YPF Initiation The Many Angles of an Upside

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1 Equity Research YPF Initiation The Many Angles of an Upside FOTO CAPA Rating OUTPERFORM Target Price (12-mth, US$) Price (06-Jan-17) Andre Natal Regis Cardoso DISCLOSURE APPENDIX CONTAINS ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. U.S. Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Three Main Themes Tilted to the Upside We are initiating coverage of YPF with an OUTPERFORM rating and a 1-year-forward TP of USD We believe three key themes are indicative of the potential upside we see in YPF. Domestic Industry Normalization. Oil & Gas price controls have been a key issue for operators in Argentina for a while. We believe all government actions are now pointing towards the liberalization of energy prices. This is likely to promote a gradual convergence of gas prices to international levels, boosting YPF s long term value, while fuel price drops seem unlikely for now. Operational Improvements. We see an inspiring learning curve in the drilling process, followed by a sharp decrease in capex per well, with a significant improvement of returns in the unconventional resources. Opex may also have short term reductions, which we think are not priced in. Macro Tailwinds. Brent prices are on the way to recover, and the OPEC deal brings upside risk in 1H17. Henry Hub prices are also likely to rise. Both movements benefit YPF and may trigger a re-rating of the shares in the short-medium term. Seven Angles of an Upside. In our effort to value YPF, we resorted to seven different metrics as sanity checks. All of them pointed to significant upside potential (from 20%+ to 150%+). Our $27.00/sh TP is based on an EV/EBITDA methodology and implies a potential upside of c.37% relative to current prices adjusted by one cost of equity. A wide range of values can be justified, but we believe upside risks to current prices are now more likely than the events that could trigger significant downside. YPF is now trading at c.$17.00/adr, therefore: 1) 3.2x EV/EBITDA (used to be 4-5x; industry is at 7.7x); 2) DCF pricing only 10% of Vaca Muerta yields 20% upside. 3) 0.8x BV (used to be 1.5x; industry is at 1.3x) 4) $11.5 EV/boe reserves (industry is at $16.5); 5) $500 EV/acre (YPF s transac. at $700; Industry s, $5,800); 6) Past (block) Transactions of YPF shares averaged $36/sh; 7) HOLT indicates +150% potential upside.

2 Table of Contents How to Read This Report Chile Bolivia Paraguay A Quick Summary. If you have time for a quick look only, you might find our fivepage summary useful (an additional three pages enumerate risks to our call). If You Want More. We used a bottom-up approach to develop this report in two blocks. (I) Company specific: going from YPF s business model, to valuation and the unconventional plays. (II) YPF s context: addressing the local O&G sector, comparison to peers and an Argentina Uruguay macro overview. How Much Detail Do You Need? If you Argentina still want more, the Appendix contains complete set of YPF's financials, a summary of the main players in Argentina's upstream sector, a detailed summary of sector regulations, management bios, and a description of the HOLT methodology (CS proprietary valuation tool). Brazil Atlantic Ocean We would like to thank Ian Miller for his valuable contribution to the creation of this report 1. Investment Summary p YPF p Valuing YPF p Vaca Muerta and Argentina Unconventional Plays p The Argentine Oil & Gas Industry p YPF In The Industry Context p Argentina Overview p Appendix p.72 Source: Company data, Credit Suisse analysis. Note: all averages are weighted by company scale. 2

3 Equity Research Investment Summary DIVISÓRIA

4 Investment Summary YPF: Tilted to the Upside Initiating with OUTPERFORM and US$27/ADR TP Value Beyond Short-Term Headwinds. We are initiating coverage of YPF with an OUTPERFORM rating and a US$27/ADR target price. Our constructive stance toward YPF s investment case is based on the belief that the company s equity value is highly levered to variables for which we see the likelihood of improvement as greater than the likelihood of deterioration. Moreover, our assessment leads to the conclusion that these potential improvements are not priced in the shares at current levels (c.us$17/adr), even without attributing any value to the excess unconventional resource base the company holds. Three Main Themes, Potential Tilted to the Upside. In our view, YPF s investment case should be analyzed through the lenses of three different themes: i) normalization of the oil & gas industry in Argentina; ii) operational performance in improving capex efficiency and reducing costs; and iii) macro assumptions of international oil and LNG prices. Domestic Industry Normalization Let it Flow. After our recent visit to Argentina, we sense that prices will gradually converge to competitive levels. The prevailing goal of the government seems to be to establish an open and free energy market that functions with little or no government intervention and allows companies to compete. The current belief is that this will attract investments to boost supply and drive costs down. If that is the case, we believe YPF will benefit, as it is very well positioned in the Argentine energy space. Gas Prices Up. If the Gas Plan is renewed for a few more years, as many expect, the average gas price perceived by producers will gradually increase, as more of the total volumes will come from new production that comes at a higher price. If Gas Plan is terminated, we still think gas prices are bound to increase, even if gradually, as Argentina will remain short in the coming years and domestic supply will depend on gas prices aligned with LNG prices. Operational Improvements Learning Fast. As we ve seen in many other exploratory frontiers, operational results have quarter over quarter shown solid signs of improvement. When looking at resource still in its early stages of development, past data continually become outdated, due to progress in drilling technics and in the planning process. So far, the results are very inspiring and we expect new improvements to materialize. Infrastructure Is There. Recent investments in the development of unconventional resources have put in place the necessary infrastructure to support production growth. If the macro and price conditions are enough to justify a more accelerated capex cycle, the improved infrastructure will already be in place. Costs Coming Down? At this moment, negotiations are being held with Unions, with the potential to yield cost reduction in the early days of Macro Tailwinds Mr. Brent Willing to Help. We think oil prices are back on track to recover. The recent OPEC arrangement to limit supply should speed up the supply/demand rebalance, likely drawing down excess inventories in Our central forecast remains in the mid-50 s ($/b), but we see upside risk, especially in the 1H17. Above all this, we think oil prices are now closer to converging to a more sustainable level (which we now think is around $65/b). Assuming Argentine domestic prices will track international prices, YPF s equity value should benefit from this improved macro tailwind. As we ll show later, current market prices do not seem to have reflected this better macro environment. The company s market cap is small relative to the overall EV, so leverage to oil should be high. Mr. Henry (Hub) Also Helps. We also do not expect LNG prices to drop significantly from current levels. Actually, we see Henry Hub prices in 2017 trading in the $3-3.5/MMBtu range (30%+ upside from 2016 levels). Source: Credit Suisse Research, YPF 4

5 RD Shell Chevron ExxonMobil Total Petrobras Statoil Repsol YPF ConocoPhil lips BP Thousands DLEKG QGTS CSAN3 COPEC MOLB PGN QFLS SNSG Repsol (99) Petersen (08) Petersen (08) Petersen offer Petersen (11) Repsol (14) YPF Current Current Past Trans. $/acre P/B EV/Ebitda EV/boe Holt DCF -80% -31% 1% 7% 10% 41% 47% 61% 156% 09 January 2017 Investment Summary Many Angles Indicate Potential Upside Historical ADR Prices ($/ADR) 0 Jan-12 Apr-13 Jul-14 Sep-15 Dec-16 Past Transactions with YPF s Equity ($/sh) When You Don t Know. When we look at YPF s potential equity value, we feel the need to do it through many different angles, as sanity checks to our assessments. All these angles seemed to indicate potential upside relative to current share prices. We cannot rely on a single number to express the multitude of possible futures and corporate actions. The company s equity seems inexpensive when we compare the multiples to both their historical values and to industry levels. YPF also seems cheap in terms of both reserves and total acreage, compared to peers. Through the HOLT lenses, Credit Suisse's proprietary valuation tool, YPF also has upside. YPF Valuation Through Different Lenses ($/sh) NPV/ADR implied in our DCF HOLT O&G Upside/Downside Estimates ($/ADR) 23.0 CFO Perpetuity Capex Net Debt Equity value, 12mo fwd (%) Industry s Past Acreage Sales* YPF s Historical Price to Book YPF s Historical EV/EBITDA 24 ($/acre) 5.0x x x 8 Average 2.0x 1.5x 4 1.0x 0 YPF 0.0x -4 Nov-09 Jun-11 Nov-12 Apr-14 Sep-15 Feb-17 Aug-11 May-13 Feb-15 Nov Mkt Cap 20 EV/EBITDA 4x 10 3x EV/EBITDA 2x 0 Apr-11 Sep-12 Feb-14 Jul-15 Dec-16 Industry s EV/Reserves ($/boe) Source: Credit Suisse Research, YPF, Bloomberg, HOLT Lens TM * Bubble size represents the number of acres included in the deals. 5

6 Investment Summary Wide Spectrum of Possible Values, but Scenarios Are Tilted to the Upside Why Also Look to DCFs? Some don t like DCF models to analyze oil companies. DCFs look too far onto the future and depend on things we have very little clarity about. On the other hand, DCF models offer a very instructive way of looking at a company and its value, as they allow investors to understand the relative value of events, different combinations of variables, the impact of operational performance levels, price assumptions, and so on. Therefore, we think they can be extremely helpful in determining what the intrinsic equity value should be, depending on the many ways the future can unfold. It sometimes can be frustrating to see wide ranges of value, but this is part of investing. Certainty leads nowhere. As Richard Feynman used to say, I don t feel frightened by not knowing things. A Multitude of Possible Values. When we assess YPF s equity, we can reach a very wide range of possible values. This has also been the case for other equities in the energy space. Our base case assumes: fuel prices with no premium over international levels in the long run, gas prices converging to USD7.50/mmbtu, capex for a horizontal gas well at USD7.5mn, and lifting costs and SG&A coming down by 10%, on the back of wage negotiations and higher productivity. Scenarios Tilted to the Upside. After our visits to Argentina, we sense that a proper mindset is in place, leaning towards a free energy market that fosters competition and gradually eliminates price distortions. Operational performance has also improved fast, which is likely to continue. Although different results are possible, we would attribute higher probabilities to the upside scenarios. DCF s main assumptions 2016E 2017E 2018E 2019E ARS-USD, eop x Wide Range of Potential Equity Values (USD/sh) Inflation (avg) % 37% 24% 10% 8% Brent USD/bbl YPF oil price USD/bbl YPF gas price $/mmbtu Production kboepd Capex USDm 3,997 3,932 4,214 4,498 Net debt USDm 7,511 7,591 8,254 8,953 Ke % 15.30% 15.30% 15.40% 15.40% Levered Beta Country Risk % 4.50% 4.50% 4.50% 4.50% WACC % 10.20% 10.20% 10.20% 10.20% Key Variables for Scenario Construction Fuel Prices Bear Bear Bear Bear Base Base Base Base Bull Gas Prices Bear Bear Bear Base Base Base Base Bull Bull Capex Bear Bear Base Base Base Base Bull Bull Bull Opex Bear Base Base Base Base Bull Bull Bull Bull Source: Credit Suisse research, YPF 6

7 Horizontal well IRRs(%) 09 January 2017 Investment Summary Leverage to These Main Variables Is High Upside Asymmetry. We d like to call attention to one aspect of YPF s value: the current market cap is c.usd6.5bn, while EBITDA is c.usd4bn. Considering the size of the company (USD15bn in revenues), an additional EBITDA of, let s say, USD400mn (10% from current levels, or 2.7% of revenues) seems within reach, on the back of the liberalization of prices and efficiency gains. If it increases by 10%, the proportion between equity and EV should lead to a potential increase in share price of some 21%. If it also triggers a re-rating of the multiples, from current 3.2x EV/EBITDA to, say, 4x, then the total expansion in market cap would be approximately 65%. Of course, we re not saying it s easy to expand margins, but the levers seem very strong. We don t expect multiples to contract more. Industry s average multiple is now c. 7.7x and the only times when YPF traded closer to 2x were immediately after its nationalization and when Brent was below USD30/bbl. Theme #1 YPF Fuel Prices: Domestic Diesel Price (US$/bbl) 140 Actuals Expected Theme # 2 YPF Gas Prices: Effective Gas Price (US$/mmbtu) 9.0 Actuals Expected Bull $29/ADR Base case $23/ADR % premium $36/ADR 5.0 Bear -$3/ADR 80 Base case $23/ADR 3.0 Brent $50/bbl E 2018E 2020E LT Theme #3 YPF Capex: IRR of Horizontal Gas Well (%) 45% 30% 15% 0% $8.5m capex 80% IP rates -15% Argentina gas prices ($/mmbtu) Source: Credit Suisse research, YPF $6.5m capex 120% IP rates $7.5m capex $8.5m capex today -$6/ADR $32/ADR $23/ADR -$2/ADR E 2018E 2020E LT Theme #4 YPF Opex: SG&A + Lifting Cost ($/bbl) 25 $30/ADR Bear 20 Base case $23/ADR 15 SG&A Bull $6/ADR 10 Lifting costs E 2018E 2020E LT 7

8 Investment Summary Additional Value from Resource Base Not Accounted For in Our Valuation Giant Resource Base. YPF has shifted in recent years from a company with declining mature E&P assets to a holder of massive shale resources with world-class geological quality. This happened as the prominent shale play, Vaca Muerta, started to receive wider attention in 2011, after the EIA estimated Argentina holds the third-highest volume of shale gas resources globally. To Grow, or Not to Grow? Following the company s re-nationalization in 2012, YPF changed its strategy to focus on growth and since then has invested heavily in the appraisal of resources and in technologies to enable its economic development. Investments thus far have not yet translated into substantial growth in shale production, but have allowed YPF to quickly progress in the learning curve and set the ground for economical development of resources. More recently, the increasing leverage and the absence of a significant oil price rebound have made the case for lower capital expenditures that fit within cash generation. This translates into a more conservative development of unconventional resources and, consequently, only modest growth. We believe the development of unconventionals will be constrained by cash generation as well as technical challenges associated with reservoir heterogeneity; thus, we conservatively assume YPF will develop an area equivalent to less than 10% of its exploration acreage in Vaca Muerta in the next 20 years. Naturally, the remainder of the unconventional potential may represent substantial value for shareholders (not included in our base case). Potential Upside from the Monetization of the Resource Base. As we mentioned, our base case does not assume full development of the potentially giant resources the company holds. As we ll show later, over the years YPF has monetized some of its reserves through sale agreements in which another company carries YPF s capex and becomes a partner in the field. Typically, those deals yield a value per acre much higher than what the current EV/acre suggests. This means that, on top of our valuation, there could be significant potential upside if the company manages to monetize part of those assets. In our current valuation we re attributing zero value to the excess reserves. EIA s Assessment of Argentina s Unconventional Potential Conventional (3P + Resources) and Unconventional Resources Top Countries with Technically Recoverable Shale Oil Resources (bn bbls) Top Countries With Technically Recoverable Shale Gas Resources (Tcf) 1,161 1,115 Oil (bn bbl) 27 Gas (Tcf) 802 * ** ** * Conventional 29 Unconventional Source: Woodmackenzie, EIA/ARI "Technically recoverable shale oil and shale gas resources: An assessment of 137 shale formations in 41 countries outside the United States", June Note: * U.S estimates based on the EIA. **U.S. estimates based on ARI 8

9 81% 50% 45% 09 January 2017 Investment Summary But We Also See Risks in our Main Themes: Industry Normalization Price of Domestic Crude Price of Diesel / Gasoline Price of Gas Brent vs Argentina domestic crude ($/bbl) Brent Argentine crude 0 Jan-01 Aug-03 Mar-06 Oct-08 May-11 Dec-13 Jul-16 Description / Base Case Argentine crude oil prices have historically been controlled. Prices are currently above international levels. Our numbers already assume crude prices will decrease to converge to international levels before the end of Diesel prices ($/bbl): Argentina vs international 80 Description / Base Case Diesel GoM US$/bbl 60 Diesel domestic prices ($/bbl) 40 Q1 10 Q1 12 Q1 14 Q1 16 Domestic prices for gasoline and diesel are not directly controlled, but YPF has a big influence over prices, as it has a c. 56% share in crude processing. Prices are currently significantly above import parity. We assume prices will converge to import parity by Residential and commercial weighted average price ($/mmbtu) Subsidy Mar-16 Oct-16 Apr-17 Oct-17 Apr-18 Oct-19 Apr-19 oct-19 Description / Base Case LNG import price for 2017 Gas prices in Argentina are controlled and differentiated by type of demand. However, there is an incentive program in place (the Gas Plan) that allows gas producers to receive $7.5/mmbtu on marginal production. Our base case assumes gas prices will converge to import parity by Upside Risks YPF is an integrated oil company. Ceteris paribus, lower crude prices in Argentina have a positive short-term impact through (i) lower royalties and (ii) lower costs in acquiring crude oil from third parties. If crude prices converge to import parity faster than oil products, this would be beneficial to YPF. In the LT, higher oil prices are better than lower. Downside Risks Lower crude oil prices in Argentina will transfer value from upstream to downstream operations. Lower returns in upstream may prevent YPF from exploiting its shale oil plays in Vaca Muerta if it does not manage to improve well economics. Moreover, lower crude prices in Argentina might pressure fuel prices downwards. Upside Risks As we ll show later, although domestic fuel prices are at a premium over import parity, downstream margins are narrow, as inflationary pressures on costs leave low net margins. Because of this, we think there is upside risk that in the short term prices will be adjusted up, rather than down (as the mere comparison to IPP would suggest). Downside Risks In the event oil prices don't increase as we expect, we think of the risk of an open market ending up forcing the convergence of domestic prices to import parity, through downward adjustments. This would undermine cash from operations and could substantially impact equity value. Another risk to our call would be if, in the long term, YPF lacks the capability to track IPP, pricing fuels at a discount. Upside Risks A faster normalization of prices in Argentina for natural gas towards import parity would represent upside to our forecasts, as effective prices for producers, including YPF, would increase substantially. Additionally, this could increase interest from potential partners and accelerate the development of unconventional resources. Downside Risks The Gas Plan expires at year-end If the incentive program is not renewed, or a new price scheme is defined, effective gas prices for producers could fall. This would hurt cash generation and, consequently, equity value. Moreover, unconventional gas plays would be uncommercial, eliminating value creation from growth. Source: Credit Suisse Research, YPF, Bloomberg, Ministry of Mines and Energy of Argentina 9

10 IRRs of a horizontal VM Oil Well (%) - Reservoir quality (RQ) + 09 January 2017 Investment Summary But We Also See Risks in Our Main Themes: Operational Improvements Capex Efficiency Opex Cuts and Inflation Unconventional Resources Horizontal well IRRs for $50-60/bbl oil price range on various capex levels 60% 40% Current YPF Oil well Capex $50/bbl $60/bbl Argentina annual inflation variation (%) 60% 40% IPC Congresso IPC Congresso YPF s sweet spots in Loma Campana 8.0 Room for improvement Sweet spot 20% 0% Well capex (USDm) Description / Base Case YPF has concession rights to high-quality unconventional plays (both shale and tight / oil and gas) in Neuquen. Improving capex efficiency by reducing well construction costs, while increasing productivity, is key to future value creation. Our base case assumes that the learning curve will keep its pace and that both oil and gas wells will reach a USD7.5mn capex level. Recent data points to c. USD8mn per oil well (having declined from USD16.2mn in 2013). Upside Risks In light of the recent transition from vertical to horizontal wells, YPF may be able to improve capex efficiency by more than we have assumed in our model, and this can represent a powerful lever to value in light of the potential value creation in developing its sizeable unconventional reserves. Further depreciation of the peso could also help reduce costs in USD terms and improve well economics. (A USD6.5mn/well capex would boost tight gas IRRs to c. 30%.) Downside Risks If YPF cannot continue to reduce well costs, the potentially high return rates of the unconventional reserves YPF holds will be at risk in a low oil price environment. The recent recovery in oil prices partially mitigates this risk, but our perceived upside could be materially affected if capex stops trending down. A combination of low prices with high capex could eliminate benefits from exploiting shale formations to grow production. Source: Credit Suisse Research, YPF, La Nacion 20% INDEC 0% Jan-02 Dec-04 Nov-07 Oct-10 Sep-13 Aug-16 Description / Base case In order to adapt to a lower oil price environment and improve the economics of unconventional plays, YPF needs to reduce operating costs. That is no easy task when inflation is running at c. 40% p.a. But, even so, both lifting costs and SG&A have been trending down in USD terms since 2014 (c. -8% p.a.). Our base case assumes one additional reduction of c. 10% in USD terms in those accounts. Upside Risks New management is focusing on rationalizing costs and adapting to a lower oil price environment. We have seen in other geographies how O&G has been able to deflate costs. If YPF can repeat success in cost management from overseas and make more aggressive cuts to costs than our base case, then there can be substantial upside relative to our forecasts. Downside Risks Unions are strong in Argentina, and inflation persists at high levels. In a scenario in which costs stop trending down and the peso doesn't depreciate to offset inflation in costs linked to the local currency, our expectation for EBITDA growth in the years to come could be hurt. If the company shrinks in the low single digits, then most of the upside in our base case would be consumed. However, we think other levers could still partially recover that upside. Very poor well (abandon area) - Description / Base case Most of YPF's growth potential relies on exploiting its unconventional resources, especially in the Vaca Muerta shale formation and other tight gas plays in Neuquén. Results have been promising in sweet spots of Vaca Muerta, but investors should watch for heterogeneity in the shale play, which can increase well costs and reduce productivity. We assume YPF will have enough resources with similar quality as the sweet spots to carry out the production development embedded in our model (c.10% of total acreage). Upside Risks YPF may be able to divest stakes of its acreage with unconventional potential in order to accelerate development of these areas and unlock value for shareholders. This may also be an option to book reserves faster and unlock shareholder value. Capex carries have been an important way to monetize assets that would otherwise have to wait for longer. It has also been a way to share risks in the marginal capital deployed. Downside Risks Poor well (marginal area) Completion quality (CQ) + Heterogeneity is a key risk. If YPF is not able to find areas with the same play quality as the sweet spots in Loma Campana, the overall economics of shale development may be worse than we assumed in our model. That would negatively impact our value assessment. This risk could translate into higher capex, lower productivity per well, or higher opex per boe, undermining the potential upside. 10

11 Investment Summary But We Also See Risks in Our Main Themes: Macro Variables Oil Prices LNG Prices Risk Premium Brent prices and forecast ($/bbl) Current Actuals Description / Base Case CS Forecast 20 Q Q Q Q2-2017f 2018f In the second half of 2014, international oil prices collapsed from historical highs of over $100/bbl. After testing lows below $30, oil has recovered to c.$55/bbl today. In our base case we assume oil prices will rebound back to $65/bbl by 2018 and remain at those levels in the long run. Our latest assessment has shown the $50s are too cold to allow supply to keep up with demand, but the $70s would be too hot. Our complete view on prices can be found here. Domestic gas price to producers vs Argentina imported LNG ($/mmbtu) Fuel Oil Argentina gas Description / Base Case Gas Bolivia Diesel GOM Imported LNG Argentina is now short natural gas. The country mainly imports natural gas from Bolivia (limited capacity) and LNG cargos from international markets. Imported LNG cargo prices have fallen significantly to c. $6.8/mmbtu (delivered + re-gasified) contracted for 2017 from over $10/mmbtu in recent years. Our base case assumes long-term LNG prices (delivered in Argentina and regasified) at $7.5/mmbtu. LatAm sovereign CDS spreads (bps) 1,800 1, /2010 4/2011 7/ /2013 1/2015 4/2016 Description / Base Case Argentina* Mexico Brasil Chile Colômbia Peru The 2015 elections in Argentina promoted a change in government and a subsequent shift in economic policy and in the energy sector. These changes, as well as the settlement with sovereign bond holdouts, have led to a reduction in risk premiums in Argentina. Our base case assumes a country risk premium of 4.5% in USD. Upside Risks We think oil prices are back on track to recover. The recent OPEC arrangement to limit supply should speed up the supply/demand rebalancing and will likely reduce excess inventories in Our central forecast remains in the mid-50s ($/b), but we see upside risk, especially in the 1H17. Leverage on higher oil prices in the long term is very high. If prices surprise on the upside and reach $65/b now and $70 later, our DCF would indicate c.usd30/sh. Upside Risks We see Henry Hub prices in 2017 trading in the $3-3.5/MMBtu range (30%+ upside from 2016). If Mr. Henry (hub) decides to help and LNG (delivered) prices follow, this would create room for additional gas price adjustments, as the country would still be short gas and hopefully gradually converging prices to international levels. A $1/mmbtu increase in long-term gas prices leads our DCF to indicate equity value above USD30/sh. Upside Risks Discount rates are always very important, especially in valuing long duration assets. If Argentina manages to resume significant growth while keeping inflation under control, and the current risk premiums keep trending down, our valuation would be materially impacted. If, for example, the country risk premium would decline to 3% in USD, then equity value could be boosted by USD5/sh. Downside Risks Downside Risks Downside Risks If, on the other hand, oil prices fall short of our expectations, our view of equity value would be considerably affected. The high leverage to oil prices functions in both directions. If downside risks materialize, on the back of higher US shale production or due to a failure of OPEC to implement the cuts, then market reaction in the equity side can be very strong. As an example, if Brent goes to $45 and keeps this level, the EV would not cover the Net Debt size. Source: Credit Suisse Research, YPF, Bloomberg, Ministry of Mines and Energy of Argentina CS views an LNG excess in the market that could last until So, there is downside risk to the $7.5/mmbtu price delivered in Argentina, in the case this excess makes players unable to recover full liquefaction costs. If imported LNG becomes a cheaper option (bear case $4.5/mmbtu), it could be harder for YPF to increase domestic prices in the medium term, or the convergence to international levels could not be enough to make the unconventional gas reserves attractive, halting future growth-based value creation. If economic or political instability arises and country risk goes in the opposite direction, then value could also be materially impacted. If it reached anywhere above 5.5%, then most of the potential upside would have been removed. 11

12 Theme #2: Gas prices Theme #4: Cost reduction Theme #1: Downstream prices Theme #3: Capex Efficiency IRRs of VM horizontal well (%) 09 January 2017 Investment Summary Before We Dive In, a Quick Summary of YPF s Investment Case It All Comes Down to Revenues and Costs. This in-depth report explores the YPF case in detail. As we will see, that can get very complicated, as history has been full of government actions that altered the landscape for the sector. Nevertheless, we propose a rather shorter narrative of what we believe are the key issues in the investment case. It s a very simple approach, based on the idea that it all comes down to revenues and costs. An Integrated Oil Company. YPF is an integrated oil company, thus we should focus our analyses on revenues from third parties (mainly sale of oil products and natural gas) and costs incurred in developing hydrocarbon fields, producing oil and refining it into products, as well as the corporate overhead. Revenues YPF is almost fully integrated between upstream and downstream. Therefore, prices for the refined oil products are what ultimately matter for the company s profitability in the liquids value chain. Costs Loma Campana horizontal well costs came down from $16m/well to $9.5m/well. Reducing well costs is key to improve the economics of new wells. Basic Structure of YPF s Upstream-Downstream integration Oil business The natural gas produced by YPF is sold to meet different demands, each priced differently. However, the Argentine government has created an incentive program (Gas Plan) that defines natural gas price to producers. Natural gas business 248 kbd Crude oil production kbd crude from domestic market 320 kbd refining capacity 23 kbd diesel imports 315 kbd oil products sold Natural Gas 44MM 3 /day Upstream production at average $4.78/mmbtu ($ /mmbtu price formula) Natural gas imported by ENARSA Source: Credit Suisse Research, YPF, La Nacion % 24% 52% Export markets ($46/ bbl) Domestic Jet, Fuel Oil, LPG, others ($60/ bbl) Domestic diesel ($100/ bbl) Domestic gasoline ($102/ bbl) Power plants ($5.2/mmbtu) Industrial ($5.0/mmbtu) Residential ($2.0/mmbtu) + Compressed natural gas ($3.5/mmbtu) Free market prices Controlled domestic prices Loma Campana Horizontal Well Costs ($ mn) YPF needs to cut costs. The costs of horizontal wells are being reduced and standardized. Revenues and Costs Breakdown 2016E (US$ bn) Lifting Costs SG&A Raw materials and other costs 14.1 Revenues H Well costs Q Frac stages Cash costs Horizontal Well IRRs for $47/bbl Oil Prices on Various Capex Levels That is no easy task with inflation running at c.40% p.y. Argentina s Inflation Indexes 50% 40% 30% 20% 40% 30% 20% 10% 0% Well capex (USDm) IPC Congresso YPF needs to cut costs to push IRRs to high-teens 10% INDEC 0% Jan-02 Sep-05 May-09 Jan-13 Sep-16 12

13 January 2017 LatAm Oil & Gas Equity Research YPF

14 YPF share price ($/ADR) 09 January 2017 YPF Overview Share Price in One Slide The past five years have been extremely busy for YPF. With the Repsol expropriation by the Argentine government the company changed its management, focus, and operation model. The regulation of oil and gas in Argentina has undergone several changes and a new Hydrocarbon Law was enacted. In addition to this, oil prices have gone from $100/bbl to $40/bbl, and in late 2015, with the new government taking office, the company management was changed again, resulting in new strategies Production 487kboed 488kboed 481kboed 478kboed 497kboed 517kboed 530kboed 573kboed 583kboed 569kboed 572kboed 582kboed 582kboed Ryder Scott shale report: 14bn boe net to YPF in half of its acreage. Price controls of bulk diesel to bus companies Chubut and Santa Cruz expropriation. Jet fuel price controls Repsol expropriation by the Argentine Govt Chubut and Santa Cruz return concessions to YPF Agreement for $ /mcf nat gas price formula. Preliminary CVX agreement for 50% of 290km2. Bridas preliminary 60-day agreement for 50% of 663km2 (didn t go through) MOU with Dow for 50% in 41km2 Fire at La Plata refinery, costing YPF 40kbd of capacity Final agreement with CVX: $1.2bn pilot for 100+ wells. Full project 395km2 Neuquen extends concessions for 22 years Decree 929/927: $1bn+ project benefits + zero import on rigs MOU with Petronas for 187km2 Repsol compensation agreement: $5bn in bonds Fire at Cerro Divisadero (4% of production) Repsol share sale a catalyst July 31st: Argentina defaults Oil price drops from $100/bbl+ to $45/bbl Resolution 1077 players agree to lower domestic prices by $7/bbl due to lower Intl levels 574kboed Resolution 74/2016 stipulates that incremental gas prices of US$7.50/mmbtu for gas from tight and shale or new discoveries will be in effect through 2018 Macri elected as Argentine President Relevant changes in YPF's Board of Directors, Audit Committee, and management team, including CEO position Suspension Petroleum and Refino Plus New CEO Galuccio presents 2017 strategic plan New export price formula Santa Cruz renews concessions for 25 years (17% of YPF s reserves) Spin-off PlusPetrol (electric power) Strong peso depreciation from 6.5/USD to 8/USD Acquisition of PZE s Puesto Hernandez Acquisition of Apache (YSUR): $583m for 135mmboe of reserves Extension of Chubut concessions for 30 years Spain, Mexico and Argentina agreement to compensate Repsol Agreement with Pampa: $151m for 32 wells New Hydrocarbon Law: (1) Standardization of fiscal terms, (2) Export permission, (3) Centralized approach Exploitation concession of Magallanes area held by YPF extended for a ten years term, as of November 17. Export stimulus program of US$10/bbl for crude oil Escalante for San Jorge Gulf Basin 0 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 Jun-16 Oct-16 Source: Credit Suisse Research, Bloomberg 14

15 YPF Overview Core Business Model in One Slide YPF is a balanced Argentine oil and gas company, with upstream and downstream operations almost fully integrated. Production and reserves are well distributed between oil and gas, with a significant potential for unconventional resources. The vast majority of upstream operations occurs onshore, and the current production is composed of c.90% of conventional resources and c.10% of unconventional, with outputs levels close to 570kbd that makes YPF the largest player in the Argentine upstream. The company wholly owns and operates three refineries in Argentina and is the largest player in the downstream business as well, which is characterized by high crack spreads due to the structure of the Argentine oil market and controlled domestic prices for diesel and gasoline, which represents c.70% of downstream sales. YPF is also active in the gas distribution and gas separation sectors directly and through affiliated companies. This segment is highly regulated by the government, and changes in the legislation are recurrent. Currently, residential users have priority in the gas supply and the government regulates prices for these clients. E&P Downstream Key product output and current prices Oil business + Oil revenues $61/ bbl -12% Royalties -3% sales tax -$12.2/ bbl lifting costs -$2/ bbl transport = $39/ bbl EBITDA (oil-only) = $17/ bbl EBITDA (oil + gas) 248 kbd Crude oil production kbd crude from domestic market 320 kbd refining capacity 23 kbd diesel imports 315 kbd oil products sold Export markets ($46/ bbl) Domestic Jet, Fuel Oil, LPG, others ($60/ bbl) Domestic diesel ($100/ bbl) Domestic gasoline ($102/ bbl) Free market prices Controlled domestic prices Natural gas end markets and prices 24% Power plants ($5.2/mmbtu) Natural gas business Natural Gas 285 kboed Upstream production Natural Gas imported by ENARSA 24% 52% Industrial ($5.0/mmbtu) Residential ($2.0/mmbtu) + Compressed Natural Gas ($3.5/mmbtu) Government reimburses the difference between end market prices and YPF average $4.78/mmbtu Source: Credit Suisse Research, YPF 15

16 Thousands 09 January 2017 YPF Overview Cash Flows and Leverage Downstream Margins Under Risk. Even in an environment of domestic prices above international levels, YPF's downstream business EBITDA has been negatively affected in recent years. The high levels of inflation resulted in an increase in the segment's opex, and since these increases have not been fully passed on, company's downstream net margins have narrowed. For this reason, we do not expect a decrease in domestic prices in the short term. A price increase is an upside risk. Leveraging Up. From 2013 to 2015, YPF has increased its capex levels in order to boost production and meet demand. During this period, YPF ran into negative free cash flow, increasing its net debt and compressing multiples. Now, capex has come back to cash generation levels. Looking for Efficiency. New management is focusing on reducing capex and costs levels and maintaining a gradual increase in production. We assume that YPF will deploy close to USD4bn/year in investments in the coming years, keeping at least a neutral free cash flow. Source: Credit Suisse Research, YPF, Bloomberg YPF's EBITDA Composition by Segment (USDbn) Downstream Upstream YPF's Market Cap vs. Net Debt 100% 80% 60% 40% 20% 0% Q Q Historical Market Cap Q Q Q Net Debt Q E Q YPF's Cash flow Profile (USDbn) (2) (4) (6) (8) Capex CFO FCF E 2018E YPF's EV/EBITDA Multiple vs. Net Debt 9bn 8bn 7bn 6bn 5bn 4bn 3bn 2bn 1bn 0bn Q EV/EBITDA (RHS) Q Q Q Q Net Debt (LHS) Q Q x 6.0x 5.0x 4.0x 3.0x 2.0x 1.0x 0.0x 16

17 YPF Overview Reserves and Production Good Balance, Good Replacement Before nationalization and under Repsol-Petersen administration, YPF s production levels remained stable, due to company s low capex and low growth strategy. After nationalization, YPF has increased capital deployment and, consequently, production, in order to meet domestic demand and reduce country's imports. The company s current production is well balanced between oil and gas. YPF holds the largest proved reserves in Argentina. Although most of the company s fields are at an advanced stage of development, YPF has presented reserves replacement ratios above 100%. The increase in unconventional production has been the highlight in recent years. The company performs joint exploitations of its unconventional resources with other upstream players in Argentina, mainly in Vaca Muerta formation, and has presented a significant decrease in well costs in a short time. Production split: 574 kboed Conventional oil + NGL Shale gas + tight gas Proved reserves: 1.2 bn boe Shale oil + NGL Natural gas NGL Reserves replacement ratio Reserves replacement Ratio 153% 163% Conventional Gas 608 Oil 112% 107% 85% YPF production split (kboed) Unconventional Production Net - YPF (kboed) Reserves by field development Crude oil production Gas production NGL production Shale oil Shale and tight gas Shale NGL New Field 6% 94% Q Q2 16 Mature Field Source: Credit Suisse Research, YPF 17

18 Chem icals Division Natural Gas Distribution 09 January 2017 YPF Overview YPF Other Businesses Besides the Exploration & Production and Refining divisions, YPF has a complex business organization that involves a wide range of market segments. Through its downstream activities, the company has built an extensive sales and distribution system. Below we show a brief overview of the company s others divisions. Logistics Division Consists of crude oil and products transportation and storage. YPF has interests in five crude oil pipelines, accounting for a 640kboed total capacity of refined products and nearly 2,700 kilometers of extension. In addition, YPF has terminals at five Argentine ports and approximately 7 mmbbl of crude oil storage capacity. Trading Division is responsible for selling refined products and crude oil to international customers and oil companies. The main exports destinations are South America, Africa, and North America, and the division had total sales of Ps. 3,099 million in 2015, with a breakdown of Ps. 2,387 million to international customers and Ps. 716 million to domestic market. LPG Division is responsible for the selling of LPG to the foreign market, domestic wholesale market and domestic retail market s suppliers. In 2015 production reached 559 mtn, and LPG sales accounted for Ps1,415mn (excluding petrochemical feedstock), putting YPF as the largest LPG producer in Argentina. LPG Division Produces diversified petrochemicals products at Enseada and Plaza Huincul facilities, holding a capacity of 1,513 thousand tons per year. La Plata refinery is closely integrated to the Enseada facility, thus, raw materials necessary for petrochemical production are supplied by the refinery, that receives products like hydrogen and aromatics from the petrochemical facility. The domestic market represented 72% of petrochemical sales in 2015, and the remaining products have Latin America, United States, and Europe as main export destinations. YPF Inversora Energética, a YPF subsidiary, has a 100% stake in Gas Argentino S.A., which holds 70% of Metrogas, one of the main gas distributors in Argentina. In 2015, Metrogas provided approximately 688 mmcf to 2.3 million customers. YPF has a 100% interest in Central Térmica Tucumán and Central Térmica San Miguel de Tucumán, and 40% interest in Central Dock Sud. The aggregate installed capacity of these plants is 1,622 MW. In 2015, the two power plants owned by YPF generated 5,276 GWh, and combined with the 3,799 GWh generated by Central Dock Sud it represented 6.6% of Argentina's electricity generation in the year. Trading Division Power Generation: Retail Division has a sales network of 1,538 service stations in Argentina, of which 112 are owned by YPF and 1,426 are associated service stations. YPF has a market share in diesel and gasoline, marketed in all segments, of approximately 58%. It also has a 35% share of the gasoline service stations. YPF s convenience stores YPF Full and YPF Full Express and the oil change service shop YPF Boxes are present in 391, 100, and 251 points of sale. Retail Division Agriculture Division Provides agrochemicals, diesel, fertilizers, and other products directly to agricultural producers or through a network of 105 wholesale bases, of which nine are owned by YPF. Customers have the option to pay with grains, mainly soybean, which is generally processed by other companies aiming to obtain oil, subsequently exported by YPF. In 2015, these oil exports resulted in US$ 398 million of revenues. Supplies the sectors of oil & gas, aviation, transport, infrastructure, mining, and construction with a diversified portfolio of products, such as fuels, coal, asphalt, and paraffin. Refineries provide customers directly or through a ground and waterway network and distributors. Industry Division Lubricants Division has amounted mcm of lubricants and complementary products sales in the domestic market and 17.2 mcm exported in The main export destinations are Brazil and Chile, where YPF has local lubricants production. Lubricants Division Source: Credit Suisse Research, YPF 18

19 YPF Overview Main Joint Ventures YPF performs joint exploitations of its unconventional resources with other upstream players in Argentina. The company believes this strategy causes the industry to become more dynamic in the long term by increasing the number of participants in the market, and is necessary due to the high complexity and investment intensity present in the different play types. In December 15, YPF participated in 30 exploration and 32 production JVs, 24 of which were not operated by the company. Below we present the four main JVs. Loma Campana Vaca Muerta Shale Oil with Chevron YPF currently participates in four main joint venture agreements to develop shale oil and gas and tight gas in Argentina. The major one is for the joint exploitation of unconventional hydrocarbons in Loma Campana, located in the province of Neuquén, signed in 2013 with Chevron. The first step consisted in a disbursement of US$ 1,240 million by Chevron in the Pilot Project, aiming to develop approximately 20 km² of the 395 km² total area, resulting in the drilling of over a hundred wells. The second phase of the project started in 2014, in which both companies shared investments equally. In 2015, 122 vertical wells and 30 horizontal wells were put in production. The program estimates a total investment of US$ 15 billion and about 1,500 well drilled. Limits Thrint & Fold Belt Shale Oil V.M. Shale Gas V.M. Formations Agrio Lajas Molles Shale Vaca Muerta Oil Wet gas Gas Blocks YPF Operator YPF Participation El Orejano Vaca Muerta Shale Gas with Dow Another joint venture agreement, this one signed with Dow, predicts the development of shale gas in El Orejano area, in Neuquen. The agreement initially contemplated an outlay of up to US$ 188 million, of which Dow would provide up to US$ 120 million through a convertible financing in their participation in the project. In 2015, the first phase of the project was ended, reaching 16 wells hooked up and a production of 668 mcm/d of gas. In the same year, the parties signed an amendment to the agreement, increasing the disbursement of Dow by US$ 60 million and setting up a new phase with a target of 18 wells to be drilled. At the end of the year, all the steps of the agreement were finished and then PBB Polisur S.A., a Dow subsidiary, became YPF's partner in the area on a 50/50 basis Rincón del Mangrullo Mulichinco Tight Gas with Petrolera Pampa In an agreement signed with Petrolera Pampa, YPF has conceded 50% of the interest in the production of hydrocarbons in Mulichinco, in the area of Rincón del Mandrullo, Neuquen, in exchange of US$ million to be invested by Pampa. In 2015, an amendment was signed, in which it was established a 50% interest for each company in the production, costs, and investments for the development of the area. Source: Credit Suisse Research, YPF La Amarga Chica Vaca Muerta Shale Oil with Petronas YPF has also a joint venture agreement with Petronas to develop shale oil in a region named La Amarga Chica, in Neuquen as well, aiming to drill approximately 35 wells, both vertical and horizontal. The project has a total investment of US$ 550 million and has been divided into three steps. YPF is the operator of the area and will contribute with US$ 75 million. Petronas will provide the remaining US$ 475 million and will receive 50% of the La Amarga Chica concession from YPF. 19

20 January 2017 LatAm Oil & Gas Equity Research Valuing YPF

21 ConocoPhillips Chevron ExxonMobil GALP Total BP Repsol Royal Dutch Shell (A) Petrobras Statoil YPF 15.0x 12.8x 10.5x 8.1x 7.7x 6.8x 5.7x 5.4x 5.2x 4.3x 3.2x 09 January 2017 Valuation Angle #1 EV/EBITDA Multiples Indicate Upside Risk Comparison by Multiples. Although multiples do not allow us to know accurately what kind of operational outlook is embedded in them, we have analyzed YPF using EV/EBITDA, P/B, and EV/proved reserves as checking points, comparing the results to our DCF. Lower than History, Lower than Industry. YPF has traded from c. 2x to c. 5x in recent years. It is now trading at 3x. This level has pretty much been a floor for this metric over the years. The only instance in which this multiple fell to 2x was immediately after nationalization. For long periods, the multiples traded closer to 4-5x. Therefore, considering all the positive changes taking place in the sector, we see higher chances that multiples expand than the opposite. YPF s EV/EBITDA ratio is almost half of the sector s average of 7.7x, and is the lowest of our sample. A Re-Rating Would Make Sense. If YPF returns to its previous level on the back of macro and operational improvements, and taking into account 2017 EBITDA of USDm 4,177 and 2016 year-end Net Debt of USDm 7,510, the one-year forward equity value would be USD27/ADR, implying c.60% upside potential. YPF s Market Cap vs. EV/EBITDA Bands YPF s EV/EBITDA Multiple Relative to Consensus 5.5x 5.0x 4.5x 4.0x 3.5x 3.0x 2.5x 2.0x 1.5x Apr-11 Sep-12 Feb-14 Jul-15 Dec-16 Industry s EV/EBITDA Multiple 3.1x CSe 3.2x 20 Mkt Cap EV/EBITDA 4x 7.7x x 5 EV/EBITDA 2x 0 Apr-11 Sep-12 Feb-14 Jul-15 Dec-16 Source: Credit Suisse Research, YPF, Bloomberg 21

22 Valuation Angle #2 Discounted Cash Flow Led Us to a USD23/Share Base Case Convergence to International Prices. Our DCF based approach would yield a USD23.00/share, and assumes Argentina inflation will converge to c.5% in 2020 and oil prices will maintain their path to recovery, reaching c.usd65/bbl in the same year. Our base case also acknowledges that Argentina is on the way to an open energy market, with YPF s realized oil and gas prices closer to international parity levels in the coming years. There has been recent evidence of the consolidation of this trend, with crude prices gradually converging to international benchmarks and with the government introducing measures to promote the removal of subsidies in the gas market. Neutral Free Cash Flow. Capex efficiency has improved strongly, and we believe there is still more to come in the efficiency side, both in terms of capex and opex. Most recent data points to USD8mn/well (horizontal/oil). Cash from operations will likely increase gradually, and capex levels are expected to remain compatible with it, reverting the cash generation to positive terrain. We remind investors that we re not attributing any value to most of the acreage YPF holds with unconventional potential. DCF's Main Assumptions 2016E 2017E 2018E 2019E 2020E ARS-USD, eop x Inflation % 37% 24% 10% 8% 5% Brent USD/bbl YPF realized oil price USD/bbl NGL price USD/bbl YPF realized gas price $/mmbtu Production kboepd EBITDA USDm 4,137 4,177 5,411 5,717 5,895 Capex USDm 3,997 3,932 4,214 4,498 4,669 Earnings USDm -1, Net debt USDm 7,511 7,591 8,254 8,953 9,715 Ke % 15.3% 15.3% 15.4% 15.4% 15.5% WACC % 10.2% 10.2% 10.2% 10.2% 10.2% Discounted FCFF per Share Buildup (USD/ADR) 49.1 YPF's Funding Gap Breakdown (USDbn) 2016E 2017E 2018E 2019E 2020E 4.2 (4.0) (3.9) (4.6) (4.0) (0.6) (0.8) (0.9) (1.5) (4.2) (0.5) (4.5) (1.2) (0.3) (1.0) (0.9) (1.2) (4.7) (1.0) (1.1) (0.7) CFO Capex Repayment of principal Net interest Dividends Funding gap CFO Perpetuity Capex Net Debt Equity value, 12mo fwd Source: Credit Suisse Research, YPF, Bloomberg 22

23 GALP ExxonMobil Chevron Statoil BP Total Royal Dutch Shell (A) YPF ConocoPhillips Petrobras Repsol 1.5x 1.5x 1.3x 1.2x 1.2x 0.8x 0.8x 0.8x 0.6x 2.3x 2.2x 09 January 2017 Valuation Angle #3 Price-to-Book Multiples Also Look Depressed P/B Multiple. From a book value perspective, valuation is currently c. 0.8x, lower than the average in recent years. The ratio experienced a significant drop in 2012 due to nationalization, followed by a recovery and another drop in 2015 in a scenario of lower oil prices. Inflation Must Be Considered. In a scenario of high inflation, the analysis through P/B requires a little more attention. If the company is not able to keep up with inflation, either due to a drop in global commodity prices or difficulties in adjusting domestic prices, its market cap will not keep up with the book value increase, resulting in a squeeze in P/B ratio. In an opposite situation, with an increase in oil prices and a proportional domestic adjustment, for example, the multiple will be expanded. We should also highlight that the industry trades around 1.3x on average. If YPF s P/B increases from the current 0.8x to the average of recent years of 1.5x, it would represent an increase in shares prices of c. USD11/ADR, leading to a target price of USD28/ADR. YPF s P/B Multiple Relative to Consensus 5.0x 4.5x 4.0x 3.5x 3.0x 2.5x 2.0x 1.5x 1.0x 0.5x 0.0x Nov-09 Jul-11 Mar-13 Nov-14 Jul x YPF Market Cap vs. Book Value Bands 40 Industry's Price to Book Multiple BV 4x BV 3x 1.3x BV 2x BV 1x 5 Mkt Cap 0 Nov-09 Jul-11 Mar-13 Nov-14 Jul-16 Source: Credit Suisse Research, YPF, Bloomberg 23

24 Valuation Angle #4 From a USD/Acre Perspective, We Also See Room for Value Addition Additional Value. Argentina holds the 3 rd largest shale gas resources globally and the 4 th largest shale oil resources, according to EIA s estimates. As it will be shown in the next slides, YPF holds a giant resource base in the country, and we do not assume a full development of this area in our base case, which could represent additional value if the company monetizes these assets in future deals. The Largest Acreage Holder in the Country. Woodmac estimates that YPF has a total net acreage of c.126,200 km², more than double that of Unitec Energy, the second largest net acreage holder in the country with c.58,400 km². In recent years, YPF has invested heavily in the appraisal of resources and in technologies to enable its economical development, and despite the quick progress in its learning curve, the company has not translated the investments into substantial production growth from shale yet. How Much Could It Represent? In our base-case valuation, we attribute zero value to the excess reserves. However, in past years the company was able to monetize some of its reserves through sale agreements. We present some of these key deals in a bubble chart, in which the largest agreement from YPF reached a value of USD707/acre in a sale of 307,000 acres. The average of many transactions was c.usd5,600/acre. YPF is currently trading at around USD17/ADR, which means c.usd14.3bn of Enterprise Value (considering its USD7.7bn Net Debt). It comes to a multiple of c.usd456/acre if we take into account only the company s net acreage and attribute zero value to all other assets. If we consider that YPF is able to sell all of its net acreage for the same price of its largest previous deal, which would still be well below the market average, the company would reach an EV of c.usd22bn, or c.usd36/sh. This assessment should obviously be taken more as a sanity check, but it does contain useful information taking into account that this potential value is not included in the base-case scenario. Key Deals in Argentina by Avg Price (USD/Acres, Y Axis), Period (X Axis) and Net Acres (Bubble Size) Jun-11 Feb-12 Nov-12 Jul-13 Apr-14 Jan-15 Sep-15 Jun-16 Feb-17 Argentine Net Acreage (km²) 19,841 22,956 24,261 27,078 29,690 36,253 41,298 58,417 YPF as seller Other companies deals YPF`s current EV/net acres* Average 126,220 Source: YPF, Credit Suisse Research, Wood Mackenzie. *Bubble size does not represent YPF's net acres. 24

25 Repsol (99) Petersen (08) Petersen (08) Petersen offer Petersen (11) Repsol (14) Current 09 January 2017 Valuation Angles #5 & #6 EV/boe and Past Transactions Make Valuation Seem Cheap EV/Proved Reserves Multiple. Another simple way to get a reference price for YPF is through its enterprise value to reserves multiple. YPF holds the vast majority of Argentina recoverable resources, with c.2.4 bn boe, and is also the company with the largest proved reserves in the country, with approximately 1.2bn boe, being well balanced between oil and gas. Taking into account the industry s proved reserves and enterprise values, YPF is currently trading at 11.5x, suggesting a 30% discount to the sector s average of 16.5x. If we assume that the company is able to trade at the industry s average, we would assess a target price of USD32/sh. Corporate Past Transactions. Another reference we could resort to in order to attest the sanity of the equity values our other approaches have provided is the past deals involving YPF s shares. In 1999, Repsol acquired 97% of YPF for $ 39 per share and owned approximately 99% of YPF s capital stock until 2008, when the Peterson Group purchased, in different stages, c.15% of YPF. In 2012, the Argentine congress passed the Expropriation Law, and in 2014 the Republic of Argentina and Repsol reached a USD5bn agreement to compensate Repsol for its 51% stake. These key transactions resulted in an average of USD36/sh, which represents a significant upside from current prices. Key Corporate Transactions for YPF (USD/ADR) 49 Recoverable Resources (million boe) , ,018 Industry's EV/Proved Reserves Multiple Commercial Reserves Technical reserves Source: YPF, Credit Suisse Research, Wood Mackenzie. 25

26 E 2017E 2018E 2019E DLEKG QGTS CSAN3 TRNF_P COPEC MOLB BANE SIBN TATN PGN TUPRS QFLS INA NATIONAL SNSG PKN ORLEN EXXARO YPF -80% -31% 1% 5% 7% 10% 10% 10% 40% 41% 43% 47% 51% 52% 61% 66% 98% 156% 09 January 2017 Valuing YPF Angle #7 HOLT Has YPF as the Highest Upside Potential in the Sector (156%) What Is HOLT? HOLT is Credit Suisse's proprietary valuation framework based on future discounted cash flows. It uses cash flow returns on investment (CFROI ) as a key performance and valuation metric. A key attractiveness of HOLT, in our view, is the ability of the methodology to bring together performance and valuation of companies in a wide number of geographies, time periods, and different accounting standards under single and comparable metrics. We provide further detail on the HOLT methodology in the Appendix section. YPF Screens Cheap. The HOLT base-case model attributes an upside of +156% to YPF shares, which means a target price of USD44/sh. HOLT gives the possibility to compare the market-implied expectations (buy side) over time with the expectations embedded in consensus estimates (sell side), and for YPF the market-implied expectation is currently below the sell-side consensus, suggesting the shares may be underpriced. Also, YPF represents the most attractive upside in the comparison to its peers through the HOLT lens, as shown in the chart below. A dark side of the story is the HOLT expectation of a negative CFROI in 2016, but estimates suggest a recovery in the coming years. HOLT O&G Upside/Downside Estimates (%) YPF s Market-Implied CFRO vs. One-Year CFROI Levels Implied by Consensus (%) T+1 Forecast CFROI Market Implied CFROI -7 Jan-14 Jun-14 Nov-14 Apr-15 Sep-15 Feb-16 Jul-16 Dec-16 YPF's CFROI (%) 12 CFROI Discount Rate Source: Credit Suisse Research, HOLT Lens TM. 26

27 Equity Research DIVISÓRIA Vaca Muerta and Argentina Unconventional Plays

28 Vaca Muerta and Argentina Unconventional Plays Overview Conventional vs Unconventional Unconventionals, the Name of the Game. In the second half of 2014, international oil prices collapsed from a 4-year-long plateau above $100/bbl, as the world was suddenly found oversupplied by the boom in oil production coming from shale in the United States. In fact, high oil prices incentivized the development of technologies to exploit unconventional resources. Production from shale became so relevant that the industry rapidly progressed through the learning curve by increasing productivity and reducing costs in order to bring production from shales down closer to the low end of the global cost curve. The US shale has now become the new swing-producer. Though more regionalized, the gas industry experienced a similar story in the US. On the other hand, the industry outside the United States has lagged the shale boom. Argentina is one of the most prominent shale frontiers outside the US. Development costs have also come down, though production form unconventionals has not boomed in Argentina yet. 1) Source, 2) Reservoir, 3) Seal Oil and gas resources are the result of accumulation of organic matter into an organic rich source rock (often dark shales). As the organic matter breaks into hydrocarbons, these lighter molecules migrate through the rocks pores and accumulate in a reservoir rock (often carbonates or clastics) when they reach a layer of impermeable rock, seal. Indeed, for an oil or gas accumulation to happen, these three elements need to be in place simultaneously. Conventional Oil / Gas Conventional oil and gas plays exploit hydrocarbon accumulations trapped in reservoir rocks. Reservoirs typically have high porosity and permeability, naturally allowing the flow of hydrocarbons (without necessity for stimulus) simply by the action of the high pressures observed at the depths oil reservoirs are found. Source: YPF, Credit Suisse Research Tight Oil / Gas Tight oil and gas are hydrocarbon accumulations that occur in low porosity and low permeability rocks. These rock characteristics don t allow for a substantial flow of hydrocarbons when a well is drilled inside the reservoir, thus stimulation is required to artificially increase permeability and let oil or gas flow up the well. Shale Oil / Gas Oil and gas are produced directly from the organic rich shale source rock. This constrasts with conventional production where the organic matter need to have migrated from the source rock to a reservoir rock. Because shales naturally have little permeability, hydraulic fracturing is required to allow for hydrocarbons to flow. Shale resources have been known for a long time, but high oil and gas prices have in recent years allowed the boom in production and subsequent gains in efficiency. 28

29 Vaca Muerta and Argentina Unconventional Plays Overview Huge Potential for Unconventional Oil and Gas in Argentina Argentina: One of the Top Countries in Shale Resources. In year-end 2010, a series of events boosted the interest in Argentina s unconventional resources. In 2011, the U.S. Energy Information Administration (EIA) published a report (World Shale Gas Resources: An Initial Assessment) in which it estimated Argentina's technically recoverable tight gas and oil resources as one of the largest in the world. In the same year, Repsol-YPF announced the discovery of c.930 mmboe of recoverable resources in Neuquén basin, and since then the play has been seen as one of the main unconventional plays globally. Vaca Muerta, located in Neuquén basin, is considered the most prominent shale play in the country and concentrate the most important YPF's JVs. The company is currently focusing on the development of the play, achieving promising learning curves. EIA s assessment of Argentina s unconventional potential Top Countries With Technically Recoverable Shale Oil Resources (bn bbls) Global unconventional resource potential (bn boe) and anticipated shale wells in 2015 (number of wells) ,115 Top Countries With Technically Recoverable Shale Gas Resources (Tcf) 1,161 1,115 * ** ** * Shale resources U.S. China Argentina Algeria Canada Mexico Australia South Africa Russia Brazil Lybia Venezuela Pakistan Egypt Saudi Arabia Colombia Romania Denmark Poland Ukraine Turkey India Source: Woodmackenzie, EIA/ARI "Technically recoverable shale oil and shale gas resources: An assessment of 137 shale formations in 41 countries outside the United States", June Note: * U.S estimates based on the EIA. **U.S. estimates based on ARI 29

30 Vaca Muerta and Argentina Unconventional Plays Overview Unconventionals A New Frontier In Argentina (Renewed Oil & Gas Potential) Unconventional Resource Base Is out of Proportion. The size of Argentina s unconventional resources isn t big only in comparison to other countries unconventionals, but also relative to its own conventional resource base. Indeed, unconventional oil resources are six times the size of resources from conventional sources and gas unconventionals are even more out of proportion with an estimated resource base of 802Tcf that compares to 29Tcf from conventional sources. These are estimates of technically recoverable resources, about which no judgment on commercial viability is made; nevertheless, even if only a fraction of this potential effectively materializes, it should mean significant upside. YPF is a leader there. Multiple Unconventional Plays. Unconventional plays are often found in the same basins as mature conventional fields. In Argentina, that is also the case. Several unconventional plays have been indentified in areas with existing conventional production, especially in the Neuquen basin. The most prominent being the Vaca Muerta formation. Stratigraphy of Reservoirs, Source Rocks, and Seals in a Cross Section in the Nequen Basin Neuquina Noroeste Cuyana Austral Golfo San Jorge A B A B Reservoirs A. Clastics B. Carbonates Seals A. Shales B. Evaporites Sources Rocks Hydrocarbon Production of Conventional Resources NEUQUEN Gr RAYOSO Fm HUITRIN Fm MENDOZA Gr TORDILLO Fm LOTENA Gr CUYO Gr CHOIYOI Gr EVAPORITIC Mbr Lwr. TRONCOSO U. AGRIO Fm L. AGRIO Fm TORDILLO Fm LOS MOLLES Fm NOT TO SCALE AVILE Mbr VACA MUERTA Fm MULICHINCO Fm AUQUILCO Fm TABANOS Fm REMOREDO Fm Conventional (3P + Resources) and Unconventional Resources Oil (bn bbl) Gas (Tcf) UPPER TRONCOSO Mbr QUINTUCO/ LOMA MONTOSA Fm LOTENA Fm Unconventional 4.4 TERTIARY SILLS LA MANGA Fm 27 NEUQUEN GROUP Conventional Conventional Unconventional Total RAYOSO Fm LAJAS Fm REMOREDO Fm Unconventional Conventional Conventional Unconventional Total CLASTIC Mbr CENTENARIO Fm PUNTA ROSADA Fm CHOIYIOI GR. (and / or PALEOZOIC BASEMENT) LOMA MONTOSA Fm Ro 0.6% PUESTO KAUFMAN Fm Ro 1.3% L. AGRIO Fm Source: YPF, Lagarreta et al. 1999, Credit Suisse Research. 30

31 Vaca Muerta Geology Unconventional Plays in Argentina (It s Not Only Vaca Muerta) Unconventional Plays. Argentina has world-class shale resources. Most of which are within the Neuquen basin, whose tested unconventional plays include shale oil and gas in Vaca Muerta, shale oil in Agrio, and tight gas in both Lajas and Mulichinco formations. Nevertheless, additional shale resources are found in other sedimentary basins. Outside Neuquen, in the Golfo San Jorge basin, the Pozo D-129 formation has been tested for both shale and tight oil. Beyond these tested plays, Argentina holds a number of areas with untapped unconventional resources potential. Vaca Muerta Stands Out. Among Argentine shale plays, one in particular stands out, the Vaca Muerta formation, in the Neuquen basin. It consists of an organic-rich marine shale. The Vaca Muerta formation is not the thickest (e.g. it s somewhat thinner than Los Molles), but contains high total organic content (TOC) and is widespread across the basin in both oil and gas maturity windows. EIA s assessment of Argentina s unconventional potential Argentina s technically recoverable shale oil by formation Los Molles 14% Inoceramus 24% Vaca Muerta 60% Argentina s technically recoverable shale gas by formation Agua Bandera 6% Inoceramus 16% Los Molles 34% Pozo D-129 2% Pozo D-129 4% Ponta Grossa 0% Ponta Grossa 1% Vaca Muerta 39% YPF s assessment of Argentina s unconventional potential and results across various formations Noroeste Cuyana Neuquina Austral Golfo San Jorge Chaco Paranaense TESTED & PRODUCING Vaca Muerta (shale oil / gas) Agrio (shale oil) Lajas (tight gas) Mulichinco (tight gas) Pozo D-129 (shale oil / tight oil) + OTHER OPPORTUNITIES Noroeste Cretaceous Yacoraite (shale / tight oil & gas) Noroeste Tarija Los Monos (shale gas) Neuquina Los Molles (shale / tight gas) Golfo San Jorge Neocomiano (shale oil / gas) Chaco Paranaense Devonian Permian (shale oil) Cuyana Cacheuta (shale oil) Potrerillos (tight oil) Austral Inoceramus Source: Woodmackenzie, EIA / ARI "Technically recoverable shale oil and shale gas resources: An assessment of 137 shale formations in 41 countries outside the United States", June Note: * U.S estimates based on the EIA. **U.S. estimates based on ARI, YPF, Credit Suisse based on Legarreta & Villar Geological and Geochemical Keys of the Potential Shale Resources, Argentina Basins. 31

32 Vaca Muerta Infrastructure and Costs Infrastructure Is There The Right Place to Be. The Neuquén basin provides a series of positive aspects for the Vaca Muerta development. It is the largest hydrocarbon producing basin in Argentina, with production levels of 660 kboed, close to 50% of Argentina total production. For this reason, the region has a developed infrastructure, with pipelines covering a significant area. The basin also happens to have good water sources nearby, an important factor given the need of water for hydraulic fracturing operations. From a development standpoint, this region significantly reduces the challenges of the unconventional effort and may provides cost saving opportunities. Map of the Neuquen basin, key pipeline infrastructure, water sources, and focus fields for conventional and unconventional development Zampal Gas Pipelines Oil Pipelines El Trapial Los Reyes Norte El Corcobo Norte Gasoducto Centro-Oeste Vega Grande Gasoducto del Pacifico Catriel Oeste Valle del Rio Grande Sierra Chata El Orejano Entre Lomas El Medanito Aguada San Roque El Mangrullo El Magrullo Aguada Pichana Norte Loma La Lata Loma la Lata Allen Loma La Lata Norte Charco Bayo Gasoducto Neubal II Rio Neuquen El Medanito-Allen Puesto Morales Este Cerro Solo Gas Pipelines Oil Pipelines Centenario Source: Credit Suisse Research based on Woodmackenzie. 32

33 Tight Gas Tight Gas Plays It s Not Only Shale. As we ve mentioned, the unconventional potential in Argentina is not limited to shale plays. In fact, upstream players in Argentina have been able to tackle low-permeability tight reservoirs for gas. Tight gas wells typically cost less than shale gas wells, the reason why tight plays have been prioritized in the company s investment plans. Among the different tight formations, two in particular have been the most exploited: the Lajas and the Mulichinco tight sand formations, both in the Neuquen formation. Neuquen basin tight gas plays Noroeste CERRO ARENA YPF SIERRA CHIATA Petrobras SAN ROQUE Total Precuyo Punta Rosada Los Molles Mulichinco Lajas Cuyana AGUADA PICHANA Total LOMA LA LATA-SIERRA BARROSA YPF Neuquina Golfo San Jorge Austral EL MANGRULLO Petrobras RINCON DEL MANGRULLO YPF LINDERO ATRAVESADO Pan American AGUADA DEL CAJON CAPEX RIO NEUQUEN Petrobras CENTENARIO Pluspetrol ANTICLINAL ACAMPAMENTO YPF CUTRAL CO SUR Oilstone EST FERNANDEZ ORO Y-Sur Tight Gas Gross Production (Mm3/d) TG EFO Lajas TG RdM Mulichinco TG ATSB Lajas Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Source: Credit Suisse Research, EIA, YPF, Nu Tech Energy Alliance 11.7 Q

34 Oil rate m3/d 09 January 2017 Vaca Muerta Geology Vaca Muerta Update Significant Improvement. YPF has presented an expressive decrease in its capex levels for unconventional wells in a short period of time. Back in 2015, well costs reached levels of USD20m and the number of fractures per well was not uniform. In the third quarter of 2016, the company reached an average capex of USD9.5m for unconventional well costs and a much more standardized well planning, seeking almost invariably 18 frack stages per well. YPF tested different curves to reach its final well design Wells 2015 Wells 2016 Faster, Cheaper, and Deeper. YPF not only reduced its well capex levels, but also upgraded its efficiency in drilling horizontal unconventional wells. In 2015, the company had an average of 35 drilling days and 4697m depth, which was improved to 29 days and 4800m in The company s ability to improve well costs substantially affects valuation. In our base case, we assume the learning curve will continue to yield results and that both oil and gas wells will reach USD7.5m capex levels in Wells Horizontal Wells Going into Factory Mode and Cost Optimization MUSD +15 USD AVG Q3 9.5M USD 24 47% Fractures YPF's several wells Source: YPF, Credit Suisse Research Progressing on the Learning curve in drilling horizontals MD(m) AVG days 4697m AVG days 4800m 4000 LLL days 4707m 5000 LLL days 5737m Q days 5007m Days 34

35 Horizontal well IRRs (%) 09 January 2017 Vaca Muerta Economics, Modelling, Valuation Horizontal Well Economics Gets Appealing Sharp Im provem ent in Econom ics. YPF s value potential can be significantly boosted if the unconventional resource base moves down the cost curve and becomes economically attractive, even under a lower oil price environment. It seems to us that this has just happened. Company has applied new technology and practices with remarkable results, and maybe potential for more improvements. In one year time, breakeven priices in Loma Campana have come down from $60/b to $37/b in 3Q16 (undiscounted), according to YPF. In the charts below, our assessment shows comparable numbers. At current oil prices, a $9.5mn well would yield IRRs in the low 20 s%. Wells reaching $8mn capex would boost returns to the low 30 s%. That can add a lot of additional value to shareholders that is not priced in. Preliminary modelling assumptions for a Vaca Muerta horizontal well in the oil window IP rates: EUR: 950boe/d 712kboe % oil: 78% % of NGL: 7% % of nat gas: 15% Nat gas price: Capex per well: Lifting costs: Taxes: $7.5/mmbtu $9.5m/well $11/boe 12% royalties, 3% sales tax, 35% corporate tax rate IRRs and oil prices for horizontal wells at various capex/well levels 80% 60% 40% 20% $10.5m capex $10m capex $9.5m capex $9m capex 0% Argentina oil prices ($/bbl) Cash flow profile of a single horizontal well (USDm) Break-even oil prices (for a 10% after tax IRR) of horizontal wells at various capex levels $32/bbl $35/bbl $39/bbl $43/bbl $47/bbl $50/bbl $54/bbl (2) (6) (10) CFO Capex FCF Cumulative FCF Horizontal well capex (USDm) Source: YPF, Credit Suisse Research 35

36 Equity Research The Argentine Oil & Gas Industry FOTO

37 Gas Liquids 09 January 2017 Overview of Argentina's Oil and Gas Industry Summary of Argentina's Oil Industry Upstream Downstream Production Liquids Gas 49% 49% 51% 1296 kboed Proved Reserves Liquids Gas 52% 48% 4.6bn boe Economics Royalty: 12% Turnover tax: c.2% Income tax: 35% >95% Local production supplies Argentina refineries Crude processed (market share in %) YPF 56% 520kbd Total crude processed Shell 16% 5% 16% Petrobras Axion 7% Others Production and consumption (kbd) Liquids mkt share (%) Gasoline (mkt share in %) Diesel (mkt share in %) 1000 Production Consumption Exports (Imports) - RHS Chevron 4 Pluspetrol 4 Petrobras 4 5 Sinopec Total market: 650kbd Others Pan American Energy 46 YPF Diesel imports 15% of demand Gasoline imports <2% of demand Total demand: 145kbd Others Petrobras 5 6 Axion YPF Shell Total demand: 230kbd Others Petrobras 7 7 Axion YPF Shell Production and consumption (kboed) Gas mkt share (%) Gas (consumption share in %) Gas price bifurcation ($/mmbtu) Consumption Production 200 Exports (Imports) - RHS Pluspetrol Petrobras Wintershall Total market: 650kbd Others Total Pan American Energy 42 YPF Natural gas imports 25% of demand Service stations Power plants Total demand: 860kbd 34 Other Residential 4 Industry Commercial and official Industrial prices have more scope to increase Industrial Residential Power Generators 0 Residential prices have remained -1 regulated at low levels Source: Credit Suisse Research, BP Statistical Review, Wood Mackenzie, YPF, IAPG. Note: Market size and share figures for Jan-Sep

38 January 2017 Key Macro Dynamics of Argentina's Oil and Gas Industry Introduction to the Argentina's Oil and Gas Industry Fossil Energy Matrix. Argentina s energy matrix is largely dependent on fossil fuels, as oil and natural gas combined account for almost 90% of the total energy consumption in the country. Currently, the government targets a more renewable energy matrix. Natural Gas Takes the Lead. Argentina has a longstanding oil industry. Nevertheless, natural gas has grown from a rather low base in the 1960s to take the lead in the energy matrix. In fact, this is the result of natural gas s much faster growth than oil in recent decades (c. 6.87% vs. c. 1.46% in CAGR). Declining Production. The oil and gas industries grew strongly in Argentina until issues above the surface started to negatively impact the O&G space, as the country implemented a series of measures to fight the deep economic crisis that eventually undermined investments in the sector. Oil production reached its peak in 1998 and has since been declining at 2.3% per year ( CAGR); whereas gas production reached its peak in 2004 and has since been declining at 1.4% per year ( CAGR). Proved reserves also diminished as investments in exploration fell. From Mature Fields to New Frontier. More recently, the industry is again expanding capacity as it seeks to explore Argentina s sizeable and untapped unconventional resources. Above-ground conditions have also improved as the government seeks to halt interventions and foster investments. Argentina's Total Energy Supply 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% Oil Consumption Production (LHS) Reserves (RHS) Others Natural Gas 0% Argentina's Oil Production (kbpd) and Reserves (bn bbl) Change in Oil and Gas Supply (indexed) Argentina Gas Production (kboed) and Reserves (bn boe) Production (LHS) Consumption Natural Gas Reserves (RHS) Oil Source: Credit Suisse Research, BP Statistical Review, IAPG, Ministry of Mines and Energy of Argentina 38

39 Average price ($/bbl) 09 January 2017 Overview of Argentina's Oil and Gas Industry Producing Regions and Crude Types Heavy and Light Crudes. Argentina produces predominantly heavy oil in the San Jorge basin and lighter oil in Neuquén basin. The main type of heavy oil produced is called Escalante, with approximately 23 API, and the oil produced in Neuquén is named Medanito, with approximately 32 API. The country currently exports part of its heavy oil and imports light oil to adjust the feedstock mix for its refineries. Onshore Production. There are 18 sedimentary basins in Argentina, but only five actually produce hydrocarbons. The Neuquén and Golfo San Jorge basins respond for c. 80% of the total production in the country. Production in Argentina is predominantly onshore, although there is significant gas production in offshore wells in the Austral basin. Crude Type by Density (API, X axis), Average Price ($/bbl, Y axis), and Volume Produced in 2015 (bubble size) 80 MEDIANITO: 32 HIDRA: 49.0 NEUQUEN BASIN AUSTRAL BASIN Degrees API Share of Production, by Basin (%) Oil Gas MENDOZA; 29 CUYANA BASIN ESCALANTE: 23 GSJ BASIN 38.7% 59% FORMOSA: 43 NORTHWEST BASIN CAÑADÓN SECO; 27 GSJ BASIN SALTA: 55 NORTHWEST BASIN 50.9% 5.7% 4.7% 19% 8% 6% 7% Argentina and YPF Production, by Basin (kboed) Chile Neuquén San Jorge Austral Cuyo Bolivia Northwest Argentina Paraguay 6 22 Uruguay Brazil NEUQUINA AUSTRAL OFFSHORE GOLFO SAN JORGE CUYANA AUSTRAL ONSHORE NOROESTE Source: Credit Suisse Research, YPF, Wood Mackenzie, Ministry of Mines and Energy of Argentina 39

40 Overview of Argentina's Oil and Gas Industry Refineries and Oil Infrastructure Domestic Refining Capacity. Argentina's total oil refinery capacity stands at c. 660kbpd, composed of eleven refineries distributed throughout the country. YPF is the main player in the sector with c. 320kbpd of capacity, including the largest refinery in Argentina, La Plata, and the second largest, Luján de Cuyo. Shell plays an important role in Argentina's downstream business, with full ownership of the third-largest refinery. Oil Infrastructure in Place. Liquids infrastructure in Argentina is composed of c. 2,200km dedicated to crude transportation, and c. 4,100km of multi-product pipelines, for a total network of approximately 6,300km. It allows for transportation of the oil produced in the west of the country to refineries in the outskirts of Buenos Aires. The main multi-product pipeline network is Oldeval, which has a double 513km pipeline that connects the Dr. Ricardo Elicabe refinery to the Neuquén basin. YPF owns 37% of Oldeval and 100% of the other two main product pipelines in the country, which connect the Puesto Hernández oil field in Neuquén to the Luján de Cuyo refinery and the Dr. Ricardo Elicabe refinery to the La Plata refinery. Key Oil Pipelines Length Diameter Capacity Pipeline Operator From To (km) (inches) (kbd) Oleoductos del Valle (Oldelval) Oldelval Puesto Hernández Dr. Ricardo Elicabe / Puerto Rosales-La Plata YPF Puerto Rosales La Plata Puesto Hernandez-Luján de Cuyo YPF Puesto Hernández Luján de Cuyo Refinery Operational Refineries Operator Refinery Crude Capacity (kbd) YPF La Plata 189 YPF Luján de Cuyo Refinery 106 Shell Buenos Aires 109 Axion Campana 92 Oil Combustibles San Lorenzo 48 Petrobras Argentina Dr. Ricardo Elicabe 31 YPF Plaza Huincul - YPF 26 Refinor (50% YPF; 28.5% PZE; 21.5% Pluspetrol) Campo Duran 26 Grupo Mas Energia Plaza Huincul - RENESA 8.8 DAPSA Dock Sud 6 Private Investors Plaza Huincul - NAO 1.5 Map: Key Oil and Gas Infrastructure Luján de Cuyo Neuquén Plaza Huincul Chile Austral Cuyo San Jorge Bolivia Refinor Northwest Argentina San Lorenzo Campana Caleta Córdova Caleta Olivia Punta Loyala Cruz del Sur Paraguay Uruguay La Plata Buenos Aires Dock Sud Dr. Ricardo Elicabe Puerto Rosales Brazil Atlantic Ocean YPF Refinery Refinery Terminal Oil pipeline Multi-product pipeline Gas pipeline Source: Credit Suisse Research, YPF, Wood Mackenzie 40

41 Overview of Argentina's Oil and Gas Industry Gas Infrastructure Gas Transportation Infrastructure. Argentina has a natural gas transportation network that exceeds 17,000km in length and is spread throughout the country, connecting supply (i.e., Neuquén, San Jorge, and Austral producing basins, as well as imports from Bolivia and Chile) and demand (i.e., nine distribution companies in large urban areas, manufacturing plants, and thermal power plants). Two Regional Systems. The transportation network is divided into two main systems on a geographical basis: North and South. Each system is operated by different transportation companies. The southern trunk is operated by TGS, a publicly traded company, and transports c. 60% of Argentina s natural gas, connecting major gas fields in the South and Central West, whereas the northern and central-western trunks are operated by TGN for the remaining c. 40% of gas transportation. The latter also connects Argentina to Chile, Brazil, and Uruguay. LNG Terminals. Imports of liquefied natural cargos is an important source of natural gas supply to Argentina. This is accomplished through two LNG terminals with capacity to regas 14MMm3/d each: Bahia Blanca Gasport and LNG Escobar. Key Gas Pipelines Length Diameter Capacity Pipeline Operator From To (km) (inches) (mmcfd) North gas pipeline TGN Durán & Madrejones Buenos Aires Gas Central West gas pipeline TGN Loma la Lata Area Buenos Aires Gas Neuba I gas pipeline TGS Sierra Barrosa Buenos Aires Gas / Neuba II gas pipeline TGS Loma la Lata Area Buenos Aires Gas / San Martin gas pipeline TGS Cruz del Sur Buenos Aires Gas YABOG pipeline YPFB Transporte Yacuiba Río Grande Methanex TransCanada Pipeline San Sebastián Aconcagua GasAndes gas pipeline GasAndes La Mora Santiago Gas Atacama CMS Energy Ramos Mejillones NorAndino gas pipeline TGN Aguaragüe UTE Mejillones Pacific gas pipeline TGN Loma la Lata Area Concepción / TGM TGN Entre Ríos Uruguiana Refinor Pluspetrol Madrejones Durán & Madrejones 43 8/12 42 Source: Credit Suisse Research, YPF, Wood Mackenzie Map: Key Oil and Gas Infrastructure Chile Neuquén Austral Cuyo San Jorge Bolivia Northwest Argentina Caleta Córdova Caleta Olivia Punta Loyala Cruz del Sur Córdoba Paraguay Uruguay Buenos Aires Brazil Atlantic Ocean YPF Refinery Refinery Terminal LNG Oil pipeline TGN gas pipeline TGS gas pipeline 41

42 Downstream Upstream 09 January 2017 Overview of Argentina's Oil and Gas Industry Main Players Argentine Upstream Industry. YPF is the leading player in the Argentine upstream industry in both liquids and natural gas. Its production market share amounts to c.46% of liquids and c.42% of natural gas. YPF shares the upstream market in Argentina with a number of international players and Pan American Energy (JV between BP and Bridas). And Downstream Industry. In downstream, two other key companies dominate the Argentine market together with YPF. Shell has full ownership of the Dock Sud refinery in the Buenos Aires area and Axion Energy (JV between Bridas and CNOOC) has a refinery in Campana. Together, the three companies hold a c.88% share of crude processed domestically. The retail segment is less concentrated: 60% of service stations are the hands of the three leading players and other smaller players also have a significant share. Market Share of Liquids Production (%) Market Share of Gas Production (%) Recoverable Resources (million boe Woodmac estimates) Net Acreage (km²) Total market: 650kbd Others 4% 4% 4% 5% 18% 19% 46% Total market: 650kboed 2,018 Others 14% 3% 6% 9% 9% 17% 42% , Commercial Reserves Technical reserves 19,841 22,956 24,261 27,078 29,690 36,253 41,298 58, ,220 Mkt Share of Crude Processing (%) Mkt Share of Diesel (%) Mkt Share of Gasoline (%) Mkt Share of Service Stations (%) Total crude processed: 530kbd Total demand: 230kbd Total demand: 145kbd Total stations: 4,400 Other Other Other 5% 7% 16% 16% 56% 6% 7% 15% 16% 56% 15% 19% 6% 5% 55% Other 28% 6% 6% 11% 35% 14% Source: Credit Suisse Research, YPF, Wood Mackenzie, Ministry of Mines and Energy of Argentina 42

43 Key Macro Dynamics of Argentina's Oil and Gas Industry Crude Oil Macro Dynamics Sector and Sovereignty Meet. The Argentine oil and gas industry has been largely impacted by the country-wide macro context. After the crisis in 2002, in order to boost economic recovery, hydrocarbon prices were kept artificially low through increased regulation. Lower Prices Fostered Demand. Consumption of oil products increased at a CAGR of 4.3% from 2002 to On the supply side, however, new investments were discouraged by low prices and production declined at a 2.6% CAGR in the same period. Eventually, total consumption of oil products surpassed crude production and refining capacity, leading to a shift in policy. Crude Prices to Converge. Crude oil prices in Argentina have been above international levels since prices in the international markets collapsed in the second half of However, since President Macri took office, the government has been inclined to foster free competition and let domestic prices converge to international levels as soon as early Domestic Crude Price vs. Brent ($/bbl) Brent Argentine crude Domestic argentine crude now above Brent level. 0 Jan-01 Feb-04 Mar-07 Apr-10 May-13 Jun-16 Argentina s GDP and Energy Consumption (both indexed in 1995) GDP Energy consumption GDP CAGR: 4.6% Energy demand CAGR: 2.8% Liquids Production, Consumption, Refining Capacity, and Net Exports (kbd) Production Consumption Exports Oil Refinery Capacity Lower prices disincentive supply Lower prices stimulate demand Source: Credit Suisse Research, YPF, Wood Mackenzie, Bloomberg, IMF World Economic Outlook, Ministry of Mines and Energy of Argentina 43

44 Key Macro Dynamics of Argentina's Oil and Gas Industry Trade Balance of Oil and Oil Products Crude Long Exposure Reduced. During the 1990s, Argentina s oil production grew to turn the country into an important exporter of oil. Crude exported volumes were comparable to the domestic production. However, that surplus was consumed as production declined from 2001 onward and demand continued to grow. Currently, Argentina is only a small net exporter of its heavy crude Escalante and imports small quantities of lighter oil. Deficit of oil products. The picture is not much different in the oil products space. Argentina used to have refining capacity in excess of domestic demand, so that it was a sizeable net exporter of both gasoline and diesel. However, demand grew over time, whereas capacity wasn t expanded. Eventually, the country reversed the gasoline trade surplus into roughly neutral and now has a deficit of diesel. Crude Oil Trade Balance (kbd) Export Import Balance Gasoline Trade Balance (kbd) Diesel Trade Balance (kbd) 60 Export Import Balance 50 Export Import Balance Source: Credit Suisse Research, YPF, Ministry of Mines and Energy of Argentina 44

45 Key Macro Dynamics of Argentina's Oil and Gas Industry Gasoline and Diesel Domestic Prices Historically Below Parity. Gasoline and diesel prices in Argentina were kept significantly below international levels for an extended period of time. It was only in 2010 that prices were allowed to increase, though only gradually. As a consequence, domestic prices lagged the recovery in international prices after the crisis in 2008, remaining below import parity for most of the time. It was only at the end of 2013 that refinery-gate prices in Argentina reached levels similar to those internationally. Much Higher Now. However, not long after that, international prices collapsed, putting prices in Argentina at a significant premium. That meant that international levels now put pressure on domestic prices to converge downwards. That did indeed happen when prices in Argentina fell in dollar terms at the beginning of 2016 due to the sharp peso depreciation that followed the normalization of the foreign exchange promoted by Mr. Macri in the first days of his term. Notwithstanding the elevated premium, refiners were able to increase prices in the domestic market in response to the peso devaluation. Price Convergence Is a Short-Term Risk. Currently, as the charts below show, the premium to international prices is high, which could be a short-term risk. The main driver of this convergence should be competition from imports, which were previously hindered by government intervention, and it can happen through two mechanisms: i) lower prices in USD terms in Argentina, or ii) higher oil prices in the international markets. In fact, refiners may not reduce prices and still face a reduction in USD terms following the currency devaluation, due to the high inflation differential between Argentina and the USA. Naturally, that mechanism could lead downstream players to suffer margin compression. As we will show ahead, despite the high spread to import parity, downstream margins are not wide, due to cost pressure. So, we believe this convergence may not happen in the short term. In the long term, we already assume that this convergence will happen, but it becomes less of a problem, as we expect oil prices to recover from here. Gasoline Domestic Price vs. Gulf of Mexico ($/bbl) Diesel Domestic Price vs. Gulf of Mexico ($/bbl) Diesel GoM US$/bbl Gasoline GoM US$/bbl Diesel domestic prices ($/bbl) Gasoline domestic prices (US$/bbl) Source: Credit Suisse Research, YPF, Bloomberg, Ministry of Mines and Energy of Argentina 45

46 Key Macro Dynamics of Argentina's Oil and Gas Industry Downstream Margins in Domestic vs. International Markets Higher Margins at First Sight. As seen on the previous slide, domestic prices in Argentina are significantly higher than international levels. Diesel and gasoline, for example, are sold at c.$100/bbl, while international prices are close to $60/bbl. This divergence leads to artificially high gross margins in the downstream business and a risk of price convergence leading to downward adjustments, as in the crude market. Taking a Closer Look. However, analyzing YPF's downstream financials, we note a gradual increase in opex costs, squeezing Ebitda per bbl sold. This increase is mainly due to the high inflation in the country and, since these costs are not fully passed through, the company's downstream net margins have been impaired. In this scenario, if domestic prices converge to international parity in the short term, the downstream business would run at negative margins. Nonetheless, we do not expect this convergence to happen in the short term. We actually get the sense that the next domestic price adjustments, if any, will be upwards. Our valuation does not assume any price increase in YPF Downstream Revenues, Costs and EBITDA (US$/bbl) EDITDA per bbl sold Opex ex-da Total Feedstock per bbl sold Total Revenues per bbl sold YPF Gross and Net Refining Margins and Crack Spread (US$/bbl) YPF Historical Downstream Opex (ex-feedstock) (as % of gross margin) 100% 80% 60% 40% 20% 0% Gross margin Crack Net Margin Total opex exfeedstock Source: Credit Suisse Research, YPF 46

47 Consumption and production (kboed) 09 January 2017 Key Macro Dynamics of Argentina's Oil and Gas Industry The Natural Gas Dynamics Structurally Net Short Position. Argentina s gas production increased swiftly from 1950 to In a scenario of production surpassing consumption, expanding infrastructure, and significant reserves, exports of natural gas were becoming an important market for Argentina. However, in 2002 gas prices dropped suddenly as the government decided that gas sales contracts should be paid in pesos, imposed supply obligations, and controlled prices artificially. This led to a cut in investments, an increase in consumption, and a decrease in proved reserves, and the country became an importer of natural gas in Argentina currently depends on gas from Bolivia and LNG imports to meet domestic demand. Additionally, since domestic prices were frozen, the country's energy trade balance has deteriorated. Macri's administration is presently trying to attract investments to the Argentine oil and gas industry and reform the country s pricing policies to close the gap between supply and demand and alleviate its energy's trade deficit. However, recent moves suggest that it won't be an easy task. Gas Trade Balance (kbd) Imports (kboed) Gas Production (kboed) Gas comsuption (kboed) Exports (imports) (kboed Domestic Gas Price to Producers vs. LNG Imported by Argentina ($/mmbtu) 25 Diesel GOM Energy Trade Balance (million $) 10, Fuel Oil 5, Imported LNG 0 10 Bolivian gas -5, Argentine gas ,000-15,000 Export Import Balance Source: Credit Suisse Research, YPF, Ministry of Mines and Energy of Argentina, BP Statistical Review 47

48 Key Macro Dynamics of Argentina's Oil and Gas Industry The Natural Gas Dynamics Gas Price Divergence. Before 2001, dynamics of the natural gas market were simple and there was a single price for all categories of users. With the end of the convertibility regime in 2001, gas prices were directly affected by the pesofication of gas contracts established by the Emergency Law. In February 2004, Decree 181 implemented a price standardization scheme for natural gas, resulting in the first divergence between prices in the unregulated market, in which prices are negotiated by producers and consumers, and in the regulated market, in which the government controls gas prices. Volume Seasonality Affecting Prices. After this, the Argentine government kept gas prices artificially low for residential and commercial customers, increasing the gap between the prices for these users and in the unregulated market, composed mainly of industries and power generators. This decision resulted in seasonality of domestic gas prices, as the government set the supply for residential users as a priority. Average gas prices tended to decline in winter months, when demand from these clients peaked, and demand from industries and power generators was only partially met. Supply of Argentine Gas (bn m³) Residential, Commercial and Subdistributors Industrial, Power Generators and CNG Source: Credit Suisse Research, YPF, Ministry of Mines and Energy of Argentina, ENARGAS Domestic Gas Price Over Time and Seasonality Due to Price Divergence ($/mmbtu) Divergence between Residential and Industrial Gas Prices ($/mmbtu) Neuquém Basin industrial Neuquém Basin residential Following the pesofication of contracts and de-pegging of Argentine currency, prices dropped 66% overnight Industrial prices have more room to increase Neuquém Basin power generators Regulated residential prices Remained low Government's attempt to increase gas prices, annulled by Supreme Court Divergence of domestic prices 0 Jan-01 Jul-03 Jan-06 Jul-08 Jan-11 Jul-13 Jan-16 48

49 Key Macro Dynamics of Argentina's Oil and Gas Industry The Natural Gas Dynamics Gas Plan Reduces Volatility. Seeking to restore gas reserves and production, the government implemented incentive programs in 2013, the main example being the Gas Plan, which allowed for lower seasonality in realized gas prices for companies like YPF. Under this scheme, price to producers depended only on the volume injected in the system (for YPF, it was $2.3/mmbtu for old gas and $7.5/mmbtu for new gas ), eliminating seasonality and increasing gas prices. Even with this subsidy, YPF's realized gas prices in the past few years remained below those of other market alternatives, like LNG imported by Argentina. Due to the recent fall in international prices, the gap to realized prices has diminished. The government imports gas through Enarsa and sells it at a significant discount, resulting in a significant expense. The government is now trying to implement increases in regulated prices, aiming to revert this trend. In 2016, the new administration tried to impose a drastic increase in gas tariffs, but the resolution was annulled by the Supreme Court, which required a public hearing to discuss the theme. Argentine Gas Offer by End User (bn m³) Residential Industry Power Generation Others YPF Realized Gas Price vs. Henry Hub ($/mmbtu) Price scheme of $2.3/mmbtu and $7.5/mmbtu allowed for lower seasonality to YPF and constant price increases as production grows. 3 YPF realized gas price 1 Q1 10 Q1 11 Q1 12 Q1 13 Q1 14 Q1 15 Q1 16 Breakdown of Gas Consumption (%) Service stations 7 Other 2 23 Henry Hub Residential Imported LNG Power plants 34 4 Commercial and official bodies 0 29 Industry Source: Credit Suisse Research, YPF, Ministry of Mines and Energy of Argentina, ENARGAS 49

50 Key Macro Dynamics of Argentina's Oil and Gas Industry The Natural Gas Dynamics Gas Price Converge. YPF will benefit from either the Gas Plan extension or the gradual convergence of gas prices to LNG references. Our base case assumes long-term prices in line with LNG at USD7.5/mmbtu. Argentina s government implemented a new natural gas pricing policy in October 2016, after a public hearing held in September Through Resolution 212/2016, it established that natural gas prices for residential and commercial users should reach international prices in 2019, using as benchmark LNG import prices in 2017, including freight and regasification. These increases are smaller than those under a proposal presented in April, in which the weighted average prices of residential and commercial gas would reach $4.72/mmbtu immediately, based on the estimated average cost of local supply in With the new policy, this price will only be achieved in April 2018, when the government s subsidy will be c.30%. The new pricing policy also sets a different gas tariff to residential users deemed vulnerable (households with income lower than two times the minimum wage, or c. Ps.15,120, that meet a number of other economic criteria), which represent around 1.7 million users of the 8.1 million connected to the NG distribution network. Will Consumption Grow? Besides the 8.1 million users connected to the natural gas network, there are close to 5.4 million that do not have access to it, using LPG as an alternative. For those, the government has a support program called Plan Hogar that aims to provide LPG under favorable conditions to customers with limited income, or almost 2.7 million users. With the new price policy the government expects to establish a natural gas price that covers the costs for exploration, production, taxes, and equity, without the need to provide subsidies, which represented 2.3% of Argentina's GDP in The government also expects the measure to pave the way for new investments in the gas distribution network, so that all households have access to natural gas. This would lead to a decline in consumption of LPG, which is more expensive than natural gas, and would also equalize the benefits from the subsidies, as the customers without access to natural gas also contribute to its subsidy currently. Weighted Average Price for Residential and Commercial Consumers ($/mmbtu) LNG import price for % 1.29 % of government's 50% 45% subsidy Mar-16 Oct-16 Apr-17 Oct-17 Apr-18 Oct-19 Apr-19 oct-19 Breakdown of Vulnerable Users in the Country by Province (# of users and % of province population) Jujuy 20,609 (27%) Catamarca 3,874 (20%) Tucumán 52,076 (27%) La Rioja 3,014 (21%) San Juan Córdoba 124,373 (19%) San Luis 25,441 (36%) 36,671 (35%) Mendoza 97,927 (26%) Neuquén 23,169 (16%) Chaco Rio Negro 30,576 (16%) Chubut 34,805 (23%) Santa Cruz 6,833 (16%) Formosa Tierra del Fuego 2,929 (7%) Corrientes 105,548 (18%) Entre Rios 29,499 (32%) CABA 113,816 (8%) Misiones 16,204 (26%) La Pampa 34,188 (29%) Salta 49,617 (30%) Santiago del Estero 16,204 (26%) Buenos Aires 852,263 (23%) Source: Credit Suisse Research, YPF, Ministry of Mines and Energy of Argentina 50

51 -8.3% -7.9% -6.3% -7.4% -4.0% -4.7% -4.1% -4.9% -5.3% -4.9% -2.7% -3.0% -3.1% -1.7% -0.5% -1.0% -1.7% 0.0% 09 January 2017 Key Macro Dynamics of Argentina's Oil and Gas Industry Trade Balance Has Become an Issue Energy Trade Balance Toll. Growing energy imports have imposed a heavy burden on Argentina s trade balance. Since 2011 the country has been a net importer of energy. In 2015 the net balance amounted to c.-$4.5bn. A sizeable deficit in light of Argentina s limited international reserves. Declining International Reserves. The trade deficit has taken a toll on Argentina s international reserves over time, as they have declined from $52bn at the end of 2010 to as low as $25bn at the end of Since Mr. Macri s election, however, the country has normalized foreign exchange rates and corporates access to dollars. Moreover, the country regained access to capital markets. Seeking to Reduce Energy Bill. The trade balance has been helped by lower prices of imported LNG shipments since Nevertheless, the government now seeks to foster investments in the gas industry in order to develop large unconventional resources and reduce the energy importation bill. Argentine Trade Balance (% of GDP) Trade Balance ($bn, rolling 12 months, FOB/CIF) Goods trade balance Energy trade balance -10 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Gross International Reserves ($bn) General government fiscal balance (%of GDP) General government primary fiscal balance (%of GDP) E 2017E Source: Credit Suisse Research, INDEC, Argentine Central Bank Jan-10 Feb-11 Mar-12 Apr-13 May-14 Jun-15 Jul-16 51

52 Legislation on Argentina's Oil and Gas Industry Key Oil-Related Legislation Legislation Is a Key Theme. Legislation on pricing in Argentina s oil industry has changed several times over the past decade. In fact, the oil industry in Argentina has been greatly impacted by government intervention, as increased regulation undermined profitability and, consequently, discouraged investments, eventually leading to a decline in production. Liquids Production in Argentina (kbd) : Crude export tax increased to 25% (20% effective rate). Exports subject to domestic demand being fully met. Export duties further increased to progressive scheme, ranging from 25% to 45% (20$ to 31% effective rate) based on WTI. 2002: Public Emergency Law enacted. End of peso-dollar parity. 20% tax (16.7% effective rate) on crude exports; Temporary export restrictions also imposed. 2008: Petroleum Plus and Refining Plus introduced. 2007: Export duties on crude effectively caps producers price at $42/bbl. 2011: Repatriation of foreign exchange on 100% of export collections. 2012: Petroleum Plus and Refining Plus suspended, and provinces start cancelling concessions. Government nationalizes 51% of YPF from Repsol. Decree 1277 introduces government review of investment plans, allowing government to cancel a company s privileges to operate. 2014: New Hydrocarbons Law changes licensing royalty (15%) and investment legislation. Change in export duty, which becomes linked to Brent price. Export tax reduced to 1% for Brent up to $79/bbl. Producers allowed to export 20% of production if they invest $250m in three years. 2015: Government to grant $3/bbl on total production if level increases compared to Additional bonus of up to $3 per barrel exported (but exports not attractive due to domestic prices above int l prices). 2016: Oil prices not set by regulation, and informal agreement between producers sets a price of $67.50/bbl for Medanito and $54.90/bbl for Escalante. Producers from Chubut province receive a subsidy of $10/bbl for exported crude, if international crude prices are below $ In a recently agreement with MINEM, refiners and producers set a new reduction in domestic crude oil prices of approximately 2% per month from August-November : Export duty changed to increase effective cap to producers price from $42 to $70/bbl. Creation of Promotion Regime allowing for export duty exemption on 20% of new production investments for players that invest more than $1bn in a five-year period Source: Credit Suisse Research for legislation, BP statistical review for country production 52

53 Legislation on Argentina's Oil and Gas Industry Key Natural Gas-Related Legislation Price Controls. Government intervention has been very pronounced in the Argentine natural gas market. The sector had been growing until net exports amounted to 80kboed in 2006, when production started to decline as result of heavy regulation, price controls, and strict supply obligations. Incentives in Place. As the trade balance for natural gas grew into a big deficit, the government passed incentive programs (e.g., Gas Plus in 2008 and Gas Plan in 2013) that allowed for high wellhead prices on marginal production to make investments attractive again and reduce the need for imports. Natural Gas Production in Argentina (kboed) : Public Emergency Law enacted. End of peso-dollar parity. Domestic gas sales contracts converted from USD to pesos, resulting in a drop in prices to around one-third of their previous value as the national currency depreciated. 2006: Gas export tax increased to 45% (31% effective rate). 2007: agreement imposed obligation related to domestic supply based on prior market share; priority given to the lower tariff residential market. 2012: Government nationalizes 51% of YPF from Repsol YPF Decree 1277 introduces government review of investment plans, allowing government to cancel a company s privileges to operate agreement extended until new legislation replaces it. 2013: Gas Plan 1 enacted offering higher wellhead gas prices of $7.5/mmbtu to companies for excess production based on individual negotiations. Creation of Promotion Regime allowing for export duty exemption on 20% of new investments in production for players that invest more than $1bn in five years. 2016: Resolution 74/2016 stipulated that incremental gas prices of $7.50/mmbtu will be in effect through 2018 for any gas from tight and shale formations or new discoveries since Resolution 99/2016 provides that residential customers and non-residential customers will not pay an increase in excess of 400% and 500%, respectively, of the amount paid by them, before taxes, on March 31, : Creation of a rationalization plan for gas exports. Supply of gas beyond the volume contractually committed to domestic market. New gas export tax of 20% (16.7% effective rate). 2005: Introduction of Permanent Additional Supply obligation to supply domestic market. 2008: Creation of a trust fund to finance imports of natural gas. Complementary Agreement requirements to contribute to trust fund and new wellhead prices. Increase in distribution tariff to residential consumers. Gas export tax increased to 100% (50% effective rate). Gas Plus introduced. 2010: ENARGAS sets forth new and more severe rules for natural gas dispatch to supply domestic market. 2011: Repatriation of foreign exchange on 100% of export collections. 2014: New Hydrocarbons Law reforms licensing royalty (15%), and investment legislation. New wellhead prices subject to 5 to 20% yoy savings. Compressed gas in service stations to be raised by the same percentage as gasoline Source: Credit Suisse Research for legislation, BP statistical review for country production 53

54 The Argentine Oil & Gas Industry Legislation Taxes and Export Duties Currently in Place Taxes Corporate income tax: 35% Provincial sales tax: 1-3% Federal royalty: 12% (+3% per contract extension, up to 18%) for Production concession holders, 15% for Exploration permit holders Export taxes Exploration surface rentals and production concession rentals Income Tax 35% rate Net operating losses can be carried forward for up to five years Dividends: 10% withholding tax on payments to non-residents or local individuals (from Argentine company to another is exempt). In case of net loss, presumptive minimum income tax of 1% assets applies and is creditable against the payable income tax in the following ten years Export duty When domestic oil prices in Argentina were below international levels, legislation passed during the Kirchner Government effectively capped prices producers were allowed to receive from exports at the same level as domestic prices. Moreover, because there was restricted access to foreign currency, the Government had passed rules that allowed for free disposal of dollars on part of the proceeds from exports. Oil, Gasoline, Naphtha, and Fuel oil: International Price Nominal tax Diesel and Jet Fuel: International Price Nominal tax < $71/bbl 1% $71/bbl (Int l price 70) / 70 * 100% < $71/bbl 1% $71/bbl 0.009*(Int l price 69) / 69 * 100% Numerical example for oil exports at $80/bbl: Nominal tax rate = (80-70)/70 = 14%. Effective tax rate = 14%/(1+14%) = 12% * $80/bbl = $10/bbl => Effective price received by exporters = $80 10 = $70/bbl. Decree 929/2013 enables operators to secure international market prices, exempt of export duty, for 20% of crude oil production after three years if they invest $250mn in the period. The producers can also freely dispose of the foreign currency generated by this export. Gas: 100% nominal export duty (50% effective rate) Restriction on exporting natural gas, exporter must provide evidence that domestic demand has been satisfied Source: Credit Suisse Research 54

55 The Argentine Oil & Gas Industry Legislation Incentive Programs Currently in Place Gas Plan: Introduced in Increased realized natural prices by producers in the domestic market and effectively removed exposure to different segment prices. Companies receive from the government a subsidy (in cash, reportedly after 90 to 180 days) that equals the difference between sales price and the result of a formula calculated as: Subsidy= Base price Base prod +$7.5/mmbtu (Total prod Base prod) The parameters are company-specific. Base production is a declining curve agreed upon with the government and base price is set according to 2012 average prices. As consequence a company s realized gas price after subsidy can be calculated using the same formula and is not sensitive to sales price. For YPF parameters are as follows: Base production decline rate is 7.25% a.a. Base price is 2.3$/mmbtu Gas Plus: Introduced in Allowed for higher prices for gas sales derived from new discoveries, unconventional sources and incremental production from existing areas. Natural gas produced under this regime is not subject to the Agreement Resolution 21/2016: Establishes an export stimulus program of crude oil if domestic demand for crude oil Escalante from the San Jorge Gulf Basin is satisfied. Valid until December 31, 2016, the Argentine government pays a compensation of US$ 7.50/bbl and Chubut province subsidizes US$ 2.50/bbl, as long as the average price of Brent does not exceed US$ 47/bbl two days before and two days after the shipment. YPF gas price calculation exercise* Given the Gas Plan pricing scheme, one can calculate future realized price for natural gas based on forecasted production. We present this calculation below. In 2014, YPF realized gas price was: $4.3/mmbtu 62% production valued at $2.3/mmbtu 38% production valued at $7.5/mmbtu Gas production in 2014: 267kboed Base production for 2014 was 165kboed 7.25% a.a. decline rate 2.3/mmbtu base production in 2015: 153kboed 2015 full YPF estimated gas production: 280kboed 7.5/mmbtu production in 2015: 127kboed Average YPF 2015 gas price = (2.3* *127)/280 = = $4.7/mmbtu *Note: Because YPF acquired Apache, now named YSUR, in 2014 the calculation is not exact on a consolidated basis. YSUR pricing is given by a different set of parameters under the Gas Plan 2 pricing scheme. YSUR representing only c.14% of YPF s total gas production (at c. $3.9/mmbtu realized price in Q1 15), investor can still consider this calculation a very good proxy. Source: Credit Suisse Research 55

56 January 2017 LatAm Oil & Gas Equity Research YPF In Context: The Order of Merit

57 Occidental Hess Marathon Chevron BP Statoil ExxonMobil ConocoPhillips Total ENI YPF OMV Royal Dutch Shell Repsol ExxonMobil BP Chevron Royal Dutch Shell Total Statoil ConocoPhillips ENI Occidental YPF Marathon Hess Repsol OMV % 2,335 1,947 1,744 1,514 1,240 1, % 73% 70% 67% 61% 58% 55% 55% 55% 54% 52% 52% 50% ExxonMobil BP Royal Dutch Shell Chevron Total Statoil ENI ConocoPhillips Occidental YPF Repsol Marathon Hess OMV January 2017 Order of Merit Upstream Production Overview A Relevant Company in a Potential Market. YPF is relatively small when compared to the vast majority of major oil companies, with approximately 600kboed of production, but is quite relevant to the Argentine oil and gas market, one of the most appealing in the world, with a significant potential of unconventional production. Oil and Gas Production Rankings (million barrels of oil equivalent per day) Well Balanced Between Oil and Gas. The company plays a leading role in both the oil and gas upstream segments, with operations in exploration, development, and production of crude oil, natural gas, and NGLs. It is extremely balanced between oil and gas, with production split roughly 50-50% between both types of hydrocarbons. Oil Production Rankings and Oil as % of Total oil as % of total production Oil Production Rankings (million barrels per day) Source: Company data, Credit Suisse analysis. Note: all averages are weighted by company scale. 57

58 Repsol Hess Occidental ENI Total BP Statoil ExxonMobil YPF ConocoPhillips Chevron OMV Royal Dutch Shell Marathon -2% -4% -6% 14% 13% 10% 10% 5% 4% 3% 14% 3% 2% 2% 57% 09 January 2017 Order of Merit Upstream Production Growth Track-record Focus on Increasing Productivity. Prior to the 2012 nationalization, YPF was reducing its production levels at a rate of c.6% p.a. From 2012 to 2015, growth increased to 3-5%, driven mainly by the acquisition of Apache s assets in 2014, when the company registered almost 14% of production growth. The new management, which took place on December 15, aims to increase productivity and create a more efficient company, sustainable in a lower crude oil price environment. The company expects to cut its capital expenditure and already has drilling and workover rigs in standby mode, so an increase in the production levels is not expected for now. Oil and Gas Production Growth Rankings (%) Oil and Gas Production Growth over Time (%, YoY growth) Sector YPF 13.6% 2.7% 3.0% 6.0% 1.0% 1.1% 0.2% 5.3% -4.1% -3.7% -5.1% 1.9% 2.1% -1.6% -0.6% -5.4% -0.9% 1.7% -2.4% -2.6% 4.3% 2.9% -1.4% -1.4% -10.7% -8.3% Source: Company data, Credit Suisse analysis. Note: all averages are weighted by company scale. 58

59 Marathon ExxonMobil BP Royal Dutch Shell Total Chevron ENI ConocoPhillips Statoil Repsol Occidental YPF Marathon OMV Hess Hess Occidental ConocoPhillips OMV ExxonMobil YPF Chevron BP ENI Total Royal Dutch Shell Statoil Repsol % % 74% 72% 62% 58% 57% 54% 53% 53% 51% 48% 43% 47% ExxonMobil BP Chevron Total ConocoPhillips Royal Dutch Shell ENI Statoil Marathon Occidental Hess YPF OMV Repsol January 2017 Order of Merit Upstream Reserves Base Unconventional Fields and Rejuvenation. The company s reserves profile is similar to the production: well distributed between oil and gas but relatively small when compared to other major companies. YPF has approximately 1.2bn boe in reserves, being 54% in oil and 46% in gas, concentrated mainly in Neuquina and Golfo San Jorge for oil, representing 47% and 41% of the total, respectively, and Neuquina and Austral for gas, with 75% and 11% of participation, respectively. In addition, most of its producing fields in Argentina are mature, requiring a significant commitment to overcome their decline. The company remains in its path to grow production and reserves through the development of unconventional resources, which can be exemplified by its four main joint ventures to develop shale oil and gas and tight gas in Argentina. Oil Reserves (Proven SEC) Rankings (mmbbls, Thousands) Oil as % of Oil and Gas Reserves Rankings (%) Gas Reserves (Proven SEC) Rankings (bcf, Thousands) Source: Company data, Credit Suisse analysis. Note: all averages are weighted by company scale. 59

60 ExxonMobil Marathon ConocoPhillips BP Total OMV ENI Chevron Royal Dutch Shell Occidental Hess Repsol Statoil YPF ExxonMobil BP Marathon ConocoPhillips Total Chevron Repsol ENI Royal Dutch Shell OMV Occidental Hess Statoil YPF January 2017 Order of Merit Upstream Reserves life Still Low Reserve Life. YPF still has a relatively low proved-reserve life of six years (half the industry average) with 1.2bn boe in reserves and 210mn boe of oil and gas production, and it now has the challenge of replacing its proved reserves with other types of hydrocarbons. In order to maintain reserves levels, YPF is optimizing new fields developments and identifying opportunities to rejuvenate mature fields. Parallel to this, the company has been renewing its concessions in order to be able to develop projects like waterflooding, enhanced oil recovery, and unconventional resources. YPF estimates that the development of unconventional resources will require higher investments in the future, especially in the Vaca Muerta formation, aiming to yield economies of scale and increase recovery rates from this play. Proven Oil and Gas Reserves Life Rankings (Years) Industry Oil and Gas Reserves Life Over Time (Years) Proven Oil Reserves Life Rankings (Years) Sector YPF Source: Company data, Credit Suisse analysis. Note: all averages are weighted by company scale. 60

61 Repsol ENI Total YPF Chevron Statoil Marathon BP ExxonMobil OMV ConocoPhillips Royal Dutch Shell Occidental -67% -13% 157% 150% 135% 117% 109% 92% 90% 68% 53% 45% 10% Repsol Marathon YPF ENI Total Statoil ConocoPhillips Chevron BP ExxonMobil Occidental Royal Dutch Shell OMV 181% 145% 129% 123% 119% 112% 103% 94% 89% 85% 75% 56% 48% 09 January 2017 Order of Merit Upstream Reserves Replacement Ratio Declining RRRs A 100% organic reserve replacement ratio is hard to achieve, with the industry presenting ratios above that only in eight years since In 2015, the industry RRR was c. 63%, compared to 95% in 2014 and 121% in 2013, showing then a declining trend. The larger players have been increasingly more dependent on inorganic measures (i.e., acquisitions) to adequately replace reserves. YPF Is on the Opposite Way. Before expropriation YPF used to present very low RRRs due to declining production and scarce investments. After nationalization, the company managed to be materially above 100% in its RRRs, increasing investments and production in the past three years. In 2016, it is reasonable to expect a lower RRR in a year-on-year analysis, since the company changed its strategy and is reducing its investments and now focusing on developing its reserves in a more efficient way. Organic Oil and Gas Reserve Replacement Ratio Rankings (3-year average, %) Industry Organic Oil and Gas Reserve Replacement Ratio (3 year average, %) Sector YPF 116% 119% 124% 113% 117% 118% 115% 129% 110% 103% 97% 89% 80% 83% 87% 109% 116% 96% 92% 80% Organic Oil and Gas Reserve Replacement Ratio Rankings (yearly average, %) % 42% 52% -9% Source: Company data, Credit Suisse analysis. Note: all averages are weighted by company scale. 61

62 ExxonMobil Royal Dutch Shell Total BP Chevron Repsol ENI OMV YPF Statoil ,187 1,957 1,900 Crude oil refined 3,217 3,154 2,247 1,853 1,835 5,248 5,035 Repsol OMV ExxonMobil Royal Dutch Shell Total Chevron BP YPF ENI Statoil 117% 128% 103% 74% 64% 57% 45% 19% 122% 119% 105% 107% 100% 70% 58% 55% 33% 18% 187% 292% 09 January 2017 Order of Merit Downstream Refining overview YPF. YPF is close to being fully integrated, with refining buying 80% of its crude needs from Upstream (and 20% from other local oil companies in Argentina). That said, when we add gas production to the equation, YPF remains mostly an Upstream company, with oil and gas production being 80% above the company s refining capacity. Refinery Cover Ratio (Refining Capacity / Oil & Gas Production) Long Refining / Short Upstream Neutral Short Refining / Long Upstream Refining Capacity Rankings (kbd) Crude Oil Refined vs Oil Products Sold (kbd) ,000 4,500 4,000 3,500 3,000 Royal Dutch Shell ExxonMobil Statoil 2,500 2,000 1,500 Total BP 1, Repsol OMV ENI Chevron 0 YPF Statoil 0 2,000 4,000 6,000 Oil products sold YPF OMV Source: Company data, Credit Suisse analysis. Note: all averages are weighted by company scale. 62

63 Order of Merit Returns, Capital Employed, Balance Sheet Capital Deployment and Return Trends High Investments and Low Returns. In the past years, the oil and gas industry has not benefited from higher oil prices, with returns declining steadily since 2008 and international oil price levels structurally higher. Such trends can be explained by the companies investment profiles, which has been investing close to 100% of cash generation for the past seven years, once the industry needed to deploy increasingly more capital in harder-to-extract oil basis to sustain production. With the recent fall in the oil prices and the maintenance of sector s capex/ebidax levels, the sector reached all-time low returns in From Growth to Efficiency. After nationalization, YPF changed its profile, increasing spend and embarking into a higher growth territory, with capex surpassing cash generation. This strategy diminished the company's ROGIC and increased its production, but this trend will probably not be observed in the future. The company is now reducing its capex levels and focusing on efficiency, aiming to maintain the current production. Consolidated ROGIC over Time (%) 16% Sector YPF Oi price ($/bbl) 14% 12% 10% 8% 6% 4% 2% 0% Capex/Gross Invested Capital over Time (%) Capex/EBIDAX over Time (%) 14% 12% Sector YPF 180% 150% Sector YPF 10% 8% 6% 4% 120% 90% 60% 2% 30% 0% 0% Source: Company data, Credit Suisse analysis. Note: all averages are weighted by company scale. 63

64 Marathon YPF Chevron Statoil Hess Repsol ConocoPhillips Occidental OMV Royal Dutch Shell ExxonMobil Total BP ENI Chevron ExxonMobil Royal Dutch Shell Total BP Statoil ENI Repsol ConocoPhillips YPF Occidental Hess OMV Marathon 9% 8% 8% 8% 7% 7% 6% 6% 6% 6% 6% 5% 5% 4% Repsol Total YPF ENI Hess Statoil Chevron Marathon ConocoPhillips BP Occidental ExxonMobil Royal Dutch Shell OMV BG 0% 181% 168% 119% 119% 115% 113% 101% 99% 92% 87% 83% 80% 44% 301% 09 January 2017 Order of Merit Returns, Capital Employed, Balance Sheet Capital Deployment Rankings Turning to Efficiency? After nationalization, in a scenario in which Argentina was importing natural gas and diesel and total production was declining, YPF adopted a strategy that contemplated an increase in investments in order to elevate its production in the country. This approach doubled YPF s capex between 2012 and 2015, and the focus on growth made the company to invest disproportionally, more than the rest of the industry, to the extent of being free-cash-flow negative in With the new government and new YPF administration, the company is now focusing on efficiency by reducing its capex (levels in 2016 will be around 4 billion dollars, compared to c. 6.9 billion in 2015) and maintaining or increasing its production. Improving Shale Economics. With a lower international oil price environment and a decrease in domestic crude, the company needs to invest in a value-accretive way. In recent quarters, it was possible to observe an improvement in shale economics, with the already mentioned significant well cost reduction (reaching c.usd8 million in Loma Campana horizontal wells), and a good learning curve in productivity, illustrated by an increase in frac stages and shale oil production. Capex/EBIDAX Rankings (%) Capex/Gross Invested Capital Rankings (%) Aggregate Capex Rankings (US$bn) Source: Company data, Credit Suisse analysis. Note: all averages are weighted by company scale. 64

65 Repsol ConocoPhillips Marathon YPF Statoil ENI Total ExxonMobil BP Hess Chevron Royal Dutch Shell OMV Occidental January 2017 Order of Merit Returns, Capital Employed, Balance Sheet Balance Sheet and Leverage Gearing Levels Remain Comfortable for (Most) Global Oils, below the 20% mark. The sector never went above the 25% mark from the beginning of the former decade until now. Low gearing allows re-investment and capital intensity to remain high, which bodes well for the oil services industry and for further M&A as a means to improve RRRs. YPF Still Leveraging Up. YPF was able to maintain its leverage below the publicly stated target of 1.5x net debt/ebitda during a long period, but since 2015, this ratio is above it mainly because of the adversities that the company is facing to receive government subsidies, currency devaluation (more than 70% of company s debt is denominated in US dollars), and lower domestic oil prices. Multiples are now higher than the industry average, and at some point, the market might need visibility on the stabilization of gearing. Net Debt/EBIDAX (%) 2.0 Sector YPF Net debt/total Capital Trends (%) Net DEBT/EBIDAX Rankings (%) 50% Sector YPF % 30% 20% 10% 0% Source: Company data, Credit Suisse analysis. Note: all averages are weighted by company scale. 65

66 Order of Merit Upstream vs Downstream Capital Intensity Upstream. The industry s upstream capital expenditure as % of Gross Invested Capital has remained relatively stable throughout the decade at c.10% level. Before 2011, YPF remained relatively in line with the sector, a factor which has to be seen in the context of an already low invested capital base. In more recent years, capital intensity has risen for YPF and the company is above the majors. For the coming years, it is reasonable to expect low levels of capital expenditure for YPF, since the new management s strategy seems to focus on efficiency, and the upstream capex/gic will probably be closer to the sector s profile again. Downstream. Previous to 2010, YPF presented a lower capex / GIC ratio compared to the industry, suggesting better efficiency in capital allocation, operating above maintenance capex in a long refining market. After that, the company embarked on some upgrades and also needed to recover 40kbd of lost capacity due to the fire at La Plata in Going forward, future production and demand growth might generate the need for more refineries in the country in the medium to long term. Upstream Capex/GIC over Time (%) Downstream Capex/GIC over Time (%) 25% Industry YPF 10% Industry YPF 20% 8% 15% 6% 10% 4% 5% 0% 2% 0% Source: Company data, Credit Suisse analysis. Note: all averages are weighted by company scale. 66

67 Order of Merit Upstream vs Downstream Profitability Upstream. The increase in oil prices in the years preceding 2014 allowed the industry s upstream profitability to go up, as exemplified in the chart below through a proxy for cash generation ratio (EBIDAX/bbl). In that period, YPF has presented approximately half of the industry s profitability, with EBITDAX/bbl around US$10-15/bbl compared to the sector s US$20-30/bbl. This dynamic can be explained by the artificially controlled prices in Argentina that kept oil prices lower in that period. With the fall in international prices by late 2014, the profitability gap between YPF and the industry has diminished, and in 2016 we expect better numbers coming from YPF in the comparison with the industry, once Argentine domestic crude price is above Brent. Downstream. The Argentine oil & gas industry structure has some characteristics that allowed YPF to present a higher profitability in the past years in comparison with the industry s average. It can be mentioned, for instance, the number of players (few in downstream and many in upstream), the lower domestic oil prices in Argentina vs import parity and controlled prices of key output products. However, YPF s downstream profitability closed the gap with the industry, as shown in the EBIDAX per bbl processed chart below. The main reason for that is the inflationary pressure in the country that increased YPF s opex and squeezed margins, as it was not able to fully pass on these costs. Upstream EBIDAX per boe over Time (US$/boe) Downstream EBIDAX per bbl processed over Time (US$/bbl) Industry YPF Industry YPF Source: Company data, Credit Suisse analysis. Note: all averages are weighted by company scale. 67

68 Equity Research Argentina Overview Setting The Stage DIVISÓRIA

69 Argentina's History and Recent Developments Argentina's history is marked by high economic volatility. The current sovereign debt still shows vestiges of decisions made by different administrations in the past three decades. The dynamics of the oil and gas industry in the country were significantly affected by these changes, and the next few slides present a brief overview of the main changes in economic indicators over time and how the new government is trying to carry out its policy. In 1989, Carlos Menem was inaugurated president of Argentina in a challenging economic scenario, with high public debt and high inflation (20,000% in March 1990). Menem implemented a series of measures to resume the country's development and economic growth, such as privatizations, unfreezing prices, opening up the economy to foreign capital and monetary reform, and establishing the peso as the official currency and inflexibly equal to one US dollar. Argentina's central bank served as a currency board, exchanging national currency issued by itself for foreign currency, at a fixed rate, and controlling the national monetary base. At that time, the dollar became accepted as currency, and economy showed significant improvement. In 1995, inflation fell to the single digits, pubic debt declined to 27% of GDP, and international reserves saw a constant increase in the period. 15% 10% 5% 0% -5% -10% Argentina historic GDP (%) Economic recovery Pre-crisis years GDP 2001/ 2002 crisis Kirchnerism -15% Economic recovery Pre-crisis years Argentina's Total External Debt (EOP in USDbn) Economic recovery Pre-crisis years 2001/2002 crisis Kirchnerism Still in 1994, the Mexican crisis caused investors around the world to withdraw their capital from emerging countries. In the following years the Asian and Russian crises and the period before the technological bubble brought new capital flight, which, together with some government measures, created an Argentine scenario of high interbank interest rates, increased lending, high unemployment, and uncontrolled growth in government debt, as tax revenues declined and social spending increased. Argentina was in recession again Source: Credit Suisse Research, INDEC, Bloomberg, IMF 69

70 Argentina's History and Recent Developments In 1999 Fernando de la Rua won the presidential elections under a scenario of economic instability. In 2000 there was additional capital leakage, increasing indebtedness and borrowing costs. In the midst of an institutional crisis, Argentines began to take their money out of banks and send dollars out of the country, causing interbank interest rates to skyrocket and confidence to fall sharply. In December 2001, the government announced restrictions on bank withdrawals and transfers out of the country, and the withdrawal of dollars was prohibited. The crisis intensified, and many shops, banks, and supermarkets were looted. In December, de la Rua resigned; in the same month, the government announced a total moratorium on its external debt service. Also, the exchange convertibility regime was officially revoked. The dollar then appreciated, and the government established that private debts would be converted into pesos. In that scenario, inflation rose to 40% per year. Many companies went bankrupt, and the quality of life plummeted. Eduardo Duhalde (De la Rua s successor) left the presidency in May of 2003, when Kirchnerism began in Argentina Economic recovery Pre-crisis years 2001/ 2002 crisis Currency devaluation (ARS/USD) Kirchnerism 0 Jan-92 May-95 Sep-98 Jan-02 May-05 Sep-08 Jan-12 May Argentine crisis Kirchnerism 55% 45% 35% 25% Argentina YoY inflation (%) Economic recovery Pre-crisis years 2001/ 2002 crisis Kirchnerism 15% Annual inflation 5% above -5% 500% Jan-89 Nov-92 Sep-96 Jul-00 May-04 Mar-08 Jan-12 Nov-15 In 2003, Nestor Kirchner was elected president. At that time, Argentina had more than half of its population living in a poverty condition and, as the country declared a moratorium in 2002, external financing was not an option. One of the challenges for the new government was to diminish the debt, and this target started to be accomplished before Kirchner assumed, in Duhalde s mandate, when the peso was depreciated asymmetrically: debts with the banking system were pesoficated in the ratio of 1:1, while deposits in foreign currency were converted at the rate of 1.40 pesos per dollar. This devaluation was beneficial to the agribusiness that, in an environment of soaring commodity prices, contributed to an increase in exports, over which the Argentine government received 1/3 of sales. In the years of Nestor Kirchner's government, Argentina presented a significant economic improvement, with GDP growth, unemployment reduction, and reduction of public debt. In 2007, Cristina Kirchner was elected president, giving continuity to the social policies in her government. Cristina's government also had characteristics such as state protection, exchange control, subsidies, and price freezes. Source: Credit Suisse Research, INDEC, Bloomberg, IMF 70

71 Argentina's History and Recent Developments At the end of 2015, Argentina was again in a challenging situation. Factors such as economic stagnation, high inflation, depleted international reserves, besides a gaping fiscal deficit. Mauricio Macri was elected president and took office in December of the same year. The new administration is committed to improving the country's economy and attracting investors, but it needs and will continue to need to implement unpopular measures; and, therefore, it may take more time than initially expected to improve the country's macroeconomic fundamentals. Most Important Events since Mauricio Macri Won Presidential Election Nov Dec Jan Feb Mar Apr May Jun Aug Sep Oct Nov With a narrow 2.8% margin, Mauricio Macri won the presidential election against the governing party s (FPV) candidate, Daniel Scioli. Moody s affirmed Argentina s Caa1 sovereign rating and revised the outlook to positive from stable. Private negotiations between members of the president s team and holdout creditors began. Macri is sworn in as president. Exchange controls are lifted. The peso started trading in a managed floating exchange rate regime. Ministry of Energy and Mining is created under Decree 13/2015 and absorbs the functions of the Secretaries of Energy and Mining and decentralized entities. Central bank begins increasing interest rates on its peso-denominated notes. Ministry of Budgeting and Finance reduces period in which funds must remain in Argentina to 120 calendar days and reduced mandatory deposits to 0%. Government sets primary fiscal deficit targets of 4.8% in 2016, 3.3% in 2017, 1.8% in 2018, and 0.3% in For inflation, the targets are 20%-25% in 2016, 12%-17% in 2017, 8%-12% in 2018, and 3.5%-6.5% in USA suspended its policy of opposing multilateral loans to Argentina. Statistics bureau INDEC announces intention to publish a new consumer price index by September. Government announces first electricity tariff increase in 12 years. The government makes formal proposal to holdout creditors. Consumer confidence fell sharply to 45.6 in February from 54.0 in January. Government reached preliminary accord with Italian holdout creditors. President Macri raises minimum threshold for income taxes, from AR 15,000 to AR 30,000. Central bank sharply increases interest rates on its short-term Lebac notes; rates on 35-day paper are raised almost 600bps to 37.0% from 31.2% a week earlier. US District Court Judge Thomas Griesa lifts pari passu injunctions subject to two conditions. Lower House of Congress approves legislation needed to settle with holdout creditors. Argentina returns to international bond markets after fifteen years, by paying off the remaining bondholders. Argentine government announces amnesty on an estimated $500 billion in undeclared assets stashed abroad by Argentines. Programs aim to recover funds in order to pay pensioners and help fund a multi-billion-dollar infrastructure program. New administration attempts to impose a drastic increase in gas tariffs, but the measure is vacated in August by the supreme court. Argentina's supreme court vacates the gas price increase imposed at the beginning of the year and requires that a public hearing be held to discuss the issue. Argentine government announces revised target deficit rate of 4.2% of GDP, higher than 3.3% promised in January. Argentine government implements a new natural gas pricing policy after a public hearing is held in September, establishing that natural gas prices for residential and commercial customers should converge to international prices by 2019, based on benchmark LNG import price for Central bank reduces monetary policy rate by 50bps, to 24.75%, the fourth consecutive cut of 50bps. Source: Credit Suisse Research, INDEC, Ministry of Mines and Energy of Argentina, Argentine Central Bank 71

72 January 2017 LatAm Oil & Gas Equity Research Appendix YPF financials

73 YPF Financials P&L Group P&L E 2017E 2018E Revenues USDm 11,280 13,601 14,736 16,426 17,463 16,812 14,586 13,071 15,088 COGS USDm (7,631) (9,943) (11,018) (12,480) (12,854) (12,854) (12,082) (10,061) (10,975) SG&A USDm (1,135) (1,758) (1,731) (1,872) (1,799) (1,793) (1,540) (1,563) (1,594) Exploration expenses USDm (88) (139) (128) (148) (247) (263) (148) (148) (148) Impairment of PP&E USDm (250) (2,429) 0 0 Others USDm 0 (8) (112) 87 (120) EBIT USDm 2,426 1,754 1,747 2,013 2,444 1,828 (1,512) 1,299 2,370 Interest income USDm Interest expense USDm (238) (252) (341) (688) (902) (1,132) (1,422) (1,560) (1,587) FX USDm ,011 1,004 2, Others USDm (39) Associates USDm EBT USDm 2,309 1,846 1,883 2,563 2,775 3,033 (2,068) 236 1,058 Income tax USDm (827) (764) (1,022) (1,647) (1,675) (2,517) 724 (83) (370) Minorities USDm Net income USDm 1,482 1, , (1,330) Number of shares millions Number of ADRs millions EPS ARS/sh (50.1) EPADR USD/ADR (3.4) Dividend per share Payout % 76% 123% 7% 6% 5% 10% (4%) 33% 10% Dividends USDm 1,129 1, DPS $/sh P&L metrics Tax rate - current % 36% 33% 32% 21% 32% 82% 35% 35% 35% Tax rate - current + deferred % 36% 41% 54% 64% 60% 83% 35% 35% 35% EBIT margin % 22% 13% 12% 12% 14% 11% (10%) 10% 16% EBITDA margin % 34% 27% 27% 31% 29% 31% 28% 32% 36% Revenue YoY growth % 21% 8% 11% 6% (4%) (13%) (10%) 15% EBITDA YoY growth % (7%) 10% 29% (2%) 2% (19%) 1% 30% EPADR growth % (27%) (20%) 7% 21% (53%) (351%) (113%) 319% Memo: EBITDA calculation EBIT USDm 2,426 1,754 1,747 2,013 2,444 1,828 (1,512) 1,299 2,370 DDA USDm 1,348 1,558 1,784 2,038 2,445 2,863 3,220 2,878 3,041 Impairment USDm , Other adjustments USDm , EBITDA (CS calculation) USDm 3,865 3,613 3,965 5,132 5,014 5,129 4,137 4,177 5,411 Source: Credit Suisse Research, Company data 73

74 YPF Financials Cashflow Statement Cashflow, CS adjusted E 2017E 2018E EBITDA USDm 3,865 3,613 3,965 5,132 5,014 5,129 4,137 4,177 5,411 Net increase in provisions USDm Tax payments USDm (548) (1,026) (446) (604) (425) (752) 724 (83) (370) Deffered tax payments USDm 279 (263) 575 1,043 1,250 1,765 (216) 0 0 Other cash outflows (-) / inflows (+) USDm (981) 305 (988) (2,070) (1,873) (940) (708) 0 0 CFO before WK USDm 2,967 2,934 3,587 4,095 4,640 5,835 4,198 4,095 5,041 Inventories increase (-), decrease (+) USDm (164) (425) (11) (107) (7) (106) Receivables increase (-), decrease (+) USDm (90) 64 (52) (314) (288) (285) (391) 1,179 (139) Payables increase (+), decrease (-) USDm (469) (155) (506) 220 Other WC increase (+), decrease (-) USDm 131 (249) 233 (533) 676 (897) (53) Working capital movements USDm (455) 827 (1,617) (77) CFO USDm 3,221 3,007 3,769 3,640 5,466 4,218 4,430 5,014 4,964 Capex USDm (2,224) (2,926) (3,594) (4,986) (6,179) (6,868) (3,997) (3,932) (4,214) Divestments USDm CFI USDm (2,224) (2,926) (3,594) (4,102) (5,914) (6,868) (3,997) (3,932) (4,214) Free-cash-flow to the firm (FCFF) USDm (462) (448) (2,650) 433 1, Financial expenses (cap + expensed) USDm 0 (110) (201) (492) (620) (725) (910) (999) (1,016) Financial income USDm Repayment of debt USDm (3,433) (4,102) (6,244) (1,251) (1,630) (2,593) (3,958) (761) (1,239) Issuance of debt USDm 3,614 5,106 7,021 3,059 2,951 5,919 6, ,239 Equity issuance (+), buybacks (-) USDm (0) (13) (13) (13) (13) Dividend payment USDm (1,129) (1,335) (63) (58) (56) (54) (54) (55) (55) CFF USDm (918) (398) 557 1, ,798 1,286 (968) (1,007) Change in cash before FX USDm 79 (317) , (257) FX changes USDm (9) (59) (25) (283) (861) (101) Change in cash and equivalents USDm 71 (377) (501) 47 1, (257) Capex Shale capex USDm ,500 1,500 1,035 1,035 1,380 Non-shale capex USDm 1,730 2,351 2,568 5,127 3,683 3,728 2,162 2,097 2,034 Upstream capex USDm 1,730 2,351 2,568 5,127 5,183 5,228 3,197 3,132 3,414 Downstream capex USDm , Corporate capex USDm Total capex USDm 2,413 3,318 3,516 6,078 6,375 6,428 3,997 3,932 4,214 Source: Credit Suisse Research, Company data 74

75 YPF Financials Balance Sheet Balance sheet E 2017E 2018E Cash and equivalents USDm ,643 1,143 1,190 2,475 2,589 2,333 Trade receivables USDm ,137 1,425 1,710 2, ,060 Inventories USDm 971 1,397 1,408 1,516 1,522 1,489 1,414 1,171 1,277 Others receivables and advancements USDm , Current assets USDm 3,218 3,075 3,733 5,294 4,930 5,952 6,813 5,381 5,474 PP&E and investments USDm 8,083 10,590 11,979 14,666 18,748 21,287 19,187 20,272 21,477 LT receivables and advancements USDm Intangibles USDm Others USDm Non-current assets USDm 8,492 11,109 12,532 15,504 19,491 22,154 20,060 21,146 22,351 Total assets USDm 11,710 14,184 16,265 20,798 24,421 28,106 26,873 26,527 27,825 ST debt USDm 1,552 1,805 1,018 1,352 1,554 2,151 1,960 1,886 1,853 Payables USDm 1,920 2,603 2,615 3,115 3,560 3,092 2,936 2,430 2,650 Pension USDm Others USDm Current liabilities USDm 4,298 4,877 4,258 5,032 6,249 6,170 5,776 5,075 5,314 LT debt USDm 405 1,031 2,462 3,539 4,219 6,027 8,026 8,295 8,734 Payables USDm 1, Pension USDm Deferred income tax liabilities USDm ,758 2,219 3,465 2,807 2,807 2,807 Provision and others USDm 767 2,173 2,190 2,996 3,146 3,080 2,832 2,832 2,832 Non-current liabilities USDm 2,626 3,860 5,647 8,366 9,650 12,620 13,705 13,974 14,414 Shareholder equity USDm 4,785 5,447 6,359 7,365 8,505 9,312 7,402 7,501 8,134 Minority USDm (10) (23) (37) Total Equity USDm 4,785 5,447 6,359 7,399 8,522 9,315 7,392 7,478 8,097 Total liabilities + equities USDm 11,710 14,184 16,265 20,798 24,421 28,106 26,873 26,527 27,825 Balance sheet metrics Total debt USDm 1,958 2,837 3,480 4,891 5,773 8,178 9,986 10,181 10,587 Net debt USDm 1,323 2,578 2,514 3,248 4,631 6,988 7,511 7,591 8,254 Net debt/ebitda x EBITDA / interest expense x Net debt / (ND + Equity) % 22% 32% 28% 31% 35% 43% 50% 50% 50% Book value per share $/ADR Returns ROE % 31% 20% 14% 13% 13% 6% (18%) 2% 9% ROA % 13% 8% 7% 8% 7% 1% (4%) 3% 6% ROCE % 25% 15% 13% 15% 13% 2% (7%) 6% 9% Source: Credit Suisse Research, Company data 75

76 YPF Financials Upstream Operating Metrics & Macro Upstream E 2017E 2018E Macro USD-ARS (average) x Unofficial inflation estimates % 19.7% 27.7% 26.9% 26.5% 38.3% 28.0% 36.8% 23.8% 10.0% US inflation (PPI) % 1.5% 3.3% 2.0% 1.6% 1.6% 0.1% 2.0% 2.0% 2.0% Production Oil production kbd NGL production kbd Nat gas production kboed Total production kboed Total oil and gas production YoY % (8%) (1%) 2% 14% 3% 1% 1% 5% Oil production growth YoY % (8%) 2% 2% 5% 2% (1%) (1%) 1% Nat gas production growth YoY % (10%) (2%) 1% 25% 4% 1% 2% 8% Memo: nat gas production Nat gas production for $2.3 deck % of total 69% 61% 57% 52% 48% 42% Nat gas production for $7.5 deck % of total 31% 39% 43% 48% 52% 58% Nat gas deck for $2.3/mcf price kboed Nat gas deck for $7.5/mcf price kboed Shale production mathematics Shale oil production kbd Shale NGL production kbd Shale gas production kboed 4 7 Tight gas production Kboed Shale total production kboed Ex-shale oil production kbd Ex-shale NGL production kbd Ex-shale nat gas production kboed Ex-shale growth, oil YoY % (8%) 2% (1%) 5% 1% (3%) (3%) (3%) Ex-shale growth, NGL YoY % (3%) (6%) 1% (3%) (6%) 6% (3%) (3%) Ex-shale growth, nat gas YoY % (10%) (2%) (2%) 16% 1% (4%) (3%) (3%) Revenues Brent $/bbl YPF realised oil price $/bbl $3/bbl tax rebates if QoQ growth $/bbl 0 Henry Hub $/mmbtu YPF realised gas price $/mmbtu Costs and Taxes Royalties % 12% 12% 12% 12% 12% 12% 12% 12% 12% Other sales taxes % 3% 3% 3% 3% 3% 3% 3% 3% 3% Lifting costs $/bbl Transportation costs $/bbl DD&A $/bbl Source: Credit Suisse Research, Company data 76

77 YPF Financials Upstream P&L Upstream E 2017E 2018E Upstream P&L Revenues USDm 5,884 6,064 6,884 7,772 8,690 8,640 8,314 7,713 9,432 COGS USDm (4,179) (4,887) (5,670) (5,925) (6,790) (6,595) (6,613) (6,430) (7,013) SG&A + margin of error USDm (114) (124) 58 (693) (371) (1,215) (1,215) (1,215) (1,215) Operating income USDm 1,591 1,053 1,272 1,154 1, ,204 EBITDA USDm 2,741 2,379 2,782 2,894 3,635 3,307 3,077 2,683 3,956 Memo: unit P&L Revenues per boe $/boe COGS per boe $/boe (21) (27) (32) (33) (33) (31) (31) (30) (31) SG&A per boe $/boe (1) (1) 0 (4) (2) (6) (6) (6) (5) Operating income per boe $/boe EBITDA per bbl $/boe Source: Credit Suisse Research, Company data 77

78 YPF Financials Downstream Operating Metrics & Macro (1/2) Downstream E 2017E 2018E Macro USD-ARS (average) x Unofficial inflation estimates % 19.7% 27.7% 26.9% 26.5% 38.3% 28.0% 36.8% 23.8% 10.0% US inflation (PPI) % 1.5% 3.3% 2.0% 1.6% 1.6% 0.1% 2.0% 2.0% 2.0% Capacity and utilisation - three wholly owned refineries La Plata, Buenos Aires kbd Lujan de Cuyo, Mendoza kbd Plaza Huincul, Neuquen kbd Total capacity kbd Refinery utilisation % 95% 89% 90% 91% 91% 94% 95% 95% 95% Crude oil processed kbd Multiplier x Output of oil products kbd Products sold in the market Gasoline kbd Diesel kbd Jet fuel and kerosene kbd Fuel oil kbd LPG kbd Others kbd Total domestic market kbd Petrochemical naphtha kbd Jet fuel and kerosene kbd LPG kbd Bunker (diesel and fuel oil) kbd Others kbd Total export market kbd Total sales of petroleum products kbd Total volumes growth % (9%) (0%) 1% 6% 0% (2%) (5%) 1% Gasoline YoY growth % 9% 6% 10% 4% 4% (2%) 2% 2% Diesel YoY growth % 5% (6%) 1% 1% (0%) (4%) 2% 2% Gasoline and diesel imports Gasoline imports as % of sales (Argentina) % 2% 2% 1% 6% 7% 2% (1%) (6%) (4%) Diesel imports as % of sales (Argentina) % 10% 14% 10% 15% 15% 14% 9% 1% 3% Gasoline imports kbd (1) (5) (3) Diesel imports kbd Products produced at the refinery Gasoline kbd Diesel kbd Jet fuel and kerosene kbd Fuel oil kbd LPG kbd Others kbd Production to domestic market kbd Petrochemical naphtha kbd Jet fuel and kerosene kbd LPG kbd Bunker (diesel and fuel oil) kbd Others kbd Production to export markets kbd Total products produced kbd Source: Credit Suisse Research, Company data 78

79 YPF Financials Downstream Operating Metrics & Macro (2/2) Downstream E 2017E 2018E Prices Domestic Gasoline $/bbl Diesel $/bbl Jet fuel $/bbl Fuel oil $/bbl LPG $/bbl Others $/bbl Export market Naphtha $/bbl Jet fuel $/bbl LPG $/bbl Bunker (diesel and fuel) $/bbl Others $/bbl Memo: Other Prices Intl Gasoline $/bbl Intl Diesel $/bbl Brent $/bbl Argentine domestic crude $/bbl Spreads Argentina gasoline-crude $/bbl Argentina diesel-crude $/bbl Argentina Jet-crude $/bbl Argentina Fuel oil-crude $/bbl Argentina LPG-crude $/bbl 4 (6) (23) (22) (23) (30) (33) (16) (21) Argentina Others-crude $/bbl (15) (15) (15) (15) Memo: Intl gasoline-brent $/bbl Memo: Intl diesel-brent $/bbl Memo: Gasoline Arg-brent $/bbl (1) (19) (7) Memo: Diesel Arg-brent $/bbl 3 (11) Memo: Crude Arg-brent $/bbl Gasoline to Import Parity % 82% 76% 85% 95% 110% 169% 163% 118% 110% Diesel to Import Parity % 90% 77% 89% 94% 106% 168% 163% 106% 110% Crude to Brent % 62% 53% 63% 66% 74% 128% 137% 93% 94% Source: Credit Suisse Research, Company data 79

80 YPF Financials Downstream P&L Downstream E 2017E 2018E Downstream P&L Revenues USDm COGS USDm SG&A, Petrochemicals, imports and margin of error USDm Operating income USDm EBITDA USDm Revenues per bbl $/bbl EBIT per bbl $/bbl EBITDA per bbl $/bbl EBIT margin % 10,500 13,009 14,509 15,815 16,462 15,132 13,040 11,663 13,706 (8,658) (10,036) (10,810) (11,929) (13,469) (11,960) (11,099) (10,067) (12,093) (770) (1,699) (2,800) (2,681) (1,607) (2,224) (2,224) (2,224) (2,224) 1,072 1, ,204 1, (282) (629) (611) 1,239 1,468 1,132 1,467 1,687 1, (283) (265) (2) (6) (6) (3) (2) 10% 10% 6% 8% 8% 6% (2%) (5%) (4%) Source: Credit Suisse Research, Company data 80

81 January 2017 LatAm Oil & Gas Equity Research Appendix Players in the Argentine Upstream

82 YPF Wintershall Energy Operations Americas Petrogas Pluspetrol Total Tecpetrol Petrolera Entre Lomas Petrobras Argentina Pan American Energy Gas y Petroleo del Neuquen Chevron Azabache Energy Square kilometres YPF Other Total Petrobras Argentina Pluspetrol Petrolera Entre Lomas Tecpetrol Pan American Energy Shell Energy Operations ExxonMobil Chevron Roch Capex Medanito Net acres (Km2) 09 January 2017 Vaca Muerta Other Players Broad View of Other Players in Argentina Upstream Conventional + Unconventional Unconventional Only Liquids Production Market Share (%) Total market: 650kbd 19% 5% 4% 4% 4% 18% Others Net Acreage (km²) 19,841 22,956 24,261 27,078 29,690 36,253 20,000 16,000 12,000 8,000 4,000 0 Vaca Muerta Top Acreage Holders (km 2 ) Black Oil Dry Gas Volatile Oil Wet Gas & Condensate 46% 41,298 58,417 Gas Production Market Share (%) Total market: 650kboed Woodmac: Recoverable Resources (million boe) 2, , ,000 25,000 20,000 Vaca Muerta + Other Unconventional Plays (Agrio, Pozo D-129) Acreage Holders (km 2 ) Vaca Muerta Light Oil Vaca Muerta Black Oil Vaca Muerta Condensate Pozo D-129 Oil 1, ,000 Pozo D-129 Condensate Agrio Oil 17% 9% 9% 5% 3% 42% 15% Others Commercial Reserves Technical reserves 10,000 5,000 0 Source: Credit Suisse Research, BP Statistical Review, Wood Mackenzie, YPF 82

83 Vaca Muerta Other Players Key Players in Argentina Upstream YPF Total Pan American Energy Argentina s national oil company. 51% share held by government, 49% in free-float. Net production (Argentina, 2015): 250kbd of oil and 290kboed of gas. Leading acreage holder in Neuquen Basin, over 12,000km². Its plan seeks to boost production focused on unconventional projects. In 2011 announced discovery of 1.5bnboe of shale oil within an area of 1,100km² in Loma Campana. Through 2017 plans to drill 2,400 unconventional wells. YPF is focused on increasing recovery from its mature fields through the use of secondary and tertiary recovery techniques. Has been in Argentina since Businesses in E&P, Gas & Power, Refining & Chemicals and Marketing & Services. Net production (Argentina, 2014): 6kbd of oil and 59kboed of gas. Signed up for Gas Plan to receive $7.5/mmbtu and committed to invest $1.1bn through Operates around 30% of Argentina s gas production in Marina Austral, Aguada Pinchana, and San Roque assets. Initiated production of tight gas in the Mulichinco formation in Aguada Pinchana in Large-scale drilling campaign in the Vaca Muerta formation to assess shale gas and oil potential in all concessions in Neuquen in which it operates or holds interest. Created in 1997 as a JV between Argentine group Bridas (40%) and Amoco (now BP, with 60%). In 2010 CNOOC bought 50% stake in Bridas for $3.1bn. PAE is the largest private oil & gas company in Argentina. Net production (Argentina, 2015): 108kbd of oil and 125kboed of gas. 1.4bn boe of proved reserves at the end of Announced investment plan of $3.4bn between 2013 and 2017 in natural gas. Holds a diverse portfolio in Argentina. Operates Cerro Dragón block in the San Jorge basin, the largest oil producing block in Argentina and the third in gas. Started to invest in shale oil exploration in 2011 in the Lindero Atravessado in Neuquen (62% operator PAE, 38% YPF), c. 30km South/SE of Loma Campana. Holds interest in other 3 blocks within proximity to YPF shale oil discovery. Petrobras Argentina Owned 67% by Pampa and 33% free-float (ticker PZE, listed in Argentina and US) with $1.3bn market cap. In 2016, Pampa Energia and Petrobras Brazil approved the contract of sale of the assets of Petrobras to the Argentine company, which has paid US$ 892 million for 67.2% of Petrobras Argentina. With the purchase, Pampa added areas of exploration and production of hydrocarbons, especially production blocks of oil and gas, petrochemical complexes, a refinery, and a network of 247 service stations. Furthermore, the company paid for the use of the brand for 18 months. Net production (Argentina, 2015): 15kbd of oil and 45kboed of gas. In 2014 sold interest and operatorship in Puesto Hernandez field to YPF. In 2015 sold Austral basin assets to CGC for $101mn. Pampa Energía The company engaged in the E&P of crude and natural gas. In 2015, the company has increased significantly in this sector after the acquisition of Petrobras Argentina Assets. Installed capacity of approximately 3,450 MW after the acquisitions of Genelba, Pichi Picun Leufu and Eco Energia power plants. Co-controlling of the operation and maintenance of the Argentine high voltage transmission network, which extends over more than 12.2 thousand km of lines owned by Transener and 6.1 thousand km of high voltage lines owned by Transba. Transener transports 95% of all the electricity in Argentina. Distribution segment held by Edenor, the largest electricity distribution company in Argentina, with over 2.8 million customers. Pluspetrol Private E&P company with operations in Argentina, Bolivia, Peru, Venezuela, Colombia, United States, Netherlands, Uruguay, and Angola. Largest oil and gas producer in Peru. Total operated production world-wide is 490kbd and net proven reserves of 831MMboe. 21% stake in Refinor (26kbd refinery in northern Argentina), 12% stake in Oldeval (oil pipelines which transported 65% of oil produced in Neuquen), and a small stake in CEG in Rio Janeiro, Brazil. Significantly grew exposure to Argentina through the acquisition of Petro Andina in 2009 and APCO in Nearly doubled its Vaca Muerta position in 2014 when it acquired 306,000 acres in select Neuquen assets during YPF s acquisition of Apache s portfolio. Source: Company data, Credit Suisse Research, Ministry of Mines and Energy of Argentina 83

84 Vaca Muerta Other Players Key Players in Argentina Upstream Chevron ExxonMobil Shell Net production (Argentina, 2015): 21kbd of oil and 6kboed of gas. 6th largest producer of oil. Exposure to Vaca Muerta through six concessions: one with an 85 percent-owned and operated interest covering 380 sq km; three other ones with interests ranging from 18.8 to 100 percent, covering 294 sq km in Neuquén; and two areas covering 294 sq km in Loma Campana and Narambuena blocks. JV with YPF in Loma Campana: average of 13 rigs per month onsite in the Vaca Muerta Shale, drilling both horizontal and vertical wells. In 2015, 156 well were drilled, most of which were vertical wells. Faced legal trouble in Argentina due to a claim in Ecuador. Assets were frozen, but then returned in 2013 when the agreement with YPF Vaca Muerta was signed. Present in Argentina through its wholly owned affiliates ExxonMobil Exploration Argentina S.R.L and Mobil Argentina S.A. and ExxonMobil Business Support Center Argentina S.R.L. Net production (Argentina, 2014): 6kbd of oil. Entered Neuquen Basin in 2010 through acquisition in four exploration blocks with total net acreage of c.1,200km². Has since expanded its presence and holds now a net working interest in 1,397 sq km. In 2011 farmed in Los Toldos block in partnership with Canadian company Americas Petrogas to test Vaca Muerta shale play. Holds 51% interest in the onshore field of Sierra Chata, Province of Neuquén, producing natural gas and condensates. Present in Argentina since 1914, with businesses in regular shipments of bituminous products for clients, as Breweries Palermo. In the end of that year Shell was finishing to build six tanks in Dock Sud. Second downstream player in Argentina, with 16 percent of market share in crude processed, 18 percent in gasoline, and 16 percent in diesel. Full ownership of 109kbd Dock Sud refinery in Buenos Aires area. In early 2012 reached an agreement with local firm Medanito to explore the Aguila Mora and Sierras Blancas areas in Neuquen. Shell would be operator with 65% stake, Medanito 25% and GyP 10%. Wintershall Oil & gas production arm of BASF and wholly owned by the German chemical company. Currently holds working interests in 15 oil and gas fields overall and produces approximately 68kboed of oil and gas. 4th largest gas producer. Holds non-operating stakes in key producing areas in Neuquen and Tierra del Fuego. Actively developing Neuquen Basin unconventional in partnership with Total. The consortium signed up for $7.5/mmbtu Gas Plan and agreed to invest $1bn through Currently working on the development of the new field Vega Pleyade in the Argentinean Sea off the coast of Tierra del Fuego together with the operator Total and Pan American, which is the most important development project for Wintershall in Argentina, with reserves of some 25billion m³ of natural gas. Petrolera Entre Lomas Petrole Entre Lomas, PELSA, is an Argentine oil & gas company operating exclusively in the Neuquen basin in three fields: Entre Lomas, Agua Amarga, and Bajada del Palo. Since 2012, the company has been controlled by Petrobras Argentina, when it increased its previous stake in it by 40%. Petrobras now holds a 59% stake Operating production of 11kbd of oil and 9kboed of gas in Argentina in Sinopec Argentina Argentine subsidiary of the China Petrochemical Corporation - Sinopec. Net production (Argentina, 2015): 30kbd of oil and 13kboed of gas. Source: Company data, Credit Suisse Research, Ministry of Mines and Energy of Argentina 84

85 Vaca Muerta Other Players Key Players in Argentina Upstream Roch Medanito Americas Petrogas Independent Argentine E&P company with 25 years of existence. Bonds publicly traded in Buenos Aires. Operating production of 3kbd of oil and 10kboed of gas in Interest in 10 fields, 9 of which is the operator, in the Austral, San Jorge, and Neuquen basins. Total of 6,122km² of operated area and more than 181 productive wells. Exposure to exploration of unconventional plays on Vaca Muerta formation shale in Coiron Amargo, Neuquen. Independent Argentine energy company with more than 20 years of existence. Bonds publicly traded in Buenos Aires. Net production (Argentina, 2015): c.2kbd of oil and 3kbd of gas. 13 areas of operation in provinces of Neuquen and Rio Negro, of which 7 are production fields and the remaining exploration for both conventional and unconventional hydrocarbons. JVs for unconventional oil and gas: - Vaca Muerta with EOG - Sierras Blancas and Águila Mora with Shell. Natural gas processing plant with capacity for 16kboedd of natural gas. Processes own and third-party gas and injects in gas pipelines. Canadian junior E&P listed in Toronto TSXV stock exchange under the ticker GRO with c.$41mn mkt cap. Operating production of c.1kbd of oil and c.1kboed of gas. Has interests in 4 blocks in Neuquen: one conventional gas & oil block at Vaca Mahuida and three non-conventional shale gas and oil blocks at Loma Ranqueles, Totoral, and Huacalera is in the process of being offered for sale or relinquished. In its 2016/2017 summary plans, Growmax Resources Corp (formerly Americas Petrogas Inc.) listed the exit of Argentina as an objective. Andes Energia Latin American group, active in exploration, development, and production of Oil and Gas from conventional and unconventional resources. Listed in London and Buenos Aires stock exchanges. Net production (Argentina, 2015): 1.5kbd of oil. Areas of operation in Salta, Neuquen, Rio Negro and Chubut. Net acreage of c. 30,000 sq km. 4 blocks in partnership with YPF in Vaca Muerta assets 6th largest holder of Vaca Muerta acreage. Tecpetrol Privately held by the Techint Group. Carries out oil and & gas production in Argentina, Ecuador, United States, Mexico, Colombia, Bolivia, Peru, and Venezuela. Tecpetrol is among the top ten Argentine oil and natural gas operators, with hydrocarbon-producing fields in Northwest Argentina, Golfo de San Jorge, and Neuquina basins. Operating production of 18kbd of oil and 23kboed of gas in Performs oil and gas exploration and production operations in: - El Tordillo, Chubut: 765 producing wells for 3,700m³/d oil production - Aguaragüe, Salta: among the deepest wells in Argentina, reaching depths of up to 5,100m. Neuquen basin: Los Bastos and Agua Salado avg production of 600m³/day and 1million m³/d of gas. Awarded Rio Atuel block in Mendoza for a surface of 2,000km² Oil M&S Created in 2001 as an oil service company. In 2004 started activities in the exploration and production of oil & gas. Acquired 14 E&P blocks in different Argentine provinces. Operations in Buenos Aires, Chubut, Neuquen, Rio Negro, Santa Cruz, Mendoza and San Juan. Net acreage area of c.36,000 sq km. Source: Company data, Credit Suisse Research, Ministry of Mines and Energy of Argentina 85

86 Vaca Muerta Other Players Key Players in Argentina Upstream Unitec Energy Madalena Energy Crown Point Founded in 2007 and privately held by the Corporación América, a holding with businesses in energy, infrastructure, airports, and others. The company has acquired more than 38,000 sq km in order to expand its E&P business, holding interests in Neuquen, Austral, and Golfo San Jorge. Exploration area of 37,763 sq. km in Austral and Neuquina Basin. Production area of 520km² in Sarmient field in Golfo San Jorge basin. Independent, Canadian-based oil & gas company listed in Toronto TSXV (ticker: MVN) with a c.$75mn mkt cap. Average Q production of 3kboed Madalena Energy holds interests in multiple blocks in Northwest and Neuquina basins. Proved reserves of 5,7 mm boe, with main areas in Puesto Morlaes, Surubi and Coiron Amargo. Junior E&P focused in Argentine assets and listed in Toronto TSXV (ticker: CWV) with $8.2mm market cap Two plays: - Tierra del Fuego (Austral Basin): 25.8% working interest, 510 net km², and c.1.4kboed production. More than 1,100 km² of 3D coverage. - Cerro de Los Leones (Neuquen Basin): 100% working interest in 400km². Gas y Petroleo del Neuquen Gas y Petroleo was created in 2008 as a provincial oil company to oversee and regulate the oil industry development at the provincial level (under previous regulation provinces were the owners of hydrocarbon reservoirs). Has interest in 91 areas, of which 64 are active: 4 pilots in unconventional reservoirs; 12 under right of exploitation concession, and 46 with exploratory permissions. GyP self finances its activities and constitutes an important resource for the Province of Neuquen. Source: Company data, Credit Suisse Research, Ministry of Mines and Energy of Argentina 86

87 January 2017 LatAm Oil & Gas Equity Research Appendix Key Legislation and Regulations

88 The Argentine Oil & Gas Industry Legislation Legislation Background and History 1967 Hydrocarbon Law Law No. 17,319: Legal framework for exploration and production of oil and natural gas. Grants local tax stability during the term of concession. Amendments were made but still applies today Plan Argentina Decree no. 2,178 and Oil Deregulation Decrees: Core deregulating legislation that changed previous risk service contracts to more companyfavorable tax/royalty concession contracts. Along with the Hydrocarbon Law, it prohibits the export of crude oil during any period in which the national Executive Office finds domestic production insufficient to satisfy domestic demand but states that producers, refiners, and exporters shall receive a price not lower than that of imported product of similar quality Hydrocarbons Federalization Law Decree No. 24,145: Also known as Privatization Law. Privatized YPF. Determined the transfer of ownership of hydrocarbons reserves to the provinces. The Argentine National Constitution was amended in 1994 for the purpose of transferring reserves ownership. Natural Gas Law Law No. 24,076 : Core deregulation of the natural gas transportation and distribution industries. Removed controls on wellhead prices and prices to large end-users. Creation of independent regulatory authority ENARGAS. Privatization of Gas del Estado Amendment to Article 124 of Argentine National Constitution: Provinces were granted the primary control of natural resources within their territories Public Emergency Law No. 25,561: Granted to the National Executive Office the authority to enact all necessary regulations in order to overcome the financial crisis. The Public Emergency Law was extended until December 31, 2015, by Law No. 25,561. Decree No. 645: Installed the registry of diesel and crude oil export transactions. Export tax rates increased to 20% on crude oil and LPG and 5% on gasoline and diesel. Agreement on Stability of Supply of Diesel Decree No. 652: Ensured transportation companies the necessary supply of diesel at a fixed price of 0.75ARS/l. Oil companies were to be compensated in export duty credits. Initially approved for the period from April 2002 to July 31, 2002, the subsidy scheme was extended until December 2009, though the price was revised various times. Decree 1390/2009 empowered Chief Staff to sign annual agreements to extend the subsidy scheme until the end of the public emergency declared by Public Emergency Law. Annual agreements for 2010 and 2011 are still pending, but the scheme continued in place through monthly communications issued by the Argentine Secretariat of Transport notifying oil companies of the volumes to be delivered, while the Argentine government continues to compensate oil companies Decree No. 546: Transferred to the provinces the right to grant exploration permits, hydrocarbon exploitation and transportation concession in locations designated as transfer areas Resolution No. 337 M.E.: Increased export duties on crude oil to 25%. Law No. 25,943: Creates the state-owned energy company ENARSA and attributes to this company exploration concessions of all vacant offshore areas beyond 12 nautical miles from the coast. Later, in 2014, Law No. 27,007 reverted all offshore concessions in which association agreements had not been signed back to the Argentine Secretariat of Energy. Resolution No. 1,679 S.E.: Reinstalled registry of diesel and crude oil export transactions created by Decree No. 645/2002 and mandates that producers, sellers, refining companies, and any other market agent that wishes to export diesel or crude oil to demonstrate domestic demand has been satisfied and that they have offered in the domestic market the product to be exported. Resolution No. 1,338/2006 S.E. included other oil products in the regime. Rule No. 168: Requires companies intending to export LPG to first obtain authorization by demonstrating that local demand was satisfied and that offer of LPG to local demand was rejected. Resolution No. 265 S.E.: To ensure supply of natural gas in the domestic market adopted the measures: Suspension of all exports of surplus natural gas Suspension of automatic approvals of requests to export natural gas Suspension of all application for new authorization to export natural gas Authorization to the Undersecretariat of Fuels to create a rationalization plan of gas exports and transportation capacity. Source: Credit Suisse Research. Note: S.E. refers to Energy Secretariat, M.E. to Ministry of Economy, S.D.C. to Argentine Secretariat of Domestic Commerce, Commission to Commission for the National Plan of Investment in Hydrocarbons 88

89 The Argentine Oil & Gas Industry Legislation Legislation Background and History 2004 Regulation No. 27 S.S.C.: Establishes a rationalization plan of natural gas exports limiting the export authorizations to volume of exports during Resolution No. 659 S.E.: Substitutes the program created by Regulation S.S.C. No. 27/2004. Export of natural gas is conditioned on the fulfillment of domestic market supply beyond the contractually committed. Resolution No. 532 M.E.: Established a progressive scheme of export duties for crude oil with rates ranging from 25 to 45% depending on the WTI. Resolution No. 645 M.E.: Export duty on natural gas and NGLs was established at 20%. Decree No. 180: Creation of the Electronic Gas Market (MEG) for the trade of daily spot sales of gas and a secondary market of transportation and distribution Resolution No. 752 S.E.: Amended Resolution No. 659/2004 and further reduced the ability of producers to export natural gas. Creation of Permanent Additional Supply, the mechanism by which the Secretariat of Energy required exporting producers to supply additional volumes to domestic market. Creation of a special market open and anonymous for purchase by gas stations of compressed natural gas under regulated commercial conditions. Creation of a mechanism of standardized irrevocable offers, operated at the MEG, for electric power generators, industrial, and commercial consumers. Additional demand assured through issuance of Permanent Additional Supply Ley Corta Law No. 29,197: Amended the 1967 Hydrocarbon Law and transferred powers over oil and gas jurisdiction from Federal Government to Provinces. Resolution of the Ministry of Economy : Export duty on natural gas increase to 45% using the price fixed by the Framework Agreement between Argentina and Bolivia as the base price to apply the new tax rate, irrespective of the actual sales price. Resolution of the Ministry of Economy: End of tax exemption on exports from Tierra del Fuego province. Resolution No S.E.: Producers are to give first priority in injection of natural gas to residential demand, and transportation companies are obligated to guarantee priority through the allocation of transportation capacity. Law No. 26,154: Creates a regime of tax incentives to encourage exploration in association with ENARSA in the areas that were granted by Law No. 25,943/2004. Benefits include early reimbursement of VAT for investments, accelerated amortization, and exemption of payment of import duties on capital goods. (YPF never used this incentive.) Resolution No.25 S.D.C.: Imposes on each Argentine refining and/or retail company the obligation to supply certain minimum volumes of diesel fuel Resolution of the Ministry of Economy: Increased export duty on LPG to 25%. Law No. 26,197: Acknowledge the provinces ownership of the hydrocarbon reservoirs and granted provinces the right to administer them. Resolution No. 715 S.E.: Empowers the National Refining and Marketing Director to determine amounts of diesel to be imported by each company in specific periods of the year to compensate for exports of products included under regime of Resolution No. 1,679/2004. Fulfilment of this obligation is necessary to obtain authorization to export products under Decree No. 645/2002. Resolution No. 394 M.E.: Increased government withhold duties on exports of certain hydrocarbons. Producer price capped at 42$/bbl when international WTI above 61$/bbl Below this reference price a 45% withholding rate applies Agreement - Resolution 599 S.E.: Regulated the supply of natural gas to the domestic market. Producers were committed to supplying gas to the domestic market based on their respective market shares in the 36 months prior to April During times of supply shortages, first priority is given to the residential market, while any gas production in excess of those volumes can be sold to power generators at regulated prices and industrial customer at free market prices Decree No. 2,067: Created a fiduciary fund to finance natural gas imports to satisfy domestic demand. Mechanisms for funding: a) various tariff charges paid by users of transport and distribution services, gas consumers that receive gas directly from producers and companies that process natural gas, b) special credit programs arranged with domestic and international organizations, and c) specific contributions assessed by the Argentine Secretariat of Energy on participants in the natural gas industry. Resolution No ENARGAS: Adjusted the tariff charges applied. ENARGAS Resolution No. 1991/2011 enlarged scope of users obliged to pay tariff charges to include residential services, natural gas processing, industrial premises and electric power plants, among others. Resolution No. 14 S.D.C.: Instruction to refining companies to optimize production in order to obtain maximum volumes Resolution No. 24 S.E.: Created the program named Gas Plus to encourage natural gas production. The natural gas produced under this program is not subject to the Agreement (Resolution No. 599/2007). Source: Credit Suisse Research. Note: S.E. refers to Energy Secretariat, M.E. to Ministry of Economy, S.D.C. to Argentine Secretariat of Domestic Commerce, Commission to Commission for the National Plan of Investment in Hydrocarbons 89

90 The Argentine Oil & Gas Industry Legislation Legislation Background and History 2008 Resolution No. 1,070 S.E.: Ratified the Complementary Agreement which a) established requirements concerning the provision of LPG to the domestic market, b) modified gas prices at wellhead and segmented residential sector in terms of demand, and c) established the requirement that natural gas producers contribute to the fiduciary fund created by Law No. 26,020. The Complementary Agreement was extended until the end of 2010 by law No. 26,020/2010 and then to end 2011, 2012, 2013 and 2014 by various subsequent amendments. Resolution No. 127 M.E.: Increases export duties applicable to natural gas exports from 45% to 100% calculated based on the highest price of all Argentine natural gas imports. Additionally establishes export duties to LPG products effectively capping export prices at 233$/m³ for propane, 271$/m³ for butane and 250$/m³ for blends of the two. Decree No D.F.P.: Created the Refining Plus and Petroleum Plus programs, further approved by Resolution S.E. No. 1312/2008. New refinery capacity or additional production are eligible for export taxes. Resolution No. 1,417 S.E.: Increased fixed distribution tariffs to residential consumers, at c. 0.10ARS/m³ Resolution No. 295 S.D.C: Issued on August 17 imposed trade price of liquid fuels to be rolled back to those prices prevailing on July 31. This resolution was successfully challenged and suspended. Resolution No. 1,410 ENARGAS: Sets forth new and more severe rules for natural gas dispatch: Distributors may solicit all the necessary gas to supply priority demand, including the volume that exceeds allocated by the Agreement Producers are obliged to confirm all the volume requested by distributors in accordance with criteria established by the Resolution No. 599/07. Once priority demand is satisfied, the remaining domestic demand is fulfilled with exports in the last priority. If a producer is unable to meet request priority demand, transporters are responsible for redirecting gas until distributors demand is met from a) other clients of the same producer or b) the remainder of gas producers in the same basin. As a result, this regime imposes a jointly liable supply obligation to all producers Resolution 13 S.D.C.: Issued on February 2 imposed trade price of liquid fuels to be rolled back to those prices prevailing on January 28, Additionally required refineries and oil companies to supply volumes of fuel consistent with amounts of 2010 adjusted by positive correlation with GDP. This resolution was repealed in March 29, 2011, by the same government entity through its Resolution No. 46/2011. Decree 1,722: Repatriation of foreign exchange. Provides that total export collections from operations by producers of crude oil or its derivatives, natural gas, liquefied gas and companies which aim to develop mining projects, must be liquidated in the single and free-exchange market in accordance with Article No. 1 of Decree No. 2,581 (1964) Refining Plus and Petroleum Plus programs suspended and accrued benefits could not be redeemed. Resolution No. 172 S.E.: Extends the Agreement and subsequent ENARGAS Resolution No. 1410/2010 rules and criteria until new legislation replaces. Resolution No. 17 S.D.C.: YPF, Shell, and ESSO were instructed to supply jet fuel for domestic and international air transportation at a price that does not exceed 2.7% of the price of medium octane gasoline (not premium) offered at the closest service station to the airport, while maintaining volumes and delivery conditions. Beneficiaries were Aerolíneas Argentinas, Andes Líneas Aereas, Austral Cielos del Sur, LAN Argentina and Sol Lineas Aéreas. Appeal filed by YPF was granted, federal extraordinary further appeal filed by the Argentine federal government also granted. To date, the case has not yet been submitted to the Supreme Court. Decree 1,277: Creation of National Plan of Investment in Hydrocarbons; creation of the Commission for Planning and Coordination of the Strategy for the national Plan of Investment in Hydrocarbons (the Commission ). National Registry of Investments in Hydrocarbons in which companies are obliged to provide a Plan of Investments every year before September 30. Resolution No. 55 S.E.: Established nonsigning parties of the Complementary Agreement a) do not receive gas price increase granted by the extensions, b) have the volume consumed first in order of priority by residential consumers, which pay lower tariffs and c) have to fulfill all commitments undertaken by gas producers under the Agreement as extended by Resolution No. 55/2012 S.E.. Resolution No. 1,445 S.E.: Modified gas prices at the wellhead for compressed natural gas in accordance with Decree no. 1,277/2012. In the case of YPF, the increase was of 369% on the price realized in this segment. Source: Credit Suisse Research. Note: S.E. refers to Energy Secretariat, M.E. to Ministry of Economy, S.D.C. to Argentine Secretariat of Domestic Commerce, Commission to Commission for the National Plan of Investment in Hydrocarbons 90

91 The Argentine Oil & Gas Industry Legislation Legislation Background and History Resolution No Gas plan 2 - Resolution No. 60 further 2012 ENARGAS: Sets forth regulated by Resolution No. 83 of the procedures distributions companies have to Commission: Established a similar program as follow to secure amounts to be deposited The Natural Gas Additional Injection Stimulus with the fiduciary fund created Program (Gas plan) for smaller companies that could not comply with minimum requirements of Resolution 1/2013, or failed to register in time. Price under this program varies between 4 and 7.5$/mmbtu. by Law No. 26,020. Additionally, non signing parties of Complementary Agreement are not allowed to charge wellhead price increases for gas set forth by Resolutions No. 1070/2008 S.E. and 1417/2008 S.E. to consumer directly supplied by distribution companies Resolution No. 1 M.E.: Amended Resolution No. 394/2007 increasing export cutoff values from 42$/bbl to 70$/bbl and reference price from 61$/bbl to 80$/bbl. Gas plan - Resolution No. 1 of the Commission: Creates Natural Gas Additional Injection Stimulus Program. Under these regulations, companies were invited to file projects for increasing total natural gas injection in order to receive increased wellhead price. Companies receive the spread between the realized price and the result of a formula calculated as the volume of base curve (which declines annually) valued at a base price and 7.5$/mmbtu for gas injected in the system in excess to this curve. Base curve, decline rate, and base price are specific to each company. If the company fails to inject in the system the volume committed in the base curve, it is obliged to import gas to make up for the difference. Promotion Regime Decree 929: Introduction of the Investment Promotion Regime for Exploitation of Hydrocarbons under which projects approved by the Commission of Strategic Planning and Coordination of the National Hydrocarbons Investment Plan that entail a minimum investment of $1bn over five years are entitled to freely export 20% of the respective production at a 0% export tax rate Resolution No. 226 S.E.: Fixed new wellhead prices per basin for sale to Residential and commercial full service segment and Natural Gas Stations that in a period of one to two months achieved 5% to 20%savings yoy. Resolution No. 231 of the Commission: Price of compressed natural gas in service stations will be raised by the same percentage as the price of super quality gasoline. New Hydrocarbons Law Law No. 27,007: Amended the 1967 Hydrocarbon Law. Centralization of licensing rounds, reversion of offshore from ENARSA back to the Argentine Secretariat of Energy, implementation of a national royalty system, removal of reserved acreage for provincial companies without capital expenditures, differentiation between conventional and unconventional permits and concession terms. Royalties are 12% negotiable 3% increase per contract extension up to a maximum of 18%. 2.5% of investment amount to Corporate Social Responsibility Exploitation concession terms are 35, 30, and 25 years for unconventional, offshore, and conventional onshore resources respectively. Minimum investment for eligibility to 20% production at international prices reduced from $1bn in five years to $250mn in three years. For offshore concessions at depth superior to 90m the percentage of production eligible was increased to 60%. Crude export price capped at $70/bbl and different tax rates ranging from 10 to 13% percent for crude prices below $80/bbl. Resolution No 1077 M.E.: Repealed Resolution 394/2007, which implemented the export duties on hydrocarbons, as amended and set forth a new withholding program based on the international Brent price. International price is Brent minus $8/bbl If international price is below $71/bbl, 1% withholding to all products If international price is above $71/bbl, withholding increases limiting export price to $70/bbl Decree No. 2579: Reduction in diesel and gasoline transport taxes and water infrastructure fund taxes applied to gasoline in order to reduce prices at the pump starting January Resolution 14 of the Commission: Government grants $3/bbl on total production to companies who maintain or increase production compared to Q Additional $2 per bbl of crude exported. Additional $1/bbl exported to companies who export the same amount or more crude than they did in Valid from January 2015 for one year, extensible for one more. Source: Credit Suisse Research. Note: S.E. refers to Energy Secretariat, M.E. to Ministry of Economy, S.D.C. to Argentine Secretariat of Domestic Commerce, Commission to Commission for the National Plan of Investment in Hydrocarbons 91

92 The Argentine Oil & Gas Industry Legislation Legislation Background and History Decree No. 13/2015 : Modified the Ministries Law No. 22,520 and, among others changes, created the Ministry of Energy and Mining, which has absorbed the functions of the Secretaries of Energy and Mining and decentralized entities, from the Ministry of Federal Planning, Public Investment and Services Resolution No. 21/2016: Established an export stimulus program of crude oil imports if domestic demand for crude oil Escalante from the San Jorge Gulf Basin is satisfied. Valid until December 31, 2016, the Argentine government pays a compensation of US$ 7.50/bbl and Chubut province subsidizes US$ 2.50/bbl, as long as the average price of Brent does not exceed US$ 47/bbl two days before and two days after the shipment. Resolution No. 74/2016: Established that incremental gas prices of US$ 7.50/mmbtu will be in effect through 2018 for any gas from shale and tight formations or new gas discoveries since Resolution No. 99/2016: Established that residential customers and non-residential customers shall not pay an increase in excess of 400% and 500%, respectively, of the amount paid by them in gas tariffs, before taxes, on March 31, This resolution ended up not taking place due to injunctions by the local judiciary. Resolution 212/2016: Modified the natural gas pricing policy for residential and commercial consumers. The resolution aims to achieve a weighted average price of US$6.80/mmbtu in 2019 for these users. This value represents the LNG import price for 2017, including transport and regasification, and it is intended to be reached through gradual price increases every six months until October Consequently, the government expects to reduce subsidies to 0% by this date. Source: Credit Suisse Research. Note: S.E. refers to Energy Secretariat, M.E. to Ministry of Economy, S.D.C. to Argentine Secretariat of Domestic Commerce, Commission to Commission for the National Plan of Investment in Hydrocarbons 92

93 January 2017 LatAm Oil & Gas Equity Research Appendix Management & Board Bio

94 Appendix: Management & Board Bio Management Bio Name Position Experience Ricardo Darre CEO Degree in mechanical and industrial engineering from Technological Institute of Buenos Aires (ITBA). He began his career at Schlumberger, where he held positions linked to hydrocarbon production in Angola, Zaire, and Neuquen. In 1987, he joined Total, where he assumed different responsibilities, mainly in the areas of exploration and exploitation of hydrocarbons in Argentina, Norway, Russia, UK, and France. In 2014, he was appointed Exploration and Production chairman and CEO of Total, based in Houston, Texas, United States. Daniel Cristian CFO and Board Gonzalez Casartelli Member President of the Disclosure Committee. Degree in business administration from the Argentine Catholic University. Served for 14 years at Merrill Lynch & Co in Buenos Aires and New York, holding the positions of Head of M&A for LatAm and President for the Southern Cone, among others. Former Head of Financial Planning and Investor Relations in Transportadora de Gas del Sur S.A. Currently member of the Board of Directors of Adecoagro S.A. and Hidroelectrica Piedra del Aguila S.A. Mr. Gonzalez has been YPF's CFO since July Carlos Alberto Alfonsi Downstream Executive and Board Member Chemistry degree from the Technological University of Mendoza. Degree in IMD managing corporate resources from Lausanne University and has studied at the MIT. Held various positions at YPF, serving as operations manager, the Director of the La Plata refinery, Operation Planning Director, Director of Commerce and Transportation, Director of Refinery and marketing in Peru, Country Manager for Peru, R&M for Peru, Chile, Ecuador, and Brazil. Currently Downstream Executive Vice-President since June Raul Fernando Dasso Sergio Giorgi Pablo Fernando Giliberti Germán Fernández Lahore VP Human Resources and Board Member VP Business Development and Project Architecture VP Strategy and Business Development and Board Member Corporate VP Legal Services Degree in labor relations from the University of Buenos Aires. Joined YPF in 1993 and held various positions within the company, including HR Director at the Argentina, Bolivia, and Brazil Exploration and Mining Unit. He is a civil engineer who graduated from the University of Buenos Aires with a postgraduate degree at the French Institute of Petroleum. He completed the Internal Business Development programs (HEC Paris and SAID Business School of the University of Oxford) and General Management (Ex. MBA) organized by the Total Group. In 1994, he began his career at YPF in the area of Drilling in Neuquén. In 1996, he joined Total where he assumed different responsibilities, mainly in the exploration and exploitation of hydrocarbons in Argentina, Scotland, Indonesia, Italy, Libya, and France. In 2011, he was appointed director of New E & P Business for Latin America, a role he held until September 2013 when Total Austral joined Argentina as director of Non-Conventional Resources. He is the Vice President of Business Development and Project Architecture since December He has a degree in public accounting from the Catholic University of Argentina, an MBA in Business Administration from UADE, a postgraduate degree in Management and Economics of Natural Gas, College of Petroleum Studies, Oxford University, UK, and a Master in Science of Management, Sloan Program at Stanford University, USA. Among other positions, he served at YPF as Head of Accounting and Finance Business in the Mendoza unit, Manager of Business Development and Director of Economic Unity Business Development Exploration and Production. He has a law degree from the University of Buenos Aires and participated in the Academy for American and International Law. He has also a Master of Law and Policy Natural Resources from the University of Dundee, Scotland, United Kingdom and a specialization in Tax Law at the Universidad Austral. He is a member of the Academic Council of the Argentina Journal of Energy Law, Hydrocarbons, and Mining (RADEHM). He joined the YPF Management of Oil Affairs in February Among other positions, he served as Manager of Legal Affairs in YPF Upstream. Santiago Martínez Tanoira Marcos Browne Daniel Oscar Palomeque Sebastian Mocorrea Source: YPF Executive VP upstream Executive VP of Gas and Energy CMASS VP VP of Communications and Institutional Relations He has an industrial engineering degree from Technological Institute of Buenos Aires (ITBA) and has been working in YPF since He held various positions in the company, including Regional Upstream Executive Manager of Mendoza, Chemistry Director and Profertil Director. He is an industrial engineer from the Technological Institute of Buenos Aires (ITBA). He holds an MBA from Henley Management College in the UK and a Diploma in Business Administration and Economics Natural Gas (Natural Gas Management & Economics) from the College of Petroleum Studies, Oxford, UK. He has a Specialization in Economics of Oil and Natural Gas ITBA and a Diploma of Management Development Program IAE. He held various positions in YPF, including Head of the Supply and Processing Natural Gas and Head of Business Processing Gas and Liquefied Gas in TGS SA. He is a founding partner of Endriven SA and, until March 2016, served as Director of that company, as General Manager of Gas Meredional SA, as General Manager of C3Plus SA and President of Southern Fuels SA. He is a Chemical Engineer from the National University of La Plata (UNLP) and has a master s degree in environmental engineering from the Technological University (UTN) of La Plata. He has postgraduate studies from the Massachusetts Institute of Technology. He began his career in YPF in 1980, in the area of lubricants in La Plata refinery, working in various positions until his appointment as Manager of Operational Planning in 1998 and as Director of Planning in He is currently the President of the Argentine Institute of Oil and Gas of La Plata. He has a law degree from the University of Buenos Aires and BA in political science from the Catholic University of Argentina. He served as President of the Argentina Television Association (ATA), from 1996 to 1998, and as Vice President of the Chamber of Information and Communications of Argentina (CICOMRA) from 1998 to In 1997, he joined IBM as Director of Communications and External Relations. He held the position of Vice President of Public Affairs at IBM Europe, based in Brussels. 94

95 Appendix: Management & Board Bio Board Bio (1 of 3) Name Position Status Experience Miguel Ángel Gutiérrez Chairman of the Board Independent He is a founding partner of The Rohatyn Group, where he is in charge of activities in private investments, real estate, infrastructure, and renewable energy. From 1980 to 2001, he held various positions at JP Morgan, where he reached the position of Managing Director, Head of Global Emerging Markets and member of the Management Committee Global Markets. He served as Chairman of Highways Oeste SA and was the President and CEO of Grupo Telefónica Argentina SA. Roberto Luis Monti Director Independent Norberto Alfredo Bruno Director Independent Néstor José Di Pierro Director Independent Juan Franco Donnini Director Independent Enrique Andrés Vaquié Director Independent Armando Isasmendi Director Independent Carlos Alberto Felices Director Independent He has an electrical engineering degree from the University of Buenos Aires, a master s in electrical engineering from the UBA, and a master in business administration from AMA, New York. He has an extensive experience in the industry of the national and international energy. Between 1995 and 1997, he was President and CEO of Maxus Energy Corporation. He worked in YPF, where among other positions, he served as CFO in 1997, and as Chairman and CEO from 1998 to From 1999 to 2000, he was the Executive Vice President of Exploration and Production of Repsol YPF in Argentina. He is currently Head Director of Petrobras Argentina SA and Tenaris SA. He graduated in business administration from the Universidad Argentina de la Empresa and has postgraduate studies in strategic management from the Strategic Management Institute; business organization and management from the Argentine Institute of Energy Economics, and energy economics at the Massachusetts Institute of Technology. He held various positions in YPF, where he served as Manager of International Development from 1983 to 1998, and in YPF Peru, where he was CEO from 1998 to Between 2001 and 2013, he was General Manager of Empresa de Energia Rio Negro SA. Since December 2015, he is the Minister of Economy and Infrastructure of the Province of Neuquen. He served, among other positions, as Deputy in the Legislature of the Province of Chubut between 1991 and 1995; as Secretary of Social Welfare of the Municipality of Comodoro Rivadavia, Chubut province, between 1995 and 1999; and as Councilman in the Deliberative Council of Comodoro Rivadavia, between 1999 and He was the President of the Official Courier of Argentina Republic SA, between 2009 and He was the mayor of the municipality of Comodoro Rivadavia from 2011 to December He has an economics degree from the Universidad Argentina de la Empresa (UADE), a specialization in economics of oil and natural gas from the Technological Institute of Buenos Aires (ITBA), and a master in finance from CEMA University. He served as an advisor to the Committee on Mining, Energy and Fuels of the National Senate in 2012 and as a consultant in the Department of Economic Planning of the Ministry of Economy and Public Finance of the Nation in He is currently the Minister of Economy and Public Works in the province of Santa Cruz. He has an economics degree from the National University of Cuyo and a master in public policy at the Torcuato Di Tella Institute. He worked as Undersecretary of Finance and Minister of Finance of the province of Mendoza, between 1999 and He was provincial senator between 2003 and He was elected National Deputy for the province of Mendoza, between 2011 and 2015 and is currently Minister of Economy, Infrastructure, and Energy in the province of Mendoza. He has a law degree from the Catholic University Argentina and a masters in administrative law from Austral University and completed the Business Management Program of IAE. He served as an advisor at the National Ministry of Justice and Human Rights, in the Secretariat for Coordination and Innovation in the Public Ministry of the Autonomous City of Buenos Aires and in the Ministry of Economic Development of the province of Salta. Between 2008 and 2013, he was the President of the Regulatory Authority of Public Services in the province of Salta. He graduated in business administration from the University of Buenos Aires and has postgraduate studies in the United States. He worked for Pfizer Inc., where he held various positions, first as Treasurer in Argentina, then in Brazil as CFO and the United States as Director of Administration for Latin America. From 1993 to 2002, he held various positions in YPF, until he was named CFO. Later, he was CEO of Telecom Argentina SA until 2007 and was appointed as Chairman of Telecom Argentina SA until April Source: YPF 95

96 Appendix: Management & Board Bio Board Bio (2 of 3) Name Position Status Experience Daniel Gustavo Montamat Director Jorge Rodriguez Fabian Simon Director Independent Independent He is an economist, a certified public accountant, and a lawyer. He has two doctorates degrees: one in economic sciences from the Catholic University of Cordoba, and another in law and social sciences from the National University of Cordoba. He also has a master in economics from the University of Michigan in the United States. Among other positions, he served as State Director of Gas; Director and Chairman of YPF SE and Secretary of Energy of the Nation. In 1991, he founded Montamat & Asociados in Buenos Aires and currently is its Executive Director. He is currently a consultant to the World Bank and the Inter-American Development Bank. He has a law degree from the University of Buenos Aires and studied public international law at Harvard Law School. Among other positions, he served as advisor to the Mayor of the City of Buenos Aires, Chief of Staff of the Ministry of Environment and Public Space of the Government of the CABA, between 2007 and 2009, and President of the Commission Act 1840 "Zero Waste ". He was a founding partner at Llerena & Asociados Abogados and director of its Executive Committee. María Inés Leopoldo Director Independent She has an electronics engineer degree from the Technological Institute of Buenos Aires and an MBA from the UBA. She completed the Senior Management Program at IESE, the Senior Leadership Program of INSEAD and the Government Program of the Companies issued by the Institute of Directors and Administrators (IC-A). She has extensive experience in the telecommunications industry and served in various positions in Telecom, La Nacion, Terra Networks, and Telefónica. Daniel Alberto Kokogian Director Non Independent He graduated in geological sciences and has a postgraduate degree in petroleum engineering, both from the UBA. He worked in YPF from 1981 to 1989, where he served as Head of the Geological Survey. He worked at Pioneer Natural Resources, where he was appointed Vice President of Exploration and Development and Vice President of New Business. Oscar Octavio Frigerio Director Independent Luis Augusto Domenech Director Independent José Emilio Apud Director Independent Damián Gerardo Canseco Alternate Director Alejandro Rodrigo Monteiro Alternate Director Non Independent Independent He has an agronomy engineering degree from the University of Buenos Aires and obtained a master in genetic sciences from Iowa State University, United States. He held various positions in Clarin from 1972 to During 1989, he was YPF Financial Controller. He was National Deputy from 1991 to 1993 and Legislator of the City of Buenos Aires, in From 1997 to 1999, he was Secretary of State for the Presidency in the Secretariat of White Helmets. He graduated in business administration in the UBA and completed the Advanced Management Program of the Institute of Higher Business Studies (IAE) and the Executive Program of the School of Business Administration, University of Michigan, United States. From 1993 to 2004, he held various positions in MetroGAS SA, where he served as CFO from 1993 to 2002 and General Manager from 2002 to From 2004 to 2013, he was President and CEO of Companhia do Gas de Sao Paulo (COMGAS) in Brazil. He has an industrial engineering degree from the Faculty of Engineering of the University of Buenos Aires. He has graduate degrees in Energy Economy and Management Control of Great Works, both from the Faculty of Engineering of University of Buenos Aires. Among other positions, he was Director of CAMMESA and Secretary of Energy and Mining of the Nation. He was founder and former vice president of IAE, Institute for Energy G. Mosconi, between 1983 and In addition, he is Chairman of BAE SA, builder and developer, academic advisor of Freedom and Progress Foundation and member of the Fundación Pensar. He is a lawyer and specialist in trade unions rights. He is an employee of YPF since Among other positions, he served as Secretary of Government of the Municipality of San Lorenzo, Santa Fe province, from 2007 to 2011 and as Secretary of Labor, in the Ministry of Labor and Social Security of the Province of Santa Fe, from 2011 to He was President of the Center for Labor and Social Research for the period He has an economics degree from Argentina University of the company. He held various positions in the government of the province of Neuquen as Director of Economic Coordination of the Secretariat of Public Revenue of the Ministry of Finance and Public Works from 2003 to 2007, and fiscal and economic coordinator of the Secretariat of Public Revenue, from 2007 until Since December 2001, he has been President of the Court of Appraisals and Undersecretary of Revenue, om the Ministry of Economy and Infrastructure of the province of Neuquen. Luis Gustavo Villegas Alternate Director Independent He has held various positions in the oil industry since He is member of the Commission of the Mutual Hierarchical Oilers and YPF Alternate Director since December Source: YPF 96

97 Appendix: Management & Board Bio Board Bio (3 of 3) Name Position Status Experience Lucio Mario Tamburo Alternate Director Independent He has a civil engineering degree from the Universidad Nacional del Sur, Bahia Blanca. He was appointed manager of engineering and construction and Head of services and maintenance in Bahia Blanca Azurix Buenos Aires SA. He was Administrator of the National Authority for Water and Sanitation Works (ENOHSA) until December Pedro Martín Kerchner Tomba Alternate Director Independent He has a public accounting degree from the Faculty of Economic Sciences of the Catholic University Argentina and completed a postgraduate degree in Financial Strategies of the National University of Cuyo. Among other positions, he served as Director of Administration of the Ministry of Justice and Security of the province of Mendoza, Secretary of Finance of the Municipality of Godoy Cruz, Mendoza, and was elected as a deputy of the Province of Mendoza. He is currently the Minister of Finance of the province of Mendoza. Daniel Facundo Massafra Alternate Director Independent Certified Public Accountant from the University of Buenos Aires. He held the position of Director of Personnel Management, Liquidations and Assets of the Ministry of Finance of the Municipality of the city of Salta, from 2010 to 2011 and was Secretary of the Treasury of the Municipality of San Lorenzo, Salta province, from 2011 to He is the General Manager of Energy and Mineros of Salta SA since June Daniel Cristián González Casartelli Alternate Director Non Independent President of the Disclosure Committee. Degree in business administration from the Argentine Catholic University. Served for 14 years at Merrill Lynch & Co in Buenos Aires and New York, holding the positions of Head of M&A for LatAm and President for the Southern Cone, among others. Former Head of Financial Planning and Investor Relations in Transportadora de Gas del Sur S.A. Currently member of the Board of Directors of Adecoagro S.A. and Hidroelectrica Piedra del Aguila S.A. Mr. Gonzalez has been YPF's CFO since July Carlos Alberto Alfonsi Alternate Director Non Independent Chemistry degree from the Technological University of Mendoza. Degree in IMD Managing Corporate Resources from Lausanne University and has studied at MIT. Held various positions at YPF, serving as operations manager, the Director of the La Plata refinery, Operation Planning Director, Director of Commerce and Transportation, Director of Refinery and marketing in Peru, Country Manager for Peru, R&M for Peru, Chile Ecuador and Brazil. Currently Downstream Executive Vice-President since June Raúl Fernando Dasso Alternate Director Non Independent Degree in labor relations from the University of Buenos Aires. Joined YPF in 1993 and held various positions within the company, including HR Director at the Argentina, Bolivia, Brazil Exploration and Mining Unit. Pablo Fernando Giliberti Alternate Director Non Independent He has a degree in public accounting from the Catholic University of Argentina, an MBA in Business Administration at UADE, a postgraduate degree in management and economics of Natural Gas, College of Petroleum Studies, Oxford University, UK, and a master in science of management, Sloan Program at Stanford University, USA. Among other positions, he served in YPF as Head of Accounting and Finance Business in the Mendoza unit, Manager of Business Development and Director of Economic Unity Business Development Exploration and Production. Source: YPF 97

98 January 2017 LatAm Oil & Gas Equity Research Appendix Credit Suisse HOLT