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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 20-F
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
Commission file number: 1-12102
YPF Sociedad Anonima
(Exact name of registrant as specified in its charter)
Republic of Argentina
(Jurisdiction of incorporation or organization)
Avenida Pte. R. Saenz Pena 777
C. 1035 AAC Buenos Aires, Argentina
(011-5411) 4329-2000
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
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Name of Each Exchange
Title of Each Class on Which Registered
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American Depositary Shares, each representing
one Class D Share, par value 10 pesos per share.... New York Stock Exchange
Class D Shares...................................... New York Stock Exchange*
7 3/4% Notes due 2007............................... New York Stock Exchange
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* Listed not for trading but only in connection with the registration of
American Depositary Shares.
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act: None
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The number of issued shares of each class of stock of YPF Sociedad
Anonima as of December 31, 2002 was:
Class A Shares............ 3,764
Class B Shares............ 7,624
Class C Shares............ 1,475,704
Class D Shares............ 391,825,701
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393,312,793
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark which financial statement item the registrant
has elected to follow. Item 17 [ ] Item 18 [X]
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TABLE OF CONTENTS
Page
CONVERSION TABLE..............................................................1
References....................................................................1
Presentation of Certain Information...........................................1
Forward-looking Statements....................................................1
CERTAIN OIL AND GAS TERMS.....................................................3
PART I........................................................................5
ITEM 1. Identity of Directors, Senior Managers and Advisers..............5
ITEM 2. Offer Statistics and Expected Timetable..........................5
ITEM 3. Key Information..................................................5
Selected Financial Data................................................5
Risk Factors...........................................................8
ITEM 4. INFORMATION ON THE COMPANY......................................13
History and Development of Ypf........................................13
Business Overview.....................................................18
Exploration and Production............................................20
Exploration and Development Activities................................22
Exploration and Development Properties and Production.................24
Natural Gas and Electricity Markets and Distribution..................28
Electricity Market....................................................31
Refining and Marketing................................................32
Chemicals.............................................................37
Environmental Matters.................................................39
Seasonality of Ypf's Main Business....................................43
Property Plant and Equipment..........................................43
Regulatory Framework and Relationship With Argentine Government.......43
ITEM 5. Operating and Financial Review and Prospects....................51
ITEM 6. Directors, Senior Management and Employees......................70
Disclosure Committee..................................................74
Employee Matters......................................................75
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS...............76
ITEM 8. FINANCIAL INFORMATION...........................................78
Financial Statements..................................................78
Legal Proceedings.....................................................78
Dividends Policy......................................................81
ITEM 9. THE OFFER AND LISTING...........................................82
New York Stock Exchange...............................................82
Buenos Aires Stock Market.............................................82
Seaq International....................................................84
ITEM 10. ADDITIONAL INFORMATION.........................................84
Memorandum and Articles of Association................................84
Directors.............................................................85
Foreign Investment Legislation........................................86
Dividends.............................................................86
Preemptive Rights.....................................................87
Voting of the Underlying Class D Shares...............................88
Certain Provisions Relating to Acquisitions of Shares.................89
Reporting Requirements................................................89
Restrictions On Control Acquisitions..................................89
Restrictions On Related Party Transactions............................90
Taxation..............................................................91
Argentine Taxes.......................................................91
Other Taxes and Recent Developments in Argentina......................92
U.S. Federal Income Tax Considerations................................93
i
Available Information.................................................95
ITEM 11. Quantitative and Qualitative Disclosures About Market Risk.....95
Quantitative Disclosure...............................................95
Qualitative Disclosure................................................96
ITEM 12. Description of Securities Other Than Equity Securities.........96
PART II......................................................................97
ITEM 13. Defaults, Dividend Arrearages and Delinquencies................97
ITEM 14. Material Modifications to the Rights of Security Holders
and Use of Proceeds..................................................97
ITEM 15. Controls and Procedures........................................97
ITEM 16. [Reserved].....................................................97
PART III.....................................................................98
ITEM 17. Financial Statements...........................................98
ITEM 18. Financial Statements...........................................98
ITEM 19. Exhibits.......................................................98
SIGNATURES...................................................................99
CHIEF EXECUTIVE OFFICER CERTIFICATION.......................................100
CHIEF FINANCIAL OFFICER CERTIFICATION.......................................101
ii
CONVERSION TABLE
1 acre = 0.405 hectares
1 barrel = 42 U.S. gallons
1 barrel of oil equivalent = 1 barrel of crude oil = 5,615 cubic feet of gas
1 barrel of crude oil per = approximately 50 tonnes of crude oil
day per year
1 cubic meter = 35.314 cubic feet
1 cubic meter = 6.2891 barrels
1 kilometer = approximately 0.62 miles
1 short ton = 0.907 tonnes = 2,000 pounds
1 long ton = 1.016 tonnes = 2,240 pounds
1 tonne = 1 metric tonne = 1,000 kilograms = approximately 2,205 pounds
1 tonne of crude oil = 1 metric tonne of crude = approximately 7.3 barrels of Crude oil
(assuming a specific gravity of 347
Atmospheric Pressure Index ("API"))
References
YPF Sociedad Anonima is a stock corporation (Sociedad Anonima) organized
under the laws of the Republic of Argentina. As used in this annual report,
"YPF", "we," "our" and "us" refer to YPF Sociedad Anonima and its subsidiaries
or, if the context requires, its predecessor companies. "Repsol" and "Repsol
YPF" refer to Repsol YPF, S.A. and its consolidated companies, unless otherwise
specified. YPF maintains its financial books and records and publishes its
financial statements in Argentine pesos. In this annual report, references to
"pesos" or "Ps." are to Argentine pesos, and references to "dollars", "U.S.
dollars" or "US$" are to United States dollars.
Presentation of Certain Information
On January 6, 2002, the Argentine congress passed Law No.25,561 on "Public
Emergency Reform of the Foreign Exchange System" (the "Public Emergency Law").
Among other measures, this law abrogated the one-to-one dollar-peso peg. Since
that date, the peso floats freely against the dollar in the Argentine foreign
exchange market. As of December 31, 2002, the exchange markets were consolidated
into a free market for negotiating foreign trade transactions. The exchange rate
closed at Ps.3.37 for each US$1, selling rate.
The financial statements reflect the effect of changes in the purchasing
power of money by the application of the method for restatement in constant
Argentine pesos. All the amounts were restated to constant Argentine pesos as of
December 31, 2002. See Note 1 to the Consolidated Financial Statements.
In this annual report, references to "Consolidated Financial Statements"
are to YPF's audited consolidated balance sheets as of December 31, 2002, 2001
and 2000, and YPF's audited consolidated statements of income for the three
years ended December 31, 2002, 2001 and 2000.
The Consolidated Financial Statements and other amounts derived from such
Consolidated Financial Statements included elsewhere throughout this annual
report, reflect the effect of changes in the purchasing power of money by the
application of the method for restatement in constant pesos. All the amounts
were restated to constant pesos as of December 31, 2002. See Note 1 to The
Consolidated Financial Statements.
Forward-looking Statements
This annual report contains statements that YPF believes constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements appear
throughout this annual report and may include statements regarding the intent,
belief or current expectations of YPF and its management, including with respect
to trends affecting YPF's financial condition, results of operations, business,
strategy, production volume and reserves, as well as YPF's plans with respect to
capital expenditures and investments. These statements are not guarantees of
future performance and are subject to material risks, uncertainties, changes and
other factors which may be beyond YPF's control or may be difficult to predict.
Accordingly, YPF's future financial condition, results of operations, business,
strategy, production volumes, reserves, capital expenditures and investments
could differ materially from those expressed or implied in any such
forward-looking statements. Such factors include, but are not limited to,
currency fluctuations, the price of petroleum products, the ability to realize
cost reductions and operating efficiencies without unduly disrupting business
operations, environmental and regulatory considerations and general economic and
business conditions, as well as those factors described in the filings made by
YPF and its affiliates with the Securities and Exchange Commission, in
particular, those described in "--Risk Factors" above and "Item 5: Operating and
Financial Review and Prospects". YPF does not undertake to publicly update or
revise these forward looking statements even if experience or future changes
make it clear that the projected results or condition expressed or implied
therein will not be realized.
2
CERTAIN OIL AND GAS TERMS
Unless the context indicates otherwise, the following terms have the
meanings shown below:
"acreage" The total area, expressed in acres, over
which YPF has interests in exploration or
production. Net acreage is YPF's interest,
expressed in acres, in the relevant
exploration or production area.
"Bcf" Billion cubic feet.
"Bcfe" Billion cubic feet equivalent.
"BOE" Barrels of oil equivalent.
"bpd" Barrels of oil per day.
"calendar day" When used with respect to production or
capacity, means total annual production or
capacity (after taking into account
scheduled plant shutdowns) divided by 365.
"condensate" Light hydrocarbon substances produced with
natural gas which condense into liquid at
normal temperatures and pressures associated
with surface production equipment.
"crude oil" Crude oil with respect to YPF's production
and reserves includes condensate and natural
gas liquids.
"mmbbl" Million barrels.
"mbpd" Thousand barrels per day.
"mcf" Thousand cubic feet.
"mcfpd" Thousand cubic feet per day.
"mmbtu" Million British Thermal Units.
"mmcf" Million cubic feet.
"mmcfpd" Million cubic feet per day.
"proved reserves" Proved oil and gas reserves are
the estimated volumes of crude oil, natural
gas and natural gas liquids which geological
and engineering data demonstrate with
reasonable certainty to be recoverable in
future years from known reservoirs under
existing economic and operating conditions,
i.e., prices and costs as of the date the
estimate is made. Prices include
consideration of changes in existing prices
provided only by contractual arrangements,
but not of escalations based upon future
conditions.
"proved developed reserves" Proved developed reserves are reserves that
can be expected to be recovered through
existing wells with existing equipment and
operating methods and current economic
conditions as of each balance sheet date.
Additional oil and gas expected to be
obtained through the application of fluid
injection or other improved recovery
techniques for supplementing natural forces
and mechanisms of primary recovery are
included as "proved developed reserves" only
after testing by a pilot project or after
the operation of an installed program has
confirmed through production response that
increased recovery will be achieved.
3
"proved undeveloped reserves" Proved undeveloped reserves are reserves
that are expected to be recovered from new
wells on undrilled acreage, or from existing
wells where a relatively major expenditure
is required for recompletion, but does not
include reserves attributable to any acreage
for which an application of fluid injection
or other improved recovery techniques is
contemplated, unless such techniques have
been proved effective by actual tests in the
area and in the same reservoir. Reserves on
undrilled acreage are limited to those
drilling units offsetting productive units
that are reasonably certain of production
when drilled. Proved reserves for other
undrilled units can be claimed only where it
can be demonstrated with certainty that
there is continuity of production from the
existing productive formation.
4
PART I
ITEM 1. Identity of Directors, Senior Managers and Advisers
Not applicable.
ITEM 2. Offer Statistics and Expected Timetable
Not applicable.
ITEM 3. Key Information
Selected Financial Data
The selected consolidated financial data set forth below should be read in
conjunction with, and are qualified in their entirety by reference to, the
Consolidated Financial Statements and the Accompanying Notes included in this
annual report.
The consolidated income statement data for each of the years in the
three-year period ended December 31, 2002 and the consolidated balance sheet
data as of December 31, 2002, 2001 and 2000 set forth below have been derived
from, and are qualified in their entirety by reference to, the Consolidated
Financial Statements and The Accompanying Notes included in this annual report.
The consolidated income statement data for each of the years in the two-year
period ended December 31, 1999 and the consolidated balance sheet data as of
December 31, 1999 and 1998 set forth below have been derived from YPF's audited
consolidated financial statements, which are not included in this annual
report.
YPF's Consolidated Financial Statements are prepared in accordance with
generally accepted accounting principles in Argentina (Argentine GAAP), which
differ in certain respects from generally accepted accounting principles in the
United States (U.S. GAAP). Note 14 to the Consolidated Financial Statements
describes the principal differences between Argentine GAAP and U.S. GAAP, as
they relate to YPF. Note 15 provides the effects of the significant differences
on net income and shareholders' equity and a reconciliation of such differences,
and Note 16 provides certain additional disclosures required under U.S. GAAP.
5
Year Ended December 31,
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2002 2001 2000 1999 1998
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(in millions of pesos, except for per share
and per ADS data)(1)
Consolidated Income Statement Data:
Amounts in accordance with Argentine GAAP
Net sales(2)(3)................................................... 19,599 17,810 18,897 14,397 12,002
Gross profit...................................................... 8,542 7,188 8,019 5,215 4,159
Administrative expenses........................................... (432) (476) (397) (349) (308)
Selling expenses.................................................. (1,050) (1,682) (1,259) (1,134) (999)
Exploration expenses.............................................. (240) (220) (314) (382) (351)
Operating income.................................................. 6,820 4,810 6,049 3,350 2,501
(Loss) Income on long-term investments............................ (436) (253) 37 44 56
Other income (expenses), net...................................... (430) (275) (611) (223) (96)
Interest expense.................................................. (677) (643) (559) (718) (539)
Other financial income (expenses) and holding gains (losses), net. (2,205) (35) 216 92 (37)
(Loss) Income from sale of long-term investments.................. 687 (273) (426) (633) --
Income before income tax, minority interest and preferred stock
dividends...................................................... 3,759 3,331 4,706 1,912 1,885
Income tax........................................................ (415) (1,541) (1,999) (834) (575)
Minority interest................................................. -- (2) (26) (28) (24)
Dividends on Maxus preferred stock................................ -- -- -- (9) (20)
Net income........................................................ 3,344 1,788 2,681 1,041 1,266
Earnings per share and per ADS(4)................................. 8.50 4.55 7.59 2.95 3.59
Dividends per share and per ADS(4) (in nominal pesos)............. 4.00 4.22 0.88 0.88 0.88
Approximate amounts in accordance with U.S. GAAP
Operating income.................................................. 5,183 1,676 2,263 1,416 950
Net income........................................................ 3,498 1,252 1,388 696 512
Shareholders' equity.............................................. 26,303 13,259 8,231 7,169 6,855
Earnings per share and per ADS(4)................................. 8.89 3.18 3.93 1.97 1.45
Consolidated Balance Sheet Data:
Amounts in accordance with Argentine GAAP
Cash.............................................................. 248 85 113 177 153
Working capital................................................... 3,935 (737) (775) (718) (1,892)
Total assets...................................................... 29,551 28,766 28,894 28,188 28,686
Total debt(5)..................................................... 4,257 4,906 4,177 7,437 8,357
Shareholders' equity(6)........................................... 20,283 18,508 18,095 16,093 15,731
Other Consolidated Financial Data:
Amounts in accordance with Argentine GAAP
Fixed assets depreciation and amortization........................ 2,048 2,191 2,034 2,169 2,315
Cash used in fixed asset acquisitions............................. 2,693 2,807 2,559 2,101 2,948
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(1) Amounts restated to constant Argentine pesos as of December 31, 2002 to
reflect the effect of changes in the purchasing power of money for the year
then ended.
(2) Includes approximately Ps.3,668 million for the year ended December 31,
2002, Ps.2,917 million for the year ended December 31, 2001, Ps.2,808
million for the year ended December 31, 2000, Ps.1,785 million for the
year ended December 31, 1999, Ps.190 million for de year ended December 31,
1998 corresponding to the proportional consolidation of the net sales on
long- term investments in investees in which YPF holds joint control with
other third parties, see Note 14 to the Consolidated Financial Statements.
(3) Net sales are net to YPF after payment of a fuel transfer tax, turnover tax
and custom duties for hydrocarbon exports in 2002. Royalties with respect
to YPF's production are accounted for as a cost of production and are not
deducted in determining net sales. See Note 2 (h) to the Consolidated
Financial Statements.
(4) Information for the fiscal years 1998 to 2000 has been calculated based on
outstanding capital stock of 353,000,000 shares. Information for 2001 to
2002 has been calculated based on outstanding capital stock of 393,312,793
shares. Each ADS represents one Class D Share.
(5) Total debt under Argentine GAAP includes long-term debt of Ps.2,728
million, Ps.2,512 million, Ps.2,887 million, Ps.4,462 million and Ps.5,625
million as of December 31, 2002, 2001, 2000, 1999, and 1998 respectively.
(6) For information concerning capital stock, see Note 4 to the Consolidated
Financial Statements.
6
Exchange Rates
Prior to December 1989, the Argentine foreign exchange market was subject
to exchange controls. Since December 1989, Argentina has had a freely floating
exchange rate for all foreign currency transactions. As a result of inflationary
pressures, the Argentine currency has been devalued repeatedly during the last
30 years. From April 1, 1991, when Law No. 23,928 and Decree No. 529/91
(referred to as the Convertibility Law) became effective, until December 23,
2001, when the foreign exchange market in Argentina was closed, the peso was
freely convertible into dollars. Pursuant to the Convertibility Law, the Central
Bank was required to:
o maintain a reserve in foreign currencies, gold and certain public
bonds denominated in foreign currency equal to the amount of
outstanding Argentine currency; and
o sell dollars to any person who so requires at a rate of one peso per
one U.S. dollar.
In addition, the Central Bank issued Resolution A2298 on January 12, 1995,
which provided that all exchange transactions made with the Central Bank were to
be made at a rate of Ps.1.00 per US$1.00.
On January 6, 2002, the Argentine congress passed Law No.25,561 on "Public
Emergency Reform of the Foreign Exchange System" (the "Public Emergency Law").
Among other measures, this law abrogated the one-to-one dollar-peso peg. Since
that date, the peso floats freely against the dollar in the Argentine foreign
exchange market.
As of December 31, 2002, the exchange markets were consolidated into a free
market for negotiating foreign trade transactions. The exchange rate for that
date close at 3.37 pesos for each US$1, selling rate. See "Item 5:
Operating and Financial Review and Prospects--Overview."
The following table sets forth, for the periods indicated, the high, low,
average and period-end rate for the purchase of U.S. dollars, expressed in
nominal pesos per dollar.
Year Ended December 31, High Low Avg.(1) Period End
- --------------------------------------------------------------- ---------- ---------- ---------- ----------
1998........................................................ 1.0000 1.0000 1.0000 1.0000
1999........................................................ 1.0000 1.0000 1.0000 1.0000
2000........................................................ 1.0000 1.0000 1.0000 1.0000
2001........................................................ 1.0000 1.0000 1.0000 1.0000
2002........................................................ 3.9000 1.4000 3.2442 3.3700
Month High Low Average Period End
- --------------------------------------------------------------- ---------- ---------- ---------- ----------
December 2002............................................... 3.5800 3.3700 3.4955 3.3700
January 2003................................................ 3.3500 3.1000 3.2614 3.2100
February 2003............................................... 3.2100 3.1100 3.1640 3.1900
March 2003.................................................. 3.2100 2.8800 3.0715 2.9800
April 2003.................................................. 2.9600 2.8200 2.8915 2.8200
May 2003.................................................... 2.9400 2.7620 2.8385 2.8500
June 2003(2)................................................ 2.8500 2.7700 2.8134 2.7700
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(1) Average of month-end rates.
(2) Through June 24, 2003.
Source: Banco Nacion.
No representation is made that peso amounts have been, could have been or
could be converted into U.S. dollars at the foregoing rates on any of the dates
indicated.
7
Dividends
The following table sets forth for the periods and dates indicated, the
quarterly dividend payments made by YPF, expressed in nominal pesos.
Pesos Per Share/ADS
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Year Ended December 31, 1Q 2Q 3Q 4Q Total
- ----------------------------------------------- ----------- ---------- ---------- ---------- ----------
1998.......................................... 0.22 0.22 0.22 0.22 0.88
1999.......................................... 0.22 0.22 0.22 0.22 0.88
2000.......................................... 0.22 0.22 0.22 0.22 0.88
2001.......................................... 0.22 2.00 -- 2.00 4.22
2002.......................................... -- -- -- 4.00 4.00
2003.......................................... -- -- 5.00 -- 5.00
The Annual Ordinary and Extraordinary Shareholders' Meeting held on April
10, 2002, ratified an annual dividend of Ps.2.00 per share, proposed by the
Board of Directors on November 29, 2001. This dividend was paid on December 5,
2001. At the same meeting the shareholders approved a reserve of Ps.1,694
million for future dividends. Under Argentine law, the Board of Directors has
the right to declare and pay annual dividends subject to further approval of
shareholders at the next shareholders' meeting. The Board of Directors has the
power to decide the timing and the amount of future payments out of this
reserve, to the extent such payments are possible under the Argentine and the
Company's economic and financial circumstances.
On November 7, 2002, the Board of Directors approved a dividend of Ps.1,569
million, to be paid out of the reserve for future dividends approved by the
Shareholders' Meeting of April 10, 2002. The payment of such dividend was mostly
offset against receivables held by Repsol YPF, our majority shareholder, in the
amount of Ps.1,532 million. Minority shareholders were paid in cash from freely
available funds.
The Shareholders' Meeting held on April 9, 2003, approved an annual
dividend of Ps.5 per share, which was paid on April 22, 2003. In addition, the
Shareholders' Meeting also approved a reserve for future dividends of Ps.1,023
million.
Risk Factors
Negative Economic, Political and Regulatory Developments in Argentina May
Adversely Affect Our Domestic Operations
Economic conditions and government policies. The Argentine economy has
experienced significant volatility in recent decades, characterized by periods
of low or negative growth and high variable levels of inflation. Inflation
reached its peak towards the end of the 1980s and beginning of the 1990s. The
annual inflation rate as measured by the consumer price index was approximately
388% in 1988, 4,924% in 1989 and 1,344% in 1990, and the annual inflation rate
as measured by the wholesale price index was approximately 432% in 1988, 5,386%
in 1989 and 798% in 1990. As a result of inflationary pressures, the Argentine
currency was devalued repeatedly during the 1960s, 1970s and 1980s, and
macroeconomic instability led to broad fluctuations in the real exchange rate of
the Argentine currency relative to the U.S. dollar. To address these pressures,
past Argentine governments implemented various plans and utilized a number of
exchange rate systems during this period.
In 1991, Argentina adopted various measures intended to restructure the
economy and curb the inflation, the cornerstone of which was the Convertibility
Law. The Convertibility Law pegged the peso to the dollar at a one-to-one
exchange rate. The Convertibility Law also required that the Central Bank
maintain a reserve in foreign currencies, gold and certain public bonds
denominated in foreign currency equal to the amount of outstanding Argentine
currency. Following adoption of the Convertibility Law, and for a period of
seven years, inflation declined progressively and the Argentine economy enjoyed
seven years of growth. In the last quarter of 1998, the Argentine economy
started to show signs of stagnation, entering into a recession, causing
Argentine's gross domestic product to decrease by 3.4% in 1999, 0.8% in 2000 and
4.4% in 2001.
By the end of 2001, Argentina suffered a deep social and economic
deterioration accompanied by high political and economic instability. The
restrictions on bank deposits withdrawals, the imposition of exchange controls,
the suspension of payment of Argentina's external debt and the abrogation of the
peso convertibility (and the consequent depreciation of the peso against the
dollar) resulted in a deep negative shock to the Argentine economic system,
resulting in contraction of the economic activity (GDP fell 10.9% in 2002),
increasing inflation (41% in the year) and high volatility of the exchange rate.
The political and economic instability curtailed commercial and financial
activities in Argentina and affected the country's access to international
financing.
8
YPF's business and results of operations have been, and may continue to be,
materially and adversely affected by economic, political and regulatory
developments in Argentina. In particular, the energy sector and YPF have been
affected by lower sale volumes, restrictions on transferring money out of
Argentina, difficulties in transferring the impact of prices of crude oil and
derived products quoted in dollars to domestic prices fixed in pesos,
difficulties in increasing domestic natural gas sale prices and the creation of
a tax specifically targeted at the export of hydrocarbons.
Notwithstanding the moderate improvement in the performance of the
Argentinean economy during the last 12 months, the energy sector and YPF will
continue to be subject to significant economic and political risks.
The main economic risks we face because of our operations in Argentina are
the following:
o difficulties in transferring the impact of inflation and increasing
international prices of crude oil and derived products to domestic
prices fixed in pesos;
o difficulties in increasing domestic natural gas sale prices, which have
remained frozen at their pre-crisis level;
o higher taxes on exports and on domestic sales of fuel aimed at
achieving fiscal and monetary stability; and
o in the case of an eventual rift in the agreement with the IMF, possible
increases in the peso-dollar exchange rate and deeper restrictions on
financial transactions with foreign entities.
The uncertainties surrounding the inauguration of a new government create
political risks and uncertainties for YPF's operations in Argentina. General
elections took place on April 27, 2003, but no candidate obtained the minimum
number of votes necessary to win the election. A subsequent run-off between
Carlos Menem, who obtained 24.3% of the votes, and Nestor Kirchner, who obtained
22% of the votes, was canceled after Mr. Carlos Menem decided to drop out of the
presidential race. Nestor Kirchner took office on May 25, 2003. Roberto Lavagna,
the former government's lead negotiator with the IMF, was ratified as Minister
of Economy.
On January 24, 2003, the International Monetary Fund (IMF), through a
transitional agreement, granted Argentina a US$6.8 billion loan. This agreement
is expected to be replaced by a long-term agreement to be negotiated with Mr.
Kirchner's administration. However, no assurance can be given that a long-term
agreement will be agreed or that the IMF will grant Argentina other loans. The
failure by the new government to successfully continue negotiations with the IMF
may completely block Argentina's access to international financing, which may
further complicate the economic environment in Argentina and affect the new
government's ability to implement reforms required to restore stability,
economic growth and public confidence.
In addition, the difficult social situation and frequent street
demonstrations, may affect our normal operations particularly at wells,
refineries, distribution terminals, pipelines and at YPF's administrative
headquarters.
The new Argentine government will face a wide array of formidable tasks,
such as rebuilding Argentina's banking system, restructuring public debt,
establishing a new regulatory framework for privatized utilities, restoring
investor confidence and stimulating investment in Argentina, developing a sound
medium-term budgetary policy and addressing the fundamental flaws in Argentina's
long-term fiscal policies that caused the country's current economic crisis.
There can be no assurances that Argentina's new government will be able to
accomplish these tasks and that the Argentine economy will keep recovering in
the foreseeable future, or that the measures announced so far will achieve their
intended results, that the political and socio-economic conditions currently
prevailing in Argentina will enable the government to develop and implement
other measures and policies necessary to achieve the goals of macroeconomic
stabilization.
9
Fluctuations in Foreign Exchange Rates, the Imposition of New Taxes and the
Enactment of Exchange, Price and Export Controls in Argentina Could Adversely
Affect Our Performance and Materially Affect Our Capacity to Service Our
Financial Obligations.
Exchange Rates. The prices that we receive for our crude oil and natural
gas are generally set either in U.S. dollars or by reference to U.S. dollars,
while costs are incurred in both pesos and dollars, in many cases by reference
to international prices. Because our cash inflows and outflows are denominated
in more than one currency, any devaluation of the peso against the dollar and
other hard currencies, may have a material adverse effect on our business and
results of operations. In January 2002, the Congress abandoned the fixed
exchange rate mechanism of the Convertibility Law, allowing the peso to float
freely against the U.S. dollar. Under this new mechanism, the Central Bank is no
longer obligated to maintain foreign currency reserves to back up the amount of
outstanding pesos, nor is it obligated to sell or buy U.S. dollars at a certain
fixed exchange rate.
Following a deep depreciation of the peso in the first half of 2002, in
recent months the nominal peso-dollar exchange rate declined steadily, as a
consequence of the current account surplus. Within the framework of the
agreement with the International Monetary Fund, the Central Bank has committed
quarterly targets of monetary expansion. Monetary authorities may intervene to
avoid further appreciation of the peso, buying dollars in the exchange rate
market.
No prediction of either the direction or the magnitude of future
fluctuations in exchange rates can be made. In the event of a reversal of the
current Argentine peso appreciation trend, additional depreciation of the peso
in relation to foreign currencies could adversely affect the financial condition
or results of operations of Argentine companies and the ability of Argentine
companies to meet their foreign currency obligations.
New Taxes. As part of the Government' efforts to reduce fiscal deficit and
find new sources of public revenues, new duties were imposed on exports. Since
March 2002, oil and gas companies must pay a 20% tax on the proceeds from the
export of crude oil and a 5% tax on the proceeds from the export of oil products
for a five-year period. Given the need to increase fiscal primary surplus and
the difficulties of the government in generating additional revenues, there can
be no assurances that the new government will not increase these export taxes or
extend their duration. In such an unstable environment, the financial results of
YPF's operations in Argentina, as well as YPF's ability to meet its foreign
currency obligations may be adversely affected by the changes in the Argentine
tax regime.
Exchange and Capital Controls. From March 1991 to December 2001, the
Argentine foreign exchange market was completely free of any restrictions on
converting pesos into U.S. dollars. Capital controls were imposed in December
2001 and reinforced in January 2002 after the devaluation of the peso.
Restrictions on transfers of funds abroad have been eased in the beginning of
2003, but exporters still have to convert proceeds from their export operations
into domestic currency. Based on the Decree 1589/89 of the year 1989, and a new
Decree (2703/2002) signed by President Duhalde at the end of 2002, companies in
the oil & gas sector are partially exempted from this requirement and allowed to
keep abroad up to 70% of their export proceeds. This regulation allows YPF to
service its financial and other obligations denominated in U.S. dollars. In July
2002, Argentina's Attorney General issued an opinion which would have
effectively required YPF to liquidate 100% of its export receivables in
Argentina. On December 5, 2002, the Central Bank stated that it would follow the
Attorney General's opinion. YPF filed a lawsuit before a federal court in
Argentina requesting confirmation of YPF's right to freely dispose of up to 70%
of its export receivables in accordance with the provisions of Decree 1589/89.
YPF has obtained an injunction that prohibits the Central Bank and the Ministry
of the Economy from interfering with YPF's access to foreign exchange proceeds
as stipulated by the original decree, but the injunction has been appealed by
the Central Bank and the Ministry of the Economy. If the injunction is lifted or
the federal court's decision is overturned, YPF may be required to repatriate
all of its foreign-exchange proceeds into Argentina including proceeds received
during 2002, which in turn may affect YPF's ability to service its debt and
other obligations denominated in U.S. dollars. This may materially and adversely
affect our financial condition and results of operations. See "Item 8. Legal
Proceedings--YPF."
Price Controls. Since January 2002, the Company has been raising retail
pump prices of gasoline and diesel, a measure justified by the need to reflect
in our prices the effects of currency devaluation and rising international
prices for crude oil and derivative products. During the second half of 2002,
oil companies in Argentina signed an agreement with the government to defer in
time the effect of high crude oil prices on pump prices of gasoline and diesel.
We cannot guarantee that the new government will not put in place implicit or
explicit price controls in an attempt to reduce prices and curb inflation. If
YPF's domestic sales are subjected to implicit or explicit price controls, YPF's
business and results of operations may be adversely affected.
10
Export restrictions. In May 2002, the Government declared the provision of
hydrocarbons in Argentina a matter of national emergency. The Decree No. 867
allows the Secretariat of Energy to dispose of the portion of crude oil and LPG
production that should be oriented to the domestic market. Although YPF exports
a relatively small percentage of its total production, after the enactment of
Decree No. 867, YPF is subject to the risk of exports restrictions being imposed
on it. In the event the Secretariat of Energy limits exports based on this
Decree, YPF's ability to honor its foreign currency obligations may be adversely
affected. See "Item 4. Information on the Company--Regulatory Framework and
Relationship with Argentine Government."
The Argentine economy may be negatively affected by developments in other
countries
The Argentine financial and securities markets are, to varying degrees,
influenced by economic and market conditions in other countries. Although
economic conditions are different in each country, investor reaction to
developments in one country can have significant effects on the price of the
securities of issuers in other countries, including Argentina. For example,
political and economic developments in December 1994 and early 1995 in Mexico,
in the second half of 1997 in several Asian nations, and the Brazilian Real
devaluation in January 1999 had a negative impact on the financial and
securities markets in many emerging market countries, including Argentina. There
can be no assurances that the Argentine financial and securities markets will
not continue to be adversely affected from time to time by events elsewhere,
especially in other emerging markets.
Fluctuations in Oil and Gas Prices Affect Our Level of Capital Expenditures
Fluctuations in the market price of oil may affect the timing and the
amount of our projected capital expenditures related to exploration and
development activities, which, in turn, could have a material adverse effect on
our ability to replace our reserves in the future. Oil prices in Argentina
reflect world market prices. World oil prices have fluctuated widely over the
last ten years and are determined by global supply and demand factors over which
YPF has no control. In 2002, the average international crude oil price was
US$26.07 per barrel, compared to US$25.09 per barrel in 2001.
Natural gas market prices affect the timing and the amount of our projected
capital expenditures related to gas exploration, development and distribution
activities, which could have a material adverse effect on our ability to replace
our gas reserves and develop our natural gas business. Current natural gas
prices, which are set in pesos, are subject to price controls. Therefore,
further devaluation of the peso, not accompanied by a corresponding increase in
natural gas prices, may result in our delaying capital expenditures related to
the natural gas business.
We May Not Be Able to Replace Our Reserves
The rate of production from oil and gas properties generally declines as
reserves are depleted. Without successful exploration and development activities
or reserve acquisitions, our proved reserves will decline as oil and gas are
produced from our existing proved developed reserves. We cannot guarantee that
our exploration, development and acquisition activities will result in
significant additional reserves or that we will continue to be able to drill
productive wells at acceptable costs.
The Oil and Gas Industry is Subject to Particular Operational Risks
Oil and gas exploration and production activities are subject to particular
economic risks, some of which are beyond the control of YPF. They are subject to
production, equipment and transportation risks, natural hazards and other
uncertainties including those relating to the physical characteristics of an oil
or natural gas field. The operations of YPF may be curtailed, delayed or
canceled as a result of weather conditions, mechanical difficulties, shortages
or delays in the delivery of equipment and compliance with governmental
requirements. If these risks materialize, YPF may suffer substantial losses and
disruptions to its operations. Drilling may involve unprofitable efforts, not
only with respect to dry wells, but also with respect to wells that are
productive but do not produce sufficient net revenues to return a profit after
drilling, operating and other costs are taken into account. These activities are
also subject to the payment of royalties and taxation, which tend to be high
compared with those payable in respect of other commercial activities.
11
Our operations are subject to the industry-specific operating risks include
the risk of fire, explosions, blow-outs, pipe failure, abnormally pressured
formations, and environmental hazards, such as oil spills, gas leaks, ruptures
or discharges of toxic gases. The occurrence of these industry-specific
operating risks could cause us substantial losses. Such losses may be due to any
one of the following occurrences:
o injury or loss of life;
o severe damage to, or destruction of, property, natural resources and
equipment;
o pollution or other environmental damage, clean-up responsibilities,
regulatory investigation; and
o penalties and suspension of operations.
YPF's Acquisition of Exploratory Acreage and Crude Oil and Natural Gas
Reserves is Subject to Strong Competition
Oil companies, including YPF, must maintain a certain level of undeveloped
oil and natural gas reserves to keep their results from exploration and
production activities relatively stable over time. Crude oil and natural gas
production blocks are typically auctioned by governmental authorities. YPF faces
intense competition in bidding for such production blocks, especially those
blocks with the most attractive crude oil and natural gas reserves.
Governmental Regulations and Political Risks May Interrupt Our Production
Activities
Our foreign petroleum exploration, development and production activities
are subject to a variety of regulatory and political risks including:
o expropriation of property and cancellation or modification of contract
rights;
o political and economic uncertainties;
o foreign exchange restrictions and other risks arising out of foreign
governmental sovereignty over the areas in which our operations are
conducted; and
o risks of loss in countries due to civil strife, acts of war, guerilla
activities and insurrection.
We May Incur Significant Costs and Liabilities Related to Environmental and
Safety Matters, Including More Stringent Enforcement of Such Laws
Our operations are subject to a wide range of environmental laws and
regulations. In some jurisdictions, local, provincial and national authorities
are moving toward more stringent enforcement of applicable laws. Argentina has
adopted regulations that require our operations to meet environmental standards
comparable in many respects to those in effect in the United States and in
countries within the European Union. These regulations establish the general
framework for environmental protection requirements, including the establishment
of fines and criminal penalties for violations. We have conducted studies to
determine what is likely to be required to achieve compliance with these
standards and are in the process of implementing and planning various abatement
and remediation projects. Although we believe that the estimated capital
expenditures and our existing reserve for environmental remediation expenses
should be sufficient to permit us to comply with environmental regulations,
future changes in laws or technology could cause an upward revision of such
estimates. Changes in projected expenditures as a result of changes in the
management's plans, in the Argentine or the United States laws and regulations,
or in the laws and regulations of other countries in which we operate may affect
our results of operations in any given year.
In addition, federal, state and local laws and regulations relating to
health and environmental quality in the United States, as well as environmental
laws and regulations of other countries in which YPF Holdings Inc. ("YPF
Holdings") and YPF International Ltd. ("YPF International") operate, affect
nearly all of the operations of both subsidiaries. These laws and regulations
set various standards of certain aspects of health and environmental quality,
provide for penalties and other liabilities for violations of such standards,
and establish remedial obligations in certain circumstances. Particularly strong
measures and special provisions may be appropriate or required in
environmentally sensitive foreign areas of operations. Many of YPF Holdings'
United States operations, conducted through Maxus, are subject to the
requirements of the following U.S. environmental laws:
12
o Safe Drinking Water Act;
o Clean Water Act;
o Clean Air Act;
o Resource Conservation and Recovery Act;
o Occupational Safety and Health Act;
o Comprehensive Environmental Response, Compensation and Liability Act;
and
o various other federal and state laws.
These laws address a variety of environmental issues, including the limits
on the discharge of waste associated with oil and gas operations, investigation
and clean-up of hazardous substances, workplace safety and health, natural
resource damages claims, and toxic tort liabilities. Furthermore, these laws
typically require compliance with associated regulations and permits and provide
for the imposition of penalties for noncompliance.
Some risk of environmental and other damage is inherent in certain of our
operations and we cannot predict what environmental legislation or regulations
will be enacted in the future or how existing or future laws or regulations will
be administered or enforced. More stringent laws and/or more vigorous
enforcement policies in the future or the development of additional information
may require us to spend additional funds in order to remain compliant with the
applicable laws. Such additional expenditures could be material to our results
of operations.
We may also have liabilities relating to our former operations. In
particular, Maxus, an indirectly wholly-owned subsidiary of YPF Holdings, has
indemnified Occidental Petroleum for certain environmental liabilities
associated with the former operations of Diamond Shamrock Chemicals Company.
Tierra Solution Inc., also an indirectly wholly-owned subsidiary of YPF
Holdings, has assumed responsibility for most of these liabilities. Maxus and
Tierra Solution Inc. have taken reserves of US$78 million relating to those
liabilities based on current knowledge, including the information with respect
to the number and type of claims made to date and the current state of technical
and factual information about the environmental issues. It is possible that
additional claims will be made, however, and additional information is likely to
be developed over time about new or existing claims. As a result, Maxus and
Tierra Solutions Inc. may have to incur costs that may be material, in addition
to the reserves already taken.
ITEM 4. Information on the Company
History and Development of YPF
Overview
YPF Sociedad Anonima was created on June 2, 1977, under the laws of the
Republic of Argentina as a governmental entity pursuant to Decree No. 2778/90.
On January 1, 1991, it became a stock corporation. YPF's term of duration
expires on June 15, 2093. The address of YPF is Avenida Pte. R. Saenz Pena 777,
Buenos Aires CP.C. 1035 AAC., Argentina and its telephone number is (54-11)
4329-2000.
YPF, Argentina's largest company, is an integrated oil and gas company
engaged in the exploration, development and production of oil and gas
("upstream"), the refining, marketing, transportation and distribution of oil
and a wide range of petroleum products, petroleum derivatives, petrochemicals
and liquid petroleum gas ("downstream") and natural gas and
electricity-generation activities.
As of December 31, 2002, Repsol YPF, which holds 99.04% of YPF shares,
controls YPF. Repsol YPF is a stock corporation (sociedad anonima) duly
organized and existing under the laws of the Kingdom of Spain.
13
Repsol YPF's principal business is the exploration, development and
production of crude oil and natural gas, transportation of petroleum products,
liquefied petroleum gas ("LPG") and natural gas, petroleum refining, production
of a wide range of petrochemicals and marketing of petroleum products, petroleum
derivatives, petrochemicals, liquefied petroleum gas and natural gas.
YPF has proved reserves, as estimated at January 1, 2003, of approximately
1,387 mmbbl of crude oil, condensate and natural gas liquids and 8,974 Bcf of
natural gas. These reserves are located in Argentina, Indonesia and the United
States. Most of the Indonesian reserves, representing 173 million barrels of
crude oil and 371 Bcf of natural gas, were sold effective as of January 2002.
YPF had net sales of Ps.19,599 in 2002, of which 85% represented sales within
or from Argentina.
In Argentina, YPF produced 160 million barrels of crude oil, condensate and
natural gas liquids (438 mbpd) in 2002, representing approximately 58% of the
total estimated crude oil production in Argentina. YPF's natural gas production
in Argentina reached 540 Bcf in 2002, and natural gas sales accounted for
approximately 49% of the total estimated domestic and export sales of Argentine
natural gas. YPF's domestic refining operations are conducted at three
refineries with combined annual refining capacity of approximately 116.6 million
barrels, representing approximately 51% of the total refining capacity in
Argentina. YPF's retail distribution network for automotive petroleum products
is comprised of approximately 1,908 YPF-branded service stations, representing
approximately 29% of all service stations in Argentina.
YPF's international operations are conducted through its subsidiaries, YPF
International and YPF Holdings. At December 31, 2002, YPF International had
mineral rights in exploratory blocks with a net surface area of 243 km2, and a
production block with a net surface area of 2 km2. YPF Holdings conduct
operations and activities related to exploration and production, downstream
activities (through Global Companies LLC) and chemical environmental
responsibilities in United States.
See Note 18 (c) to the Consolidated Financial Statements and Exhibit 8 for
a complete list of companies that comprise the group.
Below is an organizational chart of YPF's main subsidiaries as of the date
of this annual report, including their country of incorporation, and YPF's
ownership interest in those subsidiaries.
14
----------------------
YPF, S.A.
(Argentina)
----------------------
|
------------------------------------------- |-----------------------------------------------
| | | | |
| | | | |
99.91% | 50% | 45% | 38% | 42.86% | 100%
- ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ------------------
A-EVANGELISTA | PROFERTIL, S.A. | PLUSPETROL | COMPANIA MEGA | Inversora DOCK | YPF HOLDINGS
S.A. ------ (Argentina) --- ENERGY, S.A. --- S.A. ---- SUD, S.A. --- (USA)
(Argentina) | | (Argentina) | (Argentina) | (Argentina) |
- ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ------------------
| | | | | |
| | | | | |
| | | | | |
50% | 50% | 50.50% | 10% | | 69.83% | 100%
- ---------------- | ---------------- | ---------------- | ---------------- | | --------------- | ------------------
REFINOR, S.A. | PETROKEN, S.A. | POLIGAS LUJAN | GASODUCTO | |_ Central DOCK | YPF International
(Argentina) ------ (Argentina) --- SACI --- PACIFICO, S.A. | SUD, S.A. --- S.A.
| | (Argentina) (Argentina) | 9.98% (Argentina) (Bolivia)
- ---------------- | ---------------- | ---------------- ---------------- ------ ---------------- ------------------
| |
| |
| |
99% | 30% | 45.33%
- ---------------- | ---------------- | ----------------
OPESSA | OILTAKING Ebyten | GAS ARGENTINO
(Argentina) ------ (Argentina) --- S.A.
| (Argentina)
- ---------------- | ---------------- ----------------
| |
| |
33.15% | 18% |
- ---------------- | ---------------- | 70%
TERMAP, S.A. | OLEODUCTO | ----------------
(Argentina) ------ TRASANDINO, S.A. | METROGAS, S.A.
| (Argentina) ---- (Argentina)
- ---------------- | ----------------
| ----------------
|
37% | 28%
- ---------------- | ----------------
OLDEVAL, S.A. ----- PBB POLISUR, S.A.
(Argentina) (Argentina)
- ---------------- ----------------
15
Deregulation, Privatization and Recent Developments
From the 1920's to 1990, both the upstream and downstream segments of the
Argentine oil and gas industry were effectively monopolies of the federal
government of Argentina. During this period, YPF and its predecessors were owned
by the state and controlled the exploration and production of oil and natural
gas, as well as the refining of crude oil and marketing of refined petroleum
products. In August 1989, Argentina enacted laws aimed at the deregulation of
the economy and the privatization of Argentina's state-owned companies,
including YPF. Following the enactment of these laws, a series of presidential
decrees (referred to as the Oil Deregulation Decrees) were promulgated
eliminating restrictions on imports and exports of crude oil (subject to
approval of the Energy Secretary in the case of exports) and deregulating the
domestic oil industry, including deregulation of the prices of oil and petroleum
products and the lifting of restrictions on the establishment of service
stations.
In addition, in order to reduce the percentage of Argentina's oil and gas
production controlled by YPF and to permit the development of competition in the
Argentine oil and gas industry, the Oil Deregulation Decrees required YPF to
sell majority interests in the production rights with respect to certain major
producing areas, as well as certain other production and exploration rights, to
private companies that now compete with YPF. These sales substantially reduced
the percentage of Argentina's overall oil production and reserves controlled by
YPF. As a result of these and other transactions, YPF's proved reserves were
reduced by approximately 1.8 billion BOE (representing an amount equal to 45% of
YPF's total proved reserves as of January 1, 1991).
YPF's restructuring plan called for an internal management and operational
restructuring and a cost reduction program, including a substantial reduction in
the number of employees. The number of YPF employees was reduced from over
51,000 (including approximately 15,000 personnel under contract) as of December
31, 1990, to fewer than 10,000 by 1993. In connection with its restructuring
plan, YPF also reorganized its operations, beginning in 1992, into Upstream (for
exploration and production activities) and Downstream (for refining and
marketing operations). The separation of these functions permitted management,
for the first time in YPF's history, to evaluate its Upstream and Downstream
activities based on their respective results of operations and contributions to
earnings. The Upstream and Downstream activities are now accounted for in the
Exploration and Production business unit and the Refining and Marketing business
unit, respectively.
In November 1992, Law No. 24,145 (referred to as the Privatization Law),
which established the procedures by which YPF was to be privatized, was enacted.
In accordance with the Privatization Law, in July 1993 YPF completed a worldwide
offering of 160 million Class D Shares that previously had been owned by the
Argentine government. Concurrently with the completion of such offering, the
Argentine government transferred capital stock of YPF to five oil and gas
producing provinces of Argentina and made an offer to holders of Argentina's
pension bonds and certain other claims to exchange capital stock of YPF for such
bonds and other claims. In addition, approximately ten percent of YPF's
outstanding capital stock was set aside for offer to the employees of YPF upon
terms and conditions established by the Argentine government in accordance with
Argentine law. As a result of these transactions, the Argentine government's
ownership percentage of YPF's capital stock was reduced from 100% to
approximately 20%.
In July 1997, the shares set aside for the benefit of YPF's employees in
conjunction with the privatization, excluding approximately 1.5 million shares
set aside as a reserve against potential claims, were sold through a global
public offering, increasing the percentage of YPF's outstanding shares of
capital stock held by the public to 75%. Proceeds from the transactions were
used to cancel debt related to the employee plan, with the remainder distributed
to participants in the plan.
In January 1999, Repsol acquired 52,914,700 Class A Shares in block (14.99%
of YPF's shares) which were converted to Class D Shares. Additionally, on April
30, 1999, Repsol announced a tender offer to purchase all outstanding Classes A,
B, C and D Share at a price of US$44.78 per share (the "Offer"). Pursuant to the
Offer, in June, 1999, Repsol acquired an additional 82.47% of the outstanding
capital stock of YPF. On November 4, 1999, Repsol acquired an additional 0.35%.
On June 7, 2000, Repsol YPF announced a tender offer to exchange newly issued
Repsol YPF's shares for the 2.16% YPF's Class B, C and D Shares held by minority
shareholders. As of December 31, 2002, Repsol YPF controls YPF through a 99.04%
shareholding.
16
As part of Repsol YPF's divestment plan, YPF's Board of Directors approved
during 2000, 2001 and 2002, the following transactions, regarding YPF's assets
and related companies:
o On February 2, 2000, the Board of Directors approved undertaking
efforts to divest the investments held by YPF International in
Indonesia. Consequently, YPF International recognized a loss of Ps.550
million in 2001, Ps.426 million in 2000 and Ps.382 million in 1999,
from the valuation of those investments at their estimated realizable
value, as of those dates.
o On February 29, 2000, the Board of Directors approved the merger of YPF
with Maleic, S.A. effective as of January 1, 2000, which was ratified
by the Shareholders' Meeting held on April 27, 2000.
o On May 9, 2000, the Board of Directors approved the divestiture of
investments held by YPF in Ecuador and by YPF International in Ecuador
and Colombia to affiliated companies, at fair market values. As of
December 31, 2000, YPF International transferred its investments in
Colombia, to Repsol Exploracion Colombia S.A., for an amount of
approximately US$6 million, recording a net income of Ps.4 million. In
January 2001, YPF and YPF International sold their investments held in
Ecuador to Repsol YPF Ecuador for an amount of US$6 million and US$307
million, recording a net loss of approximately Ps.2 million and Ps.2
million, respectively.
o On August 2, 2000, the Board of Directors approved the divestiture of
its interest in Global Companies LLC and its affiliates, Montello Group
LLC and Chelsea Sandwich LLC, through YPF International. As of the date
of this annual report, YPF has not disposed of its investment in
Global.
o YPF, through YPF Chile S.A., entered into an agreement to acquire 45%
of the capital stock of Lipigas Group, leader in the Chilean market
with sales of approximately 400,000 tonnes of LPG per year, for US$170
million, with a non-expiring option to acquire an additional 10% in
2004. If YPF exercises its option to acquire a further 10% interest,
the sellers will have a three-year put option to sell the remaining
45%. The shareholders' agreement signed with the other partners in the
acquisition, provides for a shared operating control of the company.
o On December 27, 2000, YPF's Extraordinary Shareholders' Meeting
approved the merger of both Astra C.A.P.S.A. ("Astra") and Repsol
Argentina S.A. with YPF, all controlled companies of Repsol YPF. The
merger became effective on January 1, 2001. Upon completion of the
merger, the assets and liabilities of Astra and Repsol Argentina were
transferred to YPF at book value, and YPF increased its capital stock
by the amount of Argentine Ps.403,127,930, represented by 40,312,793
new Class D Shares, each with a par value of Argentine Ps.10 and one
vote per share. As a result of such increase, the capital stock of YPF
amounts to Ps.3,933,127,930, represented by 393,312,793 Class D Shares,
each with a par value of Argentine Ps.10 and one vote per share. As of
December 31, 2000, Astra and Repsol Argentina together had current
assets of Ps.174 million, noncurrent assets of Ps.1,917 million,
current liabilities of Ps.904 million and noncurrent liabilities of
Ps.167 million. After giving effect to the merger, Repsol YPF owns
99.04% of YPF.
o On January 2001, YPF sold its interest in YPF Brasil S.A. to Repsol
YPF, at fair market value, for approximately US$140 million recording a
net gain of approximately Ps.37 million.
o On February 7, 2001, YPF sold its 36% interest in Oleoducto Trasandino
(Argentina) S.A., A & C Pipeline Holding Company and Oleoducto
Trasandino (Chile) S.A. for approximately US$66 million recording a net
gain of Ps.41 million.
17
o On February 15, 2001, YPF entered into an agreement with Pecom Energia
S.A. ("Pecom") under which Pecom transferred to YPF its 20.25% stake in
Empresa Petrolera Andina S.A. ("Andina") and its 50% stake in the oil
fields of Manantiales Behr and Restinga Ali, in the Golfo de San Jorge
basin, Argentina. In exchange, YPF transferred to Pecom its stake in
the Santa Cruz I (30%) and Santa Cruz II (62.2%) oil and gas fields
located in southern Argentina, as well as other minor assets. In
addition, YPF acquired from Pluspetrol Resources its 9.5% stake in
Andina. The total value of assets involved in this agreement was US$435
million. As a consequence of these transactions, YPF's indirect
interest in Andina increased to 50%. The net gain recorded for this
transaction was Ps.209 million.
o On February 2001, YPF Gas S.A. and Repsol Gas S.A. signed a Definitive
Merger Agreement. Pursuant to this agreement, YPF Gas S.A. merged with
and into RepsolYPF Gas S.A., effective as of January 1, 2001, resulting
in YPF holding 85% of the capital stock of RepsolYPF Gas S.A. In
December 2001, the Company sold its interest in RepsolYPF Gas S.A. to
Repsol Butano S.A., at fair market value, for US$118 million, recording
a net loss of Ps.48 million.
o On April 2001, YPF sold its interest in EASA, the controlling company
of Edenor S.A., to EDF International, for an amount of US$195 million.
As of December 31, 2000, EASA was an Astra subsidiary and the book
value of this investment was approximately Ps.64 million.
o On May 9, 2001, the Board of Directors approved initiating the process
to divest YPF's investments in Venezuela to related companies of Repsol
YPF. In July 2001, YPF International Ltd. sold, at fair market value,
its 100% interest in Repsol YPF Venezuela S.A. and in Astra Produccion
Petrolera S.A. to Repsol Exploracion S.A. and Repsol Exploracion
Venezuela B.V. for US$26 million and US$3 million, respectively.
Additionally, in September 2001, YPF International Ltd. sold its 100%
interest in Maxus Venezuela (C.I.) Ltd. and Maxus Guarapiche Ltd. to
Repsol Exploracion Venezuela B.V., at fair market value, for a total
amount of US$47 million. As a consequence of these transactions, YPF
International Ltd. recognized a loss of Ps.170 million.
o On June 20, 2001, in connection with an assert swap agreement between
Repsol YPF and Petrobras, YPF's Board of Directors approved the sale of
YPF's interest in Eg3, Eg3 Asfaltos S.A. and Eg3 Red S.A. to Repsol
YPF. In December 2001, YPF sold these investments to Repsol YPF, at
fair market value, for approximately US$559 million, recording a net
loss of Ps.59 million.
o In August 2001, YPF sold its interest in Bitech Petroleum Corporation
to Lukoil Overseas Canada Ltd. for an amount of US$11 million,
recording a net loss of Ps.9 million.
o In January 2002, YPF International Ltd. sold its most important
investments in Indonesia to Cnooc Southeast Asia Limited for
approximately US$174 million, recording a gain of Ps.114 million.
o In March 2002, the Board of Directors approved the transfer of YPF's
interest in Repsol YPF Chile Ltda., subject to certain conditions, and
Repsol YPF Gas Chile Ltda., companies resulted from the spin-off of YPF
Chile S.A., to Repsol YPF and Repsol Butano S.A., respectively. On
March 28, 2002, Repsol YPF Gas Chile Ltda. was transferred to Repsol
Butano S.A. for US$45 million, recording a net loss of Ps.24 million.
On December 16, 2002, Repsol YPF Chile Ltda. was transferred to Repsol
YPF for US$104 million, recording a net loss of Ps.4 million.
o In July 2002, YPF sold, at fair market value, its shares in Repsol YPF
Santa Cruz S.A. (a company spun off from YPF International Ltd.) to
Repsol YPF for US$883 million, recording a gain of Ps.601 million.
Repsol YPF Santa Cruz S.A. held the investment in Andina and Maxus
Bolivia Inc.
Business Overview
YPF organizes its business along the following areas of activities:
o Upstream:
- Exploration and Production;
o Downstream:
- Refining and Marketing;
- Chemicals.
o Natural Gas and Electricity.
18
Corporate and others include other activities such as corporate
administration costs, assets, construction activities and the operation of
Tierra Solutions Inc..
The following table sets forth net sales and operating income for each of
YPF's lines of business for the years ended December 31, 2002, 2001 and 2000.
For the Year Ended December 31,
----------------------------------------------
2002 2001 2000
----------- ----------- -----------
(in millions of pesos)
Net Sales(1)
Exploration and Production(2)
To unrelated parties................................... 1,435 3,186 3,644
To related parties..................................... 251 2,496 2,305
Intersegment sales and fees(3)......................... 11,239 4,952 5,932
-- ------ ----- -----
Total Exploration and Production.................... 12,925 10,634 11,881
====== ====== ======
Refining and Marketing(4)
To unrelated parties................................... 14,232 10,518 11,758
To related parties..................................... 1,941 537 624
Intersegment sales and fees............................ 772 748 748
------ ----- -----
Total Refining and Marketing(5)..................... 16,945 11,803 13,130
====== ====== ======
Chemical
To unrelated parties................................... 1,208 635 596
Intersegment sales and fees............................ 364 388 454
------ ----- -----
Total Chemical...................................... 1,572 1,023 1,050
====== ====== ======
Natural Gas and Electricity(6)
To unrelated parties................................... 238 148 22
To related parties..................................... 90 72 --
Intersegment sales and fees............................ 16 24 15
------ ----- -----
Total Natural Gas and Electricity................... 344 244 37
====== ====== ======
Corporate and other
To unrelated parties................................... 204 85 --
To related parties..................................... -- 133 --
Intersegment sales and fees............................ 256 -- --
------ ----- -----
Total Corporate and others.......................... 460 218 --
====== ====== ======
Less intersegment sales and fees.......................... (12,647) (6,112) (7,201)
====== ====== ======
Total net sales(7)........................................ 19,599 17,810 18,897
====== ====== ======
Operating Income (loss)
Exploration and Production............................. 6,712 4,535 6,168
Refining and Marketing................................. (46) 402 151
Chemical............................................... 337 -- 7
Natural Gas and Electricity(6)......................... 136 61 24
Corporate and other.................................... (298) (297) (301)
Consolidation adjustments.............................. (21) 109 --
------ ----- -----
Total operating income.............................. 6,820 4,810 6,049
====== ====== ======
- ------------------
(1) Net sales are net to YPF after payment of a fuel transfer tax, turnover tax
and custom duties on exports. Royalties with respect to YPF's production
are accounted for as a cost of production and are not deducted in
determining net sales. See Note 2 (h) to the Consolidated Financial
Statements.
(2) Includes exploration and production operations in Argentina, Indonesia,
Bolivia and in Ecuador, Brazil and Venezuela up to the sale of YPF's
interest in such countries. YPF's interests in the results of operations of
Andina Corporation were reflected in the income statement of the
Consolidated Financial Statements as income on long-term investments up to
the acquisition of the additional interest of Andina. In July 2002 YPF sold
its interest in Andina. See Note 12 to the Consolidated Financial
Statements. Investments in Bitech Corporation are reflected under the cost
accounting method up to the sale of YPF's interest in such company in 2001.
Therefore, such results are not included in the information presented
herein with respect to the properties and operations of Exploration and
Production. See "--Exploration and Production," "--Exploration and
Development Activities" and "--Exploration and Development Properties and
Production" below.
19
(3) Intersegment sales of crude oil to Refining and Marketing are recorded at
transfer prices that reflect Argentine market prices.
(4) Includes LPG activities.
(5) Effective January 1, 2002, crude oil sales are conducted through the
Refining and Marketing segment. If this new marketing policy had been
retroactively applied, Refining and Marketing total net sales and
Consolidation adjustments as of December 31, 2001 and 2000 would have been
approximately Ps.14,073 million and (Ps.8,382 million), and Ps.15,810
million and (Ps.9,881 million), respectively.
(6) This segment's principal activity is the natural gas marketing services
and, since the completion of Mega Project, the separation of liquid
petroleum products from natural gas. Sales represented mainly management
fees on Exploration and Production natural gas sales and Mega's sales.
(7) Net sales include export sales of Ps.8,394 million, Ps 5,381 million, and
Ps.5,019 million for the years ended December 31, 2002, 2001, and 2000,
respectively.
Exploration and Production
Reserves
The following table sets forth YPF's estimated proved reserves and proved
developed reserves of crude oil and natural gas as of January 1, 2000, 2001,
2002 and 2003, respectively. The reserve estimates set forth below were prepared
in accordance with Rule 4-10 of Regulation S-X of the Securities and Exchange
Commission.
Crude Oil(1) Gas Combined(2)
------------ ------------ -----------
(millions of (BOE in
barrels) (Bcf) millions)
Reserves at January 1, 2000......................................... 1,449 11,150 3,435
Revisions of previous estimates.................................. 222 (1,065) 32
Extensions, discoveries and improved recovery.................... 144 849 296
Purchases of reserves in place................................... 24 1 25
Sales of reserves in place....................................... (13) (228) (54)
Production for the year.......................................... (164) (619) (275)
------------ ------------ -----------
Reserves at January 1, 2001......................................... 1,662 10,088 3,459
Revisions of previous estimates.................................. 56 570 158
Extensions, discoveries and improved recovery.................... 96 551 194
Purchases of reserves in place................................... 195 693 318
Sales of reserves in place....................................... (162) (1,164) (369)
Production for the year.......................................... (182) (559) (282)
------------ ------------ -----------
Reserves at January 1, 2002......................................... 1,665 10,179 3,478
Revisions of previous estimates.................................. 11 (120) (11)
Extensions, discoveries and improved recovery.................... 63 15 66
Purchases of reserves in place................................... -- -- --
Sales of reserves in place....................................... (192) (558) (291)
Production for the year.......................................... (160) (542) (257)
------------ ------------ -----------
Reserves at January 1, 2003......................................... 1,387 8,974 2,985
Proved Developed Reserves
At January 1, 2000.................................................. 1,119 8,734 2,674
At January 1, 2001.................................................. 1,261 7,267 2,555
At January 1, 2002.................................................. 1,343 7,512 2,681
At January 1, 2003.................................................. 1,136 6,801 2,347
- ------------------
(1) Includes crude oil, condensate and natural gas liquids.
(2) Volumes of natural gas in the table above and elsewhere in this annual
report have been converted to BOE at 5.615 mcf per barrel.
20
Reserves by Basin
The following table sets forth by basin YPF's crude oil and natural gas
proved developed and undeveloped reserves and proved developed reserves as of
December 31, 2002.
Crude Oil(1) Gas Combined(2)
------------ ------------ -----------
(millions of (BOE in
barrels) (Bcf) millions)
Proved Developed and Undeveloped Reserves
Neuquen................................................................ 844 6,937 2,079
Golfo de San Jorge..................................................... 333 289 384
Cuyana(3).............................................................. 150 14 152
Noroeste............................................................... 40 1,212 256
Austral................................................................ 14 467 98
----- ----- -----
Total Argentina..................................................... 1,381 8,919 2,969
===== ===== =====
Indonesia.............................................................. 6 50 15
United States.......................................................... -- 5 1
----- ----- -----
Total............................................................... 1,387 8,974 2,985
===== ===== =====
Proved Developed Reserves
Neuquen................................................................ 707 5,107 1,616
Golfo de San Jorge..................................................... 242 208 279
Cuyana(3).............................................................. 140 13 142
Noroeste............................................................... 37 1,055 225
Austral................................................................ 10 410 83
----- ----- -----
Total Argentina..................................................... 1,135 6,793 2,345
===== ===== =====
Indonesia.............................................................. -- 3 1
United States.......................................................... -- 5 1
----- ----- -----
Total............................................................... 1,136 6,801 2,347
===== ===== =====
- ------------------
(1) Includes crude oil, condensate and nature gas liquids.
(2) Volumes of natural gas in the table above and elsewhere in this annual
report have been converted to BOE at 5.615 mcf per barrel.
(3) Reserves attributable to the Malargue area, located at the northern tip of
the Neuquen Basin, in the year 2000 is included in the reserves shown for
the Cuyana Basin.
The reserve estimates included in this annual report were subjected to
economic tests specified by Statement of Financial Accounting Standards No. 69
to determine economic limits. Reserves in Argentina are stated prior to the
payment of any royalties to the provinces in which the reserves are located.
Royalties with respect to YPF's production in Argentina are accounted for as
operating costs in such economic tests. For a description of the manner in which
royalties are calculated, see Note 2(h) to the Consolidated Financial
Statements.
Estimates of reserves were prepared by YPF using standard geological and
engineering methods generally accepted by the petroleum industry and in
accordance with the rules and regulations of the SEC. The method or combination
of methods used in the analysis of each reservoir was chosen based on experience
in the area, stage of development, quality and completeness of basic data, and
production history.
21
There are numerous uncertainties inherent in estimating quantities of
proved reserves and in projecting future rates of production and the timing of
development expenditures, including many factors beyond the control of YPF. The
reserve data set forth in this annual report only represents estimates of YPF's
proved oil and gas reserves. Reserve engineering is a subjective process of
estimating underground accumulations of crude oil and natural gas that cannot
otherwise be measured in an exact manner. The accuracy of any reserve estimate
is a function of the quality of available data and of engineering and geological
interpretation and judgment. As a result, such estimates are inherently
imprecise, and estimates of different engineers often vary. In addition, the
estimates of future net cash flows from proved reserves and the present value
thereof are based upon various assumptions about future production levels,
prices and costs that may prove incorrect over time. Any significant variance in
the assumptions could result in the actual quantity of YPF's reserves and future
net cash flows there from being materially different from the estimates set
forth in this annual report. In addition, results of drilling, testing and
production subsequent to the date of an estimate may justify revision of such
estimate. Accordingly, reserve estimates may be materially different from the
quantities of crude oil and natural gas that are ultimately recovered. The
significance of such estimates is highly dependent upon the accuracy of the
assumptions upon which they were based.
Exploration and Development Activities
Domestic Activities
The following table shows the number of wells drilled by YPF in Argentina,
or in which YPF participated, and the results obtained, for the periods
indicated.
22
For the Year Ended December 31,
---------------------------------
2002 2001 2000
------ ------ ------
Gross wells drilled(1)
Exploratory
Oil................................................................. 9 7 8
Gas................................................................. 1 4 5
Dry................................................................. 16 25 24
------ ------ ------
Total............................................................. 26 36 37
====== ====== ======
Development............................................................
Oil................................................................. 603 770 386
Gas................................................................. 16 32 41
Dry................................................................. 39 52 36
------ ------ ------
Total............................................................. 658 854 463
====== ====== ======
Net wells drilled(1)
Exploratory
Oil................................................................. 9 5 6
Gas................................................................. 0 3 4
Dry................................................................. 15 23 19
------ ------ ------
Total............................................................. 24 31 29
====== ====== ======
Development
Oil................................................................. 543 654 276
Gas................................................................. 13 27 31
Dry................................................................. 39 49 29
------ ------ ------
Total............................................................. 595 730 336
====== ====== ======
- ------------------
(1) "Gross" wells means all wells in which YPF has an interest. "Net" wells
means gross wells after deducting interests of others.
Average lifting cost in 2002 was US$1.46 per barrel of oil equivalent,
lower than average lifting cost of US$2.27 per barrel of oil equivalent in 2001,
and lower than lifting cost of US$2.19/boe during 2000.
Three-dimensional seismic is being used in several basins to increase the
exploratory success, improve the quality of the exploratory prospects and
optimize the positioning of the wells. Additionally, YPF applies
three-dimensional seismic to improve the knowledge of the geometry of the
formations and optimize the development of the fields currently in production.
In 2002, due to the drilling of exploratory wells, revisions to previous
estimates, extensions and improved recovery, YPF in Argentina has replaced
approximately 45% of the production of oil.
As of December 31, 2002, YPF held 19.8 million gross acres (15.3 million
net acres) of basin area in Argentina available for exploration.
Exploration activity within the five principal producing hydrocarbon basins
averages less than one exploratory well per 30,000 acres. This exploration
density varies significantly by basin: in Neuquen, Cuyana and Golfo de San
Jorge, approximately one well per 20,000 acres; in Austral, one well per 35,000
acres; and in Noroeste, one well per 100,000 acres.
During 2002, a total of 26 exploratory wells were finished, 10 of which
found hydrocarbons. During 2002, Repsol YPF made discoveries in Argentina in the
Canadon Amarillo block with the Rincon Blanco x-1 exploratory well located in
the Neuquen basin. More discoveries were made in the Neuquen basin with the
Rincon Chico xp-101 and Cerro Negro x-1 exploratory wells, and in the San Jorge
Gulf basin with the Grimbeek x-610 well in the Manatiales Behr area and with the
Western Estancia Sarai x-1 well in the Los Perales-Las Mesetas area.
23
In December 2000, Construction of Project Mega was completed. The main
objective of this project is to separate liquid petroleum products from natural
gas produced mainly at Loma La Lata, for its transport to the petrochemical
complex of Bahia Blanca, located on Argentina's Atlantic coast. With Project
Mega, Repsol YPF increased its liquids production in Loma La Lata by an average
of 42,400 barrels of liquids per day. The drilling activities necessary to
respond to seasonal peaks in gas consumption during winter continue at Loma La
Lata.
In the vicinity of El Porton-Buta Ranquil, in the Neuquen basin, YPF is
completing the construction of an LPG plant (which is expected to start
operations in the second half of 2003) and drilling high gas-oil ratio wells.
The project aims to remove gas liquids, LPG and gasoline from the associated gas
from the El Porton and Chihuido de La Salina gas fields through an LPG plant,
with subsequent reinjection of dry gas back into the fields to reduce pressure
drops, thereby maintaining liquid recovery rates. Over the life of the project,
LPG, crude oil, condensates and gasoline from high gas-oil ratio wells represent
reserves of 40 million barrels of oil equivalent per day.
The development of the Canada Dura oil field, discovered in 2000, is being
completed. In 2002, 33 wells were drilled in this oil field and seven more are
expected to be drilled in 2003. This oil field reached a production of 12,425
oil barrels per day in 2002.
At the Rincon de los Sauces field, works are being undertaken to mitigate
the oil field's decline observed half way through 1999, including an increase of
exploration and additional infill drilling, as well as an increase in capacity
for water treatment and injection.
In the San Jorge Gulf basin numerous projects of secondary recovery using
water injection have been undertaken, with very positive results. Development of
the drilling projects for 2002 continued, among which is the project Drill 600.
Development of the Magallanes discoveries in the Austral basin have continued
with the objective of beginning production of the east flank of Block CAM 2A Sur
in 2003.
In 2002, Repsol YPF was awarded the oil exploration areas of Bandurria in
the Neuquen basin and GAN-GAN and CGSJ-V in the Canadon Asfalto block.
Exploration and Development Properties and Production
Domestic Properties and Production
Argentina is the third largest hydrocarbon producing nation in Latin
America, after Mexico and Venezuela, and the fourth largest in reserves after
those countries and Brazil. Oil has historically accounted for the majority of
the country's hydrocarbon production and consumption, although the relative
share of natural gas has increased rapidly in recent years. There are 24 known
sedimentary basins in the country. Eleven of these are located entirely onshore,
six are combined onshore/offshore and seven are entirely offshore. Total onshore
acreage comprises 358 million acres, and total offshore acreage includes 98
million acres on the South Atlantic shelf within the 200-meter depth line. A
substantial portion of the 456 million acres in sedimentary basins has yet to be
evaluated by exploratory drilling. Commercial production is concentrated in five
basins: Neuquen, Cuyana and Golfo de San Jorge in central Argentina, Austral in
southern Argentina (which includes onshore and offshore fields), and Noroeste in
northern Argentina. The Neuquen and Golfo de San Jorge basins are the most
significant basins for YPF's activities in Argentina. As of December 31, 2002,
YPF had an interest in 21.4 million net acres onshore and offshore (within the
200-meter depth line), of which 6.1 million net acres were under production
concessions and 15.3 million net acres were under exploration permits.
The following table shows YPF's gross and net interests in productive oil
and gas wells and exploration permits and production concessions in Argentina by
basin, as of December 31, 2002.
24
Wells Acreage
--------------------------------------------------------------------------------
Production Exploration
Oil Gas Concessions(1) Permits(1)
--------------------------------------------------------------------------------
Gross (2) Net (2) Gross (2) Net (2) Gross (2) Net(2) Gross (2) Net (2)
---------- --------- ----------- -------- ---------- -------- ---------- -------
(thousands of acres)
Onshore
Neuquen......................... 2,284 2,009 319 225 3,410 2,770 2,418 1,670
Golfo de San Jorge.............. 5,630 4,986 38 38 2,472 2,347 5,118 2,654
Cuyana(3)....................... 1,041 997 3 3 418 368 66 46
Noroeste........................ 41 12 49 16 1,353 375 138 138
Austral......................... 91 27 57 17 602 181 -- --
Offshore........................ 19 10 -- -- 103 57 12,105 10,750
- ------------------
(1) Production concessions are granted after commercially exploitable
quantities of oil or gas are discovered, are based upon estimated field
size as determined by geological and geophysical techniques and are subject
to adjustment based upon new information concerning the reservoir.
Accordingly, not all acreage covered by production concessions is in fact
producing. Acreage held under exploration permits is unproved and
non-producing.
(2) "Gross" wells and acreage include all wells and acreage in which YPF has an
interest. "Net" wells and acreage equals gross wells and acreage after
deducting interests of others.
(3) Acreage and wells attributable to the Malargue area, located at the
northern tip of the Neuquen Basin, are included in the acreage and wells
shown for the Cuyana Basin.
Approximately 85% percent of YPF's proved crude oil reserves in Argentina
are concentrated in the Neuquen (60%) and Golfo de San Jorge (25%) basins, and
97% of YPF's proved gas reserves in Argentina are concentrated in the Neuquen
(74%), Noroeste (18%) and Austral (5%) basins.
As of December 31, 2002, YPF held 115 production concessions and
exploration permits in Argentina. YPF directly operates 79 of them, including 56
production concessions and 23 exploration permits.
As of December 31, 2002, YPF held 31 exploration permits in Argentina, 21
of which are onshore exploration permits and 10 of which are offshore
exploration permits. YPF has 100% ownership of 11 onshore permits, and its
participating interests in the rest vary between 30% and 70%. YPF's interests in
the riskier offshore permits vary between 38% and 90%.
As of December 31, 2002, YPF had 84 production concessions. YPF has a 100%
ownership interest in 53 productions concessions and its participating interests
in the remaining 31 production concessions vary between 12.2% and 61.5%.
Production
The following table shows YPF's historical average net daily crude oil,
condensate, natural gas liquids and natural gas production in Argentina by basin
and average sales prices and production costs for total production for the
periods indicated, as well as total average daily crude oil and natural gas
production.
25
For the Year Ended December 31,
---------------------------------
2002 2001 2000
--------- ---------- ---------
(thousands of barrels per day)
Crude oil production(1)(5)
Neuquen................................................................ 257 269 227
Golfo de San Jorge..................................................... 120 116 105
Cuyana(2).............................................................. 41 37 32
Noroeste............................................................... 10 10 6
Austral................................................................ 8 9 15
-------- --------- --------
Total oil production................................................ 436 442 385
======== ========= ========
(millions of cubic feet per day)
Natural gas production(1)
Neuquen................................................................ 1,101 1,093 1,227
Golfo de San Jorge..................................................... 118 109 110
Cuyana(2).............................................................. 3 3 10
Noroeste............................................................... 179 186 119
Austral................................................................ 78 70 140
-------- --------- --------
Total gas production................................................ 1,480 1,462 1,606
======== ========= ========
Average sales price
Oil (US$per barrel)(3)................................................. 20.90 22.41 27.23
Gas (US$per mcf)....................................................... 0.69 1.45 1.37
Average lifting cost (US$per BOE)(4)...................................... 1.46 2.27 2.19
- ------------------
(1) Crude oil and gas production amounts are stated before making any
deductions with respect to royalties. Royalties are accounted for as a cost
of production and are not deducted in determining net sales. See Note 2(h)
to the Consolidated Financial Statements.
(2) Production attributable to the Malargue area, located at the northern tip
of the Neuquen Basin, in the year 2000 is included in the production
reflected for the Cuyana Basin.
(3) The average sales price per barrel of oil represents the transfer price
established by YPF, which reflects the Argentine market price.
(4) Includes the cost of crude oil under certain contracts at prices above
YPF's own production costs.
(5) Includes crude oil, condensate and natural gas liquids
As compared to 2001, crude oil, condensate and natural gas liquids
production decreased by 1% in 2002. Natural gas market conditions resulted in a
1% increase in natural gas production, as compared to 2001. In 2002, crude oil
and natural gas production on a BOE basis decreased approximately by 0.4%, as
compared to 2001.
The crude oil produced by YPF in Argentina varies by geographic area.
Almost all crude oil produced by YPF in Argentina has very low or no sulfur
content. Most of the natural gas produced by YPF is of pipeline quality. All of
the gas fields produce commercial quantities of condensate, and substantially
all of the oil fields produce associated gas.
Natural gas production in Argentina is subject to both demand and pipeline
capacity constraints. Although the demand for natural gas grew significantly
during the 1980s and 1990s, the current supply of deliverable natural gas in
Argentina exceeds the demand for natural gas. This trend is expected to continue
in the foreseeable future.
International Properties and Production
YPF's, YPF International's and YPF Holdings' foreign operations are
subject to numerous risks. See "Item 3: Key Information--Risk Factors."
26
Indonesia
As of December 31, 2002, YPF International had mineral rights in
exploratory blocks with a net surface area of 243 km2, and a production block
with a net surface area of 2 km2.
Total net petroleum production in 2002 in Indonesia was 0.2 million barrels
of oil equivalent (an average of 514 barrels of oil equivalent per day). Crude
oil production was 0.02 million barrels, including condensate and liquids, and
1.0 billion cubic feet of natural gas. Net proved reserves at December 31, 2002
were 14.8 million barrels of oil equivalent. During 2002, no exploratory wells
were drilled.
A discovery of gas and condensates was made at the end of 2001 in the
Sungei Kenawang field, which adds to the reserves discovered in 1996 in the
Palau Gading field. Net proved reserves corresponding to a 25% share in this
block at December 31, 2002 were approximately 14.8 million barrels of oil
equivalent, with net production of 514 barrels of oil equivalent per day in
2002.
After complying with the exploratory commitments for the first exploratory
period, the South Sokang block was abandoned in June 2002.
In January 2002, YPF International sold its most important investments in
Indonesia to CNOOC Southeast Asia Limited.
Bolivia
Effective as of July 2002, investments in Bolivia were transferred to
related companies of Repsol YPF. During the first six months of 2002, crude oil
production from the Bolivia fields averaged approximately 6 mbpd (net) and gas
production averaged approximately 5 mmcfpd (net).
United States
As of December 31, 2002, YPF had mineral rights in 25 exploratory blocks,
with a net surface area of 379 km2.
YPF's net petroleum production in the United States in 2002 was 0.1 million
barrels of oil equivalent. YPF's net proved reserves, as of December 31, 2002,
were 0.9 million barrels of oil equivalent. YPF finished one unsuccessful
exploratory well in 2002. In round 183 held in August 2002, YPF was awarded the
offshore-exploratory blocks GB-314 and GB-402 in the Gulf of Mexico.
Production and Sales
The following table sets forth YPF International's historical average net
daily crude oil and natural gas production by geographic area and average sales
prices and production costs for total production for the years ended December
31, 2002, 2001 and 2000.
For the Year Ended December 31,
---------------------------------
2002 2001 2000
--------- ---------- ---------
(thousands of barrels per day)
Crude oil production(1)
Indonesia.............................................................. -- 46 41
South America(2)....................................................... 3 15 25
-------- --------- --------
Total oil production................................................ 3 61 66
======== ========= ========
(millions of cubic feet per day)
Natural gas production(3)
United States.......................................................... 1 -- 3
Indonesia.............................................................. 3 61 63
South America(2)....................................................... 3 12 19
-------- --------- --------
Total gas production................................................ 7 73 85
======== ========= ========
Indonesia
Average Sales Price (US$)
Crude Oil (per barrel).................................................... 21.97 23.12 29.12
Natural Gas Liquids (per barrel).................................... -- 21.54 23.40
27
For the Year Ended December 31,
---------------------------------
2002 2001 2000
--------- ---------- ---------
(thousands of barrels per day)
Natural Gas Sold (per mcf)(3)....................................... 3.53 2.86 2.93
Natural Gas Produced (per mcf)(4)................................... 3.53 3.07 2.70
Average Production Cost (per barrel)(5)................................ 8.96 8.46 8.35
South America(6)
Average Sales Price Crude Oil (US$per barrel).......................... 22.07 26.34 18.65
Average Production Cost (per barrel)(5)................................ 1.82 1.18 2.98
- ------------------
(1) Includes crude oil and natural gas liquids.
(2) Information for the year 2002 includes Bolivia's first six month
operations. Information for the year 2001 includes Bolivia's operation for
the whole year and Venezuela's first six month operations. Information for
the years 2000 includes Bolivia, Ecuador and Venezuela production.
(3) Reflects the average amount of daily wellhead production.
(4) The average natural gas price for sales volumes is calculated by dividing
(a) total net sales value for all natural gas sold by YPF International,
including residue gas remaining after the removal of natural gas liquids,
by (b) the annual natural gas sales volume.
(5) The average natural gas price for produced volumes is calculated by
dividing (a) the total net value received from the sale of natural gas and
natural gas liquids produced by YPF International by (b) annual natural gas
production volume.
(6) Production or lifting cost is exclusive of depreciation and depletion
applicable to capitalized lease, acquisition, exploration and development
expenditures. Average production costs are calculated by dividing total
operating costs by the sum of crude oil and equivalent barrels of oil for
natural gas production.
Joint Ventures and Contractual Arrangements in Argentina
YPF participates in 14 joint ventures in areas in Argentina in which it
holds concessions. YPF's interests in these joint ventures range from 12.2% to
61.5%, although its obligations to share exploration and development costs vary
under these agreements. In addition, under the terms of some of these joint
ventures, YPF has agreed to indemnify its joint venture partners in the event
that YPF's rights with respect to such areas are restricted or affected in such
a way that the purpose of the joint venture cannot be achieved. For a list of
the exploration and production joint ventures in which YPF participates, see
Note 6 to the Consolidated Financial Statements.
YPF is also a party to a number of other contractual arrangements that
arose through the renegotiation of service contracts and risk contracts and
their conversion into production concessions and exploration permits,
respectively. In conjunction with the conversion of service contracts, YPF has
undertaken to provide certain services (principally transportation and
electricity) at rates below market prices (based upon the cost of the services
multiplied by the volumes of crude oil and natural gas that YPF estimates are
subject to the contractual obligation), or, in some instances, without payment,
for a period of 25 years for the crude oil or natural gas produced. YPF has
established a reserve with respect to its future obligations to provide such
services. The amount of this reserve is not material. As of December 31, 2002,
the effect on results of operations was not material and it is not expected to
be material in the future.
Natural Gas and Electricity Markets and Distribution
Natural Gas Markets and Distribution
Natural gas market
Natural gas market business involves the marketing of Exploration and
Production unit's natural gas production. The majority of revenues comes from
marketing fees calculated over total gas natural sales.
YPF estimates, based on preliminary figures, that natural gas delivered by
transport companies in Argentina totaled approximately 1,200 Bcf in 2002. From
1980 to 2002, the production of natural gas in Argentina has grown
significantly, increasing by approximately 241%, at an average annual rate of
6.0%. This increase is attributable, in part, to an increase in the number of
users connected to distribution systems from approximately 2.5 million in 1980
to approximately 6.1 million by 2002. YPF does not believe that the natural gas
market will continue to grow at the same rate as in the last twenty-two years.
28
Prior to 1993, all of YPF's gas production was delivered to Gas del Estado,
the state-owned entity that operated the gas transportation and distribution
system for the entire country of Argentina. YPF now sells approximately 46% of
its gas to eight local distribution companies, formed in connection with the
privatization of Gas del Estado in 1992, and approximately 54% to industries and
power plants. YPF's agreements with the distribution companies provide for the
sale of natural gas for a secondary term of five or ten years, ending in 2004
and 2009, respectively. These agreements provide for certain minimum and maximum
volumes of gas to be purchased by such distribution companies. Prices provided
for in the agreements vary with respect to each production basin and with
respect to the winter and summer seasons. Approximately 63% of natural gas sales
are produced in the Neuquen Basin.
Despite deregulation of producers' prices, prices to the distribution
companies' consumers remain subject to a regulated variable tariff that allows
the distribution companies to pass through to consumers the increase in the cost
of gas purchased by the distribution companies, unless, after notice to the
regulatory agency of the intention of a distribution company to increase prices
to consumers, such agency objects to such prices within 15 days before the
beginning of the seasonal period.
YPF's volumes sold directly to industrial users during 2002 represented 54%
of total natural gas sales volumes, the same percentage as in 2001. During 2002,
YPF's domestic natural gas sales volumes remained at the same level of 2001.
Although YPF believes that the traditional sources of domestic demand,
referred to above, will continue to require increasing quantities of natural
gas, the deliverable supply of gas in Argentina will significantly exceed
domestic demand for the foreseeable future. In addition, in connection with the
renegotiation of service contracts, entered into while YPF was a state-owned
company, YPF is obligated to purchase up to 219 mmcfpd of natural gas produced
from the Austral Basin fields for a period of ten years, which began in 1994.
The prices at which YPF is required to make these purchases vary, but have
exceeded, and are expected to continue to exceed, YPF's cost of producing such
quantities.
Most of YPF's proved natural gas reserves in Argentina are situated in the
Neuquen Basin (78%), which is strategically located in relation to the principal
market of Buenos Aires and is supported by sufficient pipeline capacity during
most of the year. Accordingly, YPF believes that natural gas from this region
has a competitive advantage compared to natural gas from other regions. In spite
of excess deliverability, the capacity of the natural gas pipelines in Argentina
has proven in the past to be inadequate at times to meet peak-day winter demand,
and there is no meaningful storage capacity in Argentina. During the 1994-2001
period, local pipeline companies added approximately 1,143 mmcfpd of new
capacity. No new capacity was added during 2002. See "--Seasonality of YPF's
Main Business" below.
Natural gas is delivered by YPF through its own gathering systems to the
trunk lines from each of the major basins. Although all of the firm capacity of
the natural gas transportation pipelines in Argentina is currently apportioned
among the distribution companies under ten-year firm transportation contracts
with the transportation companies, such allocations may be reduced by the
distribution companies over the term of the contracts. All of the available
capacity of the transportation pipelines is taken by firm customers only during
a few days in winter, leaving capacity available for interruptible customers in
varying degrees throughout the rest of the year. When pipeline capacity is
available, sales of natural gas on an interruptible basis are sometimes made
directly from producers to electrical generation plants and other large
customers. Firm capacity refers to transportation capacity reserved by a
customer (firm customer) under a service contract (firm contract) according to a
tariff schedule, regardless of whether the volumes actually transported are less
than the volumes provided for in the contract.
To accelerate the growth of natural gas sales and to strengthen its
position within the gas industry, YPF is actively involved in projects geared
towards developing its domestic and foreign natural gas markets:
o During December 1996, YPF began the first natural gas exports from
Argentina, delivering 37 mmcfpd to the Methanex Plant (methanol
producer) located in Cabo Negro-Punta Arenas in Chile under a
20-year contract. The natural gas supplied to the Methanex plant is
produced in the Austral Basin. In the second quarter of 1999, an
expansion of the Methanex plant increased the plant's supply
requirements to 159 mmcfpd, of which YPF supplies 92 mmcfpd.
29
o The Gas Andes pipeline linking Mendoza, Argentina, to Santiago,
Chile, with a transportation capacity of 353 mmcfpd, was brought on
line in August of 1997, carrying natural gas from the Neuquen Basin.
In August 1998, the San Isidro Electricity Company (Endesa) located
at Quillota, Chile, began operations using natural gas 100% supplied
by YPF. This was YPF's first export to Chile through Gas Andes.
Volumes averaged 42 mmcfpd. The contract is for a term of 15 years.
In 1999, YPF supplied the spot market requirements of the
electricity company Endesa (20.5 mmcfpd). In addition, since the end
of 1999, YPF supplies 20% of the natural gas requirements of the
electricity company Colbun (11 mmcfpd). This contract is for a term
of 15 years.
o In December 1999, Gasoducto del Pacifico, a consortium in which YPF
has a 10% interest, completed the construction of a natural gas
pipeline connecting Loma La Lata (Neuquen, Argentina) with Chile.
The pipeline has capacity of 318 mmcfpd and carries natural gas from
the Neuquen Basin. Since December 1999, YPF supplies, through
Gasoducto del Pacifico, 85% of the 61 mmcfpd total natural gas
requirements of a distribution company providing natural gas to
industrial clients. This contract is for a term of 17 years.
o In the second half of 1999, two natural gas pipelines, with carrying
capacity of 300 mmcfpd each, connecting Salta, Argentina, to Region
II in Chile, were brought on line. The pipelines carry natural gas
from the Noroeste Basin. Beginning in January 2000, YPF started
supplying natural gas to the thermal power plants in northern Chile
(84 mmcfpd) through the pipelines.
o During the last quarter of 1999 and for a twelve year period
thereafter, YPF started supplying 42 mmcfpd of natural gas (which
represents 50% of the natural gas requirements) to the Termoandes
power plant located in Salta, Argentina. The natural gas comes from
the Noroeste Basin. This power plant provides power to a high
voltage line running from Salta to Region II in Chile.
o Through the 560 mmcfpd natural gas pipeline, which links Aldea
Brasilera, Argentina, to Uruguayana, Brazil, YPF supplies AES'
thermal power plant with 60 mmcfpd of gas under a 20-year contract.
In the second half of 2000, YPF started delivering gas produced in
the Neuquen Basin.
o In November 1999, a Shareholders' Agreement was signed in Brazil for
the construction of a natural gas pipeline from Uruguayana to Porto
Alegre, Brazil, through a partnership among Gaspetro (25%), Ipiranga
(20%), Total (25%), Techint (15%) and YPF --through YPF Brasil--
(15%). The pipeline will have a capacity of approximately 420 mmcfpd
and is expected to be brought on line in 2004. In October 1998, YPF
signed an agreement with Petrobras to supply natural gas from the
Neuquen Basin to the pipeline project. Final terms are being
negotiated.
o YPF continues to analyze the possible utilization of natural
underground structures located near consuming markets as underground
natural gas storage facilities, with the objective of storing gas
during periods of low demand and selling the natural gas stored
during periods of high demand.
The most advanced gas storage project undertaken by YPF in Argentina is
"Diadema," which is located in Patagonia region, near Comodoro Rivadavia city,
and is currently in operation. The gas injection into the reservoir started in
January 2001, initiating the withdrawal process in August 2002.
YPF expects to initiate a gas injection pilot tests in October 2003 as part
of the Lunlunta Carrizal Project, located 60 Km South-East from Mendoza where a
depleted oil reservoir feasible for gas storage is located.
There can be no assurance that these projects will be completed on a timely
basis, if at all, nor can there be any assurance that these projects will be
successful in substantially increasing YPF's export sales of natural gas.
Natural gas distribution
YPF holds a 45.3% stake in GASA, which in turn holds a 70% stake in
Metrogas, a natural gas distributor in southern Buenos Aires and one of the main
distributors in the Argentina. During 2002, Metrogas sold approximately 203
billion cubic feet of natural gas to 1.9 million customers. In 2001, Metrogas
sold 223 billion cubic feet of gas to 1.9 million customers.
30
Liquid Natural Gas
Repsol YPF developed Mega, a project to increase its ability to separate
liquid petroleum products from natural gas, and expects to develop transport and
distribution networks for these products. Mega allows YPF, through the
fractioning of gas liquid, to increase production at the Loma La Lata gas field
by approximately 5.0 million cubic meters per day.
YPF owns 38% of Mega, while Petrobras and Dow Chemical have 34% and 28%
stakes, respectively.
Mega includes:
o A separation plant, located in Loma La Lata, in the Province of
Neuquen.
o A natural gas liquids fractioning plant that produces ethane,
propane butane and natural gasolines. This plant is located in the
city of Bahia Blanca in the Province of Buenos Aires.
o A pipeline that links both plants and that transports natural gas
liquids.
o Transportation, storage and port facilities in the proximity of the
fractioning plant.
Mega required an investment of approximately US$715 million and commenced
operations at the beginning of 2001. Mega's maximum production capacity is 1.35
million annual tonnes of gasoline, LPG and ethane. YPF is Mega's main supplier
of natural gas. The fractioning plant production is used in Repsol YPF
petrochemical operations and is also exported by tanker to Brazil.
Electricity Market
Generation
YPF holds participating interests in the following four power stations with
an aggregate installed capacity of 1,685MW:
o Central Termica Tucuman (45%) (410 MW combined cycle);
o Central Termica San Miguel de Tucuman (45%) (370 MW combined cycle);
o Filo Morado (50%) (63 MW);
o Central Dock Sud (38%) (775 MW combined cycle and 67 MW gas
turbines).
In 2002, these plants together sold approximately 7,136 GWh and generated
5,982 GWh.
In August 2002, Central Termica San Miguel de Tucuman commenced comercial
operations of the combined cycle power plant (370MW).
YPF also operates the following power plants, supplied with natural gas
produced by YPF, which generate power for use by YPF in other business units:
o Los Perales power plant (74 MW), located in the Los Perales natural
gas field,
o Chihuido de la Sierra Negra power plant (40 MW), and
o The power plant located at the Plaza Huincul refinery (40 MW).
31
Refining and Marketing
During 2002, YPF's Refining and Marketing activities included crude oil
refining and transportation, and the marketing and transportation of refined
fuels, lubricants, LPG, compressed natural gas and other refined petroleum
products in wholesale, retail and export markets.
During 2002, Refining and Marketing segment was organized into the
following Divisions:
o Refining Division;
o Logistic Division;
o Marketing Division:
o Retail Division;
o Wholesale Division;
o Lubricants and Derivatives Division; and
o LPG General Division.
YPF markets a wide range of refined petroleum products throughout Argentina
through an extensive network of sales personnel, YPF-owned and independent
distributors, and a broad retail distribution system. In addition, YPF exports
refined products, mainly from the port at La Plata. The refined petroleum
products marketed by YPF include gasoline, diesel, jet fuel, kerosene, heavy
fuel oil and other crude oil products, such as motor oils, industrial
lubricants, LPG, asphalts and naphthas.
Refining Division:
YPF wholly owns and operates three refineries:
o La Plata Refinery, located in the Province of Buenos Aires;
o Lujan de Cuyo Refinery, located in the Province of Mendoza; and
o Plaza Huincul Refinery, located in the Province of Neuquen (together
referred to as the "Refineries").
YPF's refineries have an aggregate refining capacity of approximately
319,500 barrels per calendar day. The refineries are strategically located along
YPF's crude oil pipeline and product pipeline distribution systems. In 2002,
91.2% of the crude oil and feedstocks processed by YPF's Refineries was supplied
by YPF's Exploration and Production operations; the balance was purchased from
third parties. YPF also owns a 50% interest in a 28,500 barrel per calendar day
refinery located in the Province of Salta, known as Campo Duran.
The following table sets forth the throughputs and production yields for
YPF's refineries for each of the three years ended December 31, 2002:
For the Year Ended December 31,
----------------------------------
2002 2001 2000
--------- ---------- -----------
(millions of barrels)
Throughput crude/Feedstock................................................ 110.7 109.4 110.7
Production
Diesel fuel............................................................... 43.1 45.1 44.5
Gasoline.................................................................. 33.8 33.2 33.4
Jet fuel.................................................................. 7.0 6.3 7.5
Kerosene.................................................................. 0.3 -- 0.02
Base oils................................................................. 3.0 3.8 3.9
32
For the Year Ended December 31,
----------------------------------
2002 2001 2000
--------- ---------- -----------
(thousands of tonnes)
Fuel oil.................................................................. 606 600 432
Coke...................................................................... 1074 1,028 1,011
LPG....................................................................... 661 710 714
Asphalt................................................................... 90 171 223
Petrochemicals............................................................ n/a 45 48
In 2002, overall volumes of crude oil processed increased by 2% as
compared to 2001 reflecting a slightly higher products exportation in response
to lower tax duties on products exports as compared to crude oil exports. The
sales in foreign markets increased and were helped by gasoline and diesel
spreads. Refinery capacity utilization in 2002 reached 89.8%, compared with 87%
in 2001 and 87% in 2000.
The La Plata Refinery is the largest refinery in Argentina, with capacity
of 189,000 barrels of crude oil per calendar day. The refinery includes three
distillation units, two vacuum distillation units, two catalytic cracking units,
two coking units, a coker and naphtha hydrotreater unit, a platforming unit, a
gasoline hydrotreater, a diesel hydrofinishing unit, an isomerization unit and a
lubricants complex.The refinery is located at the port in the city of La Plata,
in the Province of Buenos Aires, approximately 60 kilometers from the city of
Buenos Aires. In 2002, the refinery processed approximately 160,000 barrels of
crude oil per calendar day. The capacity utilization rate at the La Plata
Refinery for 2002 is similar as compared to 2001. The crude oil processed at the
La Plata Refinery comes mainly from YPF's own production in the Neuquen and
Golfo de San Jorge Basins. Crude oil supplies for the La Plata Refinery are
transported from the Neuquen Basin by pipeline and from the Golfo de San Jorge
Basin by vessel in each case to Puerto Rosales and then by pipeline from Puerto
Rosales to the refinery.
YPF has been implementing an environmental program to address contamination
generated prior to YPF's privatization, with particular emphasis on effluents.
The construction of Claus plants for sulfur recovery was concluded in 1999. In
2002 the projects "Integral Treatment of Liquid Effluents" at La Plata Refinery
(RLP), and "Integral Adapting of Effluent Treatment System" at Lujan de Cuyo
Refinery (RLC) were approved for US$15 million. Construction at RLP started
during 2002, and construction at RLC will be starting in 2003.
The Lujan de Cuyo Refinery has an installed capacity of 105,500 barrels per
calendar day, the third largest capacity among Argentinean refineries. The
refinery includes two distillation units, a vacuum distillation unit, two coking
units, one catalytic cracking units, a platforming unit, an MTBE unit, an
isomerization unit, an alkylation unit, and hydrocracking and hydrotreating
units. In 2002, the refinery processed approximately 107,400 barrels of crude
oil per calendar day. The capacity utilization rate for 2002 increased as
compared to 2001. However, total installed capacity decreased by 14,500 barrels
per calendar day, due to the abandonment in August 2002 of a topping unit due to
obsolescence. Because of its location in the western Province of Mendoza and its
proximity to significant distribution terminals owned by YPF, the Lujan de Cuyo
Refinery has become the facility primarily responsible for providing the central
provinces of Argentina with petroleum products for domestic consumption. The
Lujan de Cuyo Refinery receives crude for processing from the Neuquen and Cuyana
Basins by pipeline directly into the refinery. Approximately 90% of the crude
oil processed at the Lujan de Cuyo Refinery is produced by YPF. Most of the
crude purchased from third parties comes from fields in Neuquen or Mendoza.
The Plaza Huincul Refinery, located near the town of Plaza Huincul in the
Province of Neuquen, reached a capacity of 25,000 barrels per calendar day. In
2002, the refinery processed approximately 26,900 barrels of crude oil per
calendar day. The increase in crude oil processed reflects the use of lighter
crude oil than that for which the facilities were designed. The only products
currently produced commercially at the refinery are gasoline, diesel fuel and
jet fuel, which are sold primarily in the nearby areas and in the southern
regions of Argentina. Heavier products, to the extent production exceeds local
demand, are blended with crude oil and transported by pipeline from the refinery
to the La Plata Refinery for further processing. The Plaza Huincul Refinery
receives its crude supplies from the Neuquen Basin by pipeline. Crude oil
processed at the Plaza Huincul Refinery is produced by YPF.
33
As part of the Transformation Plan, which began in the early 1990s and was
largely completed by mid-1993, YPF has continued to undertake projects aimed at
improving both the operating efficiency of the La Plata and the Lujan de Cuyo
refineries and the quality of their outputs.
During 1997 and 1998, each of the Refineries, YPF's La Plata petrochemical
plant and YPF's Applied Technology Center were certified under ISO 9002 and ISO
14000 (environmental performance). The Plaza Huincul Refinery was awarded the
"Merit Prize" by the "Consejo Interamericano de Seguridad" (Pan American Safety
Council) for reducing the injury frequency rate.
Capital expenditures for 2002 efficiency and environmental projects and
other improvements at the three refineries were Ps.162 million.
Logistic Division
Crude Oil and Products Transportation and Storage
YPF transports crude oil from production areas to the refineries or to the
ports through five major pipelines, two of which are wholly owned by YPF. The
crude oil transportation network includes nearly 2,700 kilometers of crude oil
pipelines with approximately 620,000 barrels of aggregate daily transportation
capacity of refined products. YPF has total crude oil tankage of approximately 7
million barrels and maintains terminal facilities at five Argentine ports.
Information with respect to YPF's network of crude oil pipelines is set
forth in the table below.
Length Daily Capacity
From To YPF Interest (km) (bpd)
- ----------------------------- ------------------------------------------ -------------- ------- ---------------
Puesto Hernandez Lujan de Cuyo Refinery 100% 528 75,000
Puerto Rosales La Plata Refinery 100% 585 316,000
La Plata Refinery Dock Sud 100% 50 106,000
Brandsen Campana 30% 168 120,700
Allen Puerto Rosales 37% 513(1) 232,000
Puesto Hernandez Concepcion (Chile) 18% 430 114,000
- ------------------
(1) Includes two parallel pipelines of 513 kilometers, each with a combined
daily throughput of 232,000 barrels.
In order to ease pipeline capacity constraints in the Neuquen Basin, where
almost half of YPF's proved oil reserves are located, YPF entered in February
1994 into a joint venture to build the Transandean Pipeline as a means of
increasing oil exports. The pipeline commenced operation in February 1994. As of
December 31, 2002 YPF's joint venture participation was 18%, while Empresa
Nacional de Petroleo ("ENAP"), the national Chilean state oil company, held
18.25%, Unocal owned 27.75% and Encana owned 36%.
YPF also owns a plant for the storage and distribution of crude oil in the
province of Formosa, and owns 33.15% of Termap, operator of two storage and port
facilities: Caleta Cordova (province of Chubut) with a capacity of 264,000 cubic
meters, and Caleta Olivia (province of Santa Cruz) with a capacity of 246,000
cubic metres. Finally, YPF also has a 30% interest in Oiltanking Ebytem,
operator of the maritime Terminal of Puerto Rosales with a capacity of 480,000
cubic metres.
YPF believes that its refined products pipeline system provides a reliable
pathway for the output of its two main refineries to get to the points of sale.
Aggregate throughput for the products pipeline system, which is approximately
1,801 kilometers in length, is approximately 175,000 bpd. Most of YPF's pumping
stations and line blocking valves are operated through a Supervisory Control and
Data Acquisition System (SCADA) that allows for safer and more efficient
management of the pipeline distribution system. YPF's transportation system was
re-certified under ISO 9001-9002 and ISO 14.000 during 2002.
YPF's Logistics Operations include 54 airport facilities, 16 product
terminals for the storage and distribution of refined products with an
approximate operative capacity of 970 thousand cubic meters, 15 of which are
strategically located throughout Argentina, with an aggregate refined-products
transportation capacity of over 6.2 million barrels of refined products, 10
ports, 27 company-owned trucks and 750 trucks owned and operated by third
parties.
34
Those facilities provide a flexible country-wide distribution system and
satisfy the growing needs of exports to foreign markets, mainly neighboring
countries and the United States of America. Products are shipped mainly by
truck, ship or river barge.
Marketing Division
Domestic Division
Through the Marketing Division, YPF markets gasoline and other petroleum
products to domestic retail and wholesale customers. In 2002, retail, wholesale
and lubricants and derivatives directions and aviation sales in Argentina
reached Ps.1.4 billion, representing 46% of Refining and Marketing consolidated
revenues, with Ps.0.8 billion generated by retail customers.
As of December 31, 2002, the Retail Direction's sales network in Argentina
included 1,908 retail service stations (133 of which are directly owned by YPF,
25 are leased to ACA (Automovil Club Argentino) and the remainder are affiliated
service stations). OPESSA (a 100% subsidiary of YPF) operates 131 of our retail
service stations, 106 of which are directly owned by us and 25 are leased to
ACA. Twenty seven of our directly-owned stations are operated by third parties.
Despite the decrease in number of service stations, YPF slightly increased
its market share in the diesel and gasoline markets to 49.7% in 2002 from 45.5%
in 2001 and 46.4 in 2000. YPF will continue its efforts to eliminate
unprofitable or non-strategic existing stations, and dealer-operated stations,
which do not comply with contract requirements.
The "Red XXI" marketing program, launched in October 1997, which has
significantly improved operational efficiency and provided YPF with immediate
performance data provided by each station, is aiming to connect close to 100% of
its service stations network. Currently, 1,387 stations are linked to the
Red XXI system, with plans to add approximately 62 further stations in 2003.
YPF has continued developing its technical seminars and courses for station
personnel and employees in order to improve the quality of services currently
provided by service stations. In 2002, approximately 11,185 service station
employees participated in training courses throughout the year.
In 2002, 34 stations were ISO 9001 certified after undergoing certification
audits, adding to the 29 certified in 2001 and 175 certified during 2000. YPF
also certified ISO 14001 in 18 OPESSA stations and 10 ACA stations during 2002.
Currently, 443 stations are ISO 9001 certified and 163 stations are ISO 14001
certified.
In 2000, the Division of Lubricants and Derivatives for Latin America
assumed responsibility for the whole operation of the existing Derived Products
Division, which includes asphalt, paraffin, decanted oil and carbon dioxide. The
Division is ISO 9001: 2000 certified and TS16949 certified. The Lubricants
Production Unit is ISO 14001 certified.
During 2002, YPF's lubricant local sales totaled Ps.170 million compared to
Ps.240 million in 2001. Lubricant products are primarily automotive oils and
fluids, industrial lubricants, base oils and greases and are sold by YPF through
both branded and unbranded distributors and directly to large industrial
customers. Most of these lubricants are produced at a modern lubricant complex
at the La Plata Refinery. Some of these products are then sent from La Plata
Refinery to a refinery for blending and filling operations on a contract basis
pursuant to YPF specifications. Greases are also produced under contract.
The lubricants market in Argentina has been deregulated since 1990 and is
highly competitive. In 2002, the lubricants market in Argentina decreased 1.7%
and YPF sales also decreased 2.3% reflecting a general trend in the lubricants
market since 1999. YPF maintained its position as the market leader with a 38%
share of the domestic market (industrial and automotive lubricants and greases).
Domestic automotive manufacturers Ford, Volkswagen, Mazda, Scania, Seat and
Porsche (OEMs), which represent 33% of the automotive lubricant market,
exclusively use and recommend YPF lubricants products, and also Honda Argentina
Motorcycles use Repsol YPF lubricants products exclusively.
35
Lubricant and derivatives exports from Argentina grew 48% in 2002. This
increase was due to the successful implementation of an international plan
launched in 1998. Through this plan, exports and local operations grew steadily
and the market share grew in most of the South American countries. This
development was also boosted by the full utilization of the existing Repsol YPF
operations in each region. The South American countries with lubricants
operations are: Brazil, Chile, Uruguay, Paraguay, Bolivia, Peru, Ecuador,
Colombia, Panama, Costa Rica, Honduras, and Dominican Republic.
YPF's sales to the agricultural sector are principally conducted through
distributors, six of which are owned by YPF. During 2002 the Wholesale Division
consolidated a distribution network through more than one hundred exclusive
distribution contracts with independent distributors from all regions of
Argentina.
Sales to transportation, industrial, utility, and mining sectors are made
primarily through YPF's direct selling efforts. The main products sold in the
domestic wholesale market include diesel fuel, and fuel oil.
In December 2002 the Wholesale Division obtained the ISO 9001 certification
covering the design, operation, marketing, customer service and management
processes.
Sales to the aviation sector are made directly by YPF. The products sold in
this market are jet fuel and aviation gasoline.
International Marketing Division
In addition to further developing its presence in the domestic service
station market and other downstream markets, Repsol YPF has sought to expand its
retail activities to other areas of South America as part of a strategy to
generate additional demand for its products and new business opportunities. The
companies involved in those activities could be affiliates of either YPF or
Repsol YPF.
Chile
During the first quarter of 2002, YPF sold its interests in YPF Chile and
its subsidiaries to Repsol YPF, according to Repsol YPF's worldwide assets
reorganization and disinvestment plan.
International Trade
The International Trade Division sells crude oil and refined products to
international customers and domestic oil companies. Sales to international
companies for 2002 totaled US$1,622 million, 57% of which represented sales of
refined products and the remaining 43% represented crude oil deliveries. On a
volume basis, sales consisted of 35.4 million barrels of crude oil and 34.4
million barrels of refined products. Exports include crude oil, unleaded
gasoline, diesel fuel, fuel oil, liquefied petroleum gases, light naphtha,
virgin naphtha, and base oils. YPF sells in the export market directly and
through traders mainly to neighboring countries (Brazil, Chile and Paraguay) and
the United States. Domestic sales of crude oil, which are managed by the
International Market Division, reached US$282 million in 2002.
International Distribution
In December 1998, YPF purchased 51% of Global Companies from Global
Petroleum Corporation for US$28.4 million. Global is a leading importer of
refined petroleum products for resale and distribution throughout the United
States.
Global Companies controls eight deep-water storage facilities on the East
Coast of the United States, and has over 4 million barrels of storage capacity.
Global Companies conducts sales through additional 45 terminals located
predominantly throughout the Northeast and the Mid-Atlantic regions of the
United States. Global Companies is also involved in the distribution of heating
oil, kerosene, gasoline, diesel fuel, residual oil, aviation fuel and natural
gas, with annual 2002 sales of US$812.4 million. YPF's Board of Directors has
approved the divestiture of YPF's interest in Global Companies. See "--History
and Development of YPF--Deregulation, Privatization and Recent Developments"
above.
36
LPG General Division
Production
YPF is one of the largest LPG producers in Argentina, with a yearly
production of 787,230 tonnes for 2002, which represents approximately 32.4% of
total LPG production in Argentina.
YPF obtains LPG from natural gas processing plants and from its refineries
and petrochemical plants as detailed in the following tables:
Production
(tonnes)
----------
LPG from Natural Gas:(1)
Loma La Lata....................................................... 18,800
General Cerri...................................................... 45,130
San Sebastian...................................................... 14,900
---------
Total......................................................... 78,830
=========
- ------------------
(1) YPF SA owns 30% of San Sebastian plant; Loma La Lata is 100% owned by YPF;
General Cerri belongs to a third party, having a facon with YPF.
Production
(tonnes)
----------
LPG from Refineries & Petrochemical Plants:
La Plata Refinery.................................................. 440,800
Lujan de Cuyo Refinery............................................. 217,600
Petroquimica La Plata.............................................. 50,000
---------
Total production................................................... 787,230
=========
Marketing
YPF sells LPG to the foreign market, domestic wholesale market and domestic
retail market. The share in the domestic retail market in 2002 was approximately
35.4%, including bottled and bulk sales to the residential and industrial
markets.
YPF 2002 LPG sales can be broken down by market as follows:
Sales
Capacity
(tonnes)
----------
Domestic market
Retail (Repsol YPF Gas)............................................ 319,355
To Other bottlers.................................................. 95,496
Other Wholesales................................................... 12,293
Foreign market
Exports............................................................ 383,856
---------
Total Sales........................................................ 811,000
=========
Total sales of LPG to both domestic and foreign markets reached US$174.3
million in 2002.
Chemicals
Petrochemicals are produced at five different facilities at YPF's
petrochemical complex in Ensenada and Plaza Huincul.
YPF's petrochemical production operations in Ensenada are closely
integrated with YPF's refining activities (La Plata Refinery). This close
integration allows for a flexible supply of feedstock, the efficient use of
byproducts (such as hydrogen) and others synergies.
37
The main petrochemical products and production capacity per year are as
follows:
Capacity
(tonnes per
Site Ensenada Main products year)
----------------------------------------------------- ------------
Aromatics............................ BTX (Benzene, Toluene, Mixed Xylenes)................ 244,000
Paraxylene........................................... 38,000
Orthoxylene.......................................... 25,000
Cyclohexane.......................................... 95,000
Solvents............................................. 81,500
Olefins Derivatives.................. MTBE................................................. 60,000
Butene I............................................. 25,000
Oxoalcohols.......................................... 35,000
TAME................................................. 105,000
LAB/LAS.............................. LAB.................................................. 48,000
LAS.................................................. 25,000
Polybutenes.......................... PIB.................................................. 26,000
Maleic............................... Maleic Anhydride..................................... 17,500
Site Plaza Huincul
Methanol............................................. 411,000
Production from the Methanol unit during 2002 was destined to exports
(47%), YPF's internal consumption as feedstock for MTBE and Tame at Ensenada
and MTBE at Lujan de Cuyo (50%) and the local market (2.8%).
The raw materials for petrochemical production in Ensenada, including
Virgin Naphtha, Propane, Butane, and Kerosene, are supplied mainly by La Plata
Refinery.
In 2002 petrochemicals sales were Ps.703 million, with the domestic market
accounting for 56% (42 % to local market and 14% to the refining unit and the
GLP unit) and exports for 44%. During 2002, the exports were destined to
Mercosur countries, Latin American countries, Europe and the United States.
YPF produces, distributes and markets petrochemical products through the
following affiliated companies:
Petroken: a 50% subsidiary of YPF, produces polypropylene in Ensenada.
Petroken's total annual capacity is 170 thousands of tonnes. YPF has a long-term
raw material supply contract with Petroken and is currently Petroken's principal
supplier of propylene.
PBBPolisur: PBB (Petroquimica Bahia Blanca) and Polisur Companies merged on
September 3, 2001, to form a new company named PBBPolisur, in which YPF holds a
28% interest. PBBPolisur is leader in the production of ethylene and several
types of polyethylene. Dow Chemical manages PBBPolisur and is a leader in the
polyethylene industry. PBBPolisur plants have a capacity to produce 700,000
tonnes per year of ethylene and 600,000 tonnes per year of polyethylene.
Ethylene is produced in an ethane based cracker, being Mega (a 38 % subsidiary
of YPF) one of PBBPolisur's main suppliers of feedstock (ethane).
Profertil: a 50% subsidiary of YPF, produces urea and ammonia. Profertil's
total annual capacity is 1,024 thousands of tonnes of urea and 676 thousands of
tonnes of ammonia. YPF is Profertil's principal supplier of natural gas,
supplying approximately 50 % of Profertil's feedstock.
In 2002, the methanol unit started operations in Plaza Huincul. Natural
Gas, raw material for methanol, is supplied by YPF's upstream unit.
Profertil's a 50/50 joint venture between YPF and Agrium, a worldwide
leader in fertilizers started operations in 2001. This plant and the methanol
unit in Plaza Huincul's refinery, use natural gas as raw material and make
possible the monetization of reserves, being examples of integration between the
petrochemical and upstream units.
In 2002, YPF's fertilizers retail activities were integrated into the
Industrial Business Unit. The fertilizers sold are supplied by Profertil (urea)
or imported (phosphorus and potassium based fertilizers).
38
Repsol YPF's presence has strengthened YPF's position in the global
markets, improving YPF's access to these markets due to a better negotiating
position derived from its ability to offer a more complete portfolio of products
and a sales force of its own, now located in regions previously served only by
distributors.
Competition
The deregulation and privatization process created a competitive
environment in the Argentine oil and gas industry. In its Exploration and
Production business, YPF encounters competition from major international oil
companies and other domestic oil companies in acquiring exploration permits and
production concessions. In its Refining and Marketing and Petrochemicals
business, YPF faces competition from several major international oil companies,
such as Esso (a subsidiary of Exxon) and Shell, as well as several domestic oil
companies. In export markets, YPF competes with numerous oil companies and
trading companies in global markets.
YPF expects increasing levels of competition in the Argentine downstream
industry and the crude oil and natural gas production industry. Crude oil prices
are subject to international supply and demand and, accordingly, may fluctuate
for a variety of reasons. Changes in the price of crude oil will have a direct
effect on YPF's results of operations and on its levels of capital expenditures.
See "Item 3: Key Information--Risk Factors--Fluctuations in Oil and Gas Prices
Affect Our Level of Capital Expenditures."
Environmental Matters
YPF
YPF's operations are subject to a wide range of laws and regulations
relating to the protection of the environment. In Argentina, local, provincial
and national authorities are moving toward more stringent enforcement of
applicable laws. In addition, since 1997, Argentina has been implementing
regulations that require YPF's operations to meet stricter environmental
standards and that are comparable in many respects to those in effect in the
United States and in countries within the European Community. These regulations
establish the general framework for environmental protection requirements,
including the establishment of fines and criminal penalties for their violation.
YPF has undertaken what is likely to be required to achieve compliance with
these standards and is undertaking various abatement and remediation projects,
the more significant of which are discussed below. YPF cannot predict what
environmental legislation or regulation will be enacted in the future or how
existing or future laws will be administered or enforced. Compliance with more
stringent laws or regulations, as well as more vigorous enforcement policies of
regulatory agencies, could in the future require additional material
expenditures by YPF for the installation and operation of systems and equipment
for remedial measures and could affect YPF's operations generally.
As part of the environmental legislation, each producer, transporter,
storer, handler and disposer of hazardous waste that conducts interstate
business or whose activities affect the environment of another province or
territory under federal jurisdiction is required to register in a national
registry and in certain provincial registries of producers and handlers of
hazardous wastes. Each producer of hazardous waste is required to pay an annual
fee, based on the level of hazardous wastes produced and on the earnings of such
entity relating to such activity. Pursuant to this legislation, YPF accrued a
fee of approximately US$234,375.
At each of its refineries, YPF is continuing remedial investigations and
feasibility studies and pollution abatements projects, which are designed to
control liquid effluent discharges and air emissions. In its Exploration and
Production operations in Argentina, during 2001, YPF finished projects relating
principally to the handling, treatment and disposal of production water. YPF's
early compliance with these regulations allowed it to reinject 100% of water
production and venting of natural gas was reduced to a minimum.
YPF has implemented an environmental management system to assist its
efforts to collect and analyze environmental data in its upstream and downstream
operations.
39
YPF has begun to implement a broad range of environmental projects in the
Domestic Exploration and Production and Refining and Marketing businesses.
Capital expenditures associated with Refining and Marketing projects are
currently estimated to reach approximately US$51,5 million, during the period
from 2002 through 2006, with approximately US$14,48 million spent during 2002. A
significant portion of the environmental program is dedicated to La Plata
Refinery and Lujan de Cuyo Refinery. The primary projects at La Plata include
installation of water treatment and separation systems to replace existing
systems, air pollution control devices, gas recovery systems, hydrocarbon
recovery and incineration systems, process recovery measures and site
remediation. Domestic Exploration and Production projects for 2002 were
approximately Ps.10 million and include oil recovery systems and remediation of
well sites, tank batteries and oil spills in the gathering systems of fields.
Investments would also be made to improve technical assistance and training and
to establish environmental contamination remediation plans, air emissions
monitoring plans and ground water investigation and monitoring programs. YPF
believes that the estimated capital expenditures in 2003 and its existing
reserve for remediation expenses should be sufficient to permit it to comply
with evolving environmental regulations, although future changes in laws or
technology could cause a revision of such estimates. YPF does not expect such
changes to have significant impact on YPF's financial position, although changes
in projected expenditures, as a result of changes in management's plans or in
Argentine laws and regulations, may affect results of operations in any given
year.
Several companies operating industrial facilities in the La Plata area,
including YPF are developing a study of air and water emissions in the La Plata
area, pursuant to an agreement signed with the Secretary of Environmental
Affairs of the Province of Buenos Aires. The objective of the study is to
develop and implement a program to monitor air and water contamination and to
assist these companies in substantially reducing air and water caused by their
facilities in the La Plata area. In addition, YPF and several other industrial
companies operating in the La Plata area have entered into a community emergency
response agreement with three municipalities and local hospitals, firefighters
and other health and safety service providers to implement an emergency response
program. This program is intended to prevent damages and losses resulting from
accidents and emergencies, including environmental emergencies. Similar projects
and agreements were developed at other refineries as well.
Concerning Environmental Quality of Products, YPF SA will schedule the
required actions to comply with the new specifications set in the agreement
reached by Resolucion de la Secretaria Energia 222/01. Expected capital
expenditures associated with this project are approximately US$500 million.
In 1991, YPF entered into an agreement (Convenio de Cooperacion
Interempresarial or CCI) with certain other oil and gas companies for the
implementation of a plan to reduce and assess environmental damage resulting
from oil spills in Argentine waters to reduce the environmental impact of
potential oil spills offshore. This agreement involves consulting on
technological matters and mutual assistance in the event of any oil spills in
rivers or at sea, due to accidents involving tankers or offshore exploration and
production facilities. During 2002, YPF and the other oil companies party to
this agreement, continued negotiating a final agreement with the Argentine Coast
Guard (P.N.A.), that seeks to achieve a more efficient use of the available
resources. One of the benefits of this agreement is that it will allow for a
more efficient response to an oil-spill produced during vessel loading and
unloading operations in YPF's facilities or during transit. Shell and Esso, also
parties to the CCI, have signed similar agreements with the PNA.
YPF Holdings
Laws and regulations relating to health and environmental quality in the
United States, affect nearly all of the operations of YPF Holdings. These laws
and regulations set various standards regulating certain aspects of health and
environmental quality, provide for penalties and other liabilities for the
violation of such standards and establish in certain circumstances remedial
obligations. In addition, especially stringent measures and special provisions
may be appropriate or required in environmentally sensitive foreign areas of
operation.
Some risk of environmental and other damage is, however, inherent in
particular operations of YPF Holdings and, as discussed below, Maxus Energy
Corporation, a wholly-owned subsidiary of YPF Holdings ("Maxus") has certain
potential liabilities associated with former operations. YPF Holdings cannot
predict what environmental legislation or regulations will be enacted in the
future or how existing or future laws or regulations will be administered or
enforced. Compliance with more stringent laws or regulations, as well as more
vigorous enforcement policies of the regulatory agencies, could in the future
require material expenditures by YPF Holdings for the installation and operation
of systems and equipment for remedial measures and in certain other respects.
Certain laws also allow for recovery of natural resource damages from
potentially responsible parties and ordering the implementation of interim
remedies to abate an imminent and substantial endangerment to the environment.
Potential expenditures for any such actions cannot be reasonably estimated.
40
In connection with the sale of Maxus' former chemical subsidiary, Diamond
Shamrock Chemicals Company ("Chemicals"), to Occidental Petroleum Corporation
("Occidental") in 1986, Maxus agreed to indemnify Chemicals and Occidental from
and against certain liabilities relating to the business or activities of
Chemicals prior to the September 4, 1986 closing date (the "Closing Date"),
including certain environmental liabilities relating to certain chemical plants
and waste disposal sites used by Chemicals prior to the Closing Date.
In addition, under the agreement pursuant to which Maxus sold Chemicals to
Occidental, Maxus is obligated to indemnify Chemicals and Occidental for 50% of
certain environmental costs incurred on projects involving remedial activities
relating to chemical plant sites or other property used in the conduct of the
business of Chemicals as of the Closing Date and for any period of time
following the Closing Date which relate to, result from or arise out of
conditions, events or circumstances discovered by Chemicals and as to which
Chemicals provided written notice prior to September 4, 1996, irrespective of
when Chemicals incurs and gives notice of such costs, with Maxus' aggregate
exposure for this cost sharing being limited to US$75 million. Henkel
Corporation was assigned certain of Chemicals' and Occidental's rights and
obligations under such indemnity. The total expended by the Company under this
cost sharing arrangement was approximately US$60 million as of December 31,
2002. The remaining portion of this cost sharing has been reserved.
At December 31, 2002, reserves for the environmental contingencies
discussed in this section totaled approximately US$77.6 million. YPF Holdings
believes it has adequately reserved for all environmental contingencies that are
probable and can be reasonably estimated; however, changes in circumstances and
project developments could result in changes, including additions, to such
reserves in the future.
In the following discussion concerning plant sites and third party sites,
references to YPF Holdings include, as appropriate, references to Maxus and
Tierra Solutions, Inc. ("Tierra"). Tierra is also a subsidiary of YPF Holdings
and has assumed certain of Maxus' obligations.
Newark, New Jersey. A consent decree, previously agreed upon by the U.S.
Environmental Protection Agency (the "EPA"), the New Jersey Department of
Environmental Protection and Energy (the "DEP") and Occidental, as successor to
Chemicals, was entered in 1990 by the United States District Court of New Jersey
and required implementation of a remedial action plan at Chemicals' former,
agricultural chemicals plant located in Newark, New Jersey. In 1998, the EPA
approved the remedial design. The construction of the approved remedy was
completed in early 2002 at an approximate cost of US$18.7 million. The facility
is in an optimization phase, which is expected to continue through mid-2003. The
work is being supervised and paid for by Tierra pursuant to the above described
indemnification obligation to Occidental. YPF Holdings has fully reserved the
estimated costs required to complete the optimization phase and thereafter to
conduct ongoing operation and maintenance of such remedy averaging approximately
US$1 million annually for ten years.
Passaic River, New Jersey. Studies have indicated that sediments of the
Newark Bay watershed, including the Passaic River adjacent to the former Newark
plant, are contaminated with hazardous chemicals from many sources. These
studies suggest that the older and more contaminated sediments located adjacent
to the former Newark plant generally are buried under more recent sediment
deposits. Maxus, on behalf of Occidental, negotiated an agreement with the EPA
under which Tierra is conducting further testing and studies to characterize
contaminated sediment and biota in a six-mile portion of the Passaic River near
the plant site. The stability of the sediments in the entire six-mile portion of
the Passaic River study area is also being examined as a part of Tierra's
studies. YPF Holdings currently expects the testing and studies to be completed
in 2003 and cost approximately US$3 million after December 31, 2002, which
amount has been fully reserved. YPF Holdings has reserved for the amount of the
estimated remaining costs to be incurred by it in performing these studies.
Maxus and Tierra have been conducting similar studies under their own auspices
for several years. An additional US$3.5 million has been reserved in connection
with continuing such other studies and related matters. Until these studies are
completed and evaluated, YPF Holdings cannot reasonably forecast what regulatory
program, if any, will be proposed for the Passaic River or the Newark Bay
watershed and, therefore, cannot estimate what additional costs, if any, will be
required to be incurred. However, it is possible that additional work, including
interim remedial measures, may be ordered with respect to the Passaic River.
41
Hudson County, New Jersey. Until 1972, Chemicals operated a chromite ore
processing plant at Kearny, New Jersey. According to the DEP, wastes from these
ore processing operations were used as fill material at a number of sites in and
near Hudson County.
The DEP and Occidental, as successor to Chemicals, signed an administrative
consent order with the DEP in 1990 for investigation and remediation work at
certain chromite ore residue sites in Kearny and Secaucus, New Jersey. The work
is presently being performed by Tierra on behalf of Occidental, and Tierra is
funding Occidental's share of the cost of investigation and remediation of these
sites. Tierra may provide financial assurance for performance of the work in the
form of a self-guarantee from an affiliate or a bond. Currently, the required
financial assurance is provided through a self-guarantee in the amount of US$20
million. This financial assurance may be reduced with the approval of the DEP
following any annual cost review. While Tierra has participated in the cost of
studies and is implementing interim remedial actions and conducting remedial
investigations, the ultimate cost of remediation is uncertain. Tierra submitted
its remedial investigation reports to the DEP in late 2001, and the DEP is
reviewing these reports. The results of the DEP's review of these reports could
increase the cost of any further remediation that may be required. YPF Holdings
has reserved its best estimate of the remaining cost to perform the
investigations and remedial work as being approximately US$32.9 million as of
December 31, 2002. In addition, the DEP has indicated that it expects Occidental
and Maxus to participate with the other chromium manufacturers in the funding of
certain remedial activities with respect to a number of so-called "orphan"
chrome sites located in Hudson County, New Jersey. Occidental and Maxus have
declined participation as to those sites for which there is no evidence of the
presence of residue generated by Chemicals. The State of New Jersey has recently
expressed an increased interest in possibly instituting legal action seeking
recovery of its expenditures in connection with these sites. The Governor of New
Jersey issued an Executive Order requiring state agencies to provide specific
justification for any state requirements more stringent than federal
requirements. In 1998, the DEP proposed new soil action levels for chromium, but
the proposal remains incomplete in certain regards.
Painesville, Ohio. From about 1912 through 1976, Chemicals operated
manufacturing facilities in Painesville, Ohio (the "Painesville Works"). The
operations over the years involved several discrete but contiguous plant sites
over an area of about 1,300 acres. The primary area of concern historically has
been Chemicals' former chromite ore processing plant (the "Chrome Plant"). For
many years, the site of the Chrome Plant has been under the administrative
control of the EPA pursuant to an administrative consent order under which
Chemicals is required to maintain a clay cap over the Chrome Plant site and to
conduct certain ground water and surface water monitoring. Certain other areas
have previously been clay-capped, and one specific site, which was a waste
disposal site from the mid-1960s until the 1970s, has been encapsulated and is
being controlled and monitored. In 1995, the Ohio Environmental Protection
Agency (the "OEPA") issued its Director's Final Findings and Order (the
"Director's Order") by consent ordering that a remedial investigation and
feasibility study (the "RIFS") be conducted at the former Painesville Works
area. Tierra has agreed to participate in the RIFS as required by the Director's
Order. In March 2002, Tierra submitted a remedial investigation report covering
the entire site to OEPA. The OEPA has commented on the remedial investigation
report, and it is expected to be finalized in 2003. Tierra will submit required
feasibility reports separately. As of December 31, 2002, it is estimated that
the cost of performing the RIFS will be approximately US$0.3 million. In spite
of the many remedial, maintenance and monitoring activities performed, the
former Painesville Works site has been proposed for listing on the National
Priority List under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA"); however, the EPA has stated that
the site will not be listed, so long as it is satisfactorily addressed pursuant
to the Director's Order and OEPA's programs. YPF Holdings has reserved its
estimated share of the cost to perform the RIFS and additional approximatey
US$0.2 million for operation and maintenance at this site. The scope and nature
of any further investigation or remediation that may be required cannot be
determined at this time; however, as the RIFS progresses, YPF Holdings will
continuously assess the condition of the Painesville Works site and make any
changes, including additions, to its reserve as may be required. Tierra is
studying alternatives for the possible development or use of all or portions of
this site. However, there can be no assurance that this site will be
successfully developed or that any productive use can be made of all or a
portion of this site.
42
Third Party Sites. Chemicals has also been designated as a potentially
responsible party ("PRP") by the EPA under CERCLA with respect to a number of
third party sites where hazardous substances from Chemicals' plant operations
allegedly were disposed or have come to be located. Numerous PRPs have been
named at substantially all of these sites. At several of these, Chemicals has no
known exposure. Although PRPs are typically jointly and severally liable for the
cost of investigations, cleanups and other response costs, each has the right of
contribution from other PRPs and, as a practical matter, cost sharing by PRPs is
usually effected by agreement among them. At a number of these sites, the
ultimate response cost and Chemicals' share of such costs cannot be estimated at
this time. At December 31, 2002 YPF Holdings has reserved approximately US$8.8
million for its estimated share of costs related to these sites, where such
costs are both probable and reasonably estimable.
The Port of Houston Authority (the "Port") has sued a number of parties,
including Occidental as successor to Chemicals, alleging damage to its property
as a result of contamination allegedly emanating from a number of locations,
including a facility adjoining Greens Bayou formerly owned by Chemicals where
DDT and certain other chemicals were manufactured. Chemicals conveyed the Greens
Bayou facility to a joint venture company in 1983 and later conveyed its
interest in the joint venture company to Maxus. Subsequently, in 1985, Maxus
sold all interest in the joint venture company. Tierra is handling this matter
on behalf of Occidental. While some of the substances of concern may have been
manufactured at the Greens Bayou facility prior to these conveyances, Tierra and
Maxus believe that any contamination of the Port's property that may have
emanated from the Greens Bayou facility occurred after the conveyance of the
joint venture in 1985. Consequently, YPF Holdings does not believe that the
Port's claims will have a material adverse affect on its financial position.
Seasonality of YPF's Main Business
YPF's results of operations are somewhat seasonal because demand for
natural gas and certain refined products is typically lower in the first three
months of the year, which include Argentina's summer months, and is generally
higher in the third quarter, which includes Argentina's winter months. Weather
patterns also have an impact on YPF's results, particularly on sales of natural
gas. For example, higher than average rainfall levels in Argentina increase the
amount of hydroelectric power available resulting in a decrease in natural gas
sales to power generation plants.
Property, Plant and Equipment
Most of YPF's property, consisting of interests in crude oil and natural
gas reserves, refineries, storage, manufacturing and transportation facilities
and service stations, is located in Argentina. YPF also owns property in the
United States and Indonesia. See "Item 4: Information on the Company."
Regulatory Framework and Relationship with Argentine Government
Overview
The Argentine oil and gas industry is regulated by Law No. 17,319, referred
to as the Hydrocarbons Law, which was adopted in 1967. The executive branch of
the Argentine government applies this law through the national Secretary of
Energy. The regulatory framework of the Hydrocarbons Law was established on the
assumption that the reservoirs of hydrocarbons would be national properties and
Yacimientos Petroliferos Fiscales Sociedad del Estado, YPF's predecessor, would
lead the oil and gas industry and operate under a different framework than
private companies. In 1992, Law No. 24,145, referred to as the YPF's
Privatization Law, privatized YPF and was designed to implement the transfer of
ownership of reservoirs to the provinces, subject to the existing rights of
holders of exploration permits and production concessions. However, the transfer
of property to the provinces has not been implemented, since an amendment to the
Hydrocarbons Law has not been enacted.
In October 1994 Argentina's national Constitution was amended. Article 124
establishes that natural resources existing within a province's territory are
property of such province. Article 75 of the Constitution allows the Congress to
enact laws to develop mineral resources existing within the national territory.
The governments of the provinces, where the mineral and hydrocarbon reservoirs
are located, are responsible for carrying out these laws. Legislators have
submitted to the Congress new drafts of the Hydrocarbons Law. These drafts
establish the provinces' ownership of the hydrocarbon reservoirs in accordance
with Article 124 of the Constitution. Proposed revisions of the Hydrocarbons Law
are still pending and may take place during the year 2003. However, YPF does not
anticipate that adoption of these drafts will have a negative impact on its
business.
43
On January 6, 2002, the Argentine Congress enacted the Public Emergency Law
that rescinded the 1991 Convertibility Law and granted the executive branch of
the Argentine government authority to enact all necessary regulations in order
to overcome the economic crisis affecting the country. For a description of the
Public Emergency Law and the fiscal and monetary crisis in Argentina, see "Item
3: Key Information--Risk Factors".
After the enactment of the Public Emergency Law, several other laws and
regulations have been enacted. The following list highlights the most
significant measures enacted to date in Argentina.
o Conversion into pesos of (i) all funds deposited in financial
institutions at an exchange rate of Ps.1.40 = US$1.00, and (ii) all
obligations (e.g., loans) with financial institutions denominated in
foreign currency and governed by Argentine law at an exchange rate
of Ps.1.00 = US$1.00. The deposits and obligations converted into
pesos will be thereafter adjusted in accordance with the reference
stabilization index, the Coeficiente de Estabilidad de Referencia
(CER), to be published by the Argentine Central Bank. The
aforementioned adjustments became effective retroactively as of
February 4, 2002. Law No. 25,642 suspended the application of the
CER to obligations of up to Ps.400,000 until September 30, 2002. The
CER is not applied to: (i) loans of up to US$250,000 secured by a
mortgage on the permanent family property of the debtor, (ii)
personal loans up to US$12,000, and (iii) personal loans up to
US$30,000 secured by a pledge. These obligations are adjusted, as
from October 1, 2002, by an index of salary fluctuations
(Coeficiente de Variacion de Salarios).
o Obligations governed by non-Argentine law were not converted to
pesos. Substantially all of YPF's debt denominated in U.S. dollars
is governed by non-Argentine law.
o Conversion into pesos at an exchange rate of Ps.1.00 = US$1.00 of
all obligations governed by Argentine law and payable in foreign
currency, outstanding among private parties as of January 6, 2001.
The obligations so converted into pesos will be adjusted through the
CER index, as explained above. In the case of non-financial
obligations, if, as a result of the mandatory conversion into pesos,
the intrinsic value of the goods or services constituting the
subject of such obligation is higher or lower than its price
expressed in pesos, then either of the parties may request from the
other party an equitable adjustment of the price. If the parties
cannot agree on the equitable price adjustment, any of the parties
may resort to the court system. During 2002, YPF has implemented and
concluded the renegotiation of all contracts so converted.
o Conversion into pesos at an exchange rate of Ps.1.00 = US$1.00 of
all tariffs of public services and the imposition of a period of
renegotiation with the governmental authorities thereafter.
o Requirement that an advance authorization be obtained from the
Argentine Central Bank in order to make certain wire transfers of
funds to offshore accounts for purposes of repaying certain credit
obligations.
o Imposition of customs duties on the export of hydrocarbons with
instructions to the executive branch of the Argentine government to
set forth the applicable rate thereof. Executive Decrees Nos.
310/2002 and 809/2002 imposed certain customs duties on exports of
crude oil, LPG and certain refined product exports.
On March, 5, 2003, the Supreme Court, with the vote of five of its nine
members, declared unconstitutional the conversion into pesos of banking deposits
denominated in U.S. dollars stipulated by Decree No. 214/02 and related
regulations. This decision was prompted by an action of the Province of San Luis
seeking a refund of US$249 million from the Federal Government that was
deposited with the Argentine National Bank (Banco de la Nacion Argentina). The
Supreme Court held that the asymmetric conversion into pesos mandated by Decree
No. 214/02 affected the right to property established in the National
Constitution, and exceeded the limits set by the Supreme Court to the
extraordinary powers granted to the government under material economic emergency
situations. The Supreme Court further held that the "pesification" had also
affected the principle of "legal certainty" established in the National
Constitution, as the bank deposits had been made when specific legislation
protecting such deposits was effective. The Supreme Court ordered the Argentine
National Bank to refund to the Province of San Luis the amounts deposited in
U.S. dollars or its equivalent in pesos at the exchange rate on the date of
effective payment, and set a 60-day period for the parties to agree to a
procedure to effect the refund. Although this ruling may have wider
repercussions, it only applies to the case submitted by the Province of San Luis
and does not include other matters not submitted for the decision of the Supreme
Court.
44
Exploration and Production
The Hydrocarbons Law establishes the basic legal framework for regulation
of oil and gas exploration and production in Argentina. The Hydrocarbons Law
empowers the executive branch to establish a national policy for development of
Argentina's hydrocarbon reserves, with the principal purpose of satisfying
domestic demand.
The Hydrocarbons Law permits surface reconnaissance of territory not
covered by exploration permits or production concessions, upon authorization of
the Secretary of Energy and with permission of the private property owner.
Information gained as a result of surface reconnaissance must be provided to the
Secretary of Energy. The Secretary of Energy may not disclose this information
for two years without permission of the party who conducted the reconnaissance,
except in connection with the grant of exploration permits or production
concessions.
Under the Hydrocarbons Law, the national executive may grant exploration
permits after submission of competitive bids. Permits granted to third parties
in connection with the deregulation and demonopolization process were granted in
accordance with procedures specified in the Oil Deregulation Decrees, and
permits covering areas in which YPF was operating at the date of the YPF's
Privatization Law were granted to YPF by such law. In 1991, the national
executive established a program under the Hydrocarbons Law (known as the
Argentina Plan) pursuant to which exploration permits may be auctioned. The
holder of an exploration permit has the exclusive right to perform the
operations necessary or appropriate for the exploration of oil and gas within
the area specified by the permit. Each exploration permit may cover only
unproved areas not in excess of 10,000 square kilometers (15,000 square
kilometers offshore), and may have a term of up to 14 years (17 years for
offshore exploration). The 14-year term is divided into three basic terms and
one extension term. At the expiration of each of the first two basic terms, the
acreage covered by the permit is reduced, at a minimum, to fifty percent (50%)
of the remaining acreage covered by the permit, excluding the area of any
production concession already granted. At the expiration of the three basic
terms, the permit holder is required to revert all of the remaining acreage to
the Argentine government, unless the holder requests an extension term, in which
case such grant is limited to fifty percent (50%) of the remaining acreage.
If the holder of an exploration permit discovers commercially exploitable
quantities of oil or gas, the holder may obtain an exclusive concession for the
production and development of this oil and gas. A production concession gives
the holder an exclusive right to produce oil and gas from the area covered by
the concession for a term of 25 years (plus, in certain cases, a part of the
unexpired portion of the underlying exploration permit). The term may be
extended for an additional ten-year period by application to the executive
branch. A production concession also confers on the holder the right to conduct
all activities necessary or appropriate for the production of oil and gas,
provided that such activities do not interfere with the activities of other
holders of exploration permits and production concessions. A production
concession entitles the holder to obtain a transportation concession for the oil
and gas produced. See "--Transportation" below.
Exploration permits and production concessions require holders to carry out
all necessary work to find or extract hydrocarbons, using appropriate
techniques, and to make specified investments. In addition, holders are required
to:
o avoid damage to oil fields and waste of hydrocarbons;
o adopt adequate measures to prevent accidents and damage to
agricultural activities, fishing industry, communications networks
and the water table; and
o comply with all applicable federal, provincial and municipal laws
and regulations.
Holders of production concessions, including YPF, are also required to pay
royalties to the province where production occurs in the amount of 12% of the
well-head price (equal to the FOB price less transportation costs and certain
other reductions) of crude oil produced and 12% of the value of the used volume
of natural gas produced, based on the sales price, less transportation, storage
and treatment costs. Any oil and gas produced by the holder of an exploration
permit prior to the grant of a production concession is subject to the payment
of a 15% royalty.
45
Exploration permits and production or transportation concessions are
terminated upon any of the following events:
o failure to pay annual surface taxes within three months of the date
due;
o failure to pay royalties within three months of the due date;
o substantial and unjustifiable failure to comply with specified
production, conservation, investment, work or other obligations;
o repeated failure to provide information to, or facilitate inspection
by, the authorities or to utilize adequate technology in operations;
o in the case of exploration permits, failure to apply for a
production concession within 30 days of determining the existence of
commercially exploitable quantities of hydrocarbons;
o bankruptcy of the permit or concession holder;
o death or end of legal existence of the permit or concession holder;
or
o failure to transport hydrocarbons for third parties on a
non-discriminatory basis or repeated violation of the authorized
tariffs for such transportation.
When a production concession expires or terminates, all oil and gas wells,
operating and maintenance equipment and facilities automatically revert to the
Argentine government, without payment to the holder of the concession.
The YPF's Privatization Law granted YPF 24 exploration permits covering
approximately 132,735 square kilometers and 50 production concessions covering
approximately 32,560 square kilometers. The Hydrocarbons Law limits the number
and total area of exploration permits or production concessions that may be held
by any one entity. YPF was exempted from such limit with regard to the
exploration permits and production concessions awarded to it by Law 24,145. The
National Directorate of Economy of Hydrocarbons (Direccion Nacional de Economia
de los Hidrocarburos) has applied a restrictive interpretation of Section 25 and
34 of Law 17,319 and has objected to the award of new exploration permits and
production concessions in which YPF has a 100% interest. If such limit is
applied in the future it may affect YPF's ability to acquire 100% in new
exploration permits or exploitation concessions As a consequence of the transfer
of ownership of hydrocarbon-rich areas to the provinces in accordance with
Decree 1055/89, regulatory Law 23,696, and Law 25,145, YPF participates in
competitive bidding rounds organized since 2000 by the provincial government of
Neuquen for the award of contracts for the exploration and production of
hydrocarbons.
Security Zones Legislation
Argentine law restricts the ability of non-Argentine companies to own real
estate, oil concessions or mineral rights located within, or with respect to,
areas defined as security zones (principally, areas near Argentine borders).
Prior approval of the Argentine government may be required:
o for non-Argentine shareholders to acquire control of YPF; or
o if and when the majority of the shares of YPF belong to
non-Argentine shareholders, for any additional acquisition of real
estate, mineral rights, oil or other Argentine government
concessions located within, or with respect to, security zones.
Because approval of Class A Shares is required for a change in
control of YPF under its bylaws, and approval of the national
executive or provincial governments is required for the grant or
transfer of oil concessions, YPF believes that possible additional
requirements under the security zone legislation will not have a
significant impact on its operations.
46
Natural Gas
In June 1992, Law No. 24,076, referred to as the Natural Gas Law, was
passed. This law provided for the privatization of Gas del Estado and
deregulation of natural gas prices. Since January 1, 1994, natural gas prices
received by producers have been deregulated.
To effect the privatization of Gas del Estado, the five main trunk lines of
the gas transmission system were divided into two systems, principally on a
geographical basis (the northern and the southern trunk pipeline systems). This
is designed to give both systems access to gas sources and to the main centers
of demand in and around Buenos Aires. These systems were transferred to two new
transportation companies. The Gas del Estado distribution system was divided
into eight regional distribution companies, including two distribution companies
serving the greater Buenos Aires area. Shares of each of the transportation and
distribution companies were sold to consortiums of private bidders. Likewise, in
1997, a distribution license for the provinces of Chaco, Formosa, Entre Rios,
Corrientes and Misiones was granted to private bidders.
The regulatory structure for the natural gas industry creates an
open-access system, under which gas producers, such as YPF, have open access to
available capacity on transmission and distribution systems on a
non-discriminatory basis.
New cross-border gas pipelines have been built to connect Argentina with
Chile, Brazil and Uruguay, so that producers, such as YPF, are currently
exporting natural gas to the Chilean and Brazilian markets. Export of natural
gas requires prior approval of the Secretary of Energy. In 2001 Resolution
N(degree) 131/01 was passed by the Secretary of Energy with the intention to
expedite the issuance of authorizations for natural gas exports. Decree No.
689/02 established an exception to the public emergency laws and regulations,
providing that the prices of long-term natural gas sale agreements executed
before the enactment the Decree and denominated in US dollars, will not be
converted into pesos (Ps.1.00 = US$1.00) when the natural gas is exported to
third countries.
Transportation
The Hydrocarbons Law permits the national executive to award 35-year
concessions for the transportation of oil, gas and petroleum products following
submission of competitive bids. Holders of production concessions are entitled
to receive a transportation concession for their production. The term of a
transportation concession may be extended for an additional ten-year term upon
application to the executive branch. The holder of a transportation concession
has the right to:
o transport oil, gas, and petroleum products;
o construct and operate oil, gas and products pipelines, storage
facilities, pump stations, compressor plants, roads, railways and
other facilities and equipment necessary for the efficient operation
of a pipeline system.
The holder of a transportation concession is obligated to transport
hydrocarbons for third parties on a non-discriminatory basis for a fee. This
obligation, however, applies to producers of oil or gas only to the extent that
the concession holder has surplus capacity available and is expressly
subordinated to the transportation requirements of the holder of the concession.
Transportation tariffs are subject to approval by the Secretary of Energy. Upon
expiration of a transportation concession, the pipelines and related facilities
automatically revert to the Argentine government without payment to the holder.
Gas pipelines and distribution systems sold in connection with the privatization
of Gas del Estado are subject to a different regime under the Natural Gas Law,
under which concessions for transportation and distribution of natural gas also
may be granted. The Privatization Law granted YPF a 35-year transportation
concession with respect to the pipelines operated by YPF at that time.
Refining
Crude oil refining activities conducted by oil producers or others are
subject to Argentine government registration requirements and safety and
environmental regulations, as well as to provincial environmental legislation
and municipal health and safety inspections. In addition, registration in the
registry of oil companies, maintained by the Secretary of Energy, is required to
operate a refinery in Argentina. The refineries operated by YPF are so
registered. Registration is granted on the basis of general financial and
technical standards.
47
Market Regulation
Under the Hydrocarbons Law and the Oil Deregulation Decrees, holders of
production concessions have the right to produce and own oil and gas and are
allowed to dispose of such production. In 2002, Decree No. 867/02 declared a
temporary emergency for the provision of hydrocarbons within Argentina for the
period May through September 2002, and authorized the Secretary of Energy to
establish the volumes of crude oil and LPG to be sold in the domestic market
until September 30, 2002. Moreover, Resolutions 140/02 and 166/02 (both
derogated) established for the period June through September 2002 a percentage
ceiling on crude oil exports.
At present, YPF, as well as private companies producing oil and gas in
Argentina, may sell their production in domestic or export markets, and
refineries may obtain crude oil from suppliers within or outside Argentina.
The Hydrocarbons Law authorizes the national executive to regulate the
Argentine oil and gas markets and prohibits the export of crude oil during any
period in which the national executive finds domestic production to be
insufficient to satisfy domestic demand. If the national executive restricts the
export of oil and petroleum products or the free disposition of natural gas, the
Oil Deregulation Decrees provide that producers, refiners, and exporters shall
receive a price:
o in the case of crude oil and petroleum products, not lower than that
of similar imported crude oil and petroleum products; and
o in the case of natural gas, not less than 35% of the international
price per cubic meter of Arabian light oil, 34o API
Resolution No. 85/2003 of the Secretary of Energy ratified the agreement
subscribed between crude oil producers, including YPF, and refiners for the
stability of the price of crude oil, gasoline and gas oil. This agreement
provides that during the first quarter of 2003, the crude oil forwarded to the
refineries by producers shall be invoiced and paid based on a WTI crude oil
reference price of US$28.50 per barrel. The difference between this reference
price and the actual WTI crude oil price, will be assigned to an "adjustment of
price account" and the producer will receive the difference between the
reference price and the actual WTI price from the moment that the actual WTI
price falls below the reference price. The amounts assigned to the adjustment of
price account will yield an annual interest rate equal to the higher of (i)
LIBOR plus 2% or (ii) 8% per year. Crude oil sale agreements effective or to be
entered into between January and March of 2003 shall incorporate an additional
clause reflecting this mechanism. This clause will be reviewed on a monthly
basis and may be terminated by any party if (i) the Peso exchange rate
depreciates below Ps.3.65=US$1 (Banco de la Nacion Argentina seller quotation),
(ii) WTI crude oil prices exceed US$35 per barrel for 10 consecutive quotation
days, (iii) WTI crude oil prices fall below US$22 per barrel for 10 consecutive
quotation days or (iv) taxes and/or export duties applicable to oil producers
are increased.
On February 25, 2003 oil producers and refiners subscribed a complementary
agreement to the agreement for the stability of the price of crude oil, gasoline
and gas oil. The parties to this supplementary agreement agreed to maintain the
agreement for the stability of the crude oil, gasoline and gas oil in full force
and effect until March 31, 2003, even though the WTI crude oil prices exceed
US$35 per barrel. Moreover, the parties agreed to fix a maximum WTI reference
price of US$36 per barrel in any agreement for the delivery of crude oil to the
local market entered into between oil producers and refiners until March 31,
2003.
Finally, on April 11 and June 5, 2003 oil producers and refinors subscribed
the second and third agreement for the stability of the price of crude oil,
gasoline and gas oil. By these agreements, the parties agreed to extend the
agreement for the stability of the price of crude oil, gasoline and gas oil, as
amended by the complementary agreement, until July 31, 2003. Moreover, the
parties agreed that the amounts assigned to the adjustment of price account will
yield an annual interest rate equal to the higher of: (i) LIBOR plus 2% or (ii)
7% per year.
On April 2002, the national government and the main oil companies,
including YPF S.A., reached an agreement in order to regulate a subsidy
recognized by the national argentine government to the public bus transportation
companies. This agreement, named "Convenio de Estabilidad de Suministro del Gas
Oil" was approved by Decree No 652/2002 and assured the transportation companies
their necessary supply of gas oil at a fixed price of Ps 0.75 per liter as from
April 22, 2002 to July 31, 2002. Additionally, it established that the oil
companies shall compensate the difference between that value and the market
price using the credit generated by that difference through compensation against
the payments that the oil companies have to pay in relation to their oil exports
(custom duties). This Agreement was extended up to August 31, 2002 by the
"Acuerdo de Prorroga del Convenio de Estabilidad de Suministro del Gas Oil."
Pending Balance as a consequence of this agreement is not material for YPF.
48
Though a new agreement named "Acuerdo Trimestral de Suministro de Gas Oil
al Transporte Publico de Pasajeros," the subsidy was extended up to November 30,
2002. The price of the subsidized gas oil was increased up to Ps. 0.82 per
liter.
Both the "Acuerdo de Prorroga del Convenio de Estabilidad de Suministro del
Gas Oil" and the "Acuerdo Trimestral de Suministro de Gas Oil al Transporte
Publico de Pasajeros" were ratified by Decree No 1012/2002.
The "Acuerdo Trimestral de Suministro de Gas Oil al Transporte Publico de
Pasajeros" was extended up to March 31, 2003 and was ratified by Decree No
704/2003.
Finally, the "Acuerdo Trimestral de Suministro de Gas Oil al Transporte
Publico de Pasajeros" was extended up to July 31, 2003 by the "Segundo Acuerdo
de Prorroga del Acuerdo Cuatrimestral de Suministro de Gas Oil al Transporte
Publico de Pasajeros." The price of the subsidized gas oil remains at the price
of Ps. 0.82 per liter. The ratification by Decree is still pending.
Taxation
Holders of exploration permits and production concessions are subject to
federal, provincial, and municipal taxes and regular customs duties on imports.
The Hydrocarbons Law grants such holders a legal guarantee against new taxes and
certain tax increases at the provincial and municipal levels. Holders of
exploration permits and production concessions must pay an annual surface tax
based on the area held. In addition, "net profit" (as defined in the
Hydrocarbons Law) of holders of permits or concessions accruing from activity as
such holders is subject to a special 55% income tax. However, this special tax
has never been applied. Each permit or concession granted to an entity other
than YPF has provided that the holder thereof is subject, instead to the general
Argentine tax regime, and a decree of the national executive provides that YPF
is also subject to the general Argentine tax regime.
Following the introduction of market prices for downstream petroleum
products in connection with the deregulation of the petroleum industry, Law No.
23,966 established a volume-based tax on transfers of certain types of fuel,
replacing the prior fuel tax regime which was based on the regulated price.
In compliance with the provisions of the Public Emergency and Foreign
Exchange System Reform Law, the Argentine government imposed (via the Executive
Decrees Nos. 310/2002 and 809/2002) customs duties on the export of crude oil at
a rate of 20%, and certain products derived from crude oil and LPG at a rate of
5%.
On June 9, 2003, the Argentine Congress enacted Law No. 25,745
establishing changes in fuel and gasoline transfer tax. The most important
change is that the tax will be calculated applying a percentage rate to the
fuel and gasoline net value before V.A.T. The Tax rate will be 70% on gasolines
of up to 92 octanes, 62% on gasolines above 92 octanes and 19% on kerosene.
Antitrust Agreement
On June 16, 1999, the Argentine Ministry of Economy and Public Works
delivered a letter to Repsol YPF setting forth a series of obligations that
Repsol YPF would be required to assume in the event that Repsol YPF acquires a
majority of the share capital of YPF. In a letter dated June 17, 1999, Repsol
YPF has accepted the Ministry's requirements described below:
o Repsol YPF must instruct YPF not to renew specified contracts under
which YPF purchases natural gas. Repsol YPF estimates that these
contracts account for approximately 15% of the natural gas sold in
Argentina by YPF and Repsol YPF in 1998.
49
o By January 1, 2001, Repsol YPF was required to divest itself of
Argentine refining capacity equal to 4% of total Argentine installed
capacity as of December 31, 1998, and of a number of service
stations that account for a sales volume equivalent to that of Eg3
in 1998. Both of these requirements have been satisfied through the
swap agreement with Petrobras. In addition to Eg3, the swap
agreement encompasses other assets located in Argentina. Repsol YPF
received assets in Brazil, valued at US$559 million.
o Until the gas contracts referred to above have expired, Repsol YPF
may not participate in any new electricity generation project.
o Repsol YPF must eliminate from YPF's LPG export contracts any
provisions prohibiting reimportation of LPG by the buyer.
o By December 1, 2002, Repsol YPF must reduce its share of the
Argentine retail LPG market by 4%. Repsol YPF estimates that the
combined Repsol YPF/YPF share of this market was approximately 38%
at December 31, 1998.
o During the period until December 1, 2002, Repsol YPF must pass on,
in the form of price reductions, any benefits resulting from the
economies of scale in its Argentine LPG operations after the YPF
acquisition. Repsol YPF believes that these benefits will consist
mainly of cost reductions, which could be passed directly to
consumers.
On March 14, 2000, the Secretariat for the Defense of Competition and the
Consumer of the Ministry of Economy (Secretaria de Defensa de la Competencia y
del Consumidor del Ministerio de Economia) issued a press release stipulating
the following series of guidelines establishing the manner in which Repsol YPF
must meet its obligation under the June 16, 1999 letter of the Argentine
Ministry of Economy and Public Works requiring that Repsol YPF dispose of
refining assets and service stations in Argentina in connection with its
acquisition of control of YPF:
(1) Repsol YPF must make the required sale of service stations to a single
purchaser.
(2) The block of service stations and refining capacity to be sold must
correspond to an equivalent of Repsol YPF's share of the relevant
geographic and product markets prior to its acquisition of YPF in 1999.
The sale of the block of service stations must keep Repsol YPF's market
share at YPF's pre-acquisition market share levels. Repsol YPF must
transfer refining capacity sufficient to permit adequate supply of the
block of service stations so sold.
(3) The entity acquiring the service stations and refining assets must have
no agreements with Repsol YPF. In addition, Repsol YPF may not transfer
the assets to any related entity or to an entity with a market share
greater than 10% with respect to each refining and service station
activities in Argentina.
(4) The Secretariat for the Defense of Competition and the Consumer may
supervise Repsol YPF's divestment of the specified assets. The Tribunal
de Defensa de la Competencia will have the authority to review Repsol
YPF's disposal of the specified refining assets and service stations.
Repsol YPF met all of the above requirements upon execution of the asset
swap agreement entered into with Petrobras in December 2001.
Repatriation of Foreign Currency
Executive Decree No. 1589/89, relating to the Deregulation of the Upstream
Oil Industry, allows YPF and other companies engaged in oil and gas production
activities in Argentina to freely sell and dispose of the hydrocarbons they
produce. Additionally, under Decree No. 1589/89, YPF and other oil producers are
entitled to keep out of Argentina up to 70% of foreign currency proceeds they
receive from crude oil and gas sales, being required to repatriate the remaining
30% through the exchange markets of Argentina.
50
In July 2002, Argentina's Attorney General issued an opinion (Dictamen 235)
which would have effectively required YPF to liquidate 100% of its export
receivables in Argentina, instead of the 30% provided in Decree No. 1589/89. The
Attorney General's opinion was based on the assumption that Decree No. 1589/89
was superseded by other decrees (Decree No. 530/91 and 1606/01) issued by the
government. Subsequent to this opinion, however, the government issued Decree
No. 1912/02 ordering the Central Bank to apply the 70/30% regime set out in
Decree No. 1589/89. Nevertheless, on December 5, 2002, representatives of the
Central Bank, responding formally to an inquiry from the Argentine Bankers
Association, stated that the Central Bank would apply the Attorney General's
opinion. On December 9, 2002, YPF filed a declaratory judgment action (Accion
Declarativa de Certeza) before a Federal Court requesting the judge to clarify
the uncertainty generated by the opinion and statements of the Attorney General
and the Central Bank, and requesting confirmation of YPF's right to freely
dispose of up to 70% of its export receivables. On December 9, 2002, the federal
judge issued an injunction ordering the Argentine government, the Central Bank
and the Ministry of the Economy to refrain from interfering with YPF's access to
and use of 70% of the foreign exchange proceeds from its exports, as stipulated
by the original decree. Resolution of an appeal filed by the Central Bank and
the Ministry of the Economy against this injunction is still pending before the
Federal Court of Appeals, which will have to confirm or overturn the decision of
the federal judge.
On December 27, 2002, the government issued Decree No. 2703/02, effective
as of January 1, 2003, setting forth a minimum repatriation limit of 30% with
respect to proceeds from the export of hydrocarbons and by-products, with the
remaining portion freely disposable. However, when referring to the minimum
repatriation limit of 30%, the decree only mentions the foreign exchange
proceeds from freely disposable exports of crude oil and its by-products.
Although the recitals and the first part of Section 1 of Decree No. 2703/02
mention natural gas and liquefied petroleum gas as covered by this regime, an
express mention of natural gas and liquefied petroleum gas is not included in
the rest of Section 1. However, taking into account the rights granted by Decree
No. 1589/89, YPF applies this regime to the export of crude oil, liquefied
petroleum gas and natural gas. The recitals of Decree No. 2703/02 restate the
interpretation maintained by the Attorney General that Decree No. 1589/89 has
been repealed by Decree Nos. 530/91 and 1606/01. This interpretation prompted
the filing of the above-mentioned declaratory judgment action and, therefore,
the issue will have to be resolved by the federal courts. Moreover, since Decree
No. 2703/02 is effective as from January 1, 2003, and, based on the Attorney
General's opinion, it is unclear whether hydrocarbon exporters would be required
to repatriate the total amount of their 2002 export proceeds or whether the
existing hydrocarbons regulatory framework will prevail. YPF has expanded the
object of the declaratory judgment action before the federal court to request
that the judge expressly state that Decree No. 530/91 did not derogate Decree
No. 1589/89 and, thus, that the right of free disposal of export receivables was
effective between issuance of Decree No. 1606/01 and Decree 2703/02. YPF will
maintain its position before the Federal Court of Appeals without prejudice to
any other related actions it may take in order to protect its rights.
ITEM 5. Operating and Financial Review and Prospects
You should read the information in this section together with the
Consolidated Financial Statements and the related notes included in this annual
report. YPF prepares its consolidated statements in accordance with Argentine
GAAP, which differ in certain significant respects from U.S. GAAP. Notes 14 and
15 to the Consolidated Financial Statements provides a summary and the effect of
the significant differences on net income and shareholders' equity under
Argentine GAAP and U.S. GAAP. Note 16 provides certain additional disclosures
required under U.S. GAAP.
Overview
Macroeconomic circumstances
During 2002, the Company continued to face an adverse economic scenario,
both in Argentina and at the international level.
At the international level, the political uncertainty that has dominated
the markets in recent years, including the energy market, continued throughout
2002. In particular, worldwide oil demand remained stagnant at the same level of
two years ago although during 2002 it was accompanied by prices
uncharacteristically high for a recessionary environment. Market conditions for
the oil sector in 2002 were less favorable than in 2001 despite slightly higher
Brent Crude oil prices. Average price for West Texas Intermediate crude oil
during 2002 was $26.20 per barrel, a 1.2% increase with respect to 2001.
Refining margins were at their lowest for the past years, and petrochemical
margins were typical of a low cycle, similar to 2001.
In Argentina, the year 2002 will probably be remembered as the worst year
in the recent modern history of the country. In 2002, after the peso
depreciation, the open default of public debt and the freeze of bank deposits at
the beginning of the year, the economic activity collapsed in the first quarter,
with a deep fall in production and sales, high unemployment, inflation, high
levels of poverty and social distress. In only three quarters -between the
second quarter of 2001 and the first quarter of 2002- GDP fell by more than 15%.
The foreign sector continued reflecting the downward adjustment of the economy.
In 2002 the trade surplus amounted to U$16,365 million reflecting a decrease of
50% in imports and a slight decline of 4.7% in exports.
The Argentine economy closed 2002 with a stronger performance, in sharp
contrast to the beginning of 2001. The last quarter of 2002 showed an
improvement in economic conditions therefore providing more encouraging
prospects. The economic activity had stopped falling during the second half of
the year, particularly export-oriented activities and production of products
typically imported. The exchange rate stabilized, and private sector deposits
and reserves at the Central Bank increased. Fiscal accounts steadily improved
thanks to increasing revenues associated with inflation and the new export tax.
Finally, in the last quarter the economy showed for the first time in 2002,
monthly inflation rates below 1%, helped by a cautious monetary policy, and the
absence of price and salary indexation mechanisms.
At the beginning of 2003, Argentina finally reached an agreement with the
International Monetary Fund based on a short-term economic program providing a
financial bridge for the political transition expected to take place after the
presidential elections. The agreement with the IMF also unlocked lending from
the World Bank and the Inter-American Development Bank, avoiding Argentina's
default with these international financial institutions. After the inauguration
of Mr. Kirchner as Argentina's president, the Government and the IMF expect the
transitional program will lay the foundation for a more comprehensive program of
fundamental reforms, to be developed after the elections. YPF believes that
political uncertainty surrounding the assumption of a new government is likely
to continue to affect the performance of the Argentine economy, impacting
consumption and investment decisions in Argentina.
51
Although the social and economic situation has improved, important issues
remain unsolved, such as renegotiating the external public debt and public
utility contracts, restructuring the financial system and redesigning the fiscal
federal regime. All these issues are expected to be undertaken by the new
administration, with the support of the IMF and other multilateral
organizations.
For the hydrocarbons industry, 2002 also concluded in a better way than it
started. In the first half of the year, domestic demand for crude oil fell
accompanying the recession, while the industry faced new taxes, restrictions on
crude oil exports, and potential price controls on gasoline and diesel.
At the end of the year, the oil sector was operating in an improving
economic framework. Oil exports restrictions had been lifted, export taxes were
reduced and oil and gas companies' right to keep abroad up to 70% of their
export proceeds was confirmed by Decree. However, actions by the attorney
general and the Central Bank have created some level of legal uncertainty in
this regard; see "Item 8. Legal proceedings-YPF". The natural gas industry is
expected to continue facing difficulties as a result of price controls on
domestic natural gas prices which froze retail prices during the year.
YPF cannot predict future macroeconomics events in Argentina or in the rest
of the world, but it expects its domestic operations to continue being adversely
affected by economic and political events in Argentina.
Presentation of financial statements
The Consolidated Financial Statements reflect the effect of changes in the
purchasing power of money by the application of the method for restatement in
constant Argentine pesos set forth in Argentine GAAP. The consolidated financial
statements for the period ended December 31, 2001 and December 31, 2000 which
are presented for comparative purposes, were restated to constant Argentine
pesos as of December 31, 2002 to reflect the effect of changes in the purchasing
power of money for the year then ended. (See Note 1 to the Consolidated
Financial Statements).
YPF's Characteristics
YPF's operations are affected mainly by changes in international oil prices
and by economic changes in Argentina.
The average export sales price per barrel realized by YPF from Argentina
was US$21.64 in 2002, US$20.67 in 2001, and US$26.9 in 2000. Future changes in
international oil prices and the fluctuation of the peso against the dollar will
continue to affect YPF's results.
YPF's results of operations are somewhat seasonal because of shift in
demand between the summer and winter months. Weather patterns may also impact
YPF's results, particularly affecting sales of natural gas to power generation
plants, which activity decreases as high rainfall levels stimulates production
of hydroelectric power.
YPF conducts its main activities in Argentina, where 85% of total
consolidated sales were made during 2002, including oil and products exports.
YPF organizes its business along the following areas of activities:
o Upstream:
- Exploration and Production;
o Downstream:
- Refining and Marketing
- Chemical
o Natural Gas and Electricity.
52
"Corporate and Others" include other activities such as corporate
administration costs, assets, construction activities and the operation of
Tierra Solutions Inc.
Exploration and Production sales to third parties within Argentina and
abroad include natural gas, a percentage of crude oil production and fees for
provided services (primarily transportation, storage and treatment). In addition
to this, crude oil produced by YPF in Argentina or received from third parties
in Argentina pursuant to service contracts is transferred from Exploration and
Production to Refining and Marketing at a transfer price that reflects Argentine
market prices, which fluctuate according to international prices. Under certain
circumstances, Refining and Marketing purchases crude oil from third parties.
YPF is controlled by Repsol YPF, an international oil and gas company based
in Spain. As of December 31, 2002, Repsol YPF controls YPF through a 99.04%
shareholding. Repsol YPF is an integrated oil and gas company engaged in all
aspects of the petroleum activity, such as exploration, development and
production of crude oil and natural gas, transportation of crude oil, refined
products, LPG and natural gas, petroleum refining, production of a wide range of
petrochemical products and marketing of crude oil, petroleum derivatives,
petrochemicals, LPG and natural gas.
Critical Accounting Policies
Basis of presentation of financial statements
Our accounting policies are described in Notes 1 and 2 to the Consolidated
Financial Statements. We prepare our Consolidated Financial Statements in
conformity with Argentine GAAP, which differ in certain significant respects
from U.S. GAAP. Argentine GAAP require us to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the year. Actual results
could differ from those estimates. We consider the following policies to be most
critical in understanding the judgments that are involved in preparing our
financial statements and the uncertainties that could impact our results of
operations, financial condition and cash flows.
Functional Currency
YPF has determined the US dollar as its functional currency, because YPF
transacts more of its operations in US dollars or indexed to US dollars than in
any other currency. For U.S. GAAP reconciliation purposes, financial statements
are remeasured into US dollars and the assets and liabilities translated into
Argentine pesos at the exchange rate prevailing at period-end and revenues,
expenses gains and losses are translated at the exchange rate existing at the
time of each transaction, or, if appropriate, at a weighted average of the
exchange rates during the period.
In determining the functional currency, we make judgements based on the
collective economic indicators affecting YPF. The economic indicators we review
include the currency in which cash flows are denominated, how sales prices are
determined, the sales markets in which we operate, how our operating costs are
derived, how financing is obtained and the level of intercompany transactions
with Repsol YPF. A significant change in the facts and the circumstances
relating to the collective economic indicators discussed above would result in
our reassessing the functional currency.
53
Exchange difference for the valuation of assets and liabilities in foreign
currency
As of December 31, 2002, assets and liabilities denominated in U.S. dollars
were valued at Ps.3.27 and Ps.3.37 for each US$1, respectively. (See Note 13 to
the Consolidated Financial Statements).
As of December 31, 2001, amounts in foreign currencies have been valued at
the relevant exchange rates in effect as of year-end, including accrued
interest, if applicable. Assets and liabilities in U.S. dollars, were valued at
the Ps.1 to US$1.00 exchange rate which was effective as of the suspension date
of exchange market transactions, according to the provisions of Resolution MD
No. 1/02 of the Professional Council in Economic Sciences of the City of Buenos
Aires and of Resolution No. 392 of the CNV. The exchange rate as of the close of
business of the first day the exchange market reopened ranged from Ps.1.60 to
Ps.1.70 to US$1.00 (selling rate). Exchange differences have been credited
(charged) to current income. Net loss for exchange differences charged to the
income statements for the years ended December 31, 2002, 2001 and 2000 amounted
to Ps.2,143 million, Ps.90 million and Ps.45 million, respectively.
Oil and Gas reserves
YPF prepares its assumptions and estimates regarding oil and gas reserves
taking into consideration the rules and regulations established for the oil and
gas industry by the U.S. Securities and Exchange Commission and the accounting
principles laid down by the U.S. Financial Accounting Standards Board. In
accordance with these rules, proved oil and gas reserves are the estimated
quantities of crude oil, natural gas and liquids related to natural gas which
geological and engineering data demonstrates with reasonable certainty that can
be extracted from known fields in future years under existing economic and
operating conditions, such as prices and costs as of the date of the estimates.
Prices include consideration of changes in existing prices only by contractual
arrangements, but not of escalations based upon future conditions. In order to
estimate its proved reserves, YPF prepares internal studies and uses, to a
certain extent, reports of independent engineers.
Proved developed reserves are reserves that can be expected to be recovered
through existing wells with existing equipment and operating methods and current
economic conditions as of each balance sheet date. Additional oil and gas
expected to be obtained through the application of fluid injection or other
improved recovery techniques for supplementing natural forces and mechanisms of
primary recovery are included as "proved developed reserves" only after testing
by a pilot project or after the operation of an installed program has confirmed
through production response that increased recovery will be achieved.
Proved undeveloped reserves are reserves that are expected to be recovered
from new wells on undrilled acreage, or from existing wells where a relatively
major expenditure is required for recompletion, but does not include reserves
attributable to any acreage for which an application of fluid injection or other
improved recovery techniques is contemplated, unless such techniques have been
proved effective by actual tests in the area and in the same reservoir. Reserves
on undrilled acreage are limited to those drilling units offsetting productive
units that are reasonably certain of production when drilled. Proved reserves
for other undrilled units can be claimed only where it can be demonstrated with
certainty that there is continuity of production from the existing productive
formation.
Unproved reserves are those with less than reasonable certainty of
recoverability and are classified as either probable or possible.
YPF follows the "successful effort" method of accounting for its oil and
gas exploration and production operations. Accordingly, exploratory costs,
excluding the costs of exploratory wells, have been charged to expense as
incurred. Costs of drilling exploratory wells, including stratigraphic test
wells, have been capitalized pending determination as to whether the wells have
found proved reserves that justify commercial development. Furthermore, costs of
drilling exploratory wells are also charged to expense if the proved reserves
determination process exceeds one year following completion of drilling.
54
Intangible drilling costs applicable to productive wells and to
developmental dry holes, as well as tangible equipment costs related to the
development of oil and gas reserves, have been capitalized.
The capitalized costs related to producing activities, including tangible
and intangible costs, have been depreciated by field on the unit-of-production
basis by applying the ratio of produced oil and gas to estimated recoverable
proved and developed oil and gas reserves.
The capitalized costs related to acquisitions of properties with proved
reserves have been depreciated by field on the unit-of-production basis by
applying the ratio of produced oil and gas to proved oil and gas reserves.
Estimated future abandonment and plugging costs have been considered in
determining depreciation rates.
Therefore, YPF's management must make reasonable and supportable
assumptions and estimates with respect to (i) the market value of reserves, (ii)
oil fields' production profiles, (iii) future investments and their
amortization, taxes and costs of extraction and (iv) appropriate risk factors
for unproved reserves and other factors. Such assumptions and estimates have a
significant impact on calculations in accordance with the unit of production
method and evaluating the impairment of fixed assets (oil and gas investments).
As such, any change in the variables used to prepare such assumptions and
estimates may have, as a consequence, a significant effect in both the
depreciation and the impairment tests on investments in areas with oil reserves.
Depreciation
Volumes produced and asset costs are known, while proved reserves have a
high probability of recoverability and are based on estimates that are subject
to some variability. The impact of changes in estimated proved reserves are
treated prospectively by amortizing the remaining book value of the assets over
the future expected production. In 2002, 2001 and 2000 YPF recorded depreciation
of fixed assets associated with hydrocarbon reserves amounting to Ps.1,603
million, Ps.1,802 million and Ps.1,542 million, respectively. If proved reserves
estimates are revised downward, net income could be negatively affected by
higher depreciation expense.
YPF uses this accounting policy instead of the full cost method because it
provides for a more accurate recognition of the success or failure of the
exploration and production activities on a field by field basis. If the full
cost method were used all costs would be capitalized and depreciated and an
impairment test could be performed on an entire country basis.
Impairment of long-lived assets
YPF has historically followed a policy of analyzing the recoverability of
its held-for-use assets on an overall basis for Argentine GAAP purposes. With
respect to operations that were held pending sale or disposal, YPF's policy was
to record these assets at amounts that did not exceed net realizable value. The
recoverability calculation is based on our best estimate of future market and
operating conditions. The net carrying value of assets not recoverable is
reduced to fair value. Computations of fair value represent our best estimate
based on industry trends and reference to market rates and transactions.
Future adverse changes in market conditions or poor operating results could
result in losses or an inability to recover the carrying value of the long-life
assets that may not be reflected in an asset's current carrying value, thereby
possibly requiring an impairment charge in the future.
55
Under U.S. GAAP, for proved oil and gas properties, YPF performs the
impairment review on an individual field basis. Other long-lived assets held and
used by YPF are aggregated so that the cash flows produced by each group of
assets may be separately analyzed. Each asset is tested by comparing the net
book value of such an asset with the expected cash flow (before income tax and
without discounting the cash flow). Impairment losses are measured as the amount
by which the carrying amount of the assets exceeds fair value of the assets.
When fair values are not available, YPF estimates fair value using the expected
future cash flows discounted at a rate commensurate with the risks associated
with the recovery of the assets.
Asset retirement obligations
Future estimated retirement obligations related to oil and natural gas and
other facilities are considered by YPF in determining depreciation rates. These
removal costs are based on management's best estimate of the time that the event
will occur and the assertion of costs to be met with the removal of the asset.
Asset removal technologies and costs, as well as political, environmental,
safety and public expectations, are constantly changing. Consequently, the
timing and future cost of dismantling are subject to significant modification.
The timing and the amount of future expenditures of dismantling are reviewed
annually. As such, any change in variables used to prepare such assumptions and
estimates can have, as a consequence, a significant effect in provisions and
charges related to the retirement of the Company's assets.
Environmental liabilities
Environmental liabilities are recorded when environmental assessments
and/or remediation are probable and material and can be reasonably estimated.
Such estimates are based on either detailed feasibility studies of remediation
approach and cost for individual sites or, YPF's estimate of costs to be
incurred based on historical experience and available information based on the
stage of assessment and/or remediation of each site. As additional information
becomes available regarding each site or as environmental standards change, YPF
revises its estimate of costs to be incurred in environmental assessment and/or
remediation. YPF has provided Ps.48 million, Ps.33 million and Ps.41 million as
of December 31, 2002, 2001 and 2000, respectively in relation to environmental
remediation.
Litigation and other contingencies
Reserves are established to cover litigation and other contingencies which
are probable and can be reasonably estimated. The final costs arising from the
litigation and other contingency may vary from YPF's estimates on differing
interpretations of laws, opinions and final assessments on the amount of claims.
As such, changes in the facts or circumstances related to these types of
contingencies, as well as the future outcome of these disputes, can have, as a
consequence, a significant effect on the amount of reserves for litigation and
other contingencies recorded. YPF has recorded reserves of Ps.679 million,
Ps.687 million and Ps.707 million as of December 31, 2002, 2001 and 2000,
respectively.
New professional accounting standards
From January 1, 2003, YPF applies the new accounting principles in
Argentina (Technical Resolutions No. 16 to 20 of the Federation of Professional
Councils in Economic Sciences (F.A.C.P.C.E.)), which will introduce significant
changes to the current standards in relation to valuation and disclosure
criteria. (See Note 2 m to the Consolidated Financial Statements).
The application of these new accounting standards increased shareholder's
equity as of December 31, 2002 by Ps.462 million.
56
YPF's Reorganization
In line with Repsol YPF's worldwide strategic assets reorganization and
disinvestment plan, YPF has conducted a series of transactions, which included
the sale of some assets located outside of Argentina, the merger of some
subsidiaries, strategic divestitures and acquisitions in South America and
elsewhere, including transactions with affiliated companies. See "Item 4:
Information on the Company History and Development of YPF--Deregulation,
Privatization and Recent Developments." The reorganization and divestitures
effected by us in recent years may affect the comparability of our results of
operations and financial results for 2000, 2001 and 2002, and for future years.
Consolidated Oil and Gas Reserves and Production
The following table sets forth YPF's estimated proved reserves of crude oil
and natural gas on a consolidated basis at December 31, 2002, 2001 and 2000. The
reserve estimates set forth below were prepared in accordance with Rule 4-10 of
Regulation S-X of the Securities and Exchange Commission.
At December 31,
--------------------------------
2002 2001 2000
---- ---- ----
(millions of barrels)
Estimated proved crude oil reserves(1)(2)
Developed.............................................................. 1,136 1,343 1,261
Undeveloped............................................................ 251 322 401
----- ------ ------
Total.................................................................. 1,387 1,665 1,662
===== ====== ======
(billions of cubic feet)
Estimated proved natural gas reserves(1)(2)
Developed.............................................................. 6,801 7,512 7,267
Undeveloped............................................................ 2,173 2,667 2,821
----- ------ ------
Total.................................................................. 8,974 10,179 10,088
===== ====== ======
(millions of barrels)
Crude oil production(1)(2)................................................ 160 182 164
(billions of cubic feet)
Natural gas production(1)(2).............................................. 542 559 619
- ---------------------------------------
(1) Crude oil (including condensate and natural gas liquids) and gas reserves
and production amounts are stated before making any deductions in respect
of royalties. Royalties on YPF's production are accounted for as a cost of
production and are not deducted in determining net sales.
(2) All information relating to YPF's oil and gas production has been
determined in accordance with Rule 4-10 of Regulation S-X of the Securities
and Exchange Commission and Statement of Financial Accounting Standards No.
69, and such amounts may differ from actual production amounts and actual
deliveries of oil or natural gas.
Results of Operations
The following table sets forth certain financial information as a
percentage of net sales for the years indicated.
Year Ended December 31,
-----------------------------------
2002 2001 2000
---- ---- ----
(percentage of net sales)
Net sales........................................................... 100.0% 100.0% 100.0%
Cost of sales....................................................... (56.4) (59.6) (57.6)
----- ----- -----
Gross profit........................................................ 43.6 40.4 42.4
Administrative expenses............................................. (2.2) (2.7) (2.1)
Selling expenses.................................................... (5.4) (9.4) (6.7)
Exploration expenses................................................ (1.2) (1.2) (1.7)
----- ----- -----
Operating income.................................................... 34.8 27.0 31.9
===== ===== =====
57
2002 Compared to 2001
YPF
Net sales for the year ended December 31, 2002 were Ps.19,599 million
compared with Ps.17,810 million in 2001, which represents an increase of 10%.
This increase mainly reflects higher proceeds in pesos from the export of crude
oil and products as a result of a favorable exchange rate on dollar-denominated
exports partially compensated by a decrease in volumes sold both in the internal
and external markets, as well as lower margins from natural gas retail sales due
to price controls.
The cost of sales in 2002 was Ps.11,057 million (including Ps.2,585
million from Global), compared to Ps.10,622 million (including Ps.1,946 million
from Global) in 2001. Cost of sales in Argentina rose in line with inflation
(the increase in the wholesale price index was 118%). The decrease in cost of
sales as a percentage of net sales mainly reflects lower growth of our cost of
sales, which consists mainly of expenses incurred in pesos, as compared to the
growth of our sales most of which are transacted in dollars. The lower growth of
our cost of sales is mainly due to the appreciation of the dollar against the
peso during 2002. Our costs in pesos increased approximately 107% during 2002,
along with the wholesale price index, while the accumulated appreciation of the
dollar for the same period was 237%.
Operating income in 2002 was Ps.6,820 million compared to Ps.4,810 million
in 2001, an increase of 42%. Operating income was positively affected in 2002 by
a decline of Ps.632 million in selling expenses mainly due to a decrease in
allowances for doubtful trade receivables. Also contributing to the increase in
operating income was an increase in gross profit of Ps.1,354 million, mainly
reflecting the effect of the devaluation of the peso which resulted in an
increase in the amount of local currency received from exports paid for in
foreign currencies
The increase in operating income was offset by the impact of foreign
exchange differences on liabilities of Ps.4,177 million principally related to
the financial debt denominated in dollars and an increase of Ps.2,034 million
related to gains on assets denominated in dollars. In addition, the effect of
the inflation adjustment method in the monetary net assets denominated in fixed
pesos negatively impact results by Ps.513 million, reflecting the financial
losses in the purchasing power of money of those net assets.
Additionally, other expenses net in 2002 amounted to Ps.430 million, an
increase of 56% as compared to Ps.275 million during 2001, mainly reflecting a
higher tax rate on checking account debits and credits, provisions related to
pending lawsuits and write-offs of unrecoverable other receivables.
Those non operating losses were partially compensated by a positive result
coming from the sales of long-term investments of Ps.687 million, mainly from
the sale of interests in Bolivia, Chile and Indonesia compared to a loss of
Ps.273 million in 2001. As a consequence of the net effects described above, net
income before taxes, minority interest and preferred stock dividends increased
13% from Ps.3,331 million in 2001 to Ps.3,759 in 2002.
Income tax during 2002 was Ps.415 million compared to Ps.1,541 million in
2001. The decrease in the effective tax rate in 2002 was a consequence of
smaller tax earnings which did not include, among others, Ps.1,743 million of
translation gains of foreign assets.
58
Net income for 2002 was Ps.3,344 million in comparison to Ps.1,788 million
in 2001, an increase of 87%, mainly from the increase in operating income, the
income from sale of noncurrent assets and the decrease of income tax, partially
offset by the negative effect of exchange rate differences.
Upstream
- Exploration and Production
Exploration and Production net sales during 2002 were Ps.12,925 million
compared to Ps.10,634 million in 2001, an increase of 22%. Net crude oil sales
increased Ps.3,973 million mainly due to a higher exchange rate that favorably
impacted both export and domestic sales. The impossibility of adjusting natural
gas prices due to price controls in the domestic market partially offset higher
revenue from crude oil sales resulting in a decrease in natural gas sales of
Ps.529 million. The transfer of participation interests in companies of
Venezuela and Bolivia to Repsol YPF and the disposition of assets in Indonesia
reduced sales by approximately Ps.1,200 million. Exploration and Production
sales include sales to related parties and intersegment sales.
Crude oil, condensate and natural gas liquids production during 2002
decreased to 439 thousand barrels per day compared to 501 thousand barrels per
day obtained in 2001, mainly as a result of the sale of interests in Indonesia,
Venezuela and Bolivia. Natural gas production decreased to 1,487 million cubic
feet per day in 2002 from 1,535 million cubic feet per day in 2001, also
reflecting the sale of production assets.
Exploration and Production operating income increased 48% to Ps.6,712
million compared to Ps.4,535 million in 2001. This increase reflects higher
sales of Ps.3,444 million in Argentina thanks to higher prices in pesos,
partially compensated by higher expenses in Argentina of Ps.830 million,
originated by higher royalties payments of Ps.415 million, an increase in
purchases of Ps.190 million and an increase of Ps.98 million in depreciation
reflecting an increase in the level of investments in Argentine pesos.
Exploration and Production operating income in 2001 included Ps.419 million
related to assets sold in 2002.
Natural Gas and Electricity
Net sales reached Ps.344 in 2002 compared to Ps.244 in 2001, mainly
reflecting dollar-denominated sales of Mega, partially offset by domestic
natural gas sale prices which have remained frozen in pesos at their
pre-devaluation level.
Natural Gas and Electricity operating income increased 119% to Ps.136
million compared to Ps.61 million in 2001, mainly reflecting an increase of
Ps.87 million in the operating income of Mega, which reflects higher proceeds in
pesos from exports paid for in foreign currencies. See "Item 4. Information on
the Company--Natural Gas and Electricity Markets Distribution--Liquid Natural
Gas."
Downstream
- Refining and Marketing
Net sales in 2002 were Ps.16,945 million, a 44% increase compared to
Ps.11,803 million in 2001, mainly reflecting an increase in sales of Ps.3,687
million due to the assumption by the Refining and Marketing division of the
operations related to crude oil sales to third parties from Exploration and
Production in 2001. We also registered an increase of Ps.1,455 million
originated by higher revenues in pesos from exports due to the peso devaluation
and higher prices of exports, partially offset by the implementation of
government imposition of custom duties on exports since the second quarter of
2002. Refining and Marketing sales include sales to related parties and
intercompany sales.
59
Refining and Marketing operating loss in 2002 was Ps.46 million,
compared to operating income of Ps.402 million in 2001. The operating loss
mainly reflects the significant increase in crude oil prices in pesos which
could not be completely transferred to end users due to pesification prices
during first part of the year and lower demand during 2002, partially offset by
lower marketing expenses that were nevertheless affected by higher
transportation costs.
Refinery throughput in 2002 reached 310,000 barrels per day, representing a
utilization rate of 89.8%. Processing capacity decreased to 319,500 barrels per
day during 2002 due to modifications made at the Lujan de Cujo refinery.
- Chemical
The Chemical business unit sells products in both the domestic and the
international markets.
Net sales during 2002 were Ps.1,572 million, an increase of 54% compared to
Ps.1,023 million in 2001, mainly reflecting an increase of volumes sold,
accompanied by higher prices in domestic and international markets. Higher sales
contributed to an increase of Ps.337 million in operating income compared to
break-even results in 2001. Profertil also contributed Ps.108 million to 2002
operating income.
2001 Compared to 2000
YPF
Net sales for the year ended December 31, 2001 were Ps.17,810 million
compared to Ps.18,897 million in 2000, which represents a decrease of 6%. This
decrease in mainly the result of decreasing oil prices during 2001.
Exploration and Production net sales decreased to Ps.10,634 million in 2001
(including Ps.4,794 million transferred to Refining and Marketing, representing
mainly crude oil) from Ps.11,881 million in 2000 (including Ps.5,728 million
transferred to Refining and Marketing, primarily crude oil). This decrease of
10% was principally due to the fall in international crude oil prices, where the
average price of the West Texas Intermediate (WTI) experienced a decrease of
14.52%, from US$30.30 in 2000 to US$25.90 in 2001. Refining and Marketing net
sales during 2001 decreased to Ps.11,803 million compared to Ps.13,130 million
in 2000. This decrease resulted mainly from lower revenues from the domestic
market and from Global due to decreases in volume sales.
Cost of sales in 2001 was Ps.10,622 million (including Ps.1,946 million
from Global), compared to Ps.10,878 million in 2000 (including Ps.2,540 million
from Global), a 2.35% decrease. Excluding Global, cost of sales increased Ps.338
million, an increase of 4%, mainly attributable to higher depreciation of fixed
assets charges and higher preservation and maintenance and remediation costs
related to fields incorporated through the merger with Astra, which were
partially compensated with lower expenses in royalties paid and crude oil
purchases from third parties, both of which are directly related to the
evolution of crude oil prices.
Operating income in 2001 was Ps.4,810 million compared to Ps.6,049 million
in 2000, a decrease of 20.5%. This decrease primarily reflects lower average
international crude oil prices, lower prices of refined products for export and
the effect of a Ps.493 million expense related to allowances for doubtful trade
receivables, partially offset by an increase in export volume sales.
Net income for 2001 was Ps.1,788 million compared to Ps.2,681 million in
2000, a 33% decrease, principally due to lower crude oil prices. Net income
includes a Ps.277 million gain related to the sale of long-term investments and
joint venture interests, a Ps.550 million loss from the valuation of YPF's
investment in Indonesia at its estimated realizable value, which divestiture was
approved by YPF Board of Directors in December of 1999, and a Ps.295 million
loss from the valuation of other YPF's long-term investments at their estimated
realizable value. During 2001, YPF accrued Ps.1,541 million of income tax, 23%
lower than the Ps.1,999 million accrued in 2000. The decrease is mainly due to
lower net income before taxes.
60
Net income before the sale of long-term investments, assets to be disposed
of, income tax expense, and minority interest and preferred stock dividends in
2001 would have been Ps.3,603 million in comparison to Ps.5,132 million in 2000,
a decrease of 30%. Interest expense increased 15% to Ps.643 million in 2001 from
Ps.559 million in 2000, reflecting mainly the effect of higher average levels of
debt. Other financial income (expense) and holding gains (losses), excluding
interest expenses on liabilities, was Ps.35 million loss in 2001 compared to
Ps.216 million income in 2000, a 116% decrease, mainly due to higher holding
losses on inventories in 2001.
In 2001, other expenses decreased 55% to Ps.275 million from Ps.611 million
in 2000. Other expenses as of December 31, 2000, include a Ps.238 million loss
related to the fine imposed by Resolution No. 189 from Department of Industry,
Commerce and Mining of Argentina, described in Note 10(b) to the Consolidated
Financial Statements. See "Item 8: Financial Information--Legal Proceedings."
Upstream
- Exploration and Production
Exploration and Production net sales in 2001 were Ps.10,634 million
compared to Ps.11,881 million in 2000, which represents a decrease of 10.5%.
Crude oil net sales decreased Ps.1,593 million from Ps.9,675 million in 2000 to
Ps.8,082 million in 2001, principally reflecting falling international crude oil
prices. Net natural gas sales were Ps.2,208 million in 2001 compared to Ps.1,907
million in 2000, an increase of 15.7%. This increase was mainly due to higher
sale prices and higher sale exports to Bolivia and Brazil.
Crude oil, condensate and natural gas liquids production during 2001
increased 11.6% to 501 thousand barrels per day from 449 thousand barrels per
day during 2000, principally as a result of an increase of the production in
Argentina and Bolivia, partially compensated by the sale of YPF's interests in
Ecuador and Venezuela. See "Item 4: Information on the Company--Exploration and
Development Properties and Production." Natural gas production during 2001
decreased 9.7% to 1,532 million cubic feet per day from 1,696 million cubic feet
per day in 2000, principally reflecting natural gas market conditions and the
sale of Santa Cruz I and Santa Cruz II in the Austral Basin.
Exploration and Production operating income was Ps.4,535 million in 2001
compared to Ps.6,168 million in 2000, which represents an decrease of 26.5%.
This decrease of Ps.1,633 million in operating income was mainly driven by a
decrease in crude oil sales and by an increase of Ps.458 million in the cost of
sales, from Ps.5,305 million in 2000 to Ps.5,763 during 2001, principally
reflecting higher depreciation costs moderated by lower royalty payments. The
decrease in Exploration and Production operating income was partially offset by
higher natural gas sales.
Downstream
- Refining and Marketing
Net sales in 2001 were Ps.11,803 million, a 10% decrease compared with
2000 sales, reflecting lower domestic sales due to the fall of the economic
activity in Argentina, moderated by an increment in export volumes with lower
selling prices. Revenues from activities within the United States also
decreased, mainly reflecting lower volumes and prices.
61
Operating income increased to Ps.402 million during 2001 from Ps.151
million in 2000, reflecting lower crude oil prices partially offset by higher
selling expenses. Marketing margins in Argentina improved, mainly due to
sustained product prices. Refinery throughput in 2001 reached 288,000 barrels
per day, representing a 86% utilization rate. Total capacity is 334,000 barrels
per day. Refinery runs were 1% below the 291,000 barrels per day refined during
2000, which represented an 87% utilization rate. This decrease in production
reflects lower demand for refined products in the domestic market partially
offset by higher demand in the international market.
During 2001, YPF revenues from exports of refined products decreased 0.4%
in comparison to 2000, mainly due to lower prices in gasoline, fuel oil and
diesel for export, partially offset by higher volumes sold.
- Chemical
The Chemical business unit sells products in both the domestic and the
international markets.
Net sales during 2001 were Ps.1,023, a decrease of 2.49% with respect to
2000 net sales, mainly due to lower volumes in the export market and higher
prices in both export and domestic markets. Operating income during 2001
decreased Ps.7 million (100%).
Natural Gas and Electricity
Natural gas market distribution business involves the marketing of
Exploration and Production's natural gas produced in Argentina . The majority of
revenues come from marketing fees paid by the Exploration and Production unit,
calculated over total domestic and export sales of natural gas. Other sources of
revenue are gas treatment services to third parties producers in the Neuquen
basin. The Electricity segment does not produce any independent revenue.
Total Natural Gas and Electricity revenues during 2001 were Ps.244 million,
which represents more than 1% of YPF's total net sales, including inter-segment
sales. Operating income was Ps.61 million, which represents more than 1% of
YPF's total operating income
Liquidity and Capital Resources
Net cash flow from operating activities was Ps.5,406 million in 2002, as
compared to Ps.3,967 million in 2001, an increase of 36%. This increase was
principally due to the increase of Ps.1,855 million in operating income net of
other expenses. Additionally changes in working capital reduced operating cash
flow by Ps.279 million in 2002.
Significant sources of cash for investing and financing activities in 2002
included proceeds of Ps.1,479 million from the sale of long-term investments in
Chile, Indonesia and Bolivia. In 2001, the main sources of cash for investing
and financing activities included Ps.3,269 million from the sale of long-term
investments, mainly of EG3, Electricidad Argentina S.A., and assets in Ecuador
and Venezuela.
The principal uses of cash from investing and financing activities in 2002,
included Ps.2,693 million in fixed assets acquisitions and Ps.3,737 million for
net repayments of outstanding loans. In 2001 the principal uses of cash from
investing and financing activities included Ps.2,807 millions in fixed assets
acquisitions, Ps.3,604 million in dividend payments, Ps.751 million for net
repayments of outstanding loans and Ps.903 million in capital contribution to
EG3 and for the acquisition of an additional interest in Andina.
We believe that our cash flow from operating activities, our main source of
funding will be primarily affected by changes in international oil prices and to
a lower extent by our ability to transfer the impact of any increases in
international prices in dollars to domestic prices in pesos.
62
Capital Expenditures
Of the approximately Ps.3,111 million of capital and exploration
expenditures in 2002, approximately Ps.2,674 million represented Exploration and
Production capital and exploration expenditures, including Ps.2,459 million in
development investment and Ps.215 million in exploration investments. Refining
and Marketing capital expenditures amounted Ps.286 million of which Ps.113
million represented Chemical capital investment.
Expected capital investment and exploration expenditures for 2003 include
approximately US$664 million of projected capital and exploration expenditures
for Exploration and Production, approximately US$129 million for Refining and
Marketing, approximately US$24 million in Chemical business, and approximately
US$20 million for Natural Gas and Electricity. YPF expects to finance its 2003
capital expenditure budget mainly through cash from operations. Actual capital
investment and exploration expenditures may differ from these estimates.
Dividends
The Annual Ordinary and Extraordinary Shareholders' Meeting held on April
10, 2002, approved an annual dividend of Ps.2 per share, proposed by the Board
of Directors on its meeting of November 29, 2001. The dividend was paid on
December 5, 2001. At the same meeting the shareholders approved a reserve of
Ps.1,694 million for future dividends. Under Argentine law, the Board of
Directors has the right to declare annual dividends subject to further approval
of shareholders at the next shareholders' meeting. The Board has the power to
decide the timing and the amount of future payments out of this reserve, to the
extent such payments are possible under the Argentine and the Company's economic
and financial circumstances.
On November 7, 2002, the Board of Directors approved dividends of Ps.1,569
million to be paid out of the reserve for future dividends approved by the
Shareholders' Meeting of April 10, 2002. Such dividend was mostly offset against
certain receivables held by Repsol YPF, our majority shareholder, for an amount
of Ps.1,532, and the balance with minority shareholders was paid in cash with
free available funds.
The Shareholders' Meeting held on April 9, 2003 approved a dividend of
Ps.5 per share, which was paid on April 22, 2003, and approved a Ps.1,023
million reserve for future dividends. The Board has the power to decide the
timing and the amount of future payments out of this reserve, to the extent such
payments are possible under the Argentine and the Company's economic and
financial circumstances.
Financial Condition
Our net debt at December 31, 2002 and 2001 was calculated as follows:
As of December 31,
--------------------
2002 2001
---- ----
(millions of Ps.)
Long-term debt................................................ 2,728 2,512
Short-term debt............................................... 1,529 2,394
----- -----
Total debt................................................. 4,257 4,906
Less
Cash....................................................... (248) (85)
Temporary cash investments................................. (426) (155)
Long-term financial investments............................ (18) (61)
----- -----
Net debt................................................ 3,565 4,605
===== =====
63
The following table sets forth the sources of debt variation at December
31, 2002 and 2001:
As of December 31,
--------------------
2002 2001
---- ----
(millions of Ps.)
Net debt at the beginning of the period............................................ (4,605) (3,182)
Merger with Astra............................................................... -- (2,608)
Net cash flow................................................................... 5,685 4,730
Divestments..................................................................... 1,479 3,269
CAPEX........................................................................... (2,693) (2,807)
Dividend paid................................................................... (37) (3,604)
Variation in commercial working capital and other............................... (3,394) (403)
------ ------
Net debt at the end of the period.................................................. (3,565) (4,605)
====== ======
The following table sets forth information with regard to our commitments
for the periods indicated below with regard to our debt:
Expected Maturity Date
-------------------------------------------------------------------
2003 2004 2005 2006 2007 Thereafter Total
---- ---- ---- ---- ---- ---------- -----
(million of US$)
Debt...................................... 454 329 25 25 236 195 1,264
Total debt outstanding as of December 31, 2002, was US$1,264 million
(Ps.4,257 million), consisting of short-term debt (including the current portion
of long-term debt) of US$454 million (Ps.1,529 million) and long-term debt of
US$810 million (Ps.2,728 million). As of December 31, 2002, all of our debt was
denominated in U.S. Dollars. The main operations with derivatives are detailed
in Note 16 (b) to the Consolidated Financial Statements. See also "Item 11:
Quantitative and Qualitative Disclosures about Market Risk."
Since September 2001, YPF has repurchased certain of its publicly-traded
bonds in open market transactions on an arms' length basis. As of March 31, 2003
YPF has repurchased approximately US$284.5 million of such bonds, which have not
been cancelled and remain in its investment portfolio. YPF may from time make
additional purchases of, or effect other transactions relating to, its
publicly-traded bonds if in YPF's own judgment the market conditions are
attractive.
Contractual Obligations
The following table sets forth information with regard to YPF's commitments
under commercial contracts for the years indicated below, as of December 31,
2002:
Less More
than 1 - 3 3 - 5 than 5
Total 1 year years years years
----- ----- ----- ----- ------
(million of US$)
Contractual Obligations
Debt........................................... 1,264 454 354 261 195
Purchase Obligations(1)
Purchases of services.......................... 759 76 114 95 474
Purchases of goods............................. 387 93 110 37 147
LPG......................................... 20 7 11 2 --
Electricity................................. 135 9 18 18 90
Natural gas................................. 128 65 58 5 --
Steam....................................... 87 6 12 12 57
Others...................................... 17 6 11 -- --
----- --- --- --- ---
Total.................................... 2,410 623 578 393 816
===== === === === ===
- ---------------------------------------
(1) Includes purchase commitments under commercial agreements that do not
provide for a total fixed amount, which have been valued using YPF's best
estimates.
64
Less than 1 - 3 3 - 5 More than 5
Total 1 year years years 5 years
----- --------- ----- ----- -----------
(million of US$)
Sale Commitments
Crude oil sales............................................. 559 135 176 176 72
Natural Gas sales........................................... 6,321 400 951 899 4,071
LPG sales................................................... 6 2 4 -- --
Other petroleum and petrochemical product sales............. 833 152 185 148 348
----- --- ----- ----- -----
Total................................................. 7,719 689 1,316 1,223 4,491
===== === ===== ===== =====
YPF has additional commitments under derivatives contracts and guarantees.
For a discussion of these additional commitments see "Item 11: Quantitative and
Qualitative Disclosures About Market Risk" and "Guarantees Provided" below.
Transactions With Unconsolidated Special Purpose Entities ("SPE")
Since 1996, YPF has entered into three forward oil sale agreements, which
we refer to as the FOS transactions in this annual report. These agreements were
entered into in order to obtain cash to fund operations in advance of the actual
sale and delivery of oil. Under these transactions, YPF was advanced US$381
million in 1996, US$300 million in 1998 and US$383 million in 2001, against
future deliveries of oil. YPF's obligations under the FOS transactions are
recorded as a liability in the consolidated balance sheet as customer advances
and will be reduced and taken to income as the physical deliveries are made over
the term of the contracts. As of December 31, 2002, the amount of FOS customer
advances recorded on our consolidated balance sheet was Ps.1,715 million.
The structure of each of these FOS transactions is similar. YPF enters into
a forward oil sale agreement that calls for the future delivery of oil for the
life of the contract. YPF is paid in advance for the future delivery of oil. The
price of the oil to be delivered is calculated using various factors, including
the expected future price and quality of the crude oil being delivered. The
counterparty or assignee to each oil supply agreement is a special purpose
entity incorporated in the Cayman Islands, which finances itself as described
below. The oil to be delivered under each supply agreement is subsequently sold
in the open market.
YPF is exposed to any change in the price of the crude oil it will deliver
in the future under the FOS transactions. YPF's exposure derives from various
crude oil swap agreements under which YPF pays a fixed price with respect to the
nominal amount of the crude oil sold, and receives the variable market price of
such crude oil. See "Item 11 - Quantitative and Qualitative Disclosure About
Market Risk--Commodity Price Risk--Crude Oil Price Swaps", and "Item 7. Major
Shareholders and Related Party Transactions." See Note 14 (n) to the
Consolidated Financial Statements for a description of the treatment of the FOS
transactions under U.S. GAAP.
The following provides an overview of the three FOS transactions:
FOS I FOS II FOS III(2)
---------------------- -------------------- -------------------------
Date.............................. November 18, 1996 June 24, 1998 December 31, 2001
Net proceeds(1)................... US$380,606,587 US$299,967,289 US$382,693,787
SPE............................... Oil Trading Corp. Oil Enterprises Ltd. Oil International Limited
SPE debt.......................... $400 million $315 million $200 million 3.98% notes/
6.467% notes 6.239% notes $162.7 million 3.90%
notes
Purchaser......................... Morgan Guaranty Trust Morgan Guaranty Trust Morgan Stanley Capital
Group
Guarantee/hedge................... Oil Price Hedge Oil Price Hedge Oil Price Hedge
Agreement/ Agreement/ Agreement/
Default Insurance Default Insurance Contingent Supply
Agreement/
Default Insurance
Total crude oil barrels to be
delivered over the life of the
contract....................... 27,803,734 23,934,985 24,105,532
Average crude oil barrels per
month.......................... 332,448 201,126 287,054
Term of transaction............... 7 years 10 years 7 years
65
- ---------------------------------------
(1) The total sale amount under each FOS transaction is as follows. FOS I:
US$398,907,814, FOS II: US$310,587,895 and FOS III US$400,000,000. The
difference between the net proceeds and the sale amount is deposited to a
reserve account to cover certain contingencies and, absent an event of
default or other events set forth in the transaction documents, will be
paid to YPF during the last three months of the term of each transaction.
(2) The original FOS III debt was refinanced in December 2002 and further
refinanced in February 2003.
(3) Note 14 (n) to the Consolidated Financial Statements refer to these
entities as Variable Interest Entities or VIEs.
Repsol YPF has guaranteed various of YPF's obligations under the FOS III
structure through a contingent supply agreement. Under the contingent supply
agreement, Repsol YPF may be required to make up for any shortfall in the crude
oil deliveries that YPF is required to make under the forward oil sale
agreement. Additionally, if certain events of default occur under the contingent
supply agreement, including failure to make up for YPF's delivery shortfalls,
Repsol YPF may be required to deliver at one time all the crude oil that YPF was
to deliver during the life of the forward oil sale agreement. If Repsol YPF is
not able to deliver the amount of barrels not delivered by YPF, then Repsol YPF
will be required to pay in cash an amount equivalent to the barrels of crude oil
not yet delivered. Repsol YPF may also be required to pay similar amounts of
crude oil or pay similar amounts in cash if YPF decides to terminate the forward
oil sale agreement and is not able to satisfy the amounts due and unpaid by YPF.
The contingent supply agreement includes cross-default provisions that may be
triggered if an event of default occurs with respect to the indebtedness of
Repsol YPF or certain of its subsidiaries equal to or exceeding $30 million.
Under the contingent supply agreement, Repsol YPF has also agreed to indemnify
the FOS III special purpose entity for certain taxes it may be required to
reimburse to the holders of the notes issued by the special purpose entity and
for any make-whole premium it may be required to pay in case of early redemption
of those notes. Also in connection with FOS III, Repsol YPF has guaranteed YPF's
obligations under a the crude oil swap agreement related to FOS III.
In December 2002, FOS III was refinanced through the issuance of two series
of notes by a new special purpose entity. One of the series was guaranteed by
default insurance policy issued by a third-party insurer. The proceeds from the
insured and the uninsured notes were used to repay the original debt of the FOS
III special purpose entity issued in December 2001 and to repurchase its
preferred shares. The underlying oil supply contracts were assigned to the new
special purpose entity. In February 2003, the new special purpose entity
retired and replaced the uninsured notes by issuing a second series of insured
notes guaranteed by a different third-party insurer. Repsol YPF has agreed to
reimburse each insurer for any payment made under any of the default insurance
policies covering the notes and has also guaranteed the special purpose entity's
obligations in connection with such insurance policies. Repsol YPF has also
provided indemnities and warranties to the underwriter of the notes. Neither
Repsol YPF nor any of its affiliates received any proceeds or recognized any
income as a direct result of this refinancing.
The third-party insurer guaranteeing the series of FOS III insured notes
issued in December 2002 is also a reinsurer of the insurance policy issued under
FOS II. As part of the refinancing of FOS III, Repsol YPF agreed to reimburse
this third-party insurer for any payment made by it as reinsurer in connection
with the FOS II default insurance policy.
YPF's monthly crude oil delivery obligations under the FOS transactions
represent 6.31% of its monthly production as of December 31, 2002. Total
remaining crude delivery obligations under the FOS transactions represent 23.08%
of YPF's crude oil annual production. Total possible contingencies payable in
cash by YPF under the FOS transactions have been estimated at approximately
US$730 million. Under an early termination scenario, if YPF is not able to
deliver the required number of barrels from its own production, YPF may be
required to purchase oil of similar quality in the open market.
In January, 2003 the Argentine tax authorities formally communicated to YPF
their view that the forward oil sale transactions entered into with special
purpose entities in 1996 and 1998 should have been treated as financial
transactions carried out in Argentina and, as such, should have been subject to
the relevant tax withholdings, which would amount to approximately Ps.69
million.
66
Covenants in YPF indebtedness
Our financial debt generally contains customary covenants for contracts of
this nature, including negative pledge, material adverse change and
cross-default clauses.
In the event of a default under any series of our bonds, the trustee, at
his sole discretion or at the request of the holders of at least one fifth or
one quarter of the bonds, depending upon the series, can declare the bonds of
that series to be due and payable.
With respect to bond issues totaling US$998 million, YPF has agreed to
clauses including, among others, to pay all amounts due on maturity and, subject
to certain exceptions, not to establish liens or charges on its assets. In the
event of a default, the trustee or the holders of at least 25% of the total
principal of the outstanding debentures may declare due and immediately payable
the principal and accrued interest on all the debentures.
Almost all of our total outstanding debt is subject to cross-default
provisions. These provisions may be triggered if an event of default occurs with
respect to the payment of principal of or interest on indebtedness equal to or
exceeding US$20 million.
As a result of these cross-default provisions, a default on the part of YPF
or any of our subsidiaries covered by such provisions could result in a
substantial portion of our debt being declared in default or accelerated. YPF
believes that none of its debt or that of any of its consolidated subsidiaries
is currently in default. However, some of YPF's non-consolidated subsidaries
currently benefiting from guarantees provided by us may face some difficulties
in honoring their financial obligations in the short-term. See "-Guarantees
Provided" below.
Credit Rating
On June 3, 2003, Standard & Poor's raised YPF's long-term debt to BB. YPF's
long-term debt continues to be rated as "B1" by Moody's and as "B+" by Fitch
IBCA. The outlook or rating watch for YPF at each of these rating agencies is
currently set at "positive" for Standard & Poor's and Fitch IBCA and "negative"
for Moody's. A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization.
We do not have any ratings downgrade triggers that would accelerate the
maturity dates of our debt or trigger any other contractual obligation on our
part. However, a downgrade in our credit rating could have a material adverse
effect on the cost of renewing existing credit facilities, or obtaining access
to new ones in the future. In the past, our main sources of liquidity have been
our cash flows from operations, bank financing, issuance of debt securities and
the proceeds from our divestment plan. Any future downgrades will not preclude
us from using any of our existing credit lines.
Guarantees Provided
As of December 31, 2002, YPF had provided the following guarantees:
YPF provided guarantees for marketing agreements entered into by certain
subsidiaries for a total of US$77 million. Subsequent to December 31, 2002,
those agreements were renewed for an additional year, in a amount of US$47
million. Additionally, YPF has signed guarantees in relation to the financing
activities of Pluspetrol Energy S.A., Central Dock Sud S.A. and PBBPolisur S.A.
in a amount of approximately US$76 million, US$85 million and US$21 million,
respectively, and signed a guarantee in relation to the financing activities of
Mega for an amount of approximately US$13 million. In connection with the loans
taken for the acquisition of the common stok of Maxus (indirect controlled
company trough YPF Holdings Inc.), YPF has guarantee the repayment of such debt,
that amounted to US$27 million.
67
Additionally, in connection with the sale of certain of YPF's investees
during 2001, YPF provided a guarantee of approximately US$80 million to cover
the impact of the devaluation/depreciation of the Argentine peso against the
U.S. dollar for a 12 month period from December 2001. The effect of the
guarantee was approximately Ps.173 million and was charged to the statement of
income.
As a result of the merger among YPF, Astra and Repsol Argentina, YPF
assumed various guarantees of financial obligations of some non-consolidated
subsidiaries. These guarantees cover only a pro rata portion of the underlying
financial obligations equivalent to YPF's ownership interest in the
non-consolidated subsidiary. Pursuant to the terms of these guarantees, if any
of these non-consolidated subsidiaries is declared in default under any of the
credit agreements benefiting from a YPF guarantee, YPF will be required to make
certain disbursements to the applicable subsidiary's lenders. Due to the
cross-default provisions to which our outstanding debt is subject,
non-performance of our obligations under any of these guarantees if they become
due, could result in a substantial portion of our debt being declared in default
or accelerated.
YPF may from time make additional purchases of, or effect other
transactions relating to, its publicly-traded bonds if in YPF's own judgment the
market conditions are attractive.
U.S. GAAP Reconciliation
The recurrent difference between YPF's net income under Argentine GAAP and
its net income under U.S. GAAP for the year ended December 31, 2002, is due
primarily to the remeasurement into functional currency and translation into
reporting currency, the elimination of the restatement into Argentine constant
pesos, the effects of the sale of noncurrent assets to related parties, the
impairment of long-lived assets and the effect of the accounting under U.S. GAAP
for deferred income tax.
Under Argentine GAAP, financial statements are presented in constant
Argentine pesos ("reporting currency"). Foreign currency transactions are
recorded in Argentine pesos by applying to the foreign currency amount the
exchange rate between the reporting and the foreign currency at the date of the
transaction. Exchange rate differences arising on the settlement of monetary
items at rates different from those at which they were originally recorded are
recognized in the income statement of the period.
Under U.S. GAAP, a definition of the functional currency is required, which
may differ from the reporting currency. Management has determined the U.S.
dollar to be YPF's functional currency in accordance with the Statement of
Financial Accounting Standards (SFAS) No. 52. Therefore, YPF has remeasured into
U.S. dollars the Consolidated Financial Statements as of December 31, 2002, 2001
and 2000, prepared in accordance with Argentine GAAP by applying the procedures
specified in SFAS No. 52. The objective of the remeasurement process is to
produce the same results that would have been reported if the accounting records
had been kept in the functional currency. Accordingly, monetary assets and
liabilities are remeasured at the balance sheet date (current) exchange rate.
Amounts carried at prices in past transactions are remeasured at the exchange
rates in effect when the transactions occurred. Revenues and expenses are
remeasured on a monthly basis at the average rates of exchange in effect during
the period, except for consumption of nonmonetary assets, which are remeasured
at the rates of exchange in effect when the respective assets were acquired.
Translation gains and losses on monetary assets and liabilities arising from
the remeasurement are included in the determination of net income (loss) in
the period such gains and losses arise.
The amounts obtained from the remeasurement process referred to above
are translated into Argentine pesos following the provisions of SFAS No. 52.
Assets and liabilities are translated at the current selling exchange rate of
Argentine pesos Ps.3.37, Ps.1.7 and Ps.1 to US$1, as of December 31, 2002, 2001
and 2000, respectively. Revenues, expenses, gains and losses reported in the
income statement are translated at the exchange rate existing at the time of
each transaction or, if appropriate, at the weighted average of the exchange
rates during the period. Translation effects of exchange rate changes are
included as a cumulative translation adjustment in shareholders' equity. As of
December 31, 2002 the remeasurement into functional currency and the translation
into reporting currency added Ps.1,490 million to net income. The remeasurement
and translation of assets and liabilities resulted in a credit to shareholders
equity of Ps.18,865 million.
68
Under Argentine GAAP, YPF has historically followed a policy of analyzing
the recoverability of its assets on an overall basis. With respect to operations
that were held pending sale or disposal, YPF's policy was to record these assets
at amounts that did not exceed net realizable value.
Under U.S. GAAP, for proved oil and gas properties, YPF performs the
impairment review on an individual field basis. Other long-lived assets
are aggregated, so that the individual cash flows produced by each group of
assets may be separately analyzed. Each asset is tested following the guidelines
of Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for
the Impairment of Long - Lived Assets", by comparing the net book value of such
an asset with the expected cash flow (before income tax and without discounting
the cash flow). Impairment losses are measured as the amount by which the
carrying amount of the assets exceeds the fair value of the assets. When fair
values are not available, YPF estimates fair value using the expected future
cash flows discounted at a rate commensurate with the risks associated with the
recovery of the assets. The accumulated adjustments under U.S. GAAP of the
impairment generated as of December 31, 2002, 2001 and 2002 were Ps.985 million,
Ps.548 million and Ps.224 million, respectively, for the YPF's Exploration and
Production segment, and Ps.16 million, Ps.9 million and Ps.10 million,
respectively, for the Refining and Marketing segment, corresponding to
investments in controlled companies. The main factor for the impairment in each
year in the Exploration and Production segment was the decline in estimated oil
and gas prices, which affected basically oil fields in the San Jorge Basin
(Argentina).
The adjusted basis after impairment results in lower depreciation under
U.S. GAAP of Ps.144 million, Ps.30 million and Ps.21 million for the years ended
December 31, 2002, 2001 and 2000, respectively.
Under U.S. GAAP, results on sales of noncurrent assets to related parties
under common control and related accounts receivables are considered as a
capital (dividend) transaction. Under Argentine GAAP, results on sales of
noncurrent assets and accounts receivables are recognized in the statement of
income and the balance sheet, respectively.
Under Argentine GAAP, income tax expense is generally recognized based upon
the estimate of the current income tax liability to the Federal Treasury. Under
U.S. GAAP, deferred tax assets and liabilities are recognized for differences
between the financial and tax basis of assets and liabilities and for the tax
loss carryforward at the statutory rate at each reporting date. In 2002, YPF
recognized a loss of Ps.149 million for deferred income tax under U.S. GAAP. In
addition, as of December 31, 2002, the Company recognized a deferred tax asset
of approximately Ps.536 million. Additional information regarding YPF's income
taxes under U.S. GAAP is detailed in Note 16 to the Consolidated Financial
Statements.
For a more detailed discussion of the most significant differences
between Argentine GAAP and U.S. GAAP, please refer to Note 14 to the
consolidated financial statements, which also discusses the effects of new
accounting principles in the United States in paragraphs "l.", "m." and "n."
Research and Development
Research and development activities are managed by Repsol YPF. Repsol YPF
intends to continue developing its potential for technological innovation
consistently with its business growth. Repsol YPF's research and development
activities are aimed to both develop new products and production processes in
areas where using proprietary technology provides a competitive advantage, and
to provide the necessary support to incorporate technological improvements to
existing products and processes. The goal is the continuous search for
excellence in product quality and production costs. Repsol YPF also undertakes
longer-term and riskier projects to evaluate the future potential of new
technologies.
69
With these objectives in mind, in 2002 Repsol YPF opened its technology
center in Mostoles (Madrid), one of the best technology centers in the
international energy industry and which clearly reflects Repsol YPF's commitment
to research and development. This center houses all of Repsol YPF's Research and
Development and Technical Assistance facilities that were previously scattered
throughout Spain. This center offers our researchers state-of-the-art facilities
in terms of safety and health and environmental care, which are functional and
flexible enough to undertake changes and development of future applications.
Projects in Exploration and Production have focused principally on increasing
oil recovery in oil fields, reducing production costs and minimizing the
environmental impact of our operations.
ITEM 6. Directors, Senior Management and Employees
Board of Directors
Currently, YPF's Board of Directors consists of the following directors:
Class of
Shares Director Term
Name Position Represented Since Expires
- ----------------------------------------------------- -------- ----------- -------- ---------
Alfonso Cortina de Alcocer................................... Chairman and Director D 1999 2005
Jose Ramon Blanco Balin...................................... Director D 1999 2005
Carlos de la Vega............................................ Director D 1991 2004
Antonio Hernandez-Gil Alvarez-Cienfuegos..................... Director D 1999 2005
Alejandro Macfarlane......................................... Director D 1999 2004
Miguel Madanes............................................... Director D 1993 2004
Carlos Alberto Olivieri...................................... Director D 2002 2004
70
Class of
Shares Director Term
Name Position Represented Since Expires
- ------------------------------------------------------------- -------- ----------- -------- ---------
Jose Maria Ranero Diaz....................................... Director D 2001 2005
Miguel Angel Remon Gil....................................... Director D 1999 2005
Juan Sancho Rof.............................................. Director D 1999 2005
Carlos Maria Tombeur......................................... Director D 1999 2004
Carlos Oscar Tempone......................................... Director A 2002 2004
Executive Officers
The President of the Board of Directors, who, according to the Bylaws of
YPF, must be a Class D director, is elected by the Board of Directors to serve a
term of office not to exceed his term as director; all other officers serve at
the discretion of the Board of Directors and may be terminated at any time
without notice.
The current executive officers of YPF, their respective positions with YPF
and the years they were appointed as executive officers are as follows (as
reported to the local regulatory authorities):
Executive
Officer
Name Position Since
- -------------------------------------------------------------------------------------------------------- --------
Jose Maria Ranero Diaz............ General Manager 2000
Ruben Patritti.................... Director of General Exploration & Production - Latin America 1999
Pascual Olmos..................... Director of General Refining & Marketing - Latin America 2002
Alfredo Pochintesta............... Director of LPG - Latin America 1999
Ernesto Lopez Anadon.............. Director of Natural Gas & Electricity - Latin America 1999
Alejandro Quiroga Lopez........... Director of Legal Affairs 2001
Luis Garcia....................... Director of Human Resources 2001
Fabian Falco...................... Director of External Relations 2001
Carlos Alberto Olivieri........... Chief Financial Officer 2002
Carlos Alfonsi.................... Director of Trading - Latin America 2002
Supervisory Committee
The bylaws provide for a Supervisory Committee consisting of three members
and three alternates members, elected to one-year terms. The holders of Class D
Shares will elect two members and two alternates and the remaining member and
alternate will be elected by the holders of Class A Shares, as long as one share
remains outstanding.
Under the bylaws, meetings of the Supervisory Committee may be called by
any member and require the presence of three members, and decisions may be made
by a majority of such members. Under Argentine law, the functions of the
Supervisory Committee include attending all meetings of the Board of Directors,
overseeing the management of YPF, preparing a report to the shareholders on
YPF's financial statements, attending shareholders' meetings and providing
information upon request to holders of at least 2% of YPF's capital stock. The
current members of the Supervisory Committee, the year they were appointed to
the Supervisory Committee and the year their term expires are as follows:
Class of Shares Member Term
Name Represented Since Expires
- ----------------------------------------------------------- --------------- -------- --------
Mario E. Vazquez........................................... D 1993 2003
Homero Braessas............................................ D 1999 2003
Carlos Manuel Vidal........................................ A 2002 2003
71
Director's outside business interests and experience.
Alfonso Cortina de Alcocer
In June 1996, he was appointed C.E.O. of Repsol and in July 1999 C.E.O. of
YPF. He is an Industrial Engineer and Graduated in Economics and Business. He
has held several positions at Banco de Vizcaya Group (1968-1982) and at the
Banco Hispano Americano (1982-1984). He was Vice President and Consejero
Delegado member of the Board of Directors, and President and Alternate member of
the Board of Directors of Portland-Valderribas, S.A. between 1984 and 1996. He
is a member of the Board of Directors of various financial and industrial
corporations as well as of several international institutions.
Jose Ramon Blanco Balin
Director of YPF since July 19, 1999. Chief Operating Officer and Consejero
Delegado of Repsol YPF. Before becoming Chief Operating Officer he was YPF's
Corporate Vice President and, prior to that, he was a member of Repsol YPF's
Board of Directors as well as President of the Audit Committee. He was
coordinator of the Committee for the integration of Repsol YPF and YPF. In 1982,
he won by selection process the position of Financial Inspector of the Spanish
Government, and later on held different positions in the private sector in the
areas of finance and taxes. He is a director of Gas Natural SDG S.A., ERCROS,
S.A. ENAGAS, S.A. and NH Hoteles, S.A.
Carlos De La Vega
Director of YPF since 1993; Director of La Caja ART; Former President and
Director of the Argentine Chamber of Commerce; Former Director of Institutional
Relations of Ciba-Geigy Argentina.
Antonio Hernandez-Gil Alvarez-Cienfuegos
Director of YPF since July 1, 1999; Director of Repsol YPF; Director and
Secretary of Banco Zaragozano, S.A.; Professor of Civil Law; Lawyer.
Alejandro Macfarlane
Director of YPF since July 1999; President, Grupo AM S.A.
Miguel Madanes
Director of YPF since 1993; President of Nuem S.A.; President of Pentex
S.A.; Executive Vice President of YPF S.A. 1995-1997; Chairman of the Board of
Directors of YPF 1997-1998; CEO of FATE S.A. 1968-1992; Vice President of Aluar
S.A. 1988-1992; Industrial Engineer.
Carlos Alberto Olivieri
Director of YPF since September 2002; Chief Financial Officer (CFO) of YPF.
He has been associated with YPF since 1993, when he was appointed Vicepresident
and General Controller. From 1999 to 2002, he was CFO of Quilmes Industrial S.A.
and returned to YPF in september 2002. He was member of the Board of Directors
of the Central Bank (1991) and Aerolineas Argentinas S.A. from 1991 to 1992. He
is a Certified Public Accountant and professor of Universidad del Cema and Di
Tella in Argentina and invited fellow of Michigan University.
Jose Maria Ranero Diaz
Director of YPF since 2001, Country Manager of Repsol YPF in Argentina and
General Manager of YPF since October 2000. President of Caveant S.A., Repsol YPF
GAS S.A. and Poligas Lujan S.A.C.I., Vice President of A-Evangelista S.A. In
1996, he was appointed President of Astra CAPSA and EG3. From 1990 to 1996, he
held different managerial positions in Repsol YPF Exploration and Production
business.
72
Miguel Angel Remon Gil
Executive Vice President of Upstream of Repsol YPF. He is director to the
board of Gas Natural SDG, S.A. In 1999 was appointed Senior Vice President of
Planning, Control and Strategic Development of Repsol. In 1989, he was appointed
General Director of Planning and Control at Repsol and since 1997 he has also
been Manager of the Latin American area. From 1985 to 1999 he was Director of
the E&P and Gas area of the Instituto Nacional de Hidrocarburos (Spain). He has
spent his entire professional career in the energy sector.
Juan Sancho Rof
Currently Executive Vice President of Downstream of Repsol YPF, he has been
President of several Repsol YPF's subsidiaries. Additionally, he is the Vice
President of the European Petroleum Industry Association (EUROPIA). In 1966, he
started his career in the oil industry as Director of Refining and Adjunct
General Director of PETRONOR. He worked six years at the Junta de Energia
Nuclear in Spain in the R&D and Test Plants departments.
Carlos Maria Tombeur
Director of YPF S.A. since July 1, 1999; Partner of the law firm
Severgnini, Robiola, Grinberg & Larrechea; Attorney at Law.
Carlos Oscar Tempone
Director of YPF since 2002 in representation of the National Government.
President of T & V Asociados S.A. Presidency Advisory Attorney.
Executive Officer's business experience and functions within YPF.
Ruben Patritti
General Director of Exploration & Production Division in Latin America of
YPF and former director of Exploration and Production of Astra Group. President
of Upstream Commission from the Camera of the Oil Industry in Argentina and
Vice-President of the Oil and Gas Argentine Institute. Oil and Reservoirs
Engineer.
Pascual Olmos
General Director of Refining & Marketing Division in Latin America of YPF.
Master in Economic Sciences, MBA in ISE (Barcelon, 1976), studied also in INSEAD
(Fonteneblueau), Univiersity of Michigan and the PADE (IESE, 1999).
Alfredo Pochintesta
Director for Latin America of the LPG Division of YPF. Former Director of
the ElectroGas Division in the Astra Group. Member of the Board of many
affiliates companies within the group. Former Planning and Administration
Manager in Pluspetrol S.A., Planning Manager in Pertosur S.A. and Price
Waterhouse manager. Certified Public Accountant.
Ernesto Lopez Anadon
Director of Natural Gas & Electricity Division in Latin America of YPF.
Former Manager of New Business in Exploration and Production of Astra Group,
former Commercial manager in Exploration and Production of Astra Group. Former
General Manager of Hughes Tool do Brasil. Industrial and Oil Engineer.
Luis Garcia
Director of Human Resources of YPF. He joined Repsol YPF in 1988. From 1988
to 1997 he held different positions in the administration and planning
departments. In 1998, he was appointed Director of Human Resources of Repsol
Petroleo S.A. Graduated in Economics and Law.
73
Fabian Falco
Director of External Relations of YPF since 2001. Former Director of
External Relations and Corporate Marketing of Aguas Argentinas. Former Director
of External Communications and Press of Bridas, S.A.
Carlos Alfonsi
Director of Trading in Latin America of YPF. Former Manager of La Plata
Refinery. Since 1986, he held different positions in the refining area. MIT
graduate. Chemical Engineer.
Alejandro Quiroga Lopez
Director of Legal Affairs of YPF. Former partner of the law firm Nicholson
& Cano Abogados. He held different positions in the Ministry of Economy of
Argentine and was Professor of the School of Law of the University of Buenos
Aires; Lawyer.
Disclosure Committee
In February, 2003 YPF created a Disclosure Committee to perform, among
other, the following functions:
o To monitor the overall compliance with regulations and principles of
conduct of voluntary application, especially in relation to listed
companies and their corporate governance.
o To direct and coordinate the establishment and maintenance of:
o Procedures for the preparation of accounting and financial
information to be approved and filed by YPF or which is
generally released to the markets;
o Internal control systems that are adequate and efficient to
ensure that the company YPF's financial statements included in
annual and quarterly reports, as well as any accounting and
financial information to be approved and filed by YPF, are
accurate, reliable and clear;
o Processes to identify risks to YPF's businesses and activities that
are significant and that may affect the accounting and financial
information to be approved and filed.
o To assume the functions that the laws of the United States and the
SEC regulations applicable to YPF may attribute to a Disclosure
Committee or Internal Committee of a similar nature, and especially
thoserelating to the SEC regulations dated August 29, 2002
("Certification of Disclosure in Companies' Quarterly and Annual
Reports"--SEC Release number 33-8124), in relation to the support
for the certifications by YPF's Chief Executive Officer and Chief
Financial Officer as to the existence and maintenance by YPF of
adequate procedures and controls for the generation of the
information to be included in the annual report on Form 20-F, and
other information of a financial nature.
o To take on functions similar to those stipulated in the SEC
regulations for a Disclosure Committee with regard to the existence
and maintenance by YPF of adequate procedures and controls for the
preparation and content of the information to be included in the
annual financial statements, and any accounting or financial
information to be filed with the Argentine stock market authorities
(the Comision Nacional de Valores de Argentina) and other regulators
of the stock markets on which YPF's stock is traded.
o To review and supervise YPF's procedures for the preparation and
presentation of the following information:
o Official notices to the SEC, the Argentine stock market
authorities and other regulators of the stock markets on which
YPF's stock is traded.
o Interim financial reports.
74
o Press releases containing financial data on results, earnings,
large acquisitions, divestments or any other information
relevant to the shareholders.
o General communications to the shareholders.
o Presentations to analysts, investors, rating agencies and
lending institutions.
o To formulate proposals for an "Internal code of conduct on the stock
markets" that follows applicable rules and regulations or any other
standards deemed appropriate.
The Disclosure Committee currently consists of:
Name Position
- ----------------------------------------------------------------------------------------------------
Carlos Alberto Olivieri........... Chief Financial Officer
Jose Maria Ranero Diaz............ General Manager
Ruben Patritti.................... Director of General Exploration & Production - Latin America
Pascual Olmos..................... Director of General Refining & Marketing - Latin America
Alejandro Quiroga Lopez........... Director of Legal Affairs
Luis Garcia....................... Director of Human Resources
Fabian Falco...................... Director of External Relations
Jorge Genasetti................... Director of Internal Audit - Latin America
Gabriel Leiva..................... Controller
Compensation of Directors and Officers
Argentine law provides that the aggregate annual compensation paid to the
members of the Board of Directors (including those directors acting in an
executive capacity) in respect of a fiscal year may not exceed 5% of net income
for such year if YPF is not paying dividends in respect of such net income,
which percentage is increased up to 25% of net income based on the amount of
dividends, if any are paid. The compensation of the President and other
directors acting in an executive capacity, together with the compensation of all
other directors, requires the ratification of an ordinary general shareholders'
meeting as provided by Argentine law. The compensation of the members of the
Supervisory Committee is determined by the ordinary shareholders' meeting.
For the year ended December 31, 2002, the aggregate compensation accrued or
paid to the members of the Board of Directors and YPF's executive officers for
services in all capacities was Ps.7.3 million.
During 2002, YPF's performance-based compensation programs included a Bonus
Plan for 1,621 employees.
The Bonus Plan provides for cash to be paid to the participants based on
setting a measurable and specific set of objectives under Repsol YPF's
Management by Objectives program and the results of the review of individual
performance. The participants are all YPF employees included at a specific
salary level. The participation of each eligible employee in the Bonus Plan
ranges from 15% to 50% of such employees' annual base salary. Bonus percentages
are fixed by the President with the approval of the Compensation Committee at
the beginning of each calendar year. The total amount of bonuses awarded under
the Bonus Plan cannot exceed 90% of the individual maximum participation and
will be linked to company's net cash flow.
In addition, Ps.2.5 million was accrued for eligible members of the Board
of Directors and officers pursuant to the Selected Deferred Compensation Plan
described in Note 9(c) to the Consolidated Financial Statements.
Employee Matters
As of December 31 2002, YPF had approximately 8,946 employees, including
approximately 5,116 employees of the Refining and Marketing business segment,
approximately 1,255 employees of the Exploration and Production business
segment, approximately 531 employees of the Chemical business segment, and
approximately 104 employees of the Natural Gas and Electricity business segment.
75
Approximately 22% of YPF's employees are represented by one labor union
that negotiates labor agreements with YPF. The current labor agreement has a
term of four years and expires in December 2004. YPF considers its current
relations with its workforce to be good. See "Item 8: Financial Information--
Legal Proceedings" for a description of litigation with certain former
employees.
As part of its privatization, YPF restructured its internal organization
and significantly reduced the number of its employees. YPF reduced its work
force from over 51,000 employees (including approximately 15,000 personnel under
contract) at December 31, 1990 to approximately 7,500 at December 31, 1993. YPF
paid to the employees affected by these reductions the termination payments
required under Argentine labor laws which amounted to Ps.686 million. In
connection with the reduction in its workforce, YPF has received notice of
approximately 9,534 lawsuits brought by former employees as of December 31,
2002. A substantial majority of such suits have been brought by former employees
who allege that they received insufficient severance payments in connection with
their dismissal or who allege various job-related illnesses and injuries and
typically seek unspecified relief. The outcome of this type of litigation
depends on factual issues that vary from case to case, and it is not always
feasible to predict the outcome of particular cases.
Based on the number and character of the lawsuits already commenced,
however, the estimated likelihood of additional claims in view of the number of
dismissed employees, applicable statutes of limitations, the legal principles
involved in the suits and the financial statement reserves previously
established, management of YPF does not expect the outcome of these lawsuits to
have a material adverse effect on YPF's financial condition or future results of
operations.
The following table provides a breakdown of YPF's employees by business
units.
Employees by Business Units
- --------------------------------------------------------------------- --------
Exploration & Production............................................. 1,255
Domestic.......................................................... 1,184
International..................................................... 71
Refining and Marketing............................................... 2,955
Domestic.......................................................... 2,872
International..................................................... 83
OPESSA............................................................... 2,161
Chemical.......................................................... 531
Natural Gas & Electricity......................................... 104
Corporate and Other............................................... 1,940
-------
Total YPF...................................................... 8,946
=======
The following table provides a breakdown of YPF's employees by geographic
locations.
Employees by geographic location
- --------------------------------------------------------------------- ------
Argentina............................................................ 8,792
Rest of Latin America................................................ 34
USA.................................................................. 115
Indonesia............................................................ 5
------
Total YPF............................................................ 8,946
======
ITEM 7. Major Shareholders and Related Party Transactions
In November 1992, the Privatization Law became effective. Pursuant to the
Privatization Law, in July 1993, YPF completed a worldwide offering of 160
million Class D Shares, representing approximately 45% of YPF's outstanding
capital stock, which had been owned by the Argentine government. Concurrently
with the completion of such offering, the Argentine government transferred
approximately 40 million Class B Shares to the provinces, which represented
approximately 11% of YPF's outstanding capital stock, and made an offer to
holders of pension bonds and certain other claims to exchange such bonds and
other claims for approximately 46.1 million Class D Shares, representing
approximately 13% of YPF's outstanding capital stock. As a result of these
transactions, the Argentine government's ownership percentage of YPF's capital
stock was reduced from 100% to approximately 30%, including shares that had been
set aside for offer to employees of YPF upon terms and conditions established by
the Argentine government in accordance with Argentine law. The shares set aside
for offer to employees represented 10% of YPF's outstanding capital stock.
76
The Class A Shares held by the Argentine government generally became
eligible for sale upon the effectiveness in April 1995 of legislation permitting
the Argentine government to sell such shares. A decree issued by the National
Executive in connection with the privatization of YPF requires YPF to register
sales of Class A Shares and Class B Shares held by the Argentine government and
the provinces, respectively, under the States Securities and similar laws in
other jurisdictions in which shares of YPF are listed.
Approximately 33.8 million of the Class C Shares, set aside for the benefit
of employees in connection with YPF's privatization, were sold in a secondary
public offering in July 1997. These Class C Shares were converted to Class D
Shares upon the transfer. See "Item 4: Information on the Company--History and
Development of YPF--Deregulation, Privatization and Recent Developments."
In January 1999, Repsol acquired 52,914,700 Class A Shares in block (14.99%
of YPF's shares) which were converted to Class D Shares. Additionally, on April
30, 1999, Repsol announced a tender offer to purchase all outstanding Classes A,
B, C and D Share at a price of US$44.78 per share (the "Offer"). Pursuant to the
Offer, in June, 1999, Repsol acquired an additional 82.47% of the outstanding
capital stock of YPF. On November 4, 1999, Repsol acquired an additional 0.35%.
On June 7, 2000, Repsol YPF announced a tender offer to exchange newly issued
Repsol YPF's shares for the 2.16% YPF's Class B, C and D Shares held by minority
shareholders. Pursuant to the tender offer, and after the merger with Astra, as
of December 31, 2001, Repsol YPF controls YPF through a 99.04% shareholding.
As of April 23, 2003, there were approximately 223.9 million ADSs
outstanding and approximately 114 holders of record of ADSs. Such ADSs
represented approximately 56.9% of the total number of issued and outstanding
Class D Shares as of April 23, 2003. Excluding ADSs owned by Repsol YPF,
outstanding ADSs represent 0.25% of the total number of outstanding Class D
Shares.
Since Repsol YPF's acquiring control of YPF, YPF has engaged in various
transactions with Repsol YPF. Some of these transactions have involved the
transfer of YPF's ownership interest in some subsidiaries to Repsol YPF at fair
market value. The most important asset sales are described in "Item 4:
Information on the Company?History and Development of YPF?Deregulation,
Privatization and Recent Developments."
On December 31, 2001, YPF entered into a forward oil sale agreement with
Repsol YPF providing for the forward sale of a fixed quantity of certain types
of crude oil to be delivered monthly during seven years. The agreement was
assigned to Hydrocarbons Traders Corp. (HTC) on the same date. In December
2002, in connection with the refinancing of FOS III, HTC assigned the agreement
to Oil International Limited (OIL). Also as part of this refinancing, HTC
repurchased its outstanding preferred shares, which had been originally
purchased by Banco Zaragozano, a Spanish banking institution, and repaid the
debt outstanding under a credit agreement in which BBVA was the sole lender. See
"Item 5 - Operating and Financial Review and Prospects--Liquidity and Capital
Resources--Transactions With Unconsolidated Special Purpose Entities."
HTC had also entered into a marketing agreement for the sale of the crude
oil with Repsol YPF Trading & Transport, S.A. (RYTTSA), a consolidated
subsidiary of Repsol YPF. This agreement wasterminated in December 2002. Under
the marketing agreement, RYTTSA acted as agent for HTC to arrange for the sale
of the crude oil delivered to HTC by YPF.
HTC had also entered into an oil price hedging agreement under which it
would receive a fixed price and would pay variable market prices. We understand
that BBVA guaranteed HTC's obligations under its hedging agreement. YPF in turn
had entered into a separate oil price hedging agreement under which YPF would
pay a fixed price and would receive variable market prices. Repsol YPF
guaranteed YPF's obligations under the hedging agreement. These hedging
agreements were terminated in December 2002.
All material transactions and balances with related parties are included in
Note 7 to the Consolidated Financial Statements. The prices of the transactions
with related parties approximate the amounts charged by and/or to the Company by
unrelated third parties.
77
ITEM 8. Financial Information
Financial Statements
See Item 18 for our Consolidated Financial Statements.
Legal Proceedings
YPF
YPF, in the ordinary course of its business, is a party to various actions,
including approximately 9,534 lawsuits involving claims of former employees of
YPF as of December 31, 2002. See "Item 6: Directors, Senior Management and
Employees - Employee Matters". The Privatization Law provides that the Argentine
government assumes all contingent liabilities arising from events or
transactions that had occurred, or acts or operations that had been completed,
as of December 31, 1990. In certain lawsuits related to events or acts that took
place before December 31, 1990 YPF has been required to advance the payment of
amounts established in certain judicial decisions. YPF believes it has the right
to be reimbursed for these payments by the Republic of Argentina, pursuant to
above-mentioned indemnity. Based on the previously established and the indemnity
from the Argentine government with respect to pre 1991 contingent liabilities,
YPF does not expect the outcome of these lawsuits to have a material adverse
effect on YPF's financial condition or future results of operations.
Under the Privatization Law of YPF, the Argentine government assumed
certain obligations of YPF as of December 31, 1990. Decree 546/93, concerning
the Privatization Law, set forth limitations concerning legal fees and expenses
in connection with these liabilities. The Argentine government will assume these
costs as long as the fees and expenses agreed upon are fixed and are not
contingent upon the amounts in dispute. YPF is required to keep the Argentine
government apprised of any claim against YPF arising from the obligations
assumed by the Argentine government.
YPF does, however, note the following legal proceedings:
In September 2002 the Confederacion Indigena del Neuquen, the Agrupacion
Mapuche Paynemil, the Agrupacion Lof Comunidad Kaxipayin and 95 individuals
members of these associations brought an action against YPF for a total amount
of US$457,081,000. Plaintiffs claim damages for contractual termination and
damages caused from hydrocarbon exploration and exploitation activities in the
Loma La Lata-Sierra Barrosa site in the Province of Neuquen. The claim is based
on alleged damages caused to the mapuche native community and culture, as well
as physical and psychological health impairments, sites contamination,
environmental and moral damages. US$306,981,000 out of the total amount claimed
is stated to be for remediation purposes. YPF has notified the Argentine
Government of this lawsuit pursuant to the Privatization Law of YPF. YPF
considers this suit to be without merit but plans to establish a provision of
US$500,000 in its financial statements primarily to cover litigation costs
including attorney's fees and costs of technical investigations.
In July 2002, EDF Internacional S.A. ("EDF") initiated an international
arbitral proceeding under the Arbitration Regulations of the International
Chamber of Commerce against Endesa Internacional S.A., Repsol YPF and YPF. EDF
claims from Repsol YPF and YPF the payment of US$69 million. EDF claims that
under a Stock Purchase Agreement dated March 30, 2001 among ENDESA Internacional
S.A. and Astra Compania Argentina de Petroleo S.A., as sellers, and EDF, as
purchaser, with respect to shares of Electricidad Argentina S.A. and Empresa
Distribuidora y Comercializadora Norte S.A., EDF is entitled to and adjustment
in the purchase price it paid due to changes in the exchange rate of the
Argentine peso which EDF considers started prior to December 31, 2001. YPF's
position is that the change in the exchange rate did not occur prior to January
2002 and, therefore, EDF is not entitled to the purchase price adjustment. YPF
has also lodged a counterclaim against EDF in the amount of US$13.85 million as
a purchase price adjustment. YPF's management believes that EDF position is
without merit.
78
In October 2002, YPF and Repsol YPF Gas S.A received the notification of a
complaint initiated by Autogas S.A. The complaint was answered on December 12,
2002, and no further procedures have taken place since that date. Autogas claims
damages in the amount of Ps.117.3 million for YPF's alleged exercise of its
dominant market position in the LPG market, alleged breach of contract and
violation of the trademark laws during the period from 1994 to 1997. YPF
believes that the lawsuit is without merit and that documents filed at trial
have so far failed to prove a causal connection between the alleged misconduct
and the amount of damages sought. Based on the relevant factors known by YPF to
this date, YPF has reserved Ps.7 million to cover any contingencies arising out
of this claim.
On March 22, 1999, YPF received notification from the Argentine Secretary
of Industry, Commerce and Mining with regard to an investigation conducted by
the National Commission for the Defense of Competition in connection with
anti-competitive practices by YPF. The alleged practices consisted of
differences in YPF's LPG prices in the Argentine and export markets from 1993 to
1997. The Secretary of Industry, Commerce and Mining imposed on YPF a fine of
Ps.109.6 million. YPF filed an appeal to the Secretary's notification with the
National Commission for the Defense of Competition, which appeal will be heard
by the National Economic Criminal Court of Appeal (Camara Nacional de
Apelaciones en lo Penal Economico). On November 24, 2000, the National Economic
Criminal Court of Appeal, in a split decision, confirmed the fine imposed by the
Secretary of Industry, Commerce and Mining. YPF filed an extraordinary appeal
with the Argentine Supreme Court, which on December 19, 2000, declined to hear
the appeal. On January 5, 2001, YPF filed with the National Commission for the
Defense of Competition, a petition to suspend the fine imposed. Additionally, on
February 9, 2001, YPF appealed the denial of extraordinary appeal to the
Argentine Supreme Court. On July 2, 2002 the Argentine Supreme Court dismissed
the appeal and YPF paid the Ps.109.6 million fine (approximately US$30.53
million).
In October 2002, YPF was notified of complaints by neighbors of a YPF
service station claiming US$21.56 million in damages allegedly resulting from a
fuel leakage coming from that station. YPF has reserved Ps.3.5 million
(approximately US$1.04 million) to cover contingencies arising out of these
actions.
On January 2003, Candlewood Timber Group LLC, a subsidiary of Forestal
Santa Barbara S.R.L., sued Pan American Energy LLC, the operator of the joint
venture that operates the current production concession in the Acambuco area
claiming damages to its forestry business in that area, allegedly resulting
from, among others, uncontrolled clearing of forest vegetation and soils and
destruction of thousands of valuable hardwood trees by the joint venture. If the
claims are sustained, and absent a finding of gross negligence by the operator,
YPF, as a 22.5% partner in the joint venture, would be held liable in such
proportion. The plaintiff is also seeking that the joint venture undertake
environmental remediation action to clean up the affected sites. Although the
amount of complaint has not been established yet, in January 2002 Forestal Santa
Barbara sent a letter to the operator of the joint venture claiming compensation
of Ps.50 million (approximately US$14.84 million).
In April 2002 the Sub-secretary of Energy for the Province of Neuquen
imposed a fine on YPF of Ps.27 million (approximately US$8.01 million),
including penalties and interest, for excess gas venting in the Loma La Lata,
Cerro Bandera and Filo Morado gas fields, between 1995 and 1997. YPF has
appealed the fine. The Argentine provinces where oil and gas production
activities are carried out have objected to the US dollar/peso exchange rates
applied by oil producers, including YPF, to the payment of hydrocarbon
royalties. Only the province of Chubut has specified the amount of the claim so
far (Ps.7 million).
Between March and June 2002, the Province of Neuquen issued several orders
against YPF claiming Ps.4.66 million in fees for the use of Colorado River
waters. In October 2002, upon posting as collateral the full amount claimed in
the action, YPF appealed the orders before the Supreme Court of the Province of
Neuquen. YPF believes that the claim is without substantial merit and that the
fees claimed are disproportionate.
In January 2003, the Argentine National Commission for the Defense of
Competition notified YPF of the launch of a formal investigation into alleged
anticompetitive practices by YPF in connection with sales of LPG in the domestic
and the export market at different prices between October 1997 and March 1999.
YPF has contested the claim vigorously.
YPF has been sued by former employees whose positions were eliminated after
personnel reductions in connection with the privatization of YPF. Repsol YPF
believes that proper reserves have been made in connection with these
contingencies. YPF does not expect the outcome of these lawsuits to have a
material adverse effect on its financial condition or future results of
operations.
79
In May 2002, the Centro de Retirados de la Armada Nacional sued Repsol YPF
seeking the remediation of alleged environmental damages in Rio de La Plata, Rio
Santiago and Pluma Rio Santiago due to water contamination allegedly caused by
the operations of the La Plata refinery. The complaint estimates the cost of
compliance at US$1,391 million. YPF believes that the majority of any
environmental damages alleged by the plaintiff, if proven, would be attributable
to events that occurred prior to YPF's privatization and would therefore be the
sole responsibility of the Argentine government in accordance with the
Privatization Law of YPF. The complaint has not yet been served.
On December 9, 2002, YPF filed a declaratory judgment action (Accion
Declarativa de Certeza) before an Argentine federal court requesting
clarification as to the uncertainty generated by opinions and statements of
several organizations providing official advice that the right of the
hydrocarbons industry to freely dispose of up to 70% of foreign currency
proceeds from exports of hydrocarbons products and by-products, as provided by
Executive Decree 1589/89, had been implicitly abolished by the new exchange
regime established by Executive Decree 1606/02. On December 9, 2002, the federal
judge issued an injunction ordering the Argentine government, the Central Bank
and the Ministry of the Economy to refrain from interfering with YPF's access to
and use of 70% of the foreign exchange proceeds from its hydrocarbon exports.
Resolution of an appeal filed by the Central Bank and the Ministry of the
Economy against this injunction is still pending before the Federal Court of
Appeals. Following the enactement of Decree No. 2703/02 in December 2002, YPF
expanded the object of the declaratory judgment action before the federal court
to clear any doubts and uncertainty arising after the enactment of this Decree.
See "Item 4. Information on the Company-Regulatory Framework and Relationship
with the Argentine Government-Repatriation of Foreign Currency". YPF will
maintain its position before the Federal Court of Appeals without prejudice to
any other related actions it may take in order to protect its rights.
Additionally, YPF has received claims for approximately Ps.371 million,
which had not been reserved since management, based on the evidence available to
date and upon the opinion of its external councel, cannot reasonably estimate
the outcome of such, claims.
YPF International - YPF Holdings
In the following discussion, references to YPF International and YPF
Holdings include, as appropriate, references to Maxus and CLH, which has assumed
certain of Maxus' obligations in respect of Chemicals.
On or about September 25, 2002, Occidental sued Maxus and Tierra in State
court in Dallas, Texas seeking a declaration that Maxus and Tierra have the
obligation under the agreement pursuant to which Maxus sold Chemicals to
Occidental to defend and indemnify Occidental from and against certain
historical obligations of Chemicals, including claims related to "Agent Orange"
and vinyl chloride monomer (VCM), notwithstanding the fact that (a) said
agreement contains a 12-year cut-off for defense and indemnity with respect to
most litigation, and (b) Tierra is not a party to said agreement. Maxus and
Tierra do not believe Occidental's claims have substantial merit. In this
regard, on June 9, 2003 the U.S. Supreme Court affirmed, by a four to four vote,
a decision of the Second Circuit Court of Appeals which held that the 1984
settlement of the claims of Vietnam veterans does not preclude certain Vietnam
veterans from asserting claims alleging injury due to Agent Orange exposure.
While Maxus believes there are a number of valid defenses to any claims that may
be asserted by Vietnam veterans who are not bound by the terms of the 1984
settlement, it also believes that Occidental is responsible for any Agent Orange
lawsuits filed after the September 4, 1998 cut-off date.
In May 2003, the U.S. Internal Revenue Service (IRS) informed Maxus and YPF
Holdings that it believed such parties owe approximately $24 million in
additional income taxes for the years 1994 through 1997. Maxus and YPF Holdings
have not fully analyzed the IRS's claims, but based on an initial review believe
that the IRS's income tax assessment is without substantial merit.
In 1998, a subsidiary of Occidental filed a lawsuit in state court in Ohio
seeking a declaration of the parties' rights with respect to obligations for
certain costs allegedly related to Chemicals' Ashtabula, Ohio facility, as well
as certain other costs. While this action is in the discovery stage, both Maxus
and Occidental have filed motions for partial summary judgment. On January 25,
2002, the court granted Occidental's and denied Maxus' respective motions for
partial summary judgment. Maxus believes the court erred and intends to appeal.
80
On May 14, 2001, the Texas State Comptroller assessed Midgard Energy
Company, a subsidiary of YPF Holdings, approximately US$26 million in Texas
state franchise taxes, plus penalty and interest estimated to be approximately
US$46 million as of December 31, 2002. The basis for the assessments essentially
is the State's allegation that certain debt should have been characterized as
capital contributions. Midgard believes the assessment is without substantial
merit and Midgard has challenged the assessment through administrative appeals
procedures.
In 1994, James Hayhurst and others sued, among other persons, Maxus and
Gateway Coal Company, a wholly-owned partnership ("Gateway"), in connection with
Gateway's former coal mine in southwestern Pennsylvania. Generally, the
plaintiffs claim that ceasing operations and closing Gateway's mine resulted in
the flooding of plaintiffs' adjacent coal mine. Maxus and Gateway dispute
plaintiffs' claims and believe they are without substantial merit.
YPF Holdings, including its subsidiaries, is a party to various other
lawsuits, the outcomes of which are not expected to have a material adverse
affect on YPF Holdings's financial condition. YPF Holdings has established
reserves for legal contingencies in situations where a loss is probable and can
be reasonably estimated.
YPF Holdings has entered into various operating agreements and capital
commitments associated with the exploration and development of its oil and gas
properties. Such contractual financial and/or performance commitments are not
material.
YPF International's and YPF Holdings' foreign petroleum exploration,
development and production activities are subject to political and economic
uncertainties and other risks arising out of foreign governmental sovereignty
over the areas in which YPF's operations are conducted. Currently, it is not
possible to determine the potential future effect that the economic or political
risks may have on YPF's financial statements. Related effects will be reported
in the Consolidated Financial Statements, as they become known and estimable.
See also the heading "Environmental Matters--YPF Holdings" under "Item 4:
Information on the Company" of this annual report for a description.
Dividends Policy
See "Item 3: Key Information--Dividends" and "Item 10: Additional
Information--Dividends."
81
ITEM 9. The Offer and Listing
New York Stock Exchange
The ADSs, each representing one Class D Share, are listed on the New York
Stock Exchange under the trading symbol "YPF." The ADSs began trading on the New
York Stock Exchange on June 28, 1993, and were issued by The Bank of New York as
depositary (the "Depositary").
The following table sets forth, for the five most recent full financial
years and for the current financial year, the high and low prices in U.S.
dollars of the ADSs on the New York Stock Exchange:
High Low
------ -----
1997.................................................... 38.13 25
1998.................................................... 36.00 20.00
1999.................................................... 44.50 26.63
2000.................................................... 41.12 28.94
2001.................................................... 30.35 16.10
2002.................................................... 20.50 8.68
2003(1)................................................. 29.00 12.99
- ------------------
(1) through June 24, 2003
The following table sets forth for each quarter of the most recent two
financial years and for the current financial year, the high and low prices in
U.S. dollars of the ADSs on the New York Stock Exchange.
High Low
------ -----
2001:
First Quarter........................................ 30.35 27.84
Second Quarter....................................... 29.90 23.00
Third Quarter........................................ 23.00 16.10
Fourth Quarter....................................... 19.75 16.35
2002:
First Quarter........................................ 20.50 16.35
Second Quarter....................................... 18.65 8.68
Third Quarter........................................ 13.62 9.15
Fourth Quarter....................................... 13.05 9.28
2003:
First Quarter........................................ 18.78 12.99
The following table sets forth the high and low price in U.S. dollars of
YPF's ADSs on the New York Stock Exchange for each of the most recent six
months.
High Low
------ -----
2002:
December............................................. 13.05 12.12
2003:
January.............................................. 14.70 12.99
February............................................. 15.80 14.35
March................................................ 18.78 15.46
April................................................ 19.61 17.50
May.................................................. 24.90 20.25
June(1).............................................. 29.00 25.10
- ------------------
(1) through June 24, 2003
As of March 1, 2003, there were approximately 223.9 million ADSs
outstanding and approximately 116 holders of record of ADSs. Such ADSs
represented approximately 56.9% of the total number of issued and outstanding
Class D Shares, as of February 1, 2003.
Buenos Aires Stock Market
The Buenos Aires stock market is the principal Argentinean trading stock
for the ordinary shares.
82
The Buenos Aires Stock Market, which is affiliated with the Buenos Aires
Stock Exchange, is the largest stock market in Argentina. The Buenos Aires Stock
Market is a corporation, whose 148 shareholder members are the only individuals
and entities authorized to trade in the securities listed on the Buenos Aires
Stock Exchange. Trading on the Buenos Aires Stock Exchange is conducted by
continuous open outcry from 1:00 p.m. to 5:00 p.m. each business day. The Buenos
Aires Stock Exchange also operates a continuous trading market system from 10:00
a.m. to 6:00 p.m. each business day, on which privately arranged trades are
registered and made public.
To control price volatility, the Buenos Aires Stock Market operates a
system by which the trading of a security is suspended for 15 minutes, whenever
the price of such security changes by 15% from its last closing price. Once the
15 minutes have elapsed, trading is resumed and continues unimpeded until the
price changes by 20% from the last closing price. In this event, trading will be
suspended again for another 15 minutes. From that point on, trading will be
suspended for 10 minutes, whenever the trading price changes by 5% from the last
suspended price.
Investors in the Argentine securities market are mostly individuals and
companies. Institutional investors, which are responsible for a growing
percentage of trading activity, consist mainly of institutional pension funds
created under the amendments to the social security laws, enacted in late 1993.
Certain information regarding the Argentine equities market is set forth in
the table below. The Class D Shares represent the single largest issue, in terms
of market capitalization, traded on the Buenos Aires Stock Exchange.
Argentine Equities Market
2002(1) 2001 2000 1999 1998
------- ------- ------- ------- -------
Market capitalization (In millions of pesos)(1)......... 368,151 192,499 165,803 83,879 45,292
As percent of GDP(1).................................... 102% 71.6% 58.2% 30.0% 15.0%
Volume (In millions of pesos)........................... 71,388 34,868 45,220 50,790 66,028
Average daily trading volume (In millions of pesos)..... 303.78 143.49 180.88 203.16 266.3
Number of listed companies(1)........................... 114 118 125 125 131
- ------------------
(1) End-of-period figures for trading on the Buenos Aires Stock Exchange.
Source: Comision Nacional de Valores and Instituto Argentino de Mercado de
Capitales.
The following table sets forth, for the periods indicated, the high and low
price in Argentine pesos of YPF's Class D Shares on the Buenos Aires Stock
Market:
High Low
------ ------
1997...................................................... 38.15 24.97
1998...................................................... 34.60 28.10
1999...................................................... 43.75 26.50
2000...................................................... 41.00 29.00
2001...................................................... 30.50 16.00
2002...................................................... 60.00 25.90
2003(1)................................................... 82.00 39.83
- ------------------
(1) through June 24, 2003
The following table sets forth the high and low price in Argentine pesos of
YPF's Class D Shares on the Buenos Aires Stock Market, for each quarter of the
most recent two financial years as well as the first quarter of current fiscal
year.
High Low
------ ------
2001:
First Quarter.......................................... 30.50 28.00
Second Quarter......................................... 29.50 23.00
Third Quarter.......................................... 23.20 17.20
Fourth Quarter......................................... 23.70 16.00
83
High Low
------ ------
2002:
First Quarter.......................................... 60.00 25.90
Second Quarter......................................... 59.00 37.00
Third Quarter.......................................... 48.00 35.50
Fourth Quarter......................................... 47.30 38.00
2003:
First Quarter.......................................... 54.50 43.75
The following table sets forth the high and low price in Argentine pesos of
YPF's Class D Shares on the Buenos Aires Stock Exchange, for each of the most
recent six months.
High Low
------ ------
2002:
November............................................... 43.70 38.00
December............................................... 47.30 42.80
2003:
January................................................ 48.50 43.75
February............................................... 50.80 47.75
March.................................................. 54.50 50.00
April.................................................. 56.70 51.50
May.................................................... 73.00 57.00
June................................................... 82.00 71.50
(1) through June 24, 2003.
On March 28, 2003, there were approximately 8,700 holders of Class D
Shares.
SEAQ International
The ADSs are also quoted on the Stock Exchange Automated Quotations System
International.
ITEM 10. Additional Information
Memorandum and Articles of Association
YPF's bylaws were approved by National Executive Decree No. 1,106, dated
May 31, 1993, and notarized by public deed No. 175, dated June 15, 1993 at the
National Notary Public Office, sheet 801 of the National Registry, and
registered at the Inspection Board of Legal Entities of the Argentine Republic
on the same date, June 15, 1993 under number 5109 of the book of Corporations
number 113, volume "A."
For a detailed description of YPF's object and purpose, see Item 4
"Information on the Company." YPF's object is established in Section 4 of its
Bylaws. Copies of the Bylaws, which have been filed as described in "Exhibit
Index" in this annual report, are also available at the offices of YPF.
Pursuant to Argentine Corporations Law No. 19,550 (the "Corporations law"),
the Board of Directors or the Supervisory Committee (as defined below) shall
call either annual general or extraordinary shareholders' meetings in the cases
provided by law and whenever they consider appropriate. Shareholders
representing not less than five percent of YPF's capital stock may also request
that a shareholders' meeting be convoked.
A shareholders' meeting shall be called at least twenty days prior to the
meeting date by notice published in the legal publications journal for a period
of five days. The notice shall include the nature, date, time and place of the
meeting, the agenda to be discussed and the specific requirements shareholders
must meet to attend the meeting.
For meetings attendance purposes, shareholders must obtain a deposit
certificate from brokers or the depository trust company. This certificate will
allow each shareholder to be registered in the meeting attendance book which
closes three business days before the date on which the meeting will be held.
YPF will deliver to each shareholder a receipt certificate required for
admission into the meeting. Shares certified and registered in the attendance
book shall not be disposed of before the meeting is held unless the related
deposit is cancelled.
84
Directors, members of the Supervisory Committee and senior managers are
both entitled and required to attend all shareholders' meetings. These persons
may only exercise voting power to the extent they have previously registered as
shareholders, in accordance with the provisions described in the above
paragraph. Nevertheless, these persons are not allowed to vote on any proposal
related to the approval of their management duties or their removal for cause.
Directors
Election of Directors
YPF's Bylaws provide for a Board of Directors of 7 to 14 members, as
decided at the shareholders' meeting, and up to an equal number of alternates.
Alternates are those elected by the shareholders to replace directors who are
absent from meetings or who are unable to exercise their duties, when and for
whatever period invited to do so by the Board of Directors. Alternates have the
responsibilities, duties and powers of directors only if and to the extent they
are called upon to attend board meetings or for such longer period as they may
act as replacements.
YPF's Bylaws provide for each class of capital stock of YPF to elect a
certain number of directors and alternates based, in part, on the percentage of
total outstanding capital stock represented by such class. Based on the
percentages of total outstanding capital stock of YPF owned by holders of each
class of YPF's capital stock present at the Shareholders' General Ordinary and
Extraordinary Meeting, held in April 2003, the holders of Class B Shares, Class
C Shares and Class D Shares, voting as a single class, have appointed five
directors to serve a one-year term, six directors to serve a two-year term and
two alternates to serve a one-year term, all of them representatives for Class D
Shares. See "Item 6: Directors, Senior Management and Employees."
The Government of the Argentine Republic, sole holder of Class A Shares, in
accordance with YPF's bylaws and in accordance with the above mentioned
modification to YPF's Bylaws, are entitled to elect one director and one
alternate to serve up to a one-year term.
Under the Corporations Law, a majority of YPF's directors must be residents
of Argentina. All directors must establish a legal domicile in Argentina for
service of notices in connection with their duties.
YPF's Bylaws require the Board of Directors to meet at least once every
quarter in person or by video conference. The quorum requirement for meetings of
the Board is a majority of the members, and if, in the event of a regularly
called meeting, a quorum is not available one hour after the time set for the
meeting, the President or the person replacing him at such meeting may invite
the alternates of the same class as the absent directors to join the meeting, in
the order in which such alternates were elected, in order to reach the minimum
quorum or may call a meeting for another day. Resolutions must be adopted by a
majority of the directors present, and the President or the person replacing him
at a particular meeting is entitled to cast the deciding vote in the case of a
tie.
Duties and Liabilities of Directors
Under Argentine law, directors have an obligation to perform their duties
with loyalty and the diligence of a prudent businessperson. Directors are
jointly and severally liable to YPF, the shareholders and third parties for the
improper performance of their duties, for violating the law, YPF's Bylaws or
regulations, and for any damage caused by fraud, abuse of authority or gross
negligence. Under the Corporations law, specific duties may be assigned to a
director by the Bylaws, company regulations, or by resolution of the
shareholders' meeting. In such cases, a director's liability will be determined
with reference to the performance of such duties, provided that certain
recording requirements are met. Argentine's Corporations Law requires that a
shareholders' meeting grant express authorization to directors engaging in
activities in competition with YPF.
The Corporations Law allows transactions or contracts between directors and
YPF in connection with YPF's core activities, to the extent they were performed
under fair market conditions. Those transactions that do not comply with the
Corporations Law, require prior approval of the Board of Directors or the
Supervisory Committee. In addition, these transactions must be approved by the
shareholders of YPF at a general meeting. If the shareholders of YPF do not
approve the transaction, directors and members of the Supervisory Committee that
previously give their consent to such a transactions are fully liable for the
adverse effects caused to YPF.
85
Any director whose personal interests are adverse to YPF shall notify the
Board and the Supervisory Committee. Otherwise, such director may be held liable
to YPF under the Corporations law.
A director will not be liable if, notwithstanding his presence at the
meeting at which a resolution was adopted or his knowledge of such resolution, a
written record exists of his opposition to such resolution and he reports his
opposition to the Supervisory Committee (as defined below) before any complaint
against him is brought before the Board of Directors, the Supervisory Committee,
the shareholders' meeting, the appropriate governmental agency or the courts.
Any liability of a director to YPF terminates upon approval of the director's
performance by the shareholders, provided that shareholders representing at
least 5% of YPF's capital stock do not object and, provided further, that such
liability does not result from a violation of the law or the bylaws or
regulations.
Foreign Investment Legislation
Under the Argentine Foreign Investment Law, as amended, and its
implementing regulations (together, referred to as the Foreign Investment
Legislation), the purchase of shares of an Argentine corporation by an
individual or legal entity domiciled abroad or by an Argentine company of
"foreign capital" (as defined in the Foreign Investment Legislation) constitutes
foreign investment. Currently, foreign investment in industries other than
broadcasting is not restricted, and no prior approval is required to make
foreign investments. No prior approval is required in order to purchase Class D
Shares or ADSs or to exercise financial or corporate rights thereunder.
Dividends
Under YPF's Bylaws, all Class A, Class B, Class C and Class D Shares rank
equally with respect to the payment of dividends. All shares outstanding as of a
particular record date share equally in the dividend being paid, except that
shares issued during the period to which a dividend relates may be entitled only
to a partial dividend with respect to such period if the shareholders' meeting
that approved the issuance so resolved. No provision of the Bylaws or of
Argentine law gives rise to future special dividends only to certain
shareholders.
The amount and payment of dividends are determined by majority vote of the
shareholders of YPF voting as a single class (except as described below),
generally, but not necessarily, on the recommendation of the Board of Directors.
The following table sets forth for the periods and dates indicated, the
quarterly dividend payments made by YPF, expressed in pesos.
Pesos Per Share/ADS
----------------------------------------------------------
Year Ended December 31, 1Q 2Q 3Q 4Q Total
- ---------------------------------------------------- -------- --------- -------- --------- --------
1998................................................ 0.22 0.22 0.22 0.22 0.88
1999................................................ 0.22 0.22 0.22 0.22 0.88
2000................................................ 0.22 0.22 0.22 0.22 0.88
2001................................................ 0.22 2.00 -- 2.00 4.22
2002................................................ -- -- -- 4.00 4.00
2003................................................ -- 5.00 -- -- 5.00
On April 10, 2002, the Shareholders' Ordinary and Extraordinary Meeting
approved the payment of an interim dividend in the amount of Ps.2 per share,
according to a Board of Directors resolution on November 29, 2001. This
anticipated dividend was paid on December 5, 2001, subject to the approval of
the shareholders and based on retained earnings reported in our quarterly
financial statements for the period of nine month ended as of September 30,
2001.
On November 7, 2002, the Board of Directors approved a dividend of 1,569
affecting the reserve for future dividends approved by the Shareholders' Meeting
of April 10, 2002. Such dividend was mostly offset with certain receivables held
with its majority shareholder as of such date, for an amount of 1,532, and the
balance with minority shareholders was paid in cash with free available funds.
86
On April 9, 2003, the Shareholders' Ordinary and Extraordinary Meeting,
declared an annual dividend of Ps.5 per share, which was paid on April 22, 2003.
In addition, the Shareholders' Meeting also approved a reserve for future
dividends for Ps.1,023 million.
Dividends may be lawfully paid only out of YPF's retained earnings
reflected in the annual audited financial statements approved by a shareholders'
meeting. The board of directors of a listed Argentine company may declare
interim dividends, in which case each member of the board and of the supervisory
committee is jointly and severally liable for the repayment of such dividend if
retained earnings at the close of the fiscal year in which the interim dividend
was paid would not have been sufficient to permit the payment of such dividend.
Under the Bylaws, YPF's net income is applied as follows:
o first, an amount equivalent to at least 5% of net income is
segregated to build a legal reserve required by Argentine law (the
"Legal Reserve") until such reserve is equal to 20% of the
subscribed capital of YPF (plus adjustments to contributions);
o second, an amount is segregated to pay the fees of the members of
the Board of Directors and of the Supervisory Committee (see "Item
6: Directors, Senior Management and Employees--Compensation of
Directors and Officers");
o third, an amount is segregated to pay dividends on preferred stock,
if any; and
o fourth, the remainder of net income is allocated as determined by
the shareholders' meeting and may be distributed as dividends to
common shareholders.
Owners of ADSs are entitled to receive any dividends payable with respect
to the underlying Class D Shares. Cash dividends are paid to the Depositary in
pesos, directly or through The Bank of New York S.A., although YPF may choose to
pay cash dividends outside Argentina in a currency other than pesos, including
U.S. dollars. The Deposit Agreement provides that the Depositary shall convert
cash dividends received by the Depositary in pesos to dollars, to the extent
that, in the judgment of the Depositary, such conversion may be made on a
reasonable basis, and, after deduction or upon payment of the fees and expenses
of the Depositary, shall make payment to the holders of ADSs in dollars.
Preemptive Rights
Except as described below, in the event of a capital increase, a holder of
existing shares of a given class has a preferential right to subscribe for a
number of shares of the same class sufficient to maintain the holder's existing
proportionate holdings of shares of that class. Preemptive rights also apply to
issuances of convertible securities, but do not apply upon conversion of such
securities.
Under the Bylaws, any convertible securities issued will be convertible
only into Class D Shares, and the issuance of any such convertible securities
must be approved by a special meeting of the holders of Class D Shares.
Holders of ADSs may be restricted in their ability to exercise preemptive
rights if a registration statement under the Securities Act relating thereto has
not been filed or is not effective. Preemptive rights are exercisable during the
30 days following the last publication of notice of shareholders' opportunity to
exercise preemptive rights in the Official Gazette and an Argentine newspaper of
wide circulation. The terms and conditions on which preemptive rights may be
exercised with respect to Class C Shares may be more favorable than those
applicable to Class A, Class B and Class D Shares.
Shareholders who have exercised their preemptive rights are entitled to
additional preemptive rights, in proportion to their respective ownership, with
respect to any unpreempted shares, in accordance with the following procedure.
Any unpreempted Class A Shares will be converted into Class D Shares and offered
to holders of Class D Shares that exercised preemptive rights and indicated
their intention to exercise additional preemptive rights with respect to any
such Class A Shares.
87
o Any Class B Shares not acquired by provinces through exercise of
their own preemptive rights will be assigned to those provinces that
exercised preemptive rights and indicated their intention to
exercise additional preemptive rights with respect to such shares;
any excess will be converted into Class D Shares and offered to
holders of Class D Shares that exercised preemptive rights and
indicated their intention to exercise additional preemptive rights
with respect to any such Class B Shares.
o Any Class C Shares that are not acquired by the remaining
participants in the "Programa de Propiedad Participada" through
exercise of their own preemptive rights will be assigned to any such
participants who exercised preemptive rights and indicated their
intention to exercise additional preemptive rights with respect to
such shares; any excess will be converted into Class D Shares and
offered to holders of Class D Shares that exercised preemptive
rights and indicated their intention to exercise additional
preemptive rights with respect to any such Class C Shares.
o Any unpreempted rights will be assigned to holders of Class D Shares
that exercised their preemptive rights and indicated their intention
to exercise additional preemptive rights; any remaining Class D
Shares will be assigned pro rata to any holder of shares of another
class that indicated his or her intention to exercise additional
preemptive rights.
The term for exercise of additional preemptive rights is the same as that
fixed for exercising preemptive rights.
Voting of the Underlying Class D Shares
Under the Bylaws, each share entitles the holder thereof to one vote at any
meeting of the shareholders of YPF, except that a specified number of Directors
is elected by majority vote of each class (except as provided below). See
"--Directors-- Election of Directors" above for information regarding the number
of directors that holders of each class of shares are entitled to elect and
certain other provisions governing nomination and election of directors. The
Depositary has agreed that, as soon as practicable after receipt of a notice of
any meeting of shareholders of YPF, it will mail a notice to the holders of
American Depositary Receipts ("ADRs"), evidencing ADSs, registered on the books
of the Depositary which will contain the following:
o a summary in English of the information contained in the notice of
such meeting;
o a statement that the holders of ADRs at the close of business on a
specified record date will be entitled, subject to any applicable
provisions of Argentine law, the Bylaws of YPF and the Class D
Shares, to instruct the Depositary to exercise the voting rights, if
any, pertaining to the Class D Shares evidenced by their respective
ADSs; and
o a statement as to the manner in which such instructions may be given
to the Depositary.
The Depositary shall endeavor, to the extent practicable, to vote or cause
to be voted the amount of Class D Shares represented by the ADSs in accordance
with the written instructions of the holders thereof. The Depositary will vote
Class D Shares, as to which no instructions are received, in accordance with the
recommendations of the Board of Directors of YPF. The Depositary will not vote
Class D Shares, as to which no instructions have been received, in accordance
with the recommendations of the Board of Directors, however, unless YPF has
provided to the Depositary an opinion of Argentine counsel stating that the
action recommended by the Board of Directors is not illegal under Argentine law
or contrary to the Bylaws or Board regulations of YPF. In addition, the
Depositary will, if requested by the Board of Directors and unless prohibited by
any applicable provision of Argentine law, deposit all Class D Shares
represented by ADSs for purposes of establishing a quorum at meetings of
shareholders, whether or not voting instructions with respect to such shares
have been received.
88
Certain Provisions Relating to Acquisitions of Shares
Pursuant to the Bylaws:
o each acquisition of shares or convertible securities, as a result of
which the acquiror, directly or indirectly through or together with
its affiliates and persons acting in concert with it (collectively,
an "Offeror"), would own or control shares that, combined with such
Offeror's prior holdings, if any, of shares of such class, would
represent the lesser of
-- 15% or more of the outstanding capital stock or
-- 20% or more of the outstanding Class D Shares, and
o each subsequent acquisition by an Offeror (other than subsequent
acquisitions by an Offeror owning or controlling more than 50% of
YPF's capital prior to such acquisition) (collectively, "Control
Acquisitions"),
must be carried out in accordance with the procedure described under
"--Restrictions on Control Acquisitions" below.
In addition, any merger, consolidation or other combination with
substantially the same effect involving an Offeror that has previously carried
out a Control Acquisition, or by any other person or persons, if such
transaction would have for such person or persons substantially the same effect
as a Control Acquisition ("Related Party Transaction"), must be carried out in
accordance with the provisions described under "--Restrictions on Related Party
Transactions." The voting, dividend and other distribution rights of any shares
acquired in a Control Acquisition or a Related Party Transaction carried out
other than in accordance with such provisions will be suspended, and such shares
will not be counted for purposes of determining the existence of a quorum at
shareholders' meetings.
Reporting Requirements
Pursuant to the Bylaws, any person who, directly or indirectly, through or
together with its affiliates and persons acting in concert with it, acquires
Class D Shares or securities convertible into Class D Shares, so that such
person controls more than three percent of the Class D Shares, is required to
notify the Board of Directors of such acquisition within five days of such
acquisition, in addition to complying with any requirements imposed by any other
authority in Argentina or elsewhere where the Class D Shares are traded. Such
notice must include the name or names of the person and persons, if any, acting
in concert with it, the date of the acquisition, the number of shares acquired,
the price at which the acquisition was made, and a statement as to whether it is
the purpose of the person or persons to acquire a greater shareholding in, or
control of, YPF. Each subsequent acquisition by such person or persons requires
a similar notice.
Restrictions on Control Acquisitions
Prior to consummating any Control Acquisition, an Offeror must obtain the
approval of the Class A Shares, if any are outstanding, and make a public tender
offer for all outstanding shares and convertible securities of YPF. The Offeror
will be required to provide YPF with notice of, and certain specified
information with respect to, any such tender offer at least 15 business days
prior to the commencement of the offer, as well as the terms and conditions of
any agreement proposed for the Control Acquisition (a "Prior Agreement"). YPF
will send each shareholder and holder of convertible securities a copy of such
notice at the Offeror's expense. The Offeror is also required to publish a
notice containing substantially the same information in a newspaper of general
circulation in Argentina, New York and each other city in which YPF's securities
are traded on an exchange or other securities market, at least once per week,
beginning on the date notice is provided to YPF, until the offer expires.
89
The Board of Directors shall call a special meeting of the Class A Shares
to be held ten business days following the receipt of such notice for the
purpose of considering the tender offer. If the special meeting is not held, or
if the shareholders do not approve the tender offer at such meeting, neither the
tender offer nor the proposed Control Acquisition may be completed.
The tender offer must be carried out in accordance with a procedure
specified in the Bylaws and in accordance with any additional or stricter
requirements of jurisdictions, exchanges or markets in which the offer is made
or in which YPF's securities are traded. Under the Bylaws, the tender offer must
provide for the same price for all shares tendered, which price may not be less
than the highest of the following (the "Minimum Price"):
(i) the highest price paid by, or on behalf of, the Offeror for Class D
Shares or convertible securities during the two years prior to the notice
provided to YPF, subject to certain antidilution adjustments with respect to
Class D Shares;
(ii) the highest closing price for the Class D Shares on the Buenos Aires
Stock Exchange during the 30-day period immediately preceding the notice
provided to YPF, subject to certain antidilution adjustments;
(iii) the price resulting from clause (ii) above multiplied by a fraction,
the numerator of which shall be the highest price paid by or on behalf of the
Offeror for Class D Shares during the two years immediately preceding the date
of the notice provided to YPF and the denominator of which shall be the closing
price for the Class D Shares on the Buenos Aires Stock Exchange on the date
immediately preceding the first day in such two-year period on which the Offeror
acquired any interest in or right to any Class D Shares, in each case subject to
certain antidilution adjustments; and
(iv) the net earnings per Class D Share during the four most recent full
fiscal quarters immediately preceding the date of the notice provided to YPF,
multiplied by the higher of (A) the price/earnings ratio during such period for
Class D Shares (if any) and (B) the highest price/earnings ratio for YPF in the
two-year period immediately preceding the date of the notice provided to YPF, in
each case determined in accordance with standard practices in the financial
community.
Any such offer must remain open for a minimum of 90 days following the
provision of notice to the shareholders or publication of the offer, and
shareholders must have the right to withdraw tendered shares at any time up
until the close of the offer. Following the close of such tender offer, the
Offeror will be obligated to acquire all tendered shares or convertible
securities, provided that if the number of shares tendered is less than the
minimum, if any, upon which such tender offer was conditioned, the Offeror may
withdraw the tender offer. Following the close of the tender offer, the Offeror
may consummate any Prior Agreement within 30 days following the close of the
tender offer, provided that if such tender offer was conditioned on the
acquisition of a minimum number of shares, the Prior Agreement may be
consummated only if such minimum was reached. If no Prior Agreement existed, the
Offeror may acquire the number of shares indicated in the notice provided to YPF
on the terms indicated in such notice, to the extent such number of shares were
not acquired in the tender offer, provided that any condition relating to a
minimum number of shares tendered has been met.
Restrictions on Related Party Transactions
The price per share to be received by each shareholder in any Related Party
Transaction must be the same as, and must be not less than the highest of, the
following:
(i) the highest price paid by or on behalf of the party seeking to carry
out the Related Party Transaction (an "Interested Shareholder") for (A) shares
of the class to be transferred in the Related Party Transaction (the "Class")
within the two-year period immediately preceding the first public announcement
of the Related Party Transaction or (B) shares of the Class acquired in any
Control Acquisition, in each case as adjusted for any stock split, reverse stock
split, stock dividend or other reclassification affecting the Class;
(ii) the highest closing sale price of shares of the Class on the Buenos
Aires Stock Exchange during the 30 days immediately preceding the announcement
of the Related Party Transaction or the date of any Control Acquisition by the
Interested Shareholder, adjusted as described above;
90
(iii) the price resulting from clause (ii) multiplied by a fraction, the
numerator of which shall be the highest price paid by or on behalf of the
Interested Shareholder for any share of the Class during the two years
immediately preceding the announcement of the Related Party Transaction and the
denominator of which shall be the closing sale price for shares of the Class on
the date immediately preceding the first day in the two-year period referred to
above on which the Interested Shareholder acquired any interest or right in
shares of the Class, in each case as adjusted as described above; and
(iv) the net earnings per share of the shares of the Class during the four
most recent full fiscal quarters preceding the announcement of the Related Party
Transaction multiplied by the higher of the (A) the price/earnings ratio during
such period for the shares of the Class and (B) the highest price/ earnings
ratio for YPF in the two-year period preceding the announcement of the Related
Party Transaction, in each case determined in accordance with standard practices
in the financial community.
In addition, any transaction that would result in the acquisition by any
Offeror of ownership or control of more than 50% of YPF's capital stock, or that
constitutes a merger or consolidation of YPF, must be approved in advance by the
Class A Shares while any such shares remain outstanding.
Taxation
General
The following is a summary of the material Argentine tax matters that may
be relevant to the acquisition, ownership and disposition of ADSs or Class D
Shares of YPF.
The summary describes the material tax consequences of the acquisition,
ownership and disposition of ADSs or Class D Shares, but it does not purport to
be a comprehensive description of all of the tax considerations that may be
relevant to a decision to acquire ADSs or Class D Shares of YPF. The summary
applies only to holders that purchase ADSs or Class D Shares of YPF as capital
assets and does not apply to special classes of holders such as dealers in
securities, holders whose functional currency is not the dollar, or holders that
own ten percent or more of the voting shares of YPF.
The summary is based upon tax laws of Argentina and the United States, and
regulations thereunder as in effect on the date of this annual report, which are
subject to change. In addition, the summary is based in part on representations
of the Depositary and assumes that each obligation provided for in or otherwise
contemplated by the Deposit Agreement or any other related document will be
performed in accordance with its terms. Prospective purchasers of ADSs or Class
D Shares should consult their own tax advisors as to Argentine or other tax
consequences of the acquisition, ownership and disposition of the ADSs or Class
D Shares in their particular circumstances.
Argentine Taxes
Taxation of Dividends
Dividends of cash, property or capital stock of YPF to holders of Class D
Shares or ADSs are currently exempt from Argentine withholding or other taxes.
This exemption applies so long as the amount of dividends distributed does not
exceed YPF's net taxable income for the financial years preceding the date of
the distribution of such dividends.
Dividends distributed by an Argentine company will also not be subject to
Argentine withholding or other tax to the extent that those dividends come from
earnings from dividends or other distributions received by such company from
other Argentine companies.
Taxation of Capital Gains
Capital gains derived by non-resident individuals or non-resident legal
entities from the sale, exchange or other disposition of ADSs or Class D Shares
are not subject to tax.
91
Tax on Personal Property
Law No. 25,585 established material amendments to the tax treatment of
shares and other forms of participation in corporate entities for the fiscal
year ending December 31, 2002. The following is a summary of the new
regulations:
o Passive taxpayer: shareholders domiciled in Argentina are no longer
considered passive taxpayers and are no longer required to declare
stock and other forms of participation in corporate entities as
taxable personal property. The Company itself will be the passive
taxpayer with respect to stock and other forms of participation in
corporate entities held by natural persons and estates, whether or
not they are domiciled in Argentina, as well as with respect to
corporations and other forms of corporate entities domiciled outside
Argentina. For such purposes, under the new law the company would be
entitled to reimbursement in the amount of the tax paid, and could
take possession of, or sell, the property that generated the tax
liability. However, it is unclear at this time how these new
regulations would be implemented. YPF is awaiting for the issuance
of new regulations before assuming a position on this matter.
o Valuation of stock and other forms of participation in corporate
entities: property will be valued based on the proportional book
value of the corporate entity represented by the stock, even with
respect to stock listed on an exchange.
o Tax rate: the applicable tax rate will be 0.5%.
Value Added Tax
The sale or disposition of ADSs or Class D Shares is not subject to value
added tax.
Other Taxes
There are no Argentine inheritance or succession taxes applicable to the
ownership, transfer or disposition of ADSs or Class D Shares. There are no
Argentine stamp, issue, registration or similar taxes or duties payable by
holders of ADSs or Class D Shares by reason of such holdings.
Deposit and Withdrawal of Class D Shares in Exchange for ADSs
No Argentine tax is imposed on the deposit or withdrawal of Class D Shares
in exchange for ADSs.
Tax Treaties
Argentina has entered into tax treaties with several countries. There is
currently no tax treaty or convention in effect between Argentina and the United
States.
Other Taxes and Recent Developments in Argentina
Tax on Bank Accounts Debits and Credits
Law No. 25413 established a new tax that applies on debits and credits on
bank checking accounts in Argentina. The tax is effective starting April 3,
2001. Every bank movement that involves either a debit or a credit on a bank
checking account is subject to taxation.
Banks are responsible for collecting the tax by applying the tax rate on
each movement of the account, and charging the tax to the account holder by
debiting the tax amount from the same account that caused the taxation.
Tax rate is 0.6%, and it applies to each account movement, either a debit
or a credit.
The tax applies only on accounts held in banks subject to the control of
the argentine monetary authorities. If a person establishes a system under which
it makes payments to a third party (on its own name or on behalf of another
person) substituting the use of a bank account (either in cash or otherwise),
then it is also subject to taxation. In this case, the tax rate increases to
1.2% (to compensate 0.6% on collection plus another 0.6% on payment).
92
Transactions between banks or movements between accounts that belong to the
same account holder are exempted. Other exemptions include compensation between
balances (debits and credits) between two companies originated in commercial
transactions. Collections from exports are also exempted.
U.S. Federal Income Tax Considerations
The following is a discussion of material U.S. federal income tax
consequences of purchasing, owning and disposing of Class D Shares or ADSs, but
it does not purport to be a comprehensive description of all of the tax
considerations that may be relevant to a particular person's decision to acquire
such securities. The discussion applies only if you hold Class D Shares or ADSs
as capital assets for tax purposes and it does not address special classes of
holders, such as:
o certain financial institutions;
o insurance companies;
o dealers and traders in securities or foreign currencies;
o persons holding Class D Shares or ADSs as part of a hedge, straddle
or conversion transaction;
o persons whose functional currency for U.S. federal income tax
purposes is not the U.S. dollar;
o partnerships or other entities classified as partnerships for U.S.
federal income tax purposes;
o persons liable for the alternative minimum tax;
o tax-exempt organizations;
o persons holding Class D Shares or ADSs that own or are deemed to own
more than ten percent of any class of our stock; or
o persons who acquired Class D Shares or ADSs pursuant to the exercise
of any employee stock option or otherwise as compensation.
This discussion is based on the Internal Revenue Code of 1986, as amended,
administrative pronouncements, judicial decision and final, temporary and
proposed Treasury regulations, all as currently in effect. These laws are
subject to change, possibly on a retroactive basis. It also assumes that each
obligation under the Deposit Agreement and any related agreement will be
performed in accordance with its terms. Please consult your own tax advisers
concerning the U.S. federal, state, local and foreign tax consequences of
purchasing, owning and disposing of Class D Shares or ADSs in your particular
circumstances.
The discussion below applies to you only if you are a beneficial owner of
Class D Shares or ADSs and are, for U.S. federal tax purposes:
o a citizen or resident of the United States;
o a corporation, or other entity taxable as a corporation, created or
organized in or under the laws of the United States or any political
subdivision thereof; or
o an estate or trust the income of which is subject to U.S. federal
income taxation regardless of its source.
93
In general, if you hold ADSs, you will be treated as the holder of the
underlying Class D Shares represented by those ADSs for U.S. federal income tax
purposes. Accordingly, no gain or loss will be recognized if you exchange ADSs
for the underlying Class D Shares represented by those ADSs.
The U.S. Treasury has expressed concerns that parties to whom ADSs are
released may be taking actions that are inconsistent with the claiming of
foreign tax credits for United States holders of ADSs. Accordingly, the analysis
of the creditability of Argentine taxes described below could be affected by
future actions that may be taken by the U.S. Treasury.
Taxation of Distributions
Distributions paid on Class D Shares or ADSs, other than certain pro rata
distributions of common shares, will be treated as dividends to the extent paid
out of current or accumulated earnings and profits (as determined under United
States federal income tax principles). The amount of this dividend will include
any amounts withheld by us or our paying agent in respect of Argentine taxes.
The amount of the dividend will be treated as foreign source dividend income to
you and will not be eligible for the dividends received deduction generally
allowed to U.S. corporations under the Code. Such dividends will constitute
passive income for foreign tax credit purposes.
Dividends paid in Argentine pesos will be included in your income in a U.S.
dollar amount calculated by reference to the exchange rate in effect on the date
of your (or in the case of ADSs, the depositary's) receipt of the dividend,
regardless of whether the payment is in fact converted into U.S. dollars. If the
dividend is converted into U.S. dollars on the date of receipt, you generally
should not be required to recognize foreign currency gain or loss in respect of
the dividend income. You may have foreign currency gain or loss if you do not
convert the amount of such dividend into U.S. dollars on the date of its
receipt.
Argentine taxes withheld from cash dividends on Class D Shares or ADSs may
be creditable against your U.S. federal income tax liability, subject to
applicable limitations that may vary depending upon your circumstances. Instead
of claiming a credit, you may, at your election, deduct such Argentine taxes in
computing your taxable income, subject to generally applicable limitations under
U.S. law. You should consult your own tax advisers to determine whether you are
subject to any special rules that limit your ability to make effective use of
foreign tax credits.
Sale and Other Disposition of Class D Shares or ADSs
For U.S. federal income tax purposes, gain or loss you realize on the sale
or other disposition of Class D Shares or ADSs will be capital gain or loss, and
will be long-term capital gain or loss if you held the Class D Shares or ADSs
for more than one year. The amount of your gain or loss will be equal to the
difference between your tax basis in the Class D Shares or ADSs disposed of and
the amount realized on the disposition. Such gain or loss will generally be U.S.
source gain or loss for foreign tax credit purposes.
Information Reporting and Backup Withholding
Payment of dividends and sales proceeds that are made within the United
States or through certain U.S.-related financial intermediaries generally are
subject to information reporting and to backup withholding unless (i) you are a
corporation or other exempt recipient or (ii) you provide a correct taxpayer
identification number and certify that no loss of exemption from backup
withholding has occurred.
The amount of any backup withholding from a payment to you will be allowed
as a credit against your United States federal income tax liability and may
entitle you to a refund, provided that the required information is furnished to
the Internal Revenue Service.
94
Available Information
YPF is subject to the information requirements of the Exchange Act, except
that as a foreign issuer, YPF is not subject to the proxy rules or the
short-swing profit disclosure rules of the Exchange Act. In accordance with
these statutory requirements, YPF files or furnishes reports and other
information with the SEC. Reports and other information filed or furnished by
YPF with the SEC may be inspected and copied at the public reference facilities
maintained by the SEC at Room 1024, 450 Fifth Street, N. W., Washington, D.C.
20549, and at the SEC's Regional Offices at Northwestern Atrium Center, 500 West
Madison Street, Suit 1400, Chicago, Illinois 60611-2511. Copies of such material
may be obtained by mail from the Public Reference Section of the SEC, 450 Fifth
Street, N. W., Washington, D.C. 20549, at prescribed rates. You may obtain
information on the operation of the Public Reference Section by calling the SEC
at 1-800-732-0330. The SEC maintains a World Wide Web site on the Internet at
HTTP://WWW.SEC.GOV that contains reports and information statements and other
information regarding us. Such reports and other information may also be
inspected at the offices of the New York Stock Exchange, 11 Wall Street, New
York, New York 10005, on which YPF's American Depositary Shares are listed.
ITEM 11. Quantitative and Qualitative Disclosures about Market Risk
The following quantitative and qualitative information is provided about
financial instruments to which YPF is a party as of December 31, 2002, and from
which YPF may incur future earnings or losses from changes in market, foreign
exchange rates or commodity prices. YPF does not enter into derivative or other
financial instruments for trading purposes.
This discussion contains forward-looking statements that are subject to
risks and uncertainties. Actual results could vary materially as a result of a
number of factors including those set forth in "Item 3: Key Information-- Risk
Factors."
Quantitative Disclosure
The table below provides information in Argentine pesos about YPF's debt
obligations fixed in U.S. dollars and derivative financial instruments related
to commodities that may be sensitive to changes in crude oil prices. For debt
obligations, the table presents principal cash flows.
(Proceeds) Payments
--------------------------------------------------------------------------------
Expected maturity date
----------------------------------------------
2003 2004 2005 2006 2007 Thereafter Total Fair Value
------- ------- ------- ------- ------- ---------- ------- ----------
Foreign Currency Exchange Rate Risk
Fixed rate
Short and Long-term debt --U.S. dollars
(million US$)(1)..................... 427 304 211 195 1,137 1,034
Weighted-average interest rate.......... 6.08% 8.01% 7.75% 9.42%
Variable rate
Short and Long-term debt--U.S. dollars
(million US$)(1)..................... 27 25 25 25 25 - 127 127
Weighted-average interest rate.......... LIBOR + LIBOR + LIBOR + LIBOR + LIBOR +
1.60% 1.60% 1.60% 1.60% 1.60%
Commodity Price Risk (Anticipated
Transactions)
Crude oil price swaps(2)
Contract volumes (mmbbl)................ 9.1 5.8 5.8 5.8 5.8 4.6 36.8
Price of Contract (US$/bbl)(1).......... 19.17 19.62 19.62 19.62 19.62 20.22 19.59
Contract amount (million US$)(1)........ 174 114 114 114 114 91 721 134.5
- ------------------
(1) See "Item 5: Operating and Financial Review and Prospects" and "Item 3: Key
Information--Risk Factors."
(2) Intended to hedge future crude oil delivery commitments. See Note 10 (b) to
the Consolidated Financial Statements.
Foreign Currency Exchange Rate Risk. YPF has been following a policy of not
hedging its debt obligations in U.S. dollars due to the fact that, in 1991, the
Argentine government instituted a set of economic reforms known as the
"Convertibility Plan", the centerpiece of which was a fixed rate of exchange
between the Argentine peso and the U.S. dollar of one to one. However, in view
of the Argentine economic crisis, the Argentine authorities implemented a number
of monetary and exchange control measures, including the abolishment of the
Convertibility Law. As a result, YPF is currently exposed to risks associated
with changes in foreign currency exchange rates.
See "Item 3: Key Information--Risk Factors."
95
Crude oil price swaps: YPF entered into price swap agreements in November
1996, June 1998 and December 2001 on future oil delivery commitments, covering
approximately 27.8 million, 23.9 million and 24.1 million barrels of crude oil,
respectively. These swap agreements are for periods of seven, ten and seven
years, respectively. These swap agreements were entered into in connection with
advanced payments received by YPF for future crude-oil deliveries under forward
crude oil sale agreements covering these same volumes of crude-oil subject to
the swap agreements. Under the price swap agreements, YPF will pay a fixed
average price of US$19.59 per barrel and will receive variable selling prices
that will depend upon market prices. The estimated price effect presented in the
table above represents the difference between the prices YPF will pay and the
forecasted prices YPF would receive under the contracts.
Qualitative Disclosure
As of December 31, 2002, YPF's primary risk exposures associated with
financial instruments to which it is a party included crude oil price volatility
and foreign exchange rate volatility with respect to debt denominated in U.S.
dollars.
Non-Derivative Financial Instruments
YPF is mostly a borrower under fixed rate debt instruments that give rise
to foreign exchange rate risk. YPF's objective in borrowing under fixed debt is
to satisfy capital requirements that minimize YPF's exposure to interest rate
fluctuations. To realize its objectives, YPF has borrowed under fixed rate debt
instruments, based on the availability of capital and prevailing market
conditions.
Derivative Financial Instruments
YPF has entered into commodity price derivative contracts to hedge
commodity price risks.
YPF has a policy and strategy, as of December 31, 2002, to enter only into
commodity price derivative instruments that qualify as hedges of its existing
commodity price risks.
ITEM 12. Description of Securities Other than Equity Securities
Not applicable.
96
PART II
ITEM 13. Defaults, Dividend Arrearages and Delinquencies
None.
ITEM 14. Material Modifications to the Rights of Security Holders and Use of
Proceeds
None.
ITEM 15. Controls and Procedures
Within 90 days prior to the filing date of this report, YPF S.A., under the
supervision and with the participation of its management, including the Chief
Executive Officer and the Chief Financial Officer, performed an evaluation of
the effectiveness of its disclosure controls and procedures. Based on this
evaluation, YPF's Chief Executive Officer and Chief Financial Officer concluded
that YPF's disclosure controls and procedures are effective for gathering,
analyzing and disclosing the information that YPF is required to disclose in the
reports it files under the Securities Exchange Act of 1934, within the time
periods specified in the SEC's rules and forms. YPF's management necessarily
applied its judgment in assessing the costs and benefits of such controls and
procedures, which by their nature can provide only reasonable assurance
regarding management's control objectives. There have been no significant
changes in YPF's internal controls or other factors that could significantly
affect internal controls subsequent to the date of their evaluation.
ITEM 16. [RESERVED]
97
PART III
ITEM 17. Financial Statements
The registrant has responded to Item 18 in lieu of responding to this Item.
ITEM 18. Financial Statements
The Consolidated Financial Statements of YPF for the years ended December
31, 2002 and 2001, were audited by Deloitte & Co. S.R.L. ("Deloitte"), member
Firm of Deloitte Touche Tohmatsu, and the Consolidated Financial Statements of
YPF for the year ended December 31, 2000 were audited by other auditors, who
were a member Firm of Andersen, who ceased practicing before the SEC on
August 31, 2002. Auditors reports issued by Deloitte and by other auditors,
dated March 6, 2003 and February 27, 2001, respectively, are included in this
annual report.
The consolidated financial statements for the year ended December 31, 2001
were originally audited by other auditors, who were members of an international
firm who ceased operations. Those consolidated financial statements were
reaudited by Deloitte as subseqeunt to the filing with the SEC, and only for the
U.S. GAAP reconciliation purposes, and after assessing the evolution of the
economic crisis described in Note 13, the Company determined the US dollar as
its functional currency. Consequently, the reconciliation of net income and
shareholders' equity to U.S. GAAP as of December 31, 2001, has been restated for
comparative purposes to give retroactive effect to such criteria. See the "Item
5. Operating and Financial Review and Prospects--US GAAP Reconciliation" and
Note 14.a to the consolidated financial statements for a detailed description of
effects of such restatement.
See pages F-1 through F-56.
ITEM 19. Exhibits
(a).Index to Financial Statements:
Page
Reports of independent public accountants.................................................................... F-2
Consolidated statements of income for the years ended December 31, 2002, 2001, and 2000...................... F-4
Consolidated balance sheets as of December 31, 2002, 2001, and 2000.......................................... F-5
Consolidated statements of cash flows for the years ended December 31, 2002, 2001, and 2000.................. F-6
Consolidated statements of change in shareholders' equity for the years ended December 31,
2002, 2001, and 2000...................................................................................... F-7
Notes to consolidated financial statements for the years ended December 31, 2002, 2001, and
2000...................................................................................................... F-8
(b).Index to Exhibits:
1.1 Bylaws (Estatutos) of YPF, S.A. as amended (Spanish Version)+
1.2 Bylaws (Estatutos) of YPF, S.A. as amended (English Version)+
8.1 List of significant subsidiaries.
- ------------------
+ Previously filed as an exhibit to YPF's 1999 annual report on Form 20-F
filed on June 2, 2000.
98
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant tha it meets all requirements for filing on Form 20-F
and has duly caused this annual report to be signed on its behalf by the
undersigned, thereunto duly authorized.
YPF SOCIEDAD ANONIMA
By: /s/ Carlos Alberto Olivieri
---------------------------------
Name: Carlos Alberto Olivieri
Title: Chief Financial Officer
Dated: June 27, 2003
99
CHIEF EXECUTIVE OFFICER CERTIFICATION
I, Alfonso Cortina de Alcocer, certify that:
1. I have reviewed this annual report on Form 20-F of YPF Sociedad
Anonima;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent, evaluation, to the registrant's auditors and the audit
committee of the registrant's Board of Directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls;
6. The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
By: /s/ Alfonso Cortina de Alcocer
--------------------------------
Name: Alfonso Cortina de Alcocer
Title: Chief Executive Officer
Date: June 27, 2003
100
CHIEF FINANCIAL OFFICER CERTIFICATION
I, Carlos Alberto Olivieri, certify that:
1. I have reviewed this annual report on Form 20-F of YPF Sociedad
Anonima;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's Board of Directors (or persons performing
the equivalent function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the ability to record, process,
summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls;
6. The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
By: /s/ Carlos Alberto Olivieri
----------------------------------
Name: Carlos Alberto Olivieri
Title: Chief Financial Officer
Date: June 27, 2003
101
YPF SOCIEDAD ANONIMA AND CONTROLLED COMPANIES
INDEX
Page
Reports of independent public accountants.................................................................... F-2
Consolidated statements of income for the years ended December 31, 2002, 2001 and 2000....................... F-4
Consolidated balance sheets as of December 31, 2002, 2001 and 2000........................................... F-5
Consolidated statements of cash flows for the years ended December 31, 2002, 2001 and 2000................... F-6
Consolidated statements of changes in shareholders' equity for the years ended December 31, 2002, 2001
and 2000................................................................................................... F-7
Notes to consolidated financial statements for the years ended December 31, 2002, 2001 and 2000.............. F-8
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To THE BOARD OF DIRECTORS OF YPF SOCIEDAD ANONIMA:
We have audited the consolidated balance sheets of YPF SOCIEDAD ANONIMA (an
Argentine Corporation) and its controlled companies as of December 31, 2002 and
2001 and the related consolidated statements of income, cash flows and changes
in shareholders' equity for each of the two years in the period ended December
31, 2002, all expressed in constant Argentine pesos as of December 31, 2002. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
The consolidated financial statements of YPF SOCIEDAD ANONIMA for the year ended
December 31, 2000, which are presented for comparative purposes and expressed in
constant Argentine pesos as of December 31, 2002, were audited by other auditors
who were members of an international firm that has ceased operations and issued
their unqualified report dated February 27, 2001.
These consolidated financial statements are the responsibility of the Company's
Management.
We conducted our audits in accordance with generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by Management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As described in Note 13 to the accompanying consolidated financial statements,
during the year 2002, a deep change has been implemented in the economic model
of the country as well as in the Convertibility Law that was in place since
March 1991 (whereby the Argentine peso was pegged at parity with the US dollar).
The main consequences of the set of measures adopted by the Argentine Federal
Government to the date of this report have been: (a) the devaluation of the
Argentine peso with respect to the US dollar and de-dollarization of certain
assets and liabilities in foreign currency held in the country; (b) default on
payments of the public debt; (c) the implementation of restrictions on the
withdrawal of funds deposited with financial institutions; (d) the restriction
on transfers abroad on account of certain financial loans principal and interest
payments without prior authorization from the Argentine Central Bank; (e) the
implementation of new withholding systems for hydrocarbon exports; (f) the
increase in domestic prices; and (g) the suspension of the legal provisions for
entities' dissolution and shareholders' contributions compulsory reduction. The
future development of the economic crisis may require further measures from the
Argentine Federal Government. The accompanying consolidated financial statements
should be read taking into account the issues mentioned above.
In our opinion, the consolidated financial statements of YPF SOCIEDAD ANONIMA,
as of December 31, 2002 and 2001 present fairly, in all material respects, the
consolidated financial position of YPF SOCIEDAD ANONIMA and its controlled
companies as of December 31, 2002 and 2001 and the consolidated results of their
operations and their cash flows for each of the two years in the period ended
December 31, 2002, in accordance with generally accepted accounting principles
applicable to consolidated financial statements in Argentina.
Accounting practices of YPF SOCIEDAD ANONIMA used in preparing the accompanying
consolidated financial statements conform with generally accepted accounting
principles applicable to consolidated financial statements in Argentina, but do
not conform with accounting principles generally accepted in the United States
of America. A description of the significant differences between such principles
and those accounting principles generally accepted in the United States of
America and the approximate effect of those differences on consolidated net
income and shareholders' equity are set forth in Note 14 and 15 to the
accompanying consolidated financial statements. As discussed in Note 14 to the
consolidated financial statements, the reconciliation to U.S. GAAP as of and for
the year ended December 31, 2001, has been restated.
Buenos Aires, Argentina
March 6, 2003
DELOITTE & Co. S.R.L.
RICARDO C. RUIZ
Partner
F-2
This is a copy of the audit report previously issued by Pistrelli, Diaz y
Asociados, a former member firm of Arthur Andersen, in connection with YPF
Sociedad Anonima's filing on Form 20-F for the year ended December 31, 2001.
This audit report has not been reissued by Pistrelli, Diaz y Asociados in
connection with the filing of this annual report on Form 20-F. The consolidated
balance sheets as of December 31, 1999 and 1998, the related consolidated
statements of income, cash flows and changes in shareholders' equity for the
years ended December 31, 1999 and 1998 referred to in this report have not been
included in the accompanying financial statements.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of YPF Sociedad Anonima:
We have audited the consolidated balance sheets of YPF SOCIEDAD ANONIMA
(an Argentine Corporation) and its controlled companies as of December 31, 2000,
1999 and 1998 and the related consolidated statements of income, cash flows and
changes in shareholders' equity for each of the three years in the period ended
December 31, 2000. These consolidated financial statements are the
responsibility of the Company's Management. Our responsibility is to express an
opinion on these consolidated statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the Unites States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by Management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to in
the first paragraph present fairly, in all material respects, the consolidated
financial position of YPF SOCIEDAD ANONIMA, and its controlled companies as of
December 31, 2000, 1999 and 1998 and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2000, in accordance with generally accepted accounting principles
applicable to the consolidated financial statements in Argentina.
Further, in our opinion, the reconciliation of net income for each of
the three years in the period ended December 31, 2000 and shareholders' equity
for the three years ended December 31, 2000, presented in Note 15 of notes to
consolidated financial statements, which reconciles net income and shareholders'
equity, as shown in the consolidated financial statements, to the approximate
amounts of net income and shareholders' equity as determined in conformity with
generally accepted accounting principles in the United States of America,
presents fairly the information shown therein.
Buenos Aires, Argentina PISTRELLI, DIAZ Y ASOCIADOS
February 27, 2001 C.P.C.E.C.F. T1 - F8
/s/ RICARDO C. RUIZ
----------------------------------------
RICARDO C. RUIZ
Partner
C.P.A., Buenos Aires University
C.P.C.E.C.F. T156 - F159
F-3
YPF SOCIEDAD ANONIMA AND CONTROLLED COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(amounts expressed in millions of Argentine pesos as of December 31, 2002,
except for per share amounts in Argentine pesos as of December 31, 2002 -
Note 1)
2002 2001 2000
------------- ------------- -------------
Net sales (Note 8) 19,599 17,810 18,897
Cost of sales (Note 18.e) (11,057) (10,622) (10,878)
------------- ------------- -------------
Gross profit 8,542 7,188 8,019
Administrative expenses (Note 18.g) (432) (476) (397)
Selling expenses (Note 18.g) (1,050) (1,682) (1,259)
Exploration expenses (Note 18.g) (240) (220) (314)
------------- ------------- -------------
Operating income 6,820 4,810 6,049
(Loss) Income on long-term investments (436) (253) 37
Other expenses, net (Note 3.h) (430) (275) (611)
Financial income (expense) and holding gains (losses), net:
Gains on assets (Note 3.i) 754 9 233
Losses on liabilities (Note 3.i) (3,636) (687) (576)
Income (Loss) from sale of long-term investments 687 (273) (426)
------------- ------------- -------------
Net income before income tax and minority interest 3,759 3,331 4,706
Income tax (415) (1,541) (1,999)
Minority interest - (2) (26)
------------- ------------- -------------
Net income 3,344 1,788 2,681
============= ============= =============
Earnings per share (Note 1) 8.50 4.55 7.59
============= ============= =============
The accompanying notes are an integral part of these statements
F-4
YPF SOCIEDAD ANONIMA AND CONTROLLED COMPANIES
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2002, 2001 AND 2000 (amounts
expressed in millions of Argentine pesos as of December 31, 2002 - Note 1)
2002 2001 2000
------------- ------------- -------------
Current Assets
Cash 248 85 113
Investments (Note 3.a) 426 155 853
Trade receivables (Note 3.b) 1,913 2,069 2,632
Other receivables (Note 3.c) 5,137 1,822 884
Inventories (Note 3.d) 626 598 724
Other assets (Note 2.c) - 303 -
------------- ------------- -------------
Total current assets 8,350 5,032 5,206
------------- ------------- -------------
Noncurrent Assets
Trade receivables (Note 3.b) 80 170 37
Other receivables (Note 3.c) 1,145 1,266 1,143
Investments (Note 3.a) 1,049 2,989 1,536
Fixed assets (Note 3.e) 18,898 18,982 20,520
Intangible assets (Note 18.b) 29 327 452
------------- ------------- -------------
Total noncurrent assets 21,201 23,734 23,688
------------- ------------- -------------
Total assets 29,551 28,766 28,894
============= ============= =============
Current Liabilities
Accounts payable (Note 3.f) 1,697 2,293 2,293
Loans (Note 3.g) 1,529 2,394 1,290
Salaries and social security 84 133 159
Taxes payable 566 328 1,567
Advances from crude oil purchasers (Note 10.b) 398 329 194
Dividends payable - - 170
Reserves (Note 18.d) 141 292 308
------------- ------------- -------------
Total current liabilities 4,415 5,769 5,981
------------- ------------- -------------
Noncurrent Liabilities
Accounts payable (Note 3.f) 98 362 666
Loans (Note 3.g) 2,728 2,512 2,887
Salaries and social security 134 109 118
Taxes payable 38 - 4
Advances from crude oil purchasers (Note 10.b) 1,317 1,111 602
Reserves (Note 18.d) 538 395 399
------------- ------------- -------------
Total noncurrent liabilities 4,853 4,489 4,676
------------- ------------- -------------
Total liabilities 9,268 10,258 10,657
Minority Interest - - 142
Shareholders' Equity (per corresponding statements) 20,283 18,508 18,095
------------- ------------- -------------
Total liabilities, minority interest and shareholders' equity 29,551 28,766 28,894
============= ============= =============
The accompanying notes are an integral part of these statements
F-5
YPF SOCIEDAD ANONIMA AND CONTROLLED COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(amounts expressed in millions of Argentine pesos as of
December 31, 2002 - Note 1)
2002 2001 2000
------------- -------------- --------------
Cash Flows from Operating Activities
Net income 3,344 1,788 2,681
Adjustments to reconcile net income to net cash provided
by operating activities:
Minority interest - 2 26
Dividends from long-term investments 49 113 46
(Income) Loss from sale of long-term investments (687) 273 426
Loss (Income) on long-term investments and amortization
of intagible assets 637 (1) 253 (1) (50)(1)
Depreciation of fixed assets 2,048 2,191 2,034
Consumption of materials and fixed assets retired, net of allowances 204 27 321
Increase in allowances for fixed assets 98 87 205
Net (decrease) increase in reserves 364 (4) 233
Changes in assets and liabilities:
Trade receivables (1,097) 310 (273)
Other receivables (2,343) (491) (103)
Inventories (51) 140 (118)
Accounts payable 747 24 500
Salaries and social security 113 (37) 15
Taxes payable 503 (1,322) 744
Advances from crude oil purchasers (524) 644 (194)
Exchange differences, interest and results on exposure to inflation 2,114 (31) (70)
------------- -------------- --------------
Net cash flows provided by operating activities 5,519 3,967 6,423
------------- -------------- --------------
Cash Flows from Investing Activities
Acquisitions of fixed assets (2,693) (2,807) (2,559)
Capital contributions in long-term investments (27) (591) (271)
Acquisitions of long-term investments - (312) (373)
Proceeds from sale of long-term investments 1,479 3,269 480
Investments (non cash and equivalents) 59 55 24
------------- -------------- --------------
Net cash flows used in investing activities (1,182) (386) (2,699)
------------- -------------- --------------
Cash Flows from Financing Activities
Proceeds from loans 103 5,665 849
Payment of loans (3,840) (6,416) (4,046)
Dividends paid (37) (3,604) (692)
------------- -------------- --------------
Net cash flows used in financing activities (3,774) (4,355) (3,889)
------------- -------------- --------------
Increase (Decrease) in Cash and Equivalents 563 (774) (165)
Cash and equivalents at the beginning of years 209 957 1,122
Cash and equivalents from the merger with
Astra C.A.P.S.A. and Repsol Argentina S.A. - 26 -
Effect of changes in the purchasing power of
Argentine pesos on cash and equivalents (113) - -
------------- -------------- --------------
Cash and equivalents at the end of years 659 209 957
============= ============== ==============
For supplemental information on the consolidated statements of cash flows, see
Note 16.d.
(1) Includes 185 corresponding to the proportional consolidation of the income
statements of Petroken Petroquimica Ensenada S.A. ("Petroken"), Refineria
del Norte S.A. ("Refinor"), Profertil S.A., Compania Mega S.A. ("Mega"),
Empresa Petrolera Andina S.A. ("Andina") and Global Petroleum Corporation
("Global") as of December 31, 2002, (28) corresponding to the proportional
consolidation of the income statements of Petroken, Refinor, Profertil S.A.,
Andina, Mega and Global as of December 31, 2001, and (35) corresponding to
the proportional consolidation of the income of statement of Petroken,
Refinaria de Petroleos de Manguinhos ("Manguinhos") and Global as of
December 31, 2000.
The accompanying notes are an integral part of these statements
F-6
YPF SOCIEDAD ANONIMA AND CONTROLLED COMPANIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(amounts expressed in millions of Argentine pesos as of December 31, 2002 -
Note 1, except for per share amount in Argentine pesos)
Shareholders' Contributions
-----------------------------------------------------------------------
Subscribed Adjustment to Issuance Irrevocable
Capital Contributions Premiums Contributions Total
------------- ------------- ------------- ------------- --------------
Balance as of December 31, 1999 3,530 6,707 - - 10,237
As decided by the Ordinary and Extraordinary
Shareholders' meeting of April 27, 2000:
- - Appropriation to Legal Reserve - - - - -
- - Cash dividends (Ps. 0.88 per share) - - - - -
Net income - - - - -
------------- ------------- ------------- ------------- --------------
Balance as of December 31, 2000 3,530 6,707 - - 10,237
Merger with Astra C.A.P.S.A. and Repsol
Argentina S.A. as of January 1, 2001 403 476 635 28 1,542
As decided by the Ordinary and Extraordinary
Shareholders' meeting of April 18, 2001:
- - Appropriation to Legal Reserve - - - - -
- - Cash dividends (Ps. 2 per share) - - - - -
As decided by the Board of Directors'
meeting of November 29, 2001:
- - Prepaid cash dividends (Ps. 2 per share) - - - - -
Net income - - - - -
------------- ------------- ------------- ------------- --------------
Balance as of December 31, 2001 3,933 7,183 635 28 11,779
As decided by the Ordinary and Extraordinary
Shareholders' meeting of April 10, 2002:
- - Appropriation to Legal Reserve - - - - -
- - Appropriation to Reserve for - - - - -
future Dividends
As decided by the Board of Directors'
meeting of November 7, 2002:
- - Dividends - 37 in cash and 1,532 in kind - - - - -
(Ps. 4 per share) (Note 11)
Net income - - - - -
------------- ------------- ------------- ------------- --------------
Balance as of December 31, 2002 3,933 7,183 635 28 11,779
============= ============= ============= ============= ==============
Reserve Unappropriated Total
Legal for Future Retained Shareholders'
Reserve Dividends Earnings Equity
------------- ------------- ------------- ----------------
Balance as of December 31, 1999 543 - 5,313 16,093
As decided by the Ordinary and Extraordinary
Shareholders' meeting of April 27, 2000:
- - Appropriation to Legal Reserve 52 - (52) -
- - Cash dividends (Ps. 0.88 per share) - - (679) (679)
Net income - - 2,681 2,681
------------- ------------- ------------- -------------
Balance as of December 31, 2000 595 - 7,263 18,095
Merger with Astra C.A.P.S.A. and Repsol
Argentina S.A. as of January 1, 2001 74 7 436 2,059
As decided by the Ordinary and Extraordinary
Shareholders' meeting of April 18, 2001:
- - Appropriation to Legal Reserve 133 - (133) -
- - Cash dividends (Ps. 2 per share) - - (1,717) (1,717)
As decided by the Board of Directors'
meeting of November 29, 2001:
- - Prepaid cash dividends (Ps. 2 per share) - - (1,717) (1,717)
Net income - - 1,788 1,788
------------- ------------- ------------- -------------
Balance as of December 31, 2001 802 7 5,920 18,508
As decided by the Ordinary and Extraordinary
Shareholders' meeting of April 10,
2002:
- - Appropriation to Legal Reserve 56 - (56) -
- - Appropriation to Reserve for - 1,694 (1,694) -
future Dividends
As decided by the Board of Directors'
meeting of November 7, 2002:
- - Dividends - 37 in cash and 1,532 in kind - (1,569) - (1,569)
(Ps. 4 per share) (Note 11)
Net income - - 3,344 3,344
------------- ------------- ------------- -------------
Balance as of December 31, 2002 858 132 7,514 20,283
============= ============= ============= =============
The accompanying notes are an integral part of these statements
F-7
YPF SOCIEDAD ANONIMA AND CONTROLLED COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(amounts expressed in millions of Argentine pesos as of December 31, 2002,
except where otherwise indicated - Note 1)
1. CHANGES IN ARGENTINE ECONOMIC RULES AND SIGNIFICANT ACCOUNTING POLICIES
Changes in Argentine economic rules
Since early December 2001, Argentine authorities implemented a number of
monetary and exchange control measures that mainly included restrictions on the
free disposition of funds deposited with banks and the practical impossibility
of making transfers abroad, with the exception of transfers related to foreign
trade. Later, the Federal Government declared the official default on debt
payments and, on January 6, 2002, the Argentine Congress approved Law No. 25,561
on Public Emergency and Exchange System Reform that introduced dramatic changes
to the economic model implemented until that date and that amended the
Convertibility Law (the currency board that pegged the Argentine peso at parity
with the U.S. dollar) approved in March 1991. The new law empowers the Federal
Executive to implement, among other things, additional monetary, financial and
exchange measures to overcome the economic crisis in the medium term. The
summary of the main outstanding measures adopted is disclosed in Note 13.
Significant accounting policies
The financial statements of YPF Sociedad Anonima ("YPF") and its controlled
companies (the "Company") have been prepared in accordance with generally
accepted accounting principles in Argentina ("Argentine GAAP") considering the
regulations of the Argentine Securities Commission ("CNV"). They also include
certain reclassifications and additional disclosures that allow the financial
statements to conform more closely to the form and content required by the
Securities and Exchange Commission of the United States of America ("SEC").
The consolidated financial statements of YPF as of December 31, 2001, include
the effect of the merger with Astra C.A.P.S.A. ("Astra") and Repsol Argentina
S.A. as of January 1, 2001, as mentioned in the accompanying Notes.
Presentation of financial statements in constant Argentine pesos
The consolidated financial statements reflect the effect of changes in the
purchasing power of money by the application of the method for restatement in
constant Argentine pesos set forth in Technical Resolution No. 6 of the
Argentine Federation of Professional Councils in Economic Sciences
("F.A.C.P.C.E.").
Pursuant to General Resolution No. 272 of the CNV and based on the prevailing
economic stability conditions, the Company discontinued the application of the
restatement method as from September 1, 1995, while retaining all restatements
recorded until such date. This criterion has been accepted by Argentine GAAP
until December 31, 2001. Considering the existence of a new inflationary context
(the increase in the wholesale price index, applicable for restating financial
statements, was 118% in the year ended December 31, 2002) and the conditions
created by the new scenario established by the Public Emergency and Exchange
System Reform Law, which are further described in Note 13, on March 6, 2002, the
Buenos Aires City Professional Council in Economic Sciences (the
"C.P.C.E.C.A.B.A.") approved Resolution M.D. No. 3/2002, that provides, among
other aspects, the application of the restatement in constant Argentine pesos in
the fiscal years or interim periods ended on and after March 31, 2002, and
accepts that the accounting measurements restated as a result of the change in
the purchasing power of the Argentine peso until the discontinuance of the
adjustments, such as those arisen in the stability period, be considered as
stated in constant Argentine pesos as of December 2001.
For the year ended December 31, 2002, the Company has applied the Resolution
M.D. No. 3/2002 of the C.P.C.E.C.A.B.A., as far as the restatement in constant
Argentine pesos is concerned, which was ratified by General Resolution No. 415
of the CNV, dated July 25, 2002. The consolidated financial statements for the
years ended December 31, 2001 and 2000, which are presented for comparative
purposes, were restated to constant Argentine pesos as of December 31, 2002 to
reflect the effect of changes in the purchasing power of money for the year
then ended. The conversion factor used to perform such restatement was
approximately 2.182.
F-8
Basis of consolidation
In accordance with generally accepted accounting principles and current
Argentine legislation, the presentation of individual financial statements is
mandatory. Consolidated financial statements are to be included as supplementary
information to the individual financial statements. For the purpose of this
filing, individual financial statements have been omitted since they are not
required for SEC reporting purposes.
Following the methodology established in Technical Resolution Number 4 of the
F.A.C.P.C.E., YPF has consolidated its balance sheets as of December 31, 2002,
2001 and 2000 and the related statements of income and cash flows for the years
then ended with the financial statements of those companies in which YPF has the
number of votes necessary to control corporate decisions ("YPF Group").
Additionally, the income on long-term investments in investees in which joint
control is held has been proportionally consolidated line by line, based on the
YPF's interest in income accounts of the financial statements of such companies.
The effect of this proportional consolidation on consolidated net sales and on
consolidated operating income for the years ended December 31, 2002, 2001 and
2000, is disclosed in Note 14.
Consolidated foreign subsidiaries' financial statements are translated into
Argentine pesos using the year-end exchange rate and the corresponding exchange
differences have been credited (charged) to current income.
The valuation methods employed by the controlled companies are consistent with
those followed by YPF. If necessary, adjustments have been made to conform the
accounting principles used by controlled companies to those of YPF.
Financial instruments with off-balance sheet risk and concentrations of credit
risk
Although YPF does not use derivative financial instruments to hedge the effects
of fluctuations in market prices, the Company has entered into certain hedging
contracts, which are described below.
As of December 31, 2002, YPF hedged the crude oil price of future deliveries
through price swap agreements originally covering approximately 27.8 million,
23.9 million and 24.1 million crude oil barrels to be delivered during the term
of seven, ten and seven years, respectively, under the forward crude oil sale
agreements mentioned in Note 10.b). Under these price swap agreements YPF will
receive variable selling prices, which will depend upon market prices. As of
December 31, 2002, approximately 37 million of barrels of crude oil are hedged
under these agreements.
Gains and losses on hedging activities over crude oil sales are deferred until
the related transaction is recognized and are accounted for as a component of
net sales in the Statement of Income.
Financial instruments that potentially expose the Company to concentration of
credit risk consist primarily of cash, current investments, accounts receivable
and other receivables. The Company invests cash excess primarily in high liquid
investments in financial institutions both in Argentina and abroad with strong
credit rating and provides credit to foreign related parties. In the normal
course of business, the Company provides credit based on ongoing credit
evaluations to its customers and certain related parties. Additionally, the
Company accounts for credit losses based on specific information and historical
trends. Credit risk on trade receivables is limited, as a result of the
Company's large customer base.
Since counterparties to YPF's derivative transactions are major financial
institutions with strong credit rating, exposure to credit losses in the event
of nonperformance by such counterparties is minimal.
Use of estimates
The preparation of financial statements in conformity with Argentine GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. The
Company's consolidated financial statements include amounts that are based on
Management's best estimates and judgments. Actual results could differ from
these estimates.
Cash and equivalents
In the statements of cash flows, the Company considers cash and all highly
liquid investments purchased with an original maturity of less than three months
to be cash and equivalents.
F-9
Recognition of revenue
Revenue is recognized on sales of crude oil, refined products and natural gas,
in each case, when title and risk of loss passes to the customer.
Revenues and costs related to construction activities are accounted by the
percentage of completion method. When adjustments in contract value or estimated
costs are determined, any changes from prior estimates are reflected in earnings
in the current period. Anticipated losses on contracts in progress are charged
to earnings when identified.
Joint ventures and other agreements
The Company's interests in oil and gas related joint ventures and other
agreements involved in exploration and in oil and gas extraction have been
consolidated line by line on the basis of the Company's proportionate share in
their assets, liabilities, income, costs and expenses (Note 6).
Production concessions and exploration permits
According to Argentine Law No. 24,145 issued in November 1992, YPF's producing
fields and undeveloped properties were converted into production concessions and
exploration permits under Law No. 17,319. Exploration permits may have a term of
up to 17 years and production concessions have a term of 25 years, which may be
extended for an additional ten-year term.
Earnings per share
Earnings per share have been calculated based on the 393,312,793 shares
outstanding during the years ended as of December 31, 2002 and 2001 and
353,000,000 shares outstanding during the year ended as of December 31, 2000
(Note 4).
Argentine legal requirements
Certain disclosures related to formal legal requirements for reporting in
Argentina have been omitted for purposes of these consolidated financial
statements, since they are not required for SEC reporting purposes.
2. VALUATION CRITERIA
The principal valuation criteria used in the preparation of the financial
statements are as follows:
a) Cash, current investments, trade and other receivables and payables:
- Amounts in Argentine pesos have been valued at face value, which
includes accrued interest through the end of each year, if
applicable.
- Amounts in foreign currencies have been valued at the relevant
exchange rates in effect as of each year-end, including accrued
interest, if applicable. Assets and liabilities in U.S. dollars as
of December 31, 2001, were valued at the Argentine peso 1 to US$ 1
exchange rate which was effective as of the suspension date of
exchange market transactions, according to the provisions of
Resolution M.D. No. 1/02 of the C.P.C.E.C.A.B.A. and of Resolution
No. 392 of the CNV (Note 13). Exchange differences have been
credited (charged) to current income. Additional information on
assets and liabilities denominated in foreign currency is presented
in Note 18.f.
If applicable, allowances have been made to reduce receivables to their
estimated realizable value.
b) Inventories:
- Refined products for sale, products in process of refining and crude
oil have been valued at replacement cost as of the end of each year.
- Raw materials and packaging materials have been valued at weighted
average price, which does not significantly differ from its
replacement cost as of the end of each year.
F-10
c) Other assets:
Includes the assets related to the investments in Indonesia, which have
been valued at their estimated realizable value as of December 31, 2001
(Note 12).
d) Noncurrent investments:
These include the Company's investments in investees as defined by
Argentine Corporation Law (Article No. 33 of Law No. 19,550) and
investments in other companies where less than 10% interest is held. These
investments are detailed in Note 18.c and have been valued using the
equity method. Investees where less than 20% interest is held are
accounted by the equity method since YPF exercises significant influence
over these companies in making operation and financial decisions based on
its representation on the Board of Directors and the significant
transactions between YPF and the investees.
The equity of foreign investments has been converted into Argentine
pesos at the exchange rate prevailing at the end of each year (Note
13) and the corresponding exchange differences have been credited
(charged) to current income.
Holding in preferred shares has been valued as defined in the respective
bylaws.
If necessary, adjustments have been made to conform the accounting
principles used by investees to those of the Company.
The investments in investees have been calculated based upon the last
available financial statements of these companies at the end of each year,
taking into account significant subsequent events and transactions as well
as available management information (Note 18.c).
As from the effective date of Law No. 25,063, the dividends, either in
cash or in kind, that the Company receives from investments in other
companies and which are in excess of the accumulated taxable income that
these companies carry upon distribution shall be subject to a 35% income
tax withholding as a sole and final payment. YPF has not recorded any
charge for this tax since it has estimated that dividends from earnings
recorded by the equity method would not be subject to such tax.
e) Fixed assets:
Fixed assets have been valued at acquisition cost restated as detailed in
Note 1, less related accumulated depreciation. Depreciation rates,
representative of the useful life assigned, applicable to each class of
asset, are disclosed in Note 18.a.
Oil and gas producing activities
- The Company follows the "successful effort" method of accounting for
its oil and gas exploration and production operations. Accordingly,
exploratory costs, excluding the costs of exploratory wells, have
been charged to expense as incurred. Costs of drilling exploratory
wells, including stratigraphic test wells, have been capitalized
pending determination as to whether the wells have found proved
reserves that justify commercial development. Furthermore, costs of
drilling exploratory wells are also charged to expense if the proved
reserves determination process exceeds one year following completion
of drilling.
- Intangible drilling costs applicable to productive wells and to
developmental dry holes, as well as tangible equipment costs related
to the development of oil and gas reserves, have been capitalized.
- The capitalized costs related to producing activities, including
tangible and intangible costs, have been depreciated by field on the
unit-of-production basis by applying the ratio of produced oil and
gas to estimated recoverable proved and developed oil and gas
reserves.
- The capitalized costs related to acquisitions of properties with
proved reserves have been depreciated by field on the
unit-of-production basis by applying the ratio of produced oil and
gas to proved oil and gas reserves.
- Estimated future abandonment and plugging costs have been considered
in determining depreciation rates.
F-11
Other fixed assets
- The Company's other fixed assets have been depreciated using the
straight-line method, with depreciation rates based on the estimated
useful life of each class of property.
Maintenance and repairs to the fixed assets have been charged to expense
as incurred.
Renewals, betterments and major repairs that materially extend the useful
life of properties are capitalized. As fixed assets are retired, the
related cost and accumulated depreciation are eliminated from the balance
sheet.
The Company capitalizes the costs incurred in limiting, neutralizing or
preventing environmental pollution only in those cases in which at least
one of the following conditions is met: (a) the expenditure improves the
safety or efficiency of an operating plant (or other productive asset);
(b) the expenditure prevents or limits environmental pollution at
operating facilities; or (c) the expenditures are incurred to prepare
assets for sale and do not raise the assets' carrying value above their
estimated realizable value.
The carrying value of the fixed assets, taken as a whole, does not exceed
their estimated realizable value.
f) Intangible assets:
- Goodwill represented the excess of the acquisition cost of certain
subsidiaries over book value, which had been similar to the fair
value of net assets and liabilities acquired at the date of the
respective acquisitions, restated as detailed in Note 1. Goodwill
has been disclosed net of the related accumulated amortization.
Amortization of goodwill is provided over its estimated useful life,
using the straight-line method (Note 18.b).
- Deferred charges: have been valued at cost restated as detailed in
Note 1, less related accumulated amortization (Note 18.b).
g) Salaries and Social Security - Pensions and other Postretirement and
Postemployment Benefits
YPF Holdings Inc., a U.S. wholly owned subsidiary of YPF has a number of
trustee noncontributory pension plans and postretirement and
postemployment benefits.
The funding policy related to trustee noncontributory pension plans is to
contribute amounts to the plans sufficient to meet the minimum funding
requirements under governmental regulations, plus such additional amounts
as Management may determine to be appropriate. The benefits related to the
plans are and have been accrued based on years of service and compensation
earned during years of employment. YPF Holdings Inc. also has a
noncontributory supplemental retirement plan for executive officers and
selected key employees.
YPF Holding Inc. provides certain health care and life insurance benefits
for eligible retired employees and certain insurance and other
postemployment benefits for eligible individuals whose employment is
terminated by YPF Holdings Inc. prior to their normal retirement. YPF
Holdings Inc. accrues the estimated cost of retiree benefit payments,
other than pensions, during employees' active service periods. Employees
become eligible for these benefits if they meet minimum age and service
requirements. YPF Holdings Inc. accounts for benefits provided after
employment but before retirement by accruing the estimated cost of
postemployment benefits when the minimum service period is met, payment of
the benefit is probable and the amount of the benefit can be reasonably
estimated.
Other postretirement and postemployment benefits are funded as claims are
incurred.
F-12
h) Taxes, withholdings and royalties:
Income tax and tax on minimum presumed income
The Company recognizes the income tax expense applying the current 35%
income tax rate to the tax income for the year, without considering the
effect of the temporary differences between the financial and tax basis.
Additionally, YPF and its Argentine subsidiaries calculates tax on minimum
presumed income applying the current 1% tax rate to taxable assets at the
end of each year and therefore the corresponding tax liability will
coincide with the higher of such taxes. However, if the tax on minimum
presumed income exceeds income tax during one tax year, such excess may be
computed as prepayment of any income tax excess over the tax on minimum
presumed income that may be generated in the next ten years.
The estimated income tax for the years ended December 31, 2002, 2001 and
2000, was charged to "Income tax" account in the statements of income,
since the annual income tax was higher than the tax on minimum presumed
income.
Royalties and withholding systems for hydrocarbon exports in Argentina
A 12% royalty is payable on the estimated value at the wellhead of crude
oil production and the natural gas volumes effectively produced. The
estimated value is calculated based upon the approximate sale price of the
crude oil and gas produced, less the costs of transportation, storage and
treatment. Royalty expense is accounted for as a production cost.
Law No. 25,561 on Public Emergency and Exchange System Reform established
the implementation of a withholding system for hydrocarbon exports for
five years. The applicable current rates to that withholding system
amounts to 5% for certain refined products, liquefied petroleum gas and
natural gasoline and 20% for crude oil. Such withholdings are accounted
for as a reduction to sales amount.
i) Allowances and reserves:
Allowances
Amounts have been provided in order to reduce the valuation of trade
receivables, other receivables, noncurrent investments and fixed assets
based on analysis of doubtful accounts and on the estimated realizable
value of these assets.
Reserves for losses
Amounts have been provided for various contingencies involving the
Company. The estimated probable amounts recorded take into consideration
the probability of occurrence, based on Management's expectations and
consultation with legal counsel.
The activity in the allowances and reserves accounts is set forth in Note
18.d.
j) Environmental liabilities:
Environmental liabilities are recorded when environmental assessments
and/or remediation are probable and material and can be reasonably
estimated. Such estimates are based on either detailed feasibility studies
of remediation approach and cost for individual sites or, the Company's
estimate of costs to be incurred based on historical experience and
available information based on the stage of assessment and/or remediation
of each site. As additional information becomes available regarding each
site or as environmental standards change, the Company revises its
estimate of costs to be incurred in environmental assessment and/or
remediation.
k) Shareholders' equity accounts:
These accounts have been stated in Argentine pesos as detailed in Note 1,
except for the "Subscribed Capital" account, which is stated at its
historical value. The adjustment required to state this account in
constant Argentine pesos as of December 31, 2002, is disclosed in the
"Adjustment to Contributions" account.
F-13
l) Statements of income accounts:
The amounts included in the income statement have been recorded by
applying the following criteria:
- Accounts which accumulate monetary transactions were restated by
means of the application of the conversion factor of the month of
the accrual to the original amounts, as detailed in Note 1.
- Cost of sales has been calculated by computing units sold in each
month at the replacement cost of that month, restated as detailed in
Note 1.
- Depreciation and amortization of nonmonetary assets, valued at
historical cost, have been recorded based on the restated historical
cost of such assets, as detailed in Note 1.
- Holding gains (loss) on inventories valued at replacement cost, net
of the effect of the inflation, have been included in the account
"Holding gains (losses) on inventories".
- The income (loss) on long-term investments in investees has been
calculated on the basis of the income of those companies restated at
the closing date of the year and was included in the account "(Loss)
Income on long-term investments".
- Financial income (expenses) are disclosed net of the effect of the
general inflation on the related assets and liabilities. The effect
of inflation on the remaining monetary assets and liabilities has
been disclosed in the account "Gains (losses) on exposure to
inflation".
m) New professional accounting standards:
From January 1, 2003, the Company will apply the new accounting principles
in Argentina (Technical Resolutions No. 16 to 20 of the F.A.C.P.C.E.),
which will introduce significant changes to the current standards in
relation to valuation and disclosure criteria.
Main changes introduced by new accounting principles are as follows: i)
restrictions on the capitalization of certain deferred charges, ii)
mandatory application of the deferred income tax method as well as the
valuation of deferred assets and liabilities on a discounted basis, iii)
changes in frequency and methodology for the test of impairment of fixed
assets, iv) valuation of derivative financial instruments at fair value,
v) valuation at discounted values for certain receivables and liabilities,
and vi) changes in the method of translation of equity in foreign
investments. The application of certain accounting standards mentioned
above will imply a restatement of the initial shareholders' equity as of
January 1, 2003, and the restatement for comparative purposes of previous
years balances.
3. ANALYSIS OF THE MAIN ACCOUNTS OF THE CONSOLIDATED FINANCIAL STATEMENTS
Details regarding the significant accounts included in the accompanying
consolidated financial statements are as follows:
Consolidated Balance Sheet Accounts
Assets
a) Investments: 2002 2001 2000
--------------------------------------------------------------------------------
Current Noncurrent Current Noncurrent Current Noncurrent
----------- ----------- ---------- ------------- ---------- -----------
Short-term investments and
Government securities (1) (2) 426 18 155 61 853 28
Long-term investments (Note 18.c) - 1,220 - 3,236 - 1,521
Allowance for reduction in value
of holdings in long-term
investments (Note 18.d) - (189) - (308) - (13)
----------- ----------- ---------- ------------ ---------- -----------
426 1,049 155 2,989 853 1,536
=========== =========== ========== ============ ========== ===========
(1) Includes 5, 24 and 26 of restricted cash as of December 31, 2002, 2001 and
2000, respectively.
(2) Short-term investments are mainly composed of certificates of deposits and
mutual funds.
F-14
b) Trade receivables: 2002 2001 2000
------------------------- ------------------------ -----------------------
Current Noncurrent Current Noncurrent Current Noncurrent
------------ ----------- ---------- ----------- ---------- -----------
Accounts receivable 1,782 80 2,545 170 2,842 37
Related parties (Note 7) 565 - 506 - 345 -
Notes receivable - - 52 - 28 -
------------ ----------- ---------- ----------- ---------- -----------
2,347 80 3,103 170 3,215 37
Allowance for doubtful trade
receivables (Note 18.d) (434) - (1,034) - (583) -
------------ ----------- ---------- ----------- ---------- -----------
1,913 80 2,069 170 2,632 37
============ =========== ========== =========== ========== ===========
c) Other receivables: 2002 2001 2000
------------------------- ------------------------ -----------------------
Current Noncurrent Current Noncurrent Current Noncurrent
------------ ----------- ---------- ----------- ---------- -----------
Tax credits and advances and
export rebates 258 71 286 159 358 20
Trade 28 - 85 - 76 -
Prepaid expenses 57 316 41 329 59 393
Concessions charges 17 143 15 161 13 175
Related parties (Note 7) 4,608 455 1,126 199 113 4
Loans to clients 11 91 50 223 85 227
From the renegotiation of
long-term contracts - 27 - 70 - 92
Gas imbalance - 36 - 68 - 72
From joint ventures and other
agreements 38 - 111 - 133 -
From sale of noncurrent assets 6 1 24 15 - -
Miscellaneous 218 101 311 121 307 171
------------ ----------- ---------- ----------- ---------- -----------
5,241 1,241 2,049 1,345 1,144 1,154
Allowance for other doubtful
accounts (Note 18.d) (104) - (227) - (260) -
Allowance for valuation of other
receivables to their estimated
realizable value (Note 18.d) - (96) - (79) - (11)
------------ ----------- ---------- ----------- ---------- -----------
5,137 1,145 1,822 1,266 884 1,143
============ =========== ========== =========== ========== ===========
d) Inventories: 2002 2001 2000
----------- ---------- ----------
Refined products for sale 304 328 454
Crude oil 216 194 209
Products in process of refining 10 13 13
Raw materials, packaging materials and others 96 63 48
----------- ---------- ----------
626 598 724
=========== ========== ==========
e) Fixed assets: 2002 2001 2000
----------- ---------- ----------
Net book value of fixed assets (Note 18.a) 19,025 19,069 21,472
Allowance for unproductive exploratory drilling (Note 18.d) (44) (4) (46)
Allowance for obsolescence of materials (Note 18.d) (26) (26) (28)
Allowance for fixed assets to be disposed of (Note 18.d) (57) (57) (878)
----------- ---------- ----------
18,898 18,982 20,520
=========== ========== ==========
F-15
Liabilities
f) Accounts payable: 2002 2001 2000
--------------------------- ------------------------ -------------------------
Current Noncurrent Current Noncurrent Current Noncurrent
----------- -------------- --------- ------------- --------- --------------
Trade 1,352 4 1,558 33 1,549 26
Exploitation concessions
(Note 10.b) - - 262 218 175 480
Related parties (Note 7) 129 - 81 - 109 -
From joint ventures and other
agreements 112 - 142 - 236 -
Other 104 94 250 111 224 160
----------- -------------- --------- ------------- --------- -------------
1,697 98 2,293 362 2,293 666
=========== ============== ========= ============= ========== =============
g) Loans: 2002 2001 2000
-------------------- -------------------- --------------------
Interest Principal
rates(1) maturity Current Noncurrent Current Noncurrent Current Noncurrent
-------- -------- ------- ---------- ------- ---------- ------- ----------
Negotiable Obligations - - 975 2,387 198 2,141 726 2,701
Related parties (Note 7) 2.15-3.42% 2003 375 - 1,291 - 323 -
Maxus Notes 8.42-10.83% 2003-2004 86 4 4 59 2 61
Other bank loans and
other creditors 3.66% 2003-2007 93 337 901 312 239 125
------- ---------- ------- ---------- ------- ---------
1,529 2,728 2,394 2,512 1,290 2,887
======= ========== ======= ========== ======= ==========
(1) Annual interest rates as of December 31, 2002.
The maturities of the Company's noncurrent loans, as of December 31, 2002, are
as follows:
From 1 From 2 From 3 From 4 Over
to 2 years to 3 years to 4 years to 5 years 5 years Total
------------ ------------- ------------ ------------ ----------- -----------
Noncurrent loans 1,108 84 84 795 657 2,728
============ ============= ============ ============ =========== ===========
Details regarding the Negotiable Obligations of YPF are as follows:
Book Value
M.T.N. Issuance Interest Principal ---------------------------------------------------------------
Program (in millions) Rate(1) maturity 2002 2001 2000
------- ----------------------- -------- --------- -------------------- -------------------- ---------------------
(in millions)
---------------------------------
Year Principal
Value Current Noncurrent Current Noncurrent Current Noncurrent
----------------------- --------- ---------- ------- ---------- ------- -----------
- - 1994 US$ 350 8.00% 2004 31 1,019 20 661 24 764
US$ 500 1995 US$ 400 - - - - 26 - 155 26
US$ 500 1997 US$ 100 - - - - 26 - 44 26
US$ 700 1995 US$ 400 - - - - 89 - 146 89
US$ 700 1996 It.L. 300,000 - - - - - - 314 -
US$ 1,000 1997 US$ 300 7.75% 2007 20 711 13 460 15 589
US$ 1,000 1998 US$ 350 7.25% 2003 906 - 13 594 15 679
US$ 1,000 1998 US$ 100 10.00% 2028 4 219 2 142 2 190
US$ 1,000 1999 US$ 225 9.13% 2009 14 438 9 284 11 338
--------- -------- --------- ------- ------- -------
975 2,387 198 2,141 726 2,701
========= ======== ========= ======= ======= =======
(1) Annual interest rates as of December 31, 2002.
In connection with the issuances of the Negotiable Obligations, YPF has agreed
for itself and its controlled companies to certain covenants, including among
others, to pay all liabilities at their maturities and not to create other
encumbrances that exceed 15% of total consolidated assets. If YPF does not
comply with any covenant, the trustee or the holders of not less than 25% in
aggregate principal amount of each outstanding Negotiable Obligations may
declare the principal and accrued interest immediately due and payable.
F-16
Financial debt generally contains customary covenants for contracts of this
nature, including negative pledge, material adverse change and cross-default
clauses. Almost all of YPF's total outstanding debt is subject to cross-default
provisions, which may be triggered if an event of default occurs with respect to
the payment of principal or interest on indebtedness equal to or exceeding US$
20 million.
Consolidated Statements of Income Accounts
h) Other expenses, net: 2002 2001 2000
------------ ------------ -----------
Tax on checking account debits and credits (139) (57) -
Reserve for pending lawsuits (118) (98) (85)
Retirement of fixed assets and obsolete materials - (7) (124)
Contributions (10) (33) (65)
LPG fine (Note 10.b) - - (238)
Amortization of goodwill of controlled and joint controlled companies (16) (28) (22)
Miscellaneous (147) (52) (77)
------------ ------------ -----------
(430) (275) (611)
============ ============ ===========
i) Financial income (expense) and holding gains (losses),
net: Income (Expense)
2002 2001 2000
------------ ------------ -----------
Gains (Losses) on assets:
Interests 257 142 176
Exchange differences 2,034 (46) (28)
Holding gains (losses) on inventories 68 (87) 85
Losses on exposure to inflation (1,605) - -
------------ ------------ -----------
754 9 233
------------ ------------ -----------
(Losses) Gains on liabilities:
Interests (677) (643) (559)
Exchange differences (4,177) (44) (17)
Gains on exposure to inflation 1,092 - -
Miscellaneous 126 - -
------------ ------------ -----------
(3,636) (687) (576)
------------ ------------ -----------
(2,882) (678) (343)
============ ============ ===========
4. CAPITAL STOCK
YPF's subscribed capital, as of December 31, 2002, is 3,933 and is represented
by 393,312,793 shares of common stock and divided into four classes of shares
(A, B, C and D), with a par value of Argentine pesos 10 and one vote per share.
These shares are fully subscribed, paid-in and authorized for stock exchange
listing. As of January 1, 2001, YPF increased its subscribed capital stock by
the amount of 403, represented by 40,312,793 Class D shares, each with a par
value of Argentine pesos 10 and one vote per share, as a consequence of the
merger of Astra and Repsol Argentina S.A. with and into YPF (Note 12).
As of December 31, 2002, Repsol YPF, S.A. ("Repsol YPF") controls YPF, directly
and indirectly, through a 99.04% shareholding. Repsol YPF's legal address is
Paseo de la Castellana 278, 28046 Madrid, Spain.
Repsol YPF's principal business is the exploration, development and production
of crude oil and natural gas, transportation of petroleum products, liquefied
petroleum gas and natural gas, petroleum refining, production of a wide range of
petrochemicals and marketing of petroleum products, petroleum derivatives,
petrochemicals, liquefied petroleum gas and natural gas.
As of December 31, 2002, the Argentine Government holds 1,000 Class A shares. So
long as any Class A shares remain outstanding, the affirmative vote of such
shares is required for: 1) mergers, 2) acquisitions of more than 50% of YPF's
shares in an agreed or hostile bid, 3) transfers of all the YPF's production and
exploration rights, 4) the voluntary dissolution of YPF or 5) change of
corporate and/or tax address outside the Argentine Republic. Items 3) and 4)
will also require prior approval by the Argentine Congress.
F-17
5. RESTRICTED ASSETS AND GUARANTEES GIVEN
As of December 31, 2002, YPF has guaranteed commercial agreements signed by
certain subsidiaries for US$ 77 million. Subsequent to December 31, 2002, those
agreements were renewed for an additional year, in an amount of US$ 47 million.
Additionally, YPF has signed guarantees in relation to the financing activities
of Pluspetrol Energy S.A., Central Dock Sud S.A. and PBBPolisur S.A. in an
amount of approximately US$ 76 million, US$ 85 million and US$ 21 million,
respectively. As of December 31, 2002, Pluspetrol Energy S.A. has started
negotiations with local and international financial institutions in order to
reach an agreement on the reschedule of its debt.
YPF has agreed to maintain its interest in Petroken and not to dispose such
interest without the prior consent of the lenders. In addition, YPF has pledged
all shares of capital stock in Mega and Profertil S.A., and has committed, among
other things, to maintain its interests upon April 1, 2004 and December 31,
2010, respectively. Furthermore, YPF has signed a guarantee in relation to the
financing activities of Mega for an amount of approximately US$ 13 million.
In connection with the loans taken for the acquisition of the common stock of
Maxus (indirect controlled company through YPF Holdings Inc.), YPF has
guaranteed the repayment of such debt, that amounted to US$ 27 million as of
December 31, 2002.
Additionally, pursuant to the sale of certain subsidiaries during the year ended
December 31, 2001, YPF guaranteed the effect of the devaluation of the Argentine
peso in relation to the U.S. dollar on a working capital of US$ 80 million for a
twelve-month period beginning on December 2001. The effect of the guarantee was
approximately 173 and was charged to the statement of income.
6. PARTICIPATION IN JOINT VENTURES AND OTHER AGREEMENTS
As of December 31, 2002, the main exploration and production joint ventures and
other agreements in which YPF participates in Argentina are the following:
Last
financial
Ownership statements Duration
Name and location interest Operator issued through Activity
- --------------------------------- ------------- ----------------------------- ------------ ---------- --------------
Puesto Hernandez 61.55% Pecom Energia S.A. 09/30/02 2016 Production
Neuquen and Mendoza
El Tordillo 12.20% Tecpetrol S.A. 09/30/02 2016 Production
Chubut
Magallanes "A" 50.00% Sipetrol S.A. 12/31/01 2016 Production
Santa Cruz
Tierra del Fuego 30.00% Pan American 09/30/02 2017 Production
Tierra del Fuego Fueguina S.R.L.
Palmar Largo 30.00% Pluspetrol S.A. 09/30/02 2017 Production
Formosa
Aguarague 30.00% Tecpetrol S.A. 11/30/02 2017 Exploration and
Salta production
Aguada Pichana 27.28% Total Austral S.A. 09/30/02 2017 Production
Neuquen
San Roque 34.11% Total Austral S.A. 09/30/02 2017 Exploration and
Neuquen production
Acambuco 22.50% Pan American Energy LLC 09/30/02 2016 Exploration and
Salta production
La Tapera y Puesto Quiroga 12.20% Tecpetrol S.A. 09/30/02 2017 Exploration
Chubut
Llancanelo 51.00% YPF S.A. 12/31/01 2018 Exploration and
Mendoza production
Ramos (1) 15.00% Pluspetrol Energy S.A. 12/31/01 2026 Production
Salta
Filo Morado 50.00% YPF S.A. - 2006 Generation of
Neuquen power electricity
Corralera 40.00% Chevron San Jorge S.R.L. - 2005 Exploration
Neuquen
Campamento Central/ 50.00% YPF S.A. - 2017 Production
Canadon Perdido
Chubut
(1) Additionally, YPF has a 27% indirect ownership interest through
Pluspetrol Energy S.A.
F-18
As of December 31, 2002, YPF had been awarded the bids on its own or with other
partners and received exploration permits for acreage in several areas in
Argentina, having an interest between 18% and 100%.
Additionally, certain YPF' subsidiaries participate in certain exploration and
production joint ventures in Indonesia, Malaysia, Guyana and Gulf of Mexico.
The assets, liabilities and production costs of the joint ventures and other
agreements included in the financial statements are as follows:
2002 2001 2000
------------ ----------- -----------
Current assets 141 665 414
Noncurrent assets 1,667 1,816 4,772
------------ ----------- -----------
Total assets 1,808 2,481 5,186
============ =========== ===========
Current liabilities 220 244 578
Noncurrent liabilities 8 6 7
------------ ----------- -----------
Total liabilities 228 250 585
============ =========== ===========
Production costs 668 1,182 1,298
============ =========== ===========
Participation in joint ventures and other agreements have been calculated based
upon the last available financial statements of these companies at the end of
each year, taking into account significant subsequent events and transactions as
well as available Management information.
7. BALANCES AND TRANSACTIONS WITH RELATED PARTIES
The principal outstanding balances as of December 31, 2002, 2001 and 2000, from
transactions with investees, the parent company and other related parties under
common control are as follows:
2002 2001 2000
------------------------------- ------------------------------ -------------------------------
Trade Trade Trade
receivables Other receivables receivables Other receivables receivables Other receivables
----------- ------------------- ------------------------------ ----------- -------------------
Current Current Noncurrent Current Current Noncurrent Current Current Noncurrent
----------- -------- ---------- -------- ---------- ---------- ---------- -------- ----------
Investees:
Petroken 26 - - 13 2 - 11 2 -
Profertil S.A. 8 108 - - 26 52 2 - -
Refinor 88 2 - 22 - - 22 - -
Mega 226 1 30 135 - - 9 - -
Others 31 45 - 50 5 18 11 26 4
----------- -------- ---------- -------- ---------- ---------- ---------- -------- ----------
379 156 30 220 33 70 55 28 4
----------- -------- ---------- -------- ---------- ---------- ---------- -------- ----------
Parent Company and Other
Related Parties under
common control:
Repsol YPF - 1,384 - - 7 - - - -
Repsol YPF Transporte y
Trading S.A. 145 - - 244 - - 231 - -
Repsol YPF Gas S.A. 10 30 63 24 35 129 11 - -
Repsol YPF Gas
Chile Ltda. - - 362 - - - - - -
Repsol YPF Brasil S.A. 18 311 - 11 207 - - - -
Repsol International
Finance B.V. - 2,696 - - 744 - - - -
Andina - 1 - - 100 - - - -
Others 13 30 - 7 - - 48 85 -
----------- -------- ---------- -------- ---------- ---------- ---------- -------- ----------
186 4,452 425 286 1,093 129 290 85 -
----------- -------- ---------- -------- ---------- ---------- ---------- -------- ----------
565 4,608 455 506 1,126 199 345 113 4
=========== ======== ========== ======== ========== ========== ========== ======== ==========
F-19
2002 2001 2000
------------------ -------------------- --------------------
Accounts Accounts Accounts
Payable Loans Payable Loans Payable Loans
------------------ -------------------- --------------------
Current Current Current Current Current Current
------- ------- ------- ------- ------- -------
Investees:
Oleoductos del Valle S.A. 13 - 24 - 20 -
Others 79 - 48 - 30 -
------- ------- ------- ------- ------- -------
92 - 72 - 50 -
------- ------- ------- ------- ------- -------
Parent Company and Other Related Parties
under common control:
Repsol Netherlands Finance B.V. - 343 - 1,277 - -
Repsol International Finance B.V. - 32 - 6 - -
Repsol YPF 26 - 7 - - 323
Others 11 - 2 8 59 -
------- ------- ------- ------- ------- -------
37 375 9 1,291 59 323
------- ------- ------- ------- ------- -------
129 375 81 1,291 109 323
======= ======= ======= ======= ======== =======
The Company purchases, sales and finances transactions with its investees,
parent company and other related parties under common control. The prices of
these transactions approximate the amounts charged to unrelated third parties.
Additionally, sale transactions involving interests held by YPF in controlled
companies and investees to other related parties are detailed in Note 12. The
principal purchase, sale and financing transactions with these companies for the
years ended December 31, 2002, 2001 and 2000, include the following:
F-20
2002 2001 2000
----------------------------------- --------------------------------------------- -----------------------------------
Advances
Loans from Loans Loans
Purchases operations Interests crude Purchases operations Interests Purchases operations Interests
and (debit) gain oil and (debit) gain and (debit) gain
Sales services credit (loss) Sales purchases services credit (loss) Sales services credit (loss)
--------------- ------------------- --------------------------------------------- -----------------------------------
Investees:
Refinor 105 43 - - 103 - 83 - - 242 209 - -
Petroken 61 1 - - 52 - 2 - - 52 - - -
Profertil
S.A 32 15 20 8 20 - 11 (79) 2 13 - - -
Mega 181 - (34) 1 194 - 13 - - 9 - - -
Oleoductos
del
Valle S.A 1 67 - - - - 96 - - 2 96 - -
Oleoducto
Trasandino
(Argentina)
S.A - 75 - - - - 55 - - - - - -
PBB Polisur
S.A 130 - - - 113 - - - - 70 - - -
Others 149 101 - - 105 - 131 (100) 2 1 65 17 -
----- ------ ------ ------ ----- ----- ----- ----- ----- ----- ----- ----- ------
659 302 (14) 9 587 - 391 (179) 4 389 370 17 -
----- ------ ------ ------ ----- ----- ----- ----- ----- ----- ----- ----- ------
Parent
Company
and Other
Related
Parties
under
common
control:
Repsol YPF
Transporte
y
Trading
S.A 1,402 374 - - 2,226 - 87 - - 2,193 2 - -
Repsol YPF
Gas
S.A 115 - 28 6 - - - (41) - 17 4 - -
Repsol YPF
Brasil S.A 55 - 25 20 41 - - (194) 7 - - - -
Repsol YPF 1 19 (82) 34 - 836 - (323) - - - (484) (74)
Repsol
Inter-
national
Finance B.V - - (1,778) 15 - - - (744) (63) - - - -
Repsol
Netherlands
Finance B.V - - (1,873) (79) - - - 1,276 (137) - - - -
Others 50 11 205 25 384 - 94 - - 278 238 - -
----- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
1,623 404 (3,475) 21 2,651 836 181 (26) (193) 2,488 244 (484) (74)
----- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
2,282 706 (3,489) 30 3,238 836 572 (205) (189) 2,877 614 (467) (74)
===== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
8. BUSINESS SEGMENT INFORMATION
The Company organizes its business into five segments which comprise: the
exploration and production, including contractual purchases of crude oil and
natural gas arising from service contracts and concession obligations
("Exploration and Production"), the refining and marketing of crude oil and
petroleum derivatives ("Refining and Marketing"), the petrochemical operations
("Chemical"), the marketing of natural gas and electric power generation
("Natural Gas and Electricity") and the other activities, not falling into these
categories, which principally include corporate administration costs and assets,
construction activities and the environmental remediation activities of YPF
Holdings Inc. (Note 10.b) ("Corporate and Other").
F-21
Operating income (loss) and identifiable assets for each segment have been
determined after intersegment adjustments. Sales between business segments are
made at internal transfer prices established by YPF, which approximate market
prices.
Exploration Refining Natural
and and Gas and Corporate Consolidation
Production Marketing Chemical Electricity and Other adjustments Total
---------- --------- -------- ----------- --------- ----------- -----
Year ended December 31, 2002
Net sales to unrelated parties 1,435 14,232 1,208 238 204 - 17,317
Net sales to related parties 251 1,941 - 90 - - 2,282
Net intersegment sales and fees 11,239 772 364 16 256 (12,647) -
------ ----- ----- --- --- ------ ------
Total net sales and revenues
for services 12,925 16,945 1,572 344 (1) 460 (12,647) 19,599
====== ====== ===== === === ====== ======
Operating income (loss) 6,712 (46) 337 136 (298) (21) 6,820
Income (Loss) on long-term
investments (5) 63 - (494) - - (436)
Depreciation, depletion and
amortization 1,617 396 87 48 32 - 2,180
Acquisition of fixed assets 2,240 286 113 7 47 - 2,693
Identifiable assets 17,116 8,357 1,159 205 3,386 (672) 29,551
Year ended December 31, 2001
Net sales to unrelated parties 3,186 10,518 635 148 85 - 14,572
Net sales to related parties 2,496 537 - 72 133 - 3,238
Net intersegment sales and fees 4,952 748 388 24 - (6,112) -
------ ----- ----- --- --- ----- ------
Total net sales and revenues
for services 10,634 11,803(2) 1,023 244(1) 218 (6,112)(2) 17,810
====== ====== ===== === === ===== ======
Operating income (loss) 4,535 402 - 61 (297) 109 4,810
Income (Loss) on long-term
investments 7 94 (114) (240) - - (253)
Depreciation, depletion and
amortization 1,699 452 33 9 26 - 2,219
Acquisition of fixed assets 2,270 321 159 11 46 - 2,807
Identifiable assets 17,395 8,532 1,412 814 770 (157) 28,766
Year ended December 31, 2000
Net sales to unrelated parties 3,644 11,758 596 22 - - 16,020
Net sales to related parties 2,305 624 - - - (52) 2,877
Net intersegment sales and fees 5,932 748 454 15 - (7,149) -
------ ----- ----- --- --- ---- ------
Total net sales and revenues
for services 11,881 13,130(2) 1,050 37(1) - (7,201)(2) 18,897
====== ===== ===== === === ===== ======
Operating income (loss) 6,168 151 7 24 (301) - 6,049
Income (Loss) on long-term
investments 7 51 (17) - (4) - 37
Depreciation, depletion and
amortization 1,530 478 37 - 20 - 2,065
Acquisition of fixed assets 2,626 358 155 7 68 - 3,214
Identifiable assets 17,302 9,571 1,329 212 858 (378) 28,894
(1) Natural gas sales are recorded in the Exploration and Production segment.
(2) Effective January 1, 2002, crude oil sales are conducted through the
Refining and Marketing segment. If this new marketing policy had been
retroactively applied, Refining and Marketing total net sales and
Consolidation adjustments as of December 31, 2001 and 2000 would have been
approximately 14,073 and (8,382), and 15,810 and (9,881), respectively.
Export revenues were 8,542, 5,381 and 5,019, including 1,402, 2,226 and 2,193
sold to Repsol YPF Transporte y Trading S.A. for the years ended December 31,
2002, 2001 and 2000, respectively. The export sales are mainly to Brazil, Chile
and the United States of America.
F-22
9. SOCIAL AND OTHER EMPLOYEE BENEFITS
a) Performance Bonus Program:
Covers certain YPF and its controlled companies' personnel. The bonus is
based on compliance with corporate, business unit and personal objectives
and performance. It is calculated considering the annual compensation of
each employee and will be paid in cash.
The amount charged to expense related to the Performance Bonus Program was
25, 35 and 39 for the years ended December 31, 2002, 2001 and 2000,
respectively.
b) Retirement Plan:
Effective March 1995, YPF established a defined contribution retirement
plan that provides benefits for each employee who elects to join the plan.
Each plan member will pay an amount between 2% and 9% of his monthly
compensation and YPF will pay an amount equal to that contributed by each
member.
The plan members will receive YPF's contributed funds before retirement
only in the case of voluntary termination under certain circumstances or
dismissal without cause and additionally in the case of death or
incapacity. YPF has the right to discontinue this plan at any time,
without incurring termination costs.
The total charges recognized under the Retirement Plan amounted to
approximately 4, 7 and 7 for the years ended December 31, 2002, 2001 and
2000, respectively.
c) Directors' Incentive Programs:
These include directors and personnel at top positions in YPF and its
controlled companies:
- Stock Appreciation Rights Programs due to 2004, which are based on the
appreciation of the listed price of Repsol YPF's shares between the
time the stock appreciation rights are granted and the time they are
exercised, and is settled in cash. It includes 387,860 stock
appreciation rights which basis value are 16.40 and 24.60 euros per
share.
- Stock Options Program due to 2005. Under this program, Repsol YPF
intends to issue convertible obligations into ordinary and subordinated
shares of two different series with a face value of 15 and 22 euros,
respectively. The beneficiaries will be able to exercise their rights
of acquisition through the payment of the face value of the obligations
at the end of each year from the date of issuance.
The total charges of these programs, for the year ended December 31, 2002
were not significant.
10. COMMITMENTS AND CONTINGENCIES
a) Reserve for pending lawsuits:
It has been established to afford lawsuits which are probable and can be
reasonably estimated. In the opinion of Management and of its external
counsel, these lawsuits are not expected to have an additional significant
adverse effect on the results of operations and financial position of the
Company (Note 18.d).
Additionally, YPF has received claims for approximately 371, which have
not been reserved since Management, based on the evidence available to
date and upon the opinion of its external counsel, cannot reasonably
estimate the outcome of such claims.
F-23
b) Other matters:
Contractual commitments:
In November 1996, June 1998 and December 2001, YPF has received from crude
oil purchasers as advanced payments for future crude oil commitments
deliveries for approximately US$ 399 million, US$ 315 million and US$ 400
million, respectively. Under the terms of these agreements, YPF has agreed
to sell and deliver approximately 27.8 million, 23.9 million and 24.1
million crude oil barrels during the term of seven, ten and seven years,
respectively. To satisfy the contract deliveries, YPF may deliver crude
oil from different sources, including its own producing crude oil and
crude oil acquired from third parties. These payments have been classified
as advances from crude oil purchasers on the balance sheet and are being
reduced as crude oil is delivered to the purchasers under the terms of the
contracts. The balance outstanding of these advances as of December 31,
2002, 2001 and 2000, amounts to 1,715, 1,440 y 796, respectively. As of
December 31, 2002, approximately 37 million crude oil barrels are pending
of delivery. Crude oil volumes delivered to the purchasers are reported as
net sales at prices used to calculate the total amount under these
agreements.
On January 31, 2003, YPF received a claim from the Federal Administration
of Public Revenue ("AFIP"), stating that the advanced payments received in
1996 and 1998, for future crude oil deliveries, should have been subject
to an income tax withholding for approximately 69, plus interests and
fines. Management believes, based upon the opinion of its external
counsel, that the claim is without merit since those advances were
received under crude oil export commitments.
Liabilities and contingencies assumed by the Argentine Government:
The YPF Privatization Law provided for the assumption by the Argentine
Government of certain liabilities of the Predecessor as of December 31,
1990.
As of December 31, 2002, all claims related to the Predecessor presented
to YPF have been or are in the process of being formally notified to the
Argentine Government.
Environmental liabilities of YPF:
YPF is subject to various provincial and national laws and regulations
relating to the protection of the environment. These laws and regulations
may, among other things, impose liability on companies for the cost of
pollution clean-up and environmental damages resulting from operations.
Management of YPF believes that its operations are in substantial
compliance with Argentine laws and regulations currently in effect
relating to the protection of the environment as such laws have
historically been interpreted and enforced.
However, YPF has set off new studies to increase its knowledge concerning
the environmental situation in certain geographic areas where YPF operates
in order to establish their status, causes and solutions and, based on the
aging of the environmental issue, to analyze the possible responsibility
of Argentine Government, in accordance with the contingencies assumed by
the Argentine Government for liabilities existing prior December 31, 1990.
As of December 31, 2002, YPF has reserved all environmental contingencies
which evaluations and/or remediation works are probable and significant,
and can also be reasonably estimated, based on YPF's existing remediation
program. Future legislative and technological changes may cause a
re-evaluation of the estimates. From currently available evidence,
Management does not believe these changes would have a significant adverse
impact on the Company's financial position and results of operations,
although changes in projected expenditures as a result of changes in
Argentine laws or regulations and ongoing studies could affect future
results of operations.
Environmental liabilities of YPF Holdings Inc.:
Federal, state and local laws and regulations relating to health and
environmental quality in the United States affects nearly all of the
operations of YPF Holdings Inc.
YPF Holdings Inc. believes that its policies and procedures in the area of
pollution control, product safety and occupational health are adequate to
prevent unreasonable risk of environmental and other damage, and of
resulting financial liability, in connection with its business. Some risk
of environmental and other damage is, however, inherent in particular
operations of YPF Holdings Inc. and, as discussed below, YPF Holdings Inc.
has certain potential liabilities associated with its subsidiary Maxus
Energy Corporation ("Maxus") former operations. The Company cannot predict
what environmental legislation or regulation will be enacted in the future
or how existing or future laws or regulations will be administered or
enforced.
F-24
As of December 31, 2002, reserves for contingencies totaled 254.
Management believes it has adequately reserved for all environmental
contingencies, which are probable and can be reasonably estimated;
however, changes in circumstances could result in additional reserves
being required in the future. The main contingencies are detailed as
follows:
Hudson County, New Jersey. Until 1972, Maxus' former chemical subsidiary,
Diamond Shamrock Chemicals Company ("Chemicals"), operated a chromite ore
processing plant at Kearny, New Jersey. According to the New Jersey
Department of Environmental Protection and Energy ("DEP"), wastes from
these ore processing operations were used as fill material at a number of
sites in and near Hudson County.
In 1990 Occidental Petroleum Corporation ("Occidental"), as successor to
Chemicals, signed an administrative consent order with the DEP for
investigation and remediation work at certain chromite ore residue sites
in Kearny and Secaucus, New Jersey. The work is presently being performed
by TS, a YPF Holdings Inc. subsidiary, on behalf of Occidental and TS
submitted its remedial investigation reports to the DEP in late 2001. TS
is required to provide financial assurance related with the previously
mentioned work. Currently, the required financial assurance is provided in
the amount of US$ 20 million by YPF Holdings Inc. This financial assurance
may be reduced with the approval of the DEP following any annual cost
review. YPF Holdings Inc. has reserved its best estimate of the remaining
cost to perform the investigations and remedial work as being
approximately 108 as of December 31, 2002. In addition, the DEP has
indicated that it expects Occidental and Maxus to participate with the
other chromium manufacturers in the funding of certain remedial activities
with respect to a number of so-called "orphan" chrome sites located in
Hudson County, New Jersey. Occidental and Maxus have declined
participation as to those sites for which there is no evidence of the
presence of residue generated by Chemicals. It is possible that the State
of New Jersey might institute legal actions seeking recovery of its
expenditures in connection with these sites. The Governor of New Jersey
issued an Executive Order requiring state agencies to provide specific
justification for any state requirements more stringent than federal
requirements.
Painesville, Ohio. From about 1912 through 1976, Chemicals operated
manufacturing facilities in Painesville, Ohio involving several discrete
but contiguous plant sites over an area of about 1,300 acres. The primary
area of concern historically has been Chemicals' former chromite ore
processing plant. In 1995, the Ohio Environmental Protection Agency
("OEPA") issued its Directors' Final Findings and Order (the "Director's
Order") by consent ordering that a remedial investigation and feasibility
study be conducted at the former Painesville plant area. TS has agreed to
participate in the remedial investigation and feasibility study as
required by the Director's Order. On March 8, 2002, TS submitted the
remedial investigation report covering the entire site to the OEPA and
will submit required feasibility reports separately. As of December 31,
2002, it is estimated that the remaining cost of performing the remedial
investigation and feasibility study is approximately 1 over the next year.
YPF Holdings Inc. has reserved its estimated share of the cost to perform
the remedial investigation and feasibility study. The scope and nature of
any further investigation or remediation that may be required cannot be
determined at this time; however, changes, including additions, to the
reserve will be made as may be required.
Passaic River, New Jersey. Studies have indicated that sediments of the
Newark Bay watershed, including the Passaic River adjacent to Chemicals'
former Newark Plant, New Jersey agricultural chemicals plant, are
contaminated with hazardous chemicals from many sources. Pursuant to an
agreement with the U.S. Environmental Protection Agency, TS is conducting
further testing and studies to characterize contaminated sediment and
biota, and to examine the stability of the sediments, in a six-mile
portion of the Passaic River near the plant site. YPF Holdings Inc.
currently expects the testing and studies to be completed in the second
quarter of 2003 with a future cost of approximately 10. The estimated cost
of these studies has been reserved. The remediation costs that may be
required, if any, cannot be reasonably estimated at this time.
Legal Proceedings. In 1998, a subsidiary of Occidental filed a lawsuit in
state court in Ohio seeking a declaration of the parties' rights with
respect to obligations for certain costs allegedly related to Chemicals'
Ashtabula, Ohio facility, as well as certain other costs. While this
action is in the discovery stage, both Maxus and Occidental have filed
motions for partial summary judgment. On January 25, 2002, the court
granted Occidental's and denied Maxus' respective motions for partial
summary judgments. Maxus believes the court erred and has appealed. YPF
Holdings Inc. believes Occidental's claims are without merit and that the
resolution of such claims should not have a material adverse effect on the
YPF Holdings Inc. financial position or results of operations.
Paladin Resources sued YPF Indonesia Ltd., a subsidiary of YPF
International S.A., and another related company, asserting a right to
purchase 11% of YPF Indonesia Ltd.'s interest in Jambi Merang Production
Sharing Contract or, in the alternative, to unspecified damages. In
December 2002, YPF Indonesia Ltd. settled the case for a payment of 29.
The settlement involved both a comprehensive release of YPF Indonesia Ltd.
and a relinquishment of all claims Paladin Resources had with respect to
the Jambi Merang Production Sharing Contract.
F-25
The Texas State Comptroller, assessed Midgard Energy Company ("Midgard"),
a subsidiary of YPF Holdings Inc., approximately 85 in Texas state
franchise taxes, plus penalties and interests (as of December 31, 2002,
the estimated amount is 147), for periods from 1997 back to 1984. The
basis for the assessment essentially is the Comptroller's attempt to
characterize certain Midgard's debt as capital contributions. YPF Holdings
Inc. believes the assessment is without substantial merit and has
challenged the assessment through administrative appeals procedures.
Liquefied petroleum gas market:
On March 22, 1999, YPF was notified of Resolution No. 189/99 from the ex
Department of Industry, Commerce and Mining of Argentina (the
"Department"), which imposed a fine on YPF of 109 as of that date, based
on the interpretation that YPF had purportly abused of its dominant
position in the bulk liquefied petroleum gas ("LPG") market due to the
existence of different prices between the exports of LPG regarding the
sales to the domestic market from 1993 through 1997. YPF reserved the
mentioned amount during the year ended December 31, 2000. In July 2002,
the Argentine Supreme Court confirmed the fine and YPF carried out the
claimed payment.
Additionally, Resolution No. 189/99 provided the beginning of an
investigation in order to prove whether the penalized behavior continued
from October 1997 to March 1999. In the context of such investigation, on
January 29, 2003, the National Antitrust Protection Board required YPF to
present explanations. YPF filed the Board a discharge discouraging an
exception for prescription, providing the explanations and requiring the
execution file.
Agreement with the Federal Government and the Province of Neuquen:
On December 28, 2000, through Decree No. 1,252, the Argentine Federal
Executive Branch extended for an additional term of 10 years, until
November 2027, the concession for the exploitation of Loma La Lata -
Sierra Barrosa area granted to YPF. The extension was granted under the
terms and conditions of the Extension Agreement executed between the
Federal Government, the Province of Neuquen and YPF on December 5, 2000.
Under this agreement, YPF committed, among other things, to pay to the
Federal Government US$ 300 million for the extension of the concession
mentioned above, which was recorded in fixed assets, to define an
investment program of US$ 8,000 million in the Province of Neuquen from
2000 to 2017 and to pay to the Province of Neuquen 5% of the net cash
flows arising out of the concession during each year of the extension
term. Additionally, YPF contributed US$ 20 million to certain companies
that provide services to YPF applied to the settlement of indebtedness and
US$ 10 million to cover the working capital requirements of those
companies. The previously mentioned commitments have been affected by the
changes in economic rules mentioned in Note 13.
EDF International S.A.:
EDF International S.A. ("EDF") has initiated an international arbitral
proceeding under the Arbitration Regulations of the International Chamber
of Commerce against Endesa Internacional S.A., Repsol YPF and YPF. Under
this process, EDF claims from Repsol YPF and YPF the payment of US$ 69
million in connection with the sale of Electricidad Argentina S.A., parent
company of Edenor S.A., corresponding to an adjustment in the sale price
under the stock purchase agreement, alleging changes in the parity between
Argentine peso and US dollar prior to December 31, 2001. YPF's Management,
based upon the opinion of external counsel, believes that EDF's position
is without merit, as the Convertibility Law No. 23,928 was repealed by the
Law No. 25,561 on Public Emergency and Exchange System Reform, approved on
January 6, 2002.
Hydrocarbons' royalty liquidations:
As from the issuance of Law No. 25,561 on Public Emergency and Exchange
System Reform, which, among other measures, amended the Convertibility
Law, a discrepancy between the oil and gas producing companies and the
provinces has taken place regarding to the exchange rate used to royalty
liquidations, since the provinces consider that royalties calculated over
production sold in the domestic market does not fulfill the dispositions
of Resolution No. 155/92 and 188/93 of the Secretary of Energy. According
to YPF Management's opinion and based upon the regulations of Art. 56,
clause c), point I, of the Hydrocarbons Law No. 17,319 and Art. 110 of the
Decree No. 1,757/90, the royalty liquidation method applied by YPF based
on the amounts effectively received is right and proper. YPF estimates
that the position of the provinces is incorrect, is currently negotiating
with them in the frame of Resolution No. 231/02 of the Secretary of Energy
and believes that the resolution of the mentioned matter should not have a
material adverse effect on YPF's results of operations.
F-26
11. RESTRICTIONS ON UNAPPROPRIATED RETAINED EARNINGS
In accordance with the provisions of Law No. 19,550, 5% of YPF's net income for
each fiscal year is to be appropriated to the legal reserve until such reserve
reaches 20% of YPF's capital (subscribed capital plus adjustment to
contributions). Consequently, the retained earnings are restricted by 167.
Under Law No. 25,063, enacted in December 1998, dividends distributed, either in
cash or in kind in excess of accumulated taxable income as of the end of the
year immediately preceding the dividend payment or distribution date, shall be
subject to a 35% income tax withholding as a sole and final payment, except for
those distributed to shareholders residents in countries benefited from
Conventions for the avoidance of double taxation, which will be subject to a
minor tax rate. For income tax purposes, accumulated taxable income shall be the
unappropriated retained earnings as of the end of the year immediately preceding
the effective date of the above mentioned law, less dividends paid plus the
taxable income determined as from such year.
On November 7, 2002, the Board of Directors approved a dividend of 1,569
affecting the reserve for future dividends approved by the Shareholders' Meeting
of April 10, 2002. Such dividend was mostly offset with certain receivables held
with its majority shareholder as of such date, for an amount of 1,532, and the
balance with minority shareholders was paid in cash with free available funds.
Unappropriated retained earnings will be affected due to the implementation of
certain provisions of the new accounting standards from January 1, 2003 (Note
2.m).
12. MAIN CHANGES IN COMPANIES COMPRISING THE YPF GROUP
During the year ended December 31, 2000:
- - YPF, through YPF International Ltd., entered into an agreement for the sale
to third parties of approximately 99% of its interest in Crescendo
Resources L.P. properties, whose activity is the production of natural gas
in the state of Texas, USA. The transaction was structured in two tranches.
The first tranch was closed in December 1999, for approximately US$ 405
million, and the second one in January 2000 in the amount of approximately
US$ 219 million. As of December 31, 1999, YPF International Ltd. recorded a
net loss of approximately 264, related to such transaction.
- - In February 2000, the Board of Directors approved undertaking efforts to
divest of the investments held by YPF International Ltd. in Indonesia.
Consequently, YPF International Ltd. recognized a loss of 426 as of
December 31, 2000, to value those investments at their estimated realizable
value, as of such date.
- - In February 2000, the Board of Directors approved the merger of YPF with
Maleic S.A. effective as of January 1, 2000, which was ratified by the
Shareholders' Meeting held in April 27, 2000.
- - As of December 31, 2000, YPF International Ltd. sold its investments held
in Colombia, to Repsol Exploracion Colombia S.A., for an amount of
approximately US$ 6 million, recording a net income of 4.
- - YPF, through YPF Chile S.A., acquired 45% of the Empresas Lipigas S.A.
group for approximately US$ 171 million.
- - In December 2000, Astra sold its 21% interest in Inversora en Distribucion
de Entre Rios S.A. to PSEG Americas Ltd. for US$ 42 million. The
transaction was structured in two tranches. The first tranch was closed in
December 2000 and the second tranch was closed in June 2001.
- - In December 2000, YPF's Extraordinary Shareholders Board approved the
merger of Astra and Repsol Argentina S.A. with and into YPF, all controlled
companies of Repsol YPF, which became effective on January 1, 2001.
Consequently, as of January 1, 2001, Astra and Repsol Argentina S.A. assets
and liabilities merged with and into YPF at book value. As of December 31,
2000, the current assets of Astra and Repsol Argentina S.A. amounted to
380, their noncurrent assets amounted to 4,183, their current liabilities
amounted to 1,973, and their noncurrent liabilities amounted to 364.
F-27
During the year ended December 31, 2001:
- - In January 2001, YPF sold its 99.99% interest in YPF Brasil S.A. to Repsol
YPF, at fair market value, for an amount of approximately US$ 140 million,
recording a net income of approximately 37.
- - In January 2001, YPF and its controlled company YPF International Ltd. sold
their investments held in Ecuador to Repsol YPF Ecuador S.A., at fair
market value, for an amount of US$ 6 million and US$ 307 million,
respectively, recording a net loss of approximately 2 and 2, respectively.
- - In February 2001, YPF sold to Alberta Energy, for an amount of
approximately US$ 66 million, a 36% interest in Oleoducto Trasandino
(Argentina) S.A. and A & C Pipeline Holding Company recording a net income
of 13 and through YPF Chile S.A., a 36% interest in Oleoducto Trasandino
(Chile) S.A., recording a net income of 28.
- - In February 2001, YPF entered into an agreement with Pecom Energia S.A.
("Pecom") under which it acquired a 20.25% interest in Andina, through YPF
International Ltd., and a 50% interest in Manantiales Behr and Restinga Ali
areas, and sold to Pecom its interest in Santa Cruz I (30%), Santa Cruz II
(62.2%) and other minor assets. Furthermore, YPF acquired an additional
9.5% interest in Andina to Pluspetrol Resources through YPF International
Ltd. The total fair market value of the net assets involved in the
mentioned transactions amounted to US$ 435 million. As a consequence of
these transactions, YPF's indirect interest in Andina increased to 50%. The
net income recorded for the transaction previously mentioned amounted to
209.
- - In February 2001, YPF Gas S.A. and Repsol Gas S.A. signed a Definitive
Merger Agreement. Pursuant to this agreement, YPF Gas S.A. merged with and
into Repsol Gas S.A. effective as from January 1, 2001, and therefore YPF
held 85% of the capital stock of Repsol Gas S.A. In December 2001, YPF sold
its interest in Repsol Gas S.A. to Repsol Butano S.A., at fair market
value, for US$ 118 million, recording a net loss of 48.
- - In March 2001, Dow Investment Argentina S.A. and YPF approved the merger of
PBB S.A. with and into Polisur S.A. (at present PBBPolisur S.A.) at book
value, effective as of April 1, 2001. Consequently, YPF holds a 28%
interest in the new company.
- - In April 2001, YPF sold its interest in Electricidad Argentina S.A.,
controlling company of Edenor S.A., to EDF International S.A., for an
amount of US$ 195 million, recording a net income of 273.
- - In June 2001, YPF completed the second tranch of the sale of its 21%
interest in Inversora en Distribucion de Entre Rios S.A. to PSEG Americas
Ltd., recording a net income of 7.
- - In June 2001, the Board of Directors approved the dissolution of Enerfin
S.A. and Argentina Private Development Company Ltd. (Cayman Islands) and
the transfer of YPF's interest in Apex Petroleum Inc. to YPF International
Ltd.
- - In July 2001, YPF International Ltd. sold its 100% interest in Repsol YPF
Venezuela S.A. to Repsol Exploracion S.A. at fair market value, for an
amount of US$ 26 million. Additionally, on September 2001, YPF
International Ltd. sold its 100% interest in Maxus Venezuela (C.I.) Ltd.
and Maxus Guarapiche Ltd. to Repsol Exploracion Venezuela B.V., at fair
market value, for a total amount of US$ 47 million. As a consequence of
these transactions, YPF International Ltd. recognized a loss of 205.
- - In July 2001, YPF sold its interest in Astra Produccion Petrolera S.A. to
Repsol Exploracion Venezuela B.V., at fair market value, for an amount of
US$ 3 million, recording a net income of 35.
- - In August 2001, YPF International Ltd. sold its interest in Bitech
Petroleum Corporation to Lukoil Overseas Canada Ltd. for an amount of US$
11 million, recording a net loss of 9.
- - In August 2001, YPF sold its interest in YPF Sudamericana S.A. to Repsol
YPF Bolivia S.A. at book value.
- - In November 2001, Argentina Private Development Company Ltd., a subsidiary
of YPF, transferred its interest in Gas Argentino S.A. to YPF S.A. for an
amount of US$ 68 million.
- - In December 2001, YPF International Ltd. sold, at fair market value, its
100% interest in YPF Holdings Inc. to YPF for an amount of approximately
US$ 191 million.
- - In December 2001, in connection with an asset swap agreement between Repsol
YPF and Petroleo Brasileiro S.A., YPF sold its investments in Eg3 S.A., Eg3
Asfaltos S.A. and Eg3 Red S.A. to Repsol YPF, at fair market value, for
approximately US$ 559 million, recording a net loss of 59.
- - As of December 31, 2001, YPF through YPF International Ltd. recognized a
loss of 550 to value its interest in YPF Blora Ltd., YPF Maxus Southeast
Sumatra, YPF Java Baratlaut B.V., YPF Madura Barat B.V., YPF Poleng B.V.
and PT IIAPCO Services, which hold assets in Indonesia, at its estimated
realizable value.
F-28
During the year ended December 31, 2002:
- - The Company sold interests in long-term investments, recording a net
consolidated income of 687 as of December 31, 2002, which was included in
the account "Income (Loss) from sale of long-term investments" of the
consolidated statement of income:
o In January 2002, YPF International Ltd. sold the investments in
Indonesia previously mentioned for a total amount of approximately US$
174, recording a gain of 114.
o In March 2002, the Board of Directors approved the transfer of YPF's
interest in Repsol YPF Chile Ltda., subject to certain conditions, and
Repsol YPF Gas Chile Ltda., companies resulted from the spin-off of YPF
Chile S.A., to Repsol YPF and Repsol Butano S.A., respectively. On
March 28, 2002, Repsol YPF Gas Chile Ltda. was transferred to Repsol
Butano S.A. for US$ 45 million, recording a net loss of 24. On December
16, 2002, Repsol YPF Chile Ltda. was transferred to Repsol YPF for US$
104 million, recording a net loss of 4.
o In July 2002, YPF sold, at fair market value, its shares in Repsol YPF
Santa Cruz S.A. (company spun off from YPF International Ltd.) to
Repsol YPF for US$ 883 million, recording a gain of 601. Repsol YPF
Santa Cruz S.A. held the investment in Andina and Maxus Bolivia Inc.
Management does not believe that any significant adverse effects on the results
of operations would occur because of the sale transactions described above.
13. EFFECTS OF THE DEVALUATION OF THE ARGENTINE PESO AND OTHER CHANGES
IN ECONOMIC RULES
As stated in Note 1, on January 6, 2002, the Argentine Congress approved Law No.
25,561 on Public Emergency and Exchange System Reform. New regulations and
supplementary policies fundamentally established the abandonment of the
convertibility of the Argentine peso, an official exchange system and a freely
floating exchange market. The official exchange rate was fixed at Argentine
pesos 1.40 to US$ 1, and the freely floating exchange rate as of the close of
business of the first day the exchange market, which had been suspended since
December 23, 2001, reopened (January 11, 2002), ranged from Argentine pesos 1.60
and 1.70 to US$ 1 (selling rate).
Other regulations were issued subsequently, which further amended the new
regulations then in effect. The main aspects of such other regulations as of the
approval date of these financial statements are summarized below:
a. Consolidation of exchange markets into a free market for negotiating
foreign trade transactions. As of December 31, 2002, the exchange rate
closed at 3.37 Argentine pesos for each US$ 1, selling rate.
Additionally, it will be required until August 8, 2003, prior authorization
of the Central Bank of Argentina ("BCRA") for money transfers abroad for
certain financial loan capital and interest payments and other similar.
Collections of exported services and goods related to shipments exceeding
US$ 1 million, other than the cases described below, must be liquidated in
the single and free-exchange market over the terms provided by the Industry
and Commerce Department. Furthermore, transfers abroad to pay the principal
of financial obligations must have the prior authorization of the BCRA,
except for exports prefinancing, advances received from crude oil exports,
and certain financing agreements providing that repayment must be made
through applying abroad the cash flow arising from exports. In this
respect, export collections may be applied to settlement thereof,
requiring, under certain circumstances, BCRA's conformity.
Additionally, Decree No. 1,589/89 of the Federal Executive, provides that
producers enjoying free availability of crude oil, natural gas and/or
liquefied gas under Law No. 17,319, as supplemented, and producers that may
decide so in the future will have free availability of the percentage of
foreign currency coming from the exports of crude oil, petroleum
derivatives, natural gas and/or liquefied gas of free availability
established in biddings and/or renegotiations, or agreed-upon in the
respective contratcts. In no case will the maximum freely available
percentage be allowed to exceed 70% of each transaction. On December 27,
2002, the Federal Executive issued Decree No. 2,703/02, ratifying from such
date the 70% limit as the maximum freely available percentage of foreign
currency deriving from the exports of crude oil and petroleum derivatives.
Additionally, as during year 2002, several government organizations have
established that existing hydrocarbon industry right for free availability
of foreign currency coming from export sales, granted by article 5 of
Decree No. 1,589/89 would have been superseded by Decree no. 1,606/01, YPF
obtained an injunction which orders the Federal Executive, the Ministry of
Economy and the BCRA to refrain from taking any action that would affect
YPF right concerning the free disposal of its foreign currency, granted by
Decree No. 1,589/89. Once Decree No. 2,703/02 was passed, YPF extended its
claim in order to resolve any uncertainty that may arise from such decree.
F-29
b. De-dollarization of US dollar-denominated deposits with Argentine financial
institutions at the Argentine pesos 1.40 to US$ 1 exchange rate, and of all
financial US dollar-denominated obligations assumed as of January 6, 2002,
in Argentina at the Argentine peso 1 to US$ 1 exchange rate. Deposits and
certain obligations switched into pesos will be subsequently adjusted by a
"benchmark stabilization coefficient" published by the BCRA and applied as
from the date of issuance of Decree No. 214/2002 (February 3, 2002), plus a
minimum interest rate for deposits with the financial system and a maximum
interest rate for loans granted by such system fixed by the BCRA.
c. De-dollarization of all private agreements celebrated as of January 6,
2002, at the Argentine peso 1 to US$ 1 exchange rate, and subsequent
adjustment thereof by the benchmark stabilization coefficient under the
same conditions indicated in b. above. If by the application of this
measure, the product or services' resulting value become higher or lower
than on payment, any of the parties may ask for an equitable price
adjustment.
d. De-dollarization of utility rates, which were formerly agreed upon in US
dollars, and subsequent renegotiation thereof on a case-by-case basis.
e. Restrictions on the free disposition of funds deposited with banks and
two-year suspension of the law on bank-deposits unseizability.
f. Implementation of a withholding system for hydrocarbon exports for five
years with applicable rates of 5% for certain refined products, liquefied
petroleum gas and natural gasoline and of 20% for crude oil. Federal
Executive is empowered to establish the corresponding rates.
g. The suspension of paragraph No. 5 article No. 94 and article No. 206 of
Business Association Law No. 19,550, referred to the dissolution of a
company because of its shareholders' contribution loss or its compulsory
reduction, respectively, until December 10, 2003.
As provided in the Public Emergency and Exchange System Reform Law mentioned
above, any loss resulting from applying the official exchange rate to the net
position of assets and liabilities in foreign currency as of January 6, 2002,
will be deductible from income tax at the rate of 20% per annum over the five
fiscal years ending after the Law's effective date. As of December 31, 2002, the
amount not deducted at the applicable current rate is approximately 199.
These financial statements include the effects derived from the new economic and
exchange policies known to the release date thereof. All estimates made by
Company's Management considered such policies. The effects of any additional
measures to be implemented by the Federal Government and of the regulations to
be issued on measures adopted before will be recognized in the financial
statements once Company's Management becomes aware of their existence.
Assets and liabilities in U.S. dollars as of December 31, 2001, were valued at
the Argentine peso 1 to US$ 1 exchange rate which was effective as of the
suspension date of exchange market transactions mentioned above, according to
the provisions of Resolution M.D. No. 1/02 of the Professional Council in
Economic Sciences of the City of Buenos Aires and of Resolution No. 392 of the
CNV.
14. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES
FOLLOWED BY THE COMPANY AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES
The consolidated financial statements have been prepared in accordance with
Argentine GAAP, which differs in certain respects from generally accepted
accounting principles in the United States of America ("U.S. GAAP"). These
differences are reflected in the amounts provided in Note 15 and principally
relate to the items discussed in the following paragraphs.
a. Functional and Reporting Currency
Under Argentine GAAP, financial statements are presented in constant Argentine
pesos ("reporting currency"), as mentioned in Note 1. Foreign currency
transactions are recorded in Argentine pesos by applying to the foreign currency
amount the exchange rate between the reporting and the foreign currency at the
date of the transaction. Exchange rate differences arising on the settlement of
monetary items at rates different from those at which they were originally
recorded are recognized in the income statement of the period.
F-30
Under U.S. GAAP, a definition of the functional currency is required, which may
differ from the reporting currency. Management has determined the U.S. dollar as
the Company's functional currency in accordance with the Statement of Financial
Accounting Standards ("SFAS") No. 52. Therefore, the Company has remeasured into
U.S. dollars the consolidated financial statements as of December 31, 2002, 2001
and 2000, prepared in accordance with Argentine GAAP by applying the procedures
specified in SFAS No. 52. The objective of the remeasurement process is to
produce the same results that would have been reported if the accounting records
had been kept in the functional currency. Accordingly, monetary assets and
liabilities are remeasured at the balance sheet date (current) exchange rate.
Amounts carried at prices in past transactions are remeasured at the exchange
rates in effect when the transactions occurred. Revenues and expenses are
remeasured on a monthly basis at the average rates of exchange in effect during
the period, except for consumption of nonmonetary assets, which are remeasured
at the rates of exchange in effect when the respective assets were acquired.
Translation gains and losses on monetary assets and liabilities arising from the
remeasurement are included in the determination of net income (loss) in the
period such gains and losses arise.
The amounts obtained from the remeasurement process referred to above are
translated into Argentine pesos following the provisions of SFAS No. 52. Assets
and liabilities are translated at the current selling exchange rate of
Argentine pesos 3.37, 1.70 and 1 to US$ 1, as of December 31, 2002, 2001 and
2000, respectively. Revenues, expenses, gains and losses reported in the income
statement are translated at the exchange rate existing at the time of each
transaction or, if appropriate, at the weighted average of the exchange rates
during the period. Translation effects of exchange rate changes are included as
a cumulative translation adjustment in shareholders' equity.
The consolidated financial statements for the year ended December 31, 2001 were
originally audited by other auditors, who were members of an international firm
who leased operations. Those consolidated financial statements were reaudited by
Deloitte & Co. S.R.L. as subsequent to the filing with the SEC, and only for the
U.S. GAAP reconciliation purposes, and after assessing the evolution of the
economic crisis described in Note 13, the Company determined the US dollar as
its functional currency. Consequently, the reconciliation of net income and
shareholders' equity to U.S. GAAP as of December 31, 2001, has been restated for
comparative purposes to give retroactive effect to such criteria. There was no
effect on the reconciliation to U.S. GAAP as of December 31, 2000 as the
exchange rate existing during such year was 1 Argentine peso to US$ 1.
The effect of the modification is shown in the table below:
2001
-------------
Net loss under U.S. GAAP as previously reported (797)
Impact of restatement for change in functional currency 2,049
-------------
Net income under U.S. GAAP as restated (Note 15) 1,252
=============
Shareholders' equity under U.S. GAAP as previously reported 7,578
Impact of restatement for change in functional currency 5,681
=============
Shareholders' equity under U.S. GAAP as restated (Note 15) 13,259
=============
b. Proportional Consolidation
As discussed in Note 1, YPF has proportionally consolidated, net of intercompany
transactions, the income on investees in which joint control is held, which is
not allowed for U.S. GAAP purposes. Net sales include approximately 3,668, 2,917
and 2,808 and operating income includes approximately 371, 129 and 59 for the
years ended December 31, 2002, 2001 and 2000, respectively, for the effect of
this proportional consolidation.
c. Income Taxes
Under Argentine GAAP, income tax expense is generally recognized based upon the
estimate of the current income tax liability to the Federal Treasury. When
income and expense recognition for income tax purposes does not occur in the
same period as income and expense recognition for financial statements purposes,
the resulting temporary differences are not considered in the computation of
income tax expense for the year.
Under U.S. GAAP, the liability method is used to calculate the income tax
expense. Under the liability method, deferred tax assets or liabilities are
recognized for differences between the financial and tax basis of assets and
liabilities and for the tax loss carryforward at the statutory rate at each
reporting date.
The effect on net income and shareholders' equity incorporated in the
reconciliation in Note 15 includes the effect arising from the recognition of
deferred assets and liabilities under U.S. GAAP and the tax effect of
corresponding U.S. GAAP adjustments.
F-31
d. Valuation of Inventories
As described in Note 2.b, the Company values its inventories of refined products
for sale, products in process of refining and crude oil at replacement cost.
Under U.S. GAAP, these inventories should be valued at historical cost. There
have been no significant differences between inventory valued at replacement
cost and at historical cost for the years presented.
e. Impairment of Long-lived Assets
Under Argentine GAAP, the Company has historically followed a policy of
analyzing the recoverability of its assets on an overall basis. With respect to
operations that were held pending sale or disposal, the Company's policy was to
record these assets at amounts that did not exceed net realizable value.
Under U.S. GAAP, for proved oil and gas properties, the Company performs the
impairment review on an individual field basis. Other long-lived assets are
aggregated so that the discrete cash flows produced by each group of assets may
be separately analyzed. Each asset is tested following the guidelines of SFAS
No. 144, "Accounting for the Impairment of Long - Lived Assets", by comparing
the net book value of such an asset with the expected cash flow (before income
tax and without discounting the cash flow). Impairment losses are measured as
the amount by which the carrying amount of the assets exceeds the fair value of
the assets. When fair values are not available, the Company estimates fair value
using the expected future cash flows discounted at a rate commensurate with the
risks associated with the recovery of the assets. The accumulated adjustment
under U.S. GAAP of the impairment generated as of December 31, 2002, 2001 and
2000 were 985, 548 and 224, respectively for the YPF's Exploration and
Production Segment, and 16, 9 and 10, respectively for the Refining and
Marketing Segment corresponding to investments in controlled companies. The main
factor for the impairment in each year in the Exploration and Production Segment
was the decline in the estimated oil and gas prices, which affected basically
oil fields in the San Jorge Basin (Argentina).
The adjusted basis after impairment results in lower depreciation under U.S.
GAAP of 144, 30 and 21 for the years ended December 31, 2002, 2001 and 2000,
respectively.
f. Vacation Accrual
Under Argentine GAAP, there are no specific requirements governing the
recognition of the accrual for vacations. The acceptable practice in Argentina
is to charge to expense vacations when taken and to accrue only the amount of
vacation in excess of the normal remuneration. Under U.S. GAAP, vacation expense
is fully accrued in the period the employee renders service to earn such
vacation. The effect on net income and shareholders' equity is included in
"Other items, net" in the reconciliation in Note 15.
g. Start-up Costs in Investees
Under Argentine GAAP, start-up costs can be capitalized subject to
recoverability through future revenues. These costs should be amortized starting
with the date the related plants and the facilities go into production. Under
U.S. GAAP, start-up costs are expensed as incurred.
h. Accounting for Derivative Instruments and Hedging Activities
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities"
establishes that every derivative instrument be recorded in the balance sheet as
either an asset or liability measured at its fair value. SFAS No. 133 provides
that changes in the derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. Special accounting for
qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires that a company
must formally document, designate, and assess the effectiveness of transactions
that receive hedge accounting.
As of December 31, 2001, the Company had entered into a limited number of cash
flow hedges, for which the objective was to provide protection against
variability in cash flows due to changes currency exchange rates. Under U.S.
GAAP, cash flow hedges' gains or losses, related to the changes in their fair
values, are initially deferred in Other Comprehensive Income ("OCI") and are
reclassified into income concurrently with the recognition in income of the cash
flow items hedged. The accumulated effect deferred in OCI as of December 31,
2001 has been reclassified into the income statement during the year 2002 as
the derivatives and the related contracts were cancelled.
F-32
Mega and Profertil S.A., where YPF exercises significant influence, have entered
into cash flow hedges, for which the objective is to provide protection against
variability in cash flows due to changes in interest rates established in
financial obligation contracts. Under U.S. GAAP, cash flow hedges' gains or
losses, related to the changes in their fair values, are initially deferred in
OCI and are reclassified into income concurrently with the recognition in income
of the cash flow items hedged. The net after-tax amount expected to be
reclassified from OCI within next 12 months is not material.
Additionally, the Company has entered into a limited number of fair value hedges
to protect the fair value of certain forward contracts from the variability
caused by fluctuations in crude oil prices (Note 1). Under U.S. GAAP, changes in
fair value of fair value hedges are recognized in earnings together with the
offsetting loss or gain from changes in the fair value of the risk being hedged
of the hedged item.
The Company had no material ineffectiveness in any cash flow or fair value hedge
during the year ended December 31, 2002.
YPF has entered into various contracts which may contain embedded derivative
instruments with implicit or explicit terms that affect some or all of the cash
flows or the value of other exchanges required by the contract in a manner
similar to a derivative instrument and which, according to the requirements of
SFAS No. 133, need to be bifurcated from the host contract and accounted for as
a derivative instrument. YPF has assessed the existence of potential embedded
derivatives contained in its contracts entered into or substantively modified
since January 1, 1999. Embedded derivatives in contracts that required
bifurcation were recorded at their fair value, and their impact on net income
for the year ended December 31, 2001 was 47. Those contracts were cancelled as
of December 31, 2002.
Under Argentine GAAP, gains or losses on hedging activities are deferred until
the related transaction is recognized.
i. Goodwill and Other Intangible Assets
Under SFAS No. 142, intangible assets shall be initially recognized and measured
based on their fair value. According to the Statement, an intangible asset with
a finite useful life shall be amortized while goodwill and other intangible
assets with an indefinite useful life shall not be amortized and will be subject
to an impairment test. The provisions of this Statement were adopted by YPF as
of January 1, 2002, with no impact either on U.S. GAAP earnings or shareholders'
equity.
Under Argentine GAAP, goodwill and other intangible assets are amortized over
their estimated useful life using the straight-line method.
The effect on net income from reversing amortization of the year on not impaired
goodwill is included in "Other items, net" in the reconciliation in Note 15.
Additionally, under Argentine GAAP and according to Accounting Principles Board
Opinion No. 18, during 2002, YPF has determined that an impairment loss of 74,
as remeasured under U.S. GAAP, has been necessary to reduce the carrying value
of the goodwill assigned to certain investees operating in the Chemical and Gas
and Electricity business segments, which were affected by Argentine economic
crisis. Impairment losses were measured as the amount by which the carrying
amount of the assets exceeded to fair value of the assets. The Company estimated
fair value using the expected future cash flows discounted at a rate
commensurate with the risks associated with the recovery of the assets.
j. Sale of Noncurrent Assets to Related Parties
Under U.S. GAAP, results on sales of noncurrent assets to related parties under
common control and related accounts receivable are considered as a capital
(dividend) transaction. Under Argentine GAAP, results on sales of noncurrent
assets and accounts receivable are recognized in the statement of income and the
balance sheet, respectively.
k. Minimum Liability under Pension Plan
As displayed in Note 16.f, YPF Holdings Inc., a U.S. subsidiary, has a
non-contributory defined benefit pension plan with an accumulated benefit
obligation ("ABO") in excess of the fair value of plan assets. According to SFAS
No. 87, Employer's Accounting for Pensions ("SFAS No. 87"), if the ABO exceeds
the fair value of plan assets, the employer shall recognize in the consolidated
balance sheet a liability that is at least equal to the unfunded ABO.
Recognition of an additional minimum liability is required if an unfunded ABO
exists and (a) an asset has been recognized as prepaid pension cost, (b) the
liability already recognized as unfunded accrued pension cost is less than the
unfunded ABO, or (c) no accrued or prepaid pension cost has been recognized.
F-33
Under U.S. GAAP, the Company must record the additional minimum liability
referred to above as a component of OCI.
Under Argentine GAAP there are no specific requirements related to recognition
of minimum liabilities under benefit plans. The acceptable practice is to defer
changes in the fair value of pension plan liabilities until transaction is
recognized.
l. Accounting for Asset Retirement Obligations
In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No.
143, Accounting for Assets Retirement Obligations, which addresses financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement cost. The
standard applies to legal obligations associated with the retirement of
long-lived assets that result from the acquisition, construction, development
and normal use of the asset.
SFAS No. 143 required that the fair value of a liability for an asset retirement
obligation be recognized in the period in which it is incurred, if a reasonable
estimate of fair value can be made. The fair value of the liability is added to
the carrying amount of the associated asset. This additional carrying amount is
then depreciated over the life of the asset. The liability is increased due to
the passage of time based on the time value of money until the obligation is
settled.
Under Argentine GAAP, the acceptable practice is to recognize asset retirement
obligations using an undiscounted cost-accumulation measurement approach and
take them into account in determining the depreciation rates.
SFAS No. 143 is effective for the Company on January 1, 2003. The Company
estimates that application of SFAS No. 143 will result in a positive cumulative
effect of a change in accounting principle adjustment in consolidated net income
and shareholders' equity of approximately 80, taking into consideration future
abandonment obligations accrued as described in Note 2.e.
m. Guarantors' Accounting and Disclosure Requirements for Guarantees
In November 2002, the Financial Accounting Standards Board issued Interpretation
No. 45 ("FIN 45"), Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others, which
elaborates on the disclosures to be made by a guarantor about its obligations
under certain guarantees issued. It also clarifies that a guarantor is required
to recognize, at the inception of a guarantee, a liability for the fair value of
the obligation undertaken in issuing the guarantee. The initial recognition and
measurement provisions of FIN 45 apply to guarantees issued or modified after
December 31, 2002. The disclosures are effective for financial statements ending
after December 15, 2002.
n. Consolidation of Variable Interest Entities - an interpretation of ARB No. 51
In January 2003, the Financial Accounting Standards Board issued Interpretation
No. 46, Consolidation of Variable Interest Entities - an interpretation of ARB
No. 51 ("FIN 46"). FIN 46 clarifies the application of Accounting Research
Bulletin No. 51, Consolidated Financial Statements, to certain entities in which
equity investors do not have the characteristics of a controlling financial
interest or do not have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support from other parties.
FIN 46 explains how to identify variable interest entities and how an enterprise
assesses its interests in a variable interest entity to decide whether to
consolidate that entity. It requires existing unconsolidated variable interest
entities to be consolidated by their primary beneficiaries if the entities do
not effectively disperse risks among parties involved. It also requires certain
disclosures by the primary beneficiary of a variable interest entity and by an
enterprise that holds significant variable interests in a variable interest
entity where the enterprise is not the primary beneficiary. FIN 46 is effective
immediately to variable interest entities created after January 31, 2003 and to
variable interest entities in which an enterprise obtains an interest after that
date, and effective for the first fiscal year or interim period beginning after
June 15, 2003 to variable interest entities in which an enterprise holds a
variable interest that it acquired before February 1, 2003.
The Company has operations with three variable interest entities ("VIE") which
have been created in order to structure YPF's future deliveries of oil ("FOS").
According to U.S. GAAP, as of December 31, 2002, 2001 and 2000, all three VIE
would have been fully consolidated and the main effect of the consolidation of
these companies would be the reclassification of the account "Advances from
crude oil purchasers" into the account "Loans" of the balance sheets.
F-34
15. RECONCILIATION OF NET INCOME AND SHAREHOLDERS' EQUITY TO UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The following is a summary of the significant adjustments to net income for each
of the years ended December 31, 2002, 2001 and 2000, and to shareholders' equity
as of December 31, 2002, 2001 and 2000, which would have been required if U.S.
GAAP had been applied instead of Argentine GAAP in the consolidated financial
statements. Amounts are expressed in millions of Argentine pesos.
2001
(as restated -
2002 Note 14.a) 2000
------------- ------------- -------------
Net income according to Argentine GAAP 3,344 1,788 2,681
Increase (decrease) due to:
Elimination of the restatement into Argentine constant pesos (Note 1) (716) (969) (1,452)
Remeasurement into functional currency and translation into reporting
currency (Note 14.a) 1,490 (73) -
------------- ------------- -------------
4,118 746 1,229
============= ============= =============
Deferred income tax (Notes 14.c and 16.a) (149) 545 179
Start-up costs in investees (Note 14.g) 19 3 (9)
Effects of the sale of noncurrent assets to related parties (Note 14.j) (623) 79 (2)
Impairment of long-lived assets (Note 14.e) 99 (98) (3)
Effect of purchase price allocation of Maxus (1) - 26 (30)
Derivative instruments (Note 14.h) 47 (47) -
Other items, net (13) (2) 24
------------- ------------- -------------
Approximate net income in accordance with U.S. GAAP 3,498 1,252 1,388
============= ============= =============
Approximate net income per share in accordance with U.S. GAAP 8.89 3.18 3.93
============= ============= =============
Shareholders' equity according to Argentine GAAP 20,283 18,508 18,095
Increase (decrease) due to:
Elimination of the restatement into Argentine constant pesos (Note 1) (10,745) (10,026) (9,802)
Remeasurement into functional currency and translation into
reporting currency (Note 14.a) 18,865 4,494 -
------------- ------------- -------------
28,403 12,976 8,293
============= ============= =============
Deferred income taxes (Notes 14.c and 16.a) 536 669 (296)
Start-up costs in investees (Note 14.g) (54) (37) (25)
Accounts receivable with related parties (Note 14.j) (1,384) - -
Impairment of long-lived assets (Note 14.e) (1,001) (557) (234)
Effect of purchase price allocation of Maxus (1) - 260 510
Derivative instruments (Note 14.h) - (47) -
Other items, net (11) (2) (17)
Other comprehensive income:
Derivative instruments and hedging activities (Note 14.h) (17) (7) -
Minimum liability under pension plan (Note 14.k and 16.f) (169) - -
------------- ------------- -------------
Approximate shareholders' equity in accordance with U.S. GAAP 26,303 13,259 8,231
============= ============= =============
(1) Corresponds to the purchase price allocated for U.S. GAAP purposes to
properties that have been completely sold as of December 31, 2002.
F-35
The summarized balance sheet as of December 31, 2002, 2001 and 2000, and
statements of income and cash flows for the years then ended, remeasured into
U.S. dollar and translated into Argentine pesos under U.S. GAAP, after giving
effect to the adjustments detailed above, are presented only for the convenience
of the readers and would be as follows:
2002 2001 2000
------------- ------------- -------------
Summarized balance sheet
Current assets 7,572 2,733 2,386
Fixed assets 26,097 14,600 9,680
Other noncurrent assets 2,611 3,248 1,427
------------- ------------- -------------
Total assets 36,280 20,581 13,493
============= ============= =============
Current liabilities 4,776 3,962 2,758
Noncurrent liabilities 5,201 3,360 2,439
Minority interest - - 65
Shareholders' equity 26,303 13,259 8,231
------------- ------------- -------------
Total liabilities, minority interest and shareholders' equity 36,280 20,581 13,493
============= ============= =============
Summarized statements of income
Net sales 15,039 8,162 8,660
Operating income 5,183 1,676 2,263
Net income (1) 3,498 1,252 1,388
(1) Net income related to discontinued operations following SFAS 144 guidance
are not significant.
Summarized statements of cash flows
Net cash flow provided by operating activities 4,915 1,818 2,944
Net cash flow used in investing activities (1,127) (177) (1,237)
Net cash flow used in financing activities (3,498) (1,996) (1,782)
------------- ------------- -------------
Increase (Decrease) in cash and equivalents 415 (355) (75)
------------- ------------- -------------
Cash and equivalents at the beginning of years 143 439 514
Cash and equivalents from the merger with Astra C.A.P.S.A. and Repsol
Argentina S.A. - 12 -
Exchange difference from cash and equivalents 101 47 -
------------- ------------- -------------
Cash and equivalents at the end of years 659 143 439
============= ============= =============
16. ADDITIONAL U.S. GAAP DISCLOSURES (EXCEPT OIL AND GAS DISCLOSURES, NOTE 17)
a) Income Taxes
The Company's provision for income taxes under U.S. GAAP, remeasured into U.S.
dollars and translated into Argentine pesos, was comprised of the following:
2002 2001 2000
------------- ------------- -------------
Current
Argentina (403) (639) (839)
Other Foreign (12) (67) (77)
------------- ------------- -------------
(415) (706) (916)
Deferred
Argentina (149) 571 121
Other Foreign - (26) 58
------------- ------------- -------------
(149) 545 179
------------- ------------- -------------
(564) (161) (737)
============= ============= =============
F-36
The reconciliation of pre-tax income (loss) at the Argentine statutory rate, to
the income tax expense presented in the consolidated financial statements for
the years ended December 31, 2002, 2001 and 2000, computed in accordance with
U.S. GAAP, is as follows:
2002 2001 2000
------------- ------------- -------------
Approximate pre-tax income in accordance with U.S. GAAP 4,062 1,413 2,125
Statutory tax rate 35% 35% 35%
------------- ------------- -------------
Statutory tax rate applied to pre-tax income (loss) 1,422 (495) (744)
Tax loss carryforward estimated on the devaluation of the Argentine peso - 543 -
Permanent differences:
Restatement into functional currency and other U.S. GAAP permanent differences 547 26 -
Not taxable exchange differences 207 64 -
Reduction (increase) of valuation allowance for temporary differences and
tax loss carryforwards (1) 140 (177) (66)
(Loss) income on long-term investments in investees(2) (161) (44) 3
Taxes on foreign income - (13) (10)
Other, not individually significant 125 (65) 80
------------- ------------- -------------
(564) (161) (737)
============= ============= =============
(1) Relates to changes in circumstances and prospects that affect the future use
of the tax loss carryforwards.
(2) The Company does not provide for income taxes on the unremitted earnings of
certain subsidiaries because they will be remitted in a tax free
liquidation.
The tax effect of the significant differences between the book value and the tax
value of the Company's assets and liabilities are as follows:
2002 2001 2000
------------- ------------- -------------
Deferred Tax Assets
Tax loss and credit carryforwards 629 926(2) 66
Allowances and reserves not computable for tax basis and other items 273 169 299
Accounts payable and salaries accruals 166 41 41
============= ============= =============
1,068 1,136 406
Deferred Tax Liabilities
Differences between tax and accounting basis of fixed assets and other items (55) (34) (559)
------------- ------------- -------------
(55) (34) (559)
------------- ------------- -------------
Valuation Allowance (477) (433) (143)
------------- ------------- -------------
Net Deferred Tax Asset (Liability) 536 669(1) (296)(1)
============= ============= =============
(1) Includes 43 and 436 corresponding to deferred tax liabilities of YPF
International, net of 712 and 140 corresponding to deferred tax assets of
YPF as of December 31, 2001 and 2000, respectively.
(2) Approximately 233 are covered by the valuation allowance since, based on
available evidence, it is more likely than not that such benefits will not
be realizable.
b) Fair Value of Financial Instruments
The following criteria and assumptions were used to estimate the fair value of
each class of financial instrument for which it is practicable to estimate:
Cash and Equivalents
The carrying value of cash and equivalents under U.S. GAAP approximates fair
value because of the short maturity of those instruments.
F-37
Derivative Financial Instruments
The fair value of derivative instruments is mostly determined based either on
independent appraisals supplied by third parties or using market rates for
instruments with similar terms and remaining maturities.
Current Investments Other Than Cash Equivalents
The carrying value of current investments under U.S. GAAP approximates the fair
value determined by reference to quoted market prices of the same or similar
financial instruments.
Loans
The fair value of the Company's loans is estimated based on the current rates
offered to the Company for debt of the same remaining maturities or based on
market prices.
2002
---------------------------------
Argentine GAAP Fair Value
Carrying Amount
---------------- -------------
Negotiable Obligations 3,362 3,163
Bank loans and other creditors 805 805
Maxus Notes and Credit Facilities 90 89
---------------- -------------
4,257 4,057
================ =============
c) Consolidated Operating Income (Loss)
Under U.S. GAAP, costs charged to income for environmental contingencies,
holding gains (losses) on inventories, severance payments, amortization of
goodwill, impairment of long-lived assets, the proportional consolidation of
jointly controlled companies, income (losses) from sale of noncurrent assets and
other items, which are not individually significant, would have been deducted
from or added to operating income.
Exploration Refining Natural Corporate
and and Gas and and Consolidation
Production Marketing Chemical Electricity Other adjustments Net Amount
---------- --------- -------- ----------- ----- ----------- ----------
(Deduction) from or addition to
operating income (loss) under
Argentine GAAP
Year ended December 31, 2002 (1,492) 521 (137) (189) (171) (169) (1,637)
Year ended December 31, 2001 (2,801) (384) (6) (47) 63 41 (3,134)
Year ended December 31, 2000 (3,613) (194) (23) (25) 88 (19) (3,786)
Approximate operating income (loss) remeasured and translated into Argentine
pesos as determined under U.S. GAAP by business segment for each of the years
presented was as follows:
Exploration Refining Natural Corporate
and and Gas and and Consolidation
Production Marketing Chemical Electricity Other adjustments Net Amount
---------- --------- -------- ----------- ----- ----------- ----------
Year ended December 31, 2002 5,220 475 200 (53) (469) (190) 5,183
Year ended December 31, 2001 1,734 18 (6) 14 (234) 150 1,676
Year ended December 31, 2000 2,555 (43) (16) (1) (213) (19) 2,263
F-38
d) Additional Information on the Consolidated Statements of Cash Flows
The following is a detail of cash and cash equivalents:
2002 2001 2000
---------- ---------- ----------
Cash 248 85 113
Cash equivalents (1) 411 124 844
---------- ---------- ----------
Cash and cash equivalents as shown in the consolidated statements of 659 209 957
cash flows
========== ========== ==========
(1) Included in short-term investments in the consolidated balance sheets.
Cash payments for income tax and interest for the Company were as follows:
2002 2001 2000
---------- ---------- ----------
Income tax 216 2,621 1,143
Interest 738 613 561
---------- ---------- ----------
954 3,234 1,704
========== ========== ==========
The principal financing and investing transactions not affecting cash consisted
of dividends paid in kind, the amount to be paid for the concession extension
(Note 10.b), taxes payable offset against tax credits and consumption of fixed
assets allowances for the years ended December 31, 2002, 2001 and 2000.
e) Comprehensive Income
Net income under U.S. GAAP as determined in Note 15 is approximately the same as
comprehensive income as defined by SFAS No. 130 for all periods presented,
except for the effect in the years 2002, 2001 and 2000 of the following items,
that should be included in comprehensive income for U.S. GAAP purposes but are
excluded from net income for U.S. GAAP purposes:
2002 2001 2000
---------- ---------- ----------
Effect arising from the translation into reporting currency 17,095 (3) 4,413 (3) -
Minimum liability under pension plan (169)(2) - -
Changes in fair value of derivative instruments and hedging activities (17)(1) (7)(1) -
---------- ---------- ----------
16,909 4,406 (2) -
========== ========== ==========
(1) Tax effect included in OCI is not significant.
(2) Valuation allowance has been recorded to offset the recognized income tax
effect.
(3) Has no tax effect.
f) Pensions and Other Postretirement and Postemployment Benefits
Pensions
The Company, through YPF Holdings Inc., has a number of trustee noncontributory
pension plans covering substantially all full-time employees. The Company's
funding policy is to contribute amounts to the plans sufficient to meet the
minimum funding requirements under governmental regulations, plus such
additional amounts as management may determine to be appropriate. The benefits
related to the plans are based on years of service and compensation earned
during years of employment. The Company also has a noncontributory supplemental
retirement plan for executive officers and selected key employees. Key
information, translated into Argentina pesos, of these plans is as follows:
2002 2001 2000
---------- ---------- ----------
Change in benefit obligation
Benefit obligation, beginning of year 294 162 103
Service cost 2 2 2
Interest cost 22 12 7
Actuarial loss 28 12 5
Benefits paid (49) (25) (21)
---------- ---------- ----------
Benefit obligation, end of year 326 147 96
========== ========== ==========
F-39
2002 2001 2000
---------- ---------- ----------
Change in plans assets
Fair market value of assets, beginning of year 294 205 117
Actual return on assets (19) (26) 25
Asset adjustment to match Northern Trust statements (2) (15) -
Employer contributions 22 8 -
Benefits paid (49) (25) (21)
---------- ---------- ----------
Fair market value of assets, end of year 246 147 121
========== ========== ==========
Net periodic pension cost for each period from January 1 through December 31,
2002, 2001 and 2000
Service cost 2 2 2
Interest cost 22 12 7
Expected return on assets (25) (18) (10)
Amortization of net (gain)/loss 8 (1) -
---------- ---------- ----------
Net period pension cost 7 (5) (1)
---------- ---------- ----------
Recognized settlement loss 16 - -
---------- ---------- ----------
Total pension cost 23 (5) (1)
========== ========== ==========
Funded status
Accumulated benefit obligation 319 159 92
Projected benefit obligation 326 162 96
Fair value of plan assets 246 147 121
---------- ---------- ----------
Funded status (80) (15) 25
Unrecognized net (gain)/loss 171 62 (5)
---------- ---------- ----------
Net amount recognized 91 47 20
========== ========== ==========
Amounts recognized in the statement of financial position consist of:
Prepaid pension cost - 61 33
Accrued pension liabilities (78) (23) (13)
Accumulated other comprehensive income 169 9 -
---------- ---------- ----------
Net amount recognized 91 47 20
========== ========== ==========
Weighted average assumptions(1):
Discount rate 7.0% 7.25% 8.0%
Expected rate of return on assets 9.0% 9.0% 9.0%
Expected rate of compensation increase 4.5-5.5% 4.5-5.5% 4.5-5.5%
(1) For measurement purposes, plans assets and liabilities were valued as of
October 31, 2002 for the fiscal year ended December 31, 2002.
The projected benefit obligation was 326 and 162, the accumulated benefit
obligation was 319 and 159, and fair value of plan assets was 246 and 147 for
the pension plans with accumulated benefit obligations in excess of plan assets
as of December 31, 2002 and 2001, respectively.
Other postretirement and postemployment benefits
The Company, through YPF Holdings Inc., provides certain health care and life
insurance benefits for eligible retired employees and certain insurance and
other postemployment benefits for eligible individuals whose employment is
terminated by the Company prior to their normal retirement. The Company accrues
the estimated cost of retiree benefit payments, other than pensions, during
employees' active service periods. Employees become eligible for these benefits
if they meet minimum age and service requirements. The Company accounts for
benefits provided after employment but before retirement by accruing the
estimated cost of postemployment benefits when the minimum service period is
met, payment of the benefit is probable and the amount of the benefit can be
reasonably estimated. The Company's policy is to fund other postretirement and
postemployment benefit as claims are incurred. Key information, translated into
Argentine pesos, is as follows:
F-40
2002 2001 2000
---------- ---------- ----------
Components of net periodic post-retirement benefit cost for the period
January 1 through December 31, 2002, 2001 and 2000
Interest cost on accumulated post-retirement benefit obligation 9 5 3
Recognized net actuarial loss 1 - -
---------- ---------- ----------
Net periodic post-retirement benefit costs 10 5 3
========== ========== ==========
Reconciliation of funded status to accrued post-retirement benefit costs
Change in benefit obligation
Accumulated post-retirement benefit obligation at beginning of year 137 59 36
Interest cost 9 5 3
Plan participants' contributions 2 1 -
Actuarial (gain)/loss 2 12 (1)
Benefits paid (15) (8) (4)
---------- ---------- ----------
Accumulated post-retirement benefit obligation at end of year 135 69 34
========== ========== ==========
Change in plan assets
Fair market value of plan assets at beginning of year - - -
Employer contributions 13 7 4
Plan participants' contributions 2 1 -
Benefits paid (15) (8) (4)
---------- ---------- ----------
Fair market value of plan assets at end of year - - -
========== ========== ==========
Reconciliation of funded status:
Funded status (134) (69) (35)
Unrecognized actuarial loss 27 13 -
---------- ---------- ----------
Net liability at end of year (107) (56) (35)
========== ========== ==========
Assumptions used for post-retirement benefits accounting (1)
Discount rate 7.0% 7.25% 8.0%
(1) For measurement purposes, plans liabilities were valued as of October 31,
2002 for the fiscal year ended December 31, 2002.
For measurement purposes, the net per capita cost of covered health care
benefits are assumed to have an initial annual rate of increase of 9% in 2003
that will gradually decrease by 1% each year to 5% in 2007, and thereafter
remain at 5%.
Assumed health care cost trends rates have a significant effect on the amounts
reported for the health care plan. A one-percentage-point change in assumed
health care cost trends rates would have the following effects:
One-percentage-point One-percentage-point
decrease increase
-------------------- --------------------
Effect on total of service and interest cost components (1) 1
Effect on year-end postretirement benefit obligation (9) 10
The Company also provides for a long-term disability program, such as medicare
and life insurance, for eligible retired employees. Total liabilities amount to
6, 3 and 2 and the discounts rates used to calculate these liabilities were
7.0%, 7.25% and 8.0% as of December 31, 2002, 2001 and 2000, respectively.
F-41
17. OIL AND GAS DISCLOSURES (Unaudited)
The following information is presented in accordance with Statement of Financial
Accounting Standards Number 69, "Disclosures about Oil and Gas Producing
Activities".
Capitalized costs
The following tables set forth capitalized costs, along with the related
accumulated depreciation and allowances as of December 31, 2002, 2001 and 2000:
2002
-----------------------------------------------------
Rest of Indonesia
South and Other
Argentina America Foreign Worldwide
----------- ----------- ------------ ------------
Proved oil and gas properties
Wells and related equipment and facilities 36,812 - 55 36,867
Support equipment and facilities 734 - 3 737
Uncompleted wells, equipment and facilities 981 - 14 995
Unproved oil and gas properties - - 39 39
----------- ----------- ------------ ------------
Total capitalized costs 38,527 - 111 38,638
Accumulated depreciation and valuation allowances (25,018) - (20) (25,038)
----------- ----------- ------------ ------------
Net capitalized costs 13,509 - 91 13,600
=========== =========== ============ =============
Investees' net capitalized costs 134 - - 134
2001
------------------------------------------------------
Rest of Indonesia
South and Other
Argentina America (1) Foreign Worldwide
------------------------------------------------------
Proved oil and gas properties
Wells and related equipment and facilities 34,920 434 2,531 37,885
Support equipment and facilities 814 4 41 859
Uncompleted wells, equipment and facilities 742 28 168 938
Unproved oil and gas properties 96 - 28 124
----------- ----------- ------------ ------------
Total capitalized costs 36,572 466 2,768 39,806
Accumulated depreciation and valuation allowances (23,567) (135) (1,329) (25,031)
----------- ----------- ------------ ------------
Net capitalized costs 13,005 331(5) 1,439(5) 14,775
=========== =========== ============ =============
Investees' net capitalized costs 113 1,191(5) - 1,304
2000
------------------------------------------------------
Rest of Indonesia
South and Other
Argentina America (2) Foreign Worldwide
----------- ----------- ------------ ------------
Proved oil and gas properties
Wells and related equipment and facilities 30,752(4) 1,643 2,461 34,856
Support equipment and facilities 631 33 46 710
Uncompleted wells, equipment and facilities 655 223 159 1,037
Unproved oil and gas properties - 452 644 1,096
----------- ----------- ------------ ------------
Total capitalized costs 32,038 2,351 3,310 37,699
Accumulated depreciation and valuation allowances (21,018) (434) (1,801)(3) (23,253)
----------- ----------- ------------ ------------
Net capitalized costs 11,020 1,917 1,509 14,446
=========== =========== ============ =============
Investees' net capitalized costs - 199 - 199
(1) Includes capitalized costs in Bolivia.
(2) Includes capitalized costs in Bolivia, Ecuador, Brazil and Venezuela.
(3) Includes an impairment provision of 807 (Note 12).
(4) Includes 655 corresponding to the extension of the concession for the
exploitation of Loma La Lata - Sierra Barrosa area (Note 10.b).
(5) Corresponds mainly to capitalized costs related to properties sold during
the year 2002 as mentioned in Note 12.
F-42
Costs incurred
The following tables set forth the costs incurred for oil and gas producing
activities during the years ended December 31, 2002, 2001 and 2000:
2002
------------------------------------------------------
Rest of Indonesia
South and Other
Argentina America (1) Foreign Worldwide
----------- ----------- ------------ ------------
Acquisition of properties
Unproved - - 4 4
Exploration costs 146 5 72 223
Development costs 2,025 24 3 2,052
----------- ----------- ------------ ------------
Total costs incurred 2,171 29 79 2,279
=========== =========== ============ =============
Investees' total costs incurred 27 78 - 105
2001
------------------------------------------------------
Rest of Indonesia
South and Other
Argentina America (1) Foreign Worldwide
----------- ----------- ------------ ------------
Acquisition of properties
Proved 1,920(3) - - 1,920
Unproved 96(4) - 2 98
Exploration costs 179 17 35 231
Development costs 1,693 122 188 2,003
----------- ----------- ------------ ------------
Total costs incurred 3,888 139(5) 225(5) 4,252
=========== =========== ============ =============
Investees' total costs incurred 11 969(5) - 980
2000
------------------------------------------------------
Rest of Indonesia
South and Other
Argentina America (1) Foreign Worldwide
----------- ----------- ------------ ------------
Acquisition of properties
Proved 655(2) 72 - 727
Unproved - 98 2 100
Exploration costs 216 94 39 349
Development costs 1,285 113 201 1,599
----------- ----------- ------------ ------------
Total costs incurred 2,156 377 242 2,775
=========== =========== ============ =============
Investees' total costs incurred - 35 - 35
(1) Includes costs incurred in Bolivia as of December 31, 2002 up to the sale
of YPF International S.A.'s interests in such country (Note 12), costs
incurred in Bolivia and in Venezuela as of December 31, 2001 up to the sale
of YPF International Ltd.'s interests in such country (Note 12) and costs
incurred in Bolivia, Ecuador, Brazil and Venezuela as of December 31, 2000.
(2) Corresponds to the extension of the concession for the exploitation of Loma
La Lata - Sierra Barrosa area (Note 10.b).
(3) Includes 1,826 related to the merger of Astra and Repsol Argentina S.A.
with and into YPF as mentioned in Note 12.
(4) Corresponds to the merger of Astra and Repsol Argentina S.A. with and into
YPF as mentioned in Note 12.
(5) Corresponds mainly to incurred costs related to properties sold during the
year 2002 as mentioned in Note 12.
Results of operations from oil and gas producing activities
The following tables include only the revenues and expenses directly associated
with oil and gas producing activities. It does not include any allocation of the
interest costs or corporate overhead and, therefore, is not necessarily
indicative of the contribution to net earnings of the oil and gas operations.
Differences between these tables and the amounts shown in Note 8 and 16.c),
"Business Segment Information" and "Consolidated Geographic Information", for
the exploration and production business unit, relate to additional upstream
operations that do not arise from those properties held by the Company, as
reflected below.
F-43
2002
------------------------------------------------------
Rest of Indonesia
South and Other
Argentina America (2) Foreign Worldwide
----------- ----------- ------------ ------------
Net sales to unaffiliated parties 898(1) 83 17 998
Net intersegment sales 10,855(1) 10 - 10,865
----------- ----------- ------------ ------------
Total net revenues 11,753 93 17 11,863
Production costs (3,067) (50) (6) (3,123)
Exploration expenses (143) (4) (93) (240)
Depreciation and expense for valuation allowances (1,571) (23) (9) (1,603)
Other - 1 (3) (2)
----------- ----------- ------------ ------------
Pre-tax income (loss) from producing activities 6,972 17 (94) 6,895
Income tax expense (2,440) (4) 28 (2,416)
----------- ----------- ------------ ------------
Results of oil and gas producing activities 4,532 13 (66) 4,479
=========== =========== ============ =============
Investees' results of operations 50 22 - 72
2001
------------------------------------------------------
Rest of Indonesia
South and Other
Argentina America (2) Foreign Worldwide
----------- ----------- ------------ ------------
Net sales to unaffiliated parties 4,019(1) 203 893 5,115
Net intersegment sales 4,659(1) 17 - 4,676
----------- ----------- ------------ ------------
Total net revenues 8,678 220 893 9,791
Production costs (2,603) (105) (384) (3,092)
Exploration expenses (164) (20) (36) (220)
Depreciation and expense for valuation allowances (1,490) (59) (253) (1,802)
Other - 20 (11) 9
----------- ----------- ------------ ------------
Pre-tax income (loss) from producing activities 4,421 56 209 4,686
Income tax expense (1,547) (17) (85) (1,649)
----------- ----------- ------------ ------------
Results of oil and gas producing activities 2,874 39(4) 124(4) 3,037
=========== =========== ============ =============
Investees' results of operations 41 63(4) - 104
2000
------------------------------------------------------
Rest of Indonesia
South and Other
Argentina America (2) Foreign Worldwide
----------- ----------- ------------ ------------
Net sales to unaffiliated parties 4,153(1) 467 971 5,591
Net intersegment sales 5,715(1) - - 5,715
----------- ----------- ------------ ------------
Total net revenues 9,868 467 971 11,306
Production costs (2,638) (164) (344) (3,146)
Exploration expenses (157) (122) (35) (314)
Depreciation and expense for valuation allowances (1,239) (122) (607)(3) (1,968)
Other - (39) 15 (24)
----------- ----------- ------------ ------------
Pre-tax income (loss) from producing activities 5,834 20 - 5,854
Income tax expense (2,042) (20) (2) (2,064)
----------- ----------- ------------ ------------
Results of oil and gas producing activities 3,792 - (2) 3,790
=========== =========== ============ =============
Investees' results of operations - 20 - 20
(1) As mentioned in Note 8, effective January 1, 2002, crude oil sales are
conducted through the Refining and Marketing segment. If this new marketing
policy had been retroactively applied, net sales to unaffiliated parties
and net intersegment sales for Argentina would have been 1,749 and 6,929,
and 1,473 and 8,395, respectively for the years ended December 31, 2001 and
2000.
(2) Includes results from oil and gas producing activities in Bolivia as of
December 31, 2002 up to the sale of YPF International S.A.'s interests in
such country (Note 12), results from oil and gas producing activities in
Bolivia and Venezuela as of December 31, 2001, up to the sale of YPF
International Ltd.'s interests in such country (Note 12) and results from
oil and gas producing activities in Bolivia, Ecuador, Brazil and Venezuela
as of December 31, 2000.
(3) Includes an impairment provision of 426 (Note 12).
(4) Corresponds mainly to results of operations related to properties sold
during the year 2002 as mentioned in Note 12.
F-44
Oil and gas reserves
Proved reserves represent estimated quantities of crude oil, including
condensate and natural gas liquids, and natural gas which geological and
engineering data demonstrate with reasonable certainty to be recoverable in
future years from known reservoirs under existing economic and operating
conditions. Proved developed reserves are proved reserves that can reasonably be
expected to be recovered through existing wells with existing equipment and
operating methods.
Estimates of reserves were prepared using standard geological and engineering
methods generally accepted by the petroleum industry and in accordance with the
rules and regulations of the SEC. The choice of method or combination of methods
employed in the analysis of each reservoir was determined by experience in the
area, stage of development, quality and completeness of basic data, and
production history. There are numerous uncertainties inherent in estimating
quantities of proved reserves and in projecting future rates of production and
timing of development expenditures, including many factors beyond the control of
the producer. Reserve engineering is a subjective process of estimating
underground accumulations of crude oil and natural gas that cannot be measured
in an exact manner, and the accuracy of any reserve estimate is a function of
the quality of available data and of engineering and geological interpretation
and judgment. As a result, estimates of different engineers often vary. In
addition, results of drilling, testing and production subsequent to the date of
an estimate may justify revision of such estimate. Accordingly, reserve
estimates are often different from the quantities of crude oil and natural gas
that are ultimately recovered. The meaningfulness of such estimates is highly
dependent upon the accuracy of the assumption upon which they were based. The
reserve estimates were subjected to economic tests to determine economic limits.
The reserves in Argentina are stated prior to the payment of any royalties to
the provinces in which the reserves are located. Consequently, royalties are
given effect in such economic tests as operating costs in Argentina. The
estimates may change as a result of numerous factors including, but not limited
to, additional development activity, evolving production history, and continued
reassessment of the viability of production under varying economic conditions.
The following tables reflect the estimated reserves of crude oil, condensate,
natural gas liquids and natural gas as of December 31, 2002, 2001 and 2000, and
the changes therein:
Crude oil, condensate and natural gas liquids
(Millions of barrels)
------------------------------------------------------
2002
------------------------------------------------------
Rest of Indonesia
South and Other
Argentina America Foreign Worldwide
----------- ----------- ------------ ------------
Proved developed and undeveloped reserves
Beginning of year 1,467 20 178 1,665
Revisions of previous estimates 11 - - 11
Extensions, discoveries and improved recovery 63 - - 63
Sales of reserves in place (Note 12) - (20) (172) (192)
Production for the year (160) - - (160)
----------- ----------- ------------ ------------
End of year 1,381(1) - 6 1,387
=========== =========== ============ =============
Proved developed reserves
Beginning of year 1,183 10 150 1,343
End of year 1,135(2) - 1 1,136
Investees' proved developed and undeveloped reserves 19 - - 19
Crude oil, condensate and natural gas liquids
(Millions of barrels)
--------------------------------------------------------
2001
--------------------------------------------------------
Rest of Indonesia
South and Other
Argentina America Foreign Worldwide
----------- ----------- ------------ ------------
Proved developed and undeveloped reserves
Beginning of year 1,368 162 132 1,662
Revisions of previous estimates (7) 2 61 56
Extensions, discoveries and improved recovery 89 5 2 96
Purchases of reserves in place 195(4) - - 195
Sales of reserves in place (Note 12) (18) (144) - (162)
Production for the year (160) (5) (17) (182)
----------- ----------- ------------ ------------
End of year 1,467(1) 20 178 1,665
=========== =========== ============ =============
Proved developed reserves
Beginning of year 1,088 69 104 1,261
End of year 1,183(2)(5) 10 150 1,343
Investees' proved developed and undeveloped reserves 21 60 - 81
F-45
Crude oil, condensate and natural gas liquids
(Millions of barrels)
------------------------------------------------------
2000
------------------------------------------------------
Rest of Indonesia
South and Other
Argentina America Foreign Worldwide
----------- ----------- ------------ ------------
Proved developed and undeveloped reserves
Beginning of year 1,151 178(3) 120 1,449
Revisions of previous estimates 242 (44) 24 222
Extensions, discoveries and improved recovery 126 13 5 144
Purchases of reserves in place - 24 - 24
Sales of reserves in place (Note 12) (11) - (2) (13)
Production for the year (140) (9) (15) (164)
----------- ----------- ------------ ------------
End of year 1,368(1) 162 132 1,662
=========== =========== ============ =============
Proved developed reserves
Beginning of year 964 60 95 1,119
End of year 1,088(2) 69 104 1,261
Investees' proved developed and undeveloped reserves - 33 - 33
(1) Includes natural gas liquids of 368, 316 and 341, as of December 31, 2002,
2001 and 2000, respectively.
(2) Includes natural gas liquids of 274, 237 and 255, as of December 31, 2002,
2001 and 2000, respectively.
(3) Includes reserves in Ecuador, Bolivia and Venezuela.
(4) Includes 14 of purchases of reserves and 181 incorporated as a consequence
of the merger of Astra and Repsol Argentina S.A. with and into YPF as
mentioned in Note 12.
(5) Includes 143 as a consequence of the merger of Astra and Repsol Argentina
S.A. with and into YPF as mentioned in Note 12.
Natural gas
(Billions of cubic feet)
------------------------------------------------------
2002
------------------------------------------------------
Rest of Indonesia
South and Other
Argentina America Foreign Worldwide
----------- ----------- ------------ ------------
Proved developed and undeveloped reserves
Beginning of year 9,569 188 422 10,179
Revisions of previous estimates (125) - 5 (120)
Extensions and discoveries 15 - - 15
Sales of reserves in place (Note 12) - (188) (370) (558)
Production for the year (1) (540) - (2) (542)
----------- ----------- ------------ ------------
End of year 8,919 - 55 8,974
=========== =========== ============ =============
Proved developed reserves
Beginning of year 7,340 45 127 7,512
End of year 6,793 - 8 6,801
Investees' proved developed and undeveloped reserves 513 - - 513
Natural gas
(Billions of cubic feet)
------------------------------------------------------
2001
------------------------------------------------------
Rest of Indonesia
South and Other
Argentina America Foreign Worldwide
----------- ----------- ------------ ------------
Proved developed and undeveloped reserves
Beginning of year 9,381 257 450 10,088
Revisions of previous estimates 15 564 (9) 570
Extensions and discoveries 384 163 4 551
Purchases of reserves in place 693(3) - - 693
Sales of reserves in place (Note 12) (372) (792) - (1,164)
Production for the year (1) (532) (4) (23) (559)
----------- ----------- ------------ ------------
End of year 9,569 188 422 10,179
=========== =========== ============ =============
Proved developed reserves
Beginning of year 7,072 40 155 7,267
End of year 7,340(4) 45 127 7,512
Investees' proved developed and undeveloped reserves 554 2,618 - 3,172
F-46
Natural gas
(Billions of cubic feet)
------------------------------------------------------
2000
------------------------------------------------------
Rest of Indonesia
South and Other
Argentina America Foreign Worldwide
----------- ----------- ------------ ------------
Proved developed and undeveloped reserves
Beginning of year 9,705 767(2) 678 11,150
Revisions of previous estimates (105) (840) (120) (1,065)
Extensions and discoveries 369 336 144 849
Purchases of reserves in place - 1 - 1
Sales of reserves in place (Note 12) - - (228) (228)
Production for the year (1) (588) (7) (24) (619)
----------- ----------- ------------ ------------
End of year 9,381 257 450 10,088
=========== =========== ============ =============
Proved developed reserves
Beginning of year 8,180 65 489 8,734
End of year 7,072 40 155 7,267
Investees' proved developed and undeveloped reserves - 1,163 - 1,163
(1) Excludes quantities, which have been flared or vented.
(2) Includes reserves in Bolivia.
(3) Includes 5 of purchases of reserves and 688 incorporated as a consequence of
the merger of Astra and Repsol Argentina S.A. with and into YPF as mentioned
in Note 12.
(4) Includes 467 as a consequence of the merger of Astra and Repsol Argentina
S.A. with and into YPF as mentioned in Note 12.
Standardized measure of discounted future net cash flows
The standardized measure is calculated as the excess of future cash inflows from
proved reserves less future costs of producing and developing the reserves,
future income taxes and a discount factor. Future cash inflows represent the
revenues that would be received from production of year-end proved reserve
quantities assuming the future production would be sold at year-end prices.
Additionally, year-end prices were adjusted in those instances where future
sales are covered by contracts at specified prices.
Future production costs include the estimated expenditures related to production
of the proved reserves plus any production taxes without consideration of future
inflation. Future development costs include the estimated costs of drilling
development wells and installation of production facilities, plus the net costs
associated with dismantling and abandonment of wells, assuming year-end costs
continue without consideration of future inflation. Future income taxes were
determined by applying statutory rates to future cash inflows less future
production costs and less tax depreciation of the properties involved. The
present value was determined by applying a discount rate of 10% per year to the
annual future net cash flows.
The future cash inflows and outflows in foreign currency have been valued at the
selling exchange rate of Argentine pesos 3.37, 1.7 and 1 to US$ 1, as of
December 31, 2002, 2001 and 2000, respectively.
The standardized measure does not purport to be an estimate of the fair market
value of the Company's proved reserves. An estimate of fair value would also
take into account, among other things, the expected recovery of reserves in
excess of proved reserves, anticipated changes in future prices and costs and a
discount factor representative of the time value of money and the risks inherent
in producing oil and gas.
The following information has been determined on a basis which presumes the
year-end economic and operating conditions will continue over the years during
which proved reserves would be produced. Neither the effects of future pricing,
nor expected future changes in technology and operating practices have been
considered.
F-47
2002
------------------------------------------------------
Rest of Indonesia
South and Other
Argentina America Foreign Worldwide
----------- ----------- ------------ ------------
Future cash inflows 133,419 - 1,562 134,981
Future production costs (29,269) - (707) (29,976)
Future development costs (4,637) - (221) (4,858)
------------------------------------------------------
Future net cash flows, before income taxes 99,513 - 634 100,147
Discount for estimated timing of future cash flows (41,814) - (307) (42,121)
Future income taxes, discounted at 10% (1) (19,275) - (118) (19,393)
------------------------------------------------------
Standardized measure of discounted future net cash flows 38,424 - 209 38,633
=========== =========== ============ =============
Investees' standardized measure of discounted future net cash
flows 727 - - 727
2001
------------------------------------------------------
Rest of Indonesia
South and Other
Argentina America (2) Foreign Worldwide
----------- ----------- ------------ ------------
Future cash inflows 110,670 2,077 14,947 127,694
Future production costs (31,259) (696) (8,804) (40,759)
Future development costs (6,675) (343) (1,167) (8,185)
----------- ----------- ------------ ------------
Future net cash flows, before income taxes 72,736 1,038 4,976 78,750
Discount for estimated timing of future cash flows (31,516) (685) (1,982) (34,183)
Future income taxes, discounted at 10% (1) (12,610) (107) (1,222) (13,939)
----------- ----------- ------------ ------------
Standardized measure of discounted future net cash flows 28,610 246 1,772(4) 30,628
=========== =========== ============ =============
Investees' standardized measure of discounted future net cash
flows 746 2,132 - 2,878
2000
------------------------------------------------------
Rest of Indonesia
South and Other
Argentina America (3) Foreign Worldwide
----------- ----------- ------------ ------------
Future cash inflows 85,842 6,756 9,023 101,621
Future production costs (21,838) (2,887) (3,637) (28,362)
Future development costs (4,558) (844) (692) (6,094)
----------- ----------- ------------ ------------
Future net cash flows, before income taxes 59,446 3,025 4,694 67,165
Discount for estimated timing of future cash flows (26,637) (1,418) (1,892) (29,947)
Future income taxes, discounted at 10% (1) (9,876) (504) (1,225) (11,605)
----------- ----------- ------------ ------------
Standardized measure of discounted future net cash flows 22,933 1,103 1,577 25,613
=========== =========== ============ =============
Investees' standardized measure of discounted future net cash
flows - 799 - 799
(1) Future income taxes undiscounted are 30,760 (30,537 for Argentina and 223
for Indonesia and Other Foreign), 19,589 (17,306 for Argentina, 262 for Rest
of South America and 2,021 for Indonesia and Other Foreign) and 20,322
(17,306 for Argentina, 982 for Rest of South America and 2,034 for Indonesia
and Other Foreign) as of December 31, 2002, 2001 and 2000, respectively.
(2) Includes Bolivia.
(3) Includes Bolivia, Ecuador and Venezuela.
(4) Includes 1,608 related to properties sold in January 2002 as mentioned
in Note 12.
F-48
Changes in the standardized measure of discounted future net cash flows
The following table reflects the changes in standardized measure of discounted
future net cash flows for the years ended December 31, 2002, 2001 and 2000:
2002 2001 2000
----------- ----------- ------------
Beginning of year 30,628 25,613 28,188
Sales and transfers, net of production costs (8,740) (6,699) (8,160)
Net change in sales and transfer prices, net of future production costs 18,033 4,327 2,477
Extensions, discoveries and improved recovery, net of future production
and development costs 2,295 2,143 3,827
Changes in estimated future development costs (239) (1,569) (1,519)
Development costs incurred during the year that reduced future development
costs 2,052 2,003 1,599
Revisions of quantity estimates (164) 738 148
Accretion of discount 4,457 3,722 4,054
Net change in income taxes (5,454) (2,334) 759
Purchase of reserves in place - 2,817(1) 257
Sales of reserves in place (1,722) (1,719) (666)
Changes in production rates (timing) and other (2,513) 1,586 (5,351)
----------- ----------- ------------
End of year 38,633 30,628 25,613
=========== =========== ============
(1) Includes 334 of purchase of reserves and 2,483 incorporated as a
consequence of the merger of Astra and Repsol Argentina S.A. with and into
YPF as mentioned in Note 12.
18. Other Consolidated Financial Statement Information
The following tables present additional consolidated financial statement
disclosures required under Argentine GAAP. This information is not a required
part of the basic financial statements under US GAAP. Separate consolidated
financial statement schedules were, therefore, not prepared for purposes of the
Annual Report on Form 20-F of which these consolidated financial statements
constitute a part:
a) Fixed assets evolution.
b) Intangible assets evolution.
c) Investments in shares and holdings in investees and other companies.
d) Allowances and reserves.
e) Cost of sales.
f) Foreign currency assets and liabilities.
g) Expenses incurred.
F-49
a. Fixed assets evolution
2002
---------------------------------------------------------------
Cost
---------------------------------------------------------------
Amounts at Amounts
Beginning Net Decreases at End
Main Account of Year Increases and Transfers of Year
- --------------------------------------- ------------- ------------- ------------- -------------
Land and buildings 2,313 5 (63) 2,255
Mineral property, wells and
related equipment 35,632 232 1,123 36,987
Refinery equipment 6,487 - 398 6,885
Transportation equipment 1,601 2 (15) 1,588
Materials and equipment in
warehouse 234 506 (431) 309
Drilling and work in progress 1,275 2,183 (2,154) 1,304
Furniture, fixtures and installations 522 1 (85) 438
Selling equipment 1,484 - (218) 1,266
Other property 329 40 (81) 288
------------- ------------- ------------- -------------
Total 2002 49,877 2,969 (2)(8) (1,526)(1)(7) 51,320
============= ============= ============= =============
Total 2001 50,793 7,751 (2)(5) (8,667)(1)(7) 49,877
============= ============= ============= =============
Total 2000 48,672 3,214 (2)(9) (1,093)(1) 50,793
============= ============= ============= =============
2002
------------------------------------------------------------------------------------------
Depreciation
----------------------------------------------------------------------------
Accumulated Accumulated Net
at Beginning Net Decreases Depreciation at End of Book
Main Account of Year and Transfers Rate Increases Year Value
- --------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Land and buildings 829 (11) 2% 54 872 1,383
Mineral property, wells and
related equipment 23,239 (289) (4) 1,642 24,592 12,395 (3)
Refinery equipment 4,170 - 4-5% 228 4,398 2,487
Transportation equipment 1,072 (20) 1-5% 32 1,084 504
Materials and equipment in
warehouse - - - - - 309
Drilling and work in progress - - - - - 1,304
Furniture, fixtures and
installations 420 (102) 10% 37 355 83
Selling equipment 859 (192) 10% 100 767 499
Other property 219 (21) 10% 29 227 61
------------- ------------- ------------- ------------- -------------
Total 2002 30,808 (635)(1)(7) 2,122 (8) 32,295 19,025
============= ============= ============= ============= =============
Total 2001 29,321 (3,346)(1)(7) 4,833 (6) 30,808
============= ============= ============= =============
Total 2000 27,876 (589)(1) 2,034 29,321
============= ============= ============= =============
2001 2000
------------- --------------
Net Net
Book Book
Main Account Value Value
- --------------------------------------- ------------- --------------
Land and buildings 1,484 1,434
Mineral property, wells and
related equipment 12,393 (3) 13,855 (3)
Refinery equipment 2,317 2,478
Transportation equipment 529 816
Materials and equipment in
warehouse 234 284
Drilling and work in progress 1,275 1,434
Furniture, fixtures and
installations 102 299
Selling equipment 625 681
Other property 110 191
------------- --------------
Total 2002
Total 2001 19,069
=============
Total 2000 21,472
==============
(1) Includes 32, 1,218 and 183 of net book value charged to fixed assets
allowances for the years ended December 31, 2002, 2001 and 2000,
respectively.
(2) Includes 40, 35 and 52 corresponding to capitalized financial expenses for
those assets whose construction is extended in time for the years ended
December 31, 2002, 2001 and 2000, respectively.
(3) Includes 1,640, 1,763 and 1,030 of mineral property as of December 31, 2002,
2001 and 2000, respectively.
(4) Depreciation has been calculated according to the unit of production method.
(5) Includes 4,944 of book value corresponding to fixed assets of Astra and
Repsol Argentina S.A. at the moment of its merger into YPF, and to fixed
assets acquired to Pecom.
(6) Includes 2,642 of fixed assets' accumulated depreciation corresponding to
Astra and Repsol Argentina S.A. at the moment of its merger into YPF.
(7) Includes 655 and 4,076 corresponding to net decreases for the years ended
December 31, 2002 and 2001, related to the transactions mentioned in Note
12.
(8) Includes 276 and 74 of book value and accumulated depreciation,
respectively, corresponding to the exchange difference, net of inflation,
originated in the translation of the amounts at beginning of the year,
related to investments in foreign companies.
(9) Includes 655 corresponding to the extension of the concession for the
explotation of Loma La Lata - Sierra Barrosa area (Note 10. b).
F-50
b. Intangible assets evolution
2002
--------------------------------------------------------------
Cost
--------------------------------------------------------------
Amount Amount
at Beginning at End
Main Account of Year Increases Decreases of Year
- --------------------------------------- -------------- ------------- ------------- -------------
Goodwill:
- - Repsol YPF Gas S.A. - - - -
- - PBBPolisur S.A. 57 - - 57
- - Global 33 14 - 47
- - Maleic S.A. 11 - - 11
- - Dispal Petroleo Paulinia Ltda. - - - -
- - Refinaria de Petroleos de Manguinhos - - - -
- - Empresas Lipigas S.A.(5) 247 - 247 -
- - Refineria del Norte S.A. 4 - - 4
- - Gas Argentino S.A. 13 - - 13
Deferred charges(6) 33 - 33 -
------------- ------------- ------------- -------------
Total 2002 398 14 (4) 280 132
============= ============= ============= =============
Total 2001 602 112 (2) 316 398
============= ============= ============= =============
Total 2000 336 288 22 602
============= ============= ============= =============
2002
---------------------------------------------------------------------------------------
Amortization
-------------------------------------------------------------------------
Accumulated Accumulated Net
at Beginning Amortization at End Book
of Year Increases Rate Decreases of Year Value
------------- ------------- ------------- ------------- ------------- -------------
Goodwill:
- - Repsol YPF Gas S.A. - - - - - -
- - PBBPolisur S.A. 29 28 10% - 57 -
- - Global 10 8 10% - 18 29
- - Maleic S.A. 4 7 10% - 11 -
- - Dispal Petroleo Paulinia Ltda. - - - - - -
- - Refinaria de Petroleos de Manguinhos - - - - - -
- - Empresas Lipigas S.A.(5) 13 - 5% 13 - -
- - Refineria del Norte S.A. - 4 5% - 4 -
- - Gas Argentino S.A. 2 11 5% - 13 -
Deferred charges (6) 13 - 10 - 20% 13 - -
------------- ------------- ------------- ------------- -------------
Total 2002 71 58 (1)(4) 26 103 29
============= ============= ============= ============= =============
Total 2001 151 44 (3) 124 71
============= ============= ============= =============
Total 2000 142 30 22 150
============= ============= ============= =============
2001 2000
------------- -------------
Net Net
Book Book
Value Value
------------- -------------
Goodwill:
- - Repsol YPF Gas S.A. - 37
- - PBBPolisur S.A. 28 45
- - Global 24 26
- - Maleic S.A. 7 9
- - Dispal Petroleo Paulinia Ltda. - 27
- - Refinaria de Petroleos de Manguinhos - 4
- - Empresas Lipigas S.A.(5) 233 284
- - Refineria del Norte S.A. 4 -
- - Gas Argentino S.A. 11 -
Deferred charges (6) 20 20
------------- -------------
Total 2002
Total 2001 327
=============
Total 2000 452
=============
(1) Includes 37 charged to "Allowance for reduction in value of holdings in
long-term investments" as of December 31, 2002.
(2) Includes 76 corresponding to the goodwill recorded at Astra and Repsol
Argentina S.A. at the moment of their merger into YPF and 27 corresponding
to the goodwill arising from the merger of Repsol Gas S.A. with YPF Gas
S.A., mentioned in Note 12.
(3) Includes 2 of accumulated depreciation of goodwill recorded at Astra at the
moment of its merger into YPF, mentioned in Note 12.
(4) Includes 14 and 3 of book value and accumulated depreciation, respectively,
corresponding to the exchange difference, net of inflation, originated in
the translation of the amount at the beginning of the year, related to
investments in foreign companies.
(5) Investee held by Repsol YPF Gas Chile Ltda. (Note 12).
(6) Mainly corresponds to commercial rights of investments held in Chile.
F-51
c. Investments in shares and holdings in investees and other companies
2002
------------------------------------------------------------------------------
Description of the Securities
-----------------------------------
Name and Face Book
Issuer Class Value Amount Value Cost
- ------ ----- ----- ------ ----- ----
Jointly controlled
Investees:
Compania Mega S.A. Common $ 1 77,292,000 147(9) 168
Petroken Petroquimica Common $ 1 40,602,826 119(9) 102
Ensenada S.A.
Profertil S.A. Common $ 1 1,000,000 153(9) 388
Refineria del Common $ 1 45,803,655 155(9) 122
Norte S.A.
Empresa Petrolera -- -- -- -- --
Andina S.A.
Global Companies LLC -- -- -- 59 15
Other investees:
Oleoductos del Common $ 10 4,072,749 111(1) 47
Valle S.A.
PBBPolisur S.A. Common $ 1 12,838,664 30 234
Terminales Maritimas Common $ 10 476,034 44(1) 7
Patagonicas S.A.
Oiltanking Ebytem S.A. Common $ 10 351,167 9(1) 9
Gasoducto del Pacifico Preferred $ 1 12,298,800 28 26
(Argentina) S.A.
Central Dock Common $ 0.01 86,799,282 16(3) 29
Sud S.A.
Gas Argentino S.A. Common $ 1 104,438,182 22(3) 336
Inversora Dock Sud S.A. Common $ 1 40,291,975 138 189
Pluspetrol Energy S.A. Common $ 1 30,006,540 153 120
Oleoducto Trasandino Preferred $ 1 8,099,280 22 4
(Argentina) S.A.
Andina Corporation -- -- -- -- --
Empresas Lipigas S.A. -- -- -- -- --
Others (7) -- -- -- --(2) --(2)
Other companies:
Petroleos Transandinos Common -- --(4) 1,179 1 --(2)
YPF S.A.
Mercobank S.A. Common $ 1 1,800,264 13 13
---------- -----------
1,220 1,809
========== ===========
2002 2001 2000
- ----------------------------------------------------------------------------------------------------------- ------- --------
Information on the Issuer
----------------------------------------------------------------
Description of the Securities Last Financial Statements Issued Holding
- ----------------------------------- -------------------------------- in
Registered Capital Income Capital Book Book
Main Business Address Date Stock (loss) Equity Stock Value Value
------------- ------- ---- ----- ------ ------ ----- ----- -----
Separation,fractionation Av. Roque 09/30/02 203 (158) 311 38.00% 175 168
and transportation Saenz Pena
of natural gas liquids 777, P.
Buenos Aires,
Argentina
Petrochemicals Sarmiento 1230, 09/30/02 81 (47) 204 50.00% 120 129
P. 6(degree),
Buenos Aires,
Argentina
Production and Alicia Moreau 09/30/02 2 (432) 286 50.00% 354 347
marketing of de Justo 140,
fertilizers P. 1(degree),
Buenos Aires,
Argentina
Refining Maipu 1, P. 06/30/02 92 (28) 222 50.00% 140 85
2(degree),
Buenos Aires,
Argentina
-- -- -- -- -- -- -- 1,142 --
Supply, storage, marketing Watermill -- -- -- -- 51.00%(6) 52 41
and Center 800
distribution of South Street, Waltham,
hydrocarbons Massachusetts, USA
and their
derivatives
Oil transportation Florida 1, P. 09/30/02 110 36 384 37.00% 94 61
by pipeline 10(degree), Buenos
Aires, Argentina
Petrochemicals Av. Eduardo 09/30/02 46 (236) 111 28.00% 105 164
Madero 900, P
7(degree), Buenos
Aires, Argentina
Oil storage and shipment Av. Leandro N. 09/30/02 14 46 139 33.15% 24 22
Alem 1180,
P.11(degree),
Buenos Aires,
Argentina
Hydrocarbon transportation Alicia Moreau 09/30/02 12 8 51 30.00% 4 7
and storage de Justo 872,
P. 4(degree),
Of. 7 ,
Buenos Aires,
Argentina
Gas transportation San Martin 09/30/02 124 (3) 281 10.00%(8) 28 26
by pipeline 323, P. 19(degree),
Buenos Aires,
Argentina
Electric power generation Reconquista 09/30/02 9 (283) 226 9.98%(5) 7 --
and bulk marketing 360, P. 6(degree),
Buenos Aires,
Argentina
Investment in Gregorio Araoz 09/30/02 230 (489) 248 45.33% 334 --
MetroGas S.A de Lamadrid
1360, Buenos
Aires, Argentina
Investment and finance Reconquista 09/30/02 94 (213) 246 42.86% 238 --
360, P. 6(degree),
Buenos Aires,
Argentina
Exploration and exploitation Lima 339, 09/30/02 67 (194) 346 45.00% 240 --
of hydrocarbons and electric Buenos Aires,
power generation, production Argentina
and marketing
Oil transportation Esmeralda 255, 09/30/02 45 54 142 18.00%(8) 26 --
by pipeline P. 5(degree),
Buenos Aires,
Argentina
-- -- -- -- -- -- -- -- 240
-- -- -- -- -- -- -- 83 87
-- -- -- -- -- -- -- 57 131
Exploration and Gertrudis 12/31/01 167 18 204 1.05% -- --
production of Echenique 30,
hydrocarbons; P. 12(degree),
refining and Comuna Las Condes,
marketing of Santiago de
its derivatives Chile, Chile
Investment and Bartolome 06/30/00 46 (15) 14 3.91% 13 13
finance Mitre 343,
Buenos Aires,
Argentina
------ -------
3,236 1,521
====== =======
For supplemental information on main changes on companies comprising the YPF
Group, see Note 12.
(1) Holding in shareholders' equity, net of intercompany profits.
(2) No value is disclosed, due to book value is less than $ 1 million.
(3) Holding in shareholders' equity plus adjustments to conform to YPF S.A.
accounting methods.
(4) These shares have no face value.
(5) Additionally, the Company has a 29.93% indirect holding in capital stock
through Inversora Dock Sud S.A.
(6) Holding in capital stock through YPF Holdings Inc.
(7) Includes Komi Nenets Energy Company Ltd., Montello Group LLC, Chelsea
Sandwich LLC, Gasoducto del Pacifico (Chile) S.A., Gasoducto del Pacifico
(Cayman) Ltd., Gasoducto Oriental S.A., A&C Pipeline Holding Company,
Oleoducto Trasandino (Chile) S.A., Bitech Petroleum Corporation, Refinaria
de Petroleos de Manguinhos and Transportadora Sulbrasileira de Gas S.A.
(8) Interest in preferred stock.
(9) Holding in shareholders' equity according to the last available financial
statements, plus the results of significant and subsequent operations
considering management information.
F-52
d. Allowances and reserves
2002
----------------------------------------------------------
Amount at Amount at
Beginning End
Account of Year Increase Decrease of Year
- ------------------------------------------------------------- ------------- ------------- ------------- -------------
Related to current assets:
For doubtful trade receivables 1,034 23 623 434
For other doubtful accounts 227 - 123 104
------------- ------------- ------------- -------------
1,261 23 746 538
------------- ------------- ------------- -------------
Related to noncurrent assets:
For valuation of other receivables to their estimated
realizable value 79 61 44 96
For reduction in value of holdings in long-term investments 308 14 133 189
For unproductive exploratory drilling 4 72 32 44
For obsolescence of materials 26 - - 26
For fixed assets to be disposed of 57 - - 57
------------- ------------- ------------- -------------
474 147 209 412
------------- ------------- ------------- -------------
Total deducted from assets during 2002 1,735 170 955 (4) 950
============= ============= ============= =============
Total deducted from assets during 2001 1,819 1,272 (1) 1,356
============= ============= =============
Total deducted from assets during 2000 1,161 889 231
============= ============= =============
Reserves for losses - current:
For miscellaneous contingencies 292 94 245 141
------------- ------------- ------------- -------------
292 94 245 141
------------- ------------- ------------- -------------
Reserves for losses - noncurrent:
For pending lawsuits and environmental remediation 388 288 195 481 (3)
For miscellaneous contingencies 7 54 4 57
------------- ------------- ------------- -------------
395 342 199 538
------------- ------------- ------------- -------------
Total included in liabilities during 2002 687 436 444 (4) 679
============= ============= ============= =============
Total included in liabilities during 2001 707 177 (2) 197
============= ============= =============
Total included in liabilities during 2000 473 347 113
============= ============= =============
2001 2000
------------- -------------
Amount at Amount at
End End
Account of Year of Year
- ------------------------------------------------------------- ------------- -------------
Related to current assets:
For doubtful trade receivables 1,034 583
For other doubtful accounts 227 260
------------- -------------
1,261 843
------------- -------------
Related to noncurrent assets:
For valuation of other receivables to their estimated
realizable value 79 11
For reduction in value of holdings in long-term investments 308 13
For unproductive exploratory drilling 4 46
For obsolescence of materials 26 28
For fixed assets to be disposed of 57 878
------------- -------------
474 976
------------- -------------
Total deducted from assets during 2002
Total deducted from assets during 2001 1,735
=============
Total deducted from assets during 2000 1,819
=============
Reserves for losses - current:
For miscellaneous contingencies 292 308
------------- -------------
292 308
------------- -------------
Reserves for losses - noncurrent:
For pending lawsuits and environmental remediation 388 391
For miscellaneous contingencies 7 8
------------- -------------
395 399
------------- -------------
Total included in liabilities during 2002
Total included in liabilities during 2001 687
=============
Total included in liabilities during 2000 707
=============
(1) Includes 4 corresponding to Astra and Repsol Argentina S.A. allowances,
recorded at the moment of their merger into YPF (Note 12).
(2) Includes 35 corresponding to Astra and Repsol Argentina S.A. reserves for
losses, recorded at the moment of their merger into YPF (Note 12).
(3) Includes 230 for YPF's lawsuits, 247 for YPF Holdings' environmental
contingencies and 4 for A-Evangelista S.A.'s legal contingencies.
(4) Includes the reversal of the restatement in constant Argentine pesos of the
amounts at beginning of year and of the operations of the year for monetary
allowances and reserves.
F-53
e. Cost of sales
2002 2001 2000
------------ ------------- -------------
Inventories at beginning of year 598 724 607
Purchases for the year 4,174 3,524 4,475
Production costs (Note 18.g) 6,843 7,059 6,435
Holding gains (losses) on inventories (Note 3.i) 68 (87) 85
Inventories at end of year (Note 3.d) (626) (598) (724)
------------ ------------- -------------
Cost of sales 11,057 10,622 10,878
============ ============= =============
F-54
f. Foreign currency assets and liabilities
Foreign Currency
and Amount (in millions)
---------------------------------------------------------------
Account 2000 2001 2002
- ---------------------------------------- -------------------- ------------------ ---------------------
CURRENT ASSETS
Cash US$ 12 US$ 6 US$ 23
$CH 801 $CH 2,806 - -
Reals 11 - - - -
Investments US$ 371 US$ 52 US$ 37
$CH 2,912 $CH 4,769 - -
Trade receivables
Accounts receivable US$ 500 US$ 323 US$ 388
$CH 6,356 $CH 9,660 - -
Reals 23 - - - -
(euro) 2 - - (euro) 5
Notes receivable $CH 6,914 $CH 9,088 - -
Other receivables US$ 140 US$ 561 US$ 1,428
$CH 11,941 $CH 5,520 - -
Reals 16 - - - -
Total current assets
NONCURRENT ASSETS
Investments US$ 11 US$ 8 US$ 5
Other receivables US$ 66 US$ 31 US$ 162
$CH 5,841 $CH 7,401 - -
Reals 8 - - - -
Total noncurrent assets
Total assets
CURRENT LIABILITIES
Accounts payable US$ 271 US$ 134 US$ 171
$CH 15,593 $CH 18,566 - -
Reals 12 - - - -
Loans
Maxus Credit Facilities,
other bank loans, other
creditors and export
prefinancing US$ 74 US$ 338 US$ 53
Yen 3,935 Yen 3,848 - -
Related parties US$ 148 US$ 588 US$ 111
Negotiable Obligations US$ 190 US$ 91 US$ 289
Itl. Lira 300,947 - - - -
Salaries and Social Security US$ 12 US$ 7 US$ 7
- - $CH 427 - -
Taxes payable US$ 51 US$ 27 US$ 16
$CH 1,804 $CH 4,280 - -
Other liabilities - - US$ 3 US$ -
Advances from crude
oil purchasers US$ 89 US$ 151 US$ 118
Total current liabilities
NONCURRENT LIABILITIES
Accounts payable US$ 286 US$ 21 US$ 19
$CH 409 $CH 86 - -
Loans
Maxus Credit Facilities,
other bank loans, other
creditors and export
prefinancing US$ 6 US$ 155 US$ 101
Yen 5,574 Yen 1,896 - -
Negotiable Obligations US$ 1,266 US$ 981 US$ 708
- - - - -
Salaries and Social Security US$ 54 US$ 50 US$ 40
Taxes payable $CH 658 - - - -
Advances from crude
oil purchasers US$ 276 US$ 509 US$ 391
Total noncurrent
liabilities
Total liabilities
Exchange Rate Book Value
in Pesos as of as of
Account 12-31-02 12-31-02
- ---------------------------------------- ---------------- ---------------
CURRENT ASSETS
Cash 3.27 (1) 75
- -
- -
Investments 3.27 (1) 121
- -
Trade receivables
Accounts receivable 3.27 (1) 1,269
- -
- -
3.43 (1) 17
-
Notes receivable - -
Other receivables 3.27 (1) 4,670
- -
- -
---------------
Total current assets 6,152
---------------
NONCURRENT ASSETS
Investments 3.27 (1) 16
Other receivables 3.27 (1) 530
- -
- -
---------------
Total noncurrent assets 546
---------------
Total assets 6,698
===============
CURRENT LIABILITIES
Accounts payable 3.37 (2) 576
- -
- -
Loans
Maxus Credit Facilities,
other bank loans, other
creditors and export
prefinancing 3.37 (2) 179
- -
Related parties 3.37 (2) 375
Negotiable Obligations 3.37 (2) 975
- -
Salaries and Social Security 3.37 (2) 24
- -
Taxes payable 3.37 (2) 54
- -
Other liabilities - -
Advances from crude
oil purchasers 3.37 (2) 398
---------------
Total current liabilities 2,581
---------------
NONCURRENT LIABILITIES
Accounts payable 3.37 (2) 64
- (2) -
Loans
Maxus Credit Facilities,
other bank loans, other
creditors and export
prefinancing 3.37 (2) 342
- -
Negotiable Obligations 3.37 (2) 2,386
-
Salaries and Social Security 3.37 (2) 134
Taxes payable - -
Advances from crude
oil purchasers 3.37 (2) 1,317
---------------
Total noncurrent
liabilities 4,243
---------------
Total liabilities 6,824
===============
(1) Buying exchange rate.
(2) Selling exchange rate.
F-55
g. Expenses incurred
2002
---------------------------------------------------------------------
Production Administrative Selling Exploration
Costs Expenses Expenses Expenses Total
------------- ------------- ------------- ------------- -------------
Salaries and social security taxes 332 91 101 25 549
Fees and compensation for services 33 100 30 11 174
Other personnel expenses 71 29 21 18 139
Taxes, charges and contributions 90 10 39 - 139
Royalties and easements 1,591 - - - 1,591
Insurance 51 3 9 - 63
Rental of real estate and equipment 110 6 50 6 172
Survey expenses - - - 55 55
Depreciation of fixed assets 1,982 36 146 - 2,164 (1)
Industrial inputs, consumable materials 515 13 25 2 555
and supplies
Construction and other service contracts 475 28 45 7 555
Preservation, repair and maintenance 581 26 32 3 642
Contracts for the exploitation of 151 - - - 151
productive areas
Unproductive exploratory drillings - - - 98 98
Transportation, products and charges 463 - 420 - 883
Allowance for doubtful trade receivables - - 39 - 39 (2)
Publicity and advertising expenses - 24 36 - 60
Fuel, gas, energy and miscellaneous 398 66 57 15 536
------------- ------------- ------------- ------------- -------------
Total 2002 6,843 432 1,050 240 8,565
============= ============= ============= ============= =============
Total 2001 7,059 476 1,682 220
============= ============= ============= =============
Total 2000 6,435 397 1,259 314
============= ============= ============= =============
2001 2000
------------- -------------
Total Total
------------- -------------
Salaries and social security taxes 927 860
Fees and compensation for services 262 223
Other personnel expenses 192 153
Taxes, charges and contributions 203 107
Royalties and easements 1,080 1,183
Insurance 35 35
Rental of real estate and equipment 235 231
Survey expenses 17 37
Depreciation of fixed assets 2,296 (1) 2,049 (1)
Industrial inputs, consumable materials 476 465
and supplies
Construction and other service contracts 576 591
Preservation, repair and maintenance 873 676
Contracts for the exploitation of 109 131
productive areas
Unproductive exploratory drillings 107 159
Transportation, products and charges 766 674
Allowance for doubtful trade receivables 493 185
Publicity and advertising expenses 142 135
Fuel, gas, energy and miscellaneous 648 511
------------- -------------
Total 2002
Total 2001 9,437
=============
Total 2000 8,405
=============
(1) Includes 116 corresponding to the proportional consolidation of the income
statements of Petroken, Refinor, Profertil S.A., Mega, Andina and Global
for the year ended December 31, 2002, 105 corresponding to the
proportional consolidation of the income statements of Petroken, Refinor,
Profertil S.A., Mega, Andina and Global for the year ended December 31,
2001, and 15 corresponding to the proportional consolidation of the income
statements of Petroken, Manghinhos and Global for the year ended December
31, 2000, respectively.
(2) Includes 16 corresponding to proportional consolidation of the income
statements of Petroken, Refinor and Profertil for the year ended December
31, 2002.
F-56
Exhibit Index
Exhibit
No.
------- -------------------------------------------------------------
1.1 Bylaws (Estatutos) of YPF, S.A. as amended (Spanish Version)+
1.2 Bylaws (Estatutos) of YPF, S.A. as amended (English Version)+
8.1 List of significant subsidiaries.
- ---------------------------------------------------------------------------
+ Previously filed as an exhibit to YPF's 1999 annual report on Form 20-F
filed on June 2, 2000.