Pampa Energia S.A.

Good morning, everyone, and thank you for waiting. I'm Margarita Chun from Maiar, and we would like to welcome everyone to Pampa Energía's first quarter 2022 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 only be submitted in writing through Zoom. Should any participant need assistance, please send us a chat message. 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 Energía's management's 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. Investors should understand that general economic conditions and industry conditions and other operating factors could also affect the future results of Pampa Energía and could cause results to differ materially from those expressed in such overlooking statements. Now I'll turn the video conference over to Lita Wang, Investor Relations and Sustainability Officer of Pampa Energia. Please go ahead.

Good morning, everyone. Thank you for joining our conference call. We are pleased to share our first quarter 2022 results. Our CEO, Mr. Gustavo Mariani, and our CFO, Mr. Nicolas Minlin, are both here and joining us for Q&A. Let's start with the quarter's figures. Revenues increased by 32% year-on-year to $555 million, driven by gas exports, commodity prices, updated legacy prices, and Energia Plus. All of them were partially offset by expired PPAs at Loma and Piquirenda, and lower than inflation tariff increases in utility business. Roughly 81% of our sales were dollar-linked. The adjusted VDA amounted to $226 million, 11% up year-on-year, and 13% up quarter-on-quarter, explained by the same reasons detailed before, offset by higher expenses, intense EMP activity, and lower pet chem margins. Quarter-on-quarter seasonality boosted the VDA. As you can see on the right below, the share between electricity and oil and gas is balancing, driven by our gas business. CAPEX in Q1 almost doubled last year's figure, mainly due to the growing planned gas commitment and power expansions at Barragan and Pepe No. 3. However, it was 30% down quarter on quarter because of higher diversments at PP3 and Barragan expansions. Moving on to the power generation as seen on slide four, we posted an NVDA of $121 million in Q1, 5% up year on year and 15% up quarter on quarter, mainly contributed by higher spot prices and thermal B2B margin, besides the outage that happened in Barragán last year. However, this was partially upset by one of the Lomas PPA maturity and increased peso link expenses. Last month, spot energy prices were adjusted by 30% as of February, plus another 10% increase from June 2022. Also, the low factor coefficient was permanently eliminated. So, power plants with a lower dispatch rate just collect the full availability payment. Moving on to the Pampa power generation operating figures, Q1 was 10% up year on year, surpassing again industry average that only achieved 1% growth. We recorded higher thermal dispatch at almost all our units in line with the country's reliance on thermal generation to cover the reduced hydrogen generation and increase local demand. The power generation business relies on capacity payment, like a ticker pay. So availability is what matters most. In Q1, we reached an outstanding availability of 98% without a significant outage, better than the 95% achieved in 2021. Again, Pampa's availability was way above the system expectations. the system availability of 74%. Regarding our thermal expansion, The closing to CCGT in Senado Barragan is almost 80% advanced. Most of the power grid is ready, and we continue getting ready boilers, high-voltage facilities, and transformers. More than 1,000 people are working daily on this project. Nevertheless, the successful commissioning required additional time to review works carried out years ago, postponing the COD to the fourth quarter of 2022. PP3 wind farm expansion is roughly 25% advanced. We made substantial progress in the civil works and continue working on the control system and different permits with the regulator. We also started to install cable piping in the foundations. The estimated COV is split in two stages. The first one, 50 megawatts by February 2023, and the remaining 31 megawatts by May 2023. Now, moving on to the EMP business, even though it was an off-peak season, we posted an adjusted VDA of $56 million in Q1, 70% up in Europe. and 22% up quarter-on-quarter, mainly boosted by export volumes and prices, higher industrial gas demand, upset by increased costs related to the growing activity and export expenses. Our total lifting costs increased by 32% year-on-year, but it's 27% down quarter-on-quarter, explained by the increased activity to keep a high production level to export more and prepare for the 2022 gas winter commitment. Efficiency-wise, lifting costs reached less than $6 per VOE, similar year-on-year, and 25% down quarter-on-quarter. Our total production averaged almost 58,000 barrels of oil equivalent per day. Of that, 91% is gas. On the oil slide side, which represented 24% of the segment's revenue in the quarter, the volume sold was 62% up year-on-year and 12% up quarter-on-quarter, being 5.2 thousand barrels per day. The increase was mainly driven by both local and foreign demand recovery. Oil price was almost $70 per barrel, primarily due to the exports and rather local rise. Regarding gas, as shown on slide eight, our volume sold maintained at 9 million kilometers per day since the 2021 winter, placing the off-peak surplus on exports and local industries. Our production outperformed the industry average, which grew by 13%. And this production of performance was led again by El Mangrucho that represented 69% of the quarter's production. This block is wholly owned and operated by us with the outstanding productivity boosted by its active drilling and completion of wells and the growing evacuation capacity to be ready for this winter. It was also followed by Rio Neuquén's growth, which almost doubled year on year, in addition to Sierra Echata block. Our average gas price of the quarter was $3.5 per million BTU. This is 27% up year-on-year and 14% up quarter-on-quarter. This is thanks to the export prices. Also, spot prices converge to the plant gas levels. The year-to-date sales breakdown now is fairly distributed. Take-or-pay contracts, export contracts with Chile that ended last April, step in CAMESA and the retail due to the seasonality. It is worth highlighting that Pampa led the export market through the gas and gas pipeline that connects to Chile. Also, compared to last year Q1, we are growing our B2B industry share. Regarding our operations, this quarter we drilled 12 gas wells and completed 9 gas wells, all of them tight and mostly at El Mangrucho Rock. We expect drilling activities to accelerate even more during the winter to achieve more than 11 million cubic meters per day of production. As mentioned in previous calls, in preparation for the output surge, we are expanding the gas treatment plant at El Mangrucho. This month, we are adding 2.5 million kilometers per day of capacity, and by the third quarter of this year, the total capacity will reach above 13.5 million kilometers per day, more than the double of last year's capacity. Okay, moving on the pet can business, we posted an EVDA of $6 million, 67% lower year on year because of higher raw material costs, especially in virgin NAFTA. This is offset by the significant rise in commodity prices. Quarter on quarter, the EVDA is down 33%, driven by a lower volume of reforming products. Sales volume was 7% down year on year, mainly due to lower reforming products dispatched as façon instead of the end product. In Q1, 37% of the sales were exports. Regarding cash flow, the free cash flow was almost breakeven because of the increased capex and Lomas expired PPA. This quarter, our restricted group capex grew to $74 million compared to 31 last year. Although we are raising our expansion capex in the core business, they are self-financed by their outstanding operating performance. Note that working capital is negative this quarter, mainly driven by chemists' delays in payments. In addition, we incurred debt for $33 million, mostly from the green bond. In summary, we generated $34 million of net cash in the quarter, achieving $607 million of cash position by the end of March. Additionally, we continue divesting non-core businesses. We are transferring our stake in Venezuela oil blocks, ensuring a clean exit for Pampa. Pampa will collect 50% of any potential compensation from these blocks. Moving on to the slide 11, this slide shows the consolidated figures, including our affiliates and ownership, but let's focus on the restricted group that reflects the BOM perimeter. We posted a gross debt of $1.5 billion, 97% dollar denominated, bearing an average interest rate of 7.8%. The average life decreased slightly to 4.1 years during the quarter, we issued our first green bond in pesos, equivalent to $28 million, due in 18 months to finance our PP3 expansion. However, net debt, very important, decreased to $845 million. The net leverage ratio remains similar at 1.2 times. In the next 12 months, the company just faces less than $20 million of maturities. Therefore, we expect to keep strengthening our balance sheet and focusing the investment on our core businesses. So this is the end of our presentation. Now I will turn the word to Margarita. We'll open the floor for questions. Thank you.

Thank you, Lira. 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 correctly 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 pull for questions. The first question is regarding the new gas pipeline, Nestor Kirchner. The question comes from Anne Milne and Frank Magan of Bank of America and Bruno Montanari of Morgan Stanley. There are three questions. First one is the expected timeline of the new pipeline. Second one is Pampa's perspective given the new pipeline. And the third one is if there is no transportation limitation, what will be the expected production for 2023 and 2024?

Okay, I prefer the question one at a time. I'll do my best. Regarding the timeline for the next door Kirchner pipe, the news is that the pipes for the constructions has already been awarded. And as far as I understand, the supply of those pipes are in a way that makes the feasibility of having the new pipeline ready for next winter a possibility. What has not been yet published is the bidding documents for the construction of the pipe. We are expecting those documents or the bidding process to start anytime in the next few weeks. So assuming that that happens and assuming that once they publish the bidding documents, bidders will have about 30 days to prepare their offers and a few more weeks for the government to decide to which construction company award the project. If all that process happens in the next month and a half, so that by mid-July, the construction companies are awarded, there is a possibility of having the new pipeline ready by next winter. It's a very tight schedule, so everything has to happen very soon and without any major complications. But it's still possible to have the new pipeline ready that will add 11 million cubic meters more of production, evacuation capacity out of the Neuquina Basin. for next winter. It's only 11 because it's without any compression. It is already known that it won't be able, that the compression plants won't be ready for next winter. Those plants will be ready a few months after. So for winter of 2024, this pipeline with compression will be providing 20, 22 million cubic meters of natural gas per day, additional to the existing capacity.

Thank you, Gustavo.

The other two.

The second question is about the perspective of AMPA's participation in this new pipeline.

Well, I assume that after after awarding the construction of the pipe, the government will be making a new round of plant gas bidding process in order to fill this new pipeline. So we will participate in that process and we are eager to to gain a portion of those 11 cubic meters of additional production from the New Guinea racing.

And the last question was about if there is no transportation bottleneck, what will be the potential of EMP in the case of Pampas?

We have a huge potential to continue growing short term meaning for next winter or for the winter of 2024 I would say that we have the possibility to double our current production we are currently at 11 so we beginning two weeks ago we finished some early production facilities that grew the available capability in El Mangrucho. Thanks to that, now we are producing close to 11 million cubic meters of natural gas per day. Could we double that production level in two years? Yes, that's totally feasible for Pampa, maybe maybe a growth of 40-50% for next winter and another in the following year but whether we go to those levels or not will depend on how successful we are in the bidding process of the next round of the plant gas and how much volume we are awarded there So we have the capability to continue growing at the same pace that we have been growing recently. But as I said, whether we go there or not, it will depend on if we are successful in the auctions.

Thank you, Gus.

Thank you, Gus. Our next question comes from Bruno Montanari from Morgan Stanley and Marina Mertens from IR Partners. They would like to know about the expectations for gas exports in the coming quarters and if there is additional gas export permits in place right now.

Firm gas exports ended at the end of April. So we had film exports from October of last year until the end of April. Starting May 1st, there are no longer any firm exports awarded to anybody in the industry. From October to... To April, as Lida has just explained, we have been a very important participant in the export market. We have been exporting about 3 million cubic meters of natural gas per day, so roughly 30% of our total production. We hope and we would like to continue with same level of export starting again in October of this year. So during the summer months that goes from October until next April. But whether we are successful on that or not, we don't know. During the winter, Theoretically, there should be no export. Sorry, let me rephrase that. During the winter, there are no firm exports, but there are spot exports that will depend on two things. As is happening These first two weeks of May, we have very mild weather. So Argentina is currently exporting gas to Chile at a price that is, it has to be because of regulations north of $7.30, $7.35. And we are currently exporting close to 1 million cubic meters of natural gas per day. As the weather gets colder, there will be more consumption in Argentina. So those export exports to Chile should end. But we believe that this winter, the production capacity, the production of the Neuquina Basin will be slightly above the evacuation capacity out of the Neuquina Basin. So there will be small quantities of gas that will not be able to be consumed in Argentina. So if that happens and for those producers that have to produce in excess of their commitments with the plant gas and with the local sales to the industry. So there could be marginal spot exports to Chile during the winter. So that's the situation regarding the exports, the export markets.

Thank you, Gustavo. Our next question is the same from Bruno Montanari. He would like to know also about the oil export potentials for Pampa.

Regarding oil, we don't expect any major change in terms of quantities produced are about the same that you have seen in this first quarter. There has been a significant increase from previous year. But we are not expecting any significant growth going forward. And the share of our exports, that's been roughly about 30%, 35%. There could be a slight increase in that percentage of oil exports, but no, we wouldn't expect any major change to what you have seen in the first quarter.

Thank you, Gustavo. Our next question comes from Fran McCann from Bank of America and Marina Mertens from AR Partners. They would like to know if we have further PPAs, potentials, upcoming PPAs in the renewable market besides PP3 expansion.

We are all the time monitoring the market because we would like to continue growing our share of renewable energy that we produce. So after the 80 megas, we don't have anything on the pipeline. So as you know, we are building this 80 megawatt expansion in PP3 that will come online the first 50 megawatts in early next year. probably February of next year, and the other 30 megawatts by May, early second quarter of next year. We don't have anything on the pipeline, but we are all the time monitoring this market, which is extremely competitive we have very aggressive colleagues in this market and we are probably a little bit more picky on the IRR of the projects that we want to we want to go after so monitoring all the time that the that segment, but we don't have anything confirmed besides the 80 megawatts that we are currently working on.

Thank you, Gustavo. Our next question comes from several people. They are Marina Mertens from AR Partners, Florencia Majorga from Medlife, Alejandro de Michelis from Now Securities, Alejandra Andrade from JP Morgan, and Victor Teixeira from SPX. And the question is about the 2023 bond.

Okay, so as you may know, there is a regulation in place until December 2022 that allows companies to pay 40% of capital maturities and refinance the other 60%. So since our 2023 bond is not reached by the current regulation, we will need an agreement with the central bank in order to execute a deal. We are actively analyzing alternatives regarding our 2023 maturity, and it should be quite reasonable to expect a liability management sooner than later, but that will depend on us getting the approval of the central bank. So the main objective of this will be to have an even more stronger web profile and a clean path to continue investing in our core business and in the gas segment during the next few months and years.

Thank you, Nico. Our next question comes from from Martin Arancet. And he would like to know, what are your plans, drilling plan for the remainder of 2022 in terms of new wells? What are you thinking about exploration or new areas? Are you going to need more facilities in the near future? Or are you already okay with existing infrastructure and the 13.5 million kilometers per day of treatment upgrades?

We, regarding facilities, we are currently, we have been working for the past year and a half, I think, already, on a big expansion in Mangrucho, a new gas treatment plant for almost 5 million cubic meters of natural gas per day. That plant will be ready by the end of this year, by the end of this winter. So that will elevate the production capacity out of El Mangrucho from current 8.5 million to about 13.5. That's just El Mangrucho. And adding all the rest of the areas where we operate and produce, 16, 17 million of production capacity without building new facilities. Not without building new gas plants. Obviously, we will have to build a... We will have to build some surface infrastructure, but not big gas treatment plants. And And regarding drilling, we have just finished the campaign. We are finishing the campaign that elevated our production capacity from the level of 9 million cubic meters per day. That's been what we have been producing throughout all the summer in the third quarter of last year and the first quarter of this year. And now we are producing 11 cubic meters of natural gas per day. And we will stay at those levels until early next year. But we will begin a new campaign in order to be ready for in order to As you know, keep production at these levels. You know that in this industry, you need to drill all the time in order to maintain your production. And we will be ready to grow production. We want to be ready to grow production in case we are awarded in the next auctions. So we will be doing a drilling campaign in Sierra Chata. That's the area that we share with ExxonMobil. that we operate, and we also will have a drilling campaign in El Mangrucho in order to have nukes available for next winter.

So one of the questions roughly saying what is left for the remaining of the year is 25 wells to be drilled and completed.

Thank you, Gus and Liz. The next question comes from Marina Mertens from IR Partners. By how much should power generation EBITDA drop following Ensenada Barragán PPA maturity? And how much should be offset by the commissioning of the 280 megawatts?

Well, so full year before the PPA expired was $160 million per year. Now that the PPA, the old PPA expired and the new PPA, it's ramping up by the third quarter, fourth quarter of this year. Proforma, a year full, it's around $130 million of VDA, the both, the combined cycle.

Thank you, Liz. Please wait while we will poll for more questions.

Our next question comes from Liliana Yang of HSBC. Hi, what prices would you need to see in coming plant gas auctions so as to support production volume growth? Could you remind us of gas export prices you think you can get going forward? Thanks.

Gas export prices and?

Gas export is already done. Planned gas potential prices. Upcoming green assumptions.

Okay. For this 11 million, the government has yet to decide how many of those 11 million they will like them on a flat basis, so throughout the year, or just for the winter period. So a portion of those 11 million will be... The government will want them on a flat basis and a portion will want them just for the winter. So for the flat portion, I expect something similar to plant gas, to the first plant gas. I suspect... that the government will put a ceiling price similar to the previous one. The previous one was $3.70. For this... The fact is that despite the fact that this... even if for that portion that is auctioned on a flat basis throughout the year, the fact is that the industry needs to take into account the amortization of all the new facilities that are needed to be built in order to supply that gas. Plast cans, treatment, pipelines, et cetera, et cetera, et cetera. So probably the... the price ceiling will be north of the $3.70 that was for the first round of the black gas. Regarding the winter price, it's difficult to say, but it's going to be obviously higher than that. And it's difficult to say because it will depend whether it is matched with firm exports to the neighbor countries that will reduce the price and make it more similar to the flat portion of the, to the flat portion.

What else?

Regarding gas exports to Chile during this winter, as I said, there is a resolution from the Secretary of Energy that the floor price for those exports is $7.35. But again, exports of gas to Chile during the winter is going to be very, very marginal for us and for the industry as a whole. And starting in October, We expect a similar price as the firm exports that we had this year, around north of $5 for the summer.

Thank you, Gus. Thank you for the questions. This concludes the Q&A section, so we will turn to Lita for final remarks.

And Auguste, would you like to say something more that nobody asked? Nico? No? Well, this ends our presentation for Q1. Anything that you have, any questions that comes to your mind after the call, just reach us out. We are always available for you. Thank you for joining us and have a good day.