Argentine national oil company YPF SA has raised its capital expenditure (capex) forecast for full-year 2022, with a focus on developing the Vaca Muerta Shale formation.

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New CEO Pablo Iuliano and CFO Alejandro Lew hosted a conference call to discuss the 51% state-owned company’s second-quarter results.

“Better-than-expected economic performance so far in 2022 enhanced our cash flow generation and also left us with a more constructive outlook for the rest of the year,” Lew told analysts. 

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He said that “both shale oil and shale gas continue showing remarkable growth compared to the previous year, while also marking fresh new quarterly production records.”

Management now expects capex of more than $4 billion for the year, up 10% from previous guidance and 50% from the amount spent in 2021.

Lew said that YPF now expects to drill and complete about 120 unconventional wells during the full year, up from a prior forecast of about 100.

Annual hydrocarbon production is now expected to grow by 9% for the full year versus 2021, “which would mean the largest organic growth in the last 25 years,” the company said. “This investment will allow an acceleration of unconventional activity, greater activity in the Golfo San Jorge Basin and an increase in midstream projects.”

YPF in July also signed a memorandum of understanding with Chile’s Empresa Nacional de Petróleo, aka ENAP, to pursue development opportunities in Vaca Muerta.

Shale Revolution

Iuliano, in his first conference call at the helm of YPF, said 2Q “was a very robust quarter,” citing “tremendous progress that has been gained in our Vaca Muerta operations in the post-pandemic.”

Capex in the second quarter rose 25% year/year to $932 million, while first-half capex totaled about $1.7 billion, up 55% y/y. Upstream activity accounted for $730 million of the quarterly capex total, up 52% y/y.

Second-quarter production averaged 504,000 boe/d, up 9% from 2Q2021. Oil and natural gas production rose by 7% and 10%, respectively, versus the year-ago period.

Natural gas production was 37.6 million m3 (1.3 Bcf)/d, up from 34.1 million m3/d. Oil production averaged 225,300 b/d, up from 210,200 b/d.

YPF drilled 38 new horizontal wells and completed 29 new horizontal wells at its operated blocks during the quarter.

YPF also recorded a new record horizontal well length at the Loma Campana area, “which contains the three largest wells in all of Vaca Muerta at over 4,400 meters of horizontal length,” Lew said.

Unconventional reservoirs, namely Vaca Muerta, continue to drive production growth for YPF, now accounting for 38% of total output.

Unconventional oil and natural gas production rose by about 50% and 80%, respectively, during the second quarter on a y/y basis.

YPF attributed the growth to operational improvements at Vaca Muerta, where the firm achieved new efficiency records in drilling and fracturing times. YPF also recorded its second-highest quarterly total of new horizontal perforations during the three-month period.

Management highlighted a ninth-straight quarter of positive free cash flow (fcf) during 2Q, which totaled $310 million.

YPF reported net income of $798 million ($2.01/share) during the second quarter, compared with a loss of $492 million (minus $1.22) in the same period a year ago.

Revenues totaled $4.86 billion, up 44.9% y/y, driven primarily by higher domestic prices of liquid fuels and natural gas.