, and also delegated legislative powers to the National Executive Branch, until December 31, 2020. According to the Law No. 27,541, the corporate income and dividend tax rates for 2021 are 30% and 7%, respectively. See “Item 10. Additional Information—Taxation.”

We cannot assure that the Argentine government or any of its political divisions, or the Argentine Congress will not adopt additional changes and reforms in tax matters, nor that these reforms and those that may be adopted in the future will not adversely affect our business, results of operations or financial condition.

Risks Relating to our Business

We are exposed to the effects of fluctuations in the prices of oil, gas and refined products.

Most of our revenue in Argentina is derived from sales of refined products (mainly gasoline and diesel) and, to a lesser extent, natural gas. International prices for oil and oil products are volatile and, are strongly influenced by conditions and expectations of world supply, demand and geopolitical tensions, among other factors. Our pricing policy for fuels during 2018, 2019 and 2020 took into account several factors such as international crude oil prices, refining spreads, processing and distribution costs, biofuel prices, exchange rate volatility, local demand and supply, competition, inventories, local taxation, and domestic margins for our products, among others. Despite our expectation of substantially aligning our local prices with those of international markets over time, without considering short-term fluctuations, we cannot assure you that some critical factors that are considered in our pricing policy (including, but not limited to, abrupt changes in the exchange rate, or in international prices or potential legal or regulatory or other limitations that affect the ability of the market to face abrupt changes in the prices of our products), will not have an adverse impact on our ability to maintain such relation, as volatility and uncertainty in international prices for crude oil and oil products and fluctuations in the value of the Argentine Peso will most likely continue in the foreseeable future.

 

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The international price of crude oil has fluctuated significantly in the past and may continue to do so in the future. After a long decrease in crude oil prices that began in 2014, at the end of 2016 a group known as OPEC+ was formed, which brought the member countries of that organization together with other producers, including Russia, in order to coordinate production cuts that would allow prices to be recovered. The coordination was effective and was extended until March 5, 2020, due to lack of agreement between the main oil producing countries as well as the crisis generated by the COVID-19 pandemic, causing the fall in international oil prices to a minimum of U.S.$ 19/bbl for Brent on April 21, 2020. See “—An outbreak of disease or similar public health threat, such as the ongoing COVID-19 pandemic, which has had and may continue to have material adverse consequences for general economic, financial, and business conditions, could materially and adversely affect our business, financial condition and results of operations.” As a result, between May and December 2020, the Argentine government decreed the establishment of reference prices for local crude, setting a floor price and other related measures to stabilize the market prices. Prices have gradually recovered in the following months, reaching U.S.$ 50/bbl as of December 31, 2020. See “Item 5. Operating and Financial Review and Prospects—Factors Affecting Our Operations—Macroeconomic Conditions—Hydrocarbon Market.”

A new decrease of international crude oil prices for an extended period of time (or if prices for certain products do not match cost increases), if such scenario is translated to domestic prices for hydrocarbon products, which is beyond our control, could negatively affect the economic viability of our drilling projects and consequently our ability to comply with our concession and exploration permit investment commitments (see “—Argentine oil and gas production concessions and exploration permits are subject to certain conditions and may be cancelled or not renewed”). These price reductions could lead to changes to our development plans, reduce investments, lack of approval of investment projects by our joint venture partners, a loss of proved developed reserves and proved undeveloped reserves, affect adversely our ability to improve our hydrocarbon recovery rates, find new reserves, develop unconventional resources and carry out certain of our other capital expenditure plans. In turn, these changes in conditions could have an adverse effect on our financial condition and results of operations. In addition, a decision by the Argentine government to set the local price of crude oil at values above those that were considered to set the price for our products, or to freeze prices for our downstream products, could have a negative effect on our results of operations, financial conditions and cash flow. In terms of investments, we budget capital expenditures related to exploration, development, refining and distribution activities by considering, among other things, current and expected local and international market prices for hydrocarbon products. If a reduction in our capital expenditures and that of our domestic competitors materializes, it would likely have a negative impact on the number of active drilling rigs, workovers and pulling equipment in Argentina, alongside related services, thus affecting the number of active workers in the industry. We are unable to predict whether, and to what extent, the potential consequences of such measures could affect our business, have an impact on our production and consequently affect our financial condition and results of operations.

With respect to our pricing policy see “—Limitations on local pricing of our products in Argentina may adversely affect our results of operations.”

Furthermore, we may be required to write down the carrying value of our properties if estimated oil and gas prices decline or if we have substantial downward adjustments to our estimated reserves, increases in our operating costs or increases in the discount rate, among other factors. See additionally “Item 5. Operating and Financial Review and Prospects—Critical Accounting Policies” for information regarding our sensitivity analysis related to impairment.

An outbreak of disease or similar public health threat, such as the ongoing COVID-19 pandemic, which has had and may continue to have material adverse consequences for general economic, financial, and business conditions, could materially and adversely affect our business, financial condition and results of operations.

Our operations are subject to risks related to infectious disease outbreaks. The COVID-19 pandemic has spread rapidly across various geographic areas causing tragic consequences for many people. Global efforts to stop the virus, including the elaboration and massive application of vaccines to neutralize the effect of the original virus and its new variants, has had and will continue to have significant economic consequences. In addition to the adverse impacts of COVID-19 on financial markets, our industry was especially affected globally by a significant drop in the international price of oil, especially during March and the second quarter of 2020, resulting from the combined effect of a sharp drop in demand as well as the failure of producers to orderly reduce supply. See “—Risks relating to Our Business—We are exposed to the effects of fluctuations in the prices of oil, gas and refined products.” In order to mitigate the impact of the COVID-19 pandemic the Argentine government has implemented over time different degrees of mandatory social lockdowns and shutdown of non-essential businesses and has adopted several monetary and fiscal measures to counteract the economic impact of these measures. We cannot assure you whether these measures will be enough to prevent a severe economic downturn in Argentina, particularly

 

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if current conditions are prolonged and if Argentina’s main trading partners are concurrently facing an economic recession. Furthermore, the Argentine government may have more limited resources at this time to support the country’s economy; the pandemic has struck at a time when Argentina is simultaneously struggling to emerge from several years recession.

Demand for our products and services has been, and will likely continue to be, negatively affected by the macroeconomic conditions resulting from the COVID-19 pandemic and the measures adopted by the Argentine government, including future measures, to protect the population and combat the disease. In 2020, our activities have been adversely affected by these measures, including (i) preventive and mandatory social isolation and (ii) measures to protect the labor force by imposing double severance payments and a limitation on layoffs. Our sales (in volume) of diesel, gasoline and jet fuel have decreased significantly compared to 2019. As a result of the reduction in demand and, therefore, in our revenues, we reduced activity and investment levels related to refining and in our oil and gas production fields, mainly during the second and third quarters of 2020. Restrictions have started to be relaxed since then, gradually recovering a certain normality in the social and economic functioning of Argentina. Consequently, there was a gradual recovery in the demand for fuels, and activities in our fields and refineries gradually resumed under strict operational protocols to protect our labor force (see “Item 5. Operating and Financial Review and Prospects—Factors Affecting Our Operations—Macroeconomic Conditions—COVID-19 Outbreak” and Note 2.c of our Audited Consolidated Financial Statements). In March 2021, based on the gradual recovery of activity, decreases in the sales volume of fuels (diesel and gasoline) and jet fuel amount to 7% and 70%, respectively, compared to pre-pandemic levels. Although a significant recovery in sales is observed, current levels of activity continue to be somewhat below normal values, affecting our economic results and cash flows. Reduction in our investment activities could contribute to a reduction of production and the decrease of our reserves (see “—Risks Relating to our Business—Our reserves and production may decline”). In order to resume growth in our oil and gas production we need to increase our investing activities, for which we will need to secure adequate financial resources and to deploy such resources efficiently and on a timely basis, otherwise affecting our results of operations, including production, sales, margins and cash flow from operations, our access to debt markets, covenants compliance, asset impairments, among others. See “Item 5. Operating and Financial Review and Prospects—Factors Affecting Our Operations—Macroeconomic Conditions—COVID-19 Outbreak.”

As of the date of this annual report, the Argentine government has re-established certain restrictions due to a new COVID-19 outbreak. We cannot predict or estimate the future negative impact that the COVID-19 will have in our results of operations, financial condition, and investing activities since it remains highly uncertain and will depend on future developments outside of our control, including the intensity and duration of the pandemic and the Argentine government measures taken in order to contain the virus or mitigate the economic impact.

In addition, the COVID-19 pandemic has produced and continues to produce substantial changes in human behavior and in companies in the world and in Argentina, such as the acceleration of the remote work process in many companies, and the lower mobility of people, among others. All of this has consequences on the Company’s business based mainly on refined products revenues. We cannot foresee whether the aforementioned changes, or other changes that could be generated or accelerated in the future, will have a material impact on our economic and financial condition, and the results of our operations.

Our domestic operations are subject to extensive regulation.

The Argentine oil and gas industry is subject to government regulation and control. As a result, our business is to a large extent dependent upon regulatory and political conditions prevailing in Argentina and our results of operations may be adversely affected by regulatory and political changes in Argentina. (See “—Limitations on local pricing of our products in Argentina may adversely affect our results of operations” and “—We are exposed to the effects of fluctuations in the prices of oil, gas and refined products”). We may face risks and challenges relating to government regulation and control of the energy sector, including, among others, those set forth below and elsewhere in these risk factors:

 

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limitations on our ability to increase local prices of our products to reflect the effects of higher domestic taxes, increases in production costs, increases in biofuel prices or increases in international prices of crude oil and other hydrocarbon fuels as well as exchange rate fluctuations (see “—Limitations on local pricing of our products in Argentina may adversely affect our results of operations”);

 

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actions that may affect the prices of crude oil, natural gas, oil products and chemicals, such as, for example, if a government were to ban diesel automobiles from entering a city or provide tax deductions for the purchase of renewable automobiles;

 

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new export duties, similar taxes or regulations on imports;

 

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limitations on hydrocarbon import or export volumes, driven mainly by the requirement to satisfy domestic demand;

 

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in connection with the Argentine government’s policy to provide absolute priority to domestic demand, regulatory orders to supply natural gas and other hydrocarbon products to the domestic retail market in excess of previously contracted amounts, or at prices lower than those related to import parity or those we may obtain if regulated margins were not being imposed or suggested (see “Item 4. Information on the Company—Legal and Regulatory Framework and Relationship with the Argentine government—Market Regulation—Natural gas”);

 

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in connection with the former and current incentive programs established by the Argentine government for the oil and gas industry, such as the Plan GasAr (see “A significant percentage of our cash flow from operations is derived from counterparties that are governmental entities”), which is subject to the certain regulations and commitments (in terms of investments and production). Change in regulations or any breach by our company in its obligations under the program could affect our projections or profitability. See “Item 4. Information on the Company—Legal and Regulatory Framework and Relationship with the Argentine government—Market Regulation—Natural gas—Natural Gas Stimulus Programs—Decree No. 892/2020”;

 

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legislation and regulatory initiatives relating to hydraulic stimulation and other drilling activities for unconventional oil and gas hydrocarbons, which could increase our cost of doing business or cause delays and adversely affect our operations;

 

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restrictions on imports of products or equipment, including those related to the authorization of transfer of funds for foreign payments, which could affect our ability to meet our delivery commitments;

 

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the implementation or imposition of stricter quality requirements for petroleum products in Argentina; and

 

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restrictions for employees’ dismissal or compensation greater than that established by the employment contract law, restrictions in terms of employment and direct provision of goods and services by small and medium-sized enterprises and regional companies, or any changes in labor legislation which could increase our cost of doing business.

The Argentine government has made certain changes in regulations and policies governing the energy sector to give absolute priority to domestic supply at stable prices in order to sustain economic recovery. The Expropriation Law declared achieving self-sufficiency in the supply of hydrocarbons as well as in the exploitation, industrialization, transportation and sale of hydrocarbons a national public interest and a priority for Argentina. In addition, its stated goal is to guarantee socially equitable economic development, the creation of jobs, the increase of the competitiveness of various economic sectors and the equitable and sustainable growth of the Argentine provinces and regions. See “Item 4. Information on the Company—Legal and Regulatory Framework and Relationship with the Argentine government—The Expropriation Law,” and “—Risks Relating to Argentina—The Argentine Republic owns 51% of the shares of the Company.”

We cannot assure you that changes in applicable laws and regulations, or adverse judicial or administrative interpretations of such laws and regulations, will not adversely affect our results of operations. See “Item 4. Information on the Company—Legal and Regulatory Framework and Relationship with the Argentine government.”

Limitations on local pricing of our products in Argentina may adversely affect our results of operations.

Our domestic gasoline, diesel, natural gas and other fuel prices may differ substantially from prevailing international and regional market prices for such products, and our ability to increase prices in connection with international price increases, the peso devaluation, domestic cost or tax increases, may be limited from time to time, due to regulatory, economic, market and government policy factors.

In addition, Argentina has faced and continues to face high inflationary pressures, which the Argentine government continues to approach through different measures. Given the impact that the increase in the price of fuels has on domestic inflation, we cannot guarantee that we will be able to increase our fuel prices to compensate for the general increases in costs or import prices. See “—Risks Relating to Argentina—Our business is largely dependent upon economic conditions in Argentina.”

Regarding natural gas markets, the revenues we obtain from selling natural gas in Argentina to certain segments, particularly residential clients and generation plants are subject to government regulations and thus could be negatively affected by changing policies. In addition, since 2018, our revenues have been affected by the oversupply in the natural gas market during the periods between September and April (the “Off-Peak Period”). This situation, in addition to the bidding process by the national electric market administration company (Compañía Administradora del Mercado Mayorista Eléctrico, or “CAMMESA”), which promoted a strong competition in the power generation plants demand, had a sensitive effect on the demand for the remaining segments, generating a lower quantity of firm commitments and/or reducing the tenor of term contracts. Most sales agreements on a firm basis during 2019 were renewed at lower prices due to competition. During 2020, local production decreased substantially driven by reduced investments and the natural decline of fields, in a context of falling demand. As a result, in November 2020, the Argentine government introduced a program designed to promote the production of natural gas, Plan GasAr to ensure base supply for residential and power generation along the year. See “Item 4. Information on the Company—Gas and Power—The Argentine natural gas market.”

 

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The prices and volumes that we are able to obtain for our hydrocarbon products affect the viability of investments in new exploration, development and refining and, as a result, the timing and amount of our projected capital expenditures for such purposes. We budget capital expenditures by taking into account, among other things, market prices for our hydrocarbon products. For additional information on domestic pricing for our products, see “Item 4. Information on the Company—Legal and Regulatory Framework and Relationship with the Argentine government—Market Regulation.”

Uncertainty and illiquidity in credit and capital markets may impair our ability to obtain credit and financing or obtain them on acceptable terms.

Our ability to obtain credit and funds depends in large part on capital markets and liquidity factors that we do not control, including those related to the cost of financing. Our ability to access credit and capital markets at acceptable terms may be restricted at a time when we would like, or need, to access those markets, which could have an impact on our operations, financial condition and investing activities.

As a result of many factors including international and local market conditions, Argentina’s ability to renegotiate or repay its debts and its consequences on the rest of the economy and us, exchange and capital controls, credit ratings agencies’ actions, among other factors, there can be no assurance we will be able to refinance our existing indebtedness in accordance with our plans or repay it at maturity. See “—Risks Relating to Argentina—The evolution of the Argentine economy is largely dependent on the sustainability of its public debt, including that owed to the IMF and the Paris Club,” “—If we fail to comply with the covenants set forth in our credit agreements and indentures or upon the occurrence of a change of control, we may be required to prepay our debt,” “—Risks Relating to Argentina—We are be subject to exchange and capital controls” and “—An outbreak of disease or similar public health threat, such as the ongoing COVID-19 pandemic, which has had and may continue to have material adverse consequences for general economic, financial, and business conditions, could materially and adversely affect our business, financial condition and results of operations.”

In addition, we are regularly evaluated by the major rating agencies based on a number of factors, including our financial condition and factors affecting the oil and gas industry generally. Any downgrade in our credit rating or announcement that our credit rating is under review for possible downgrade could increase the cost associated with any additional indebtedness we incur.

A significant percentage of our cash flow from operations is derived from counterparties that are governmental entities.

In the normal course of business and considering that we are the largest integrated oil and gas company in Argentina, our portfolio of clients and suppliers includes both private sector and governmental entities. All material transactions and balances with related parties as of December 31, 2020 are set forth in Note 35 to the Audited Consolidated Financial Statements, including, among others, accounts receivables with SE (related to the Natural Gas Stimulus Programs), Ministry of Transport (related to compensation for providing gas oil to public transport at a differential price), CAMMESA (related to the provision of fuel oil, diesel and natural gas) Aerolíneas Argentinas (related to the provision of jet fuel) and IEASA (related to the provision of natural gas, fuels and NGL). In addition, in 2021, we accumulated account receivables related to Plan GasAr, see “Item 4. Information on the company—Legal and Regulatory Framework and Relationship with the Argentine government—Market Regulation—Natural gas—Natural Gas Stimulus Programs—Decree No. 892/2020.”

As of December 31, 2020, the accounts receivable balance corresponding to the Natural Gas Additional Injection Stimulus Program reflects six installments of accrued and not yet due payments, in accordance with Resolution No. 97/2018, representing Ps. 12.6 billion. As of the date of this annual report, we have received 3 more installments of Ps. 6.8 billion under such Resolution. See “Item 4. Information on the Company—Legal and Regulatory Framework and Relationship with the Argentine government—MINEM Resolution No. 97/2018.”

As of December 31, 2020, the accounts receivable corresponding to the Stimulus Program for Investments in Developments of Natural Gas Production from Unconventional Reservoirs for accrued and unpaid periods amounted to Ps. 3.3 billion.

On December 14, 2020, Law No. 27,591 was published in the Official Gazette, approving the Nation’s Budget for fiscal year 2021. Article 91 of Law No. 27,591 nullified Decree No. 1,053/2018, which provided that the Argentine government would assume, on an exceptional basis, the payment of the accumulated daily differences (ADD), between the value of the gas purchased by the providers of the natural gas distribution service by networks and the value of the natural gas included in the tariff charts in force between April 1, 2018 and March 31, 2019, generated exclusively by exchange rate fluctuations and corresponding to volumes of natural gas delivered in the same period. Consequently, YPF has recorded an impairment charge as of December 31, 2020 for Ps. 8,861 million. See “Item 4. Information on the Company—Legal and Regulatory Framework and Relationship with the Argentine government—Tariff renegotiation.”

If certain governmental counterparties (i) do not pay or redeem such accrued amounts in cash or cash equivalents, including those related to Plan GasAr, (ii) change the established conditions or (iii) are only able to make such payments or redemptions through delivery of

 

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financial instruments that (a) may delay collection of working capital payments in excess of our estimates, (b) are subject to change in their listing value, or (c) are denominated in a currency other than the origin of the credit, our financial condition and results of operations could be adversely affected.

We are and could be subject to direct and indirect import and export restrictions, which have affected our results of operations and caused us to declare force majeure under certain of our export contracts.

The Argentine Hydrocarbons Law No. 17,319, allows for hydrocarbon exports as long as they are not required for the domestic market and are sold at reasonable prices. In the case of natural gas, Law No. 24,076 and related regulations require that the needs of the domestic market be taken into account when authorizing long-term natural gas exports. See “Our domestic operations are subject to extensive regulation.”

In the past, the Argentine government has adopted a number of measures that have resulted in restrictions on exports of natural gas from Argentina. From time to time, we have been required to divert part of our natural gas production away from exports to the domestic market and have not been able to meet our contractual gas export commitments in whole or, in some cases, in part, leading to disputes with our export clients and forcing us to declare force majeure under our export sales agreements. We believe that the measures mentioned above constitute force majeure events, although no assurance can be given that this position will prevail. See “Item 4. Information on the Company— Gas and Power—Delivery commitments—Natural gas supply contracts,” “Item 4. Information on the Company—Gas and Power—The Argentine natural gas market,” and “Item 8. Financial Information—Legal Proceedings.”

Crude oil exports, as well as most exports of hydrocarbon products, currently requires prior registration with the SE pursuant to the regime established under S.E. Resolution No. 241-E/17, as amended. In addition, since 2018, exports of natural gas are also subject to prior governmental authorization. For more information on export restrictions, see “Item 4. Information on the Company— Legal and Regulatory Framework and Relationship with the Argentine government—Natural gas export administration and domestic supply priorities,” and “Item 4. Information on the Company—Legal and Regulatory Framework and Relationship with the Argentine government—Market Regulation”.

As of the date of this annual report, imports of natural gas and NGL are not restricted. See “Item 4. Information on the Company—Legal and Regulatory Framework and Relationship with the Argentine government—Automatic and Non-Automatic Import Licenses.”

We are unable to estimate the duration of existing restrictions, or whether any further measures will be adopted that adversely affect our ability to export or import gas, crude oil and diesel or other products and, accordingly, our results of operations.

Our reserves and production may decline.

The rate of production from upstream fields generally declines as reserves are depleted. If we do not successfully conduct exploration and development activities, identify secondary recovery reserves, or tertiary recovery reserves through engineering studies, among others, our estimated proved reserves will decline as reserves are produced, and our business could experience reduced cash flows and results of operations.

We face certain challenges in order to replace our proved reserves with other categories of hydrocarbons. In addition, we expect that unconventional development will require higher investment in future years, principally in connection with the Vaca Muerta formation. These investments are expected to yield economies of scale, de-risk undeveloped acreage and to significantly increase recovery rates from this resource play. Nevertheless, the financial viability of these investments and reserve recovery efforts will generally depend on the prevailing economic and regulatory conditions in Argentina, as well as the market prices of hydrocarbon products, and are also subject to material risks inherent to the oil and gas industry. See “—Our business depends on complex, long-term and capital intensive projects, including those related to the development of our unconventional oil and gas reserves.”

In 2020, our production decreased by 9.0% compared to 2019 (see “Item 5. Operating and Financial Review and Prospects—Principal Income Statement Line Items—Upstream”) and our reserves replacement ratio (incorporation of net reserves in the year, divided by the production of the year) was 12% (of which -43% corresponds to liquids and +71% corresponds to gas), compared to 96% in 2019 (of which 136% corresponds to liquids and 53% corresponds to gas).

We may not be able to replace our proved reserves with other categories of hydrocarbons, which could have a negative impact on us, and our ability to meet our obligations.

 

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Our oil and natural gas reserves are estimates.

Our oil and gas proved reserves are estimated using geological and engineering data to determine with reasonable certainty whether the crude oil or natural gas in known reservoirs is recoverable under existing economic and operating conditions. The accuracy of proved reserve estimates depends on a number of factors, assumptions and variables, some of which are beyond our control. Factors susceptible to our control include drilling, testing and production after the date of the estimates, which may require substantial revisions to reserves estimates; the quality of available geological, technical and economic data used by us and our interpretation thereof; the production performance of our reservoirs and our recovery rates, both of which depend in significant part on available technologies as well as our ability to implement such technologies and the relevant know-how; the selection of third parties with which we enter into business; and the accuracy of our estimates of initial hydrocarbons in place, which may prove to be incorrect or require substantial revisions. Factors mainly beyond our control include changes in prevailing oil and natural gas prices, which could have an effect on the quantities of our proved reserves (since the estimates of reserves are calculated under existing economic conditions when such estimates are made); changes in the prevailing tax rules, other government regulations and contractual conditions after the date estimates are made (which could make reserves no longer economically viable to exploit); and certain actions of third parties, including the operators of fields in which we have an interest.

Information on net proved reserves as of December 31, 2020, 2019 and 2018 was calculated in accordance with SEC rules and FASB’s ASC 932, as amended. Accordingly, crude oil prices used to determine reserves were calculated each month, for crude oils of different quality produced by us.

To calculate our net proved reserves as of December 31, 2020, the Company considered (i) for 2021, the 12 months average of domestic realized prices for crude oil taking into account the effect of export taxes in place until December 31, 2021 (in accordance with Law No 27,541 and Decree No. 488/2020); (ii) for and following the year 2022, given that there are no formal export taxes in place, the unweighted average price of crude oil of the first-day-of-the-month for each month within the twelve-month period ended December 31, 2020, which refers to the Brent prices adjusted by each different quality produced by the Company. In connection with natural gas prices used for estimation of reserves, since there are no benchmark markets for natural gas prices available in Argentina, the Company considered the 12 months average of domestic realized prices, according to the SEC and FASB’s ASC 932 rules, but it also took into account the effect of certain areas from the Neuquina Basin where prices are set according to contracts awarded to YPF S.A under “Plan GasAr” until 2024. See “Item 4. Information on the company—Legal and Regulatory Framework and Relationship with the Argentine government—Market Regulation—Natural gas—Natural Gas Stimulus Programs—Decree No. 892/2020.”

The international price of crude oil has fluctuated significantly in the past. If these prices decrease significantly in the future or if domestic prices are set lower than in internationals markets, our future calculations of estimated proved reserves would be based on lower prices. This could result in a removal of non-economic reserves from our proved reserves in future periods. Assuming all other factors remain constant, if commodity reference prices for crude oil used in our year-end reserve estimates were decreased by 10%, our total proved reserves as of December 31, 2020 would decrease by approximately 4%. If natural gas prices used in our year-end reserve estimates decreased by 10%, our total proved reserves as of December 31, 2020 would decrease by approximately 1%. Furthermore, assuming all other factors remain constant, if costs used in our year-end reserve estimates increased by 10% for crude oil and natural gas, our total proved reserves as of December 31, 2020 would decrease by approximately 4%. However, if we combine the three mentioned effects, our total proved reserves as of December 31, 2020 would decrease by approximately 9%. See “—We are exposed to the effects of fluctuations in the prices of oil, gas and refined products” and “—An outbreak of disease or similar public health threat, such as the ongoing COVID-19 pandemic, which has had and may continue to have material adverse consequences for general economic, financial, and business conditions, could materially and adversely affect our business, financial condition and results of operations.” In addition, as a result of the prices used to calculate the present value of future net revenues from our proved reserves, in accordance with SEC rules, which are similar to the calculation of proved reserves described above, the present value of future net revenues from our proved reserves will not necessarily be the same as the current market value of our estimated crude oil and natural gas reserves.

As a result of the foregoing, measures of reserves are not precise and are subject to revision. Any downward revision in our estimated quantities of proved reserves could adversely impact our financial results by leading to increased depreciation, depletion and amortization charges or impairment, which could reduce earnings and shareholders’ equity.

 

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Oil and gas activities are subject to significant economic, social, environmental and operational risks and to seasonal fluctuation of demand.

Oil and gas exploration and production activities are subject to particular economic and industry-specific operational risks, some of which are beyond our control, such as equipment and transportation risks, as well as natural hazards and other uncertainties, including those relating to the physical characteristics of onshore and offshore oil or natural gas fields. Our operations may be curtailed, delayed or cancelled due to bad weather conditions, mechanical difficulties, shortages or delays in the delivery of equipment, compliance with governmental requirements (including those related to the COVID-19 or other similar diseases), fire, explosions, blow-outs, pipe failure, abnormally pressured formations, strikes by our own or third-party employees and environmental hazards, such as oil spills, gas leaks, ruptures or discharges of toxic gases. In addition, we operate in politically sensitive areas where the native population has interests that from time to time may conflict with our production or development objectives. If these risks materialize, our operations may suffer substantial operational losses and disruptions and our reputation may be harmed, which could materially and adversely affect our business, financial condition and results of operations. Additionally, if any operational incident occurs that affects local communities and ethnic communities in nearby areas, we will need to incur in additional costs and expenses in order to restore affected areas and compensate for any damages we may cause. These additional costs may have a negative impact on the profitability of the projects we may decide to undertake. Drilling may be unprofitable, not only with respect to dry wells, but also with respect to wells that are productive but do not produce sufficient revenues to return a profit after drilling, operating and other costs are taken into account.

Furthermore, historically our results have been subject to seasonal fluctuations of demand during the year, particularly in the case of natural gas, as a result of increased demand during the colder winter months. In addition, since 2018, our revenues have been affected, by the oversupply in the natural gas market during the Off-Peak Period. This situation, in addition to CAMMESA’s bidding processes, which promoted a strong competition in the power generation plants demand, had a sensitive effect on the demand for the remaining segments, generating a lower quantity of firm commitments and/or reducing the tenor of term contracts. Most sales agreements on a firm basis during 2019 were renewed at lower prices due to competition. During 2020, local production decreased substantially driven by the decrease in investments and the natural decline of fields, in a context of falling demand. As a result, in November 2020, the Argentine government introduced Plan GasAr designed to promote the production of natural gas. See “Item 4. Information on the Company—Gas and Power—The Argentine natural gas market.”

See also “Item 5. Operating and Financial Review and Prospects—Factors Affecting Our Operations—Seasonality”, “Item 4. Information on the Company—Legal and Regulatory Framework and Relationship with the Argentine government—Market Regulation—Natural Gas—Tariffs” and “Item 4. Information on the Company—Gas and Power— The Argentine natural gas market.”

As such, we could be subject to fluctuations in non-winter season in our sales volumes and consequently our level of natural gas production could be negatively affected, potentially resulting in market prices lower than expected, thus affecting our result of operations and financial conditions.

Our business depends on complex, long-term and capital intensive projects, including those related to the development of our unconventional oil and gas reserves

Our projects require a high degree of project management expertise to maximize efficiency. We use a range of oil products prices, gas prices, cost, taxes, among other assumptions, which we review on a periodic basis. These assumptions help us evaluate our projects through a robust capital allocation process. If our assumptions prove to be incorrect, our earnings, cash flows and financial condition could be materially affected.

Specific factors that can affect the performance of major projects (including those related to our unconventional reserves in Vaca Muerta) include our ability to: negotiate successfully with joint venturers, partners, governments, suppliers, unions, customers, or others; model and optimize reservoir performance; develop production facilities and distribution network, develop markets for project outputs; obtain project approvals and funding by joint-venture partners; obtain financing at reasonable costs and on reasonable terms; access to and availability of equipment and necessary technology, services and personnel and drilling results; manage changes in operating conditions and costs, including costs of third party equipment or services such as drilling; prevent, to the extent possible, and respond effectively to unforeseen technical difficulties that could delay project start-up or cause unscheduled project downtime. Moreover, increasing unconventional oil production requires the adjustment of our refineries to enlarge the proportion of light crudes to be processed to be able to remain vertically integrated.

In addition to the effective management of individual projects, YPF’s success depends on our ability to successfully manage our overall portfolio, including diversification among types and locations of our projects and strategies to divest assets. We may not be able to divest assets at a price or in the timeline contemplated in our plan. Additionally, we may retain certain liabilities following a divestment and could be held liable for past use or for unforeseen liabilities .

 

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We may not have sufficient insurance to cover all the operating hazards to which we are subject.

Our exploration and production operations are subject to extensive economic, operational, regulatory, legal and cybersecurity risks. We maintain insurance covering us against certain risks inherent in the oil and gas industry in line with industry practice, including loss of or damage to property and equipment, control-of well incidents, loss of production or income incidents, removal of debris, sudden and accidental seepage pollution, contamination and clean up and third-party liability claims, including personal injury and loss of life, among other business risks. However, our insurance coverage is subject to deductibles and limits that in certain cases may be materially exceeded by our liabilities. In addition, certain of our insurance policies contain exclusions that could leave us with limited coverage in certain events. In addition, we may not be able to maintain adequate insurance at rates or on terms that we consider reasonable or acceptable or be able to obtain insurance against certain risks that materialize in the future. If we experience an incident against which we are not insured, or the costs of which materially exceed our coverage, it could have a material adverse effect on our business, financial condition and results of operations.

Argentine oil and gas production concessions and exploration permits are subject to certain conditions and may be cancelled or not renewed.

The Hydrocarbons Law, as amended, provides for conventional oil and gas concessions to remain in effect for 25 years, 35 years in the case of unconventional concessions and 30 years for offshore concessions, in each case, as from the date of their award and subject to extensions for periods of up to 10 years each. The authority to extend the terms of current and new permits, concessions and contracts has been vested in the governments of the provinces in which the relevant area is located (and the federal government in respect of offshore areas beyond 12 nautical miles). In order to be eligible for an extension of a concession, based on Law No. 27,007 (as amended), concessionaires must (i) have complied with their obligations, (ii) be producing hydrocarbons in the concession under consideration and (iii) submit an investment plan for the development of such areas as requested by the competent authorities up to a year prior to the termination of each term of the concession.

The extension of our concessions includes, among others, certain level of investment and activity commitment in certain periods. Non-compliance with the obligations and standards set out under the Hydrocarbons Law or agreements with the competent authorities, as applicable, may also result in the imposition of fines and in the case of material breaches, following the expiration of applicable cure periods, the revocation of the concession or permit. We cannot assure you that non-compliance with certain commitments with provinces, as a result of relevant different conditions prevailing in the domestic and/or international oil and gas market at different times, may derive in the imposition of fines or expiration of certain concessions or permits.

We cannot provide assurances that any of our concessions will be extended. The termination of, or failure to obtain the extension of, a concession or permit, or its revocation, could have a material adverse effect on our business and results of operations.

We may incur significant costs and liabilities related to environmental, health and safety matters.

Operations in the oil and gas industry in which we participate, including those related to our mining and use of sand for purposes of our oil and gas operations, are subject to a wide range of environmental, health and safety laws and regulations in the countries in which we operate. These laws and regulations have a substantial impact on our operations and those of our subsidiaries and could result in material adverse effects on our financial position and results of operation. See “Item 4. Information on the Company—Insurance.” In addition, due to the COVID-19 outbreak, we are operating under strict protocols to protect our labor force and our clients. A number of events related to environmental, health and safety matters, including changes in applicable laws and regulations, adverse judicial or administrative interpretations of such laws and regulations, changes in enforcement policy, the occurrence of new litigation or development of pending litigation, and the development of information concerning these matters, could result in new or increased liabilities, capital expenditures, reserves, losses and other impacts that could have a material adverse effect on our financial condition and results of operations. For instance, during 2019, we had a well control incident in one exploratory gas well under production in the Loma La Lata field. See “Item 4. Upstream overview—Exploration & Production Activity in Argentina—Oeste Region—Loma La Lata – Sierra Barrosa Block.” In addition, the Company’s sand mining operations and hydraulic stimulation may result in silica-related health issues and litigation that could have a material adverse effect on the Company in the future. See “Item 8. Financial Information—Legal Proceedings” and “Item 4. Information on the Company—Legal and Regulatory Framework and Relationship with the Argentine government—Argentine Environmental Regulations.”

Environmental, health and safety regulation and jurisprudence in Argentina is developing at a rapid pace and no assurance can be provided that such developments will not increase our cost of doing business and liabilities, including with respect to drilling and exploitation of our unconventional oil and gas reserves.

Furthermore, water is an essential component of both the drilling and hydraulic fracturing processes. The Company regularly disposes of the fluids produced from oil and gas production operations directly or through the use of third-party vendors. Increased regulation or limitations to the use of water for our operations, or increased scrutiny or limitations on the injection of produced water through injection wells (which could also result in increased litigation), could adversely affect our operation and our financial condition.

 

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Climate change and energy transition could affect our results and access to capital

Due to concern over the risk of climate change, a number of countries have adopted, or are considering the adoption of, new regulatory requirements to reduce greenhouse gas emissions, such as carbon taxes, increased efficiency standards or the adoption of cap and trade regimes. Argentina has adopted new rules which began to phase-in more stringent standards to lower the amount of sulfur contained in diesel and gasoline fuels. To meet these standards, we expect to increase investments in future years, and this will impact the overall production costs of such fuels, which could in turn adversely impact on our results of operations unless we can transfer such increased costs to customers through the future prices of our products. Furthermore, if we cannot meet the new specifications for Sulphur content in fuels (see “Item 4. Information on the Company—Environmental Matters”), our revenues, financial condition and results of operations may be adversely affected due to lower utilization of the refining capacity, and that could also affect our market share.

In 2019, the Argentine Congress enacted Law No. 27,520 on Minimal Standards on Global Climate Change Adaptation and Mitigation, which focused on implementing policies, strategies, actions, programs and projects that can prevent, mitigate or minimize the damages or impacts associated with climate change. If additional requirements were adopted in Argentina, these requirements could add to our production costs (including compliance related costs such as for monitoring or reducing emissions) and impact adversely on our competitiveness, and may also shift hydrocarbon demand toward relatively lower-carbon sources such as renewable energies.

The risks associated with climate change could impact our operations due to severe weather events; (i) more difficulties for us to access capital due to reputational issues with investors; (ii) change the consumer profile, reducing its consumption of fossil fuels; and (iii) energy transitions in the world economy towards a lower carbon matrix with the insertion of substitute products for fossil fuels and the increasing use of electricity for urban mobility. These factors may have a negative impact on the demand for our products and services and may jeopardize or even impair the implementation and operation of our businesses, adversely impacting our operating and financial results and limiting our growth opportunities.

In addition, the pace and extent of the energy transition could pose a risk to the company if our own transition towards decarbonisation does not moves in sync with society. If we are slower than society, our reputation may suffer and customers may prefer a different supplier which would adversely impact demand for our products, including the market value of our non-conventional acreage and associated resources we expect to develop in the future. If we move faster than society, we risk investing in technologies, markets or low-carbon products that are unsuccessful because there is limited demand for them. Our failure to time the transition of our production to address climate-change related concerns could have a material adverse effect on our earnings, cash flows and financial condition.

We face risks relating to certain legal proceedings

As described under “Item 8. Financial Information—Legal Proceedings” and under “—We may be responsible for significant costs and liabilities depending on the outcome of the adversary proceeding against the Company and certain of its subsidiaries and other entities filed by the Maxus Energy Corporation Liquidating Trust (the “Liquidating Trust”) in the Delaware Bankruptcy Court“, we are party to a number of labor, commercial, civil, tax, criminal, environmental and administrative proceedings that, either alone or in combination with other proceedings, could, if resolved in whole or in part adversely to us, result in the imposition of material costs, fines, judgments or other losses. While we believe that we have provisioned such risks appropriately based on the opinions and advice of our external legal advisors and in accordance with applicable accounting rules, certain loss contingencies, particularly those relating to environmental matters, are subject to change as new information develops and it is possible that losses resulting from such risks, if proceedings are decided in whole or in part adversely to us, could significantly exceed any accruals we have provided.

In addition, we may be subject to liabilities related to labor, commercial, civil, tax, criminal or environmental contingencies undisclosed to us when we acquire new businesses, in which case our business, financial condition and results of operation may be materially and adversely affected.

We may be responsible for significant costs and liabilities depending on the outcome of the adversary proceeding against the Company and certain of its subsidiaries and other entities filed by the Maxus Energy Corporation Liquidating Trust (the “Liquidating Trust”) in the Delaware Bankruptcy Court

On June 14, 2018, the Liquidating Trust filed a lawsuit against the Company, YPF Holdings, CLH Holdings, Inc., YPF International, and other companies not affiliated to YPF, claiming alleged damages in an amount up to U.S.$ 14 billion, principally in connection with alleged claims purportedly related to corporate restructuring transactions the Company engaged in several years ago. As of the date of this annual report, the lawsuit was in pre-trial stages and we cannot anticipate the date on which final judgment will be rendered or whether such judgment will be adverse to the Company. See Note 31 to the Audited Consolidated Financial Statements. Depending on the final outcome of these proceedings, our financial condition and results of operation could be materially and adversely affected.

 

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Our business depends to a significant extent on our production and refining facilities and logistics network.

Our oil and natural gas field facilities, refineries and logistics network are our principal production facilities and distribution network on which a significant portion of our revenues depends. Although we insure our properties on terms we consider prudent and have adopted and maintain safety measures, any significant damage, accident or other production stoppage at our facilities or network could materially and adversely affect our production capabilities, financial condition and results of operations.

We may be subject to organized labor action.

Our operations have been affected by organized work disruptions and stoppages in the past and we cannot assure you that we will not experience them in the future, which could adversely affect our business and revenues, especially in the context of diminished investment activities. Labor demands are commonplace in Argentina’s energy sector and unionized workers have blocked access to and damaged our plants in the past and thus we can provide no assurances for that not to happen again in the future.

Our performance is largely dependent on recruiting and retaining key personnel

Our current and future performance, the successful implementation of our strategy and the operation of our business are dependent upon the contributions of our senior management and our highly skilled team of engineers and other employees. Our ability to continue to rely on these key individuals is dependent on our success attracting, training, motivating and retaining key management and commercial and technical personnel with the necessary skills and experience. There is no assurance that we will be successful in attracting and retaining key personnel, and if so, to do it on a timely basis.

The loss of the experience and services of key personnel or the inability to recruit suitable replacements or additional staff could have a material adverse effect on our business, financial condition and our results of operations.

We may suffer information technology system failures, network disruptions, and breaches in data security that could negatively affect our business, financial position, results of operations, and cash flows.

As dependence on digital technologies is expanding, particularly on the back of increased remote working for a large portion of our processes after the outbreak of COVID-19, cyber incidents, including deliberate attacks or unintentional events have been increasing worldwide. We use digital technologies to estimate quantities of oil and gas reserves, analyze seismic and drilling information, process and store financial and operating data, as well as to support our internal communications and interactions with our third-party business partners, whether cloud-based or hosted on proprietary servers. Cyber-attacks could compromise our digital systems and result in additional costs as well as disruptions to our business operations or the loss of our data.

Although we are continuously expanding our security policy to the industrial systems and the cloud environment, reinforcing the defenses in case of denial of service and increasing the monitoring of suspicious activities, our technologies, systems, networks, and those of our business partners have been and may continue to be the target of cyber-attacks or information security breaches, which could lead to disruptions in critical systems (for example, SCADAs, DCS Systems), unauthorized release of confidential or protected information, corruption of data or other disruptions of our business operations. In addition, certain cyber incidents, such as surveillance, may remain undetected for an extended period.

A cyber-attack involving our information systems and related infrastructure, or those of our business partners, could disrupt our business and negatively impact our operations in a variety of ways, including but not limited to:

 

•

unauthorized access to seismic data, reserves information, strategic information, or other sensitive or proprietary information could have a negative impact on our ability to compete for oil and gas resources;

 

•

data corruption or operational disruption of production-related infrastructure could result in a loss of production, or accidental discharge; and

 

•

disruption of our operations, communications, or processing of transactions or the loss of, or damage to, sensitive information, facilities, infrastructure and systems which are essential to our business and operations which could have a material adverse effect on our business, financial position, results of operations, and cash flows.

In addition, a cyber-attack on (i) a service provider could result in supply chain disruptions, which could delay or halt our major development projects; and (ii) our accounting or accounts payable systems could expose us to liability to employees and third parties if their sensitive personal information is obtained.

 

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As cybersecurity threats continue to evolve in the oil and gas industry, we may be required to expend additional resources to continue to modify or enhance our protective measures, as well as to investigate or remediate any cybersecurity or information technology infrastructure vulnerabilities as needed.

While certain of our insurance policies may allow for coverage of associated damages resulting from such events, if we were to incur a significant liability for which we were not fully insured, it could have a material adverse effect on our financial position, results of operations and cash flows. See “—We may not have sufficient insurance to cover all the operating hazards to which we are subject.”

The Company’s reputation is an important corporate asset. An operating incident, significant cybersecurity disruption or other similar adverse event, may have a negative impact on our reputation, which in turn could make it more difficult for us to successfully compete for new opportunities or could reduce consumer demand for the Company’s branded products.

During 2020, we were the target of many attempted attacks and were exposed to malware infections like other companies in the industry, which did not result in a significant loss or a negative impact in our operations. There can be no assurance that the Company will not incur such losses in the future. The Company’s risk and exposure to these matters cannot be fully calculated nor mitigated because of, among other things, the evolving nature of these threats.

Since the outbreak of COVID-19, the Company’s exposure to cyber-threats has increased, mainly due to the large-scale adoption of mobile technologies, working from home at large scale and during extended periods of time, heightened activity on customer-facing networks and greater usage of cloud based services.

Our derivative risk management activities could result in financial losses.

We may enter into derivative financial instruments such us foreign exchange hedge and commodity hedge (oil and grains) among others, to mitigate market risk. Although we would only execute non speculative trades, we might be exposed to residual adverse fluctuations in the price of the assets underlying the derivative contracts, the derivatives might fail to provide perfect hedging for the nature of the risks or our counterparties might fail in their obligations, which could result in financial losses and affect the results of our operations. For detailed information regarding our outstanding derivatives as of December 31, 2020, see Note 2.b.17 to the Audited Consolidated Financial Statements.

Our actual production could differ materially from our forecasts.

From time to time, we provide forecasts of expected quantities of future oil and gas production and other financial and operating results. These forecasts are based on a number of estimates and assumptions, including that none of the risks associated with our oil and gas operations summarized in this section “Item 3. Key Information—Risk Factors” occur. Production forecasts, specifically, are based on assumptions such as expectations of production from existing wells, the level and outcome of future drilling activity, the level of gas demand, and the absence of facility or equipment malfunctions, adverse weather effects, the occurrence of a pandemic disease or downturns in commodity prices or significant increases in costs, which could make certain drilling activities or production uneconomical. Should any of these estimates prove inaccurate, or should our development plans change, actual production or other forecasted financial or operating metrics could be materially and adversely affected.

We have limited control over the day to day activities carried out on properties that we do not operate.

Some of the properties in which we have an interest are operated by other companies and involve third-party working interest owners. As a result, we have limited ability to influence or control the day to day operations of these companies and third-parties, including their compliance with environmental, safety and other regulations, which, in turn, could have a material adverse effect on our business, financial position, results of operations, cash flows and/or our reputation.

We could be affected by violations of anticorruption, anti-bribery, anti-money laundering and other national and international regulations.

We are subject to anticorruption, anti-bribery, anti-money laundering and other national and international regulations. We are required to comply with the regulations of Argentina and various jurisdictions where we conduct operations. Among other regulations, a law on corporate criminal liability applies in Argentina (see “Item 9. The Offer and Listing—Law No. 27,401 on Corporate Criminal Liability)”. Although we have developed a comprehensive compliance program and we have internal policies and procedures designed to ensure

 

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compliance with applicable anti-fraud, anti-bribery and anti-corruption laws and sanctions regulations, potential violations of anti-corruption laws could be identified on occasion as part of our compliance and internal control processes. In case such issues arise, we plan to attempt to act promptly to learn relevant facts, conduct appropriate due diligence, and take any appropriate remedial action to address the risk. Given the size of our operations and the complexity of the production chain, there can be no assurance that our internal policies and procedures will be sufficient to prevent or detect all inappropriate practices, fraud or violations of law by our employees, directors, officers, partners, agents and service providers or that such persons will not take actions in violation of our policies and procedures (or otherwise in violation of the relevant anti-corruption laws and sanctions regulations) for which we or they may be ultimately held responsible. Violations of anti-bribery and anti-corruption laws and sanctions regulations could have a material adverse effect on our business, reputation, results of operations and financial condition. In addition, we may be subject to one or more enforcement actions, investigations and proceedings by authorities for alleged infringements of these laws. These proceedings may result in penalties, fines, sanctions or other forms of liability and could have a material adverse effect on our reputation, business, financial condition and results of operations.

If we fail to comply with the covenants set forth in our credit agreements and indentures or upon the occurrence of a change of control, we may be required to prepay our debt.

Under the terms of our credit agreements and indentures, if we fail to comply with the covenants set forth thereunder or if we fail to cure any breach thereof during a specified period of time, we may be in default of our obligations, which in turn would limit our capacity of borrowing. In the case of our Secured Notes due 2026, holders may elect to accelerate payments and in that case we may lose access to the collateral underlying those obligations. To the extent we default on any of our obligations or upon the occurrence of other events of default, we would expect to actively pursue formal waivers from the corresponding counterparties to these agreements, in order to avoid the acceleration of any amounts owed thereunder. However, if the corresponding waivers are not timely obtained, in accordance with the terms of our credit and indentures certain creditors may declare the principal and accrued interest on amounts owed to them as due and immediately payable, resulting in acceleration of other outstanding debt due to cross default provisions, which in turn could have a material adverse effect on our business, financial condition and results of operations. See additionally Note 4 to our Audited Consolidated Financial Statements and “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Covenants in our indebtedness.”

In addition, upon the occurrence of a change of control, we may be required to make an offer to purchase certain outstanding notes at a price of 101% of their principal amount plus accrued and unpaid interest, and our other debt may be subject to mandatory prepayment. Our source of funds for any such mandatory prepayment will be available cash or other sources, including borrowings, sales of assets or sales of equity. The sources of cash may not be adequate to permit us to immediately prepay our indebtedness upon a change of control, which in turn may result in an event of default under certain agreements governing our indebtedness.

Risks Relating to Our Class D Shares and ADSs

The market price for our shares and ADSs may be subject to significant volatility

The market price of our ordinary shares and ADSs may fluctuate significantly due to a number of factors, including, among others, our actual or anticipated results of operations and financial condition; speculation over the impact of the Argentine government as our controlling shareholder on our business and operations, the behavior of international markets, variations in international crude oil prices, pandemic diseases, such as COVID-19, investor perceptions of investments relating to Argentina and political and regulatory developments affecting our industry or the Company. See also “—Risks Relating to Argentina—Our business is largely dependent upon economic conditions in Argentina.” Factors such as the above-mentioned have led to considerable volatility in the market price of our shares and ADSs. For example, the price of our ADSs has varied from U.S.$ 54.58 on January 5, 2011 to U.S.$ 9.57 on November 16, 2012. The price hit a high closing price of U.S.$ 36.99 on July 1, 2014, but subsequently fell to U.S.$ 12.83 on January 20, 2016. During 2017 the price of our ADSs reached a maximum of U.S.$ 26.16 but, mainly due to Argentine economic conditions, it decreased to a minimum value of U.S.$ 12.31 on December 24, 2018. During 2019 the price of our ADSs reached a maximum of U.S.$ 18.50 but, as of December 31, 2020, our ADSs had a price of U.S.$ 4.70 (reaching a minimum of U.S.$ 2.57 during March 2020), mainly influenced by international markets and the COVID-19 pandemic. See “—Risks Relating to our Business—We are exposed to the effects of fluctuations in the prices of oil, gas and refined products”, “—Risks Relating to our Business—An outbreak of disease or similar public health threat, such as the ongoing COVID-19 pandemic, which has had and may continue to have material adverse consequences for general economic, financial, and business conditions, could materially and adversely affect our business, financial condition and results of operations” and “Item 9. The Offer and Listing”. We cannot assure you that concerns about factors that could affect the market price of our ordinary shares as previously mentioned will not have a material adverse effect on the trading values of our securities.”

Additionally, if the bid price of our ordinary shares and ADSs were to close below the required minimum 30-day average of U.S.$ 1.00 per share, we may receive a deficiency notice from the NYSE regarding our failure to comply with this requirement. To the extent that

 

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we are unable to timely resolve such listing deficiency, there is a risk that our ordinary shares and ADSs may be delisted from the NYSE, which would adversely impact liquidity of our ordinary shares and ADSs and potentially result in even lower bid prices for them. In addition, if the NYSE approves the delisting of our ordinary shares and ADSs, BYMA may approve the delisting of our shares listed in such stock market.

Certain strategic transactions require the approval of the holder of our Class A shares or may entail a cash tender offer for all of our outstanding capital stock.

Pursuant to our by-laws, the approval of the Argentine government, the sole holder of our Class A shares, is required to undertake certain strategic transactions, including (i) a merger; (ii) acquisition of shares by a third party representing more than 50% of the company’s capital; (iii) the transfer to third parties of all the exploitation rights granted to YPF pursuant to the Hydrocarbons Law, applicable regulations thereunder or the Privatization Law, if such transfer would result in the total suspension of the Company’s exploration and production activities; (iv) the voluntary dissolution of the Company, and (v) the transfer of the legal or fiscal domicile of the Company to a country other than Argentina. This approval would also be necessary in connection with an acquisition that would result in the purchaser holding 15% or more of our capital stock, or 20% or more of the outstanding Class D shares.

According to our by-laws, the transactions described in (iii) and (iv) above also require the prior approval of the Argentine Congress.

In addition, our by-laws also provide that in order to carry out an acquisition that results in the purchaser holding 15% or more of our capital stock or 20% or more of the outstanding Class D shares, such purchaser would be required to make a public tender offer for all of our outstanding shares and convertible securities, which could discourage certain investors from acquiring significant stakes in our capital stock. Such public tender offer shall not be needed for the subsequent acquisitions by an Offeror (as such term is defined in “Item 10. Additional Information—Certain Provisions Relating to Acquisition of Shares”), who already owns, or controls shares that represent 15% or more of the outstanding capital stock or 20% or more of the outstanding Class D shares, as long as such Offeror does not own or control, previously or as a consequence of these acquisitions, shares that represent more than 50% of the capital stock. For any subsequent acquisition made by an Offeror already owning or controlling more than 50% of the capital stock of the Company prior to such acquisition it is neither required to obtain the approval of the Class A shares, nor to make a public tender offer. See “Item 10. Additional Information—Certain Provisions Relating to Acquisitions of Shares.”

Capital controls imposed by Argentina may impair your ability to receive dividends and distributions on, and the proceeds of any sale of, the Class D shares underlying the ADSs.

The Argentine government is empowered, for reasons of public emergency, to establish the system that will determine the exchange rate between the peso and foreign currency and to impose exchange regulations. Under current regulations, the transfer of funds abroad to pay dividends to non-resident shareholders currently requires Argentine Central Bank approval unless certain conditions are met in accordance with regulations issued by the Argentine Central Bank. For more information on exchange restrictions see “Item 10. Additional Information—Exchange Regulations- Distribution of profits and dividends.” Further restrictions on the movement of capital to and from Argentina may be imposed and impair or prevent the conversion of dividends, distributions, or the proceeds from any sale of Class D shares, as the case may be, from pesos into U.S. dollars and the remittance of the U.S. dollars abroad.

Under the terms of our deposit agreement with the depositary for the ADSs, the depositary will convert any cash dividend or other cash distribution we pay in pesos on the shares underlying the ADSs into U.S. dollars, if it can do so on a reasonable basis and can transfer the U.S. dollars to the United States, pursuant to the aforementioned regulations. If this conversion is not possible for any reason, including regulations of the type described herein (particularly, see “Item 10. Additional Information— Exchange Regulations”) or future regulations and restrictions that may be enacted, the deposit agreement allows the depositary to distribute the foreign currency only to those ADRs holders to whom it is possible to do so. If the exchange rate fluctuates significantly during a time when the depositary cannot convert the foreign currency, you may lose some or all of the value of the dividend distribution.

We may not be able to pay, maintain or increase dividends.

Our ability to pay, maintain or increase dividends is based on many factors, including our net income, capital expenditures required under our investment plans, future debt service payments, working capital needs, legal, tax and/or contractual restrictions, and general economic and financial conditions. A change in any of these factors could affect our ability to pay, maintain or increase dividends, and the exact amount of any dividend paid may vary from year to year. See “Item 10. Additional Information—Dividends”; “—Risks Relating to Our Business—An outbreak of disease or similar public health threat, such as the ongoing COVID-19 pandemic, which has had and may continue to have material adverse consequences for general economic, financial, and business conditions, could materially and adversely affect our business, financial condition and results of operations.”

 

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We are traded on more than one market and this may result in price volatility; in addition, investors may not be able to easily transfer securities to take advantage of pricing opportunities for trading between such markets.

Trading in the ADSs or Class D Shares underlying ADSs in the United States and Argentina, respectively, will use different currencies (U.S. dollars on the New York Stock Exchange (“NYSE”) and pesos on the Mercado de Valores de Buenos Aires (“S&P MERVAL”), and take place at different times (resulting from different trading platforms, different time zones, different trading days and different public holidays in the United States and Argentina). The trading prices of the Class D Shares underlying ADSs on these two markets may differ due to these and other factors. Any decrease in the price of the Class D Shares underlying ADSs on the S&P MERVAL could cause a decrease in the trading price of the ADSs on the NYSE. Investors could seek to sell or buy the Class D Shares underlying ADSs to take advantage of any price differences between the markets through a practice referred to as “arbitrage.” Any arbitrage activity could create unexpected volatility in both our share prices on one exchange, and the ADSs available for trading on the other exchange. In addition, holders of ADSs will not be immediately able to surrender their ADSs and withdraw the underlying Class D Shares for trading on the other market without effecting necessary procedures with the depositary. This could result in time delays and additional cost for holders of ADSs.

Under Argentine law, shareholder rights may be different from other jurisdictions.

Our corporate affairs are governed by our by-laws and by Argentine corporate law, which differ from the legal principles that would apply if we were incorporated in a jurisdiction in the United States or in other jurisdictions outside Argentina. In addition, rules governing the Argentine securities markets are different and may be subject to different enforcement in Argentina than in other jurisdictions.

Actual or anticipated sales of a substantial number of Class D shares could decrease the market prices of our Class D shares and of the ADSs.

Sales of a substantial number of Class D shares or ADSs by any present or future relevant shareholder could decrease the trading price of our Class D shares and the ADSs.

You may be unable to exercise preemptive, accretion or other rights with respect to the Class D shares underlying your ADSs.

Holders of ADSs may not be able to exercise the preemptive or accretion rights relating to the shares underlying the ADSs (see “Item 10. Additional Information—Preemptive and Accretion Rights”) unless a registration statement under the U.S. Securities Act of 1933 (the “Securities Act”) is effective with respect to those rights or an exemption from the registration requirements of the Securities Act is available. We are not obligated to file a registration statement with respect to the shares relating to these preemptive rights, and we cannot assure you that we will file any such registration statement. Unless we file a registration statement or an exemption from registration is available, holders may receive only the net proceeds from the sale of their preemptive rights by the depositary or, if the preemptive rights cannot be sold, they may lapse. As a result, U.S. holders of Class D shares or ADSs may suffer dilution of their interest in our company upon future capital increases.

In addition, under the Argentine General Corporations Law, foreign companies that own shares in an Argentine corporation are required to register with the National Corporations Registry (under the purview of the Ministry of Justice and Human Rights) in order to exercise certain shareholder rights, including voting rights. If you own our Class D shares directly (rather than in the form of ADSs) and you are a non-Argentine company and you fail to register with the respective National Corporations Registry, your ability to exercise your rights as a holder of our Class D shares may be limited. Pursuant to Capital Markets Law No. 26,831 and to General Resolution No. 789 of the CNV, both applicable to the Company, foreign companies that are shareholders of YPF may participate and vote in the shareholders’ meetings through duly authorized attorneys in fact.

You may be unable to exercise voting rights with respect to the Class D shares underlying your ADSs at our shareholders’ meetings.

The depositary will be treated by us for all purposes as a shareholder with respect to the shares underlying ADSs. A holder of ADRs representing the ADRs being held by the depositary will not have direct shareholder rights and may exercise voting rights with respect to the Class D shares represented by the ADRs only in accordance with the deposit agreement relating to the ADSs. There are no provisions under Argentine law or under our by-laws that limit the exercise by ADRs holders of their voting rights through the depositary with respect to the underlying Class D shares. However, there are practical limitations on the ability of ADRs holders to exercise their voting rights due to the additional procedural steps involved in communicating with these holders. For example, holders of our shares will receive notice of shareholders’ meetings through publication of a notice in an official gazette in Argentina, in an Argentine newspaper of general circulation, and in the bulletin of the Buenos Aires Stock Exchange, and will be able to exercise their voting rights by either attending the meeting in person or voting by proxy. ADRs holders, by comparison, will not receive notice directly from us. Instead, in accordance with the deposit agreement, we will provide the notice to the depositary. The depositary may mail to holders of ADRs the notice of the meeting and a statement as to the manner in which instructions may be given by holders, if we request it to do so. To exercise their voting rights, ADRs holders must then instruct the depositary on how to vote with regards to the Class D shares represented by their ADRs. Due to these procedural steps involving the depositary, the process for exercising voting rights may take longer for ADRs holders than for holders of Class D shares. If no such instructions are received, the depositary shall vote the Class D shares represented by ADSs in accordance with the recommendations of the Board of Directors made to all holders of shares.

 

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Shareholders outside of Argentina may face additional investment risk from currency exchange rate fluctuations in connection with their holding of our Class D shares or the ADSs.

We are an Argentine company and any future payments of dividends on our Class D shares will be denominated in pesos. The peso has historically and recently fluctuated significantly against many major world currencies, including the U.S. dollar. A devaluation of the peso would likely adversely affect the U.S. dollar or other currency equivalent of any dividends paid on our Class D shares and could result in a decline in the value of our Class D shares and the ADSs as measured in U.S. dollars. See “—Risks Relating to Argentina—We may be exposed to fluctuations in foreign exchange rates.”

 

ITEM 4.

Information on the Company

History and Development of YPF

YPF is a corporation (sociedad anónima), incorporated under the laws of Argentina for a limited term. Our address is Macacha Güemes 515, C1106BKK Ciudad Autónoma de Buenos Aires, Argentina and our telephone number is (011-54-11) 5441-2000. Our legal name is YPF Sociedad Anónima and we conduct our business under the commercial name “YPF.”

The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. All of the SEC filings made electronically by YPF are available to the public on the SEC website at www.sec.gov (commission file number 1-12102). The YPF’s website address is www.ypf.com. The information contained on, or that can be accessed through, the Company’s website is not part of, and is not incorporated into, this annual report.

We are Argentina’s leading energy company, operating a fully integrated oil and gas chain with leading market positions across the domestic upstream, downstream and gas and power segments. Our upstream operations consist of the exploration, development and production of crude oil, natural gas and LPG. Our downstream operations include the refining, marketing, transportation and distribution of oil and a wide range of petroleum products, petroleum derivatives, petrochemicals, LPG and bio-fuels. Additionally, we are active in the gas separation, natural gas distribution and power generation sectors both directly and through our investments in several affiliated companies. In 2020, we had consolidated revenues of Ps. 669,186 million and a consolidated net loss of Ps. 71,017 million.

Beginning in the 1920s and until 1990, both the upstream and downstream segments of the Argentine oil and gas industry were effectively monopolies of the Argentine government. During this period, we and our predecessors were owned by the state, which controlled the exploration and production of oil and natural gas, as well as the refining of crude oil and marketing of refined petroleum products. In August 1989, Argentina enacted laws aimed at the deregulation of the economy and the privatization of Argentina’s state-owned companies, including us. Following the enactment of these laws, a series of presidential decrees were promulgated, which required, among other things, us to sell majority interests in our production rights to certain major producing areas and to undertake an internal management and operational restructuring program.

In November 1992, the Argentine Congress enacted the Privatization Law (Law No. 24,145), which established the procedures for our privatization. In accordance with the Privatization Law, in July 1993, we completed a worldwide offering of 160 million Class D shares that had previously been owned by the Argentine government. As a result of that offering and other transactions, the Argentine government’s ownership interest in our capital stock was reduced from 100% to approximately 20% by the end of 1993.

In January 1999, Repsol YPF acquired 52,914,700 Class A shares (14.99% of our shares) which were converted to Class D shares. Additionally, on April 30, 1999, Repsol YPF announced a tender offer to purchase all outstanding Class A, B, C and D shares (the “Offer”). Pursuant to the Offer, in June 1999, Repsol YPF acquired an additional 82.47% of our outstanding capital stock. Repsol YPF acquired additional stakes in us from minority shareholders and other transactions in 1999 and 2000.

Repsol YPF owned approximately 99% of our capital stock from 2000 until 2008, when Petersen Energía (“PEISA”) acquired 15% of our capital stock, from Repsol YPF. On May 3, 2011, PEISA exercised an option to acquire, from Repsol YPF, shares or ADSs representing 10.0% of our capital stock and on May 4, 2011, Repsol YPF acknowledged and accepted such exercise. See “—Legal and Regulatory Framework and Relationship with the Argentine government—The Expropriation Law” and “Item 7. Major Shareholders and Related Party Transactions,” for a detail of our current major shareholders.

On May 3, 2012, the Argentine Congress passed the Expropriation Law. Among other matters, the Expropriation Law provided for the expropriation of 51% of the share capital of YPF represented by an identical stake of Class D shares owned, directly or indirectly, by Repsol YPF and its controlled or controlling entities. The shares subject to expropriation, which have been declared of public interest, will be assigned as follows: 51% to the Argentine Republic and 49% to the governments of the provinces that compose the National

 

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Organization of Hydrocarbon Producing States. See “Item 3. Key Information—Risk Factors—Risks Relating to Argentina—The Argentine Republic owns 51% of the shares of the Company.” As of the date of this annual report, the transfer of the shares subject expropriation between the Argentine Executive Branch and the provinces that compose the National Organization of Hydrocarbon Producing States was still pending. According to Article 8 of the Expropriation Law, the distribution of the shares among the provinces that accept their transfer must be conducted in an equitable manner, considering their respective levels of hydrocarbon production and proved reserves. To ensure compliance with its objectives, the Expropriation Law provides that the Argentine Executive Branch, by itself or through an appointed public entity, shall exercise all the political rights associated with the shares subject to expropriation until the transfer of political and economic rights to the provinces that compose the National Organization of Hydrocarbon Producing States is completed. In addition, in accordance with Article 9 of the Expropriation Law, each of the Argentine provinces to which shares subject to expropriation are allocated must enter into a shareholder’s agreement with the federal government that will provide for the unified exercise of its rights as a shareholder. See “—Legal and Regulatory Framework and Relationship with the Argentine government—The Expropriation Law,” “Item 7. Major Shareholders and Related Party Transactions.” See “Item 3. Key Information—Risk Factors—Risks Relating to Our Business—We face risks relating to certain legal proceedings.”

In addition, on February 25, 2014, the Republic of Argentina and Repsol reached an agreement (the “Repsol Agreement”) in relation to compensation for the expropriation of 200,589,525 of YPF’s Class D shares pursuant to the Expropriation Law under the Repsol Agreement. Repsol accepted U.S.$ 5.0 billion in sovereign bonds from the Republic of Argentina and withdrew judicial and arbitral claims it had filed, including claims against YPF, and waived additional claims. YPF and Repsol also executed a separate agreement (the “Repsol Arrangement”) on February 27, 2014, pursuant to which YPF and Repsol each withdrew, subject to certain exclusions, all present and future actions and/or claims based on causes occurring prior to the date of execution of Repsol Arrangement arising from the expropriation of the YPF shares owned by Repsol pursuant to the Expropriation Law, including the intervention and temporary possession for public purposes of YPF’s shares. YPF and Repsol agreed to withdraw reciprocal actions and claims with respect to third parties and/or pursued by them and to grant a series of mutual indemnities, which at the time were subject to certain conditions precedent. The Repsol Arrangement entered into force the day after Repsol notified YPF that the Repsol Agreement had entered into force. The Repsol Agreement was ratified on March 28, 2014 at a Repsol general shareholders’ meeting and approved by the Argentine Congress by Law No. 26,932 enacted by Decree No. 600/2014. On May 8, 2014, YPF was notified of the entry into force of the Repsol Agreement, and as a result the Republic of Argentina is definitively the owner of 51% of the capital stock of each of YPF and YPF GAS S.A.

Overview

Argentina is the largest producer of natural gas and the fifth largest producer of crude oil and condensate in Central and South America, based on 2019 production, according to the 2020 edition of the BP Statistical Review of World Energy, published in June 2020.

YPF operates mainly in Argentina (see “Item 3. Key information—Risk Factors—Risks Relating to Argentina—Our business is largely dependent upon economic conditions in Argentina.”) and its main source of funds to finance its activities through the sale of fuels (gasoline and diesel) and natural gas, which represented 72% of the 2020 income. Additionally, the main expenditures of the Company are related to investments and operational expenditures in conventional fields aiming to compensate or reduce the natural decline, in unconventional fields with the objective of growing production and reserves coming from them, and in the maintenance and/or investment in our downstream business, among others, as well as the payment of interest related to our financial debt or dividends to the shareholders. See “Item 10. Additional Information—Dividends.” We are strongly committed to the country’s energy development and seek to lead the transformation of the industry in pace with changes in the industry at an international level.

The definition of our strategy is aligned with our goal of being a leading integrated energy company in Argentina, mainly focused on the development, production and processing of oil and gas, generating long-term value for our shareholders, employees, customers, direct and indirect suppliers and for Argentina. Our strategic pillars are:

 

•

discipline in the allocation of capital, focused on the development of our unconventional hydrocarbon acreage with competitive advantages, generating value in a sustainable way;

 

•

efficiency in costs and processes in all business segments, and particularly in Vaca Muerta, with the aim of ensuring resilience even in low price scenarios;

 

•

rationalization of the conventional asset portfolio, prioritizing profitability through the incorporation of technology and innovation to gain efficiency;

 

•

adaptation of refineries to facilitate greater shale processing and the expected evolution of the quality of fuels to be demanded by our customers; and

 

•

reduction of the company’s specific CO2 emissions and the development of renewable energies through our participation in YPF Energía Eléctrica S.A. (“YPF EE”), as part of our commitment to sustainability.

The investment plan related to our growth require the reinvestment of our earnings, our association with strategic partners and the use of debt financing at levels we consider prudent for companies in our industry aimed at maintaining the financial health of the Company. The financial viability of these investments and hydrocarbon recovery efforts will depend on numerous factors that YPF does not control or

 

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influence, such as the prevailing economic and regulatory conditions in Argentina, the ability to obtain financing in satisfactory amounts at competitive costs, the funding in the capital markets, as well as the continued impact of the COVID-19 pandemic on the world economy, in particular on market prices of hydrocarbon products. See “Item 3. Key Information—Risk Factors—Risks Relating to Argentina, “Item 3. Key Information—Risk Factors—Risks Relating to Our Business—We are exposed to the effects of fluctuations in the prices of oil, gas and refined products” and “Item 5. Operating and Financial Review and Prospects—Factors Affecting Our Operations.” Furthermore, we continue to manage our portfolio actively, including the evaluation of divestment of non-core matured assets. From time to time, we may proceed with the sale of non-core assets or joint-venture arrangements that reduce future capital expenditures to satisfy other liquidity and capital needs.

For information regarding to the Argentine Hydrocarbon Market and our pricing policy for fuels, the current COVID-19 outbreak see “Item 5. Operating and Financial Review and Prospects—Factors Affecting Our Operations—Macroeconomic Conditions—Hydrocarbon Market” and “Item 5. Operating and Financial Review and Prospects—Factors Affecting Our Operations—Macroeconomic Conditions—COVID-19 Outbreak.”

Business Organization

For a chart illustrating our organizational structure, including our principal subsidiaries, please see Note 1 to the Audited Consolidated Financial Statements.

As of December 31, 2020, we conducted our business according to the following organization:

 

•

Upstream segment, which consists of our “Exploration and Production” division;

 

•

Downstream segment, which consists of our “Refining and Marketing”, “Chemicals” and “Logistics” divisions;

 

•

Gas and Power segment, which consists of our “Natural Gas Distribution and Electricity Generation” division; and

 

•

Central Administration and other segment, which consists of our remaining activities.

For a description related to the activities developed by each business segment see Note 5 to our Audited Consolidated Financial Statements.

Upstream Operations

 

•

As of December 31, 2020, we held interests in 123 oil and gas fields in Argentina. In 2020, these assets accounted for approximately 43.0% of the country’s total production of crude oil, excluding NGL, according to the Ministry of Energy and Mining, and approximately 33.6% of its total natural gas production, including NGL.

 

•

We had proved reserves, as estimated as of December 31, 2020, of approximately 483 mmbbl of oil including condensates, 63 mmbbl of NGL, and approximately 2,110 bcf of gas, representing aggregate reserves of approximately 922 mmboe as of such date, compared to approximately 613 mmbbl of oil, including condensates, 60 mmbl of NGL, and approximately 2,241 bcf of gas, representing aggregate reserves of approximately 1,073 mmboe as of December 31, 2019.

 

•

During 2020, we produced approximately 76 mmbbl of oil (approximately 207 mbbl/d), condensates of approximately 13 mmbbl of NGL (approximately 37 mbbl/d), and approximately 460 bcf of gas (approximately 1,259 mmcf/d), representing a total production of approximately 171 mmboe (approximately 468 mboe/d), compared to approximately 83 mmbbl of oil (approximately 226 mbbl/d), condensates of approximately 14 mmbbl of NGL (approximately 38 mbbl/d), and approximately 512 bcf of gas (approximately 1,403 mmcf/d), representing a total production of approximately 188 mmboe (approximately 514 mboe/d) in 2019.

Downstream Operations

 

•

We are Argentina’s leading refiner with operations conducted at three wholly-owned refineries with combined annual refining capacity of approximately 116 mmbbl (319.5 mbbl/d). See “—Downstream—Refining division.” We also own a 50% equity interest in Refinería del Norte, S.A. (“Refinor”), an entity jointly controlled with and operated by Pampa Energía S.A., which has a refining capacity of 26.1 mbbl/d.

 

•

Our retail distribution network for automotive petroleum products as of December 31, 2020 consisted of 1,632 YPF-branded service stations, of which we own 110 directly and through our 100%-owned subsidiary Operadora de Estaciones de Servicios S.A. (“OPESSA”), and we estimate that as of December 31, 2020, we held approximately 32.8% of all gasoline service stations in Argentina.

 

33

•

We are one of the leading petrochemical producers in Argentina and in the Southern Cone of Latin America, with operations conducted through our Ensenada industrial complex (“CIE”) and Plaza Huincul site. In addition, Profertil S.A. (“Profertil”), a company that we jointly control with Agrium Holdco Spain S.L. (“Agrium”), is one of the leading producers of urea in the Southern Cone.

Gas and Power Operations

 

•

We are the largest producer of natural gas in Argentina with total natural gas sales of 12,088 mmcm in 2020, accounting for 26.48% of the market (market share calculated through December 2020, as provided by ENARGAS).

 

•

We participate directly and mainly through YPF EE, in 18 power generation plants, with an aggregate installed capacity of 2,858 MW. During 2020, Los Teros I wind farm began its operations generating 165 MW.

 

•

We are the operator of UTE Escobar (a joint venture formed by YPF and IEASA), which operates a LNG Regasification Terminal (“LNG Escobar”). Additionally, in May 2020, we concluded the operation of Tango FLNG located in Bahia Blanca, and in October 2020, we signed an agreement with Exmar Energy Netherlands B.V. to end the lease of the barge.

 

•

We also distribute natural gas through our subsidiary Metrogas, a natural gas distribution company in the capital region and southern suburbs of Buenos Aires, and one of the main distributors in Argentina. During 2020, Metrogas distributed approximately 6,893 mmcm (or 243.1 bcf) of natural gas to 2.24 million customers. See “—Gas and Power—Natural Gas Distribution.”

The map below illustrates the location of our productive basins, refineries, storage facilities and crude oil and multi-product pipeline networks as of December 31, 2020.

 

34

For a description of our principal capital expenditures and divestitures, see “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Capital investments and expenditures.”

Substantially all of our operations, properties and customers are located in Argentina. See “—Upstream Overview—Main properties.” Additionally, we market lubricants and specialties in Brazil and Chile, and carry out production activities in Chile and exploration activities in Bolivia.

 

35

The following table sets forth revenues and operating profit in millions of pesos for each of our business segments for the years ended December 31, 2020, 2019 and 2018:

 

		For the year ended December 31, (millions of Ps.)
		2020				2019				2018
Revenues (1)
Upstream
Revenues from sales			2,419				2,046				3,108
Revenue from intersegment sales (2)			289,421				286,585				207,480
Total Upstream			291,840				288,631				210,588
Gas and Power
Revenues from sales			122,254				131,055				91,176
Revenue from intersegment sales			8,060				8,697				7,862
Total Gas and Power			130,314				139,752				99,038
Downstream
Revenues from sales			536,714				531,724				338,042
Revenue from intersegment sales			3,349				3,447				1,688
Total Downstream			540,063				535,171				339,730
Central Administration and Others
Revenue from sales			14,108				19,743				8,363
Revenue from intersegment sales			28,787				27,502				13,186
Total Central Administration and Others			42,895				47,245				21,549
Less inter-segment sales and fees			(335,926	)			(332,204	)			(235,085	)
Total Revenues			669,186				678,595				435,820
Operating (loss) / profit
Upstream			(25,878	)			(49,194	)			22,483
Gas and Power			(18,994	)			2,944				16,786
Downstream			4,839				40,653				7,818
Central Administration and Others			(22,305	)			(15,866	)			(6,055	)
Consolidation adjustments			3,941				451				2,748
Total Operating (loss) / profit			(58,397	)			(21,012	)			43,780

 

(1)

Revenues are net of payment of turnover tax. Customs duties on hydrocarbon exports are described under “Taxes, charges and contributions” as indicated in Note 25 to the Audited Consolidated Financial Statements. Royalties with respect to our production are accounted for as a cost of production and are not deducted in determining revenues. See Note 2.b.15 to the Audited Consolidated Financial Statements.

(2)	Intersegment revenues of crude oil to Downstream are recorded at transfer prices that reflect our estimate of Argentine market prices.

Upstream overview

YPF Upstream seeks to add value to the Company’s operation by optimizing the use of deployed capital, achieving levels of operative excellence and enhancing the productivity of mature fields, thus generating new development opportunities and softening the decline of mature fields, while delivering profitable growth driven by the increasing incorporation of unconventional projects to its activities.

The Plan of Promotion for Argentinean Gas Production (Plan GasAr), launched on December 3, 2020 and awarded on December 15, 2020, gave the Company an opportunity to monetize gas reservoirs, ensuring to supply the demand over the next four years at a price which allows the development of our gas projects in the Neuquina Basin.

YPF manages to continue with key activity optimizing ongoing waterflooding projects and tertiary recovery testing of polymer and surfactant, through the implementation of improved oil recovery (IOR) and enhanced oil recovery (EOR) keeping focus on the conventional fields under a challenging global economic environment.

Despite the lockdown in Argentina due to COVID-19, the Company was able to continue and expand operations, as evidenced by the fact that the Manantiales Behr field reached a new peak oil production by the end of 2020.

 

36

In light of the decrease in demand and lower oil prices, the Company sought to reduce operating costs by focusing efforts in the optimization of processes and enhancing cost efficiency.

Furthermore, YPF continued actively managing its portfolio, including the sale of non-core matured assets.

Staying the Path of Unconventional Resources

In line with the production growth objective driven by unconventional projects during 2020, we reaffirmed our commitment to the objective of growing our production and reserves through the development of unconventional resources, which we began in 2013. Since 2010, we have drilled more than 850 wells to determine the potential of Vaca Muerta as a shale oil/gas reservoir. Most of these wells are located in the Loma Campana field and drilled in association with Chevron, continuing the massive development that began in 2013. The remaining wells pursue the development phase in the El Orejano block in association with Dow Chemical, the Narambuena project in association with Chevron, La Amarga Chica field in association with Petronas, Bandurria Sur in association with Shell Compañía Argentina de Petróleo S.A. and Equinor Argentina S.A., Bajo del Toro pilot in association with Equinor and Rincon del Mangrullo, Aguada de la Arena and La Ribera pilots where YPF holds 100% of the working interest in such areas.

The international and local scenarios challenge us to adjust our efficiency and costs to be competitive. To drive down the breakeven price of our projects we focused on increasing well productivity and improving operation efficiency by reducing development cost and operative expenses.

In this context, our controlled technological-based Company of YPF (Y-TEC) has contributed by providing innovative laboratory and operational techniques and protocols; better understanding of the rocks behavior; improving in reservoir simulation and modelling tools; drilling and completion products; among others. See “Research and Development.” Nevertheless, the financial viability of these investments and resource recovery efforts will depend on the prevailing economic and regulatory conditions, as well as the market prices of hydrocarbons in Argentina. See “Item 5. Operating and Financial Review and Prospects—Factors Affecting Our Operations” for additional information regarding 2021 activity.

In March 2020, prior to the COVID-19 lockdown, the Company had planned investing activities with 11 drilling rigs in unconventional region. From there on, due to the pandemic, the activity was suspended, leaving 11 drilling rigs on standby. Between September and October 2020, the activity restarted and ended the year with ten drilling rigs working.

Since 2017, we commenced testing dissolvable plugs, chemical and mechanical diverters, frack sleeves, and different types of stimulation fluids, in connection with the completion of our shale gas/oil wells, seeking improved operational efficiency and improved well performance. We are continuing to study the data from these tests, analyzing the results of productivity in the medium term. Many of these activities were carried out, and continue to be supported by Y-TEC.

In the hydraulic stimulation field work continues to challenge the productivity of wells. Since 2018, designs with greater intensity of support agent and water have been tested. Due to good results obtained and the implementation of a new standard design of high-density, concentrations of sand raised above 2,500 lb/ft. At the same time, we are reviewing the designs of the pilots in order to increase efficiency and have incorporated snubbing equipment that will make plugs rotation more efficient and reach longer well lengths.

Pilots with sleeves have also been executed during the last three years as a development alternative for areas of certain geological characteristics. The results are promising, and the sleeves are already a viable alternative for certain cases.

Main properties

Our production is concentrated in the following basins in Argentina: Neuquina, Golfo San Jorge, Cuyana, Noroeste and Austral.

In 2020, 2019 and 2018, we finalized several agreements related to the acquisition, investment and development of properties that are part of our core business. In connection with those agreements, see Notes 3 and 33.b to the Audited Consolidated Financial Statements.

In addition, in connection with the extension of concessions and exploration permits, see Note 33.a to the Audited Consolidated Financial Statements.

 

37

The following table sets forth information regarding our developed and undeveloped acreage by geographic area as of December 31, 2020:

 

		Developed(1)								Undeveloped(2)
		Gross(3)				Net(4)				Gross(3)				Net(4)
		(thousands of acres)
Argentina			1,269				957				22,042				14,992
Rest of South America(5)			2				2				539				331
Total (6)			1,271				959				22,581				15,323

 

(1)	Developed acreage is spaced or assignable to productive wells.

(2)	Undeveloped acreage encompasses those leased acres on which wells have not been drilled or completed to a point that would permit the production of economic quantities of oil or gas regardless of whether such acreage contains proved reserves.

(3)	A “gross acre” is an acre in which we own a working interest.

(4)	“Net” acreage equals gross acreage after deducting third-party interests.

(5)

Relates to Colombia, Chile and Bolivia. In the case of Colombia, YPF and its partners notified the Colombian National Hydrocarbons Agency (“ANH”) of the decision to relinquish the COR 12 and COR 33 blocks. In Bolivia, YPF’s net undeveloped surface acreage totaled 125,000 acres. In Chile, YPF’s net undeveloped and developed surface acreage totaled 33,021 acres and 1,769 acres, respectively.

(6)	8,684 and 4,225 acres correspond to gross and net undeveloped offshore fields, respectively, while 28 and 14 acres correspond to gross and net developed offshore fields, respectively. Currently all our offshore fields are located in Argentina.

According to Law No. 27,007 that amended the Hydrocarbons Law, all national offshore permits and offshore hydrocarbon production concessions that did not have association agreements with ENARSA as of the date of the new law (October 2014) were reverted and transferred to the SE. Permits and concessions granted prior to Law No. 25,943 were exempt from this provision. In September 2015, the Argentine Executive Branch and YPF began negotiating the conversion of association agreements signed with ENARSA. On December 29, 2017 YPF submitted a note to the Ministry of Energy confirming its willingness to negotiate the conversion of association agreement related to the Area identified as “ENARSA 1”. In the same note, YPF communicated its decision not to convert the association agreements related to the Areas “ENARSA 2” and “ENARSA 3. On October 19, 2018 YPF officially filed another note to the SE to negotiate the conversion of the association agreement related to the area identified as “ENARSA 1”. On April 11, 2019 the area “ENARSA 1” was officially converted into “CAN-100”. In August 2019, a partnership agreement was signed by YPF and Equinor Argentina AS, whereby Equinor Argentina AS would operate CAN-100 holding a 50% working interest. On April 3, 2020, the Ministry of Energy and Mining (“MINEM”) formalized the Agreement and the closing of the operation happened on April 16, 2020. On January 14, 2021, a partnership agreement was signed by YPF, Equinor Argentina AS and Shell whereby Equinor Argentina AS would operate CAN-100 holding a 35% working interest, YPF would have a 35% WI and Shell 30% WI. As of the date of this annual report, the parties are still waiting for the Ministry of Energy to formalize the agreement.

As of December 31, 2020, we do not have exploration permits associated with the original terms of the Hydrocarbons Law. However, as a result of the expiration in 2021 of the first or second exploration terms of certain of our exploration permits (according to the terms of the Hydrocarbons Law, as amended by Law No. 27,007), we will have the right to continue exploring the entire area for the second basic term as long as we comply with all of our obligations under the applicable permit. At the expiration of the second basic term, we will be required to surrender all of the remaining acreage, unless we request an extension term, in which case such extension will be limited to 50% of the remaining acreage. On the other hand, if we discover commercially exploitable quantities of oil or gas, we have the right to obtain an exclusive concession for the production and development of such oil and gas. See “—Legal and Regulatory Framework and Relationship with the Argentine government—Law No. 27,007 (amendment of the Hydrocarbons Law)—Exploration and Production.”

The exploratory undeveloped acreage which matures, in 2021 and in the period 2022-2023 is 7,296 km2, or 20%, and 27,514 km2, or 77%, respectively, of our 35,743 km2 of net exploratory undeveloped acreage as of December 31, 2020.

The extension of the maturing acreage that we would be required to surrender to the relevant province will depend on our decision to extend our permit in a given area, provided that the requirements of Law No. 27,007 have been met, including the satisfaction of our obligations under the permit relating to those areas. See “—Legal and Regulatory Framework and Relationship with the Argentine government—Law No. 27,007 (amendment of the Hydrocarbons Law)—Exploration and Production.” Therefore, the areas to be relinquished consist usually of acreage where drilling has not been successful and are considered non-core lease acreage.

Except as described above, we do not have any material undeveloped acreage related to our production concessions expiring in the near term.

See “—Legal and Regulatory Framework and Relationship with the Argentine government—Law No. 27,007 (amendment of the Hydrocarbons Law)” for a description of new terms that apply to new production concessions or exploration permits, other than those already governed by previous laws.

 

38

Argentine Exploration Permits and Exploitation Concessions

The following table shows our gross and net interests in productive oil and gas wells in Argentina by basin, as of December 31, 2020:

 

		Wells (1)
		Oil								Gas
Basin		Gross				Net				Gross				Net
Neuquina			4,494				3,501				1,771				1,245
Golfo San Jorge			7,500				7,039				74				73
Cuyana			726				670				—				—
Noroeste			44				23				89				45
Austral			109				109				53				53
Onshore			12,873				11.342				1,987				1,416
Offshore			91				45				—				—
Total			12,964				11,387				1,987				1,416

 

(1)

A “gross well” is a well in which we own a working interest. A “net well” is deemed to exist when the sum of fractional ownership working interests in gross wells equals one. The number of net wells is the sum of the fractional working interests owned in gross wells expressed as whole numbers and fractions of whole numbers

As of December 31, 2020, we held 123 exploration permits and production concessions in Argentina. We directly operate 88 of them, including 14 exploration permits and 74 production concessions.

Exploration permits: As of December 31, 2020, we held 20 exploration permits in Argentina, 16 of which were onshore exploration permits and four of which were offshore exploration permits. We had 100% ownership of nine onshore permits, and our participating interests in the remaining onshore permits varied between 50% and 70%. Our participating interests in the four offshore permits varied between 37.5% and 50%.

Production concessions: As of December 31, 2020, we had 103 production concessions in Argentina. We had a 100% ownership interest in 58 production concessions, and our participating interests in the remaining 45 production concessions ranged between 7.2% and 98%.

In addition, we have 36 crude oil treatment plants and 11 pumping plants where oil is processed and stored. The purpose of these plants is to receive and treat oil from different fields prior to shipment to our refineries and/or commercialization to third parties, as applicable. See “Item 3. Key Information—Risk Factors—Risks Relating to Our Business—Our business depends to a significant extent on our production and refining facilities and logistics network.”

In connection with our main properties, see “—Exploration & Production Activity in Argentina.” Production for each of the last three fiscal years by geographic area and by field containing 15% or more of our total proved reserves is set forth under “—Oil and gas production, production prices and production costs”.

Approximately 96% of our proved crude oil reserves in Argentina are concentrated in the Neuquina (62%) and Golfo San Jorge (33%) basins, and approximately 87% of our proved gas reserves in Argentina are concentrated in the Neuquina (76%), and Austral (11%) basins.

Joint ventures and contractual arrangements in Argentina

As of December 31, 2020, we participated in 11 exploration and 37 production joint ventures and contractual arrangements (28 of which were not operated by us) in Argentina. Our interests in these joint ventures and contractual arrangements ranged from 7.2% to 98%, and our obligations to share exploration and development costs varied under these agreements. In addition, under the terms of some of certain joint ventures, we have agreed to indemnify our joint venture partners in the event that our rights with respect to such areas are restricted or affected in such a way that the purpose of the joint venture cannot be achieved. For a list of the main exploration and production joint ventures in which we participated as of December 31, 2020, see Note 28 to the Audited Consolidated Financial Statements. We are also a party to a number of other contractual arrangements that arose through the renegotiation of service contracts and their conversion into exploitation concessions and exploration permits, respectively.

 

39

Oil and gas reserves

Proved oil and gas reserves are those quantities of oil and gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible (from a given date forward, from known reservoirs, and under existing economic conditions, operating methods and government regulations) prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. The project to extract the hydrocarbons must have commenced or the operator must be reasonably certain that it will commence the project within reasonable time. In some cases, substantial investments in new wells and related facilities may be required to recover proved reserves.

Information on net proved reserves as of December 31, 2020, 2019 and 2018 was calculated in accordance with the SEC rules and Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 932, as amended. Accordingly, crude oil prices used to determine reserves were calculated each month for crude oils of different quality produced by the Company. Consequently, to calculate our net proved reserves as of December 31, 2020, the Company considered (i) for 2021, the 12 months average of domestic realized prices for crude oil taking into account the effect of export taxes in place until December 31, 2021 (in accordance with Law No 27,541 and Decree No. 488/2020); (ii) for and following the year 2022, given that there are no formal export taxes in place, the unweighted average price of crude oil of the first-day-of-the-month for each month within the twelve-month period ended December 31, 2020, which refers to the Brent prices adjusted by each different quality produced by the Company.

Additionally, since there are no benchmark market natural gas prices available in Argentina, the Company considered the 12-months average of domestic market realized prices realized according to the SEC’s rules and FASB’s ASC 932 rules, but it also took into account the effect of certain areas from the Neuquina Basin where prices are set according to contracts awarded to YPF S.A under the Plan GasAr until 2024. See “Item 4. Information on the company—Legal and Regulatory Framework and Relationship with the Argentine government—Market Regulation—Natural gas—Natural Gas Stimulus Programs—Decree No. 892/2020.”

Notwithstanding the foregoing, commodity prices have fluctuated significantly in recent years. See “Item 3. Key Information—Risk Factors—Risks Relating to Our Business—Our oil and natural gas reserves are estimates” and “Item 3. Key Information—Risk Factors—Risks Relating to Our Business—Our reserves and production may decline.”

Net reserves are defined as that portion of the gross reserves attributable to the interest of the Company after deducting interests owned by third parties. In determining net reserves, the Company excludes from its reported reserves royalties due to others, whether payable in cash or in kind, where the royalty owner has a direct interest in the underlying production and is able to make lifting and sales arrangements independently. By contrast, to the extent that royalty payments required to be made to a third party, whether payable in cash or in kind, are a financial obligation, or are substantially equivalent to a production or severance tax, the related reserves are not excluded from the reported reserves despite the fact that such payments are referred to as “royalties” under local rules. The same methodology is followed in reporting our production amounts.

Gas reserves exclude the gaseous equivalent of liquids expected to be removed from the gas on concessions and leases, at field facilities and at gas processing plants. These liquids are included in net proved reserves of NGLs.

Technology used in establishing proved reserves additions

YPF’s estimated proved reserves as of December 31, 2020 are based on estimates generated through the integration of available and appropriate data, utilizing well-established technologies that have been demonstrated in the field to yield repeatable and consistent results. Data used in these integrated assessments include information obtained directly from the subsurface via wellbore, such as well logs, reservoir core samples, fluid samples, static and dynamic pressure information, production test data, and surveillance and performance information. The data utilized also include subsurface information obtained through indirect measurements, including high quality 2-D and 3-D seismic data, calibrated with available well control. Where applicable, geological outcrops information was also utilized. The tools used to interpret and integrate all this data included both proprietary and commercial software for reservoir modeling, simulation and data analysis. In some circumstances, where appropriate analog reservoir models are available, reservoir parameters from these analog models were used to increase the reliability of our reserves estimates.

For further information on the estimation process of our proved reserves, see “—Internal controls on reserves and reserves audits.”

 

40

Net Proved Developed and Undeveloped Reserves as of December 31, 2020

The following table sets forth our estimated net proved developed and undeveloped reserves of crude oil, NGLs and natural gas at December 31, 2020.

 

Proved Developed Reserves		Oil (1) (mmbbl)				NGL (mmbbl)				Natural Gas (bcf)				Total (2) (mmboe)
Consolidated Entities
South America
Argentina			229				32				1,486				526
Chile			—				—				—				—
Total Proved Developed Reserves			229				32				1,486				526
Proved Undeveloped Reserves		Oil (1) (mmbbl)				NGL (mmbbl)				Natural Gas (bcf)				Total (2) (mmboe)
Consolidated Entities
South America
Argentina			254				31				624				396
Chile			—				—				—				—
Total Proved Undeveloped Reserves			254				31				624				396
Total Proved Reserves (2) (3)		Oil (1) (mmbbl)				NGL (mmbbl)				Natural Gas (bcf)				Total (2) (mmboe)
Consolidated Entities
Developed Reserves			229				32				1,486				526
Undeveloped Reserves			254				31				624				396
Total Proved Reserves			483				63				2,110				922

 

(1)	Includes crude oil (oil and condensate).

(2)	Volumes of natural gas in the table above and elsewhere in this annual report have been converted to barrels of oil equivalent at 5,615 cubic feet per barrel.

(3)

Proved crude oil and NGL reserves of consolidated entities include an estimated approximately 70 mmbbl of crude oil and 7 mmbl of NGLs in respect of royalty payments which, as described above, are a financial obligation or are substantially equivalent to a production or similar tax. Proved natural gas reserves of consolidated entities include an estimated approximately 245 bcf in respect of such payments.

For information regarding changes in our estimated net proved reserves during 2020, 2019 and 2018, see Note 39 to the Audited Consolidated Financial Statements.

The paragraphs below explain in further detail the most significant changes in our net proved undeveloped reserves during 2020, 2019 and 2018.

Changes in our net proved undeveloped reserves during 2020

YPF had an estimated volume of net proved undeveloped reserves of 396 mmboe at December 31, 2020, which represented approximately 43% of the 922 mmboe total reported proved reserves as of such date. This compares to estimated net proved undeveloped reserves of 423 mmboe as of December 31, 2019 (approximately 39% of the 1,073 mmboe total reported proved reserves as of such date).

The 6% total net decrease in net proved undeveloped reserves in 2020 is mainly attributable to:

 

•

Ongoing successful development activities related to proved undeveloped reserves projects, which allowed a transfer of approximately 34 mmboe (18 mmboe corresponding to Vaca Muerta projects) to proved developed reserves. The main contributions are related to development wells (23 mmboe) mainly in Neuquina basin and improved recovery projects (11 mmboe) mainly in Golfo San Jorge and Neuquina basins.

 

•

A change in our development strategy and other project revisions driven by lower average oil prices and its impact on incomes and on the economic limit of certain fields, which resulted in a downwards revision of 64 mmboe from previous projects, mainly from Neuquina and Golfo San Jorge basins.

 

41

•

A change in our participation in Bandurria Sur field, which resulted in a decrease of 11 mmboe of proved undeveloped reserves. See “Item 4. Information on the company—Upstream overview—Unconventional Region—Bandurria Sur Area.”

 

•

The revision of some improved recovery oil projects and the modification or cancellation of development schedules, resulting in a 3 mmboe proved undeveloped reserves reduction, mainly in Golfo San Jorge basin.

This was partially offset by:

 

•

Extensions and discoveries, which added 85 mmboe (189 bcf of Gas, 9 mmbbl of NGL and 42 mmbbl of Oil) of proved undeveloped reserves mainly from shale gas projects from the Vaca Muerta formation at Neuquina basin.

YPF’s total capital expenditures to continue the development of reserves was approximately U.S.$ 347 million during 2020, of which U.S.$ 135 million was allocated to projects related to proved undeveloped reserves.

As of December 31, 2020, we did not have material amounts of proved undeveloped reserves in individual fields or countries that have remained undeveloped for five years or more after being disclosed as proved undeveloped reserves.

Changes in our proved undeveloped reserves during 2019

YPF had an estimated volume of net proved undeveloped reserves of 423 mmboe at December 31, 2019, which represented approximately 39% of the 1,073 mmboe total reported proved reserves as of such date. This compares to estimated net proved undeveloped reserves of 358 mmboe as of December 31, 2018 (approximately 33% of the 1,080 mmboe total reported proved reserves as of such date).

The 18% total net increase in net proved undeveloped reserves in 2019 is mainly attributable to:

 

•

Extensions and discoveries, which added 137 mmboe (276 bcf of Gas and 88 mmbbl of Oil) of proved undeveloped reserves mainly from shale oil and gas projects from Vaca Muerta formation at Neuquina basin.

 

•

Revised projects at Vaca Muerta formation which resulted in additional 19 mmboe (17 mmbbl of Oil and 11 bcf of Gas).

 

•

New improved recovery projects, adding approximately 5 mmboe of proved undeveloped secondary recovery reserves. The most important additions correspond to Golfo San Jorge and Neuquina basins.

This was partially offset by:

 

•

Ongoing successful development activities related to proved undeveloped reserves projects, which allowed a transfer of approximately 67 mmboe (31 mmboe corresponding to Vaca Muerta projects) to proved developed reserves. The main contributions are related to development wells (53 mmboe) mainly in Neuquina basin and improved recovery projects (14 mmboe) mainly in Golfo San Jorge and Neuquina basins.

 

•

A change in our development strategy and other project revisions in certain areas, which resulted in a downwards revision of 23 mmboe from previous projects, mainly from Neuquina, Austral and Cuyana basins.

 

•

The modification or cancellation of some primary and improved recovery oil projects and development schedules, resulting in a 6 mmboe proved undeveloped reserves reduction, mainly in Golfo San Jorge and Neuquina basins.

YPF’s total capital expenditures to continue the development of reserves was approximately U.S.$ 1,221 million during 2019, of which U.S.$ 945 million was allocated to projects related to proved undeveloped reserves.

As of December 31, 2019, we did not have material amounts of proved undeveloped reserves in individual fields or countries that have remained undeveloped for five years or more after being disclosed as proved undeveloped reserves.

Changes in our proved undeveloped reserves during 2018

YPF had estimated a volume of net proved undeveloped reserves of 358 mmboe at December 31, 2018, which represented approximately 33% of the 1,080 mmboe total reported net proved reserves as of such date. This compares to estimated net proved undeveloped reserves of 266 mmboe as of December 31, 2017 (approximately 29% of the 929 mmboe total reported net proved reserves as of such date).

The 35% total net increase in net proved undeveloped reserves in 2018 is mainly attributable to:

 

•

Extensions and discoveries, which added 149 mmboe (238 bcf of Gas and 107 mmbbl of Oil) of proved undeveloped reserves mainly from shale oil and gas projects from Vaca Muerta formation at Neuquina basin.

 

42

•

New economic conditions with higher gas and oil average prices and lower operating costs which resulted in a 48 mmboe Proved Undeveloped Reserves incorporation mainly from oil and gas fields of Neuquina basin (15 mmboe) and oil fields from Golfo San Jorge basin (33 mmboe).

 

•

New improved recovery projects, adding approximately 9 mmboe of proved undeveloped secondary recovery reserves. Most important additions belong to Golfo San Jorge and Neuquina basins.

This was partially offset by:

 

•

Ongoing successful development activities related to proved undeveloped reserves projects, which allowed a transfer of approximately 67 mmboe to proved developed reserves. The main contributions are related to development wells (58 mmboe) mainly in Neuquina basin and improved recovery projects (9 mmboe) mainly in Golfo San Jorge and Neuquina basins.

 

•

A change in our development strategy in certain areas, which resulted in a downwards revision of 43 mmboe from previous projects, mainly from Neuquina, Austral and Golfo San Jorge basins.

 

•

The modification or cancellation of some primary and improved recovery oil projects and development schedules, resulting in a 5 mmboe proved undeveloped reserves reduction, mainly in Austral, Golfo San Jorge and Cuyana basins.

 

•

Changes in gas compression projects, which resulted in a 5 mmboe reduction of proved undeveloped reserves, mainly from Neuquina basin.

YPF’s total capital expenditures to continue the development of reserves was approximately U.S.$ 936 million during 2018, of which U.S.$ 655 million was allocated to projects related to proved undeveloped reserves.

As of December 31, 2018, we did not have material amounts of proved undeveloped reserves in individual fields or countries that have remained undeveloped for five years or more after being disclosed as proved undeveloped reserves.

Internal controls on reserves and reserves audits

All of our oil and gas reserves held in consolidated companies have been estimated by our petroleum engineers. In order to meet the high standard of “reasonable certainty,” reserves estimates are stated taking into consideration additional guidance as to reservoir economic productivity requirements, acceptable proved area extensions, drive mechanisms and improved recovery methods, marketability under existing economic and operating conditions and project maturity.

Where applicable, the volumetric method is used to determine the original quantities of petroleum in place. Estimates are made by using various types of logs, core analysis and other available data. Formation tops, gross thickness and representative values for net pay thickness, porosity and interstitial fluid saturations are used to prepare structural maps to delineate each reservoir and isopachous maps to determine reservoir volume. Where adequate data is available and where circumstances are justified, material-balance and other engineering methods are used to estimate the original hydrocarbon in place.

Estimates of ultimate recovery are obtained by applying recovery factors to the original quantities of petroleum in place. These factors are based on the drive mechanisms inherent in the reservoir, analysis of the fluid and rock properties, the structural position of the reservoir and its production history. In some instances, comparisons are made with similar production reservoirs in the areas where more complete data is available.

Where adequate data is available and where circumstances are justified, material-balance and other engineering methods are used to estimate ultimate recovery. In these instances, reservoir performance parameters such as cumulative production, production rate, reservoir pressure, gas to oil ratio behavior and water production are considered in estimating ultimate recovery.

In certain cases where the above methods could not be used, proved reserves are estimated by analogy to similar reservoirs where more complete data are available.

To control the quality of reserves booking, a process has been established that is integrated into the internal control system of YPF.

This process to manage reserves booking is centrally controlled and has the following components:

 

(a)

The Reserves Audit (“RA”) is separate and independent from the Upstream segment. RA’s activity is overseen by YPF’s Audit Committee, which is also responsible for supervising the procedures and systems used in the recording of and internal control over the Company’s hydrocarbon reserves. The primary objectives of the RA are to ensure that YPF’s proved reserves estimates and disclosure are in compliance with the rules of the SEC, the FASB, and the Sarbanes-Oxley Act, and to review annual changes in

 

43

reserves estimates and the reporting of YPF’s proved reserves. The RA is responsible for preparing the information to be publicly disclosed concerning YPF’s reported proved reserves of crude oil, NGLs, and natural gas. In addition, the RA is also responsible for providing training to personnel involved in the estimation of reserves and reporting process within YPF. The RA is managed by and staffed with individuals that have an average of more than 20 years of technical experience in the petroleum industry, including in the classification and categorization of reserves under the SEC guidelines. The RA staff includes several individuals who hold advanced degrees in either engineering or geology, as well as individuals who hold bachelor’s degrees in various technical studies. Several members of the RA are registered with or affiliated to the relevant professional bodies in their fields of expertise.

 

(b)

The Reserves Auditor, who has headed the RA since June 2017, is responsible for overseeing the preparation of the reserves estimates and reserves audits conducted by third party engineers. The current Reserves Auditor has over 35 years of experience in geology and geophysics, reserves estimates, project development, finance and general accounting regulations. Prior to becoming the Reserves Auditor, he was the general manager in E&D, and before that he worked as the Director for Exploration at YPF. He holds a degree in geology from the National University of Patagonia, and postgraduate courses at IAE Austral University. Consistent with our internal control system requirements, the Reserves Auditor’s compensation is not affected by changes in reported reserves.

 

(c)	A quarterly internal review by the RA of changes in proved reserves submitted by the Upstream business segment and associated with properties where technical, operational or commercial issues have arisen.

 

(d)

A Quality Reserve Coordinator (“QRC”) is assigned to each Upstream business segment of YPF to ensure that there are effective controls in the estimation of proved reserves and approval process of the estimates of YPF and the timely reporting of the related financial impact of proved reserves changes. Our QRCs are responsible for reviewing proved reserves estimates. The qualification of each QRC is made on a case-by-case basis with reference to the recognition and respect of such QRC’s peers. YPF would normally consider a QRC to be qualified if such person (i) has a minimum of 5 years of practical experience in petroleum engineering or petroleum production geology, with at least three years of such experience in charge of the estimation and evaluation of reserves, and (ii) has either (A) obtained, from a college or university of recognized stature, a bachelor’s or advanced degree in petroleum engineering, geology or other related discipline of engineering or physical science, or (B) received, and is maintaining in good standing, a registered or certified professional engineer’s license or a registered or certified professional geologist’s license, or the equivalent thereof, from an appropriate governmental authority or professional organization.

 

(e)	A formal review through technical review committees to ensure that both technical and commercial criteria are met prior to the commitment of capital to projects.

 

(f)	Our internal audit team examines the effectiveness of YPF’s financial controls, which are designed to ensure the reliability of reporting and safeguarding of all the assets and examines YPF’s compliance with the law, regulations and internal standards.

 

(g)	All volumes booked are submitted to a third party reserves audit on a periodic basis. The properties selected for a third party reserves audit in any given year are selected on the following basis:

 

i.

all properties on a three-year cycle; and

 

ii.

recently acquired properties not submitted to a third party reserves audit in the previous cycle and properties with respect to which there is new information which could materially affect prior reserves estimates.

For those areas submitted to a third party reserves audit, YPF’s proved reserves figures have to be within 7% or 10 mmboe of the third party reserves audit figures for YPF to declare that the volumes have been ratified by a third party reserves audit. In the event that the difference is greater than the tolerance, YPF will re-estimate its proved reserves to achieve this tolerance level or should disclose the third party figures. YPF has adopted the above-mentioned procedure by approving the corresponding internal policy.

In 2020, DeGolyer and MacNaughton audited certain YPF operated and non-operated areas in the Neuquina, Golfo San Jorge and Cuyana basins of Argentina. These audits were performed as of December 31, 2020, and the audited fields contain in aggregate approximately 286 mmboe of proved reserves (126 mmboe of which were proved undeveloped reserves) as of such date, which represented approximately 31% of our proved reserves and 32% of our proved undeveloped reserves as of December 31, 2020. Copies of the related reserves audit reports are filed as an exhibit to this annual report.

We are required, in accordance with Resolutions No. 324/06 and 69/16 of the Argentine Subsecretariat of Hydrocarbons, to annually file by March 31 details of our estimates of our oil and gas reserves and resources with the Argentine Subsecretariat of Hydrocarbons, as defined in that resolution and certified by an external auditor. The aforementioned certification and external audit only have the meaning established by Resolutions No. 324/06 and 69/16 and are not to be interpreted as a certification or external audit of oil and gas reserves under SEC rules. We last filed such a report for the year ended December 31, 2018. Estimates of our oil and gas reserves filed with the Argentine Subsecretariat of Hydrocarbons are materially higher than the estimates of our proved oil and gas reserves contained in this

 

44

annual report mainly because: (i) information filed with the Argentine Subsecretariat of Hydrocarbons includes all properties of which we are operators, irrespective of the level of our ownership interests in such properties; (ii) information filed with the Argentine Subsecretariat of Hydrocarbons includes other categories of reserves and resources that are not included in this annual report, which are different from estimates of proved reserves consistent with the SEC’s guidance contained in this annual report; and (iii) the definition of proved reserves under Resolutions No. 324/06 and 69/16 is different from the definition of “proved oil and gas reserves” established in Rule 4-10(a) of Regulation S-X. Accordingly, all proved oil and gas reserve estimates included in this annual report reflect only proved oil and gas reserves consistent with the rules and disclosure requirements of the SEC.

Oil and gas production, production prices and production costs

The following table shows our crude oil (including oil and condensate), NGL, and gas production on an as sold and annual basis for the years indicated. In determining net production, we exclude royalties due to others, whether payable in cash or in kind, where the royalty owner has a direct interest in such production and is able to make lifting and sales arrangements independently. By contrast, to the extent that royalty payments required to be made to a third party, whether payable in cash or in kind, are a financial obligation or are substantially equivalent to a production or severance tax, they are not excluded from our net production amounts despite the fact that such payments are referred to as “royalties” under local rules. This is the case for our production in Argentina, where royalty expense is accounted for as a production cost.

 

Oil and Condensate Production (1)		2020				2019				2018
						(mmbbl)
Consolidated Entities
South America
Argentina			76				83				83
Chile			—				*				—
Total Oil Production (2)			76				83				83
NGL Production (1)		2020				2019				2018
						(mmbbl)
Consolidated Entities
South America
Argentina			13				14				14
Chile			—				—				—
Total NGL Production (3)			13				14				14
Natural Gas Production (1)		2020				2019				2018
						(bcf)
Consolidated Entities
South America
Argentina			394				440				461
Chile			—				—				—
Total Natural Gas Production (4) (5)			394				440				461

 

45

Oil Equivalent Production (1) (6)		2020				2019				2018
						(mmboe)
Consolidated Entities
Oil and Condensate			76				83				83
NGL			13				14				14
Natural Gas			70				78				82
Total Oil Equivalent Production			159				175				179

 

*	Not material (less than 1).

(1)

Loma La Lata Central and Loma La Lata Norte (southern and northern parts of the Loma La Lata field) in Argentina contain approximately 19% of our total proved reserves expressed on an oil equivalent barrel basis. Oil and condensate production in these fields was approximately 8, 9 and 8 mmbbl for the years ended December 31, 2020, 2019 and 2018, respectively. NGL production in these fields was approximately 5, 5 and 5 mmbbl for the years ended December 31, 2020, 2019 and 2018, respectively. Natural gas production in the Loma La Lata field was 87, 97 and 109 bcf for the years ended December 31, 2020, 2019 and 2018, respectively.

(2)	Crude oil production for the years ended in December 31, 2020, 2019 and 2018 includes an estimated 11, 12 and 12 mmbbl, respectively, in respect of royalty payments which are a financial obligation or are substantially equivalent to a production or similar tax.

(3)	NGL production for the years ended in December 31, 2020, 2019 and 2018 includes an estimated 1, 1 and 2 mmbbl, respectively, in respect of royalty payments which are a financial obligation or are substantially equivalent to a production or similar tax.

(4)	Natural gas production for the years December 31, 2020, 2019 and 2018 includes an estimated 53, 60 and 61 bcf, respectively, in respect of royalty payments which are a financial obligation or are substantially equivalent to a production or similar tax.

(5)	Does not include volumes consumed or flared in operations (whereas sale volumes shown in the reserves table included in “Supplemental Information on Oil and Gas Producing Activities (Unaudited)—Oil and Gas Reserves” include volumes consumed in operations).

(6)	Volumes of natural gas have been converted to barrels of oil equivalent at 5,615 cubic feet per barrel.

The composition of the crude oil produced by us in Argentina varies by geographic area. Almost all crude oil produced by us in Argentina has very low or no sulfur content. We sell substantially all the crude oil we produce in Argentina to our Refining and Marketing business segment. Most of the natural gas produced by us is of pipeline quality. All of our gas fields produce commercial quantities of condensate, and substantially all of our oil fields produce associated gas.

 

46

The following table sets forth the average production costs and average sales price expressed in Ps/boe by geographic area for 2020, 2019 and 2018:

 

Production costs and sales price		Total				Argentina				Chile
Year ended December 31, 2020
Lifting costs			733.40				733.40				(*)
Local taxes and similar payments (1)			32.52				32.40				(*)
Other costs			198.43				197.52	(3)			(*)
Average production costs			964.35				963.32				(*)
Average oil sales price			2,798.38				2,798.38				—
Average NGL sales price			1,709.43				1,709.43				—
Average natural gas sales price (2)			1,068.07				1,068.07				—
Year ended December 31, 2019
Lifting costs			620.44				619.55				(*)
Local taxes and similar payments (1)			31.09				30.97				(*)
Other costs			64.51				64.33	(3)			(*)
Average production costs			716.04				714.85				(*)
Average oil sales price			2,351.81				2,351.81				—
Average NGL sales price			1,167.69				1,167.69				—
Average natural gas sales price (2)			1,038.96				1,038.96				—
Year ended December 31, 2018
Lifting costs			348.68				348.68				—
Local taxes and similar payments (1)			22.92				22.92				—
Other costs			97.77				97.77				—
Average production costs			469.37				469.37				—
Average oil sales price			1,774.87				1,774.87				—
Average NGL sales price			1,052.96				1,052.96				—
Average natural gas sales price (2)			739.49				739.49				—

 

(1)

Does not include ad valorem and severance taxes, including the effect of royalty payments which are a financial obligation or are substantially equivalent to such taxes, in an amount of approximately Ps. 255.36 per boe, Ps. 226.21 per boe, and Ps. 162.08 per boe for the years ended December 31, 2020, 2019 and 2018, respectively.

(2)	Includes revenues from the Investment in Natural Gas Production from Non-Conventional Reservoirs Stimulus Program. See “—Legal and Regulatory Framework and Relationship with the Argentine government—Market Regulation—Natural gas—Natural Gas Stimulus Programs.”

(3)	Includes (64.6) Ps/boe million and (38.2) Ps/boe million, for 2020 and 2019, respectively, corresponding to the implementation of IFRS 16. For more information See Note 2.b.12) to the Audited Consolidated Financial Statements.

(*)	No significant production associated.

 

47

Drilling activity in Argentina

The following table shows the number of wells drilled by us or consortiums in which we had a working interest in Argentina during the periods indicated.

 

		For the Year Ended December 31,
		2020				2019				2018
Gross wells drilled (1)
Oil			2				8				10
Gas			—				3				5
Exploratory productive			2				11				15
Dry			—				12				6
Total - Exploratory			2				23				21
Oil			112				305				313
Gas			12				105				131
Development productive			124				410				444
Dry			—				—				1
Total - Development			124				410				445
Net wells drilled (2)
Oil			1				7				7
Gas			—				2				4
Exploratory productive			1				9				11
Dry			—				9				5
Total - Exploratory			1				18				16
Oil			78				224				237
Gas			5				75				84
Development productive			83				299				321
Dry			—				—				1
Total - Development			83				299				322

 

(1)	“Gross” wells include all wells in which we have an interest.

(2)	“Net” wells equal gross wells after deducting third-party interests.

Exploration & Development Activity in Argentina

During 2020, our main exploratory and development activities in Argentina had the following principal focus:

Exploratory Activities

Operated Areas

Due to the measures adopted by the Argentine government in order to protect the population (including a general restriction on the economy) as a result of the effects of the COVID-19 outbreak, no exploratory or seismic activity was carried out after March 19, 2020.

Onshore

Unconventional activities

During 2020, two wells drilled in 2019 were tested with positive results.

Two tight gas wells drilled in 2019 in Rincón del Mangrullo and Cerro Manrique Blocks are still pending completion. Only one of them is expected to be finished in 2021.

 

48

Conventional activities

 

•

Neuquina Basin

 

•

Due to the outbreak of the COVID-19 pandemic, all exploration activities were suspended. As a result, notices were sent to the Mendoza Province requesting a one-year deferral of the expiration dates of the first exploration period of the blocks Los Parlamentos, CNIII Norte, CNVII A and Puesto Pozo Cercado Occidental. The deferral was granted for all the blocks.

 

•

During the first quarter of 2020, two exploration wells drilled before the lockdown were shallow wells drilled to gather more detailed geological data on rock and fluid properties in Chachahuén Block.

 

•

The third exploration period of the blocks Chachahuén Norte, Chachahuén Centro and Chachahuén Sur expired in 2020. The Company decided to relinquish Chachahuén Norte and Chachahuén Centro and sent a note to the Province of Mendoza informing of its decision to keep an area of 104 km2 of Chachahuén Sur (adjacent to Cerro Morado Block). As of the date of this annual report, negotiations to keep Chachahuén Sur are ongoing.

 

•

Having fulfilled all commitments in the Malargüe Block, and considering the results obtained, the Company decided not to continue with the second exploration period. Consequently, a notice was sent to the Mendoza Province informing of its decision to relinquish the block. As of the date of this annual report, we are still awaiting response from the Province of Mendoza on the notice sent in 2019 informing them of our decision to relinquish the Malargüe Block.

 

•

The first exploration period of the blocks Cerro Arena, Salinas del Huitrín, Las Tacanas, Chasquivil, Cerro Las Minas, Pampa de las Yeguas Bloque II and Loma del Molle expired on November 20, 2020 and negotiations with the Province of Neuquén resulted in:

 

◾

Cerro Arena: a second exploration period was awarded with conventional and unconventional exploration commitments. An area of 249 km2 was relinquished.

 

◾

Salinas del Huitrín: a second exploration period was awarded with conventional exploration commitments. No relinquishment was made.

 

◾

Las Tacanas: a second exploration period was awarded with unconventional exploration commitments. An area of 44 km2 was relinquished.

 

◾

Cerro Las Minas: a second exploration period was awarded with unconventional exploration commitments. An area of 38 km2 was relinquished.

 

◾

Loma del Molle (operated by Exxon-Mobil): a second exploration period was awarded with unconventional exploration commitments. An area of 30 km2 was relinquished.

 

◾

Pampa de las Yeguas Bloque II (Operated by Total Austral): a second exploration period was awarded with unconventional exploration commitments. No relinquishment was made.

 

◾

Chasquivil: The Company decided not to enter on the second exploration period, and relinquished the whole block (123 km2).

 

•

Golfo San Jorge basin

 

•

During 2020, all exploration activities were suspended due to the outbreak of the COVID-19 pandemic.

 

•

Cuyana basin

 

•

During 2020, all exploration activities were suspended due to the COVID-19 lockdown.

 

•

Having fulfilled all commitments in CCyB 17/B and considering the results obtained, we decided not to continue with the exploratory periods and, as a result, the block was relinquished to the Province of Mendoza. As of the date of this annual report, we are still awaiting response from the Province of Mendoza on the notice delivered in 2018 informing them of our decision to relinquish the CCyB 17/B Block.

 

49

•

Austral basin

 

•

During 2020, all exploration activities were suspended due to the COVID-19 lockdown.

 

•

The Company sent notes to the Santa Cruz and Tierra del Fuego Provinces requesting a deferral of the expiration dates of the first exploration period of blocks El Turbio and CA-12 Bloque I due to the consequences of the outbreak of COVID-19. The deferral was granted for 10 months in El Turbio Block (from September 2020 to July 2021) and for 11 months in CA-12 Bloque I (from December 2020 to November 2021).

 

•

Seismic

 

•

Due to the consequences of the outbreak of COVID-19, the seismic that was taking place in El Turbio Block was suspended and is expected to be finished in 2022.

Offshore

On January 14, 2021 a partnership agreement was signed by YPF, Equinor Argentina AS and Shell, whereby Equinor Argentina AS would operate the area holding a 35% working interest, YPF would have a 35% WI and Shell 30% WI. As of the date of this annual report, the Ministry of Energy has not yet formalized the agreement. See “—Main Properties” and “Argentine Exploration Permits and Exploitation Concessions.”

Non-Operated Areas

During 2020, we did not conduct exploration activities in non-operated areas.

Development Activities

During 2020, our development activities in Argentina were mainly focused, according to the organizational structure in force in 2020, on the following regions and blocks:

Unconventional Region

During 2020, Unconventional Region production was 133.33 kboe/d, representing 28.6% of YPF’s total production.

 

50

1 Aguada De Castro; 2 Aguada De La Arena; 3 Aguada Del Chañar; 4 Aguada Pichana Oriental; 5 Aguada Pichana Occidental; 6 Bajada De Añelo; 7 Bajo Del Toro; 8 Bandurria.Sur; 9 Cerro Arena; 10 Cerro Las Minas; 11 El Orejano; 12 La Amarga Chica; 13La Calera; 14 La Ribera I; 15 La Ribera II; 16 Las Tacanas; 17 Lindero Atrave.sado; 18 Loma Amarilla Sur; 19 Loma Campana; 20 Loma Del Molle; 21 Pampa De Las Yeguass I; 22 Pampa De Las Yeguas II Norte; 23 Pampa De Las Yeguas II Sur; 24 Rincón Del Mangrullo; 25 Salinas Del Huitrín and 26 San Roque.

 

51

Main Operated Areas

Loma Campana Area:

On 2013, YPF and Chevron signed an investment project agreement for the joint exploitation of unconventional hydrocarbons in Neuquén Province. YPF is the operator of the area.

In 2017, we had an average of approximately 1,700 mts horizontal length and 20 frac stages, while in 2018, we had an average of approximately 2,200 mts horizontal length and 28 frac stages. In 2019, we had an average of approximately 2,400 mts horizontal length and 35 frac stages. The total well cost for each frac stage was reduced from 484 U.S.$/stages in 2017 to 404 U.S.$/Stages in 2018 and 312 U.S.$/stages in 2019. In 2020, the horizontal length and frac stage decreased to 2,000 mts horizontal length and 30 frac stages, respectively, with a total well cost for each frac stage of 410 U.S.$/stages. The total cost reduction between 2017 and 2020 was due to the High Density Completion (“HDC”) strategy, which streamlines efficiency. The HDC is an indicator of the fracture design to be executed in a well, which allows achieving efficiencies in productivity and/or well costs.

During 2019, we focused on increasing lateral lengths and frac stages to improve our productivity.

During 2020, we drilled 17 horizontal wells, and put 13 horizontal wells into production, achieving the expected performance on average. The 2019 and 2020 campaigns stimulated with HDC designs exceeded the production results of previous years. Well design ranges from 1,400 mts of lateral length and 21 frac stages to 2,500 mts of lateral length and 38 frac stages, while the space between frac stages was mainly at 66 mts due to the HDC strategy, which allowed for the drilling of 98.9% of the targeted area.

During 2020, activity in this area involved a total gross investment of U.S.$ 197 million in drilling and completion (“D&C”) and U.S.$ 48 million in production facilities and other minor capital expenditures. Drilling and completion activities were affected by the outbreak of the COVID-19 pandemic.

HDC stimulation design was implemented showing better results when compared with previous campaigns. Preliminary analysis conducted in 2019 showed an increase of Estimated Ultimate Recovery (“EUR”) compared to 2018. During 2020, studies that combine numerical simulation, data analytics and field tests were executed to provide proposals for further improvement in HDC designs. Several other pilots are in progress such as the use of 100% natural sand (percentage of ceramic support agent was removed), low viscosity fluids and the pumping sequence adjustments. Well spacing pilots are under execution to evaluate optimized development strategies in certain areas of the field.

In mid-March 2020, Loma Campana had three drilling rigs, which were suspended when the COVID-19 lockdown began. Activity in these three drilling rigs resumed between September and October 2020.

Several pilots seeking cost reduction in completion were being executed as of the date of this annual report. Some of them involve test of the local sands, change in fluid systems to polyacrylamide base fluids and adjustments in fluid and prop pant agent intensity.

A pad of six horizontal wells with three different targets was successfully drilled between 2019 and 2020 in the westernmost position of the core development zone verifying good drilling performance and well stability.

The extended reach well pad continues to be drilled in the South East sector of the Loma Campana field corroborating high drilling efficiency. The maximum lateral extension drilled in this pad as of the date of this annual report was 3,430 mts measure depth.

La Amarga Chica Area:

On December 10, 2014, YPF and PETRONAS E&P ARGENTINA S.A., an affiliate of PETRONAS E&P Overseas Ventures Sdn. Bhd (“PEPOV”) of Malaysia, executed a Project Investment Agreement (the “Investment Agreement”) aiming to perform joint exploitation of unconventional hydrocarbons in the La Amarga Chica area in the Neuquén province. YPF is the operator of the area.

The Pilot Plan, comprising 30 wells in three years, started in May 2015. At the end of the first phase, in 2016, a total of six horizontal and three vertical wells had been drilled, with results exceeding previous expectations. Based on those positive results, PETRONAS E&P ARGENTINA S.A. agreed to continue co-investing in a second phase of the pilot project. By the end of 2016, four additional horizontal wells from this phase were drilled, reaching a total of nine drilled wells during 2016, with a drilling rig fully dedicated to the project. During 2017, 12 horizontal wells were drilled, completing phase two of the project and paving the way for the final phase of the project.

 

52

Six of those wells were put into production with the expected performance. All of the drilled horizontal drains were standardized at 1,500m long except for two wells that reached 2,000m. An improvement in performance of drilling (time and cost) is still observed, with drilling time and well cost being reduced by 22% and 11%, respectively, between 2017 and 2018.

At the beginning of 2018, YPF and PETRONAS E&P ARGENTINA S.A., an affiliate of PETRONAS E&P Overseas Ventures Sdn. Bhd (“PEPOV”) of Malaysia, ratified their intention to continue with the pilot in the area. During 2018, the pilot phase of the area project was completed (seven wells were drilled, initial results behave according to expectations) and the third phase was initiated, where both companies considered the drilling of ten horizontal wells and the construction of new facilities and installations in order to transport the shale oil production derived from the area.

During 2019, 41 wells were drilled, and 20 wells were put into production, achieving a performance above expectations set by the Type Well in La Amarga Chica. Well design ranges reached an average 1,900 mts of lateral length and 28 frac stages. Also, ten vertical wells were drilled for control or water purposes.

Activity in this area during 2019 involved a total gross investment of U.S.$ 379 million in D&C and U.S.$ 74 million in production facilities and other capital expenditures.

In addition, many optimization strategies were tested and implemented in 2019, leading to a growth in fluid and prop pant intensities (of up to 5,000 lb/ft).

During 2020, ten wells were drilled, and 15 wells were put into production. Production peak was reached on December 2020 with 23.8 kbbl/d.

Well architecture was 2,400 mts lateral length average and 41 HDC frac stages, achieving a performance that exceeded expectations and an estimated ultimate recovery (“EUR”) growth around 7%. Total gross investment was U.S.$ 166 million in D&C and U.S.$ 67 million in production facilities and other capital expenditures. Drilling and completion activities were affected by the outbreak of the COVID-19 pandemic.

In mid-March 2020, La Amarga Chica had four drilling rigs, which were suspended when the COVID-19 lockdown began. Activity was resumed in October 2020 with three rigs.

Many optimization strategies were tested and implemented in 2020: five horizons were tested successfully and were added to the current well inventory; completion test of increase in fluid and prop pant intensities (of up to 5,000 lb/ft) was executed; cemented sleeve technology was used in one well to mitigate possible casing restriction; “Parent-child” interaction effects were reduced based on field development strategy and oil recovery technologies under laboratory tests.

In addition, an eight-wells pilot was conducted to study fracture design sensitivities for three different landing zones. During this pilot, a large dataset was collected including micro-seismic, oil-based tracers and bottom hole pressure gauges. This information will be considered to continue the field development strategy optimization and improve the project cost-effectiveness.

Bandurria Sur Area:

On July 5, 2017, YPF and SPM Argentina S.A. executed an agreement defining the main terms and conditions for the joint development of a shale oil pilot in the Bandurria Sur area in two phases. YPF is the operator of the area.

On October 10, 2018, a major spill took place in the Bandurria Sur area caused by a blowout (decontrol of well). For this reason, the province of Neuquén decided to revoke the environmental licenses for pads eight and nine (this last one containing the uncontrolled well).

In January 2020, YPF was notified of the acquisition by Shell Compañía Argentina de Petróleo S.A. and Equinor Argentina AS (jointly, the “Consortium”) of the entire share package of SPM. This assignment required the payment by SPM to YPF of approximately U.S.$ 105 million, which was made in January 2020.

On January 30, 2020, YPF agreed with the Consortium, through SPM, to sell an 11% additional interest in the Bandurria Sur area, located in the Province of Neuquén. Notwithstanding such sale, YPF continues to be Bandurria Sur’s operator with a 40% interest in the area.

 

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During 2020, seven horizontal wells were drilled, four wells put into production in the fourth quarter of the year. As the date of this annual report, the performance of those wells is under evaluation.

Well design ranges reached an average of approximately 3,500 mts of lateral length and approximately 58 frac stages. Also, two vertical wells were drilled for control purpose.

During 2020, the activity in this area involved a total gross investment of U.S.$ 96 million in D&C and U.S.$ 48 million in production facilities and other capital expenditures. Drilling and completions activity were affected by the outbreak of the COVID-19 pandemic.

The largest horizontal well in the basin targeting of the Vaca Muerta formation, 7,190 mts of depth, was drilled in the Bandurria Sur area on December 2019 and put into production on December 2020.

In mid-March 2020, Bandurria Sur had two drilling rigs, which were suspended when the COVID-19 lockdown began. Activity in these two drilling rigs resumed in October 2020.

The outbreak of the COVID-19 pandemic, and the sanitary emergency decreed by the national government, forced a suspension in operations in April 2020, delaying all planned activities. In October 2020, drilling of PAD 25 and stimulation of PAD 13 were restarted. The four wells of this PAD are extended reach and started production in December 2020. More than 230 stages were pumped in this PAD, that includes the longest well: LCav-45(h). The performance of these wells is under evaluation.

The construction of the production facilities BAT02 and PCI began in 2020 and was postponed due to the COVID-19 pandemic. The construction of the crude oil treatment plant continued during 2020, which had begun in 2019, and its completion is expected to be discussed towards the end of 2022. Facilities already in operation (BAT01 / BAT03) were equipped with vapor recovery unit (“VRU”) and vent stacks.

Bajo del Toro Area:

Between 2012 and 2015, YPF and its partners (EOG Resources Inc., successor to Enron Oil & Gas Company, and Gas y Petróleo de Neuquén) drilled one slanted and two vertical exploratory wells. One of the vertical wells and the slanted well were completed (with six and eight frac stages respectively) and proved oil production from the whole organic-rich section of the Vaca Muerta Formation. The other vertical well was used for reservoir characterization and for micro-seismic monitoring of the slanted well. Between 2016 and 2017 the joint venture was dissolved, and part of the block reverted to the province.

On January 2018, YPF, Bajo del Toro I S.R.L. and Statoil Argentina B.V- Sucursal Argentina entered into an agreement defining the main terms and conditions for the joint development of a shale oil pilot in Bajo del Toro block, with YPF as the operator of the area.

During 2018, the joint venture continued with the characterization and evaluation of Vaca Muerta initiated in 2012, placing a pad in the southwestern area of the block. The pad included one vertical pilot section plus a side-track horizontal drain and one horizontal well. The objective of the horizontal drain/well was to test productivity in different landing zones. The objective of the vertical pilot section was data acquisition (core and full suite of logs) for reservoir characterization.

Additionally, on October 12, 2018, by Decree No. 1,755/18, the province of Neuquén approved the assignment of a portion of the concession in favor of Statoil, thereby satisfying the conditions precedent set forth in the agreement.

During 2020, activity in this area involved a total gross investment of U.S.$ 20.2 million in D&C and U.S.$ 6.1 million in production facilities and other capital expenditures. Drilling and completions activity were affected by the outbreak of the COVID-19 pandemic.

In mid-March 2020 in Bajo del Toro there was a drilling team working. Due to the effect of the covid-19 pandemic, from there the drilling equipment is on standby.

Drilling is schedule to resume in the first half of 2021.

In November 2020, a proposal was presented to the province requesting the CENCH (“Concesión de Explotación No Convencional de Hidrocarburos”, as its meaning in Spanish). Subsequently, inquiries were received from the province about it. Currently we are working to answer them.

 

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Chihuido de la Sierra Negra Sudeste – Narambuena Area:

During April 2014, YPF and subsidiaries of Chevron Corporation executed a new agreement with the objective of the joint exploration of unconventional hydrocarbons in Neuquén, within the area Chihuido de la Sierra Negra Sudeste – Narambuena. During 2015, this activity began with the D&C of two vertical wells that allowed the defining of the location and landing zone for the horizontal well. Subsequently, a third vertical well was drilled to delineate the extension of the area to the eastern sector of the block. By the drilling, completion and testing of these wells, the commitment for the initial phase of the project signed in April 2014 was fulfilled. During the second half of 2016, the joint venture between YPF and subsidiaries of Chevron Corporation continued the exploratory stage by evaluating the long-term tests of the horizontal well and third vertical well in this area located in the black oil window of the area.

During 2018, there was no activity in the area. A pilot phase was initiated in 2019, including the drilling of four horizontal wells which landed in three different landing zones. Two of them where completed in 2019 and the other two during 2020. These last two wells are already on production with a performance according to expectations.

During 2020 activity in this area involved a total gross investment of U.S.$ 11.0 million in D&C and U.S.$ 4.9 million in production facilities and other capital expenditures. Drilling and completions activity were affected by the outbreak of the COVID-19 pandemic.

There is no activity planned for 2021 beyond performance evaluation of existing wells. Development phase will not kick off before second half of 2022.

El Orejano Area:

On September 23, 2013, YPF and Dow Europe Holding B.V. and PBB Polisur S.A. (our current 50% partner in the area) signed an agreement relating to the joint development of an unconventional gas pilot project in the Neuquén Province.

The project has been in development phase since July 2016, and three targets are being drilled and produced.

During 2019, two horizontal wells were drilled and four wells drilled in 2018 were put into production achieving a performance below expectations.

During 2020, activity in this area involved a total gross investment of U.S.$ 3.8 million in D&C, facilities and other capital expenditures. Drilling and completions activity were affected by the outbreak of the COVID-19 pandemic.

During 2020, we continued working to mitigate the effects of CO2 present in the gas produced, which led to the abandonment of two wells.

Rincón del Mangrullo Area:

In Mulichinco formation at Rincón del Mangrullo concession, Pampa Energía S.A. (“Pampa Energía”) acquired 50% of the working interest during 2015. During 2019, one directional well, drilled in 2018, was put into production.

Instead, Vaca Muerta Formation in this block is 100% owned by YPF.

During 2019, two horizontal wells were drilled, eleven wells were put into production with results below expectations in the first pad due to the presence of faulting and the absence of one of the landing zones. On the other hand, the second pad exceeded the expectations reaching the best performance in the area, regardless of the landing zone. Finally, a four well pad was drilled, completed and turned to sales in 2019 with the results in line with the expectations. Well design ranges reached an average of approximately 1,900 mts of lateral length and approximately 26 frac stages.

In October 2020, three drilling rigs started drilling wells in Rincón del Mangrullo field as part of the activity committed to Plan Gas. The rigs will extend its activity to 2021 and 15 wells are planned to be completed before winter 2021.

Activity in this area during 2020 involved a total gross investment of U.S.$ 17.5 million in D&C and U.S.$ 3.0 million in production facilities and other capital expenditures. Drilling and completions activity were affected by the outbreak of the COVID-19 pandemic.

 

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Aguada de la Arena Area:

On May 13, 2016, YPF and Pampa Energía executed an agreement that subjects them to certain conditions precedent under which, upon closing of the acquisition by Pampa Energía of a controlling stake in Petrobras Argentina S.A (“PESA”). PESA will assign to YPF certain participating interests in two exploitation concessions in areas with gas production and significant gas development potential (tight and shale) located in Neuquina basin, which shall be operated by YPF. The conditions previously mentioned, and the assignment to YPF of the participating interest were concluded during 2016. As a result, the participating interests acquired were: (i) a 33.33% participating interest in Río Neuquén block located in the province of Neuquén and the province of Río Negro and (ii) an 80% participating interest in Aguada de la Arena block located in the province of Neuquén. In addition, on February 23, 2017, YPF and PetroUruguay S.A. signed a definitive agreement for the transfer of a 20% participating interest in Aguada de la Arena area. As a result, YPF has increased its participating interest in Aguada de la Arena area to 100%.

During 2019, three horizontal wells from the pilot phase were drilled, and six horizontal wells were put into production, three of them located in the gas zone and three in the gas and condensate zone.

An extended test was planned in the northeast area in order to evaluate the initial productivity. The extended test was carried out in the three wells located northeast of the block in the gas and condensate zone, the GOR (the gas oil ratio) was corroborated, and a PVT (Pressure Volume Temperature) sample to characterize the reservoir fluid (Dewpoint and Liquid Drop Out). Sampling was taken from the AdlA-1009h well (and results are still pending analysis).

The first wells that were put into production in the gas zone show high productivity similar to the high type well in the El Orejano area.

Well design ranges reached an average 1,700 mts of lateral length and 22 frac stages.

Activity in this area during 2020 involved a total gross investment of U.S.$ 15.0 million in D&C and U.S.$ 3.7 million in production facilities and other capital expenditures. Drilling and completions activity were affected by the outbreak of the COVID-19 pandemic.

Production peak was reached on January 2020 1.5 mmcm/d.

PAD4 was drilled during 2019 and was completed by the end of 2020. This pad has three wells of 2,300 mts lateral length that are situated in three different production horizons. With this pad the field delineation is considered to be completed and the development phase will began in 2021 with activity compromised for Plan Gas

During October 2020 the drilling activity started in PAD9 (three wells of 2,500 mts lateral length). One rig is planned to be active in the field during 2021.

La Ribera Area:

This block, located in the center of Neuquina basin, is 100% owned by YPF. The concession area comprises two separated regions: La Ribera I, covering 21.88 km2, and La Ribera II, covering 61.1 km2.

During 2019, the four wells drilled during 2018 were put into production and confirmed the productivity expected from larger laterals wells. Additionally, four more wells were drilled, completed and put into production in the western part of the block, confirming productivity and GOR as expected.

One of the wells targeted a new landing zone with productivity according to expectations. During 2019, four wells were drilled, three wells were completed and put into production.

In 2020, the remaining well was completed and put in production is scheduled for March 2021. An additional pad of 3 wells is being drilled and will be stimulated during 2021 as part of the activity compromised to fulfill the Plan GasAr.

3D Seismic was acquired and processed during 2019 improving field characterization.

Well design has 2,300 mts of lateral length and 27 frac stages which are limited by the extension of the area.

Activity in this area involved in 2020 a total gross investment of U.S.$ 8.3 million in D&C and U.S.$ 3.5 million in production facilities and other capital expenditures. Drilling and completions activity and facilities were affected by the outbreak of the COVID-19 pandemic.

 

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