Company Quick10K Filing
YPF
20-F 2020-12-31 Filed 2021-04-22
20-F 2019-12-31 Filed 2020-04-24
20-F 2018-12-31 Filed 2019-04-04
20-F 2017-12-31 Filed 2018-04-24
20-F 2016-12-31 Filed 2017-04-07
20-F 2015-12-31 Filed 2016-03-17
20-F 2014-12-31 Filed 2015-03-30
20-F 2013-12-31 Filed 2014-03-28
20-F 2012-12-31 Filed 2013-04-26
20-F 2011-12-31 Filed 2012-05-16
20-F 2010-12-31 Filed 2011-04-12
20-F 2009-12-31 Filed 2010-06-29

YPF 20F Annual Report

Part I
Item 1. Identity of Directors, Senior Managers and Advisers
Item 2. Offer Statistics and Expected Timetable
Item 3. Key Information
Item 4. Information on The Company
Item 4A. Unresolved Staff Comments.
Item 5. Operating and Financial Review and Prospects
Item 6. Directors, Senior Management and Employees
Item 7. Major Shareholders and Related Party Transactions
Item 8. Financial Information
Item 9. The Offer and Listing
Item 10. Additional Information
Item 11. Quantitative and Qualitative Disclosures About Market Risk
Item 12. Description of Securities Other Than Equity Securities
Part II
Item 13. Defaults, Dividend Arrearages and Delinquencies
Item 14. Material Modifications To The Rights of Security Holders and Use of Proceeds
Item 15. Controls and Procedures
Item 16.
Item 16A. Audit Committee Financial Expert
Item 16B. Code of Ethics
Item 16C. Principal Accountant Fees and Services
Item 16D. Exemptions From The Listing Standards for Audit Committees
Item 16E. Purchases of Equity Securities By The Issuer and Affiliated Purchasers
Item 16F. Change in Registrant's Certifying Accountant
Item 16G. Corporate Governance
Item 16H. Mine Safety Disclosure
Part III
Item 17. Financial Statements
Item 18. Financial Statements
Item 19. Exhibits
Note 10 Details The Fully Consolidated Controlled Subsidiaries. Furthermore, Note 28 Details The Main Jo, Proportionally Consolidated.
Note 10 Details The Investments in Associates and Joint Ventures.
Note 2.B.10 Describes The Main Characteristics and Accounting Treatment for Benefit Plans Implemented By The Group.
EX-2.(D) d117762dex2d.htm
EX-12.1 d117762dex121.htm
EX-12.2 d117762dex122.htm
EX-13 d117762dex13.htm
EX-15.1 d117762dex151.htm
EX-15.2 d117762dex152.htm

YPF Earnings 2020-12-31

Balance SheetIncome StatementCash Flow

20-F 1 d117762d20f.htm FORM 20-F Form 20-F
Table of Contents

 

 

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


Table of Contents

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

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  

 

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     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  

 

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     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  

 

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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

 

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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.

 

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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.

 

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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).

 

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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.

 

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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.

 

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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;

 

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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:

 

   

high interest rates;

 

   

abrupt changes in currency values;

 

   

high levels of inflation;

 

   

exchange and capital controls regulations;

 

   

wage and price controls;

 

   

regulations to import equipment and other necessities relevant for operations;

 

   

changes in governmental economic or tax policies; and

 

   

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:

 

   

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”);

 

   

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;

 

   

new export duties, similar taxes or regulations on imports;

 

   

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”);

 

   

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”;

 

   

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;

 

   

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;

 

   

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

 

   

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.

 

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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.

 

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LOGO

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.

 

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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.

 

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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.

 

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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.

 

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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.

 

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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.”

 

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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.

 

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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.

 

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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

 

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  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

 

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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  
  

 

 

    

 

 

    

 

 

 

 

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Table of Contents

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.

 

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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.

 

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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.

 

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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.

 

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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.

 

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LOGO

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.

 

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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.

 

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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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Aguada del Chañar Area:

In June 2019 YPF acquired the concession of Aguada del Chañar, through Decree No 1,096/19 of the Neuquén Province. Aguada del Chañar block (57.4 km2) is located adjacent to La Amarga Chica area. The concession of the block, which includes unconventional resources in the Vaca Muerta formation expires in 2054.

Although there is no production from this field, it is identified as high potential field, supported by the production results obtained in La Amarga Chica to the west and in Aguada de Cánepa, to the east. YPF retains 100% interest in the area and is planning to drill seven wells in 2021.

Lajas Este:

The south area of the lakes is identified as having good potential in Vaca Muerta. This has been corroborated by two horizontal wells that are in production from 2019 (Entre Lagos and Lajas Este). The area is within a conventional hydrocarbon exploitation concession that expires in 2027. YPF retains 100% of the WI.

By 2021 we have planned to drill two additional wells to VM and launch a temporary early production facilities (“TEPF”). This TEPF will also allow the connection of a 3rd exploratory well that has already been drilled and completed in the area.

Main Non-Operated Areas:

Aguada Pichana Este Area:

This block is operated by Total S.A., YPF holds a 27.2% working interest in the Mulichinco Formation, and a 22.5% working interest in the Vaca Muerta Formation.

During 2019, twelve horizontal shale gas wells were drilled in the Aguada Pichana Este Area, eight of them were completed in 2019, while the remaining four were completed in 2020. These wells are part of the shale gas development project that consist of drilling around forty wells with 2,500 mts of drain in three landing zones (La Cocina and two Organic intervals) in Vaca Muerta Formation.

In 2019, six wells were put in production in the Aguada Pichana Este Area, two which had been were drilled in 2018 and the rest in 2019.

In 2020 four additional wells were put in production in the Aguada Pichana Este Area, all of which were drilled in 2019. All of these wells obtained results in accordance with expectations.

Additionally, regarding the facilities, the gathering network of PAD 19 was completed, and work continues for PAD 21 and 22.

During 2020, drilling and completions activity and facilities were affected by the outbreak of the COVID-19 pandemic.

Aguada San Roque Area:

This block is operated by Total S.A. and YPF holds a 34.11% working interest.

During the second quarter of 2019, two wells located in La Cocina Level were completed and connected (2,500 mts and 2,000 mts of drain). Production did not reach expectations in any of them. During 2020, no drilling activity was performed due to the COVID-19 pandemic.

Aguada Pichana Oeste Area:

This block is operated by PAE, and YPF holds a 30% working interest.

In 2019, three horizontal wells were drilled and completed. One of them was connected in the same year, while the others were connected during January 2020. Additionally, two wells drilled during 2018 were connected in 2019.

In 2020, four horizontal wells started in 2019, were drilled. Further, in 2020, one additional horizontal well was drilled and completed.

 

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During 2020 drilling and completions activity were affected by the outbreak of the COVID-19 pandemic.

Pampa de las Yeguas Area

This block is operated by EXXON Mobil Exploration Argentina S.R.L., and YPF holds a 50% working interest.

During 2019, three wells drilled in 2017 and 2018 were connected and are producing as expected.

No drilling activity was conducted in 2019 or 2020.

A monitor well is expected to be drilled during the first half of 2021.

La Calera Area:

This block is operated by Pluspetrol, and YPF holds a 50% working interest.

The pilot stage started during 2018 and continued during 2019, which included the drilling of six wells to La Cocina, Orgánico Inferior A and Orgánico Inferior B (2,000 mts of lateral length). All wells were connected during 2019 and are producing better than expected.

In 2019, during the pre-development stage, 15 wells with 2,000 mts of drain, were drilled in the low GOR area (North-east of the block) to the same landing intervals as the pilot.

During 2020, three wells were drilled.

In the fourth quarter of 2020, three wells were being drilled and four wells were in final stages of completion. In addition, two wells drilled in 2019 were completed first quarter 2021.

The central production facilities project, started during the first quarter of 2020, is expected to be finished in 2023. Also, the early production facilities and collection pipelines started in 2018 and were finished during 2020.

Drilling and completions activity were affected by the outbreak of the COVID-19 pandemic.

Bajada de Añelo Area:

This block was operated by O&G Developments Ltd. S.A., and YPF holds a 50% working interest. On February 23, 2017, YPF and O&G Developments Ltd. S.A. (hereinafter “O&G”), an affiliate of Shell Compañía Argentina de Petróleo S.A., executed an agreement, through which YPF and O&G agreed on the main terms and conditions for the joint development of a shale oil and shale gas pilot in two phases.

Eight wells were drilled in 2018 in two different pads and reached three landing zones (“La Cocina”, “Organico Inferior” and “Organico Superior”) and were connected in 2019. Production was frequently interrupted due to operational issues and lack of internal facilities.

During 2020, six shale gas wells were drilled, while five were completed. As of the date of this annual report, they have not been connected.

In late 2020, the execution of the evacuation pipeline from PAD 11 to Transportadora de Gas del Sur was 90% completed.

Drilling and completions activity and facilities were affected by the outbreak of the COVID-19 pandemic.

Lindero Atravesado block:

This block is operated by Pan American Energy LLC. YPF holds a 37.5% working interest.

During 2019, six wells, with Vaca Muerta formation objective, were drilled, completed and connected with results in accordance with expectations, four of them in El Chañar area (Northern part of the block) and two in Perilago area. Five wells were located in Cocina landing zone, while the sixth was located in a new landing zone called Organico Inferior. Additionally, during 2019 a well drilled in 2018, was completed and connected.

During 2020, ten wells were drilled (eight horizontally and two vertically) and one well drilled in 2019 was completed and connected.

 

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During first quarter of 2021, a well drilled in 2020 was connected.

Regarding the facilities, during 2020, the Chañar and Facility ECH03/gas pipeline project was executed.

Drilling and completions activities were affected by the outbreak of the COVID-19 pandemic.

Oeste Region

During 2020, Oeste Region production was 217.05 kboe/d, representing 46.5% of YPF’s total production.

 

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LOGO

1 Altiplanicie.del Payun; 2 Barrancas; 3 Cajón de los Caballos - Sector Orental; 4 Cañadon Amarillo; 5 Ceferino; 6 Cerro Fortunoso; 7 Cerro Morado Este; 8 Chachahuén sur; 9 Chihuido de la Salina; 10 Confluencia Sur; 11 El Manzano; 12 El Manzano Oeste (Resto); 13 Gobernador Ayala; 14 Jagüel Casa de Piedra; 15 La Ventana; 16 Llancanelo; 17 Llancanelo R; 18 Loma de la Mina; 19 Mesa Verde; 20 Puesto Molina Norte; 21 Puntilla del Huincan; 22 Rio Tunuyán; 23 Valle del Rio Grande; 24 Vizcacheras; 25 Zampal Oeste; 26 Agua Salada; 27 Aguada Villanueva; 28 Al Norte de la Dorsal; 29 Cerro Hamaca; 30 Chihuido de la Salina Sur; 31 Chihuido de la Sierra Negra; 32 Dadín - lote i; 33 Dadín - lote ii; 34 Dadín - lote iii; 35

 

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Don Ruiz; 36 El Portón; 37 Estación Fernández Oro; 38 Filo Morado; 39 Jagüel de Bara; 40 Jagüel de los Milicos; 41 La Yesera; 42 Las Manadas; 43 Loma Amarilla Sur; 44 Loma la Lata - Sierra Barrosa; 45 Loma Negra; 46 Los Caldenes; 47 Meseta Buena Esperanza; 48 Octógono; 49 Paso de las Bardas Norte; 50 Puesto Hernández; 51 Puesto Pinto; 52 y 53 Rio Neuquén; 54 Señal Cerro Bayo; 55 Señal Picada - Punta Barda; 56 Volcán Auca Mahuida; 57 Acambuco i; 58 Aguaragüe; 59 Campo Duran - Madrejones; 60 La Bolsa; 61 Ramos; 62 Río Pescado y 63 San Antonio sur.

Main Operated Areas

Loma La Lata – Sierra Barrosa Block:

During 2018 we drilled ten gas wells in Sierras Blancas formation (six vertical and four horizontal wells), of which six wells were completed, and four of which are already in production, with an achieved production rate according to expectations.

During 2019 we drilled nine gas wells in Sierras Blancas formation (five vertical and four horizontal wells), of which nine wells were completed. Eight of them are already in production, with an achieved production rate according to expectations. One well, had mechanical problems during completion and was not connected to the production system.

The goal is to design a field development plan for Vaca Muerta formation in the western area of Loma La Lata – Sierra Barrosa block. The project was divided in stages. During 2018, the first two wells were drilled, and their completion was scheduled for the first quarter of 2019. One well was started and finished in 2019. Due to the wide variety of results, activity was suspended.

During 2019, we had a well control incident in one exploratory gas well under production in the Loma La Lata field. After deploying our contingency plan, we managed to control the well and secure the location.

During 2020 there was no activity in the block due to gas market conditions.

Aguada Toledo–Sierra Barrosa Area:

During 2018, seven wells were drilled in Lajas formation (one was horizontal). Additionally, one well was drilled in Pre-Cuyano and Lajas formations. It produces from Pre-Cuyano and results were below than expectations.

During 2021, we have planned 11 WO to be completed on Lajas formation, where eight of them will be on upper Lajas only. Those wells belong to older campaigns with Pre-Cuyano formation as target completion. The other three workovers will be related to deferred completions aimed to the whole Lajas formation.

Estación Fernández Oro (“EFO”)

During 2019, several projects were completed that allowed an increase in production, treatment and compression capacities. With respect to drilling activity, we completed 28 gas wells targeting the Lajas formation, in general with positive results for the development wells.

The main objective of the activities conducted during 2019 was the expansion of the gas treatment capacities, and the compression and transport plant. The most relevant projects were the following:

 

   

Construction and assembly of an LTS (Low Temperature Separator) EFO plant.

 

   

Construction of a new gas pipeline for the sale of EFO plant to NEUBA I trunk gas pipeline.

 

   

Expansion of the low and ultra-low-pressure compression plant.

 

   

Separator Revamp in EPF (Early Production Facility) 2 ultra-low-pressure Compressor.

 

   

New Scrubber ultra-low-pressure at Gas Treatment Plant.

 

   

Degasser facilities at EPF two to decrease the vapor generation from the condensate. Currently working on the condensate stabilization facilities.

 

   

Expansion of the Gathering Network to EFO North Location.

 

   

Improvements at the Well Pads installing new manifolds that allow produce wells in high, low or ultra-low-pressure with capability to measure gas production per well.

 

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Working on improvements at the water treatment and injection plant and location gas treatment plan.

During 2020 one well from 2019 campaign was completed and put into production. Since gas-oil ratio was lower than expected the well is below target; a velocity-stream system should improve production, but its installation was delayed to 2021 due to the outbreak of the COVID-19 pandemic.

Additionally, during 2021 it is planned to perform sixteen gas well workovers to install velocity-stream systems.

Río Neuquén block:

During 2017, the four wells drilled in 2016 were completed, all of them above the average estimated production. An Integral Field Development Plan (FDP) was defined, considering appraisal, infill and development sub-projects. The goal of these projects is to define the optimum production rate. In any case, from the proposed plan investments will be made in facilities to increase the production capacity from 3.5 up to 5.5 million cubic meters per day. As a result of the FDP six wells were drilled during 2017 (two of them were already completed, one of them with initial production rate above the expected average and the other was an appraisal with results under expectations).

Following a proposed Integral FDP, during 2018, four wells were drilled and completed in 2017 (one well was for delimitation and the other three for development, all with positive results). During 2018 a total of 12 wells were drilled: (four of which were drilled in 2017 and completed in 2018, and the remaining eight were drilled and completed in 2018). Of those wells, there were three delineation wells, with satisfactory results and nine development wells, three with results according to the type well, three with few data production up to date, one currently in process of completion and two of them were finished in 2019 with positive results.

During 2019 the three wells that were drilled in 2018 were completed with results as expected. Regarding the investments in facilities we realized the following:

 

   

According to expectations, the capacity of the compression and treatment plant was increased to 5.5 million cubic meters per day, compression capacity in 2.4 million cubic meters per day in ultra-low pressure and 3.1 million cubic meters per day in low pressure.

 

   

The low-pressure gathering network was expanded following the development and location of new wells installing two km of new pipes.

 

   

The gathering ultra-low-pressure network was expanded reaching new locations in order to transport the production of the most depleted wells and the installation of additional two km of new pipelines.

 

   

Three wells locations were constructed to drill new wells next year, attentive to the need of the gas market.

 

   

We also invested in water well and facilities to supply water to well fracking operations.

 

   

Enhancements on oil treatment plant in order to improve the security and quality conditions.

No activity was performed during 2020.

During 2021 we plan to drill 14 wells, 13 of which will be put into production. We expect to use 1.5 rigs, one of which is currently working (Dec-2020). Additionally, we plan to perform the competition of 3 WO to be completed on Punta Rosada formation, and four snubbing to install velocity-stream systems.

In order to increase water disposal capacity, one disposal and one monitor wells will be drilled during 2021.

Mesa Verde block:

In 2014, exploration well MV.x-1 revealed the Río Blanco formation to be a productive horizon. The exploitation concession of this block was obtained during the second half of 2016. This allowed us to drill an appraisal well, which confirmed the expansion of the field.

In 2017, the delineation and development continued with the drilling of nine wells (between advanced and development wells) with results according to expectations.

 

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During 2018 the development of Zone 1 (Middle Zone) was completed through the drilling of seven wells and two workovers, with results as expected.

During 2019, ten new oil wells were drilled, including advanced and development locations with results according to expectations. This included three workovers and one hydraulic fracture stimulations.

During 2020, one well targeting oil were drilled and a hydraulic fracture stimulation was made with results below expectations. Also, one workover was made with good results.

Llancanelo Block:

During 2018, there was no drilling activity in this heavy oil field since the new corporate agreement within the joint venture was not achieved.

During 2019, after agreeing to a royalty reduction with the province in respect of the Llancanelo heavy oil field in the Mendoza province, we have been able to start the first field development in the country using low-cost multilateral wells reducing our environmental footprint in a sensitive area.

Two development wells and two appraisal wells were drilled in this field. The development wells were multibranch (with five horizontal branch each, to increase the contacted net pay) and the other two were single horizontals, all of them geo-navigated in green and olive levels.

During 2020 the appraisal well LLa-2138 which started on December 2019, finished and started producing on February 2020. After the outbreak of the COVID-19, no drilling activity was performed. Additionally, the Company installed bottom heaters in two wells LL-2031 (h) and LL-2135(h) in order to improve the productivity by increasing the mobility of heavy oil.

Because of COVID-19, the laying of electrics lines were suspended and started in October 2020 so this activity will continue during 2021.

No drilling activity is planned for 2021 and multibranch technology will continue under evaluation monitoring wells that have been drilled: LL-2098 and LL-2043.

Valle del Río Grande Block:

During 2020 a secondary recovery optimization project was implemented with ten water injectors workovers and the completion of the facilities. Due to the outbreak of the pandemic, the drilling activity was suspended, and five workovers were postponed to 2021 (one production well, three Injectors and one conversion from producer to injector).

El Portón Block:

The waterflooding optimization project started in 2016. It included injection well workovers, wellhead acids and the adequacy of the injection facilities (with the installation of a Water Injection Plant) to guarantee the water quality required. During 2019, five workovers were made, and injection facilities were finished. The results obtained were as expected.

Additionally, the Polymer Injection Pilot Project continues. It started in 2016 and included drilling of producing wells, injector conversions, and the construction and assembly of a polymer injection plant. Polymer injection began in August 2016. In 2018 a change in the vertical injection profile was observed, and during 2019 a response of incremental oil has been reported that allowed for the first time to certify proved reserves associated to EOR projects in the area. In addition, thirteen injectors and three producer wells were drilled to expand the Polymer Injection Project and two additional polymer injection plants were installed. initial results were as expected.

During 2019, in the Desfiladero Bayo East area, four wells were drilled, and two workovers were done to optimize the secondary development and expand it to the northern part of the field. The results were as expected. In addition, a pilot project of polymer injection began in 2019 in this area with the installation of another plant. The polymer injection began in January 2020.

During 2020, nine injectors and one producer wells were drilled in order to continue with the polymer injection project.

 

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Chachahuén Block:

Chachahuén Sur area:

During 2018, to complete the development of productive formations Rayoso Clástico Cycle 1, Cycle 2a and Cycle 3a, the drilling activity in the block continued with 52 new wells: 32 development oil producers, eight horizontal oil producers, three appraisals well, two extension wells and seven water injectors. The results were as expected, except in Cycle 1 which was below expectations. The secondary recovery project for Cycle 2a and Cycle 3a is also under execution and results continue to be as expected.

During 2019, seven new wells were drilled to complete the development of productive formations Rayoso Clástico Cycle 1, Cycle 2a and Cycle 3a.

During 2020, three workovers were carried out in the field in order to continue the waterflooding project. Additionally, 18 workovers were carried out to injection wells, in order to comply with environmental requirements.

Cerro Morado Este area:

In 2016, YPF discovered the Cerro Morado Este field with the drilling of the CMoE.x-1 well, which was productive in the Centenario formation.

During 2017 the delineation of the Cerro Morado Este field continued by drilling five extension wells.

In 2018 YPF obtained the exploitation concession of this field. Four evaluation wells were drilled with positive results to delimit and estimate the productivity of block.

During 2019, 19 appraisal wells were drilled to continue with the delimitation of the block with positive results.

During 2020 YPF continued with the delineation of the reservoir by drilling five new wells with positive results.

Main Non-Operated Areas:

Loma Negra block:

This block is operated by CAPEX S.A. YPF holds a 35% working interest.

During 2019, four wells drilled in 2018 were connected in Loma de Maria Field, Lajas Formation. Two more wells were drilled and completed in the same area during 2019, with results below expectations. In addition, six oil wells and one water injector well, drilled in previous years, were completed. One of them was connected in 2019.

Two additional wells drilled in El Latigo Occidental as part of a Secondary Recovery Pilot Project were connected in 2019.

Drilling and completions activity were affected by the outbreak of the COVID-19 pandemic. The Company restarted the drilling activity in December 2020.

Agua Salada block:

This block is operated by Tecpetrol. YPF holds a 30% working interest.

During 2019, two gas wells were drilled, completed and connected. One of them in Loma Azul Field and the other one in Loma Cortada Field. Both produced less gas than expected.

In addition, three workovers were made in 2019 and 1 workover in 2020.

Due to the outbreak of the COVID-19 pandemic, the only drilling activity performed in 2020 was the completion of a gas well started in 2019. Regarding facilities, the gas treatment plant La Jarilla was readapted to include improvements in enclosures, fire control regulations and water treatment. In addition, facilities were refurbished to increase security.

 

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Puesto Pinto (CNQ7/A) and Jagüel Casa de Piedra Blocks:

During 2019, 41 oil producing wells, 18 water injection wells and one water disposal well were drilled to the Centenario Formation in order to continue with the field development project. 54 of them were completed in the same year, while two of them were completed during 2020, and the four remaining wells are waiting to be completed. Results were as expected. Most of the new wells were located in border zones to expand the productive area of the project.

Further, in 2019, four gas wells completed in 2018 were connected.

During 2020, twelve vertical wells were drilled, nine of which correspond to oil producers and three to water producers. Ten of these wells were completed in 2020, one of which was connected in 2020 and five of them in 2021. Further, a well drilled during 2020 is under evaluation.

Additionally, in 2020, a well drilled in 2019 was completed.

Drilling and completions activity were affected by the outbreak of the COVID-19 pandemic.

Gobernador Ayala (CNQ7) Block:

During 2019, 19 oil producing wells and seven water injection wells were drilled and completed in the Centenario Formation, 24 of which were connected in 2019 and one in 2020. Results were as expected.

During 2020, 15 vertical wells were drilled, three of them are water injectors and the rest are oil producers. 12 of these wells were completed in 2020, while two of them were completed in 2021. One drilled well is being evaluated for future abandonment.

In 2020, drilling and completions activity were affected by the outbreak of the COVID-19 pandemic.

Sur Region

During 2020, Sur Region production was 116.6 kboe/d, representing 25.0% of YPF’s total production.

 

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LOGO

1 Barranca Yankowsky;2 Campamento Central - Cañadon Perdido;3 Cañadon De La Escondida - Las Heras;4 Cañadon León - Meseta Espinosa;5 Cañadon Vasco;6 Cañadon Yatel;7 Cerro Piedra - Cerro Guadal Norte;8 El Guadal - Lomas Del Cuy;9 El Tordillo;10 Escalante - El Trébol;11 La Tapera;12 Lago Fuego;13 Los Chorrillos;14 Los Monos;15 Los Perales - Las Mesetas;16 Magallanes;17 Manantiales Behr;18 Pico Truncado - El Cordón; 19 Poseidon;20 Puesto Quiroga;21 Restinga Ali;22 Tierra Del Fuego - Frac. A (Cdon. Piedra);23 Tierra Del Fuego - Frac. B (San Sebastián);24 Tierra Del Fuego - Frac. C (Cabeza De León);25 Tierra Del Fuego - Frac. D (La Sara) and 26 Tierra Del Fuego - Frac. E (Uribe).

 

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Main Operated Areas

El Trébol – Escalante

In 2019, activity related to primary and secondary projects continued.

In primary projects, thirteen wells with deep objective (complex IV) were completed with results as expected.

Additionally, 22 interventions were carried out with a workover team, with the objective of optimizing primary and secondary production. There were six interventions of producers and sixteen interventions of injectors. The overall results of these interventions were above expectations.

Drilling and completions activity were affected by the outbreak of the COVID-19 pandemic.

Four environmental remediation well repairs were carried out in injection wells within the Escalante area and two interventions within Block III of Secondary Development Project of Trébol which, added to a shut off intervention plan with pulling equipment, allowed to optimize the production of the Project. Additionally, six primary interventions were carried out that allowed evaluating results in deep complexes.

In 2021, four new wells are going to be drilled with deep primary targets. Also it is planned for 2021 to begin the execution of a polymer injection pilot (EOR) in Block III of El Trébol that will allow evaluating the results for a future massification of the technology.

Manantiales Behr Area

Results from five modular polymer injection units (PIU’s) installed in 2019 at Greembek field show better oil response than expected, approximately about 20% more than forecasted. Despite of the consequences of the outbreak of COVID-19, oil production increased during 2020 which enabled an all-time high oil production for the entire area of Manantiales Behr.

Our development strategy focuses on having a modular-standardized, mobile system targeting fast implementation and fast oil response that can move to the next sweet-spot to increase rapidly the production rather than relying on large facilities that take longer to design/construct and have limited flexibility.

We are working on further optimizing logistics, storage, in-situ skid mounting and connection to install three additional modular polymer injection units in Manantiales Behr in 2021. These additional units also involve twenty workovers and ten new injectors. One of these units targets polymer flooding with no previous injection of water in the formation ever before.

In the second half of 2021, we will start rotating two of PIU’s connected in 2019 to two new manifolds water injection which also involve 19 additional workovers.

Due to the COVID-19 pandemic, the installation of the water treatment unit was delayed. This facility will reduce polymer consumption in the current injecting PIU’s and was installed in January 2021.

During 2020, several new wells were carried out: one injector well in “El Alba Valle” project, three producers in “El Alba Norte Grimbeek” fields (with good results), two producers in “Granson” field (which results were below expectations) and four producers within “La Carolina” field (which are in the process of optimizing extraction but at the moment with productions by below previous expectations).

In addition, development of the “Myburg” field continues at 2020 with the drilling of eight wells with production according with previous expectation.

Regarding workovers wells, the following activity were carried out: one well of Integral El Alba, four of Integral El Alba Valle, three within Granson, one in El Alba Norte Gbk and two in San Diego. Also 25 interventions were carried out within the framework of comprehensive reparations project with varied results.

Other important projects were the repair of injectors in compliance with environmental regulations, the maintenance of wells with good tertiary results and repairs with the objective of producing gas from the “Glauconitic Formation”. The development of gas will be a main objective for next several years to ensure natural gas supply for the new “Manantiales Behr Power Plant”.

 

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Cañadón Seco:

During 2020, two primary development projects (six new wells and four repairs) and three secondary development projects (15 repairs) were executed.

Regarding the primary development projects, new wells at “Cañadón Seco Este” field which targeted “Castillo” and “Caleta Olivia” formations had results that exceeded expectations. Also three recompletion were executed in 2020 to put on production of “Mina del Carmen” formation that had previously produced only from “D-129” formation, results were in accordance with expectations.

Regarding secondary recovery development projects, the repair of the producing injection wells continued to improve the sweep of the “Bajo Barreal” and “Castillo” formations. At the same time, adjustments were made to facilities, as well as injection production flow lines. In the Bajo Barreal formation, 12 repairs were carried out, 11 of which correspond to injection wells with the aim of recovering the injectivity with good results. Regarding the Castillo formation three repairs of producing wells were carried out with results according to expectations.

Regarding EOR projects, during 2020, the polymer injection pilot data acquisition campaign was completed. During 2021 it is planned the start of the first polymer injection pilot at “Cañadón León” field.

Los Perales - Zona Las Mesetas:

In 2019, we began the execution of two tertiary recovery pilots (through polymer injection), which included among other things: the drilling of twelve new wells, the repair of twenty-one existing wells, a modular water treatment plant and the installation of two modular polymer injection plants is expected to occur during 2020. The first injection tests of the wells have already been carried out, leaving minor tasks for the uninterrupted commissioning.

In 2020, progress was made in the implementation of the multi-year projects of Los Perales Central Block II and La Itala Block II, where 9 wells were repaired, with results below expectations. Interest in secondary recovery projects continues to be in the Bajo Barreal formation. Additionally, two replacement wells were drilled, one of them is an injector, and the other is a secondary producer well which had good results.

20 repairs were also carried out in several blocks with very good results, those wells had an oil and gas objective, and eight injection wells were made to be in accordance with environmental regulations.

In February 2020, the injection of polymer began with 19 injection wells corresponding to the two EOR pilots in Los Perales Central Block III. The injection volume during 2020 were below expectations due to successive plant shutdowns and limitations of the PIU as a result of the COVID-19 outbreak. In March 2021, we began operating a “Water Treatment Unit” (WTU) dedicated to the project, which is expected to allow savings of up to 30% in polymer consumption.

Regarding the producing wells, their hookups were carried out in the course of 2020, with delays due to the quarantine and loss of resources in the field. This activity was completed in November and currently all the producers associated with the pilot have their extraction facility. The optimizations of the same were carried out as each area was being completed and the results of evolution of the pressure of the associated injectors, were according to the target. As of the date of this annual report, we have 30 wells conditioned to the project that show tertiary response above the secondary baseline.

Cañadón Yatel Area:

During 2020, the drilling of five new wells was carried out, with results as planned. This was mainly concentrated in the “Cañadón Yatel” field, with a focus on “D-129” formation (reservoirs with Tight characteristics).

Additionally, 11 workovers of producers wells were executed in which new areas were put on production and hydraulic fractures were performed.

 

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Main Non-Operated Areas:

El Tordillo and La Tapera-Puesto Quiroga blocks:

Beginning in January 2014, under an agreement with the province of Chubut related to the negotiation of an extension of YPF concessions, we transferred 41% of our working interest in the joint venture, El Tordillo and La Tapera-Puesto Quiroga, to Petrominera Chubut S.E. As a result, we reduced our interest in the joint venture from 12.196% to 7.196% in 2020.

In 2019, a well drilled in 2018 was completed and connected. In addition, in 2019, 12 oil wells were drilled, 11 of which were completed during the same year, while the remaining well was completed in 2020. All of them were connected as of the date of this annual report. Additionally, 11 wells were repaired in 2019, nine of which are producers and two are injectors. Nine of these wells were connected in 2019. In all cases results are as expected.

In 2020, two oil producer wells were drilled, completed and connected at El Tordillo and four workovers were made (two producers and two injectors). Additionally, one well drilled in 2019 was completed and connected in 2020.

Infrastructure work in facilities (plants, pipelines, etc.) were continued during 2020.

Exploration and Development Activities in Rest of South America

Bolivia:

 

   

On 17 March 2020 Bolivia declared a deferral of its nation-wide lockdown due the COVID-19 pandemic, which affected our activities. As a result, a notice was sent to YPFB requesting to defer the expiration date of the First Exploration Period of the Charagua block. The deferral has been granted until May 26, 2021.

 

   

On 21 July 2020, a notice was sent to YPFB requesting the Legislative Assembly of Bolivia to formalize the agreement whereby YPF will be the operator of the Charagua Block with a 60% working interest and YPFB Chaco holding a 40% interest. Additionally, we informed our decision to enter the second exploration period (149 km2) subject to the formalization of the agreement between YPF and YPBF Chaco. As of the date of this annual report, negotiations were ongoing.

Colombia: Blocks COR 12 and COR 33 are located in the Cordillera Oriental basin, which we operate pursuant to authorization by the Colombian National Hydrocarbons Agency (Agencia Nacional de Hidrocarburos or “ANH”). Our working interest is 60% in COR 12 and 55% in COR 33. The combined net acreage in these blocks is 700 km2. We and our partners informed the ANH of our decision to relinquish both blocks. As of the date of this annual report, the parties are in the process of formalizing and executing the final agreements for the relinquishment.

Chile:

From the results obtained in San Sebastián Block in 2019, we did not foresee any new exploratory opportunities. Accordingly, we requested a commercial exploitation concession of only a portion of the area where wells with positive results had been drilled from the Chilean Ministry of Energy.

We also informed the Chilean Ministry of Energy of our decision not to enter in the third exploration period, and to relinquish the rest of the area except for 3,000 acres needed to finish the testing of one exploration well. For this exception, we have requested a period of two years, that started on December 2017. On July 10, 2019, we requested the corresponding exploitation permits to the Chilean Ministry of Energy without any objection expressed from authorities.

Well production testing started during 2018 at Carpintero.x-1. However, it had to be closed from October 17, 2018 until January 17, 2019 as consequence of the Cullen spill. The operation resumed on January 25, 2019 and was again shut down on November 13, 2019 due to the lack of pressure-based and fluid surface installations in the well.

During 2020 the planned activities in productive wells were suspended due to the consequences of the Convid-19 pandemic. Additionally, Carpintero.x-1 was closed due to the need to adapt the bottom and surface installation. As of the date of this annual report, we currently maintain minimum guards to maintain the safety conditions of the wells and the contained risk. These points are notified to the Chilean Ministry of Energy within the scope of the “Contrato Especial de Operación Petrolera” (CEOP) Coordination Committee.

 

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Additional information on our current activities

The following table shows the number of wells in the process of being drilled as of December 31, 2020.

 

     As of December 31, 2020  
Number of wells in the process of being drilled    Gross      Net  

Argentina

     19        10  

Rest of South America

     —          —    

Total

     19        10  

Downstream

During 2020, our downstream activities included crude oil refining and transportation, and the marketing and transportation of refined fuels, lubricants, LPG, and other refined petroleum products in the domestic wholesale and retail markets and certain export markets.

During 2020, the downstream segment was organized into the following divisions:

 

   

Refining Division (oil refining and petrochemical production);

 

   

Domestic Marketing Division (commercialization and marketing of refined products);

 

   

Chemicals Division (commercialization and marketing of petrochemical products);

 

   

Logistic Division (transportation of oil to refineries and distribution of refined and petrochemical products to be marketed in the different sales Channels); and

 

   

Trading Division (trading refined products and crude oil to international markets).

We market a wide range of refined petroleum products throughout Argentina through an extensive network of sales personnel, YPF-owned and independent distributors, and a broad retail distribution system. In addition, we export refined products, mainly from the port at La Plata. The refined petroleum products marketed by us include gasoline, diesel, jet fuel, kerosene, heavy fuel oil and other crude oil products, such as motor oils, industrial lubricants, LPG and asphalts.

Refining division

We wholly own and operate three refineries in Argentina:

 

   

La Plata refinery, located in the province of Buenos Aires;

 

   

Luján de Cuyo refinery, located in the province of Mendoza; and

 

   

Plaza Huincul refinery, located in the province of Neuquén.

Our three wholly-owned refineries have an aggregate refining capacity of approximately 319.5 mboe/d. The refineries are strategically located along our crude oil pipeline and product pipeline distribution systems. In 2020, our crude oil production, substantially all of which was destined to our refineries, represented approximately 85.1% of the total crude oil processed by our refineries, while in 2019 it was 80.1%. Through our stake in Refinor, we also own a 50% interest in a 26.1 mboe/d refinery located in the province of Salta, known as Campo Durán.

The following table sets forth the throughputs and production yields for our three wholly owned refineries for each of the three years ended December 31, 2020, 2019 and 2018:

 

     For the Year Ended December 31,  
     2020      2019      2018  
            (mmboe)         

Throughput crude

     85.8        101.3        103.6  

Throughput feedstock

     3.8        4.7        4.7  

Throughput crude and feedstock

     89.6        106.0        108.3  

Production

        

Diesel

     39.3        41.0        41.5  

Motor gasoline

     17.8        24.8        26.1  

Petrochemical naphtha

     8.2        8.1        7.4  

Jet fuel

     2.4        6.9        6.8  

Base oils

     0.9        0.9        0.8  

 

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     For the Year Ended December 31,  
     2020      2019      2018  
     (thousands of tons)  

Fuel oil

     349        308        234  

Coke

     750        895        934  

LPG

     446        597        670  

Asphalt

     81        121        215  

During 2020, our global refinery utilization amounted to 73.4%, compared to 86.9% in 2019, based on our nominal capacity of 319.5 mboe/d. During 2020, the activity was highly affected by the COVID-19 pandemic, that reduced the consumption of diesel, gasoline and jet fuel to record low levels. This affected substantially the refining utilization rate of the YPF refinery system. In December 2020, economic activity in Argentina show signs of normalization, leading us to reach 83.9% of utilization rates during such month. See “Item 3. Key Information—Risk Factors —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”.

The La Plata refinery is the largest refinery in Argentina, with a nominal capacity of 189 mbbl/d. The refinery includes three distillation units, two vacuum distillation units, two fluid catalytic cracking units, two coking units, a coker naphtha hydro treater unit, a platforming unit, two diesel hydro finishing units, a gasoline hydro treater, an isomerization unit, an FCC (fluid cracking catalysts) naphtha splitter and desulfuration unit and a lubricants complex, in addition to a petrochemical complex that generates MTBE, TAME and aromatics compounds used for blending gasoline, and other chemical products for sale. The refinery is located at the port in the city of La Plata, in the province of Buenos Aires, approximately 60 km from the City of Buenos Aires. During 2020, the capacity utilization rate of La Plata refinery was also affected by the maintenance turnaround of the distillation units of Topping C and Vacuum B. As a result, especially because of the restrictions caused by the COVID-19 pandemic, the refinery processed only approximately 134.3 mbbl/d, with a capacity utilization rate of 71.1 %, compared to 160.4 mbbl/d processed with a capacity utilization rate of 84.9% in 2019.

The crude oil processed at the La Plata refinery in 2020, of which 83.9% was YPF-produced, originates mainly from the Neuquina and San Jorge basins. Its crude oil supplies come from the Neuquina basin by pipeline and from the San Jorge basin by vessel, in each case to Puerto Rosales, and then by pipeline from Puerto Rosales to the refinery.

The Luján de Cuyo refinery has a nominal capacity of 105.5 mbbl/d, the third largest capacity among Argentine refineries. The refinery includes two distillation units, a vacuum distillation unit, two coking units, one fluid catalytic cracking unit (FCCU), a platforming unit, a MTBE unit, an isomerization unit, an alkylation unit, an FCC naphtha splitter, a hydrocracking unit, an FCC naphtha hydro treater unit and two gasoil hydro treating units. During 2020, the refinery processed approximately 83.8 mbbl/d, with a capacity utilization rate of 79.4% compared with 93.5 mbbl/d processed in 2019, with a capacity utilization rate of 88.6%. In 2020, the processing of the Lujan de Cuyo refinery was also affected by the lower availability of crude oil from the basins of the Mendoza area.

Due to its location in the western province of Mendoza and its proximity to significant distribution terminals we own, the Luján de Cuyo refinery has become the primary facility responsible for providing to the central and northwest provinces of Argentina with petroleum products for domestic consumption. The Luján de Cuyo refinery receives crude supplies from the Neuquina and Cuyana basins by pipeline directly into the facility. Approximately 86.3% of the crude oil processed at the Luján de Cuyo refinery in 2020 was produced by us, while in 2019, the percentage reached 78.4% of the total crude oil processed. Most of the crude oil purchased from third parties originates from oil fields located in the provinces of Neuquén and Mendoza.

The Plaza Huincul refinery, located in the province of Neuquén, has an installed capacity of 25 mbbl/d. During 2020, the refinery processed approximately 16.2 mbbl/d, with a capacity utilization rate of 65.0%, compared with 23.6 mbbl/d processed in 2019 with a capacity utilization rate of 94.5%.

The only products currently produced at the refinery are gasoline, diesel and jet fuel, which are sold primarily in nearby areas and in the southern regions of Argentina. Heavier products, to the extent production exceeds local demand, are blended with crude oil and transported by pipeline from the refinery to our facilities in La Plata for further processing. The Plaza Huincul refinery receives its crude supplies from the Neuquina basin by pipeline. In 2020, as a result of reduced activities, only 5.1% of the refinery’s crude supplies were purchased from other companies, while in 2019, that percentage represented 20%.

According to Ministry of Energy regulations, sales of gasoline and diesel must be blended by biofuels. The gasoline requires a 12% blend of ethanol (Resolution No. 37/2016) and diesel requires a 10% blend of FAME (Resolution No. 1,125/2013), the same blend request of 2019 and 2018. During 2020 the producers of FAME discontinued deliveries, arguing that the price fixed by the Argentine government did not make their operations profitable. As a consequence of lack of product, since August 2020 YPF decreased the blend of FAME all over the country, and in some cases produced diesel without using this biofuel. On January 5, 2021, the SE has set a path of price recomposition until the month of May 2021 and has modified the guess of FAME to 5% in January 6.7% in February 8.4% in March returning on 10 % starting in April. During January 2021, the FAME supply situation has partially improved but was not reached to add 5% of FAME in the gasoil.

 

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Since 1997 and 1998, each of our refineries (La Plata, Luján de Cuyo, and Plaza Huincul) have been certified under International Organization for Standardization (“ISO”) 9001 (quality management systems) and ISO 14001 (environmental management system). All of them are also certified under the ISO 45001 (2020)/OHSAS 18001 (occupational health and safety management system) standards. Inventories of industrial greenhouse gases and savings of CO2 emissions equivalent (MDL projects) have been verified in accordance with ISO 14064 in the three refineries (2009 La Plata and Lujan de Cuyo; 2017 Plaza Huincul). The refineries maintain their systems under continuous improvement and revision by authorized organizations.

During 2020, the renewable energy produced by the Manantiales Behr wind farm (located in the Province of Chubut) and the Los Teros I wind farm (located in the Province of Buenos Aires) represented 20% of the electricity consumption of the Lujan de Cuyo and La Plata Refineries, compared with 15% in 2019. The first wind farm was incorporated into the matrix of electricity consumption in July 2018 and Los Teros I became part of the matrix during September 2020. Both are owned by YPF EE. See “—Gas and Power—YPF in Power Generation”.

Marketing Division

Our Marketing Division supplies gasoline, diesel, JET-A1 Fuel, lubricants, asphalts, LPG and other petroleum products throughout Argentina and other countries in the region. We supply several industries such as, retail, transport and agriculture.

During 2020, as a result of the COVID-19 global pandemic, Argentina’s economy contracted by approximately 10%, and our fuels sales by volume decreased by 20.6% compared to 2019 due to the reduction in circulation and the reduced activity of different industries.

Nevertheless, YPF maintained its leading position in Argentina, with a market share of 54.2% for liquid fuels.

YPF sells two types of gasoline: Infinia, a premium 98 octane gasoline, and Super, a regular 95 octane gasoline. The premium mix obtained in 2020 (27.2%) remained stable compared to the annual average in 2019 (27.3%).

Our market share of Infinia and Super gasolines, according to information provided by the Argentine Secretary of Energy, was 58.3% and 51.1%, respectively, as of December 31, 2020, compared with 61.0% and 54.1%, respectively, as of December 31, 2019. Our sales volume for Infinia was 964 mcm in 2020 (31.1% less than in 2019) and 2,580 mcm for Super in 2020 (30.6% less than in 2019).

Regarding diesel, according to our own estimates, our market share of diesel (500 and 800 part per million of sulphur (“ppm”)) and Infinia diesel (10 ppm) was 53.8% and 59.0%, respectively, as of December 31, 2020, compared with 55.6% and 59.7%, respectively, as of December 31, 2019. In terms of market demand, diesel decreased 11% compared to 2019. Our sales volume for Infinia Diesel was 1,616 mcm in 2020 (19.3% less than in 2019) and 4,853 mcm for Diesel in 2020 (11.6% less than in 2019). These sales volumes do not include bunker sales to the foreign market and sales to other companies. Accounting for such sales, sales volume of diesel (500 and 800 ppm) decreased 8.2% compared to 2019. Finally, sales volume of Infinia diesel reached 25.0% of total diesel sales volumes, compared to 26.7% in 2019.

Competitors remained active in communication, promotions, loyalty cards and bank discounts, in despite of the pandemic.

Consequently, during 2020 was a year during which YPF focused its efforts on the following strategic pillars: contribution to the development and expansion of the network, development of brand loyalty and the building of an integral and innovative fuel strategy.

With respect to our service station network, during 2021 we plan to add a differential value proposal for service stations, based on the needs and expectations of customers.

To enhance brand loyalty, YPF launched campaigns to improve the communication and impact upon target consumers. YPF held out an alliance with Messi, AFA (“Asociación del Fútbol Argentino”) and Adidas, launching the soccer ball promotion in December 2020. Also, the travel platform was developed seeking to provide customers with a number of exclusive benefits during their holidays.

In November 2020, we launched the ‘360 Infinia’ campaign communicating our new formula with the objective of regaining premium gasoline market share and building the attributes of quality and innovation.

The Domestic Marketing Division includes seven main units: Retail, Convenience Stores, Agriculture, Industry, Aviation, Lubricants and Specialties and LPG.

Retail Unit

As of December 31, 2020, the Retail Unit’s sales network in Argentina consisted of 1,632 retail service stations, compared to 1,620 as of December 31, 2019. Of these, 110 are owned by YPF. The remaining 1,522 service stations are associated service stations. OPESSA, our wholly-owned subsidiary, actively operates 166 retail service stations, of which 88 are owned by YPF, 24 are leased to the Automóvil Club Argentino (ACA) and 54 are leased to third parties. Additionally, YPF owns 50% of Refinor, a company that operates 93 service stations, an oil change service shop called YPF Boxes also operated at 346 service stations across the country.

According to our estimates, as of December 31, 2020, we were the main fuel retailer in Argentina, accounting for 32.8% of the country’s gasoline service stations, followed by Shell, Axion, and Puma with 14.9%, 12.8%, and 6.3%, respectively.

 

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Throughout 2020, YPF successfully renewed 134 contracts with third party retail station owners, of which 28 corresponded to target contracts expiring in 2021. During 2020, we continued to deploy measures designed to improve the infrastructure of our service stations network and introduced a new modular and flexible business model that seeks to build a station in a short period of time, with minimal investment and low maintenance costs, while permitting agile, simplified, and easy to operate services.

During 2020, our service stations adopted and followed the protocols by the National Government and the local authorities to address the COVID-19 pandemic.

We launched the “+ Sales Program” to encourage fuel sales. The program runs every two months and recognizes the service stations with the best performance, rewarding them with an additional and exceptional commission (up to 1%) based on a points system.

The YPF APP tool was implemented in more than 1,170 service stations. With this app, it was possible to streamline the payment process and also to centralize the network benefits and discounts granted such as those for healthcare personnel, bank promotions, discount on Boxes, among others.

Convenience Store Unit (“Full” Stores)

YPF’s Convenience Store Unit is a franchise comprised of 635 -24hs open- convenience stores at December 31, 2020 (compared to 631 in 2019). Out of these 635 shops, we operate 161 through OPESSA while 474 are operated by third parties.

YPF Full Stores sales have been impacted by COVID-19 lockdown measures. As of the date of this annual report, all YPF Full stores are open again. In order to reduce the pandemic impact and to support sales new alternatives for customers were developed. In the first place 200 stores implemented a delivery service. On the other hand, 513 stores have launched the possibility of purchasing with YPF APP, avoiding the exchange of money or credit cards and reducing the risk of contagion. Also new “essential” products were included in stores.

During 2020, as a result of the measures adopted to mitigate the impact of the COVID-19 pandemic, units sold through the YPF Full Store network reduced (only) by 33% compared to 2019. YPF waived the royalty payments owed by the store owners and suppliers for the period March/June 2020, for a total amount of approximately U.S.$ 9.5 million, to mitigate the consequences of the COVID-19 pandemic for the owners and their employees.

Agriculture Unit

The Agriculture Unit provides an extensive portfolio of products and services to agricultural producers, including agricultural advice, delivery and application of products at the consumption site. During 2020, this division we focused on the five pillars of the business: concentrate on servicing the producers to facilitate their tasks and improve results, provide an integral response from initial sowing to final harvesting, produce energy through grain, innovate in new phytosanitary products (Lambdacialotrina HDS, YPF 2,4D ME, YPF Agro Glifosato Concentrado, Inoculante Y-TERRA Trigo) and, maintain not only the operational excellence and the work environment throughout its network.

The strategy was carried out through a network of 103 points of sale (eight owned by YPF) with exclusive commercial areas in 19 provinces, which offer fuel, fertilizers, lubricants, phytosanitary products and ensiling bags. In December 2020, the agricultural unit implemented the INTEGRA business model, which consists of the commercialization of phytosanitary products in bulk, discontinuing the use of large drums in line with our environmental sustainability awareness.

Furthermore, YPF AGRO signed an agreement with AGCO, a leader global company in the design, manufacture and distribution of agricultural equipment, to create a comprehensive proposal for crop nutrition, adding SUMMA mix, an efficient product application. In order to ensure a better quality in seeds’ genetics, YPF AGRO and AGCO are working with Grupo Don Mario a leader company in the seed business, for the development of ‘Illinois’ brand of seeds.

In order to be close to the agricultural producer, YPF AGRO became the main sponsor of Expo Agro (the most relevant agrobusiness exhibition in the country) from 2020 to 2022, representing the strategic union of two references of the sector for the development of the agricultural industry. YPF AGRO also displayed a renewed portfolio of products and conditions for the exchange of grains. As a result, fertilizer and phytosanitary products sales increased (in volume) by 121% compared to 2019. In addition, our fertilizer market share, according to our estimate, was 13.8% compared to 10.4 % in 2019.

YPF developed crop financing with instruments such as credit cards with local banks, for more than U.S.$ 148.6 million. The Company accepts different types of grains as payment (exchange), mainly soybean, but also corn, rice, wheat, sorghum, sunflower, barley and cotton. Some soybeans are processed by third-party companies to obtain soybean oil, meal and hulls that we generally export. Furthermore, part of the soybean oil is processed into fatty acid methyl esters (“FAME”) (a natural product added to commercial grade diesel), which covers approximately 12.7% of YPF’s refinery needs. During 2020, we received approximately 1.5 million tons of grains (a 13% decrease compared to 1.7 million tons in 2019), primarily soybeans. As of December 31, 2020, the revenue from these exports represented approximately U.S.$ 403 million, a 14% increase in comparison to 2019.

 

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In February 2021, YPF issued its Senior Secured Notes due 2026, secured by an account structure that is funded by deposits made by certain designated clients of YPF as payment for YPF’s exports of certain agricultural and other products sold to such traders. See “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Loans.”

Industry Unit

This unit supplies the entire national industry and transport (ground) sectors, which require a broad portfolio of products and services to meet customer needs. It develops specific solutions for mining, oil & gas, transport and general industries. We supply products such as fuels (diesel, gasoline, fuel oil), lubricants, coal, asphalts, paraffin and derivatives (sulfur, CO2, decanted oil, aromatic extract), either directly from our refineries to the point of consumption (8,500 direct customers) through our own ground and waterway network, or through a network of 22 industrial distributors with national coverage (Mining, Oil & Gas and Asphalts).

Our purpose is to promote efficiency in the value chain of our industry customers offering energy solutions, supplies and services. Consequently, our strategy is based on closeness with our clients and the development of innovative tailored solutions.

During 2020, activities of our industry unit varied reflecting the impact of the COVID-19 pandemic on our different industry customers. While segments such as Oil & Gas were particularly affected by the COVID-19 pandemic and saw activity practically paralyzed through September 2020, other segments such as mining were able to continue their activities at levels similar to 2019. In the transport segment, we implemented the new head office known as “Everilion” in YER (a fleet card that supplies and administrates the needs of vehicles of cargo and passengers).

In the Oil & Gas segment, the activity was completely paralyzed due to the effects of the pandemic from March to September 2020. However, we continued building a center of excellence to supply fuels and lubricants in the heart of Vaca Muerta. Our main objective is to deliver services and solutions available as required by each customer and reduce operating costs in the entire upstream operations, avoiding shortages due to the remoteness of the dispatching plants. We expect to implement this initiative during the second half of March 2021.

In the mining segment, the activity remained at 90% during the pandemic. In this context, we also renewed and entered into new contracts with the following mining companies: Sales de Jujuy S.A, Minera Exar S.A and Minera Pirquitas S.A.

We reached an agreement with Lafarge Holcim (cement) for a two years contract to supply Petcoke and Natural Gas to all their Plants.

We entered into a new contract to supply more than 1 million tons of Petcoke to Copetro, the only Calciner company currently operating in Argentina.

We also continued with the new relationship model with strategic clients (launched in 2019), that involves energy consumption through a wide range of products, regardless the YPF business unit. The strategy involves a wide range of clients, from farming to iron and steel industry that operate not only in Argentina but also in neighboring countries. The aim is to have renewable energy and sustainability projects on agenda, for which YPF is currently working on.

Aviation Unit

Our aviation unit provides JET A-1 in 50 airports and AVGas 100LL in 41 airports across Argentina.

During 2020, due to the effects of COVID-19, demand fell by approximately 70% compared to 2019. Therefore, YPF’s supplied volume fell from 1,231,321 cm in 2019 to 336,256 cm in 2020. For 2021 supply and demand information, see “Item 5. Operating and Financial Review and Prospects—Factors Affecting Our Operations—Macroeconomic Conditions—COVID-19 outbreak.”

In 2020, YPF’s market share for JET was 5.1% lower than in 2019 and YPF Chile’s sale volume of JET A-1 decreased by 65% compared to 2019.

Lubricants and Specialties Unit

In the Lubricants market, YPF has a leading position. We manufacture a wide range of products including Motor Oil, Heavy Duty and Industrial lubricants in retail, wholesale and industrial markets through a net of dealers and distributors. In the La Plata industrial complex, we operate a modern and efficient manufacturing facility where we produce lubricants not only for the domestic market, but also for export. Our line of automotive lubricants, including mineral and synthetic oils, has been approved by leading global automotive and engine manufacturers, including Ford, GM, Porsche, Scania, Mercedes Benz, Volkswagen, Renault, PSA, Audi, Deutz, Cummins, Volvo, Toyota, MAN Truck, Subaru, Suzuki, Metalfor, Detroit Diesel, ZF, Allison and MTU. Regarding Infinia and Super gasolines, they reached the “Top Tier” standard for gasoline introduced by Mercedes Benz, BMW, Audi, GM, Ford, Toyota, Honda, Volkswagen, Navistar and FCA.

During 2020, our sales of lubricants decreased by 6.4% compared to 2019. Sales to the domestic market fell by 11.4%, due to the severe contraction of the market, due to the COVID-19 pandemic.

 

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Export sales have increased by 28% in 2020 compared to 2019. We sold to our wholly-owned companies in Brazil and Chile. Sales to Brazil (by volume) increased by 364% compared to 2019 (mainly due to supply drawbacks of raw material at the international level and the lower production of Petrobras bases) while sales to Chile (by volume) increased by 13% compared to 2019. Besides, we exported to our network of distributors located in Bolivia, Uruguay and Paraguay, where sales volume was 10% lower than in 2019.

YPF’s strategy is to continue its leadership in the development of lubricants, to meet the latest generation OEMs (original equipment manufacturers) requirements for protection and performance needs in both passenger and heavy-duty vehicles, maintaining the leadership in a high-profitability lubricants market. Our market shares as of December 2020 was 37.9% (a decrease of 0.6% compared to December 2019), according to information provided by the Secretary of Energy. The critical factors of competitiveness are the usage and referral agreements from the main OEMs (Ford, General Motors, Porsche and Scania) and reaching the customer with the best network and service coverage.

The sales of our passenger car motor oil (PCMO) line (Elaion is the most important brand for the automotive segment) in the domestic market decreased to 8.5 mcm in 2020, a decrease of 25% compared to 2019 attributable to the impact of the COVID-19 pandemic on the use of automobiles generally during the lockdown. With respect to our heavy-duty motor oil (HDMO) line (Extravida), 2020 sales decreased by 11.2% compared to the previous year. Sales volume of Azul 32 (which meet the Euro 5 Standard) decreased by 18% compared to 2019, mainly due to lower EURO 5 vehicle patents and COVID-19 pandemic.

Our quality controls ensure that the product reaches the customer in optimal conditions and complies with the strict standards determined by ISO 22241 for this product. Since 1995, Lubricants and Specialties have achieved these certifications: ISO 9001: 2015, ISO 14001: 2015, ISO 45001: 2018, IATF 16949-Third certifications. Additionally, YPF has obtained for Azul 32 API’s certification as part of the American Petroleum Institute (API) Diesel Exhaust Fluid Certification Program and VDA approval to use AdBlue brand.

LPG Unit

We are engaged in the LPG wholesale business, which encompasses LPG storage, logistics and commercialization to domestic and foreign markets. We obtain LPG from natural gas processing plants and refineries, as well as from third parties. In addition to butane and propane, we also sell propellants used in the aerosols manufacturing processes.

In the domestic market, we sell LPG mainly to distributors that supply the domestic retail market. The LPG Unit does not directly supply the retail market, which is supplied by YPF Gas S.A., our affiliate.

During 2020, we sold approximately 26% of our LPG production to YPF Gas S.A. for the domestic market.

We are the largest LPG producer in Argentina, with sales in 2020 reaching approximately 494 mtn, compared with 555 mtn in 2019. Of this, approximately 364 mtn were sold in the domestic market, compared to 374 mtn in 2019. Our main clients in the domestic market are companies that sell LPG in cylinders or bulk packing to end-consumers, also providing LPG to households in some regions. Additionally, exports in 2020 reached approximately 130 mtn, compared to 181 mtn in 2019. The main destinations were Chile, Paraguay and Uruguay. Transportation of LPG to overseas customers is carried out by truck, pipeline and barges.

We produced 472 mtn of LPG in 2020, not including LPG destined for petrochemical usage, and purchased LPG from third parties, as detailed in the table below:

 

     Production and
Purchases (mtn)
2020
 

LPG from Natural Gas Processing Plants (1)

  

El Portón

     81.7  

San Sebastián

Loma Negra

Estación Fernández Oro

    

19.4

21.5

3.6

 

 

 

Total Upstream

     126.2  
  

 

 

 

LPG from Refineries and Petrochemical Plants

  

La Plata refinery

     219.7  

Luján de Cuyo refinery

     59.3  

CIE

     29.6  

Total refineries and petrochemical plants (2)

     308.6  
  

 

 

 

 

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     Production and
Purchases (mtn)
2020
 

LPG purchased from joint ventures (3)

     1.2  
  

 

 

 

LPG purchased from unrelated parties

     35.9  
  

 

 

 

Total

     472  
  

 

 

 

 

(1) 

San Sebastian, El Portón, Loma Negra and EFO are 100% owned by us; General Cerri belongs to a third party with which we have a processing agreement.

(2) 

This production does not include LPG used as petrochemical feedstock (olefins derivatives, polybutenes and maleic).

(3)

Purchased from Refinor. We also have a 50% interest in Refinor, which produced 35.9 mtn of LPG in 2020.

Regarding sales prices, the butane local market is regulated by the Argentine government. In October 2020 (Disposition No. 30/2020), the Argentine government updated Butane’s maximum reference prices for the local market recognizing an improvement in sales prices, which had remained unchanged since July 2019.

In the case of propane, local prices published by the Secretary of Energy are referred to export parity. During the second and third quarter of 2020, the prices for propane in the local market were regulated by the Argentine government to mitigate the impact of the COVID-19 pandemic (Decree No. 311/2020).

Chemicals Division

Petrochemicals are produced at YPF productive units in Ensenada, Lujan de Cuyo and Plaza Huincul.

Petrochemical production operations in the Complejo Industrial Ensenada (“CIE”) are closely integrated to the refining activities at the La Plata Refinery, allowing a flexible supply of feedstock, the efficient use of by-products, such as hydrogen, and the supply of aromatics to increase gasoline octane levels.

The main petrochemical products and production capacities per year are as follows:

 

     Capacity  
     (tons per year)  

CIE

  

BTX (Benzene, Toluene, Mixed Xylenes)

     526,000  

Orthoxylene

     25,000  

Cyclohexane

     95,000  

Solvents

     66,100  

MTBE

     60,000  

Butane I

     25,000  

Oxoalcohols

     35,000  

TAME

     105,000  

LAB (Linear Alkyl Benzene)

     52,000  

LAS (Linear Alkylbenzene Sulphonate)

     32,000  

PIB (Polyisobutylene)

     26,000  

Maleic Anhydride

     17,500  

Propylene

     120,000  

Plaza Huincul

  

Methanol

     411,000  

Luján de Cuyo

  

Propylene

     100,000  

 

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Natural gas, the raw material for methanol, is supplied by our Upstream business segment. The use of natural gas as a raw material allows us to monetize reserves, demonstrating the integration between the Chemical and the Upstream divisions.

Raw materials for petrochemical production in the CIE, including virgin naphtha, propane, butane and kerosene, are supplied mainly by the La Plata refinery.

On July 4, 2020, rupture of the super heater E102II and different damages caused in turbine CT-201, resulted in the sudden shutdown of the Methanol plant we operate in Plaza Huincul and required as to cover local production costs to imported product to avoid lack of supply in the country and meet with customer contracts. Production at such Methanol plant recommenced on November 22, 2020. Currently, we are working with the liquidators designated by the insurers on the preliminary and total adjustment of the loss, corresponding to material damage and lost profits attributable to the effects of the accident that resulted in the shutdown. As of December 31, 2020, we had registered a positive charge of U.S.$ 5.5 million as a form of advance on the final loss in such methanol plant, which has not yet been determined.

In 2020, 2019 and 2018, 75%, 72% and 67%, respectively, of our petrochemicals sales (including propylene), were made in the domestic market, while we exported to Mercosur countries, the rest of Latin America, Europe and the United States. In 2019 we increased our commercial presence in Brazil by contracting supplementary storage of methanol in order to improve sales in the region.

The La Plata petrochemical plant was certified under ISO 9001 (2018), ISO 14001 (2017), ISO 45001 (2020), ISO 50001 (2019) and the plant verified the inventory of CO2, CH4 and N2O emissions under ISO 14064 (2017). The CIE laboratory was certified under ISO 17025 (2019).

The methanol plant was certified under ISO 9001 (2019), ISO 14001 (2019) and OHSAS 18001 (2017).

Additionally, the La Plata petrochemical plant was certified under Responsible Care® (2019) which is a voluntary program of the chemical industry that promotes continuous improvement in areas of safety, occupational health and the environment.

The certification of our petrochemical business covers the following processes:

 

   

Refining process of crude oil and production of gas and liquid fuels, lube base stocks and paraffin, petroleum coke (green coke) and petrochemical products in the units of refining, conversion, lube, aromatics, olefins, PIB (polyisobutene) / maleic and LAB / LAS (linear alkyl benzene / linear alkyl benzene sulphonate), methanol production and storage.

 

   

Management and development of the petrochemical business of YPF S.A., planning and economic and commercial control, commercialization and post-sale service of petrochemical products.

 

   

Production of complex aromatics, olefins, maleic, polybutenes and the provision of energy services that operate within the Complejo Industrial La Plata – Química.

The chemicals division also has 50% ownership of Profertil, a joint venture with Nutrien, a worldwide leader in fertilizers, which initiated operations in 2001. Profertil has a production facility in Bahía Blanca which produces 1.3 million tons of urea and 790,000 tons of ammonia per year. Additionally, Profertil markets other nutrients and special blends of prepared land to optimize soil performance.

Logistic Division (crude oil and products transportation and storage)

We have available for our use a network of five major pipelines, two of which are wholly-owned by us. The crude oil transportation network includes nearly 2,800 km of crude oil pipelines with approximately 640,000 barrels of aggregate daily transportation capacity of refined products. We have total crude oil tankage of approximately 7 mmbbl and maintain terminal facilities at five Argentine ports.

Information with respect to YPF’s interests in its network of crude oil pipelines is set forth in the table below:

 

From    To    YPF
Interest
    Length
(km)
     Daily Capacity
(boe/d)
 

Puesto Hernández

   Luján de Cuyo refinery      100     528        93,509  

Puerto Rosales

   La Plata refinery      100     585        326,541  

La Plata refinery

   Dock Sud      100     52        141,006  

Loma Campana

   Lago Pellegrini      85     88        125,860  

Brandsen

   Campana      30     168        120,700  

Puesto Hernández/P. Huincul/Allen

   Puerto Rosales      37     888        232,000  

 

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We own two crude oil pipelines in Argentina. One connects Puesto Hernández to the Luján de Cuyo refinery (528 km), and the other connects Puerto Rosales to the La Plata refinery (585 km) and extends to Shell’s refinery in Dock Sud at the Buenos Aires port (another 52 km). We also own a plant for the storage and distribution of crude oil in the northern province of Formosa with an operating capacity of 19,000 cm, and three tanks in the city of Berisso, in the province of Buenos Aires, with 90,000 cm of capacity. We own 37% of Oleoductos del Valle S.A., operator of an 888 km pipeline network, its main pipeline being a double 513 km pipeline that connects the Neuquina basin and Puerto Rosales.

An important milestone achieved in 2019 was the start of the operation of the Loma Campana – Lago Pellegrini pipeline, in June 2019. It allows evacuation of conventional and nonconventional crude oil from Vaca Muerta field. The pipeline is owned by OLCLP, a corporation owned by YPF (85%) and Tecpetrol (15%), and is operated by a third company, Oleoductos del Valle S.A.

We hold, through Oleoducto Transandino Argentina S.A. and Oleoducto Transandino Chile S.A., an interest of 36% and 18% respectively, in the 428 km trans Andean pipeline, which transported crude oil from Argentina to Concepción in Chile. This pipeline ceased operating on December 29, 2005, as a consequence of the interruption of oil exports resulting from decreased production in the north of the province of Neuquén. The book value of the assets related to this pipeline was reduced to their recovery value. We are currently analyzing the asset as a possible way to evacuate the non-conventional crude oil.

We also own 33.15% of Terminales Marítimas Patagónicas S.A., operator of two storage and port facilities: Caleta Córdova (province of Chubut), which has a capacity of 314,000 cm, and Caleta Olivia (province of Santa Cruz), which has a capacity of 246,000 cm. We also have a 30% interest in Oiltanking Ebytem S.A., operator of the maritime terminal of Puerto Rosales, which has a capacity of 480,000 cm, and of the crude oil pipeline that connects Brandsen (60,000 cm of storage capacity) to the Axion Energy Argentina S.R.L. (previously ESSO, a former subsidiary of ExxonMobil which was acquired by Bridas Corporation) refinery in Campana (168 km), in the province of Buenos Aires.

In Argentina, we also operate a network of multiple pipelines for the transportation of refined products with a total length of 1,801 km. We also own seventeen storage terminals for distribution of refined products and seven LPG storage terminals with an approximate aggregate capacity of 1,620,000 cm. Three of our storage and distribution terminals are annexed to the refineries of Luján de Cuyo, La Plata and Plaza Huincul. Ten of our storage and distribution terminals have maritime or river connections. We operate 50 airplane refueling facilities (40 of which are wholly-owned) with a capacity of 22,500 mcm, 141 manual fuel dispensers and 13 automatic fuel dispensers. These facilities provide a flexible countrywide distribution system and allow us to facilitate exports to foreign markets, to the extent allowed pursuant to government regulations. Products are delivered by an exclusive tanker truck fleet of approximately 2,400 units of which 23 are owned. During 2019, we have been working in overhauling the terminal located on the Paraná River (Terminal Fluvial San Lorenzo), acquired in 2018.

During 2020, a contract was signed with Refinor for the reversal of the Monte Cristo-Banda Río Salí pipeline with the purpose of lowering distribution costs also allowing competitive sourcing in regional channels. Currently, work is being done on the adaptation of the facilities, anticipating the start of operations at the Banda Río Salí fuel dispatch terminal, Tucumán, in the second quarter of 2021.

Trading Division

Our Trading Division sells refined products and crude oil to international customers and purchases crude oil from to domestic oil companies. Exports may include crude oil, unleaded gasoline, diesel, fuel oil, LPG, light naphtha, virgin naphtha, MTBE, green coke, decanted oil; and AVGAS.

This division exports to different countries, mainly to the United States of America, Brazil, United Arab Emirates, as well as to other countries. Sales to international clients for 2020 and 2019 were Ps. 28,834 million and Ps. 29,512 million, respectively. In 2020, refined products accounted for 37% of total export sales, up from 36% in 2019.

In 2020, 31% of total sales corresponded to marine fuels, as in 2019. In 2020 and 2019, sales volumes to customers outside of Argentina consisted of 5.65 mmbbl and 6.08 mmbbl of refined products, respectively, and 1.8 mmbbl and 1.9 mmbbl of marine fuels, respectively.

For the domestic market, crude sales totaled Ps. 5,251 million, or 2.06 mmbbl, in 2020 and Ps. 4,783 million, or 1.9 mmbbl, in 2019. Marine fuel sales totaled Ps. 6,273 million, or 0.97 mmbbl, in 2020 and Ps. 5,104 million, or 1.1 mmbbl in 2019.

In addition, imports of low sulfur diesel, aviation gas and others in 2020 totaled 2.7 mmbbl, a decrease of 58% compared to 6.5 mmbbl in 2019. The United States of America and Saudi Arabia were the main origin of these imports. There was no import of JET in 2020 due to COVID-19 pandemic.

Imports of fertilizers and agrochemicals totaled 0.5 million tons in 2020, increasing 151% compared to 0.20 million tons in 2019. Egypt and China were the main origin.

In 2020, we did not import crude oil. We exported 5.2 mmbbl of crude oil, which became available as a result of lower demand starting from our La Plata refining complex and the impact of the COVID-19 pandemic.

 

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Gas and Power

During 2020, our gas and power activities included: (i) the commercialization and distribution of natural gas to third parties; (ii) the technical operation of LNG liquefaction facility in Bahía Blanca terminal (until October 2020) and regasification in Escobar terminal, through the contracting of two vessels; and (iii) the generation of both conventional thermal electricity and renewable energy projects, mainly developed by YPF EE, a company co-controlled by YPF and GE EFS Power Investments B.V. (“GE”).

The Argentine natural gas market

Most of our proved natural gas reserves in Argentina (approximately 76% as of December 31, 2020) are situated in the Neuquina basin, which is strategically located in relation to the principal market of Buenos Aires and is supported by sufficient pipeline capacity during most of the year. Accordingly, we believe that natural gas from this region has a competitive advantage compared to natural gas from other regions. The capacity of the natural gas pipelines in Argentina has proven in the past to be inadequate at times to meet peak-day winter demand, and there is no meaningful storage capacity in Argentina.

We estimate (based on preliminary reports of amounts delivered by gas transportation companies) that natural gas consumption in Argentina totaled approximately 1.69 bcf (or 47,960 bcm) in 2020. We estimate that the number of users connected to distribution systems throughout Argentina was approximately 8.94 million as of December 31, 2020.

In 2020, we sold approximately 33.78% of our natural gas to local residential distribution companies, approximately 2.63% to compressed natural gas end users, approximately 31.86% to industrial users (including our affiliates, Mega and Profertil), approximately 20.16% to power plants (including our affiliate YPF EE) and 6.90% to YPF downstream operations. During 2020, approximately 85% of our natural gas sales were produced in the Neuquina basin.

During the past few years, the Argentine government has taken many steps aimed to satisfy domestic natural gas demand, including pricing, export regulations, higher export taxes and domestic market injection requirements. These regulations were applied to all Argentine producers, affecting natural gas production and exports from every producing basin. See “Gas and Power—Delivery commitments—Natural gas supply contracts.”

For additional information on these and other related regulations, see “—Legal and Regulatory Framework and Relationship with the Argentine government—Natural gas” and “—Legal and Regulatory Framework and Relationship with the Argentine government—Natural gas export administration and domestic supply priorities.”

During 2018 and 2019, the natural gas market was deeply affected by the adverse situation of the Argentine economy and was also characterized by excess supply compared to domestic demand at certain times of the year (mainly in non-winter season), which impacted the production of natural gas resulting in the temporary closure of production in some locations, as well as in the reinjection of hydrocarbon. Based on this new scenario, new regulations (see “—Natural Gas—Tariff regulation”) and agreements, natural gas sales prices in dollar terms decreased when compared to the prices established in 2017 and 2018.

During 2020, local production decreased substantially driven by a natural decline of fields and a decrease in investments in a context of falling demand. However, natural gas prices remain relatively stable in peso terms, mainly due to (i) an already weakened demand impacted by the measures taken by the Argentine government due to the outbreak of the COVID-19 pandemic (see “Item 5. Operating and Financial Review and Prospects—Factors Affecting Our Operations—Macroeconomic Conditions-COVID-19 outbreak”), (ii) the competition between producers to get industrial consumers contracts in a context of oversupply (especially during summer season), (iii) CAMMESA’s reduction, through the electronic bidding prices, of the reference price for power generation in winter season from U.S.$ 4.95 per mmBtu to U.S.$ 2.67 per mmBtu. Consequently, with the objective of enabling investments to increase natural gas production in all the country’s basins and satisfy the country’s hydrocarbon needs, on November 16, 2020, Decree No. 892/2020 was published in the Official Gazette, which (i) declared of national public interest the promotion of Argentine natural gas production, and (ii) approved and instructed the Secretary of Energy to implement the “Plan for the Promotion of Argentine Natural Gas Production - Offering Scheme and Demand 2020-2024” (“Plan GasAr”). See “—Legal and Regulatory Framework and Relationship with the Argentine government—Market Regulation—Natural gas—Natural Gas Stimulus Programs—Decree No. 892/2020” and See “Item 5. Operating and Financial Review and Prospects—Factors Affecting Our Operations—Macroeconomic Conditions” and “—Seasonality.”

For information related to gas sales to local distribution companies and Decree No. 1,053/2018, which set forth that differences generated by variations in the exchange rate between natural gas prices and tariffs in the period from April 2018 through March 2019, see “—Legal and Regulatory Framework and Relationship with the Argentine government—Market Regulation.”

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, effective as of its sanction. YPF is analysing possible measures to defend its rights considering the repeal of Decree No. 1,053/2018.

 

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Beginning on January 1, 2021, we entered into new contracts with local distribution companies as result of bidding process celebrated on December 2020. These contracts mature on December 31, 2024.

During 2020 YPF, increased its market share in the compressed natural gas market segment driven by an agreement reached with the majority of the stations under the YPF brand and the continuation of natural gas supply to its subsidiary OPESSA. In December 2020, YPF had a market share of approximately 24% in this segment, compared to a market share of approximately 5% in April 2020.

The natural gas market for power generation also suffered changes in 2020:

 

   

CAMMESA continued purchasing natural gas for power generation through monthly bidding processes with a maximum gas price provided for by resolution. Initially, CAMMESA had obligations of take or pay of 0%, which later raised to 30%. Further, YPF had delivered or paid its obligations of 100%, as the rest of the producers.

 

   

On January 24, 2020, the SE required CAMMESA to introduce deliver or pay obligations in its bidding processes and adopt new maximum reference prices of U.S.$ 4.02 per mmBtu for June, July and August 2020 and U.S.$ 2.67 per mmBtu for September 2020 and the following months. This requirement reduced summer season reference price form U.S.$ 3.67 per mmBtu to U.S.$ 2.67 per mmBtu, reduced winter season reference price from U.S.$ 4.95 per mmBtu to U.S.$ 4.02 per mmBtu and reduced the winter season from five to three months (June to August).

 

   

On May 21, 2020, the Secretariat of Energy instructed CAMMESA to adopt new maximum reference prices further reducing the maximum reference prices for natural gas purchases for June, July and August 2020 from U.S.$ 4.02 per mmBtu to U.S.$ 2.67 per mmBtu, resulting in the application of the same low summertime price year round.

For additional information regarding to the natural gas market see “Item 4. Information on the company—Legal and Regulatory Framework and Relationship with the Argentine government—Market Regulation—Natural gas” and “—Legal and Regulatory Framework and Relationship with the Argentine government—Market Regulation—Electricity.”

Natural gas distribution

We currently hold a 70% stake in Metrogas S.A. (“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 243.04 bcf) of natural gas to 2.2 million customers in comparison to approximately 7,599.6 mmcm (or 267.96 mmcf) of natural gas per day to 2.2 million customers in 2019. During May 2013, we, through our subsidiary YPF Inversora Energética S.A. (“YPF Inversora Energética”), acquired 100% ownership in Gas Argentino S.A. (“GASA”), the controlling company of Metrogas, by acquiring all shares of GASA not already owned by us, representing a 54.7% stake. In 2016, we absorbed GASA and YPF Inversora Energética, which were dissolved without liquidation.

On December 28, 2016, YPF received a copy of the note delivered by ENARGAS to Metrogas, requesting Metrogas to adjust its equity structure in line with applicable law on or prior to December 31, 2017. On March 30, 2017, YPF filed an appeal for reconsideration requesting ENARGAS to overrule its note and render a new decision setting a reasonable timeframe to adjust its equity structure. On April 5, 2018, Metrogas was notified that the ENARGAS rejected the appeal for reconsideration submitted by YPF. On October 8, 2018, YPF filed an appeal with the SE. As of the date of this annual report, this appeal has not been resolved.

Metrogas tariff issues and tariff adjustments

For information related to Metrogas tariff issues and tariff adjustments see Note 34 to the Audited Consolidated Financial Statements and for the agreements signed during the last years, see “—Legal and Regulatory Framework and Relationship with the Argentine government—Market Regulation—Natural Gas—Tariffs.”

Due to the COVID-19 pandemic, the Government issued Decree of Necessity and Urgency (“DNU”) No. 311/2020 (and amendments) prohibiting the discontinuation of the public service operated by MetroGAS to certain customers due to late payment or failure to pay up to seven consecutive or alternate invoices due from March 1, 2020 for 180 days, effective from March 25, 2020. In September 2020, the National Government extended the prohibition until December 31, 2020.

LNG - Regasification and Liquefaction

YPF began to provide regasification services to IEASA (formerly ENARSA) under certain agreements since May 2008.

YPF is the operator of UTE Escobar (a joint venture formed by YPF and IEASA, which operates a LNG Escobar since 2011, located in Escobar, province of Buenos Aires. UTE Escobar has executed agreements with Excelerate Energy to provide and operate a 151 mcm

 

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(or 533 mcf) regasification vessel moored at the LNG Escobar terminal with the capacity to supply up to 22,7 mmcm/d (or 800 mmcf/d) of natural gas. Since the beginning of its operations, LNG Escobar has converted 21.95 bcm (or 775 bcf) of LNG into natural gas, which has been injected into the Argentine network. In 2020, natural gas injected into the network amounted to approximately 1.87 bcm (or 65.9 bcf).

On October 16, 2020, YPF was served a notice issued by the Federal Court of Campana ordering the closure of LNG Escobar, given certain safety concerns that were supposedly identified in a technical report issued by Universidad de Lomas de Zamora. YPF, as the operator of the UTE Escobar, filed an appeal on October 21, 2020 challenging the order, arguing that (i) the technical report reached wrongful conclusions; and (ii) the regasification terminal meets all the technical and safety requirements of the industry and has all the relevant permits and authorizations from the applicable regulators. The Federal Court of Campana admitted such appeal and, as of the date of this annual report, the superior court had not issued a decision. On January 29, 2021, the Federal Court of Campana ordered the suspension of the closure until a new technical report fully compliant with the applicable rules and requirements for such reports is produced and incorporated as evidence.

During 2018, YPF entered into two agreements: a charter agreement for a liquefaction barge, which was later named “Tango FLNG”, with Exmar Energy Netherlands B.V. (“Exmar”); and a liquefaction services agreement with Exmar Energy Services B.V. (both companies are affiliated to Exmar N.V.). Each of the agreements have a term of 10 years, with an investment by YPF of up to approximately U.S.$ 16 million. The agreement with Exmar Energy Services B.V. was assigned in 2019 to Exmar Argentina S.A.U., also an affiliate of Exmar N.V. incorporated under the Laws of the Republic of Argentina.

Through these agreements, YPF was able to produce an approximate volume of 500,000 tons per year of LNG by taking natural gas from its deposits throughout the country. The barge had a storage capacity of 16,100 cm LNG and liquefaction of 2.5 mmcm/d of natural gas.

The Tango FLNG was the first barge of its kind. It operated in Bahía Blanca where it arrived in early February 2019. Since the beginning of commercial operations in September 2019, the unit produced 620,988 cm of LNG and delivered five cargoes, three of them during 2020. Those three cargoes have been delivered to Huelva (Spain), Escobar (Argentina) and Sergipe (Brazil).

In October 2020, YPF entered into a settlement agreement with EXMAR Energy Netherlands B.V., Exmar Argentina S.A.U. and Exmar N.V., which, without recognizing facts or rights, establishes the termination of the charter agreement and the liquefaction services agreement for the liquefaction barge TANGO FLNG executed on November 20, 2018, and the termination of the arbitral claims initiated by EXMAR Energy Netherlands B.V. and Exmar Argentina S.A.U. against YPF on July 15, 2020, having these companies nothing else to claim against YPF with regards to such claim.

The Company intends to pay the total settlement amount of U.S.$ 150 million, which includes a down payment already made of U.S.$ 22 million and the remaining amount is scheduled to be paid in 18 monthly installments.

For additional information see Note 33.f to the Audited Consolidated Financial Statements.

Other Gas Natural investments and activities

Natural gas transportation and storage capacity

Natural gas is delivered by us through our own gathering systems and through the midstream companies such as Gasoducto del Pacífico Argentino S.A. (“GPA) and Transportadora de Gas del Sur S.A. (“TGS”) from each of the major basins to the five trunk pipelines.

During 2020, we renegotiated with GPA the firm natural gas transport services signed in September 2016 reducing the booked capacity from 7.5 mmcm/d to 3 mmcm/d in order to reduce its cost in 40% per year, given that we do not expect to require this extra capacity in the following 10 years.

Additionally, YPF provides midstream services, such as gas transportation and gas processing, in our own facilities. In 2019, we signed a new contract with Pampa Energía S.A. to transport and process up to 2 mmcm/d from January 2021 until December 2022.

We have utilized natural underground structures located close to consuming markets as underground natural gas storage facilities, with the objective of storing limited volumes of natural gas during periods of low demand and selling such natural gas during periods of high demand. Our principal gas storage facility, “Diadema,” is located in the Patagonia region, near Comodoro Rivadavia city. The injection of natural gas into the reservoir started in January 2001. During 2020, we extracted 127.89 mmcm of natural gas from Diadema and sold it to our clients.

 

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In May 2019, we started the construction of our second underground natural gas storage facility (“Cupén UGS”), located in a depleted reservoir called Cupén Mahuida in the Aguada Toledo area of the Neuquina basin. Cupén UGS is connected to the gas trunk pipeline system and will allow YPF to absorb the demand swing during the summer season period and increase production during the winter season. Cupén UGS is expected to save up to 250 mmcm of natural gas during the spring-autumn seasons and to withdraw this volume throughout the coolest four months of the year. The first injection has the objective of accomplishing the cushion gas and a fraction of working gas. This activity started by the end of 2019 and reached a volume of 10.4 mmcm after 3 months of injection. During 2020, as a result of the COVID-19 pandemic and investments reductions, there was a delay in perforation activities in Cupén UGS, although the dynamic model studies continued.

NGLs

YPF participated in the development of its affiliate Compañía Mega S.A. (“MEGA”) to increase its ability to separate liquid petroleum products from natural gas. Through the fractioning of gas liquids and with our assistance, MEGA increased production at the Loma La Lata gas field by approximately 5.0 mmcm/d (or 176.5 mmcf/d) in 2001.

YPF owns 38% of MEGA, while Petrobras and Dow Chemical own 34% and 28%, respectively.

MEGA operates:

 

   

A separation plant located in the Loma La Lata field, in the province of Neuquén.

 

   

An NGL fractioning plant, which produces ethane, propane, butane and natural gasoline located in the city of Bahía Blanca in the province of Buenos Aires.

 

   

A pipeline that links both plants and transports NGLs.

 

   

Transportation, storage and port facilities near the fractioning plant.

MEGA’s maximum annual production capacity is 1.62 million tons of natural gasoline, LPG and ethane. YPF is MEGA’s main supplier of natural gas. The production of the fractioning plant is used in the petrochemical operations of PBBPolisur, S.A., owned by Dow Chemical Company, and exported by tanker to Petrobras and other relevant clients.

The Argentine Electricity Generation Market

Argentina’s energy demand in 2020 (127,306 GWh) decreased 1.3% when compared to 2019 according to CAMMESA’s last report. During 2019, residential consumption increased 8.0%, mainly due to more people staying at their homes due to the outbreak of the COVID-19 pandemic. Domestic demand highly compensated the decrease faced by commerce (5.3%) and industries (11.3%), which were the activities mostly impacted by the pandemic. In 2020, Electric energy imports (1,204 GWh) decreased 56.2% when compared to 2019 while exports (3,089 GWh) increased 11.8% in 2020 when compared to 2019, mainly driven by exports to the south of Brazil in the last quarter of 2020, where demand increased as a consequence of a drought affecting such region.

Argentina’s overall power generation in 2020 (134.171 GWh) increased 2.2% when compared to 2019, according to CAMMESA’s last report. This increase was driven by higher level of electricity exports, which were offset by decreasing demand in Argentina. In 2020, 61.4% of Argentina’s power generation came from thermal power plants, 21.7% from hydroelectric power plants, 7.5% from nuclear power plants and 9.5% from renewable energy sources; and 0.9% from spot imports from Uruguay, Brazil, Paraguay and Chile. Those spot imports were used to satisfy peak demand hours without capacity reserves.

Thermal power plants consumed 851,425 mmcm of diesel oil (a 111.1% increase compared to 2019), 580,648 tons of fuel oil (a 212.9% increase compared to 2019), 474,988 tons of coal (a 114.1% increase compared to 2019) and 16,283 bcm of natural gas (a 5.4% decrease compared to 2019). In 2020, thermal power generation had an average heat rate of 1,848.4 kcal/kwh, being 2.14% more efficient than in 2019.

The average electricity price was Ps. 2,088/MWh, a 3.3% decrease compared to 2019, while the annual average marginal cost of production was Ps. 4,066/MWh, a 24.7% increase compared to 2019, mainly due to depreciation of the peso (the average cost in U.S. dollars was of U.S.$ 57.1/MWh, a decrease of 14.2% when compared to 2019 costs).

For information related to Electricity market generation, see “—Legal and Regulatory Framework and Relationship with the Argentine government—Market Regulation— Electricity”

 

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YPF in Power Generation

On August 1, 2013, because of the spinoff of the assets of PlusPetrol Energy S.A., YPF EE, was created to continue the power generation operations and businesses of Central Térmica Tucumán and Central Térmica San Miguel de Tucumán.

During 2017, YPF EE established negotiations with GE Energy Financial Services, Inc. (“GE EFS”), a company with which we jointly control YPF EE, in order to redistribute its share capital, trusting that the entrance of the strategic partner will hasten the growth of the company in the country.

On December 14, 2017, the Board of Directors of the Company approved the terms of a memorandum of understanding with GE EFS, which established the framework conditions under which the parties would agree to the capitalization of YPF EE. See Note 3 to the Audited Consolidated Financial Statements for additional information.

On May 29, 2019, YPF received a notice from IEASA informing that YPF and Pampa Cogeneración S.A., an entity controlled by Pampa Energía S.A. wer