Fitch Ratings has affirmed the Long-Term Foreign Currency and Local Currency Issuer Default Ratings (IDRs) of YPF S.A. at 'CCC-'.
Fitch has also affirmed YPF's outstanding senior unsecured notes at 'CCC-'/'RR4'. Fitch maintains the company's Standalone Credit Profile (SCP) at 'b'.
YPF's ratings are in line with Fitch's 'Government Related Entities Criteria.' The company is majority owned by the government of Argentina and strategically important to the country. YPF's dominant market share in the supply of liquid fuels in Argentina, coupled with its large hydrocarbon production footprint in the country, could expose the company to government intervention through pricing policies or investment strategies.
Key Rating Drivers
Links to Sovereign: YPF is closely linked to the Republic of Argentina due to its ownership structure, as well as recent government interventions. Argentina controls the company through its 51% stake, and provincial government officials serve on the company's board of directors. In addition, the republic sometimes governs the company's strategy and business decisions. The Argentine government has a history of significant interference in the oil and gas sector, particularly in intervening in the company's ability to implement its pricing policy for refined products.
The SCP of YPF is in the 'b' category, reflective of the issuer's production cost profile that is above average compared with peers in the region, and its inability to diversify its operation outside of Argentina.
Key Player in a Volatile Operating Environment: YPF is the market leader in the country with over 60% of market share for refined products. The company's strong market position and branding give it the ability to adapt to market changes should the government succeed with its plan to open the energy market in Argentina. YPF's dominating participation along the value chain of fuels, combined with largest acreage under license for production of crude and gas, support the company's significant potential for value creation in a more liberalized sector. YPF's robust business model positions the company to benefit from current efforts to shift Argentina from a net importer to a net exporter of hydrocarbons in an economy plagued by a high government debt to GDP ratio, high inflation, and negative Real GDP growth for both 2023 and 2024.
Stable Production and High Cost Profile: Fitch's rating case assumes production will average 545,000boed over the rating horizon. Fitch estimates YPF's 2022 half-cycle costs of USD35.97boe and full-cycle cost of USD53.33boe, which are both high and above-average for players in the region, and not expected to materially change in 2023 and 2024. The company's high cost is mostly attributed to higher-than-average lifting cost of USD13.3boe (USD 4.0boe for shale oil production) and high interest cost per barrel of USD12.52boe in 2022. The company's full-cycle break-even implied prices were below-weighted-average realization prices for oil and gas.
Financial Metrics Strengthen: YPF has maintained a moderate leverage profile. Fitch estimates YPF's total debt/EBITDA will be 1.8x in 2023 compared with 1.9x in 2022 and will decrease to an average of 1.0x over the rated horizon. YPF's total debt/1P has materially improved. The company reported 1,187 mmboe in 2022, translating into total debt to 1P of reserves of USD5.96boed in 2022 and an estimated USD4.73boe for 2023 based on 1P reserves as reported in 2022. The company's leverage profile has been stable, but is challenged by a limited pool and high cost of capital given the macroeconomic environment in Argentina and its intrusive capital controls.
Derivation Summary
YPF's linkage to the sovereign is similar in nature to its Latin American national oil company peers, namely PEMEX (B+/Stable), Petrobras (BB/Stable) and Ecopetrol (BB+/Stable), and government-owned entities ENAP (A-/Stable) and Petroperu (BB+/Negative). These companies all have strong linkage to their respective sovereigns given their strategic importance to each country and the potentially significant negative social and financial implication a default could have at a national level.
YPF's upstream business closest peers are Pemex, Petrobras and Ecopetrol. YPF's total 2022 production averaged 503,300boed, and the reserve life was 6.4 years, most comparable with Ecopetrol with a production of 710,000boed and a reserve life of 7.8 years in 2022, but less than Petrobras' production of 2.3 million boed and a reserve life of 12.6 years and Pemex's production at 2.5 million boed and a reserve life of 8.0 years.
YPF has an adequate capital structure with a gross leverage ratio defined as total debt/EBITDA of 1.3x in 2022 and total debt/1P of USD6.0 per boe compared with Ecopetrol at 1.4x and USD11.9 total debt/1P, Petrobras at 0.4x and USD2.9 per boe and Pemex at 3.9x and USD14.7 per boe.
Unlike its peers ENAP, Petrobras, Pemex and Petroperu, YPF is not the sole provider of refined fuels in Argentina. In 2022, the company had a 56% market share. YPF is an integrated energy company, similar to Petrobras and Pemex, offering the company more financial flexibility, while ENAP is predominately a refining company that sells to marketers. Historically, YPF has operated autonomously with periodic controls of fuel prices and crude. Similar to Pemex and Petrobras, YPF has administered an import-parity pricing policy and other price controls to help tame inflation. YPF has successfully been able to tighten spread and recuperate losses realized during a period of pricing freezes.
When compared with downstream-focused entities ENAP and Petroperu, YPF leverage level in 2022 of 1.3x compares with ENAP at 3.2x and Petroperu at -40.8x. Petroperu's elevated leverage is explained by its investment plan to increase capacity by 2021, while ENAP has maintained a higher leverage profile for an extended period of time, but the company is highly strategic for the Chilean government, and thus its rating is aligned as a result.
Key Assumptions
Average gross production of 546,000boe from 2023-2026;
Realized oil price of USD62.5/bbl in 2023 and an average of USD58/bbl thereafter;
Natural gas prices rise to USD3.65/MMBTU in 2023 and settle at USD3.75/MMBTU thereafter;
Average annual capex of roughly USD5.5 billion per year from 2023 to 2025;
Downstream sales volume follows Real GDP forecasts and YPF is a net purchaser of crude;
Effective tax rate of 35%;
Fitch ARS/USD forecasts for year average and end of period during 2023-2026;
No dividend payments over the rate horizon;
Rollover of short-term maturities.
Recovery Analysis
KEY RECOVERY RATING ASSUMPTIONS
The recovery analysis assumes that YPF would be liquidated in bankruptcy rather than reorganized via going-concern;
We have assumed a 10% administrative claim.
LIQUIDATION APPROACH
The liquidation estimate reflects Fitch's view of the value of balance sheet assets that can be realized in sale or liquidation processes conducted during a bankruptcy or insolvency proceeding and distributed to creditors;
50% inventory advance rate;
$10 per barrel reflects the typical valuation of recent reorganizations in the oil & gas industry;
YPF has a material joint-venture with international oil companies that results in a reported book value of USD1.8 billion,
RATING SENSITIVITIES
Factors That Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
The Foreign Currency IDR is linked to Argentina's sovereign rating, and an upgrade can only occur with an upgrade of Argentina's sovereign rating.
Factors That Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
Argentina's sovereign rating is 'CC', the lowest level allowed under Fitch's sovereign criteria; therefore, a downgrade of Foreign and Local Currency IDRs of YPF would reflect Fitch's belief that a default of some kind appears probable, or a default or default-like process has begun for the company itself.
Liquidity and Debt Structure
Liquidity Vulnerable to Capital Controls: YPF reported USD1.5 billion in cash and cash equivalents in 3Q23. The company faces significant refinancing risk, heightened by the capital controls, with USD1,130 million in debt maturing in 2024 followed by USD1,757 million in 2025 and USD930 million in 2026. Fitch expects YPF will continue to roll over short-term bank and trade financing debt over the rated horizon.
Issuer Profile
YPF, S.A is the largest fully integrated energy company in Argentina. YPF participates in three segments: Upstream, Downstream and Gas and Power.
YPF has been controlled by the Argentine government through its majority stake of 51% since 2012.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Fitch has revised YPFs' ESG Relevance Score for GHG Emissions & Air Quality to '4' from '3' due to the growing importance of the continued development and execution of the company's energy-transition strategy. This has a negative impact on the credit profile, and is relevant to the ratings in conjunction with other factors.
The company has a Governance Structure score of '4', due to its nature as a majority government-owned entity and the inherent governance risk that arises with a dominant state shareholder, which has a negative impact on the credit profile, and is relevant to the ratings in conjunction with other factors.
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
YPF S.A. 