In a completely atypical year for the oil and gas industry, with sharp drops in consumption levels that brought prices down in a short time, YPF reported losses in 2020 of US $ 1098 million. This was due to the 31.8% year-on-year drop in revenue, mainly due to a decrease in fuel sales, the company’s main cash generation.
Because of the pandemic and restrictions on mobility, the demand for gasoline fell 29.9% and that of diesel, 11.1% (It had a smaller decrease thanks to the activity of the field). The worst monthly record was in April, when gasoline and diesel volumes contracted by around 70% and 35%, respectively.
Although demand has gradually improved since then, the general marketing of fuels is still 16.2% below pre-pandemic levels.
In addition to the drop in demand, YPF also suffered a collapse in the prices of its main products in dollars. Although after August the company began a process of periodic adjustments at the pump, values measured in dollars finished 15% below 2019 levels and approximately 30% below the average of the last 10 years.
This issue is precisely one of the most worrying in the oil company today. Since the beginning of the year, a barrel of Brent oil -the international price of crude oil that is taken as a reference in Argentina- increased more than $ 16. Although much of the oil that YPF needs to refine and supply its service stations is produced by itself, around a third of the total is purchased from other producers.
Pump prices today show the equivalent of a barrel price of between US $ 51 and US $ 53, much lower than the US $ 70 that Brent closed today. That is why YPF led, together with Raízen (it operates the Shell stations) and Trafigura (Puma Energy), the negotiations with the oil producers to access a price lower than the market price.
Within the oil companies there are mixed positions on this agreement. Although there is general consensus that it is difficult to pass on this sharp price increase to the pump in just two months, The companies want to ensure that YPF will promote a price adjustment path that will bring the supplier’s values closer to those of export parity (the price of Brent, less 8% of withholdings). This is a delicate request if one takes into account that this is an election year, due to the impact of a new increase in fuel on the minds of the voters.
The next test will be next Friday the 12th, when there will be an increase in the fuel tax established by the Ministry of Energy. The government is expected to postpone or minimize such increase to ease pressure on refineries, but it is not ruled out that YPF will take advantage of that day to apply an update to its prices.
As stated by its own financial result, YPF’s income depends for the most part on the proceeds from the sale of fuels. To make money and meet the goal of increasing oil and gas production, the state-controlled company has no alternative but to update its prices, even if the government’s political wing rejects it.
In the year of a pandemic, YPF took the opportunity to reduce its structural costs by 20%. As detailed by the company, the plan was based on three proposals. First, A voluntary retirement program was launched, which resulted in a 13% reduction in the workforce of non-contract workers, with a total cost of around US $ 125 million with a repayment period of close to two years.
Second, working conditions were relaxed in agreement with union leaders and compensation was introduced tied to performance indicators that, they said, should generate significant savings in drilling, completion, workover Y pulling. Finally, All contracts with suppliers were reviewed and about 90% were renegotiated.
“The Ebitda [beneficio antes de intereses, impuestos y amortizaciones] adjusted of the year reached US $ 1,454 million, contracting 59.7% year-on-year, since the cost efficiencies achieved this year were not enough to compensate for the drop in sales ”, they said in YPF.
They also indicated that investments in capital goods (capex) “were significantly reduced to maintain financial prudence and prioritize being able to continue honoring commitments.” The total capex was US $ 1,554 million and contracted 56%.
“This drastic reduction in investments had a very significant impact on our oil and gas production, which decreased by 9.2%, accelerating the trend of decline in production in the last 5 years, “said the firm.