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YPF Sociedad '19 Output to Fall Amid Rising Capital Investment

Zacks Equity Research

YPF Sociedad Anonima’s YPF production is expected to take a hit in 2019. The Argentine state-run energy major is witnessing a declining output trend over the past few years. Although its production is supported by prolific shale plays like Vaca Muerta in Argentina, the company expects 2019 production level to fall 2-3% year over year.

Declining Trend

In 2017, the company’s total production fell 3.9% year over year to 555,000 barrels of oil equivalent per day (Boe/d). Through 2018, output declined 4.5% on a year-over year basis to 530,200 Boe/d. Crude output in 2018 reduced marginally to 227,500 barrels per day (Bbl/d) from a year ago. Natural gas liquids (NGLs) production was down 23.1% year over year to 38,800 Bbl/d and natural gas output declined 4.6% to 42 cubic meters per day during the year.

Notably, the gas market in the country witnessed excess supply in 2018, which affected output, as some locations were temporarily closed. It had also impacted hydrocarbon reinjection. Moreover, NGL output was affected by a stoppage at the liquid separation facility and lower gas production.

The plunge in 2019 production is expected to stem from the divestment of mature assets, which will remove 5,000 Boe/d of output from the tables. Moreover, the company expects lower output of natural gas and a slow start in the company’s Mendoza area in 2019.

What’s Ahead?

Although the company expects 2019 production to decline, it is planning to increase capital investment by 10-15% year over year to the range of $3.5-$4 billion. The hike in investment is much needed to keep the company’s long-term growth plan unaffected. YPF Sociedad intends to achieve a production growth rate in the range of 5-7% from 2020 and onward. However, lower demand for natural gas amid the global drive for cleaner energy search has forced the authorities to rethink investments in natural gas development over the short run.

Apart from domestic consumption of natural gas, the company intends to explore exporting opportunities to neighbour countries like Chile. Moreover, the company is trying to bring a liquefaction barge, having 2.5 million cubic meters per day of export capacity, into operation in the third quarter.

It is also planning to boost crude production in 2019 as the shale plays are experiencing declining costs. It is operating in Loma Campana via a joint venture with Chevron Corporation CVX, wherein development cost declined from $13.40 per barrel of oil equivalent to $11.40. The partnership intends to invest around $670 million in the region. In another region, Bandurria Sur, oilfield service provider Schlumberger Limited SLB serves as a partner of YPF Sociedad. This year, the company wants to invest about $290 million therein.

Zacks Rank and Another Stock to Consider

Currently, YPF Sociedad has a Zacks Rank #2 (Buy). Investors interested in the energy sector can opt for another top-ranked stock as given below:

Sao Paulo, Brazil-based Braskem S.A. BAK is an integrated energy company. The stock currently has a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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