YPF joins cautious trend of restoring refinery runs

Argentina's state-controlled YPF is the latest oil company to partially revive refinery activity in response to an easing of pandemic-related lockdowns.

"We reached a bottom in sales in mid-April," Sergio Giorgi, YPF's strategy and business development vice president, said in a first quarter earnings call today.

YPF's gasoline sales plunged by 72pc in April while diesel sales declined by 38pc after Argentina's government imposed a national lockdown on 20 March.

The decline in diesel sales was moderated by agricultural activity during the harvest season as well as the circulation of trucks for distribution.

In the past few weeks, fuel sales have begun to recover as the government has gradually loosened the lockdown. Although social restrictions remain strict in Buenos Aires and its suburbs, there are now more exceptions and several provinces with few cases of Covid-19 are starting to reopen industry.

"We are seeing that fuel demand is increasing," said YPF investor relations manager Ignacio Rostagno.

In a separate earnings call this morning, Colombia's state-controlled Ecopetrol echoed the recovering demand assessment and signaled increasing its refinery runs as well.

Flipping the on switch

To deal with the demand destruction, YPF had stopped buying crude from third parties and halted its 25,000 b/d Plaza Huincul refinery in southwestern Neuquen province.

Its other two refineries—189,000 b/d La Plata in Buenos Aires province and 105,000 b/d Lujan de Cuyo in western Mendoza province—operated at 47pc of capacity in April.

Now YPF has restarted Plaza Huincul and its refineries are currently operating at around 55pc of capacity, Giorgi said.

Even as it restores refinery runs, YPF does not foresee more crude purchases from other producers. The company has stored around 7.2mn-7.5mn bl of crude, including three floating storage units, meaning its oil storage capacity of 8mn bl is nearly full.

In refined products, YPF has used up 75pc of its 14mn bl of storage capacity.

"We believe in terms of storage, the worst is behind us," Rostagno said.

Upstream, YPF has curtailed 10pc-12pc of its production, which amounts to 30,000 b/d, Rostagno said.

About half of that total is in Loma Campana, the shale oil field in the Vaca Muerta formation that YPF operates in a 50:50 partnership with Chevron.

Capex reductions

YPF is now planning capital spending cuts off an initial planned outlay of around $2.8bn.

"We need to become leaner to be able to move faster," said chief executive Sergio Affronti, who was appointed to the role on 30 April and spoke briefly at the start of today's call.

At the company's shareholders' meeting last month, YPF board chairman Guillermo Nielsen said the only projects that "will move forward are those with high profitability and returns in the short-medium term."

Although the company's executives said it was too early to give an investment estimate for this year, Giorgi said there are opportunities to cut capital and operating expenditures "all across the chain."

Capital investment in the first quarter was $598mn, a 23pc decline from the same period last year.

"This quarter capex will probably be much lower than the first quarter," Giorgi said.

As part of its effort to reduce costs, YPF is slashing salaries of non-union workers by as much as 25pc, a YPF official said this afternoon.

By Daniel Politi