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Argentina's YPF to boost investment by 73% this year to rebuild output

Highlights

Focus will be on returning to oil and gas production growth

Available cash is key to investment

Company is trying to reduce near-term debt payments

Buenos Aires — Argentina's state-backed energy company YPF plans to ramp up it investment 73% this year, with the brunt of the increased spending going toward rebuilding oil and natural gas production after a 10% slump in 2020, a company source said Jan. 26.

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YPF aims to increase investment in its upstream business more than 90% this year compared with 2020, making it possible to "stabilize" oil and gas production and set it up to return to growth despite the natural declines at maturing conventional fields, the source said on the condition of not being named, citing company policy.

The plan, however, hinges on "the availability of cash," the source added.

To free up cash for investment, the source said YPF is trying to restructure $6.2 billion in international bonds, but so far bondholders have objected to its proposal. In response, the company has improved the offer to limit losses for bondholders while making a return to production growth more viable than if nothing were done.

"One of the objectives of this debt refinancing is to allocate funds to increase investments that make it possible to reverse the decline in the production of gas and oil in recent years," the source said.

Bondholders have until Feb. 8 to accept the offer.

Argentina's biggest oil and natural gas producer, YPF cannot readily borrow money on the international capital markets because the country is mired in its third year of a financial crisis, deterring lenders. This means it must rely on cash flow, which has been only slowly recovering after an eight-month lockdown of the economy last year slashed sales of diesel and gasoline. As a result, YPF's upstream and downstream investment plunged to $934 million in the first nine months of 2020 from $3.3 billion in all of 2019, according to company data.

In a November conference call with investors, YPF CEO Sergio Affronti said the company's total oil and gas production was likely to decline 10% in 2020 from 2019, but he added that as demand recovers the company will be able to gradually increase output.

YPF has since said that it plans to invest more in enhanced recovery techniques in its conventional fields to squeeze more out of the maturing reserves, while pursing growth in Vaca Muerta, one of the world's largest shale plays. The company wants to boost its share of crude production from Vaca Muerta to 25% of the total in 2021 from 20% in November 2020, and then take it to 45% or 50% in 2022 or 2023. YPF is the biggest producer in the play.