5:56 PM, March 1, 2024

The challenges of an integrated energy company

| The European |

This plan addressed both the current competitive (and complex) industry landscape and the highest international corporate governance standards. Miguel Gutiérrez, the Chairman of the Board of Directors of the company, implemented his clear vision of the company’s future: YPF having to be transformed into a fully integrated energy company focused on the sustainable energy development of the country.

In going beyond YPF’s traditional boundaries, this bold vision implied a corporate profile based on professionalism, efficiency, innovation, transparency and sustainability, which above all ensured they could meet the energy needs and climate concerns of all Argentinians.

Under closer inspection of YPF’s core business model, it is evident that the company has revamped its energy strategy by increasing the ‘recovery factor’, not just by implementing a competitive development of unconventional resources in Vaca Muerta – one of the world’s largest shale formations – and expanding its portfolio, but also by promoting natural gas production, enhancing energy efficiency, strengthening its electricity business, developing renewable energies and boosting research-based innovative energy solutions.

This diversification in its energy mix will prepare YPF to face the national and international new energy landscape challenges, whilst at the same time becoming a role model in Argentina for its organisational excellence.

A Latin American pioneer in the unconventional

Argentina is the second largest country in the world with unconventional resources of gas and the fourth in terms of its oil. The company has deployed the first commercial development of shale oil and gas in the world, outside North America, with a total gross operated production of 67,400 BOE (Barrel of Oil Equivalent) per day and 577 shale wells in production. Now it continues to develop the Vaca Muerta project with world-class partners such as Chevron, Dow Chemical, Petronas, Schlumberger, Shell, Wintershall, Statoil and Total. At the same time, YPF became the main natural gas operator in Argentina through the acquisition of YSUR Energía Argentina S.R.L. Moreover, the activities have generated benefits to the provinces where it has increased royalties, turnover taxes and new local jobs created as well.

At the forefront of a national energy transition

Notwithstanding this, YPF has started on a path towards developing a more diverse energy matrix. It has strengthened its electricity business through the creation of YPF Energía Eléctrica, a subsidiary with a current power generation capacity of 1.338MW and 600MW additional in construction; YPFEE expects the increase in its power generation capacity will come from diverse energy source – natural gas thermal, solar and wind power. The objective of YPFEE for the year 2022 will be to position itself as the primary energy supplier in the country. The current power generation is equivalent to 5% of the energy consumed in the country. In addition, YPF have already commenced the construction of an important wind farm project, known as ‘Manantiales Behr’ in Patagonia, which will provide 100 MW of renewable energy.

At the same time, YPF has decided to lead innovative, research-based energy solutions, through a new company – Y-TEC. This institution was developed with the National Scientific and Technical Research Council (CONICET) and is the largest research-based centre in Argentina, with an area of ​​more than 13,000 sq m, 47 laboratories, 12 pilot plants, and more than 300 scientists working there including, researchers, technicians, and doctoral and post-doctoral fellows.

YPF’s sustainability commitment

Sustainability is an integral part of who YPF is as a company and how they do business. They are committed to sustainable energy development in a responsible, transparent and competitive way, creating lasting value for their owners, people, partners, customers and society.

The company recently addressed and renewed their commitment to the three dimensions of sustainability – economic, environmental and social – through the adoption of the ‘Ten Principles of the United Nations Global Compact’ and they are working hard to make a significant contribution to its Sustainable Development Goals.

Through YPF’s sustainability commitment they are putting in plans to ensure people can meet their needs with affordable and clean energy, shaping their effort in order to safeguard the climate. They are aiming to achieve this through being a carbon-efficient oil and gas producer, working to reduce their climate impacts. In this context, it is important to highlight that natural gas production has increased by 32% during last five years, mainly by replacing fuel oil with diesel electricity generation. The company is implementing other initiatives too in order to reduce carbon emissions, such as with flaring reduction and energy-saving programs inside its facilities. These important measures will take care of the ecosystems and biodiversity of the places where they operate and will allow them to develop all-important renewable energies.

In this sense, YPF highlight two initiatives:  Firstly the ‘Virtual gas pipeline’, which enables the liquefaction and transportation of the natural gas associated from remote wells to an electric power plant, in order to reduce venting, and secondly the ‘Forestation Project’ in Province of Neuquén. Jointly with the local government, this initiative started in 1998 to improve the sustainable development of this energy resource by the protection of the natural ecosystem through the conservation and integrity of the key ecosystem’s elements, the future availability of forest resources and the empowerment of the regional economies. By this means, more than 17,300 acres have been forested with different pine and native tree species.

All YPF’s operations are focused not only on efficiency but also on safety and security. They prioritise operations which protect people, communities, the environment and material assets. The company focuses on continued improvement in its environmental, health and safety performance and product quality as well as in its stewardship, making a committment to strengthen its performance every day.

No less important are the best practices of other parts of corporate sustainability, namely account stakeholders interests, respecting human rights, labour standards, strengthening community relationships and contributing to local needs. Furthermore, it is worth highlighting two programs that the company and the YPF Foundation have implemented together: firstly the ‘Sustainable Cities Initiative’, in association with the Inter-American Development Bank and governments, towards the communities where YPF operates. Secondly, technical and skills training programs which contribute to achieving better opportunities within those societies.

YPF corporate governance

At a corporate governance level, the management have made improvements as well, ensuring a governance system, through which the company is managed, focused on shareholders’ interests. The company implements with transparency anti-corruption practices based on in-force regulations and international standards plus a code of ethics and conduct that applies to managers, employees and the entire value chain. Moreover, YPF has implemented an enterprise-wide risk management system to identify, evaluate and manage key risks related to its operations.

Open, transparent and fact-based communications to all stakeholders all feature in this governance model, which is another key aspect of essential corporate sustainability, and all play a vital role in the development of it’s strong corporate brand. YPF therefore is committed to building a healthy relationship of trust with them.
Now more than five years into this sustainability path, YPF is making great progress but more remains to be done, for example they are committed to raising all standards not just for themselves but also for the energy industry, all of their stakeholders and society as a whole.

The importance of IR

The YPF´s Investor Relation (IR) department has developed dynamically over the last few years and is directly involved in value creation, since the company has become much more active in the capital markets, resulting in an increasing international shareholder base and more financing activities.

This department combines important elements of finance, communication and marketing to effectively control and preserve the flow of information between the company, their investors and other stakeholders who plays a major and vital role in the success and the growth of our company.

YPF combines all of these efforts to maintain an honest, transparent and close relationship with investors and sell-side analysts, whether they are internal or external to the company. The company helps them achieve a better understanding about the company´s strategy and objective and the opportunities and difficulties, and provides them with all the information to support company valuations and accurate sell-side recommendations.

They also value the importance of providing management with investor’s feedback to help them in the decision-making process, while taking a careful look of the rules of securities commissions and stock exchanges.

To be successful with this commitment, they consistently participate in sell-side conferences, non-deal road shows, one-on-one meetings and several conference calls with the investment community. They evaluate all the information to be filed at the regulators and markets (where the company is listed) and they pay close attention to their website at all times, ensuring all the public information is available for investors. Finally they distribute this information through a mailing list.

It is a must for YPF to have all the necessary knowledge to successfully fulfil their duties. For this reason they view as critically important an efficient and fluent relationship with the other departments of the company, such as legal, accounting and the business units.

The better job YPF does in serving their daily responsibilities, the better prospects the company will have to raise capital in the future, lowering the cost of capital and enhancing a long-term value for investors and the company.
To sum up, YPF’s mission is to transform into a full energy company that brings innovative and sustainable solutions for the energetic development of the country.

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