Pampa Energia S.A.

Thank you for watching! Okay. We apologize. We apologize for the interruption. Good morning, ladies and gentlemen. Thank you for waiting. I'm Margarita Chun from IAR, and we would like to welcome everyone to Pampa Energia's first quarter 2021 results video conference. We inform you that this event is being recorded. All participants will be in listen-only mode during the presentation. After the company's remarks, there will be a Q&A session. Questions can be submitted writing through the Zoom platform available at the browser or through the app. Should any participant need assistance, please contact us through the chat or email, or you can raise your hand. Before proceeding, please read the disclaimer that is located on the second page of our presentation. Let me mention that forward-looking statements are based on Pampa Energia's management beliefs and assumptions and on information currently available to the company. They involve risks, uncertainties, and assumptions because they relate to future events and depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions, and other operating factors could also affect the future results of Pampa Energia and could cause results to differ materially from those expressed in such forward-looking statements. Now I'll turn the video conference over to Lida Wang, our investor relations and sustainability officer of Pampa Energia. Lida, you may begin the video conference.

Thank you, Margarita. Hello, everyone. Thank you for joining our conference call. I hope you are all safe and well. In the interest of time, I will summarize the latest events and financial figures. For more details, you can check the earnings release or contact us. Our CEO, Gustavo Mariani, and our CFO, Mr. Cohen, are both here and joining us for Q&A. Despite the challenging context, the first quarter showed solid figures from sales to net cash flow, a great proof of the company's resiliency. As of 2021, figures are shown without Adenor, as we announced the divestment last year, and clearance should be anytime. Therefore, Pampa is getting simpler and leaner. The revenues from continued businesses increased 4% year-on-year to $420 million, mainly due to Genelio's new PPA, growing gas self-supply by our EMP. We also recorded higher petrochemical and EMP prices due to the rise in international prices and plant gas TSA. All of them were partially upset by the drop in legacy prices and hydrocarbon volumes, as well as the tariff freeze and devaluation effect over our utility businesses. In Q1 2021, 83% of our sales were dollar linked and almost 88% in EBITDA terms, mainly coming from our core businesses, PPA power capacity, followed by EMP. The adjusted EVDA from continued businesses amounted to $204 for the quarter, 16% higher year-on-year, mainly explained by the same reasons detailed before, plus production efficiencies and decreasing peso-linked expenses due to the devaluation effect. Quarter-on-quarter... ABDA increased by 11%, mainly due to the plant gas, petrochemicals price improvement, and the high seasonality on power and liquid businesses, offset by Barragán's outages and the valuation effect on regulated income. Therefore, oil and gas is regaining exposure by taking 41%, as we show in the right below, while... Excluding Edenor, electricity takes 59% of the consolidated adjusted EVDN. Moreover, during Q1, the capex from the continuing businesses fell 11% year-on-year and 10% quarter-on-quarter, explained by the commissioning of Genelva last year's first half, offset by the recovering EMP activity due to the planned gas and Barragán's expansion project. Moving to the power generation segment, As seen on slide 4, during the first quarter of 2021, we posted an adjusted VDA of $115 million, similar to the Q1 2020, mainly because of Genera Plus CCGT, higher B2B sales, and the devaluation impact on our peso-denominated expenses. These effects were and Mariana De La Fuente. Spot energy comprises 59% of our capacity, but only represented 22% of our power generation EBTA in the quarter. And it will keep shrinking until the regulator grants inflation adjustment, which is imperative to continue with the proper maintenance of these plants under pay considering the contribution to the grids availability. Generation in Q1 21 was 4% down, Thank you very much. Outpacing Hydro and Wind Generation Keep in mind that the power generation business model relies on capacity payment, so lower dispatch does not impact the revenue making as long as the availability is outstanding, especially for PPA-based energy. The availability rate in Q1-21 reached almost 95% with a installed capacity of 5 GW operated all by Pampa, slightly lower year-on-year, mainly due to barragans and availability. We expect exports by CAMESA to remain but slow down as it forecasted drops in the country, meaning that there's more reliance on thermal generation regardless of the fuel. All in all, Our 2021 generation is expected to increase year on year. Regarding our expansions, our crucial project is closing to CCGT at Ensenada Barragan Thermal Power Plant, as seen on Sni-Fi. The project is considered critical infrastructure for Argentina's grid, which will add 280 megawatts in the south of Greater Buenos Aires. The project is 40% advanced, cemented, carry out the steam turbine inspection without any anomalies. We are beginning to install the water system and review the facility's connection to the grid. Around 900 people are right now at the site, working with the strictest protocols to minimize the circulation of COVID. We also implemented a night shift to recover the delays caused by the second wave of the pandemic, to achieve the CLD by second quarter of 2022. Keep in mind that La Capampa operates in Senada Barragán and it is the fourth CCGT project for us. Once closed, the installed capacity will amount to 847 megawatts, contributing to the grid, one of the most efficient thermal units. So moving on to the EMP results seen on slide six, We posted an adjusted EBITDA of $33 million in Q1 2021, 13% higher year-on-year, mainly driven by plant gas, rebounding gas prices as of the beginning of this year. Cruel oil prices also grew to pre-pandemic levels due to the international prices. However, the lower oil demand and gas exports and more royalties because of higher prices compensated the ABDA's increase. Quarter on quarter, the ABDA increase is remarkable considering that they are both quarters, off-peak quarters, driven basically by plant gas and also a little bit higher production, gas production. Efficiency-wise, we recorded $23 million of lifting costs, 24% improvement Q120 driven by higher productivity at competitive gas blocks such as Hermann Gruscio, less oil volume and devaluation. By BOE produce, we reach less than $6 of lifting cost, 19% lower year-on-year and 2% lower quarter-on-quarter. Despite the harsh environment, the industry depletion, and it is worth highlighting that our oil and gas production only decreased 5% year on year, mainly because of lower oil output, and remains similar quarter on quarter. We reach almost 44,000 barrels of oil equivalent per day, of which 90% is gas. On the oil side, We represented 21% of the segment's revenue in the quarter. Volume sold decreased by 39% year-on-year to 3.2 thousand barrels per day, explained by lower domestic demand as refined products haven't recovered to pre-pandemic levels. Although, we resumed exports in April. As per crude oil prices, increased by 11% year-on-year and 34% quarter-on-quarter, reaching more than $55 per barrel, driven by the Brent and bouncing back from the sharp fall at the beginning of the lockdown. Regarding gas, we can see on slide 7, Q1 2021 reached an average of 241 million cubic feet per day of volume sold, 7% lower year-on-year, but similar quarter-on-quarter. and Mariana De La Fuente. at our less efficient gas-bearing blocks, but was partially observed at the steady growth at El Mangrucho, a block with outstanding productivity wholly owned and operated by us. In Q1-21, El Mangrucho reached 165 million cubic feet per day of gas production, 9% higher than Q1-20, and contributing close to 70% of our overall gas, ranked the four largest gas producing block in the Okinawa Basin. During the first quarter of 21, our average gas price was $2.8 per million BTU, 21% higher than last year and 32% higher than Q4, mainly explained by the plant gas where over 70% of our output is sold at $3 per million BTU. Though this GSA does not cover the spot market or the CAMESA additional gas tenders, free prices improved, but haven't reached the planned gas levels. As we approach to the winter season, free prices are expected to converge to planned gas levels. As you can see right below, the quarter sales are more diversified than a year ago, but still mainly destined to Camesa, whether through plant gas or spot sales. Discos are also part of plant gas and will soar during the winter, increasing its share to one third of this year's production. Also, we put in place a campaign to appeal to gas B2B sales with positive results increasing our market share. The only segment shrinking was gas exports. which decreased by half year-on-year. Let me briefly comment again on the importance of planned gas which sets a turnaround for our E&P business. Planned gas grants a four-year GSA intended to revert the declining trend on local gas production. Tampa was the first major awardee and the only producer tendering the largest winter production growth in the Burkina Basin. Winter is seasonally critical because on top of the industrial product consumption, retail and thermal power increase the demand dramatically, resulting in a gas shortage and massive imports, which are paid with hard currency and does not help to the Argentine macro. Under the GSA, we are committed to increase our annual production by 15% and by 28% during the winter season, charging $3 per million BTU off peak and $4.5 per million BTU on peak season. That makes a year-weighted average of $3.6 under this GSA. Therefore, in Q1 2021, we reactivated our investment activity by drilling six Thai gas wells at Rio Neuquén and Sierra Chata and completing two Thai gas wells at El Mangrucho, our main production field. In that block, we are preparing for the output search by building the second gas treatment plant, which will more than double the evacuation capacity to reach almost 300 million cubic feet per day. Drilling activities in the mentioned blocks will increase during the following months to fulfill our commitment, especially for the winter. It is worth mentioning petrochemicals' outstanding performance, despite the economic downturn context. The EBDA increase was mainly explained by the significant rise of International reference prices and local spreads thanks to the growing demand linked to the industry recovery. Exports, which are 40% of our sales, are growing for SBR and reforming products. Continuing with the pricing trend, we expect to achieve similar performance during Q2, but beyond, we are not sure how commodity markets will behave and as they are highly volatile. Finally, moving on to slide 10, our solid performance allows us to keep deliberating our balance sheet, therefore improve our leverage ratios, granting us some degrees of freedom compared to other industry peers amid this challenging environment. This slide shows consolidated figures, including our affiliates at ownership, but let's only focus on the restricted group for covenant purposes. Restricted Group is the parent company plus the hydros. Since Eleanor was deconsolidated, Pampa Under IFRS is the same as the Restricted Group. As of the year end, the Restricted Group gross debt recorded $1.6 billion. Similar to last December, 91% denominated in U.S. dollars, up from 88% in Q4. because we've been paying down short-term peso debt. The dollar debt bears an average interest rate of 7.4%, while the peso debt averages a 39% interest. Average life decreased from 4.8 years to 4.6 years. The cash amounted to $409 million, 12% lower than last quarter's stock, mainly but due to higher working capital by PlanGas, coupon and peso debt payments, and share buyback, partially upset by positive operating cash flow. The restricted group's net debt is similar to the last quarter, amounting to $1.2 billion. The net leverage ratio improved from 2.4 In the next 12 months, the company only faces $165 million of maturities, of which 84% in local currency. After Q1, we paid at maturity $16 million of peso debt and made some share buybacks. We will keep reducing shortened peso debt unless we find another opportunity to capitalize on, either through M&A or further security buybacks. Regarding our affiliates, Barragan amended its BRDs amortization schedule, easing the maturity profile for the next two years. Finally, The last April's annual shareholders meeting approved to cancel another 2.3 million treasury ADRs. As of today, our standing capital amounts to 55.7 million ADRs. Also, keep in mind that our board also approved a new program for up to $30 million last March with a price cap of $16 per ADR. So this concludes our presentation. Now I will turn the word to Margarita. She will poll for questions. Thank you very much.

Thank you, Lida. The floor is now open for questions. If you have a question, please send us through this platform. We will read and answer them in the order received. Also, please make sure your name and company are adequately displayed to introduce you to the audience. Please lower your hand once your question is answered. Should any participant need assistance, send us message or raise your hand. Please hold while we poll for questions. Our first question comes from Frank McCann from Bank of America. He has three questions. The first one is, what are your expectations for the hydrocarbon law in terms of timing and major provisions it will have? How could it affect campus opportunity?

Hi, Frank. Regarding the hydrocarbon law, There's been many versions of many proposals circulating informally through the market. We've seen one that is very encouraging, but so far none has been formally presented in Congress. So we still don't have any clarity about that. I think that that is the most important help Thank you very much. Any encourage to investments and exports, as I said, will be more than welcome. So far, that is as much as I can say.

Thank you, Gustavo. The second question is about what are the potential projects that you could do with Gazprom? Would Pampa be the operator in these projects?

It's too early to answer the details that you are asking because we are at an early stage. The excellent news regarding that I can tell you so far is that a leading international company like Gazprom is willing to devote time to Analyze and understand investment opportunities in Argentina. And so far, that's what we are working with them. We are sharing information. We are helping them understand the opportunities that we see in the natural gas market in Argentina. But we are at a very early stage of the conversation. So far only an NDA has been signed, so that is what I can tell you so far.

Thank you, Gustavo. The last question from Frank was about, do you see any potential new projects to add new capacity? I think he means the power generation business. When do you think the system will need new capacity?

The timing will very much depend on the growth prospect of the industry or the economy of Argentina. I don't have a time frame in my mind because It's not easy to predict the outlook for the economy. But as you know, power generation projects take a long time from the moment that you start thinking about it to the time that it's in commercial operation. So like a combined cycle is at least three years. So if the economy starts to perform okay, I don't think it's crazy that next year, at some point of next year, we will start to think about new projects in power generation. Today, the system is running with a good safety caution, but that is because we are counting with Thank you very much. With the current yields of sovereign and corporate debt, it's not a good moment to be planning this kind of project.

Thank you, Gus. Our next question comes from Bruno Montanari. He has two questions. The first one is, can you talk about how the new planned gas payments are taking place? Is the government paying on time? And how much does the company has in receivables related to the subsidies?

What has happened is that, you know, that... Sorry, can I speak? Basically, for ourselves, the main... The revenues are coming basically from Camesa, that's our... and the most important buyer. So for the plant gas, CAMESA has equal the payment delay with those for the power generation segment. So we are collecting our gas sales in the same way that we are collecting Our power generation sales. So, although that is a little bit of delay compared to what was committed under the plant gas rules, that is something that we were expecting to happen. We never thought that Gamesa would have had an special treatment for plant gas vis-a-vis power generation. The amount of receivables of subsidies, I think it's something like 200 million pesos, no?

Okay. We already accrued in the balance sheet 220 million pesos. It's like premium dollars. But remember that this is the off peak. The peak will go up. It's worth to know that we already got the first... The January's order of payment. So we either can use it for paying taxes or collect the money.

Yeah. So in short, there are a little bit delay, but I think that in terms of for the subsidies, but I think that that can be mostly attributed that is the first implementation of the process. But now that they have issued the first Thank you, Gus.

Regarding the second question, the second question of Bruno Montanari from Morgan Stanley, it was partially answered because it was about Gazprom, but he added, have you seen an increase in the appetite of foreign investors to invest in the oil and gas sector in Argentina?

No, not really. Gazprom is the first international company that has approached us. So I cannot say that there is a growth of foreign investors' appetite. Definitely there is interest from Gazprom, but I cannot say that is a general situation among international investors.

Okay, thank you, Gustavo. Our next question comes from Carolina Carneiro from Credit Suisse. She has two questions. The first one is on the gas plan. Are there any expectation of additional procurement acquisition from government? Maybe she refers to the third round of gas.

Sorry. There is still no official news about about a third round for winter supply of natural gas. But we think that and we have been discussing about this with the government that it's a must that they should do. Argentina for this winter is importing LNG at an average of I think something like $9 per million of BTU. Yeah, full price, including gasification. And also we will be importing liquid fuels like diesel that is even more expensive. So as we always said, it makes a lot of sense to... and many more. Thank you very much. It makes all the sense to do a third round, a third auction for winter gas and to do it as soon as possible. Obviously, it will be for starting the winter of 2022, but the sooner they do it, the more time the industry has to... Thank you, Gustavo. Our next question comes from Alejandra Andrade from JP Morgan.

Could you comment on the pace of CapEx going forward?

Basically, as we explained on the first quarter, CAPEX will be this year mostly concentrated on the EMP business in order to be able to deliver our huge increase in production that we committed under the first two rounds of the PlanGas Auctions. So in total for the year, we have something like $180 million of capex in the EMP business. And that will be mostly deployed during the second and third quarter. As Lida commented, we are investing in expanding our production capacity at El Mangrujo. We are about to more than double our production capacity, processing capacity in El Mangrujo with a new plant. And the bulk of those capex will be spent during the second and Thank you very much. need any deployment of cash from Pampa going to Barragán. So on the power generation segment for Pampa, it's only maintenance capex of around 40, 50 million dollars this year.

Thank you, Gustavo. I forgot the question from Carolina, the second question of Carolina Carneiro, and it is also related to the question of Santiago Barros from TPCG. about legacy power plan. Any update on discussion for potential change in adjustment clauses for legacy generation? There are others talking about an incoming 29% update.

We are expecting an increase any time. So coming in the next, I don't like to say a few days, but in the next few weeks, it has been mentioned by government officials that they are working on this. And we've seen an exchange of information between the Secretary of Energy and CAMESA this week. That is a sign that the resolution is moving forward. So we expect to have a recognition of the less than the past inflation of last year for legacy capacity, so around this 29%. And contrary to what the resolution issue last year that said that this remuneration will going to have Thank you, Gustavo.

Our next question comes from Constantino Papalias combining it with a question of Ezequiel from Balance. The first question is about the E&P business. How secure do you expect gas export under the new export regime in force? What are your estimates on export volumes for 2021?

Is it public? We are awaiting approval for an export contract. It's an important export contract in terms of quantity that goes from October until April, We are very much advanced on the paperwork and we think before the end of the month we should get approval for that contract. We are very optimistic that given the fact that we are increasing So aggressively our production during the winter that we will be granted this export contract and I think there will be no problem for the country in its capacity to export after the winter because there will be excessive production vis-a-vis the local consumption. So we are optimistic that it will be Thank you, Gustavo.

The second question of Constantino is combined with Ezequiel from Balance question. It's about the drilling and completion activity in the EMP business. Regarding drilling and completion activity expected in the following months in view of the planned gas commitment, could you give an estimate of the number of wells? And Ezequiel added the unconventional wells as well.

They are all unconventional wells and we will be drilling something like eight wells in these two months, in the next two months, completing wells. Wells that some of them have already been drilled, some are being drilled currently, but they will all be completed in this month. This month and next month, in order to grow our production, to comply with our commitments in the plant gas. In the auctions of the plant gas, we were as aggressive as we could have been. So, the three weeks of... of lockdown that happened in Neuquén during April that affected our plants and we are currently a little bit behind our committed production. We are around 10% below what we committed for this month in the plant gas auction. Totally explained by the three-week Incapacity to work that we had during April. We hope that in the next two weeks we will be able to, if the wells perform as we expect, we think that we will be able to comply with our commitment under the plan GAS.

Just to add, right now we have the EUC's 13 wells, gas wells, okay? And for the year, we expect to drill like 30, but complete out of this 30, 25. So 25 wells will be completed this year. Only gas talking about.

Thank you, Gustavo and Lida. Ezequiel added a third question. It's about any updates on the ENRE evaluation regarding Edenor deal.

We don't have much to add on that process. The ENRE, we have submitted, we and the purchasers of Edenor have submitted to the ENRE all the information that they have requested. The last information submitted was several weeks ago. So we are awaiting whether they have more questions or questions. They are working on the resolution, but we don't have any clarity on that.

Okay. Thank you, Gustavo. And Ezequiel, I did a final question. It's about, do you foresee any difficulties in reaching committee volume in Plan GAS4 during the winter?

No, as I said, obviously we are counting on the wells to perform as expected. And this business, you never know until you put the well in production. But if everything goes as, if the wells perform as expected, we think that within the next, 2-3 weeks we will catch up with our delay and we will be producing what we committed for this winter.

Thank you, Gustavo. We will continue with Constantino's second question. It's about what do you expect for the facilities with maturing US DPPAs in 2021? Are they passing to legacy regime?

Yes. Well, we have a... We have two facilities maturing this year. The first one is Piquirenda, which is a very small plant, 30 megawatt, which is an internal combustion engine that under the resolution 31 are not able to operate because they have a variable cost that is well above what the Resolution 31 pays to that technology. But those equipment are needed because of its location, so it's needed the distribution company It's needed for the system for several reasons that I don't want to get too technical. So we are in conversations with the interest parties in order to accommodate the remuneration so that we can keep these 30 megawatts running Thank you very much. Obviously, it will not have the kind of margins that we had under the PPA, but it will continue working under Resolution 31.

Well, Constantino Paparia from Puente, he has another question that I think I understood is that we have seen some turbine trip-outs in the past months. On the Argentine Saudi, what is your position to secure thermal asset availability, mostly in the U.S.-linked PPAs? Thank you. Because, you know, in this quarter, the market availability was very low. It was 81%.

Our availability was 95%.

I guess that's the question.

We tried to... Well, nothing different from what we always do. We are proud of the... The outstanding availability that we have in all our facilities. And we have that because of the excellent quality of our people. The fact that we do everything that is required to the equipment and we spend as much as is needed. necessary and required and we are all the time doing our best to keep that availability as high as possible. So nothing different and our concern as we explained in the previous conference call is that Without an adjustment in resolution 31, there are some technologies that are not being remunerated well enough. So if there is no adjustment in resolution 31, we will not be able to continue with this kind of state-of-the-art maintenance of our equipment and In the medium term, it will be felt. But I think that if, as expected, this increase in Resolution 31 that we already talked about happens in the next few weeks, that is a fear that will not materialize.

Thank you, Gustavo. Our next question comes from Raúl Bat. It's very related to the question we have answered. Our Energia Vase plan evita positive. Do you plan to shut down the plans if no inflation adjustment is provided?

I think I already covered that. No, we are not planning to shut down any plan. Except for Piquirenda, which because of its technology and the way it is remunerated under Resolution 31, we will not be able to continue operations in July or August. If we are not able to get a special treatment to this facility. But again, it's only 30 megawatts out of the 5 gigas or the 5,000 megawatts that we operate. So it's a very small and marginal unit for our portfolio of power generation.

Thank you, Gustavo. Our next question comes from Liliana Yang from HSBC. The first one was about hydrocarbon law, which was answered. The second one is about what kind of incentives would you like to see so that you can export more gas? Are they more related to fostering gas infrastructure investments or making sure you're allowed? It's not a question that it's easy to answer.

In a sentence. But I think that in order to export gas to Chile, a little bit to Brazil, the conditions are there. It's only a matter of, I think what is more important is that we gain We regain the confidence of those markets, meaning that we will be signing contracts and we should be able to perform on those contracts. In the past, Argentina was not able to do so, and that was a painful and costly situation. The most important thing is to regain the confidence of this market so that they will be with time be able to eliminate or to reduce the imports of LNG and replace that with supply from Argentina. In the process of decarbonization, Chile is planning to include Argentine gas as part of the solution, which is something that they are not foreseeing at this moment. In the short term, I think that the most important thing is credibility from Our potential markets. In the long term, it will be huge infrastructure projects in order to be able to export LNG. We need a new pipe from the Neuquina Basin to Bahia Blanca and Buenos Aires. So being able to export Thank you very much. It's a question that we can spend more time answering in the future.

Thank you, Gustavo. The next question comes from Bruno Montanari from Morgan Stanley. He added one more question. You mentioned M&A as a potential use of cash. Which M&A opportunities does the company see in Argentina?

We, again, there's nothing that it's... We are studying a few potential M&As, but at the very early stages. All related to, obviously, to the energy sector. Mostly on... Power generation and petrochemical related investments, but there's nothing concrete so far, so not much to tell you on that front.

We are close to one hour. The following questions are all repeated, so we will try to reach you out to answer again.

Or you can watch the video conference again.

I don't know, Gus or Gaby, would you like to give some remarks that we didn't address today that you think we should tell everybody? No? Gus?

No, no. The only... I was expecting a question about the petrochemical segment of Pampa that it's so good this quarter, so we are very happy of that. We expect this current second quarter to be as strong as the first one. Obviously, we have But we don't know whether the segment will be able to continue with that excellent performance in the second half of the year. But we are very happy with what has happened so far. Just to give you some structural change that is happening in the segment is related to the development of in a way to the development of Vaca Muerta. And Vaca Muerta oil is quite light. And as the share of light oil coming from Vaca Muerta continues to grow, that results in more Nafta, virgin Nafta coming out of the refineries. And that is an important input to our Our segment that we used to import and now we are able to source it locally. So that has helped the margins of this business. So there is a structural positive change in the segment held by high international prices and we price according to I will price our products according to import parity. So it's a segment that has been doing very well in the past. In this first half of the year, we expect it to decline slightly in the second half. Any other comments? I think... That covers.

Yeah. So we are one hour. We are top of the hour. So thank you so much for joining us. It's a pleasure. We are going to have a survey after this. If you have any questions, please reach us out. We are always available for you. We also are reaching out to all our investor community with an ESG materiality survey. We would like you to complete it if you want. We can send you the link. I think that's all. Thank you so much again, Maggie. Yes, this concludes today's presentation. Thank you for joining.

You may disconnect at this time. Bye.