Executive Summary / Key Takeaways

• YPF is undergoing a profound transformation, driven by its "4x4 plan" to become a pure integrated shale player, focusing on the prolific Vaca Muerta basin and divesting mature conventional assets. This strategic pivot is enhancing profitability and resilience against market volatility.
• The company is demonstrating robust operational growth in Vaca Muerta, with shale oil production reaching approximately 165,000 barrels per day (bpd) in July 2025 and targeting 190,000 bpd by year-end 2025, representing over 70% organic ramp-up in 25 months.
• Significant infrastructure projects, including the VMOS oil pipeline and LNG facilities, are critical to unlocking export potential, with VMOS targeting 250,000 bpd by end-2026 and 0.5 million bpd by 2030, and total LNG capacity aiming for 30 million tons per annum (MTPA).
• YPF is leveraging advanced Real-Time Intelligence Centers and efficiency initiatives like the "Toyota Well project" to significantly reduce costs and improve operational metrics across its upstream and downstream segments, leading to a 24% interannual reduction in lifting costs.
• Despite a negative free cash flow of $1.3 billion in the first half of 2025, largely due to mature field impacts and M&A, YPF anticipates a normalized net leverage ratio of 1.8x by year-end 2025 and aims for neutral free cash flow in 2025, transitioning to positive in 2026.

YPF's Strategic Transformation: A New Era of Energy Leadership

YPF Sociedad Anónima, Argentina's integrated energy powerhouse, is in the midst of a strategic overhaul, repositioning itself as a globally competitive player in the unconventional energy landscape. Incorporated in 1977, YPF has historically been central to Argentina's energy sector, engaging in the full spectrum of oil and gas activities from exploration to distribution. This long history has culminated in the ambitious "4x4 plan," launched in December 2023, which aims to quadruple the company's value over four years by focusing on profitability, efficiency, and export growth.

The core of this transformation involves a decisive pivot towards the Vaca Muerta shale formation, one of the world's largest unconventional hydrocarbon reserves. YPF is strategically divesting its mature conventional fields, which historically carried high lifting costs, to concentrate capital and operational expertise on the high-return Vaca Muerta assets. This shift is not merely an internal restructuring but a fundamental reorientation of YPF's business model, aiming to increase the share of shale oil production from 50% to a minimum of 80% of its total output.

In the broader competitive landscape, YPF operates as Argentina's largest integrated energy company, holding a significant share in the domestic market for fuels and other petroleum products. While global majors like ExxonMobil (XOM), Chevron (CVX), Shell (SHEL), and BP (BP) possess greater global scale and diversified portfolios, YPF's integrated operations and extensive local infrastructure provide a distinct competitive advantage in Argentina. Its state ownership also offers regulatory access and pricing power in domestic markets, fostering customer loyalty and potentially leading to more robust growth and margins within its home territory. However, YPF's financial performance has historically been influenced by Argentina's macroeconomic conditions, leading to more volatile cash flow generation compared to the stable performance of its global peers. The company's strategic focus on Vaca Muerta, with its competitive development and lifting costs, is designed to enhance its resilience and profitability, even against the backdrop of international price volatility.

Technological Edge and Operational Excellence

YPF's strategic transformation is underpinned by a robust commitment to technological differentiation and operational efficiency. The company is actively deploying advanced solutions to optimize its upstream and downstream processes, creating a significant competitive moat. A cornerstone of this effort is the establishment of Real-Time Intelligence Centers (RTICs). Three such centers have been inaugurated, two at the La Plata and Luján de Cuyo refineries, and a third at the company's headquarters to support downstream commercialization.

These RTICs are unique in Latin America, enabling 24-hour tracking of demand at each gas station and for every product. This granular data-driven approach has facilitated the implementation of innovative micro-pricing and "sell fuel" projects. Micro-pricing allows gas station customers to access different fuel prices between 9 PM and 6 AM, while "sell fuel" offers additional savings for payments made through the YPF application. These initiatives have yielded impressive results, with sales volume at gas stations growing approximately 30% in the first month since their launch, compared to Q2 2025, by reducing fixed costs and increasing nighttime sales.

In its upstream operations, YPF operates the largest Vaca Muerta RTIC, working 24/7 remotely from its headquarters. This center, coupled with the "Toyota Well project," is driving significant efficiency gains. The "Toyota Well project" aims to reduce the well construction cycle for a pad of four wells by 30% from 2023 levels by 2025, translating to a reduction of approximately 80 days, bringing the cycle down to roughly 230 days. YPF has achieved an average drilling speed of 331 meters per day in its unconventional core hub blocks, nearing its annual target of 360 meters per day. Similarly, fracking operations completed 259 stages per set per month, very close to the annual target of 260 stages per set per month. These quantifiable improvements directly contribute to lower operational costs and faster monetization of Vaca Muerta's vast resources, enhancing YPF's competitive position against rivals who may not possess such integrated technological capabilities.

Upstream: Vaca Muerta's Unconventional Powerhouse

YPF's upstream segment is rapidly transforming into an unconventional powerhouse, with Vaca Muerta at its core. Shale production now represents an impressive 62% of the company's total output in Q2 2025, a significant increase from 50% in 2023. This growth is a direct result of the "4x4 plan's" first pillar: focusing on the most profitable business. YPF's shale oil production has surged from 110,000 bpd in November 2023 to approximately 165,000 bpd by July 2025, even after divesting 6,000 bpd from Aguada del Chañar. The company projects further growth, aiming to close 2025 at around 190,000 bpd, an outstanding organic production ramp-up of over 70% in just 25 months.

A key driver of this improved performance is the active portfolio management under the "4x4 plan's" second pillar. YPF has made substantial progress in divesting mature conventional fields, completing the transfer of 28 out of 30 blocks in its initial "Andes" plan and reverting 11 others to provinces. These mature blocks, which produced approximately 61,000 bpd of oil and 3.2 million cubic meters per day of gas, carried high lifting costs of around $42 per barrel and had a negative impact on free cash flow of approximately $840 million over 18 months. The exit from these less profitable assets has enabled a remarkable 24% interannual reduction in YPF's lifting costs. In Q2 2025, the total lifting cost was $12.3 per barrel of oil equivalent, and excluding mature fields, the proxy lifting cost was roughly $7.5 per barrel of oil equivalent, with core hub blocks achieving an even lower $4.9 per barrel of oil equivalent.

Further solidifying its Vaca Muerta position, YPF recently acquired prime Tier 1 shale acreage from Total (TTE) for $500 million, specifically the La Escalonada and Rincón La Ceniza blocks. These blocks are strategically located in the "sweet spot" of North Vaca Muerta's oil and wet gas window, boasting an outstanding well inventory of over 500 wells across nearly 115,000 acres. Management anticipates these assets, with their promising productivity levels, will accelerate future oil production, extend the duration of YPF's production plateau, and reinforce its leading position in Vaca Muerta reserves.

Midstream and Downstream: Unlocking Value and Market Leadership

The midstream and downstream segments are crucial for YPF's integrated strategy, focusing on efficient evacuation of Vaca Muerta production and maximizing value from refined products. The completion of the Oldelval "Duplicar plus" project in early April 2025 significantly increased crude oil transportation capacity from 330,000 bpd to 540,000 bpd, with YPF holding a 25% shipping stake.

Even more impactful is the Vaca Muerta South Oil Pipeline (VMOS), a new export-dedicated pipeline that YPF is leading in collaboration with the shale industry. This project, which secured a $2 billion syndicated loan and was 23% complete by July 2025, is expected to completely unlock YPF's growth plan. It aims to achieve roughly 250,000 bpd by the end of 2026 and allow for reaching 0.5 million bpd by 2030. YPF's initial shipping capacity in VMOS will be 120,000 bpd, representing a 27% stake.

In the downstream sector, YPF continues to demonstrate market leadership. In Q2 2025, the company processed 301,000 bpd, achieving a refining utilization rate of almost 90%, despite a sequential contraction due to maintenance at the La Plata refinery. Notably, the La Plata refinery achieved a record monthly processing level of nearly 201,000 bpd in April 2025. YPF maintained a leading market share of 55% in local fuel sales, which saw a 4% sequential increase in volume in Q2 2025 due to seasonality and a 3% interannual increase driven by demand recovery. The micro-pricing and "sell fuel" initiatives, driven by real-time intelligence, have proven highly successful, boosting nighttime sales volume at gas stations by 30% in their first month.

LNG Ambition: A Global Energy Play

YPF's "4x4 plan" also includes the ambitious Argentina LNG project, aiming to establish the country as a significant global LNG exporter with a total capacity of almost 30 MTPA. This initiative is progressing rapidly through strategic partnerships and infrastructure development.

The company's SPV, SESA, obtained Final Investment Decision (FID) approval in Q2 2025 for a 20-year bareboat charter agreement for its second floating LNG vessel, MK II. This vessel, with a capacity of 3.5 MTPA, is expected to be operational in 2028 and will complement the Hilli vessel (2.45 MTPA) planned for 2027, bringing the total capacity from these two units to approximately 6 MTPA. Crucially, the MK II vessel enables the construction of a 100% dedicated gas pipeline from Vaca Muerta to the San Matías Gulf, ensuring year-round gas supply.

Beyond SESA, YPF is actively collaborating with other global energy giants. A Heads of Agreement has been signed with ENI (E) for the Argentina LNG 3 project, which envisions 12 MTPA of capacity with FID expected in Q1 2026. Additionally, YPF is working with Shell on Phase 2 of the LNG project, aiming to accelerate its FID and achieve synergies for a 10 MTPA project. Management expresses strong confidence in these projects, asserting that the world's need for LNG, coupled with Vaca Muerta's vast reserves and Argentina's geographical advantages, positions YPF to be a profitable supplier, potentially in a better position than some international competitors.

Financial Performance and Capital Allocation

YPF's financial performance in Q2 2025 reflects its strategic transition amidst a volatile international price environment. The company reported $4.6 billion in revenue, which remained stable sequentially, supported by record seasonal sales of natural gas and fuels, and increased crude oil and agro product exports. Despite a roughly 20% interannual drop in Brent prices, revenues only declined by 6% year-over-year, a testament to operational efficiency and increased shale exports.

Adjusted EBITDA for Q2 2025 was $1.12 billion, a 10% sequential decrease, primarily due to the impact of Brent contraction on refined product prices and the ongoing exit from mature fields. However, excluding the negative contribution from mature fields, the proxy adjusted EBITDA would have been $1.25 billion. Net profit for Q2 2025 turned positive at $58 million, compared to a $10 million loss in Q1, mainly driven by one-off items related to mature fields in the prior quarter. Excluding these mature field impacts, the net profit would have been $264 million.

Capital expenditure in Q2 2025 amounted to $1.16 billion, with a significant 71% allocated directly to unconventional assets, aligning with the company's strategic focus. For the full year 2025, YPF maintains its CapEx guidance of $5.0 billion to $5.2 billion, with 71-75% directed towards unconventional development. This disciplined capital allocation is crucial for driving future growth in Vaca Muerta.

The first half of 2025 saw a negative free cash flow of $1.3 billion, largely influenced by the $650 million combined impact of adjusted EBITDA losses and one-off cash flow losses from mature fields, alongside $210 million in M&A activity, primarily for the Sierra Chata acquisition. Excluding these factors, the proxy free cash flow was negative $460 million, mainly due to regular interest payments of approximately $320 million and income tax payments from subsidiaries.

YPF's net debt rose to $8.8 billion in Q2 2025, resulting in a net leverage ratio of 1.9x. The company anticipates this ratio to temporarily increase to near 2x in Q3 2025 due to recent shale asset acquisitions. However, management expects a normalized net leverage ratio of 1.8x by year-end 2025, driven by increased EBITDA from production ramp-up and the planned divestment of additional non-mature fields. YPF is proactively managing its debt profile, targeting nearly $800 million in maturities for the remainder of 2025 (78% local) and $2.3 billion in 2026 (over 50% local). The company has successfully tapped the local market, with Moody's upgrading its credit rating from Caa1 to B2 with a stable outlook.

Risks and Challenges

While YPF's strategic trajectory is compelling, investors should consider several pertinent risks. International oil price volatility remains a significant factor, as demonstrated by the 12% sequential decrease in crude oil realization prices in Q2 2025. Although YPF's "4x4 plan" is designed to mitigate this, sustained low prices could impact profitability and cash flow. The successful execution of large-scale infrastructure projects like VMOS and the various LNG initiatives carries inherent construction and commissioning risks, which could affect timelines and costs. Furthermore, the ongoing divestment of mature fields, while strategically beneficial, requires navigating complex provincial approvals, which could introduce delays.

The macroeconomic environment in Argentina, despite recent improvements, continues to present a backdrop of uncertainty. While YPF's management operates with a "private company" philosophy, external factors can still influence financial performance. Competition from global energy players, particularly in the long-term LNG market, also poses a challenge, though YPF believes its Vaca Muerta resources offer a competitive edge.

Conclusion

YPF is undergoing a transformative period, strategically pivoting to unlock the immense value of Argentina's Vaca Muerta shale. The "4x4 plan" is a clear roadmap towards becoming a pure integrated shale player, characterized by aggressive production growth, disciplined capital allocation, and a relentless pursuit of operational efficiencies. The company's commitment to technological innovation, exemplified by its Real-Time Intelligence Centers and the "Toyota Well project," is yielding tangible benefits in cost reduction and productivity.

With ambitious targets for shale oil production, significant midstream infrastructure developments like VMOS, and a multi-faceted LNG export strategy, YPF is not merely adapting but actively shaping Argentina's energy future. While challenges such as market volatility and execution risks persist, the company's proactive management, strong local market position, and improving financial metrics, including a projected reduction in leverage, present a compelling investment narrative. YPF's journey from a domestic supplier to a potential global energy exporter, underpinned by its Vaca Muerta assets and technological leadership, positions it as a key player for discerning investors seeking exposure to Argentina's energy renaissance.