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UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK
x MONROE COUNTY EMPLOYEES’ : Civil Action No. 1:13-cv-00842-SAS
RETIREMENT SYSTEM, Individually and On : (Consolidated) Behalf of All Others Similarly Situated, :
: CLASS ACTION Plaintiff, : : CONSOLIDATED AMENDED vs. : COMPLAINT FOR VIOLATIONS OF THE : FEDERAL SECURITIES LAWS YPF SOCIEDAD ANONIMA, et al., : : DEMAND FOR JURY TRIAL Defendants. :
x Case 1:13-cv-00842-SAS Document 27 Filed 06/06/13 Page 2 of 47
Lead Plaintiff Felix Portnoy (“Plaintiff”), by his undersigned attorneys, on behalf of himself
and the class he seeks to represent, for his Consolidated Amended Complaint for Violations of the
Federal Securities Laws (the “Complaint”), alleges the following based upon the investigation of
Plaintiff’s counsel, which included a review of the United States Securities and Exchange
Commission (“SEC”) filings by YPF Sociedad Anonima (“YPF” or the “Company”) and Repsol
YPF, S.A. (“Repsol”), as well as regulatory filings and reports, securities analysts’ reports and
advisories about YPF and Repsol, press releases and other public statements issued by YPF and
Repsol, and media reports about YPF and Repsol. Plaintiff believes that substantial additional
evidentiary support will exist for the allegations set forth herein after a reasonable opportunity for
discovery.
NATURE OF THE ACTION
1. This is a federal securities class action on behalf of a class consisting of all purchasers, other than Defendants (defined below), of the American Depositary Shares (“ADSs”) of
YPF between December 22, 2009 and April 16, 2012, inclusive (the “Class Period”), seeking to pursue remedies under the Securities Exchange Act of 1934 (the “Exchange Act”).
2. This action concerns materially false and misleading statements and material
omissions regarding YPF and its operations. YPF, which is based in Argentina, is focused on the
exploration and development of oil and gas within Argentina. Prior to 1999, YPF had been partially
owned by the Argentinean government. In 1999, Repsol, an oil and gas company based in Spain,
acquired 99% of YPF.
3. Prior to and during the Class Period, the Argentinean government became
increasingly dissatisfied with Repsol’s management of YPF and YPF’s operations. The Argentinean
government’s concerns included: (i) that Argentina was becoming a net importer of natural gas and
oil, despite having a sufficient supply of its own natural resources; (ii) that YPF was not adequately Case 1:13-cv-00842-SAS Document 27 Filed 06/06/13 Page 3 of 47
producing oil and gas within Argentina; and (iii) that YPF was distributing a large portion of its profits to Repsol and its other shareholders in the form of high dividends instead of reinvesting them back into the Company and its operations.
4. Repsol knew that it could not outright ignore the concerns of the Argentinean
government since the Argentinean government had a track record of nationalizing companies that
ignored its criticisms. Accordingly, in an effort to allay the Argentinean government’s concerns, in
late 2007, Repsol agreed to sell (in stages) up to 25% of its YPF holdings to the Petersen Group, an
entity owned by businessman Enrique Eskenazi, who was closely allied with the Argentinean
government.
5. This effort at appeasement, though, did not have its intended effect. In December
2007, the Argentinean government, through its newly elected President, Christina Fernández
(“Fernández”), again warned YPF to lower its dividend payouts and increase its investment in
Argentinean concession contracts. Unbeknownst to investors, and despite its public statements to
the contrary, YPF failed to make the proper adjustments and continued to under-produce and failed
to adequately fund Argentinean energy projects.
6. In December 2009, at the start of the Class Period, YPF announced the adoption of
the Horizon 2014 Plan, a five-year plan that was seemingly aimed at increasing exploration in
untapped regions of Argentina. In reality, however, the plan was part of a scheme by Repsol to
appear responsive to the Argentinean government’s concerns regarding the lack of YPF’s production
and stave off any immediate attempt at nationalization so that, among other things, Repsol could
continue to reduce its stake in YPF at artificially inflated prices. For example, during 2009, YPF
invested 81% less than what Repsol estimated and 61% less than what the Company had promised
the government it would invest in the Barrancas, La Ventana, Vizcacheras and Seflal Picada-Punta
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Barda areas. Similarly, in 2010, YPF invested 64% less than its forecast and 53% less than what it had promised to invest to authorities in Argentina.
7. In furtherance of this scheme, on December 7, 2010, Repsol announced what it described as a “new discovery” in the Vaca Muerta field, a shale oilfield, which revealed “significant non-conventional gas potential in that basin.” Following this announcement, Repsol began divesting its shares of YPF through: (i) private sales to several investment funds; (ii) a $1 billion public offering (the “Offering”); and (iii) the exercise of the option held by the Petersen Group to acquire the balance of its 25% stake.
8. By late 2011, the Argentinean government’s dissatisfaction with the lack of investment on behalf of YPF increased. On November 3, 2011, in an article entitled “Argentina:
Government rejects YPF dividends distribution proposal,” El Cronista Comercial reported that the
Argentine Government’s representative on YPF’s board of directors “rejected a proposal to distribute dividends, as the State continues its efforts to contain capital flight.”
9. Then, on January 30, 2012, it was reported that Argentine officials were discussing a takeover of YPF because of its lack of investment in Argentina. In response, the Company’s ADSs declined $4.02 per ADS, or over 10%, to close at $35.86 per ADS.
10. On February 29, 2012, it was reported that Defendant Brufau (defined below) was meeting with President Fernández regarding YPF’s lack of investment in Argentina. This news caused the Company’s ADSs to decline $4.37 per ADS, or over 14%, to close at $26.23 per ADS.
11. Then, on April 16, 2012, President Fernández announced that the Argentinean government would nationalize YPF and seize a majority stake in YPF from Repsol. Fernández also ousted Defendant S. Eskenazi (defined below) as YPF’s Chief Executive Officer (“CEO”), among others, and named two top government aides to run the Company.
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12. On the news of YPF’s nationalization, trading in the Company’s ADSs was halted on
April 17, 2012. When trading resumed on April 18, 2012, the price of the Company’s ADSs declined $6.38 per ADS, or over 32%, to close at $13.12 per ADS, on significantly heavy trading volume.
13. From April 16, 2012 to June 1, 2012, the Argentinean government, led by Deputy
Economy Minister Axel Kicillof and Planning Minister Julio de Vido, conducted an audit of
Repsol’s internal data and documents, and interviewed employees. The findings were published on or about June 1, 2012 and became known as “The Mosconi Report,” a copy of which is attached hereto as Exhibit A. According to the Argentinean government, the aim of the Mosconi Report was to “provide evidence [of Repsol’s] strategy of depredation, disinvestment and failure to appropriately supply the domestic market” since it took control over YPF in 1999. Mosconi Report at 3. The
Mosconi Report confirmed, among other things, that: (a) Repsol had used YPF to support and finance its own strategy for global expansion by paying itself high dividends rather than investing in
“exploration and exploitation activities”; (b) Repsol had grown dissatisfied with the Argentinean government’s “domestic price management policy” and, as a result, had gradually abandoned YPF’s exploration activities in order to force international and domestic prices to converge; (c) Repsol was focused solely on extracting oil from existing oil fields, which caused a “systematic decline of the
Company’s oil and natural gas production”; and (d) Repsol intended to sell YPF’s major discovery – the Vaca Muerta – instead of making the necessary investment to develop it and thereby increase domestic production. As Deputy Economy Minister Kicillof noted during his presentation of the
Mosconi Report, “The purpose of Repsol was to milk dry YPF, and make money at any cost since they left a total mess of the company with record low production and record low reserves.”
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14. Thus, despite its representations to investors that it was prudently investing YPF’s profits in YPF’s growth and operations within Argentina and was making the necessary changes to
address the Argentinean government’s specific concerns, throughout the Class Period, Repsol
continued to divert YPF’s profits to pay itself and the Eskenazi family abnormally high dividends
(80 to 90%) so that Repsol could use the money to finance its own international expansion and the
Eskenazi family could pay back the “no-money down” loans it had received from its lenders (which
included Repsol) to acquire its stake in YPF.
JURISDICTION AND VENUE
15. The claims asserted herein arise under and pursuant to Sections 10(b) and 20(a) of the
Exchange Act [15 U.S.C. §§78j(b) and 78t(a)] and Rule 10b-5 promulgated thereunder [17 C.F.R.
§240.10b-5].
16. This Court has jurisdiction over this action pursuant to Section 27 of the Exchange
Act [15 U.S.C. §78aa], and 28 U.S.C. §1331.
17. Venue is properly laid in this District pursuant to Section 27 of the Exchange Act and
28 U.S.C. §1391(b) and (c). Many of the acts charged herein, including the preparation and
dissemination of materially false and misleading information, occurred in substantial part in this
District. YPF ADSs are traded on the New York Stock Exchange (“NYSE”), which is based in this
District.
18. In connection with the acts and conduct alleged in this Complaint, Defendants,
directly or indirectly, used the means and instrumentalities of interstate commerce, including, but not
limited to, the mails, interstate telephone communications and the facilities of the national securities
markets.
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PARTIES
19. Lead Plaintiff Felix Portnoy purchased the ADSs of YPF during the Class Period, as set forth in his certification previously filed with the Court and incorporated herein by reference, and was damaged thereby.
20. Defendant YPF, an Argentinean corporation, maintains its principal executive offices at Macacha Guemes 515, 1106 Buenos Aires, Argentina.
21. Defendant Repsol, formerly known as Repsol YPF, S.A., is a limited liability company that exists under the laws of the Kingdom of Spain. Repsol’s principal executive offices are located at Paseo de la Castellana 278, 28046 Madrid, Spain.
22. Defendant Antonio Brufau Niubo (“Brufau”) was, at all relevant times, Chairman and
Chief Executive Officer (“CEO”) of Repsol.
23. Defendant Sebastián Eskenazi (“S. Eskenazi”) was, at all relevant times, YPF’s
Executive Vice-Chairman, CEO and Director.
24. Defendant Guillermo Reda (“Reda”) was, at all relevant times, YPF’s Chief Financial
Officer.
25. Defendants Brufau, S. Eskenazi and Reda are referred to herein as the “Individual
Defendants.”
26. During the Class Period, the Individual Defendants, as senior executive officers, and
Repsol, through its large ownership stake of shares of YPF and its representatives on YPF’s Board of Directors, were privy to confidential and proprietary information concerning YPF, its operations, finances, financial condition and present and future business prospects. The Individual Defendants and Repsol also had access to material adverse non-public information concerning YPF, as discussed in detail below. Because of their positions with YPF, the Individual Defendants and Repsol had access to non-public information about its business, finances, products, markets and present and - 6 - Case 1:13-cv-00842-SAS Document 27 Filed 06/06/13 Page 8 of 47
future business prospects via internal corporate documents, conversations and connections with other
corporate officers and employees, attendance at management and/or board of directors meetings and
committees thereof and via reports and other information provided to them in connection therewith.
Because of their possession of such information, the Individual Defendants and Repsol knew or
recklessly disregarded that the adverse facts specified herein had not been disclosed to, and were being concealed from, the investing public.
27. By reason of their management/director positions and/or their ownership of shares of
YPF, and their ability to make public statements in the name of YPF, the Individual Defendants and
Repsol were and are controlling persons, and had the power and influence to cause (and did cause)
YPF to engage in the conduct complained of herein.
28. The Individual Defendants and Repsol, because of their positions with the Company
and large ownership stake, controlled and/or possessed the authority to control the contents of YPF’s
reports, press releases and presentations to securities analysts and through them, to the investing public. The Individual Defendants were provided with copies of the Company’s reports and press
releases alleged herein to be misleading, prior to or shortly after their issuance and had the ability
and opportunity to prevent their issuance or cause them to be corrected. Thus, the Individual
Defendants and Repsol had the opportunity to commit the fraudulent acts alleged herein.
29. As senior executive officers and/or directors and as controlling persons of a publicly
traded company whose ADSs were, and are, registered with the SEC pursuant to the Exchange Act,
and were, and are, traded on the NYSE and governed by the federal securities laws, the Individual
Defendants and Repsol had a duty to promptly disseminate accurate and truthful information with
respect to YPF’s financial condition and performance, growth, operations, financial statements, business, products, markets, management, earnings and present and future business prospects, and to
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correct any previously issued statements that had become materially misleading or untrue, so that the market price of YPF ADSs would be based upon truthful and accurate information. The Individual
Defendants’ misrepresentations and omissions during the Class Period violated these specific requirements and obligations.
30. The Individual Defendants and Repsol are liable as participants in a fraudulent scheme and course of conduct that operated as a fraud or deceit on purchasers of YPF ADSs by disseminating materially false and misleading statements and/or concealing material adverse facts.
The scheme: (i) deceived the investing public regarding YPF’s business, operations and management and the intrinsic value of YPF ADSs; (ii) enabled Defendant Repsol to sell more than $1 billion of its own shares of YPF ADSs in a public offering at artificially inflated prices; (iii) allowed
Defendant Repsol to divest its ownership of YPF at artificially inflated prices; (iv) enabled
Defendant Repsol and the Petersen Group (described below) to receive abnormally high dividends so that Repsol could fund its international expansion and the Eskenazi family could pay back the “no- money down” loans it received from Repsol and certain banks to acquire its stake in YPF; and (v) caused Plaintiff and members of the Class to purchase YPF ADSs at artificially inflated prices.
CLASS ACTION ALLEGATIONS
31. Plaintiff brings this action as a class action pursuant to Federal Rule of Civil
Procedure 23(a) and (b)(3) on behalf of a class consisting of all those who purchased the ADSs of
YPF between December 22, 2009 and April 16, 2012, inclusive, and who were damaged thereby (the
“Class”). Excluded from the Class are Defendants, the officers and directors of the Company, at all relevant times, members of their immediate families and their legal representatives, heirs, successors or assigns and any entity in which Defendants have or had a controlling interest.
32. The members of the Class are so numerous that joinder of all members is impracticable. Throughout the Class Period, YPF ADSs were actively traded on the NYSE. While - 8 -
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the exact number of Class members is unknown to Plaintiff at this time and can only be ascertained
through appropriate discovery, Plaintiff believes that there are hundreds or thousands of members in
the proposed Class. Record owners and other members of the Class may be identified from records
maintained by YPF or its transfer agent and may be notified of the pendency of this action by mail,
using the form of notice similar to that customarily used in securities class actions.
33. Plaintiff’s claims are typical of the claims of the members of the Class as all members
of the Class are similarly affected by Defendants’ wrongful conduct in violation of federal law
complained of herein.
34. Plaintiff will fairly and adequately protect the interests of the members of the Class
and has retained counsel competent and experienced in class action and securities litigation.
35. Common questions of law and fact exist as to all members of the Class and
predominate over any questions solely affecting individual members of the Class. Among the
questions of law and fact common to the Class are:
(a) whether the federal securities laws were violated by Defendants’ acts as
alleged herein;
(b) whether statements made by Defendants to the investing public during the
Class Period misrepresented and/or omitted material facts about the business and operations of YPF;
(c) whether the price of YPF ADSs was artificially inflated during the Class
Period; and
(d) to what extent the members of the Class have sustained damages and the
proper measure of damages.
36. A class action is superior to all other available methods for the fair and efficient
adjudication of this controversy since joinder of all members is impracticable. Furthermore, as the
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damages suffered by individual Class members may be relatively small, the expense and burden of
individual litigation make it impossible for members of the Class to individually redress the wrongs
done to them. There will be no difficulty in the management of this action as a class action.
SUBSTANTIVE ALLEGATIONS
YPF, Repsol and the Petersen Group
37. YPF describes itself as “Argentina’s leading energy company, operating a fully
integrated oil and gas chain with leading market positions” across the domestic upstream and
downstream segments.
38. In 1999, Repsol, a Spanish-based integrated oil and gas company, acquired 99% of
YPF in a transaction that was largely financed by debt. Repsol paid close to $16 billion, or
$44.78 per share, to acquire its YPF stake. Repsol’s majority acquisition of YPF made it the largest privately-owned energy company in Spain and Latin America.
39. From 2000 to the end of 2007, Repsol continued to own approximately 99% of YPF.
During this time, the Argentinean government grew increasingly dissatisfied with Repsol’s
management of YPF and YPF’s operations. The Argentinean government’s concerns included:
(i) that Argentina was becoming a net importer of natural gas and oil, despite having a sufficient
supply of its own natural resources; (ii) that YPF was not adequately producing oil and gas within
Argentina; and (iii) that YPF was distributing a large portion of its profits to Repsol and its other
shareholders in the form of high dividends instead of reinvesting them back into the Company and
its operations.
40. Repsol knew that it could not outright ignore the concerns of the Argentinean
government since the Argentinean government had a track record of nationalizing companies that
ignored its criticisms. Accordingly, in an effort to allay the Argentinean government’s concerns, in
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late 2007, Repsol agreed to sell up to 25% of its YPF holdings to the Petersen Group, an entity
owned by businessman Enrique Eskenazi, who was closely allied with the Argentinean government.
41. The deal would provide the Petersen Group with a 14.9% stake in YPF at a cost of
$2.235 billion, together with an option to purchase an additional 10.1% interest within the next four
years. At the time of the transaction, Repsol owned approximately 80% of YPF.
42. The Eskenazi family had risen to political, social and economic fame in Argentina
over the years through its various bank ownerships and construction companies. The Eskenazi
family’s patriarch, billionaire Enrique Eskenazi, was a close friend and confidant of Argentine
President Nestor Kirchner (“Kirchner”). The Eskenazi family’s ties with Kirchner stem from its real property development projects in Kirchner’s home province of Santa Cruz, which he governed for
ten years before becoming President, as well as from Eskenazi being a majority stake-holder in the
state bank of Santa Cruz.
43. The Petersen Group’s acquisition of YPF shares was paid for by loans from a group
of banks, as well as loans from Repsol. As collateral for the loans, the Petersen Group was allowed
to post the actual YPF shares it was purchasing. In order to pay back the loans, the Petersen Group
used the dividend payments it received from its ownership interest in YPF stock. The Petersen
Group specifically structured this transaction with the expectation that it would receive abnormally
high dividends, which it would then use to pay back the loans.
44. After acquiring its stake in YPF, the Eskenazi family was quickly placed in
controlling positions at YPF. Enrique Eskenazi was ushered in as YPF’s Vice Chairman and
Director. Enrique’s son, Defendant S. Eskenazi, was placed as YPF’s Executive Vice Chairman,
CEO and Director. Matías Eskenazi Storey, Enrique’s other son, assumed the roles of Assistant
Director and Director of YPF.
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45. Despite the Eskenazi family’s involvement in YPF, the Argentinean government
continued to be frustrated with the way that YPF was being run. In December of 2007, Kirchner was
succeeded by his wife, Christina Fernández, as President of Argentina. Fernández warned YPF to
lower its dividend payouts and increase its investment in Argentinean concession contracts. Despite
these warnings, and unbeknownst to investors, YPF continued to under-produce and failed to
adequately fund Argentinean energy projects.
YPF Announces a Plan to Address the Argentinean Government’s Concerns
46. On December 22, 2009, YPF held a press conference to announce the Horizon 2014
Plan, a five-year plan that was seemingly adopted to respond to the Argentinean government’s
concerns regarding the Company’s production and domestic exploration. Although the plan was purportedly aimed at increasing domestic exploration, in reality, it was part of a scheme to
temporarily allay the concerns of the Argentinean government about YPF’s production rates and
stave off nationalization while enabling Repsol to sell off large percentages of its holdings in YPF at
high prices.
Repsol Announces a New Discovery at the Vaca Muerta Field
47. In an effort to bolster the price of YPF ADSs as it sought to reduce its stake, on
December 7, 2010, Repsol announced a “new discovery” in the Vaca Muerta field (located in the
Neuquén basin) which revealed “significant non-conventional gas potential in that basin.” Despite
the characterization of this discovery, Diego Mansilla, a researcher at the Department of Political
Economics and Global CC, pointed out that the oil refineries in the Neuquén basin had been known
for many years before their official announcement in December 2010. According to Mansilla, the
main reason that this discovery was announced was to increase the value of YPF’s shares prior to the
$1 billion offering by Repsol of its YPF shares.
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48. Following the announcement of the Vaca Muerta “discovery,” Repsol began an
aggressive selling campaign of its YPF stake:
(a) On December 23, 2010, Repsol announced that it had agreed to sell 3.3% of
YPF to Eton Park Capital Management, among others, for $500 million. After the transaction,
Repsol owned 79.84% of YPF:
(b) On March 14, 2011, Repsol announced that it had agreed to sell a 3.83% stake
of YPF to Lazard Asset Management and other investment funds for $639 million. Following the
transaction, Repsol owned 75.9% of YPF.
(c) On March 23, 2011, Repsol announced that 26.21 million of its YPF ADSs
had been sold in the Offering at $41 per ADS, yielding proceeds in excess of $1 billion. Following
the Offering, Repsol owned 69.22% of YPF.
(d) On May 4, 2011, Repsol announced that the Petersen Group had exercised its
option to purchase 10% of YPF. Following the completion of the agreement, the Petersen Group
had a 25.46% stake in YPF, while Repsol’s stake was reduced to 58.23%.
49. While YPF touted Vaca Muerta as “especially significant,” in truth, this discovery
would never amount to anything meaningful because Repsol and YPF limited their investment to
$300 million for the development of shale oil, a minimal amount for a project this size (as compared
to the $1 billion that Repsol invested in similar unconventional fields in the United States).
Moreover, further financing for Vaca Muerta was never completed because, as was reported in The
Mosconi Report, Repsol’s strategy was to limit its investments in the Argentinean oil projects so that
domestic prices would increase (as the result of limited supply), thereby putting pressure on the
government to lift its pricing restrictions and enabling Repsol to increase its profits. The Mosconi
Report further states that Repsol anticipated that the “clearly expanding demand could only be
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satisfied by a similar increase in domestic supply provided that the regulatory framework would
ensure sufficient margins throughout all links of the value chain of the sector.” Id. at 30. (internal
quotations omitted). Put another way, Repsol was only willing to increase YPF’s investment in
Argentina if the price of oil and gas, and in turn its profit margins, increased. Absent such an
occurrence, Repsol’s preference was to invest YPF’s profits – which were distributed to Repsol in
the form of abnormally large dividends – in its own international developments.
YPF’s Nationalization
50. In a last ditch effort to save YPF from nationalization, on April 2, 2012, Defendant
Brufau sent a letter to President Fernández. In the letter, Defendant Brufau admitted that the recent
discoveries in “unconventional resources,” like Vaca Muerta, would exceed YPF’s current
investment capacity and that foreign investment and financing was necessary. Defendant Brufau
also stated that he planned to cede part of YPF’s interest in its concessions to third parties.
51. On April 16, 2012, Fernández announced that the government would nationalize YPF
and seize a majority stake in YPF from Repsol. Moreover, Fernández ousted Defendant S. Eskenazi
as YPF’s CEO and named two top aides, Julio de Vido and Axel Kicillof, to run the Company.
President Fernández cited to YPF’s lack of production and investment in Argentina as well as
Argentina’s history of spending billions of dollars on importing gas and petroleum despite its plentiful natural resources.
52. Fernández implemented the nationalization of YPF via the Expropriation Act (Law
26,741) which was presented as bill to the legislature on April 16, 2012 and was passed on May 3,
2012.
The Mosconi Report
53. From April 16, 2012 to June 1, 2012, the Argentinean government, led by Deputy
Economy Minister Axel Kicillof and Planning Minister Julio de Vido, conducted an audit of - 14 - Case 1:13-cv-00842-SAS Document 27 Filed 06/06/13 Page 16 of 47
Repsol’s internal data and documents, and interviewed employees. The findings were published on or about June 1, 2012 and became known as “The Mosconi Report.” According to the Argentinean government, the aim of The Mosconi Report was to “provide evidence [of Repsol’s] strategy of depredation, disinvestment and failure to appropriately supply the domestic market” since it took control over YPF in 1999. Id. at 3.
54. The Mosconi Report revealed that the linchpin of Repsol’s strategy was a systematic divestment from YPF. Further, Repsol deliberately under-funded exploration and delayed investments in Argentina and instead focused on monetizing its non-YPF assets internationally.
55. Moreover, according to The Mosconi Report, the Vaca Muerta discovery was not an effort to increase domestic production; rather, Repsol planned to derive profit from Vaca Muerta by either sale or a subconcession.
56. Repsol’s strategy gave priority to quick cash return over investment. This is confirmed by YPF’s low investment in exploration and the lack of maintenance of domestic oil sources. These factors had an adverse impact on the Argentinean oil and natural gas profile and, in turn, led to the government’s takeover of YPF.
57. The Mosconi Report confirmed, among other things, that:
(a) Repsol used YPF to support and finance its strategy for global expansion by paying itself high dividends rather than investing in “exploration and exploitation activities.” Mosconi Report at 86. Beginning in 2000, Repsol began a process in which it
transferred international assets owned by YPF or its subsidiaries to itself or to third parties. See id. at 21. The profits derived from these asset sales were ultimately transferred to Repsol in the form of
“extraordinary dividends.” Id. at 22. From 2008 to 2011 (with the exception of 2010), YPF paid more dividends than its net earnings. See id. at 32. In fact, YPF’s dividends in 2008 more than
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doubled the Company’s net earnings. See id. In total, from 1999 to 2011, YPF paid more than
$13 billion in dividends. See id. at 32. The chart below illustrates the changes in YPF net earnings and dividends paid from 1997 to 2011, in Argentinean dollars.
10 9 8 7 6 CY 5 4 Fn 3 2 1 0
N- Dn C'l 'i U 2.. C , F1 al Q1 C LD - ED cD C C M c J UD LD C) LD C) C-
Ex. A at 32.
Moreover, in order to support these dividend payouts, YPF’s debt increased steadily year to year from 2004 to 2011. See id. In 2004, YPF’s debt was slightly over $3 billion. In 2011, YPF’s debt reached nearly $9 billion – almost three times 2004 levels. See id. at 32. The chart below shows the changes in Repsol’s indebtedness in YPF from 1997 to 2011, in dollars:
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9000
8-000
7000
- e000
5_000
4c":'c'
3c":'c'
2. DDD 1997 199 1999 2000 2001 2002 2003 2004 20GE. 2006 2007 2008 2009 201G 2011 Ex. A at 40.
(b) Repsol grew dissatisfied with the Argentinean government’s “domestic
price management policy” and, as a result, devised a plan in which it gradually abandoned
YPF’s exploration activities in order to increase energy demand and drive up domestic prices
to international levels, thereby pressuring the Argentinean government to change its price
restrictions. Id. at 26. As international oil prices were rising from 2003 to 2011, Argentina
instituted a “domestic price management policy” whereby it enabled domestic purchasers to obtain
gas and oil at almost half the price that others paid internationally. Id. Argentina believed, and still believes, that “fuel is a determining factor for the development of diverse economic activities” and is
the “main driver of Argentina’s economic competitiveness.” Id. Repsol viewed Argentina’s
“domestic price management policy” as a “threat” to its profits. Id. at 27. As such, YPF’s 2011
annual report filed on Form 20-F stated, in pertinent part, as follows:
Our domestic operations are subject to extensive regulation
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The oil and gas industry is subject to government regulation and control. As a result, our business is to a large extent dependent upon regulatory and political conditions prevailing in Argentina and our results of operations may be adversely affected by regulatory and political changes in Argentina. Therefore, we face risks and challenges relating to government regulation and control of the energy sector, including those set forth below and elsewhere in these risk factors:
• limitations on our ability to pass higher domestic taxes, increases in production costs, or increases in international prices of crude oil and other hydrocarbon fuels and exchange rate fluctuations through to domestic prices, or to increase local prices of natural gas (in particular for residential customers) . . .
[Emphasis in original.]
As a result of Repsol’s inability to increase domestic crude oil prices in Argentina, it began a plan to divest itself of YPF and endorse a policy of under-financing Argentinean exploration projects so as to increase demand and drive up the price of domestic oil. The government became aware of
Repsol’s strategy when the investigation uncovered a presentation in which Repsol stated that
“domestic gas prices would increase as a result of the upward pressure on the cost of the fuel imposed by” buying fuels abroad. Ex. A at 29. Repsol’s business plan assumed the “total elimination of oil export duties in 2014 and partial eliminations in 2012 and 2013.” Id. Below is a slide from Repsol’s internal business plan which shows Repsol’s assumptions that domestic prices would eventually equal international prices:
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Go nvergence to Import Parity aumed in 2014
w.nI PM m. I
LISl&3i
-- - ci - u ri B" 2WI AR
L'TI11 It I . 1 t " — .7 % rra !T
I 00%d FL Di.l
I..•. .'P._._ ..-P,. ......
Ex. A at 29.
(c) Repsol focused solely on extracting oil from existing oil fields, which caused a “systematic decline of the Company’s oil and natural gas production.” Id. at 4. The government’s investigation revealed that, starting in 2004, some mature fields “began to show the effects of the lack of investment and maintenance[.]” Id. at 47. For example, fields located in
Vizcacheras, Barrancas and La Ventana in the province of Mendoza, Seflal Picada-Punta Barda,
Chihuido de la Sierra Negra in the provinces of Neuquén/Río Negro and Los Perales in the province of Santa Cruz, as well as other fields in the Golfo San Jorge basin were affected. See id. YPF’s lack of investment contradicted the Company’s public statements in the Horizon 2014 Plan, which stated its commitment to increase domestic exploration. During 2009, YPF invested 81% less than what
Repsol estimated and 61% less than what the Company had promised the government it would invest in the Barrancas, La Ventana, Vizcacheras and Seflal Picada-Punta Barda areas. See id. at 48.
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Similarly, in 2010, YPF invested 64% less than its forecast and 53% less than what it had promised
to invest to authorities in Argentina. See id. This is illustrated in the following graph:
ME
57.0
26..5 26.6 C 20.4 C 12.7
2009 2010 . PE PLAN REAL
Id. at 48.
Moreover, the following graph shows that the actual investment in oil pipelines based on the
Company’s annual investment plan was less than half the total amount reported to the Secretariat of
Energy:
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40
0
20
0 w N co M 0 0 Q i-I - 0 0 0 0 0 0 FY Año . Oil pipeline investment plan Actual investment
Id. at 64.
(a) Repsol intended to sell its interest in YPF’s major discovery – Vaca
Muerta – rather than investing and increasing domestic production . See id. at 81. Although
Repsol had initially put $300 million into the discovery of Vaca Muerta, it failed to invest the
necessary funds to adequately explore the formation. See id. By stark contrast, Repsol invested
more than $1 billion in unconventional fields in the United States. Id. In fact, confidential reports
uncovered in The Mosconi Report show that Repsol “aimed at disclosing Vaca Muerta’s potential in
road show[s]” to foreign investors in order to sell off its interests or engage in subconcessions. Id. at
84. Toward this end, from December 1, 2011 to March 31, 2012, Repsol held 142 meetings with
Exxon, Chevron, Hess and Shell, among others. See id. at 85.
58. In sum, the goal of Repsol’s actions (or inactions) was to force Argentina to lift its
“domestic price management policy” on oil and gas so that it could strip YPF of its assets at higher
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prices and use the money to expand Repsol internationally at the expense of YPF and its
shareholders. The plan was finally thwarted when the Argentinean government nationalized YPF.
Materially False and Misleading Statements Made During the Class Period
59. The Class Period begins on December 22, 2009. On that date, YPF held a press
conference to announce the Horizon 2014 Plan, a five-year plan to address the government’s
concerns regarding the Company’s production and domestic exploration. The plan was purportedly
aimed at increasing exploration in untapped regions of Argentina. The press conference regarding
the Horizon 2014 Plan was attended by Defendant S. Eskenazi and President Fernández, among
others.
60. According to YPF, the Horizon 2014 Plan involved two stages. In stage one, YPF
would negotiate concession contracts with provincial Argentinean governments, which owned the
reserves, and would seek the right to invest in exploration and in return gain priority access to those blocks. YPF also offered to invest in exploration of the 163 blocks that had already been licensed to
other companies, and if oil or gas was discovered, YPF would develop the block together with the
license holder. During stage two, YPF would spend two years compiling existing information about
each reserve and conduct 2D and 3D seismic studies.
61. Defendant S. Eskenazi called the Horizon 2014 Plan the “most ambitious in the
history of YPF.”
62. YPF did not commit to a particular investment amount. However, Defendant S.
Eskenazi stated that the Company would “invest the resources that are necessary to explore all of the
country and find all the potential that our country has in terms of oil and gas reserves.”
63. Following this announcement, on December 23, 2009, the price of the Company’s
ADSs rose $2.00 per ADS, or 5%, to close at $41.95 per ADS.
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64. The statements referenced above in ¶¶60-62 were each materially false and misleading when made because Defendants misrepresented and failed to disclose the following adverse facts, which were known to Defendants or recklessly disregarded by them: (i) that the
Company was deliberately not investing in Argentinean exploration projects and, instead, was using the Company’s profits to pay unusually high dividends and to fund Repsol’s own international expansion efforts; (ii) that YPF’s failure to finance domestic exploration and development caused the
Company to breach its concession contracts with various Argentinean provinces; (iii) that YPF’s failure to invest domestically increased the risk that the Company would be nationalized; and
(iv) that nationalization by the Argentinean government would likely have a severe adverse effect on shareholders and on the Company’s market value. Moreover, by speaking about Repsol's commitment to investments in Argentina, Defendants created a duty to speak fully and truthfully regarding its commitment and to disclose that it was engaging in the conduct described in ¶65 (i) and
(ii).
65. On February 4, 2010, Repsol issued a press release announcing that Defendant Brufau had met with President Fernández and that Defendant Brufau expressed “Repsol’s commitment to
YPF and its development plans in Argentina.” The meeting was attended by Enrique Eskenazi and
S. Eskenazi as well as Julio de Vido, Argentina’s Minister of Federal Planning.
66. On February 25, 2010, Repsol issued a press release announcing its financial results for the period ended December 31, 2009. With regard to YPF, Repsol stated that YPF was increasing exploration and production efforts. The press release stated, in pertinent part, as follows:
YPF profit was 1.021 billion Euros
Operating income at YPF was 1.021 billion euros, 11.9% less than 2008. An increase in domestic prices, the Petroleum Plus programme and the savings plan partially offset lower income from products sold in Argentina but referenced to international prices, as well as lower revenues from exports and low gas prices.
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In the fourth quarter, the YPF increased fuel prices that, added to the increased income from exports and from products sold in the domestic market but referenced to international prices, contributed to a 216.8% improvement is YPF’s operating income compared with the year-earlier period.
In 2009, YPF investments were 956 million euros, of which 66.8% was spent on exploration and production projects.
[Emphasis added.]
67. In a conference call held on February 25, 2010, Defendant Brufau discussed YPF’s
“Plata” project, which “covers all optimization and enhanced production projects in Argentina.”
Defendant Brufau stated, in pertinent part, as follows:
In YPF, a project called Plata covers all optimization and enhanced production projects in Argentina. The result of these projects are the main reason for the progress in reserve addition in Argentina. Plata also includes tight and shale gas projects that could be developed and marketed under the Gas Plus Program umbrella.
Due to our outstanding exploration performance and the progress of the growth projects , as well as the changes in the general environment we are working on a rollover of the strategic plan for the period of 2010 to 2014, which we expect to present in the next annual shareholders meeting.
[Emphasis added.]
68. On April 29, 2010, Repsol issued a press release announcing its financial results for the first quarter of 2010, the period ended March 31, 2010. With regard to YPF, the press release stated, in pertinent part, as follows:
YPF profit grows
The YPF operating income totaled 411 million euros, 27.2% more than the same period in 2009. The continued increase in domestic and international prices and stable costs explain this rise.
An increase in domestic fuel prices in dollars had a positive impact of 163 million de euros. Also, higher sales volumes contributed positively to the operating income (23 million euros), the increased income from exports and products sold in the domestic market but referenced to international prices (133 million euros) and the Petroleum Plus programme.
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YPF production was 549,716 boepd [barrels of oil equivalent per day], representing 8.5% fall compared to the same period in the previous year, but slightly better than the previous quarter.
In the first quarter of 2010, YPF investments were 241 million euros, spent mainly
on Exploration and Production .
[Emphasis added.]
69. In a conference call held on April 29, 2010 to discuss the Company’s financial results, Defendant Brufau emphasized the “stable cash flow” on YPF’s balance sheet. Further,
Defendant Brufau stated, in pertinent part, as follows:
Now let me continue with YPF. YPF is a fully integrated business that produces more than a third of the oil and gas volumes in Argentina and has more than 50% of the market share in the refining and marketing segments. Our goal is to manage the Company to deliver growing results, self financing its investment plan and paying adequate dividends. This will be the consequence of the trend of prices approaching regional levels, specific government programs to encourage investments and tight cost management, which will widen our viable projects portfolio and improve the economics of the ongoing activity.
Even though many things have happened in the country, you can see on the screen how stable cash flow generation has been delivered from YPF, including 2009 with a drop significantly lower than the average in the industry . At the same time, the business has allowed to pay to Repsol an average dividend since 2000 of $1 billion per year.
On the screen you can see now some of the aspects I have already mentioned in the past in terms of oil and natural gas prices. You can also appreciate that domestic consumption is reaching total production of oil in the country. In natural gas, Argentina is already a net importer country...
As a result of studies and updates of our reservoir models since 2005, we have been putting together a viable portfolio of projects to increase the hydrocarbon production based on improvements of the recovery factor. You have to bear in mind that each point of increasing the recovery factor level means more than 240 million BOEs of additional reserve.
[Emphasis added.]
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70. On July 29, 2010, Repsol issued a press release announcing its financial results for the second quarter of 2010, the period ended June 30, 2010. With regard to YPF, the press release stated, in pertinent part, as follows:
YPF operating income result grows 84%
YPF’s operating income was 831 million euros, 83.8% higher than the same period of 2009.
The increased income was mainly due to a rise in domestic fuel prices in the local currency and in dollars, which had a positive impact of 416 million euros. Increased income from exports and products sold in the domestic market but referenced to international prices also contributed to the improvement.
YPF’s production was 550,590 boepd, representing a 8.1% fall compared to the same period of the previous year.
In the first half of 2010, YPF investments totalled 597 million euros, spent mainly on Exploration and Production.
[Emphasis added.]
71. On September 29, 2010, at an industry event in Buenos Aires, Defendant S. Eskenazi stated that YPF planned to turn around a 12-year decline in oil production. Moreover, Defendant S.
Eskenazi stated that YPF would be “tripling its investment” in exploration compared to 2009. In that regard, Defendant S. Eskenazi stated as follows:
We have stabilized oil production practically from the start of the year and this is going to be the first year without a reduction compared with the previous year.
We are at 248,000 barrels per day and this is because we are investing, we are incorporating technology and we are buying the latest-generation equipment.
[Emphasis added.]
72. On November 11, 2010, Repsol issued a press release announcing its financial results for the third quarter of 2010, the period ended September 30, 2010. With regard to YPF, the press release stated, in pertinent part, as follows:
YPF operating income grows 82%
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YPF’s operating income continued its positive trend of the first semester, totaling 1.205 billion euros through September, 81.7% higher than the same period of 2009.
The increased income was mainly due to a rise in domestic fuel prices in the local currency and in dollars, which had a positive impact of 619 million euros. Increased income from exports and products sold in the domestic market but referenced to international prices also contributed to the improvement.
YPF’s total production was 550,862 boepd, representing a 6.3% fall compared to the same period of the previous year. Liquids output, however, increased 1.7% as a result of increased investment resulting from the state crude production incentives program.
YPF’s investments totaled 994 million euros, 60.8% more than the January- September 2009 period, spent mainly on exploration and production development
projects.
[Emphasis added.]
73. The statements referenced above in ¶65-72 were materially false and misleading for
the reasons set forth above in ¶64.
74. On or about November 26, 2010, YPF filed with the SEC a Registration Statement on
Form F-3 (the “Registration Statement”) for the Offering. The Registration Statement incorporates by reference several Company filings, including the February 24, 2011 Form 6-K. The Registration
Statement was not prepared in accordance with the rules and regulations governing its preparation.
75. Pursuant to Item 6 of Form F-3, registrants are required to provide in a registration
statement the information required by Item 503 of Regulation S-K [17 C.F.R. §229.503], and the
SEC’s related interpretive releases thereto, including a discussion of the most significant factors that
make the offering speculative or risky. At the time of the Offering, as detailed herein, YPF was not
adequately producing oil and gas within Argentina; and was distributing a large portion of its profits
to Repsol and its other shareholders in the form of high dividends instead of reinvesting them back
into the Company and its operations. Moreover, despite warnings from the government, YPF failed
to make the proper adjustments and continued to under-produce and failed to adequately fund
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Argentinean energy projects. Thus, the risk of nationalization was reasonably likely to have a material impact on YPF’s continuing operations and, therefore, was required to be disclosed in the
Registration Statement, but was not.
76. On December 7, 2010, Repsol issued a press release announcing its “exploration developments and [] a new discovery” in the Neuquén basin – the location of the Vaca Muerta formation. In that regard, the press release stated, in pertinent part, as follows:
During the event held at YPF headquarters in Buenos Aires, the Argentine President, was accompanied by numerous government officials, political representatives and trade unions. All were received by the Repsol YPF chairman, Antonio Brufau, YPF’s Vice President, Enrique Eskenazi, and YPF’s CEO Sebastián Eskenazi, in an atmosphere of great understanding between the Argentine Government and its public authorities, and the country’s largest company.
Repsol YPF’s latest discovery is included in its 2010-2014 Exploratory Development Program, and adds to other exploration projects carried out in the Neuquén basin which have revealed significant non-conventional gas potential in that basin.
The Argentinean government and international investors have valued positively YPF’s strategy, which has attracted a growing interest in the markets: This has resulted in significant share transactions of YPF shares on Wall Street, and its incorporation into the Madrid Stock Exchange’s Latibex Index.
[Emphasis added.]
77. On February 24, 2011, YPF filed a Form 6-K with the SEC. In describing the
Company’s political and regulatory risk factors, YPF stated, in pertinent part, as follows:
We currently face risks and challenges relating to government regulation and control of the energy sector, including those set forth below and elsewhere in these risk
factors:
-limitations on our ability to pass higher domestic taxes, increases in production costs, increases in international prices of crude oil and other hydrocarbon fuels and exchange rate fluctuations through to domestic prices, or to increase local prices of natural gas (in particular for residential customers);
-higher taxes on exports of hydrocarbons;
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-restrictions on hydrocarbon export volumes driven mainly by the requirement to satisfy domestic demand;
-in connection with the Argentine government’s policy to provide absolute priority to domestic demand, regulatory orders to supply natural gas and other hydrocarbon products to the domestic retail market in excess of previously contracted amounts;
and
-the implementation or imposition of stricter quality requirements for petroleum products in Argentina.
78. On March 23, 2011, the Prospectus with respect to the Offering, which forms part of
the Registration Statement (the Registration Statement and the Prospectus are hereinafter referred to
as the “Registration Statement”), became effective and more than 26.2 million shares of YPF ADSs
were sold to the public at $41 per share, thereby valuing the total size of the Offering at more than $1 billion. In Repsol’s press release announcing the Offering, it stated to investors that the “success of
the share offering highlights investor confidence in YPF’s potential and its management team.”
79. The Company’s Form 6-K stated the following regarding Argentine regulations and polices:
The Argentine government has made certain changes in regulations and policies governing the energy sector to give absolute priority to domestic supply at low, stable prices in order to sustain economic recovery. As a result of the above- mentioned changes, for example, on days during which a gas shortage occurs, exports of natural gas (which are also affected by other government curtailment orders) and the provision of gas supplies to industries, electricity generation plants and service stations selling compressed natural gas are interrupted for priority to be given to residential consumers at lower prices. We cannot assure you that changes in applicable laws and regulations, or adverse judicial or administrative interpretations
of such laws and regulations, will not adversely affect our results of operations. See “Item 4. Information on the Company—Regulatory Framework and Relationship with the Argentine Government” in our annual report on Form 20-F for the fiscal year ended December 31, 2009 (the “2009 Form 20-F”). See “Item 1. Company Overview—Recent Regulatory Developments” in our September 30, 2010 Form 6-K. Similarly, we cannot assure you that future government policies aimed at sustaining economic recovery or in response to domestic needs will not adversely affect the oil and gas industry.
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80. In addition, with regard to the concession contracts, the Registration Statement stated, in pertinent part, as follows:
Exploration permits and production or transportation concessions may be terminated upon any of the following events:
• failure to pay annual surface taxes within three months of the due date;
• failure to pay royalties within three months of the due date;
• substantial and unjustifiable failure to comply with specified production, conservation, investment, work or other obligations;
• repeated failure to provide information to, or facilitate inspection by, authorities or to utilize adequate technology in operations;
• in the case of exploration permits, failure to apply for a production concession within 30 days of determining the existence of commercially exploitable quantities of
hydrocarbons;
• bankruptcy of the permit or concession holder;
• death or end of legal existence of the permit or concession holder; or
• failure to transport hydrocarbons for third parties on a non-discriminatory basis or repeated violation of the authorized tariffs for such transportation.
[Emphasis added.]
81. In describing the concession contracts that YPF held with the Argentine provinces, the Company’s Form 6-K stated, in pertinent part, as follows:
The Hydrocarbons Law provides for oil and gas concessions to remain in effect for 25 years as from the date of their award, and further provides for the concession term to be extended for up to 10 additional years, subject to terms and conditions approved by the grantor at the time of the extension. The expiration of part of our and other Argentine oil companies’ concessions occurs in 2017. Such concessions represented approximately 50% of our proved reserves at December 31, 2009. The authority to extend the terms of current and new permits, concessions and contracts has been vested in the governments of the provinces in which the relevant area is located (and the federal government in respect of offshore areas beyond 12 nautical miles). In order to be eligible for the extension, any concessionaire and permit holder must have complied with its obligations under the Hydrocarbons Law and the terms of the particular concession or permit, including evidence of payment of taxes and royalties, the supply of the necessary technology, equipment and labor force and compliance with various environmental, investment and development obligations. - 30 - Case 1:13-cv-00842-SAS Document 27 Filed 06/06/13 Page 32 of 47
Under the Hydrocarbons Law, non-compliance with these obligations and standards may also result in the imposition of fines and in the case of material breaches, following the expiration of applicable cure periods, the revocation ofthe concession or permit. We cannot provide assurances that concessions that have not yet been renewed will be extended or that additional investment, royalty payment or
other requirements will not be imposed on us in order to obtain extensions. The termination of, or failure to obtain the extension of, a concession or permit could
have a material adverse effect on our business and results of operations.
[Emphasis added.]
82. The statements referenced above in ¶¶76-77 and 79-81 were materially false and misleading for the reasons set forth above in ¶64.
83. On May 12, 2011, Repsol issued a press release announcing its financial results for the first quarter of 2011, the period ended March 31, 2011. With regard to YPF, the press release stated, in pertinent part, as follows:
YPF: Discoveries of non-conventional resources
YPF’s operating income in the first quarter totalled 383 million euros, a 6.8% decline from the previous year. The reduced earnings are mainly a result of significantly higher costs and lower production as a result of strikes in the last few months.
Exploration activity in Argentina continued in the first quarter, with the work carried out in the Vaca Muerta formation being especially significant as it has confirmed the great potential of non-conventional hydrocarbons (shale oil and shale gas) in the country.
The discovery of 150 million barrels of oil equivalent of shale oil recoverable resources announced this week adds to the significant shale gas finds in the Neuquén basin and the 4.5TCF (approximately 800 million barrels of oil equivalent) of tight gas resources in Loma La Lata announced in December of 2010.
Investment in YPF during the quarter totalled 302 million euros, spent mainly on exploration and production. YPF’s hydrocarbons production was 523,882 boed, a 4.7% decline from the year earlier period.
[Emphasis added.]
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84. With regard to the Vaca Muerta exploration, Defendant S. Eskenazi stated that YPF wanted to “continue investing” and that he hoped the government would come up with “new rules of the game for something that is new” with respect to developing unconventional oil and gas.
85. On July 28, 2011, Repsol issued a press release announcing its financial results for the second quarter of 2011, the period ended June 30, 2011. With regard to YPF, the press release stated, in pertinent part, as follows:
YPF: lower production
YPF’s operating income in the first half totalled 601 million euros, a 27.7% decline from the previous year. The reduced earnings are a result of prolonged strikes, now resolved, and their inflationary effect on costs.
The strikes also affected output in the first half of the year, when production of hydrocarbons was 484,957 boe/d, a 12% fall from the previous year.
YPF in July announced a new shale oil find in the Bajada de Añelo exploration well in the Bajada de Añelo block in the Neuquén basin. The well produced an average 250 barrels of high quality oil a day in line with the results obtained previously in the same formation in Loma la Lata. The results confirm the positive expectations of the Vaca Muerta formation.
Investment in YPF during the semester totalled 741 million euros, of which 582 were spent on exploration and production. Of the E&P investment, 72% was dedicated to developing projects.
[Emphasis added.]
86. On November 7, 2011, Repsol issued a press release announcing “its largest ever oil find. . . in the Vaca Muerta formation in Argentina’s Neuquén province, one of the world’s largest non-conventional reservoirs.” According to the press release, the area has “significant potential for large volumes to be developed in the future once the appropriate studies and preliminary work to determine resources is completed.”
87. On November 10, 2011, Repsol issued a press release announcing its financial results for the third quarter of 2011, the period ended September 30, 2011, and highlighting the importance
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of the Vaca Muerta discovery. With regard to YPF, the press release stated, in pertinent part, as follows:
YPF: Historic discovery of non-conventional crude
YPF’s operating income in the first nine months of 2011 totalled 1.008 billion euros, a 16.3% decline from the previous year. The reduced earnings are a result of prolonged strikes during the second quarter of the year, now resolved, and the inflationary effect on costs.
Production of hydrocarbons was 489,567 boepd, an 11.1% fall from the previous year as normal production has not yet resumed following the strikes in previous
months.
Internal prices have continued their trend toward parity with import prices in dollars, posting an average 15% rise at service stations.
Investment in YPF during the period totaled 1.218 billion euros, of which 912 were spent on exploration and production. Of the E&P investment, 77% was dedicated to development projects.
In the first half of the year, Repsol carried out a number of share sales which, added to the execution of a purchase option by Petersen Group, result in Repsol currently holding a 57.4% stake in the [A]rgentine company.
In the fourth quarter, Repsol YPF confirmed its largest oil find to date, located in one of the world’s largest non-conventional reservoirs-the Vaca Muerta formation in Argentina’s Neuquén province. The company has confirmed recoverable resources of 927 million barrels of oil equivalent of non-conventional hydrocarbons, of which 741 million are high quality oil (40-45º API), in an area of 428 km 2 of the Loma La Lata Norte formation in the Neuquén province.
Repsol YPF has also begun activity in another discovery, in a 502 km 2 producing area in the same Vaca Muerta formation. The well is producing similar volumes to those in the previously mentioned area of high quality shale oil (35° API). This new area can thus be expected to have large resources to develop in the future once the
appropriate studies and preliminary work to determine resources is completed.
The find is in Argentina’s Neuquén province in the formation know as Vaca Muerta, covering an extension of 30,000 km2 of which Repsol owns rights to 12,000 km2.
Wood Mackenzie identified the Vaca Muerta shale as one of the best in the world, describing the formation as “excellent.”
[Emphasis added.]
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88. On February 8, 2012, Repsol issued a press release announcing its findings in the
Vaca Muerta formation as a result of an audit conducted by Ryder Scott. In that regard, Defendants stated, in pertinent part, as follows:
The audit has determined that in an area of 1,100 km 2 there are 1.115 Bbbl of oil in associated contingent resources, and 410 Mboe of gas, making a total of 1.525 Bboe. For the YPF participation the contingent resources would amount to 883 Mbbl of oil and 330 Mboe of gas, resulting in a total of 1.213 Bboe.
To reach these results, Repsol YPF has made a significant technical effort in a record time, leading the exploratory effort for non-conventional resources in Argentina, after analyzing all the successful technologies used in the USA and adapting them to the geological conditions in the country. To do this, the company co-operated with a number of leading shale developers in the US that, because of the expectations generated by the Vaca Muerta shale, have partnered YPF for exploratory activity in a number of areas. Repsol YPF’s technical teams have since 2009 developed the project, spending $300 million on exploration, mapping and initial development in the Vaca Muerta formation. By 31 December 2011, the Vaca Muerta formation had produced 700,000 boe.
The encouraging results obtained so far have prompted Repsol YPF to continue exploring the area to determine the play’s full extension and productivity in oil, gas and wet gas. The company aims to drill 20 wells in 2012, solely and jointly with several partners, to continue investigating prospective resources.
With the current results, Argentina has the opportunity to reproduce the revolution in nonconventional hydrocarbons seen in the United States by developing the resources contained in the Vaca Muerta formation.
The development of the 1,100 km2 explored so far by Repsol, containing gross contingent resources of 1,525 Bboe could make possible a 50% increase in Argentina’s current gas production. This would require a total investment by all stakeholders of $28 billion in the coming years to drill 2,000 producing wells which would require 60 drilling rigs more than currently operating in Argentina.
If the positive results of the exploratory wells underway are confirmed, the country’s gas output could rise 50%. This would require 1,000 wells to be drilled in a first phase, with an additional required investment of $14 billion, necessitating 40 drilling rigs more than Argentina currently has.
These 100 new rigs would more than double the current number of rigs in the Argentine, currently totaling 80.
If exploration proves successful in the Vaca Muerta formation and immediate intensive development began in the area, in 10 years its capacity could double
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Argentina’s existing gas and oil production. This would require a vast investing effort that would reach $ 25 billion per year in order to develop all the existing prospective resources.
A programme of such magnitude would require an important capital investment in Argentina from international markets; a powerful domestic industry (equipment, services, etc.) and competitive and highly technically qualified human resources since Argentina competes against other similar developments worldwide (USA, China, Australia, Eastern Europe, etc.).
[Emphasis added.]
89. On February 29, 2012, Repsol issued a press release announcing its financial results for the fourth quarter and year end of 2011, the period ended December 31, 2011. In an attempt to appease the Argentinean government and stave off nationalization, Repsol further touted the Vaca
Muerta discovery and YPF’s purported commitment to invest in the region. The press release stated, in pertinent part, as follows:
YPF: The Vaca Muerta discovery; a successful reflection of investment in
exploration
YPF’s recurring operating income in the 2011 totalled 1.352 billion euros, a 16.8% decline from the previous year. The reduced earnings are a result of the effect on production of prolonged strikes, the inflationary effect on costs and the suspension of the Petróleo Plus program.
Production of hydrocarbons was 495,100 boepd, an 8.5% fall from the year-earlier period due to the effect of strikes, which had an 20,200 bbld impact on oil output, and caused a 6,000 boepd drop in gas output.
Noteworthy is the reserve replacement rate which reached 112% in 2011 compared with 84% in 2010, with the crude reserve replacement rate climbing to 169% from 100% in the previous year.
YPF’s investment was 2.182 billion euros in the period, of which 1.499 were spent on exploration and production. Development projects represented 72% of the total and 18% was spent on exploration, significantly 128 million euros spent on the Vaca Muerta formation.
On February 8th, Repsol YPF announced an increase in the estimate of reserves and resources in the giant Vaca Muerta formation in the Argentine province of Neuquén.
An evaluation carried out by Ryder Scott of a total area of 8,071 km 2 (1,994,378 acres), of which Repsol YPF holds a net interest of 5,016 km 2 (1,239,407 acres) - 35 - Case 1:13-cv-00842-SAS Document 27 Filed 06/06/13 Page 37 of 47
determined that in an area of 1,100 km 2 there are 1.115 Bbbl of oil in associated contingent resources, and 410 Mboe of gas, making a total 1.525 Bboe. YPF’s share of the contingent resources would amount to 883 Mbbl of oil and 330 Mboe of gas, resulting in a total of 1.213 Bboe.
The encouraging results obtained so far have prompted Repsol YPF to continue exploring the area to determine the play’s full extension and productivity in oil, gas and wet gas. The company aims to drill 20 wells in 2012, solely and jointly with several partners, to continue investigating prospective resources.
With the current results, Argentina has the opportunity to reproduce the revolution in non-conventional hydrocarbons seen in the United States by developing the resources contained in the Vaca Muerta formation.
[Emphasis added.]
90. The statements referenced above in ¶83-89 were materially false and misleading for
the reasons set forth above in ¶64.
91. On April 16, 2012, Fernández announced that the government would nationalize YPF
and seize a majority stake in YPF from Repsol. Moreover, Fernández ousted Defendant S. Eskenazi
as YPF’s CEO and named two top aides, Julio de Vido and Axel Kicillof, to run the Company.
President Fernández cited to YPF’s lack of production and investment in Argentina as well as
Argentina’s history of spending billions of dollars on importing gas and petroleum despite its plentiful natural resources.
92. Fernández implemented the nationalization of YPF via the Expropriation Act (Law
26,741) which was presented as bill to the legislature on April 16, 2012 and was passed on May 3,
2012.
93. Upon the new of YPF’s nationalization, trading in the Company’s ADSs was halted
on April 17, 2012. When trading resumed on April 18, 2012, the price of the Company’s ADSs
declined $6.38 per ADS, or over 32%, to close at $13.12 per ADS, on significantly heavy trading
volume.
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94. The market for YPF ADSs was open, well-developed and efficient at all relevant
times. As a result of these materially false and misleading statements and failures to disclose stated
herein, YPF ADSs traded at artificially inflated prices during the Class Period. Plaintiff and other
members of the Class purchased or otherwise acquired YPF ADSs relying upon the integrity of the
market price of YPF ADSs and market information relating to YPF, and have been damaged thereby.
95. During the Class Period, Defendants materially misled the investing public, thereby
inflating the price of YPF ADSs, by publicly issuing false and misleading statements and omitting to
disclose material facts necessary to make Defendants’ statements, as set forth herein, not false and
misleading. Said statements and omissions were materially false and misleading in that they
misrepresented the truth about the Company, its business and operations, as alleged herein.
96. At all relevant times, the material misrepresentations and omissions particularized in
this Complaint directly or proximately caused, or were a substantial contributing cause of, the
damages sustained by Plaintiff and other members of the Class. As described herein, during the
Class Period, Defendants made or caused to be made a series of materially false or misleading
statements about YPF’s business, prospects and operations. These material misstatements and
omissions had the cause and effect of creating in the market an unrealistically positive assessment of
YPF and its business, prospects and operations, thus causing the Company’s ADSs to be overvalued
and artificially inflated at all relevant times. Defendants’ materially false and misleading statements
during the Class Period resulted in Plaintiff and other members of the Class purchasing the
Company’s ADSs at artificially inflated prices, thus causing the damages complained of herein.
Additional Scienter Allegations
97. As alleged herein, Defendants acted with scienter in that Defendants knew that the public documents and statements issued or disseminated in the name of the Company were
materially false and misleading; knew that such statements or documents would be issued or - 37 - Case 1:13-cv-00842-SAS Document 27 Filed 06/06/13 Page 39 of 47
disseminated to the investing public; and knowingly and substantially participated or acquiesced in
the issuance or dissemination of such statements or documents as primary violations of the federal
securities laws. As set forth elsewhere herein in detail, Defendants, by virtue of their receipt of
information reflecting the true facts regarding YPF, their control over, and/or receipt and/or
modification of YPF’s allegedly materially misleading misstatements and/or their associations with
the Company which made them privy to confidential proprietary information concerning YPF, participated in the fraudulent scheme alleged herein.
98. Defendants knew and/or recklessly disregarded the falsity and misleading nature of
the information which they caused to be disseminated to the investing public. The ongoing
fraudulent scheme described herein could not have been perpetrated during the Class Period without
the knowledge and complicity or, at least, the reckless disregard of the personnel at the highest levels
of the Company, including the Individual Defendants and Repsol.
99. Indeed, according to the Mosconi Report, Repsol used profits from YPF to leverage
and finance its expansion in the international realm. Repsol’s international strategy was reflected in
YPF’s lack of investment in Argentina, which placed YPF at a high risk for nationalization – a risk
that ultimately came to pass.
100. The Mosconi Report also revealed that Repsol had grown dissatisfied with the
Argentinean government’s “domestic price management policy” and, as a result, devised a plan in
which it gradually abandoned YPF’s exploration activities in order to increase energy demand and
drive domestic prices up to international levels.
101. Moreover, the Mosconi Report confirms that, contrary to YPF’s public statements,
the Vaca Muerta discovery was never adequately financed and Repsol intended to use the discovery
for sale or sub-concession to third parties and not to improve the domestic Argentinean oil supply.
- 38 - Case 1:13-cv-00842-SAS Document 27 Filed 06/06/13 Page 40 of 47
102. Defendants were further motivated to engage in this course of conduct in order to: (i)
enable Defendant Repsol to sell more than $1 billion of its own shares of YPF ADSs in a public
offering at artificially inflated prices; (ii) allow Defendant Repsol to reduce its ownership of YPF at
artificially inflated prices; and (iii) enable Defendant Repsol and the Petersen Group to receive
abnormally high dividends so that Repsol could fund its international expansion and the Eskenazi
family could pay back the “no-money down” loans it received from Repsol and certain banks to
acquire its stake in YPF.
Loss Causation/Economic Loss
103. During the Class Period, as detailed herein, Defendants engaged in a scheme to
deceive the market and a course of conduct that artificially inflated the prices of YPF ADSs and
operated as a fraud or deceit on Class Period purchasers of YPF ADSs by failing to disclose and
misrepresenting the adverse facts detailed herein. When Defendants’ prior misrepresentations and
fraudulent conduct were disclosed and became apparent to the market, the price of YPF ADSs fell precipitously as the prior artificial inflation came out. As a result of their purchases of YPF ADSs
during the Class Period, Plaintiff and the other Class members suffered economic loss, i.e., damages,
under the federal securities laws.
104. By failing to disclose to investors that: (i) that the Company was deliberately not
investing in Argentinean exploration projects and, instead, was using the Company’s profits to pay
unusually high dividends and to fund Repsol’s own international expansion efforts; (ii) that YPF’s
failure to finance domestic exploration and development caused the Company to breach its
concession contracts with various Argentinean provinces; (iii) that YPF’s failure to invest
domestically increased the risk that the Company would be nationalized; and (iv) as a result of the
foregoing, the risk that the Company would be nationalized was increased. Defendants’ false and
- 39 - Case 1:13-cv-00842-SAS Document 27 Filed 06/06/13 Page 41 of 47
misleading statements had the intended effect and caused YPF ADSs to trade at artificially inflated
levels throughout the Class Period, reaching as high as $54.58 per ADS on January 5, 2011.
105. As a direct result of the disclosures on January 30, 2012, February 29, 2012 and April
16, 2012, the price of YPF ADSs fell precipitously, falling from their Class Period high of $54.58 per ADS to $13.12 per ADS, a decline of approximately 75%. These drops removed the inflation
from the price of YPF ADSs, causing real economic loss to investors who had purchased YPF ADSs
during the Class Period.
106. On January 30, 2012, the Company’s ADSs declined $4.02 per ADS, or over 10%, to
close at $35.86 per ADS on news that Argentinean officials were discussing a takeover of YPF. In
an article entitled “YPF Tumbles Most in Six Months on Report of Takeover,” Bloomberg reported
that “Argentine government officials, lawmakers and oil industry specialists discussed re-
nationalizing” YPF because of its lack of investment in Argentina. Moreover, Bloomberg revealed
that the Argentine government was “probing alleged fuel-price fixing by YPF . . . and other
producers.”
107. In early February 2012, the Argentinean Planning Minister criticized YPF’s lack of production and investment in Argentina, stating that YPF had “not conducted the investment
necessary to expand its refineries in the timeframe needed by the sustained growth in demand in the
country.”
108. On February 29, 2012, on the same day that Repsol issued its financial results for the
fourth quarter and year end of 2011, Defendant Brufau met with President Fernández to discuss her
criticism of the Company’s lack of investment in Argentina. In response to the news of this meeting
and speculation that the Company could be nationalized, the Company’s ADSs declined $4.37 per
ADS, or over 14%, to close at $26.23 per ADS.
- 40 - Case 1:13-cv-00842-SAS Document 27 Filed 06/06/13 Page 42 of 47
109. Finally, on April 16, 2012, President Fernández announced that the government
would nationalize YPF and seize a majority stake in YPF from Repsol. Moreover, President
Fernández ousted Defendant S. Eskenazi as YPF’s CEO. President Fernández cited to YPF’s lack of production and investment in Argentina as well as Argentina’s history of spending billions of dollars
on importing gas and petroleum despite its plentiful natural resources. Upon the news of YPF’s
nationalization, trading in the Company’s ADSs was halted on April 17, 2012. When trading
resumed on April 18, 2012, the price of the Company’s ADSs declined $6.38 per ADS, or over 32%,
to close at $13.12 per ADS, on significantly heavy trading volume.
110. The 75% decline from the Company’s Class Period high was a direct result of the
nature and extent of Defendants’ fraud finally being revealed to investors and the market. The
timing and magnitude of the price decline in YPF ADSs negates any inference that the loss suffered by Plaintiff and the other Class members was caused by changed market conditions, macroeconomic
or industry factors or Company-specific facts unrelated to Defendants’ fraudulent conduct. The
economic loss, i.e., damages, suffered by Plaintiff and the other Class members was a direct result of
Defendants’ fraudulent scheme to artificially inflate the prices of YPF ADSs and the subsequent
significant decline in the value of YPF ADSs when Defendants’ prior misrepresentations and other
fraudulent conduct were revealed.
Applicability of Presumption of Reliance: Fraud on the Market Doctrine
111. At all relevant times, the market for YPF ADSs was an efficient market for the
following reasons, among others:
(a) YPF ADSs met the requirements for listing, and were listed and actively
traded on the NYSE, a highly efficient and automated market;
- 41 - Case 1:13-cv-00842-SAS Document 27 Filed 06/06/13 Page 43 of 47
(b) as a regulated issuer, YPF filed periodic public reports with the SEC and the
NYSE;
(c) YPF regularly communicated with public investors via established market
communication mechanisms, including regular disseminations of press releases on the national
circuits of major newswire services and other wide-ranging public disclosures, such as
communications with the financial press and other similar reporting services; and
(d) YPF was followed by several securities analysts employed by major brokerage firms who wrote reports which were distributed to the sales force and certain customers of
their respective brokerage firms. Each of these reports was publicly available and entered the public
marketplace.
112. As a result of the foregoing, the market for YPF ADSs promptly digested current
information regarding YPF from all publicly available sources and reflected such information in the prices of the stock. Under these circumstances, all purchasers of YPF ADSs during the Class Period
suffered similar injury through their purchase of YPF ADSs at artificially inflated prices and a presumption of reliance applies.
No Safe Harbor
113. The statutory safe harbor provided for forward-looking statements under certain
circumstances does not apply to any of the allegedly false statements pleaded in this Complaint.
Many of the specific statements pleaded herein were not identified as “forward-looking statements”
when made. To the extent there were any forward-looking statements, there were no meaningful
cautionary statements identifying important factors that could cause actual results to differ materially
from those in the purportedly forward-looking statements. Alternatively, to the extent that the
statutory safe harbor does apply to any forward-looking statements pleaded herein, Defendants are
liable for those false forward-looking statements because at the time each of those forward-looking - 42 - Case 1:13-cv-00842-SAS Document 27 Filed 06/06/13 Page 44 of 47
statements was made, the particular speaker knew that the particular forward-looking statement was
false, and/or the forward-looking statement was authorized and/or approved by an executive officer
of YPF who knew that those statements were false when made
COUNT I
Violation of Section 10(b) of the Exchange Act and Rule 10b-5 Promulgated Thereunder Against All Defendants
114. Plaintiff repeats and realleges each and every allegation contained above as if fully set
forth herein.
115. During the Class Period, Defendants disseminated or approved the materially false
and misleading statements specified above, which they knew or deliberately disregarded were
misleading in that they contained misrepresentations and failed to disclose material facts necessary
in order to make the statements made, in light of the circumstances under which they were made, not
misleading.
116. Defendants: (a) employed devices, schemes, and artifices to defraud; (b) made untrue
statements of material fact and/or omitted to state material facts necessary to make the statements not
misleading; and (c) engaged in acts, practices, and a course of business which operated as a fraud
and deceit upon the purchasers of the Company’s ADSs during the Class Period.
117. Plaintiff and the Class have suffered damages in that, in reliance on the integrity of
the market, they paid artificially inflated prices for YPF ADSs. Plaintiff and the Class would not
have purchased YPF ADSs at the prices they paid, or at all, if they had been aware that the market prices had been artificially and falsely inflated by Defendants’ misleading statements.
118. As a direct and proximate result of Defendants’ wrongful conduct, Plaintiff and the
other members of the Class suffered damages in connection with their purchases of YPF ADSs
during the Class Period. - 43 - Case 1:13-cv-00842-SAS Document 27 Filed 06/06/13 Page 45 of 47
COUNT II
Violation of Section 20(a) of the Exchange Act Against the Individual Defendants and Repsol
119. Plaintiff repeats and realleges each and every allegation contained above as if fully set forth herein.
120. The Individual Defendants and Repsol acted as controlling persons of YPF within the meaning of Section 20(a) of the Exchange Act as alleged herein. By reason of their positions as officers and/or directors of YPF, and their ownership of shares of YPF, the Individual Defendants and Repsol had the power and authority to cause YPF to engage in the wrongful conduct complained of herein. By reason of such conduct, the Individual Defendants and Repsol are liable pursuant to
Section 20(a) of the Exchange Act.
WHEREFORE, Plaintiff prays for relief and judgment, as follows:
A. Determining that this action is a proper class action, certifying Plaintiff as a Class representative under Rule 23 of the Federal Rules of Civil Procedure and Plaintiff’s counsel as Class
counsel;
B. Awarding compensatory damages in favor of Plaintiff and the other Class members against all Defendants, jointly and severally, for all damages sustained as a result of Defendants’ wrongdoing, in an amount to be proven at trial, including interest thereon;
C. Awarding Plaintiff and the Class their reasonable costs and expenses incurred in this action, including counsel fees and expert fees; and
D. Such other and further relief as the Court may deem just and proper.
JURY TRIAL DEMANDED
Plaintiff hereby demands a trial by jury.
- 44 - Case 1:13-cv-00842-SAS Document 27 Filed 06/06/13 Page 46 of 47
DATED: June 5, 2013 ROBBINS GELLER RUDMAN & DOWD LLP SAMUEL H. RUDMAN DAVID A. ROSENFELD MARIO ALBA JR. AVITAL 0. MALJNA
MARIO LBA R.
58 South Service Road, Suite 200 Melville, NY 11747 Telephone: 631/367-7100 631/367-1173 (fax) srudmanrgrdlaw.com drosenfe1d(rgrd1aw.com [email protected] [email protected]
Attorneys for Lead Plaintiffs and the Class
-45- Case 1:13-cv-00842-SAS Document 27 Filed 06/06/13 Page 47 of 47
W :
I, Mario Alba Jr., hereby certify that, on June 5, 2013, I caused a true and correct
copy of the attached:
Consolidated Amended Complaint for Violation of the Federal Securities Laws
to be: (i) filed by hand with the Clerk of the Court; and (ii) served by electronic mail on
the following counsel:
Thomas J. Hall Marcelo M. Blackburn CHADBOURNE & PARKE LLP 30 Rockefeller Plaza New York, NY 10112 212/408-5100 [email protected] [email protected]
Attorneys for Defendant YPFSociedad Anonirna
Jonathan Rosenberg Edward Moss OMELVENY & MYERS LLP 7 Times Square New York, NY 10036 212/326-2000 jrosenbergomm.com [email protected]
Attorneys for Defendants Morgan Stanley & co, Inc. Credit Suisse Securities ('USA) LLC, and Goldman, Sachs & Co. Iq 8E2A Mario Alba Jr(,,J Case 1:13-cv-00842-SAS Document 27-1 Filed 06/06/13 Page 1 of 47
I lb"
THE MOSCONI REPORT
Comptroller: Julio de Vido
Deputy Comptroller: Axel Kicillof
MithStaiQ de Planiflcaciori Federal, - Iriversón Püblica y Servicios MINISTERIO DE ECONOMIA V FINANZAS PUBLICAS Case 1:13-cv-00842-SAS Document 27-1 Filed 06/06/13 Page 2 of 47
Contents
Section 1: YPF's Role in the International Strategy of the Repsol Group 5 Birth and evolution of the Repsol Group 5 Internationalization 6 Changes in shareholdings 9 Analysis of Repsol Group and YPF S.A. profits 10
Section 2: Repsol's Policies regarding YPF: Depredation, Disinvestment and
Undersupply 24 Repsol's attitude with respect to domestic prices 26 The Second Stage of Repsol’s Financial Strategy regarding YPF 36 Deepening of the Market Segmentation Strategy in the context of the drop in YPF’s production 39 Repsol’s Commercial Strategy regarding YPF 42 Technical Aspects of Repsol’s Management of YPF 44
Section 3: The "Discovery of Vaca Muerta". The (Re)sale of the “Crown Jewels”. 76 Repsol-YPF’s strategy regarding unconventional resources 76 A brief history of Vaca Muerta 78