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spk03: Thank you for waiting. I'm Margarita Chun from IAR, and we would like to welcome everyone to Pampa Energía's first quarter 2023 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 the presentation. Let me mention that forward-looking statements are based on Pampa Energía's management beliefs and assumptions and 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 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 forward-looking statements. Now I'll turn the video conference over to Lira Wang, Investor Relations and Sustainability Officer of Pampa Energía. Please go ahead.
spk02: Thank you, Maggie. Hello, everyone, and thank you for joining our conference call. I will try to make it short and skip some parts already explained in the earnings release, so we have plenty of time for Q&A with our CFO, Mr. Nicolas Minglin, and our special guest here, Mr. Horacio Turri, our head of Upstream. Let's start with the quarter's figures and go straight to the adjusted EBITDA, which amounted to $206 million in the Q1, 8% less year-on-year, mainly because of Barragán's old PPA, TGSs lack tariffs and higher payroll in dollar terms, upset by the addition of PPAs and a solid power dispatch, better gas and spot prices, plus Transcendence tariff increase. However, the BDA increased 12% quarter-on-quarter because of the PPA additions, Transcendence tariff, and higher liquid margins in TGS, upset by soft gas cells and lower reforming cells. It is worth to note that 76% of the EVTA was dollar linked. As you can see in the right below, the share between electricity and oil and gas is almost even, though power is leading the pipe thanks to our PPAs. CapEx in Q1, more than double year on year, mainly because we kick off So a new wind farm in PP6, plus the ambitious drilling and completion activity in preparation for the winter peak season. Moving on to power generation, as seen on slide four, we posted an EVDA of $108 million in Q1, down 11% year-on-year, but up 26% quarter-on-quarter. mainly explained by Barragán's old PPA that expired in April last year, and higher labour expenses, offset by the addition of wind farms plus the kick-off of Barragán's new PPA in late February of this year, and better spot prices thanks to a special remuneration for legacy CCGTs. Q1 dispatch rose 11% year-on-year, above the national power grid 8% growth, in response to a hot wave that drove new records of power demand. Barragan's new CCGT contributed most of the increased load factor, upset by less Bolivian fuel and forced and scheduled outages at some thermal units restored within the core. Availability is essential to collect take-or-pay capacity payment, especially from PPAs contributing most of the EVDA. In Q1, we reached 93%. This is below last year's almost 98% availability rate due to the thermal outages mentioned before, but still outstanding compared to the grid's 69% availability. Moving on to wind farm expansions, regarding PP4, the project is highly advanced. In April, we commissioned um 18 more so we have 54 mail was online out of the 81 that is the total install capacity in addition almost all the remaining wind turbines are assembled and we estimate to complete the cod by the end of this month Regarding PP6, we also kick off the second phase this month, adding 45 megawatts more. So the total capacity will be 140 megawatts by investing $265 million approximately. For the first phase of 95 megawatts, we just started with the civil works for the pads, platforms, and the foundations. And for the second phase of 45 MW, we are procuring 10 additional Vestas wind turbines. We estimate to achieve COD next year, the first phase by Q3 and the second phase by Q4. Keep in mind that PEP expansions are sold under B2B PPAs. Also, to finance this PP6, we issue in May our second green bond in pesos in the local market, raising... and equivalent to $22 million due in one year. In slide six, our EMP business posted a total adjusted EBITDA of $62 million in Q1, 10% up year-on-year because of the gas export prices and local oil demand, upset by lower gas export volumes and soft retail demand that drove production curtailments. plus the higher costs for payroll and growing activity. However, quarter on quarter, EBDA is down 14%, driven by sale curtailments and labor expenses. Our total lifting costs almost doubled yearly, explained by payroll and increased activity. However, it decreased quarter on quarter due to lower facility costs from a block. Efficiency-wise, the lifting cost per BOE was up 23% year-on-year, but very similar, stays similar quarter-on-quarter, recorded $7 per BOE. In Q1, our total production average was 58,000 BOE per day, zooming in. Crude oil represented 9% of that. Still, it reached 24% of the segment's revenues. mostly because of increased local demand, upset by the drop in the brand pricing, getting a realized price of almost $68 per barrel. Our gas production in Q1 was similar yearly, but slightly down quarterly, averaging almost 9 million Q meters per day, mainly explained, again, by the weaker retail demand vis-a-vis the seasonal contracted volumes under planned gas. in addition to lesser exports to Chile as permits were limited. Furthermore, though the country experienced a record high power demand and thermal installed capacity fire as much as possible, CAMESA was not able to procure additional gas because of pipeline bottlenecks. Hence, El Mangrucho output was curtailed during the quarter to 5.7 million kilometers per day, However, Sierra Chata, with six drilled and connected shale gas wells, have been outstanding, dramatically increasing the production. As you can see below, the production, the results of Sierra Chata have performed the benchmark. El Mangrucho also performs very well within the average among peers. We rely on both blocks to run by production, each reaching an all-time high, supported by excellent results from our shale gas wells. The average gas price of the quarter was $4 per million BTU. This is 11% year-on-year increase, mainly due to export prices. In Q1, sales were skewed to Chemesa as they were buying gas to up from the high power demand. Exports were lower but remained under take-or-pay contracts until June of this year. The petrochemical business posted $7 million in Q1, primarily contributed by styrene and polystyrene cells, plus a lower cost of propane, upset by a fall in SBR volume and higher labor costs. However, quarter-on-quarter is shrunk by more than half, driven by a reduced supply of raw gas line and export margins. Sales volume was up 13% year-on-year, mainly because last year some reforming products were dispatched as façons, so not billed as volume sold. In Q1, 39% of the total sales were exported. So moving to the cash flow in Q1, we recorded a free cash flow outflow of $29 million. This is mainly due to the expansionary capits that we are doing in power and gas. higher debt service driven by peso debt through principal gets diluted by devaluation, plus worsening of payment collections from CAMESA that it went from 70 days to 100 days full cycle collection. That represents roughly $80 million of working capital buried. In addition, we raised $97 million net from the local market In summary, we generated $68 million of net cash flow in the quarter, achieving $768 million cash in the end of the period. So moving to the slide 11, we show our consolidated financial position, including our ownerships, the affiliates at ownership. But just let's focus on the restricted group that reflects the bond perimeter. We posted a gross debt of $1.7 billion. This is similar to the last quarter. Net debt and leverage ratio decreased thanks to our solid cash flow position. recording a little bit above $900 million and 1.2 times leverage. The Irish life also reduced to 3.4 years. Taking advantage of the domestic liquidity, we kept diversifying the currency and source. As a result, 81% of the dollar denominated offshore bearing an interest rate of 8.5%. Peso debt bears an interest rate below trailing CPI, so onshore debt in dollars is zero coupon. Also, as mentioned before, we recently raised a second green bond for 5 billion pesos, that's $22 million roughly, and issued $56 million of hard dollar bonds in the local market. This is non-MEP bonds. maturing in 2025 at 5%. A few days ago, we announced the redemption of the remaining 2023 bonds for around $93 million. So until 2027, Pampa does not face any relevant debt maturities. So this concludes our presentation. Now I will turn to Margarita. So she will poll for questions. Thank you very much.
spk03: Thank you, Leah. Now the floor is open for questions. If you have questions, 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 to introduce you to the audience. Should any participant need assistance, send us a chat message or raise your hand. Please hold while we call for questions. Our first question is from Maria Mochano from the company Adcap. She would like to know regarding the company situation to access to the official effects for principal of debt payment and import of equipment. What are the company tools to have access to the official effects of the central bank?
spk00: Okay. Okay, so as for now, we are not having any issues to access to US dollar for imports of capital goods and raw materials. But we have seen some delays in the case of services, but nothing significant. For the maturities and interest payments, we have not had any problem so far. Okay. So if the central bank stops selling us US dollars, we will need to finance those dollars abroad. But I think that given the current conditions, it will be at very expensive rates. So if that happens, I think we should reassess our aggressive strategy regarding CapEx and investments. But we don't see this happen in the near future.
spk03: Thank you, Nico. The next question is from Paula Alagreca from TPCG. She has three questions and the first one is how are collections from the plant gas and the Néstor Kirchner pipeline doing? Has there been any delay?
spk00: So the situation with Kamesa's payments and also regarding PlanGas subsidy, how it deteriorated a lot in the last few months, and it has reached a delay equal to the worst that we have seen, that is of approximately 100 days. So as of today, The debt amounts to 40,000 million pesos approximately in the case of Camesa and 2,000 million pesos in the case of Langa Subsidy. This debt accrues interest per Banco Nación active interest rate that is around 104%. But to mitigate this issue, We issued the 15 pesos in the last few months, taking advantage also of the liquidity in local markets. And this acts like a hedge against a discrete devaluation. So we are hedging this with these instruments and also we can hedge this in the future dollar markets.
spk03: Thank you, Nico. The second question of Paula is, is there any plant that could enter into the new PPA contract under the resolution 59? This is the differential remuneration for combined cycle in the spot market.
spk02: Hi. So, yes, besides Loma La Lata legacy plant, CCGT and Genelva legacy CCGT, we managed to include Ensenada Barragán's gas turbines. They are part of a CCGT, but the gas turbines are on their legacy, so they are very important. So we managed to include them as they are, as if they are CCGT. So all in all, we are calculating that the total impact Resolution 59 will be around close to $19 million in 2023. Though, however, a lot of that is upset by the devaluation curve if there's no any further inflation adjustments to the legacy pricing.
spk03: Thank you, Leeds. The last question of Paula is regarding EMP business. Do you have any sensitivity analysis of how much an increase of 1% in inflation impact on lifting costs? She has one more in the EMP, but let's focus on the first one.
spk02: Hello, everybody.
spk01: Okay. Can you hear me now? Okay. Well, this question needs further analysis since now we have most of our costs based in U.S. dollar linked. And what we are seeing is particularly significant increase in wages. And dollar inflation is starting to pick up. But all in all, we understand that probably we will have one third of the inflation being transferred to the lifting costs, not more than that.
spk03: Thank you, Horacio. Paula's last question regarding EMP business is, how much more expensive or cheaper is to produce natural gas in shale fields than in tight gas fields?
spk01: There is a trade-off there between CAPEX and OPEX. In terms of CAPEX, obviously the shale wells are more expensive than tight wells. But from an OPEX standpoint, as you are producing in high pressure rather than medium and low pressure, you don't need any compression. And that significantly reduces the lifting cost in the shale fields vis-a-vis the tights.
spk03: Thank you, Horacio. The next question is from Alejandro de Michelis from Now Securities. He has two questions, but the first one is very related to the E&P business. How do you see inflation impacting on the drilling and completion, especially on the shell wells and the opex? I think it is covered, but if you want to add something more.
spk01: OK, I think he's particularly asking about drilling and completion. And in that sense, we've seen approximately a 10% to 15% increase in DNC costs, always related to Dollar Link, when you compare it to last year.
spk03: Thank you, Horacio. The second question of Alejandro is regarding power generation business. What is the appetite of the company to generate join the potential tender of thermal power plants that they are saying in the media right now.
spk00: So, of course, we will be studying these projects to see if we can participate at competitive prices. Since the beginning of Pampa, we have participated in every round. to help our generation. But our main focus this year is in our very aggressive investment plan to ramp up gas production and to grow our renewables capacity.
spk03: Thank you, Nico. The next question is from Bruno Montanari from Morgan Stanley. He has three questions. The first one is regarding the EMP business once more. Can you comment on gas demand in the second quarter of the year? You mentioned on the release that retail demand was soft in Q1 and there were also bottlenecks with pipelines. So we would like to get a sense of how much volume are performing right now. Do you see more space for Pampa to increase export to Chile on top of the additional 0.9 million kilometers per day recently awarded?
spk01: All right. Well, demand is picking up in the past week. We are starting to see some low temperatures. And we foresee that probably we will go to the 9 million cubic meters per day that was mentioned before to around 11 million cubic meters per day during next week. and stabilizing in around 12 million cubic meters, which is what we had forecasted for this time of the year. We will keep on increasing our production, reaching 15.6 with the commissioning of the Néstor Kirchner pipeline. So this is what we can say about our projected production for the coming months. Regarding exports to Chile, we have already been awarded additional 900,000 cubic meters a day, May and June, and an additional almost 900 more million cubic meters per day, July, September. I don't foresee any additional exports being granted to Pampa in that period, rather than that. So we will be exporting around 2.2 million May, June, and we will go to 900,000 July, September.
spk03: Thank you, Horacio. The second question of Bruno is regarding CAPEX. How much of the 2023 and 2024 projects are already fully constructed in terms of equipment and also prices? And do you see any challenges with securing the necessary equipment or are you seeing any inflationary pressure?
spk01: Okay. What we committed for 2023, which basically is the additional 4.8 million for the commissioning of the Nestor-Kichner pipeline, it's all of it drilled. and already cemented and cased. We only are missing the completion of approximately 60% of the wells, which we think are confident in delivering by the commissioning of the pipeline. So I think that answers the first topic of the question. Second was if we have to secure equipment. We don't think that's going to be necessary until the beginning of next year. We already have contracts with drilling and completion companies that secure our campaign until September of this year. And we will restart our negotiations for long-term ventures, particularly with completion companies, to secure equipment for 2024 and 2025.
spk03: Thank you, Horacio. And the last question of Bruno is regarding macro side. It sounds like Argentina could be getting closer to a material official currency devaluation. Can you help us understand how Pampa is preparing itself for the day after the potential devaluation?
spk00: So firstly, around 80% of our income is US dollar linked. and the rest is adjusted by inflation that is also affected by devaluation. I think the main negative impact for us would be regarding the outstanding debt of CAMESA, that if it's already pending, it's adjusted also by an interest rate in pesos, but will be affected negatively if we have a discrete devaluation. On the other hand, as I mentioned before, we have a big amount of debt in pesos that we issued in the last month, taking advantage of the liquidity in the local markets. And that debt will also be diluted in case of a devaluation. So as our debt in pesos is higher than our credit, I think the net impact should be positive for us. We are also hedging our credit with Camesa in the in the US dollar future market in ROFEX. And also an important part of our liquidity is in dollar linked corporate bonds. So I think we are prepared for that scenario.
spk03: Thank you, Nico. The next question is from Matias Castagnino from BCP. The first question is regarding spot energy combined cycle differential remuneration. This is resolution 59. In which currency is being collected? If it's in pesos, what is the increase?
spk02: Hi, Matias. So basically, in general, Last year, the Secretary of Energy already scheduled increases, and they scheduled one of 25% in general for all the legacy units in pesos. There's another one upcoming in August, and that's it. It's an accumulated increase. in 2023 of 60%. Of course, the valuation is higher than that, so we expect further increases to match it up. Beyond that, CCGTs, the legacy scheme, they are granted a sort of a partial dollar pricing. It's a way to kind of hedge their costs in dollars. Dollar-wise, right now, they are a little bit ahead, but it's not that significant. So, yes, for example, in a discreet evaluation, they will be better because partially they are in dollars. So this remuneration, partial remuneration dollars, starts in March of this year, started already in March of this year.
spk03: Thank you, Liz. Matias, second question is also regarding power generation. If in dollar terms, the legacy energy got increased and the PPAs are dollar link, why the average price in dollar per megawatt term decreased?
spk02: Well, unfortunately, this quarter we experienced some outages in the thermo. units in Loma, uh, even with the commissioning process of Ensenada Barragán and so on. So availability is very important. Uh, as you know, it's 93% in this quarter, but, uh, it's already, already solved. And in the Q2, it's, uh, back to the close to a hundred percent that we usually do. But, uh, the lower footprint on availability affected the take or pay side of the remuneration that, uh, it's basically, uh, contributed to the EVTA. And then also for those contracts that they are not undertaker pay, that is Mater, Gia Plus, especially Mater, the wind farms did not perform very well in the wind side capacity factors as not as we expected. So basically that's the two reasons behind why the average pricing was weaker this quarter.
spk03: Thank you, Liz. Matias, third question is regarding gas production. Considering the quarter-to-quarter decrease in gas production, the release refers to commercial issues. Does it affect the future expansion of Vaca Muerta? We thought that any additional surplus production could be destined to export if local demand is satisfied.
spk01: Okay. The nature of consumption in Argentina is highly seasonal. What we saw during the past summer was a reduction of the retail demand and an increase in Camesa's demand, particularly. Now, the problem is that Camesa did not retain enough firm transportation, so it was not able to acquire all the natural gas that it needed, and that this finally impacted in the need to burn liquid fuels during the summer season. So the issue was that our reduction in sales was linked to the unavailability of transportation from Camisa. Now for the future, we don't foresee that problem happening. partially at least with the commissioning of the Néstor Kirchner pipeline and the future expansions of the transportation system. Now regarding the question of exports to Chile, now we are exporting all of the transportation capacity that is available to Chile. What we will see probably in the coming future is a possibility of exporting additional volumes to Chile through another pipelines that connect Argentina and Chile in the central region and also in the north. but with the restriction of first having to redirect the gas flows from the north to the south in the noroeste pipeline and turning it from Vaca Muerta into the north of Argentina and further into the north of Chile.
spk03: Thank you, Horacio. The next question is regarding petrochemical business. This is the fourth question of Matias from BCP. Considering the decrease in the sales benefit of pet chem business compared quarter on quarter, do you see any pressure on the prices or margins in this segment?
spk00: So there are different factors affecting EVDA this year in comparison to last year. First of all, during the first quarter, we have processed less virgin nafta in the reformant. This situation has already normalized for the second quarter. Also, international spreads between virgin nafta that we process and octane bases that we sell and also between benzene and styrene have worsened this quarter. And our fixed costs in dollars have increased also because of the impact of inflation against the valuation. On the other hand, local premiums in prices in styling and polystyrene have risen beyond current local macro conditions.
spk03: Thank you, Nico. Matias, last question is regarding the debt markets. Why are you executing debt in pesos at variable rate and not dollar link? And yes, that is a question.
spk00: So first of all, dollar rate is lower than inflation. Secondly, we are also issuing debt in taking debit and pesos from local banks at fixed interest rates that are below inflation. And third, we also issue dollar lien debt, almost $100 million this year. And In the case of devaluation, it's much better to have debt in pesos than dollar link. So if we take into account the current situation, we prefer now to have more debt in pesos, even at a floating rate that is below inflation and that is negative in real terms than in dollar link.
spk02: I think it was already covered.
spk03: Yes, thank you. So it was already covered. And the second question is, could you please comment on the media report that mentioned that the government would not expand, would not extend expiring hydro concessions?
spk02: Well, not much to comment on that. Basically, we've been asked for information. We have two hydro power plants that are due next year, October, June and October. They're the Mendoza area power plants. And the other one, the one that's in Noguen, it matures in late 2029, I think. So basically, they're Far away from now, but we've been asked for information, not more than that. We provision some expecting what happens with the concession, but the concession agreement says that if it ends, we part ways. We don't get anything and we don't have to pay anything for the concession.
spk03: Thank you, Litz. The next question comes from Andres Cardona, once more for the EMP business. What have you learned so far from shale wells in terms of drilling cost per well completion, lifting potential EUR per well?
spk01: Well, so far, the experience with Shale Wells for Pampa was very successful. Particularly in terms of productivity, we were able of finding sweet spots both in Mangrullo and Sierra Chata. And we were surprised with the performance of the wells. As Lida showed before during the presentation, we had one of our flagship wells in Sierra Chata with an output of more than 1 million cubic meters per day. which ranks top three in the Neuquina Basin. So from productivity standpoint, we feel pretty confident in going or proceeding with the development of Vaca Muerta. In terms of potential EUR, it depends on where you're looking at Mangrullo or Sierra Chata, but that would range from 20 to 27 BCF per well. So also looks like very promising. Regarding cost per well and drilling, we are still in very early stages. We are running the pilot programs right now. So probably we will see a decrease, significant decrease in our investment per well in the development phase.
spk03: Thank you, Horacio. The next question comes from Daniel Guardiola. This is regarding the Nestor-Kirchner pipeline. Can you comment on the progress of the Nestor-Kirchner pipeline and what is the EBITDA generation expected for Q2 and Q3? Daniel Guardiola is from BTG.
spk01: OK. Nestor-Kirchner pipeline is doing pretty well. probably see the pipeline being commissioned by the end of June, first days of July. So it will be on schedule. We are ready to deliver the gas that we committed for the planned gas for this new demand, which is approximately 4.8 million cubic meters per day of additional gas. And well, that will obviously have a significant impact in the AVIDA generation for the second and third quarter of 2023. Thank you, Horacio.
spk03: Alejandro de Michelis also asked regarding the Nestor-Kirchner pipeline that we already covered. Daniel Guardiola has another question, but this one regarding power generation. Is there any other PPAs expiring this year or next? What is the expected effect in terms of Evita generation? So in this question, we don't have PPAs expiring in the next 40 few years. The next expiration is in 2026. And of course, most of the EBITDA is dollar linked because PPAs are in dollars and they generate roughly more than 75% of the generation of the power generation business.
spk02: Yeah. So the next is just one PPA expiring in 2026. It's a small one, but the big chunk is 305 megawatts. It's in 2027. And the next one is in 2035, 38 and 40. So we have plenty of time.
spk03: Thank you, Liz. And the next question comes from Anne Milne from Bank of America. She has a question regarding new tariff schedule for legacy power plants. Which plants are benefiting and how much additional revenues or cash flow will this generate on an annual basis? Is there any conditional or additional CapEx expenditure required?
spk02: So Haiyan, basically, again, the benefit, and this is intended to raise, as I mentioned before, the availability of the system is declining. Actually, we are one of the all-time lows in a few years. We are right now at 69%, so the government wants to keep it up. ramp up the liability rates, especially so there are no excuses for maintainances. They are partially converting in dollars for the CCGTs. We are including here Loma La Lata, Generva, legacy plants, and Ensenada Barragán. This implies around $19 million of additional revenues for Pampa, though, however, with the devaluation curve that we're experiencing and assuming that there's no further increases in general for legacy prices matching the inflation, that $19 million dilutes to merely $5 million for the year. So basically, it's very important that the legacy prices keep up with inflation.
spk03: Thank you, Liz. The next question comes from Ludovic Castrouge from Autonomy. During which month or weeks would you reach your gas production target of 15.6 or close to 16 million cubic meters per day?
spk01: Okay, as we mentioned before, this will happen with the commissioning of the pipeline, and we foresee that happening by the end of June or first week of July.
spk03: Thank you, Horacio. The next question comes from Jim Musil from McGinty Road. What is the average BCCMP business question? What is the average IP, initial production rate, for wells in shale gas? What is the average lateral length? What is the breakeven price to support lifting CAPEX and provide a good IRR?
spk01: Okay, well, this depends very much on which field we are talking about. If we look at Mangrullo, probably you're looking at initial IPs of around half a million cubic meters. If you go to Sierra Chata, that will probably raise up to 700, 800,000 cubic meters per day. The lateral length of our Bacamorta Wells is 3,500 meters. And we've been drilling and completing wells only of that lateral length. We haven't explored any longer lateral wells yet. Regarding the price, I would say that we've been bidding at prices that are reasonable for us to have a reasonable rate of return.
spk03: Thank you, Horacio. Please wait while we pull for more questions. So thank you for waiting. This concludes the question and answer section. So we will turn to Lita for final remarks.
spk02: Okay, thank you for all joining us in this quarter. Unfortunately, our CEO wasn't here, but our special guest, our head of EMP here, I hope all the questions that you have been answered, if anything is outstanding, just contact us. Margarita and I and all the other team are truly available for you. Thank you. Have a good day. Have a good week. And see you next time.
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