YPF Quarterly Profit More Than Doubles After Repsol’s Exit

May 09, 2014 1:34 pm ET

(Updates with analyst estimate in second paragraph, comments from CFO in fourth paragraph.)

May 9 (Bloomberg) -- YPF SA, Argentina’s largest company, said first-quarter profit more than doubled on higher oil and gas production.

Net income increased to 2.88 billion pesos ($360 million), or 7.34 pesos a share, in the quarter from 1.26 billion pesos, or 3.2 pesos, a year earlier, Buenos Aires-based YPF said in a statement to Argentina’s regulator yesterday. YPF beat an estimate of 5.68 pesos per share by Raymond James analyst Santiago Wesenack, according to data compiled by Bloomberg.

President Cristina Fernandez de Kirchner’s government gave Repsol SA bonds yesterday with a market value of $4.67 billion for the YPF nationalization. Since the expropriation, YPF secured a venture with Chevron Corp. to jointly develop part of Vaca Muerta, a Connecticut-sized formation in southern Argentina considered the world’s second-largest shale gas deposit and fourth-largest shale oil field which helped the company to boost crude and gas production.

“We have hired consultants to help us produce a new strategic plan for the future,” Daniel Gonzalez, YPF’s chief financial officer, told investors today on an earnings conference call. “I can’t provide an estimate of when we will come up with a new plan as we are just beginning the process.”

Gonzalez declined to provide well costs for the shale area saying it will be provided in the future. YPF and Neuquen province have agreed to extend until 2048 the concession that represents 3 percent of Vaca Muerta where it is jointly developing shale with Chevron. YPF will need to renegotiate other Vaca Muerta concessions with owner Neuquen province.

Concession Dispute

“There is a dispute between YPF and the provinces, especially Neuquen, where Vaca Muerta is located, that is hitting the shares and not being communicated to the market,” Carlos Aszpis, an equity strategist at Schweber & Cia. Sociedad de Bolsa SA, said in a telephone interview from Buenos Aires.

Alejandro Di Lazzaro, a spokesman for YPF, didn’t immediately respond to a phone call and an e-mail seeking a comment.

YPF’s American depositary receipts fell 1.5 percent to $31.29 at 1 p.m. in New York, after earlier dropping as much as 3.7 percent. The ADRs have more than doubled in the past year.

Quarterly crude output increased 6.8 percent from a year earlier, YPF said. Natural gas production rose 19 percent to 37.2 million cubic meters a day. Total output gained 11 percent. Argentina seized the 51 percent YPF stake in April 2012 after claiming that Madrid-based Repsol failed to replace reserves and output was declining.

Repsol Departure

In exchange for the bonds, Repsol is dropping all legal action against Argentina. The Spanish producer had threatened to sue any companies that partnered with YPF in Argentina while it sought compensation for the nationalization.

The compensation, paid with bonds totaling $5.32 billion in nominal value maturing as late as 2033, is less than half the $10.5 billion the company sought initially. Repsol, which won’t be able to get more than $5 billion if it sells the bonds before maturity, on May 6 sold a 12 percent stake in YPF through Morgan Stanley for $1.3 billion.

YPF rallied as much 10 percent the following day as investors celebrated the departure of the hostile shareholder, Aszpis said.

“Repsol’s departure is very good news for YPF as it is much better to have several funds holding 12 percent than one single holder of such a stake,” he said. “The company won’t have board members against management, which is what any minority shareholder wants.”

Repsol will keep a stake of less than 0.5 percent after the disposal.

YPF said it set aside 465 million pesos for a dividend payment to be determined later this year.