Pampa Energia S.A.

everyone, and thank you for waiting. I'm Raquel Cardaz from Mayar, and we would like to welcome everyone to Pampa Energías' third 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 on the second page of our presentation. Let me mention that forward-looking statements are based on Pampa Energía's management beliefs and assumptions, and information currently available for the company. They involve risk, uncertainties, and assumptions because they are related to future events that may or may not occur. Investors should understand that in general they are related to future events that may 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 Lida Wang, Investor Relations and Sustainability Officer of Pampa Energía. Please go ahead.

Thank you, Raquel. Hello, everyone. And thank you for joining our conference call. I will make a quick summary of Q3. You may find more details in our early release. Today, we are having a Q&A with our CFO, Nicolás Midling, and Horacio Turri, our head of BNP, and Tito Súber-Bühler, our head of corporate finance. Let's start with the quarter's figures highlighted by the ramp-up in gas production and set a new all-time high milestone, growing shale per contribution, the incremental share of efficient and green PPAs, and we keep enhancing our balance sheet by increasing our liquidity. The adjusted VDA amounted to $244 million in Q3, similar year-on-year, thanks to the additional output coming from the plant gas and contribution from new PPAs such as wind farms and Barragán CCGT, partially upset by a drop in commodity prices affecting crude oil brand and pet chem, and peso depreciation impacting spot energy. However, the EVDA grew 10% quarter-on-quarter, mainly explained by the higher gas production. It is worth noting that more than 85% of the quarter's EVDA was dollar-linked, and the share now is led by EMP, mainly due to natural gas. CapEx in Q3 was 40% higher year-on-year, mainly because of the ramp-up activity in Yampi, which is concentrated in shale gas drilling and completion of wells, plus the construction of PP6 wind farm, upset by the commissioning of PP4 last quarter. Moving on to power generation, as seen on slide four, we posted an adjusted VDA of $91 million in Q3. This is 2% higher year-on-year, mainly explained by the new PPAs at our wind farms and barragans and lower maintenance and material costs, upset by a decline in spot and energy plus prices, the divestment of various wind farms and a partial outage in July. Loma La Lata, plus higher labor costs. Compared to last quarter, power was 7% below. This is explained by the divestment of Mario Cebrero and higher labor costs. Obsessed by the increased spot prices, because we've been granted 23% increase in pesos. Another 28% update was clear from November onwards, accumulating a 150% increase year-to-date. The dispatch in Q3 rose 32% year-on-year, led by Barragan, UCCGT, and more hydro at Pichipicumlefu and new wind farms that we built and acquired, offset by less thermal dispatch due to the lower power demand, the outage at Loma La Lata mentioned before, and the exit of Mario Cebreiro. The corporate capacity payment, especially from PPAs, is playing most of our EVDA. It is driven by availability, and in Q3, we reached almost 94%. Below last year's 96%, this is because of LOMA, TG number five, and the overhaul that we did in Genelva, program overhaul. However, this is way above the grid's 73% availability rate. Moving on to PP6 expansion, the project's progress is 94%. We are working on the facilities and civil works for the high voltage station and testing the main transformer bank. Also, the main components for the 31 windmills arrive in Bahia Blanca and the construction of the towers is underway in Argentina. The estimated COD for the first phase of 95 MW is for the next year Q3, and the second phase of 45 MW will be by next year's Q4. It is worth highlighting that PP4 energy will be sold under B2B BB8s. Now moving to the EMP business, we posted at just a VDA of $132 million in Q3. This is way above last quarter's figures and 12% higher year-on-year. The increase was driven by higher gas delivery committed under the new plant gas realm, linked to the new pipelines. This was upset by a drop in brand prices and in oil production plus a mild winter and pipeline delay impacting gas output. In Q3, our total production averaged above 80,000 bars of oil equivalent per day. This is 17% higher than last year and 19% up quarter-on-quarter. In August, we reached a new all-time high production record of 16.4 million cubic meters per day. This is a remarkable growth of 44% from our 2022 record. Our lifting costs grew by 9% year-on-year and 5% quarter-on-quarter. This is explained by the activity ramp-up. However, if you put it on a productivity perspective that comes from the new walls, this possibly impacted the lifting cost per barrel equivalent, which decreased 7% year-on-year and 13% quarter-on-quarter, recording $5.6 per barrel equivalent. Cruel sales stood at 4.6 thousand barrels per day, representing 80% of the production, but 19% of the segment's revenue, getting a realized price of $63 per barrel. 15% of the output was destined to exports. Focusing on gas, our sales in Q3 grew by 20% yearly. This is averaging almost 13 million QE just per day in the quarter. Mainly explained, again, by the higher volume sold in the local market through plant gas. Regarding the campaign, the new Shell Wells performance is in line with our expectations. In Sierra Chata, the output grew more than five times year-on-year. Thanks to the 11th Shell Wells Tyvee this year. Another three are scheduled to start completion this month. In El Mangrucho, Path 6 has been completed and tested and results have exceeded our expectations. Like we talked about it in the last quarter, we also drilled Path number 5. which completion is nearly finished and began drilling path 7, scheduled to be completed by next year Q1. Each path has three wells. The average gas price for the quarter stood at $4.7 per mu BTU, similar year-on-year and quarter-on-quarter. As you can see below, the retail share downsized because of the incremental deliveries under planned gas destined to power plants. Other clients remain very similar to last year. So as you can see here, gas deliveries were above take-or-pay during the winter season. despite the pipeline delay, the warmer winter. However, going into Q4, the gas demand is relenting as the warmest spring in years, and high-gas hydro in the last 15 years is happening. So this weather phenomenon impacts in the domestic cells, impacts in the plant gas, impacts in the exports to Chile, because also Chile is happening the same thing, and thermal power generation, indirectly reducing the grid's electricity costs. We expect the gas demand to normalize by December. It is not worthy to mention the importance of take-or-pay. This is a kind of assurance for our investments. So we move on to petrochemical business that posted $16 million of ABDA in Q3. This is 16% lower year on year because of the drop in international prices that last year was all-time highs and lower reforming sales in the local market. However, ABDA... was 60% up quarter-on-quarter due to the higher domestic sales of styrene and exports of polystyrene and rubber, plus higher reforming prices. In Q3, 42% of the total sales volume was exported, up from the last year's 38%. Well, we move on to the financial side. In Q3, we recorded a free cash outflow of $90 million. This is mainly explained by the expansionary capex that we are undergoing gas and higher debt service because of the peso debt. Though we benefit from the peso devaluation because it dilutes our principal amount. Working capital deteriorated due to increased collection days and rates from Camisa since last quarter. Additionally, we raised $68 million net from the local market, mostly in domestic dollars. In summary, we generated $92 million in the quarter. This is achieving $964 million cash position by the end of the period. Moving on to the slide 11, we show our consolidated financial position, including our affiliates at the ownership. But just let's focus on the restricted group, the parent company that reflects the bond perimeter. We posted a cross debt of $1.6 billion, similar to the last quarter. However, thanks to our strong liquidity position mentioned before, the cash flow generation from the businesses, the net debt and leverage ratio decreased significantly, recording $677 million in one-time leverage. The average life was also reduced to 3.1 years until 2027. As you see in the debt profile, we don't face any relevant debt maturities. So this concludes our presentation. Now I will turn to Raquel, so she will pose for questions. Thank you so much.

Thank you. The floor is now open for questions. If you have a question, please send us through some chat. We will read and answer them in order to receive. Also, please make sure your name and company are correctly displayed to introduce you to the audience. Should any participants need assistance, send us a chat message or raise your hand. Please hold while we pour for questions. So the first question comes from Alejandro Demichelis from Jefferies. The first one is, how do you see the evolution of production of El Mangrusha going forward? And how do you see this impacting lifting costs?

Are you okay now? Yes.

Okay, good. Well, it's worth noting that Mangrullo started in 2017 with 2.2 million cubic meters per day. We were capable of boosting that up to 10.2 million cubic meters per day as of this year. And probably point forward, the field will be delivering around 7 to 7.5 million cubic meters a day. This has to do with the increase of production in Sierra Chata. Sierra Chata will more than counterbalance the decrease in Mangrullo. We are observing that the production The wells that we drill and complete in Sierra Chata have much better productivity, and therefore we are shifting a little bit of our production from Mangrullo to Sierra Chata. Sierra Chata started back in around half a million cubic meters per day back in 2017, and we expect 2024 to reach a production of around 6 million cubic meters per day on our share of the field. Regarding lifting costs, it's also worth noting that in Mangrugio, we are around 0.6 dollars per million BTU. The reduction of the production for next year and some of the reduction of this year due to the mild winter and hot spring that Lida mentioned before, led to the reduction of the contribution of PM102, which is an evacuation and treatment facility we use from YPF, which is more expensive than our own facilities. So, this is why we have a reduction in the lifting cost in the Mangougeau

Okay, thank you, Rocio. Next question from Alejandro is, what is your expectation for places in the university power sector?

Well, so Gustavo is not here and he's on vacation, but let me answer this. So far, we've been granted some increases to cope with the cost variations. We are working to keep receiving more so we can have it tied up with the cost variations, but not further than that.

Okay. Thank you, Julia. Next question comes from uh paula la greca from tpcg could you comment about the third conf tender how were prices and if you were awarded the ppas for general and barragan plants hi paula yes indeed the tender has been finished uh the the offers been revealed uh

We did its public review, so we think that we are qualified, the technical and the economic requirements of the auction. However, there's no resolution from the Secretary of Energy saying which projects are being awarded. So we're still waiting for that. We presented Genelva with 300 megawatts. It's a new gas turbine where we will be placing in the area. And Ensenada Barragán presented enhancing the combined cycle of 11 megawatts. Both projects have been qualified to this auction.

Thank you. Next question comes from Rodrigo Nistel from Latin Securities. He asks about legacy energy, which we already answered. And he asked about what scenarios are being considered in terms of regulatory changes and how might this affect your strategy for thermal projects and overall margins?

This is a very good question. So let me see it again. So a little bit being answered before the question that Alejandro was asking. But so far, the question what the Kennedy-Millet people in energy said, it's about they want to make it to the spot market into a marginal system like it used to be in the 90s. The question is how? And then the other From the incumbent government, we don't have much information about this. It's just what's been going on. The good thing is that because of the availability rates that we've been witnessing, the drop in the availability rates, that responds mainly because of the poor remuneration. That's why CCGT has managed to get paid better. than open cycle, um, open cycle legacy units. But so far, this is where we stand right now. There's no more information going forward. Oh, legacy. Remember the legacy. It's, uh, 70% of our install capacity, but just less than 30% of ourselves. So today as a strategy for Bamba going forward, it's, uh, keep adding PPAs. You've seen here, uh, more wind farms that are B2B PPAs, more, well, participated in these auctions that Centripetal Energy is doing, and trying to enhance our thermal portfolio to a better technology and more efficient. So, you know, dispatch-wise, we are ranked senior. For going forward, if everything is normalized, we witness that, for example, the legacy units of Güemes and Piedagüena will be behind. But maybe they will play a role like they played in the 90s, being just as a backup, getting paid a proper fixed cost, a proper remuneration that remunerates the fixed costs, and that's it. But it's not going to be a material thing. contribution in the future for Pampa. And the hydros, we still don't know what's going to happen with the concessions in Mendoza. That's going to end next year. We're still working normally, or if it's normal here. But concessions will be ending next year, June and October. And Pichipicuno is way, way, It's in 2029, so it's way long time from here now. But the question mark so far is that. It's the contribution going forward for Pampa. It's not coming from there. It's going to come from EMP and PPAs that we're building.

Thank you, Lia. We have another question from the Latin Securities team. This is Marina Mertens. Can you provide an update on the progress of pump energy as crude oil projects? How are these initiatives ramping up in the current economic environment and what expectations do you have for their contribution to the results next year?

Okay.

Our Oil project for the coming years is the Rincon de Aranda field. So far, what we have is the completion of a well that's already been drilled. That's the Rincon de Aranda 2001. We will be completing that well in January 2024 and probably we'll have the testing finished by March of next year. The next step would be the drilling of two parts or three parts of three wells each that will be completed by the first quarter of 2025 in order to match with the new transportation capacity that we acquired from Old El Val. that will probably allow us to start pumping oil into the system by mid-2025, and that's when we are going to be seeing a significant impact in Pampa's results. level of production of these wells is going to be capped by the transportation capacity that we acquired, and it will be in the range of 900 to 1,000 cubic meters per day.

Thank you, Ignacio. Next question comes from Florencia Mallorca. She asks, beyond the 23 and 28 percent hikes, Are you expecting further adjustments? And the second question. Okay. Expected further adjustments. So, thank you, Florencia.

Just as I said before, it's going to be... We don't have more visibility than this. We're just working very closely with CAMESA, with the Secretary of Energy. We just are working to get more increases to pair it with the cost variations. And the next question is from Gustavo Faria from Bank of America. He asked the same first question as Marina asked Olangas. The second question is more for Horacio about What's the outlook to sign a new gas contract with Chilean market exports with the Nis-Turkish pipeline operational start and some gas surplus in Nuuk and region? Could you provide some color regarding the prices and amount? How is the outlook to sign new gas contracts with Chile regarding the prices, color regarding the prices and amount?

It's important to notice that so far the contracts with Chile are renegotiated on a seasonal basis. We have contracts starting in April and June. finishing in six months from April. And then we have to start renegotiating again. So we just finished renegotiating the contracts for the spring and summer of 2023, 2024. And we will have to sit down with the Chileans and start negotiating contracts for the period starting in May. My understanding or my view is that there is enough gas in the Neuquina Basin in order to supply not only the internal market through the new pipelines, in this case, since we will have for the next winter already installed the compression capacity both in Tratallena and Saliqueló. and to supply the Chilean market during the winter with probably around 5 million cubic meters a day, which is the maximum capacity of Gazandes during the winter season.

Thank you, Mauricio. Mariana Alegre- And the second question from a friend so much. Mariana Alegre- Regarding effects with restrictions and resolution that allows you to settle 30% of experts. Mariana Alegre- Will.

Mariana Alegre- Okay Hello everyone so. In the last few months, we have been able to apply to this new scheme and been able to export almost 50 million dollars of crude and natural gas from October and November at a higher exchange rate of around 515 pesos per dollar versus 350 pesos per dollar. That is the official exchange rate. So I think the question you're asking is the difference. The difference is around $20 million. And we are also expecting to export around $10 million from December through this scheme.

Thank you, Nico. Next question comes from Christian Ferrer from Balance. The first one is, with more evacuation capacity out of Bacamorta into the province of Buenos Aires, we may argue that exports could be lower during winter. But at the same time, gas producers might be tempted to increase production to keep exports at the same level or even higher. which you think will go for Pampa and the overall group of gas producers?

As I mentioned before, there is enough gas in the Neuquena Basin in order to supply not only the internal market during the winter, but also to supply the Chilean market. So my guess is that producers will be more than willing to supply Chile during the winter. as long as fulfilling their commitments with the plant gas for the winter.

Thank you. The second question from Christian is with regard to the reversal of the TGN pipeline, when do you think the government could launch a new plant gas auction for volumes to be sent up and how big that auction could be?

It is worth noting that the reversal of TGN in the first stage and without the second tranche of the Tratagenza-Liqueló pipeline can only move gas during off-season, I mean during the spring and summer. In that sense, if they were to replace imports, they could replace approximately... three to four million coming from Bolivia. On the other hand, it is also important to have in mind that it is necessary first to renegotiate that contract with Bolivia. It's pretty obvious that during the spring and the summer, the Bolivians will be having spare gas. So it's difficult to say when that auction will be taking place and what's going to be the amount. But again, the total imports from Bolivia during the summer will be around 4 million cubic meters per day. The only way to increase the output from Neuquén into the north region is with the construction of the second tranche of the gasoducto Néstor Kirchner.

Thank you, Horacio. And the third question is, considering that most of Pampa revenues are linked to the official effects vis-a-vis 70% high US debt, are you considering any head facility in case of dual effect regimes comes by 2024?

Okay, so first of all, it's important to clarify that we do not have significant US dollar maturities until 2027. Secondly, we consider that a scenario where there is a dual exchange rate scheme where we have to pay our debt at a higher exchange rate than the one of our income and revenues is not sustainable for the country because in that case, the cost of financing for new projects will get even more expensive than now. And thirdly, as Lida said before, we have very low leverage ratios because of our very strong financial position. So we think we are already hedged through our liquid position and also the ability to refinance our debt in case of a short period of time where we could see that that scenario is playing out. For example, a few weeks ago, we managed to issue a local bond in hard dollars at below 5% rate.

Thank you, Monica. Next question comes from Bruno Montanari. He says, YPF reported a relatively large impairment charge in its gas portfolio, mentioning lower long-term prices driven by higher competition and potential oversupply. Is Pampa seeing a similar scenario and would be there a risk of impairment and gas reserves downward revision?

um until 2028 we already have our commitments for natural gas already sold so i don't see any problems in the coming five years uh five years from now uh our expectation is that the regional markets will be open this is more gas going to chile more gas going to Brazil and eventually we will be having an LNG plant already in the process of being constructed. So our expectation is that the natural gas market five years from now is still going to be a place where we can have some opportunities to keep on pumping our resources.

Thank you, Horacio. Next question comes from Leonel Zacarias. He asks, is it any mid-long-term plan related to offshore in proximity of the Mar del Plata Basin?

So far, we don't have any plans for investing offshore.

Thank you, Horacio. Next question comes from Soledad Candelaria. Barragán is still under administration of Pampa or is under YPF's administration in order of the expiration of contract of administrations in June 2023?

Thank you. This is a new investor. Yes, this contract has been renewed. Now it's continued, operated by Pampa.

Thank you. And Ferencia Manchorga asks, regarding renewable expansion, any update on transmission bottlenecks?

Hi, Flor. So far, I think a couple months ago, the government disclosed in a resolution what is called Plan Federal. It's outlining all the needed expansions in the transmission grid and high voltage transmission grid. There is three tiers of priority. The first tier, I don't have the slide right now. I can send it to you. But basically, if you see Argentina map, They have enhanced the south of Argentina to gather the wind farms. It's enhancing the northwest of Argentina, enhancing the solar part and some other stuff. It's around $2 billion, more than $2 billion of investment the first year. That's basically tackling addressing the renewable energy. search. And then it's very comprehensive, the plan, but basically it's not meant to be done overnight. The question, Marno, now that we know where are the priorities, what's the next move? Is it going to be a BOT? Is it going to be funded by the government, like the next location or pipeline, first trench? That's something that we don't have a clue yet, but the good thing is that the government has already identified where the expansion is needed, and that's it. We'll see what's going to be the scheme to do it. I think there's one question. It's more comprehensive. We addressed it. Eva Lawrence asked, could you talk about future projects that we are planning to do? I will say in a nutshell, it's what Horacio said very well. Right now, we are very excited about ramping up Rincón de Aranda. It's a crude oil, shale oil project. block that's uh greenfield and we are planning to uh to make first soil next year and plan it to reach a plateau of 20 000 barrels per day by 2027 then we are very active again as everybody knows in the gas side we wrap up our production this year we are very proud of that and then This is all under take-or-pay contracts for the next five years, as Horacio said. So upcoming is to see if there's more pipelines around so we can keep replacing imports and then obviously as a second generation thing to keep pouring to Chile, to Brazil, to other countries. And then in power generation, I'm saying this later because today we are We are curtailed by the high voltage grid. That's not something that we control. Today, what we are doing, it's like what Raquel is putting on the slide, PP6. This is our current power generation expansion in the pipeline, but we're not doing more further from this because there's no power grid available. We would love to do more, but today we are restrained for that. But today is that, and today also we are, as you know, we're addressing this call. It's the thermal auction that the government is doing. And again, we have two projects, and both of them qualify the economic and the technical part. So we feel very confident that we can have an award for that. So that's it. It's basically our main idea is to keep increasing our EMP footprint. I will say that, as Horacio said very well, the upside potential there is way more exciting because infrastructure has been freed up and constructed. On the other side, power generation is also a core business of Tampa. The thing is that today we're restricted by the power grid.

Thank you very much for all your questions.

This concludes the question and answer section and I will turn to Lida for the final remarks.

I don't know if you want to say anything Horacio? No? No? Well it's been quick and fast but again anything you may need you forgot to ask or We are more than available for you. You can reach us out. Thank you for joining our conference calls. We appreciate it. Until next quarter. Bye-bye.