YPF Sociedad Anonima is an energy company.

The Company is operating a fully integrated oil and gas chain. The Company has two segments: Exploration and Production and Downstream.

Analysts notice YPF's potential as shale oil investments start to pay off

The Vaca Muerta shale is believed to be the world's second largest shale gas and fourth largest shale oil formation

Argentinean upstream and downstream oil producer Yacimentos Petroliferos Fiscales SA, YPF, (NYSE:YPF) had its rating upgraded by Credit Suisse, from Neutral to Outperform with a target price of US$42/share, while Morgan Stanley listed it as a ‘Buy’ last week.

Argentina has one of the most important non-conventional oil deposits in the world at Vaca Muerta. Experts say that is the key to energy independence for Argentina, which would become a direct exporter of energy, taking advantage of this resource to attract foreign investment to boost public-private relationships and use these resources improve infrastructure and reduce social inequality.

The Vaca Muerta shale is believed to be the world's second largest shale gas and fourth largest shale oil formation, with the area containing an estimated 27 billion barrels of shale oil.

YPF has already started to enjoy the fruits of its investments in shale deposits in Loma Campana and other areas of Vaca Muerta. Distilleries have been processing the raw material from this site, obtaining a high quality fuel that has been allocated to many gasoline service stations.

As shale operations increase, the refineries various cities such as La Plata, Buenos Aires, Lujan de Cuyo in Mendoza, and Plaza Huincul in Neuquen, will see more supply and increase their retail sales in Argentina, which currently account for 60 percent of market share.

YPF has estimated that the volume of shale that is used to refine YPF finished products is approximately 22,000 barrels per day. Most of it is gasoline but some gasoil is also produced; the gasoline bias is inevitable given that the oil shale in question is light.

Not surprisingly, many downstream oil companies want to expand facilities in the medium and long term. Shell is one of these as it tries to obtain 15 percent more refined products. Earlier in July, YPF, Pan American Energy Germany’s Wintershall said they were ready to invest up to US$30 billion over a period of 35 years in Vaca Muerta in order to develop Bandurria, a new block expected to become the most important in Argentina, generating twice as many barrels of oil as Loma Campana, which is now considered to be the main unconventional cluster outside the United States.

The use of fracking, the unconventional oil extraction technique pioneered in North America, has revolutionized the global oil market. The United States has used the technique to great effect, increasing production and reducing imports. Its potential, however, can go beyond US borders. Researchers at the Houston based consultancy IHS, suggest that fracking would allow for the extraction of some 141,000 million barrels, almost twice the current annual production, estimated at 86.000 million barrels.

Argentina’s state owned oil company YPF is determined to use fracking in order to exploit unconventional resources and Vaca Muerta is the target. Dr. Ernesto Gallegos, a geologist at the University of Buenos Aires, has worked to dispel any fears related to fracking techniques, having expressed full support in the project now known as "Energy Independence Argentina" trying to expose myths and truths about fracking and unconventional oil.

Indeed, fracking is not new. The technique has been applied to the extraction of shale oil and gas since the 1940’s; modern technological advances have made it ever more commercially viable, efficient and safer to convert the resources into reserves.

Fracking is essentially hydraulic stimulation to enhance the permeability of conventional fields. It involves injecting high-pressure water with sand and about 12 additives, none of which are mysterious poisons or chemicals used.

But perhaps more important in countering the myth of the groundwater contamination, Vaca Muerta presents a particular geology that makes it especially suitable. While in other unconventional reservoirs the aquifers are relatively close to the stones to be subjected to fracking, at Vaca Muerta these are separated by some 2,000 meters of rock that separate them. Vaca Muerta is located on average at a depth of 2,000 meters and fractures are always less than 100 meters according to YPF.

Regulation in the South American country has maintained an average price, far exceeding the current world price of about US$50/barrel, of about US$76/bbl and US$5/mmbtu and the company realized an average price of $74.78/boe, a 5% sequential increase to fuel netbacks of $33.18/boe and cash flow of $5.1M.