Pampa Energia S.A.

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 second quarter 2021 results video conference. We inform you that this event is being recorded, and 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 only be submitted in writing through Zoom. Should any participant need assistance, please send us a chat message or email. Before proceeding, let me please read a disclaimer that is located on the second page of the presentation. Let me mention the 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 are related to future events 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.

Thank you, Margarita.

Hello, everyone, and 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 our earnings release or feel free to contact us. Our CEO, Mr. Mariani, and CFO, Mr. Cohen, are both are here and joining us for the Q&A session. Let's start commenting on the quarter's highlights. First, we recorded more than 50% year-on-year sales increase thanks to the planned gas winter peak, Canelo's new PPA, and commodity price hikes. Moreover, our E&P business set another record As our flagship block, El Mangrucho, achieved all-tank high-gas production of 226 million cubic feet per day two weeks ago, contributing to an increase in our overall production. This is a significant milestone for our EMP and the country's peak demand during the winter. The record is more than 30% higher than last year's July and three times 2016 production level, showing the competitive productivity of Thai gas formation. Also, the quarter's performance is supported by higher prices, even higher than pre-pandemic levels, explained by winter seasonality, plant gas, and commodity prices. Legacy prices are also boosted by the long-awaited increasing pesos, but the result is moderated in dollar terms as a result of devaluation. Our pet can business achieved another outstanding quarter, not only benefited by prices, but also by recurring demand. The regulator cleared the sale of Edenor's control, and the management change took place by the end of the quarter. Therefore, we ended a chapter and collected proceeds to keep focusing on our power and gas businesses where there is cash generation. The final payment is due one year from closing. Last but not least, we keep strengthening our financial position by reducing our leverage thanks to our free cash flow generation reaching almost $1 billion net debt. A healthy balance sheet coupled with a comfortable debt profile makes a great defensive strategy in challenging Argentina. Now, let's move on the quarter's key financial takeaway. Let's only focus on the continuing business. Revenues increased 52% year on year. to $456 million in the quarter, mainly driven by plant gas, interseasonality, Enelva's new PPA, and high commodity prices within petrochemicals and TGS liquid business. Though partially obsessed by lower legacy prices in dollar terms, as well as Paris Greece and Deval effect over utility businesses.

In Q2 2021,

Roughly over 80% of our sales and EBDA were dollar-dink, mainly from our core businesses, PPA Power Capacity, followed by E&P. The adjusted EBDA amounted to $241 million, 79% higher year-on-year, mainly driven by the same reasons detailed before, plus production efficiencies and dilution of peso-link Thank you very much. by taking a 48% share, as we show on the right below, like while electricity takes 52% of the consolidated justice. Moreover, in Q2, CAPEX was double year-on-year, more than double year-on-year, and 66% up quarter-on-quarter, mainly explained by planned gas commitment during the winter and Barragán's expansion of SES, by the commissioning of Genelva's new CCGT in July last year. Moving on to the power generation segment, as you see in slide five, we posted an EVDA of $121 million in Q2 2021, 26% higher than last year, mainly contributed by Genelva Plus CCGT, higher B2B electricity sales, legacy prices update, and the devaluation impact on our peso-nominated expenses. These effects were offset primarily by the dilution in dollars of legacy prices, higher energy purchases to cover the B2B contracts, and operation outages in June. Quarter on quarter, EBITDA increased by 5%, mainly due to the spot prices update retroactively to February, are offset by the off-peak pricing for spot energy and lower dispatch in Q2 2021. Spot energy comprises 59% of our capacity, but represented only 17% of our power generation EVDA. Therefore, it will be keep shrinking unless the next inflation adjustment outpaces the evaluation. Still, it is key to continue with the proper maintenance of this plan under pay considering the contribution to the grid. Moving to the operating figures, power generation in Q2-21 was 10% up year-on-year in line with the grid recovery. Like in Q1, nationwide demand is back to pre-pandemic level. mainly driven by industry, which is a good news for GDPF credit. We recorded higher dispatch in Genelva, new CCGT, thermal plants firing alternative fuels, and increased low factor from wind farms, upset by lower gas fire dispatch because there's no gas, limited gas. However, quarter on quarter, generation was 14% down, Driven by the full system and audits. Keep in mind that the power generation business model relies on capacity payments, 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 Q221 reached an outstanding 95.8%, slightly lower year-on-year, mainly due to Wemens and Geneloas and Mariana De La Fuente. Around 1,500 people are at the site working with COVID protocols and reviewing the critical equipment to achieve COD by the second quarter of 2022. Once closed, Barragán's total capacity will be 847 megawatts, becoming one of the country's most efficient thermal units and Pampas IV-operated CCGP. Moving to EMP results, on slide 7, we posted an adjusted VDA of $73 million in Q2 2021, recording a remarkable growth year-on-year, primarily driven by planned gas, which rebounded the gas prices and volume because of weaker commitments, in addition to higher oil prices and recoveries. However, More royalties from higher prices and increased well drilling and completion activities upset the rise of the ABDA. Quarter on quarter, the ABDA more endowed due to the winter effect, upset by higher royalties. Efficiency-wise, we recorded $25 million of lifting costs, 20% more than last year due to well drilling and completion reactivation activities upset by higher productivity at competitive gas blocks such as Mangrucho, Heiger Oil Production, and the Devaluation. By BOE produced, we kept below $6 of lifting costs, 10% higher in ERE, but very similar quarter-on-quarter. Our global production increased 9% year-on-year and quarter-on-quarter, mainly, again, driven by the plant gas. All demand is improving post-lockdown, but still hasn't reached pre-pandemic levels. As a result, we averaged almost 48,000 barrels of oil equivalent per day, of which 90% is gas. On the old side, which represented 22% of the revenues in the quarter, volume sold increased by 11% year-on-year, to 4,500 barrels per day, explained by export demand. The 40% quarter-on-quarter increase is primarily due to exports concentrated in the Q2. As per crude oil prices, which are driven by the rent, it almost tripled last year due to the lockdown, while quarter-on-quarter remained similar. Our production is still down 1,000 barrels per day, to the pre-pandemic level. We expect to recover them gradually. Regarding gas, as shown in the next slide, our average sales average 264 million QFP per day in the quarter, 4% up year on year, driven by the plant gas GSA. Production could have been higher. but blockade during April 2021 affected the output, impacting our employees and equipment daily operation. Therefore, our production since May was slightly lower than the GSA commitment, but we still recover by this month, overproducing actually, the target of 320 million cubic feet per day. In addition, gas producers including Pampa were granted sports major So no penalties to pay. Quarter on quarter, the 9% increase is primarily explained by the beginning of the winter peak season and better B2B sales from industrial demand. On a color, another color nationwide gas production during the quarter was only 1% down year on year, evidencing the plant gas effect. Demand is rising to pre-pandemic levels driven by the large users and retail consumption. Going back to our quarter production performance, El Mangrucho left the quarter's production growth, contributing close to 70% of our overall gas. This block is wholly owned and operated by us with outstanding productivity, boosted by the temporary production facility we sold in back in May and reached all-time high record by the end of July. During the quarter's second quarter, 21, Our average price was $3.9 million per million BTU, double year-on-year, and almost 40% up quarter-on-quarter, again explained by the plant gas winter peak. The B2B and spot prices out of this CSA also reflected the seasonality, but haven't reached the plant gas level. As you can see right below, the year-to-day sales are more diversified Similar to the country's breakdown, gas retailers are also part of land gas and soared during winter because of their priority, increasing its share to 30% compared to the last year, last quarter, 18%. Also, we are working to grow our B2B sales with positive results, increasing our market share, as you can see in the slide. The only segment shrinking is exports. which will be resumed from October with a take or pay deliveries to Chile. Regarding our EMP operations update, we strengthened our investment recording $55 million during the quarter, almost three times higher than last year. This quarter was quite active, drill and complete 11 tight as well in line with the winter peak. As I say in the previous call, We are building the second gas treatment plant in El Mangrucho, which will more than double the current capacity to reach 290 million cubic feet per day by the first half of next year. In oil, we drilled four wells and completed five, all from San Jorge Basin. Moving to the petrochemical business, this segment delivered another solid quarter, achieving four times last year EBDA, mainly explained by the significant rise on international prices, higher local virgin NAFTA supply, and demand growth linked to industry recovery, upset by increased raw materials costs influenced by said reference prices and plant gas impact. The year-on-year sales volume increase was significant for all the products. Steel quarter-on-quarter decreased 22% because of the reforming plant seasonal maintenance. In addition, roughly 40% of the quarter sales were exported. Since the international prices are very volatile and seasonal, we do not expect this high performance for the second half of the year. Before getting into cash and debt, we must highlight the solid cash flow generation reported during the quarter. supported by the outstanding operating performance from all the free businesses and improved profitability thanks to the higher realized price. During Q2, free cash flow resulted roughly $72 million, $50 million more than last quarter. Notice that the working capital was negative mainly driven by seasonal, higher seasonal billing and plant gas effects. And to a lesser extent, the increase in collection days from CAMESA. In addition, we collected an enormous second sale installment and former plant gas receivables for a total of $64 million. We repaid $71 million of mostly dead maturities and bought back shares for $11 million. So in total, we generated a net of $54 million, achieving $462 million of cash position by the end of the quarter. Moving on to slide 11, this slide shows consolidated figures, including our affiliated such ownership, but let's keep focusing on this restricted group for covenant purposes. Since Ebenor was deconsolidated, Pampa under IFRS is equivalent to the restricted group. The gross debt continued to increase, amounting to $1.5 billion as of June 2021. 96% is in dollars, up from the 91% last March, as we've been paying down all the shorts in debt, most of the shorts in debt, in pesos. The dollar debt bears an average interest rate of 7.4%, while the peso debt averages less than 37% interest rate. The average life remained at 4.6 years. As we said before, the cash amounted to $462 million. This is 13% higher quarter on quarter. So the net debt decreased to $1 billion. In addition, the net leverage ratio improved from 2.3 to 1.7 times due to the higher EBITDA. In the next 12 months, the company only faces less than $100 million of maturity, most in local currency. Moreover, our last peso bond matures by the end of this month, roughly $65 million. Therefore, We expect to keep reducing short-term debt, strengthening our balance sheet. As a result, you can see fixed rating upgraded at our bonds to B-. Few Argentine corporates are above the sovereign ceiling.

So, this concludes our presentation.

Now I will turn to Margarita, who will open the floor for questions. Thank you.

Thank you, Lida. The floor is now open for questions. If you have a question, please send us through Zoom chat. We will read and answer them in the order received. Also, please make sure your name and company are adequately displayed so that we can introduce you to the audience. Please lower your hand once your question is answered. Should any participant need assistance, send us a chat message or raise your hand. Please hold while we poll for questions. Our first question comes from Bruno Montanari from Morgan Stanley. He has two questions. The first one is, with the conclusion of Edenor Disposal, what is the company's mindset for potential future corporate moves? Would Pampa be more likely to buy something or sell something? Any particular asset type that would be preferred on the purchase side? That is the first question.

Good morning, everyone.

Thank you, Bruno, for your question.

While reading your question, it came to my mind the joke about the portfolio manager that knows for certain that the market will go up and down, but not sure in which order. So I think for Pampa, it's the same. We've been all our lives Thank you very much. I can tell you that we are actively working today is what has already been disclosed on this interest of Gazprom in our EMP assets. So we continue our discussions with them. Whether that will materialize in a transaction or not is yet to be seen. and there's not much else, although we are all the time analyzing opportunities and there's nothing more concrete on that front.

Thank you, August. The second question of Bruno was Can you comment on expectations of the new hydrocarbon law and the access to the U.S. dollar?

Now, regarding the hydrocarbon law, there's not much that I can tell you, but it's already in the media. About a couple of months ago, the government did a round with all the players and explained the basics of the law, and that went into the media immediately. And since then, I heard that they continue working on the law, have minor changes, minor adaptations to what we have seen and what has been published, but not sure about the timing when the executive power will finally present its proposal to Congress. I hope the sooner the better, since there are a few things in that law that makes that positive for the sector. Several things in the law that are positive for the sector, so the sooner that that goes through, the better, especially before all of us start Thank you, Guus. Our next question comes from Frank McCann. He has three questions, but the first one is already answered because it has to do with M&A opportunities.

The second one is about the payment chain in power generation from CAMESA. Can you give us more update on that? Okay.

Okay, thank you for the slide. As you can see on the presentation, collection dates from CAMESA have deteriorated a little bit in the last few months, reaching a high of 90 days. Just to clarify, Thank you very much. If you see the pattern, last year around this time of the year was the worst moment. And then CAMESA improved the collection days a little bit. That is basically because during the winter, those are the toughest months for CAMESA. They have to pay for the purchase of... of diesel oil, fuel oil, and LNG. So those are the toughest months for them. And we hope that as it happened last year, the collections base will go down again as we approach during the third and fourth quarter. Just a clarification, CAMESA doesn't only affect power generation. In our case, it also affects the E&P business as well as a significant part of what we sell. We sell through CAMESA.

Thank you, Gus. There is one more question from Frank McCann. What is the Q3 gas price expectation? to three this year.

Sorry.

We expect the price on the third quarter to go slightly up of the second quarter. Because we continue in the winter, in the fourth quarter, it will go down. Basically following the pattern of the plan gas pricing scheme. In the third quarter, not only... The average price will go up, but also volume will go up vis-a-vis the second quarter.

Thank you, Gust. Our next question comes from Constantinos Tatalias from Puente. He has three questions. The first two questions are related. It has to do with the view on the local gas market evolution in the mid-term. What is the expectation in the prices and volume? And the second question is regarding Camisa tenders. They have been raising more than 17 million cubic meters per day for August at planned gas prices amid a dry season that will perhaps affect next year as well. Do you see any additional plant gas or something similar or perhaps more frequent short-term tenders of the sort?

I think the last part of the question wasn't heard.

So the last part of the question. So the last part was, the second part was regarding Camisa tenders. They have been raising more than 17 million cubic meters per day for August at PlanGas reference prices. And if we see any additional tenders or something similar in a more frequent basis in the short term.

Okay, all right. Thank you, Constantino, for the question. As you know, because of the plant gas, there's been a significant change in the market. Last year, we had a, if you want, more spot market with prices regulated by basically by CAMESA and the Secretary of Energy. Today, we have a contracted market. So, Most of our, during the winter, 100% of our sales goes through the contracts of the Plan Gas, either with Camesa, with the industry, or with the distribution companies. So those 17 million cubic meters of tenders that Camesa has done, or Camesa does every year, Thank you very much. Thank you very much. Thank you. In the short and medium term, what do we expect? This winter, there's been, as you know, thanks to the plant gas, the industry recovered, production recovered from last year, and But still, there was an excess capacity in the pipelines going from the Neuquina Basins to going out of the Neuquina Basins of around 6 million cubic meters of gas per day. So what we expect to happen is that the government will call for a third round of In order to fulfill the transportation capacity out of the Neuquina Basin, that is a win-win situation because we continue increasing the local production of natural gas. This displacing in More expensive imports of liquids for LNG or eventually Bolivia. So we expect that surround to happen the sooner the better so the industry can prepare and be ready to deliver that gas next winter. What else do we expect is in our volumes in the third quarter of the year and in the first quarter of next year, the expectation was we are currently producing or delivering 9 million cubic meters. That is what has been contract in the plant gas. In the fourth quarter of the year and the first quarter of next year, what What we have committed is 7 million to the Palanga. So our sales should go down during that period. That might be somehow moderated by the fact of the extreme draw by the extreme Weather in the south of Brazil, especially the droughts in the south of Brazil. So we might be able to export about two gigawatts of electricity from Argentina to Brazil. That is a big consumption of gas that is around 10 million cubic meters Thank you very much.

Yes, there is one more question from Constantino. On top of that, there is the state budgeting, adjusting the budget that includes gas main pipeline expansion. Do you see that positively affecting the business in the near term?

Yeah, good question also. We think it's great news to hear that the government is working and going forward in expanding the transportation capacity. It's not going to impact our business in the near term because building this pipe will take about two years, but As we always said, Argentina imports a lot of gas from Bolivia throughout the year, all year long. That makes a lot of sense that the local industry replaces those imports. And Argentina also imports heavily and very extensively during the winter. And it also makes sense We have the reserves, we have the capabilities to replace those imports with local production. We need infrastructure. Infrastructure that makes a lot of sense and will be quickly replaced with savings in imports of energy. So the sooner the country does it, the better. So to answer shortly your question, it won't have an impact in the short term, but it may have a significant impact in the medium and long term of our business.

Thank you, Gus. Our next question comes from Alejandra Andrade from JP Morgan. Do you still expect capex of between 200 and 250 million for the year? for the restricted group. Before answering, keep in mind that we don't give guidance.

Hello. Hello, everybody. Gabriel, are you listening well? Yes, hello. The significant amount of CAPEX this year is essentially related by some infrastructure CAPEX on the empty business plus additional wealth in order to achieve high levels of production. So assuming no changes for next year, the amount of capex should be decreased from the current year based on the infrastructure that we one-shot this year and the level of new production that we already reached. So any differential from this expected decrease would be if we enter into new P&P business. But as of today, it's not budgeted.

Thank you, Gaby. Our next question comes from Anne Milne from Bank of America. Now that Plan GAS is implemented and your thermal plants are almost near completion, what are the next strategic steps for Pampa Energia? What is the cap for the remainder of the year and preliminary budget for next year? Before answering, keep in mind we don't give guidance.

Thanks for the reminder. Strategic steps for Pampa. Within the sector that we work and room for growth, today we clearly see it on the EMP Business to continue developing our assets there. And as explained before, it depends basically on two things. One is a new round, a new bidding round on the plant gas. And we expect that to happen soon. Rather soon and medium term, the expansion in transportation capacity. Otherwise, the industry itself won't have much room to grow. We may be able to gain market share because we have very competitive assets, very competitive portfolio of assets in our E&P sector. and Empower Generation. We might be able to expand on our portfolio of renewables. We are analyzing whether to build a fourth wind farm that could be sold to the matters, so B2B to the and those are basically what we are foreseeing in the short term.

Thank you, Gus.

Our next question comes from Florencia Mazorga from Medlife. She has three questions. The first one is, do you have any update on the refinancing of the 2023 bonds?

Yes, hello. As we mentioned in previous calls, that's something that we monitor constantly. It's also related to central bank regulations. And at some point, we expect to do something that it may be either paying the bond or refinancing as the central bank rules allow it.

And the second question is about the legacy energy. After the 29% hike announced in May, any update on potential adjustments for next year?

No, we have no clue about next year adjustments. They are currently... Thank you very much. Thank you, Gus. The last question from Florencia is regarding any update about the hydroconcession.

that are maturing in the next three years.

Unfortunately, three years is like eternity in Argentina. We're always discussing next quarter, not the next three years. Unfortunately, we have no clarity of what the government is thinking. I don't think that at this point the government is... and have this issue on their mind.

Okay. Thank you, Gus. Our next question comes from Ezequiel Fernandez from Balan. He has two questions. The first one is about the export to Chile of gas. In case you have not commented on this earlier, do you have any update on the possible gas export deals to Chile you mentioned during the first quarter call?

Yes. Maybe we forgot to mention that. We did, yeah. But as Lida mentioned during the presentation, we have been awarded The contract to export in firm to Chile 1.5 million cubic meters of gas per day since the 1st of October until the 1st of April of next year. So that export will go through beginning in October. What else is in the question? That's it?

Yes. The next question from Ezequiel, that was the last one, is regarding any sign of demand from corporate in the mater, the renewable private market, that could help unlock new greenfield investment in renewable?

Demand from corporates. The demand from corporate obviously is there. The issue is about the pricing. We are evaluating unfortunately the cost of building a wind farm has gone up because of The demand obviously from the corporate sector is there to acquire Renewable Energy.

Thank you, Gus. Please wave so that we can pull for more questions. We have one more question from Ezequiel from Balance on Edenor. Just confirming that the June 30 balance already reflects the cash collected from $50 million payment.

Yes, hello. In that respect, we already collected $50 million and there is a remaining $40 million payment for next year.

Thank you, Gaby. Please hold while we pour for questions. Thank you for waiting. Our last question comes from Rafael Elias. Assuming no modifications to your PPAs, do you have any intentions to tap the international capital market in order to extend maturities, but mainly to reduce your cost of debt in US dollars?

Yes, hello. With today's debt profile and cash position, we feel comfortable in that respect, although we are active managing our debt profile in the event we see any changes in our business projections.

Thank you, Gabby. This concludes the question and answer section. We will turn to Lida for final remarks.

Thank you, everybody, for joining us. I don't know, Gus, Gabby, would you like to make some comments? Did we cover well petrochemicals or whatever you feel that we didn't cover? This is one hour call. If you have more questions, we will be very happy to follow up with you. You can see this replay afterwards. Any questions, just contact us. Margarita, Guido, we are always available for you.

Thank you so much. Have a good day.

Thank you very much.

This concludes today's presentation. Thank you for joining. You may disconnect at this time. Goodbye. Goodbye.