Pampa Energia S.A.

Good morning, everyone, and thank you for waiting. I'm Raquel Cardaz from Mayar, and we would like to welcome everyone to Pampa Energía's fourth quarter 2023 research video conference. We would like to 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 participants 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 Energias 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 Lida.

Please go ahead.

Hello, everybody. Thank you for joining us to this, another new quarter. I will make a quick summary of Q4. You may find more details in our earnings release or financial statements. Today we have for the Q&A, our CEO, Gustavo Mariani, our CFO, Nicolas Mindin, our head of EMP, Horacio Turri, our head of finance, Pito Suleguler. So full team here. Well, so let's quickly review 2023. This is another challenging year, but it did not prevent us from growing and delivering milestones. In 2023, we'll reach again a new peak in gas production, exceeding 16 million kilometers per day. This is a remarkable 44% increase compared to the 2022 record, thanks to the new pipeline facilitating additional eastbound evacuation and our active campaign, Vaca Muerta. However, average production did not take off as expected due to soft demand from mild weather and poor thermal dispatch. For the first time in years, we delivered below the take-or-pay. Pampa EMP is mostly gas production, but from now on, we aim to diversify with Shell Oil from RICONERA. Power generation did not stay quiet either. In 2023, we commissioned Senado Barragán's CCGT, PP4 wind farm, adding 360 megawatts of efficient energy. We also will be inaugurating this year PP6, which is total install capacity of 140 megawatts. So with all online we will be reaching 5.5 gigawatts by the end of this year. EVDA fell 12% year on year. This is mainly because of reduced gas sales mentioned before and the impact of this depreciation over our affiliates. This is . We will address this issue later. Our way of management help us to gain efficiencies and be savvy over business and balance sheet we used our robust cash flow to enhance our portfolio without neglecting our financial position, strengthening our liquidity and substantially reducing our leverage by paying down debt or taking advantage of the local market. Overall, 2023 was another remarkable year in Tampa's history. We look forward to delivering outstanding results going on. So regarding the quarter, we must highlight again this net leverage reduction, which reached the lowest level in years, $613 million of net debt, The situation was coupled with a soft demand for gas and thermal energy. This is our main products. This was expected because of seasonality. Q4 is an off-peak season, but this was worsened by mild weather. This was a warm spring and cold start of the summer. In any effect, generating high levels of hydro and therefore ranking senior to thermal dispatch. And as well, as high nuclear availability. So that also kind of lag behind thermal generation. Another highlight is that we are harvesting our drilling campaign in Q4, shale gas represented 47% of our total gas production. This is a significant increase compared to last year, just nearly 3% of total gas production. The adjusted VBA for the quarter amounted to $129 million. This is 30% less year-on-year because of soft man. Peso devaluation also impacted for our affiliates, Transcenera and TGS. And therefore, because their income, in real terms, got hit by the steep jump in the FX, the new PPAs at our wind farms and Barragans CCGT, plus the additional income from the export dollar, offset these variations. Therefore, power took most of the total EBDA share in Q4. CAPEX in Q4 was 50% higher year-on-year. This is mainly because of the ramp-up in EMP, which is concentrated in shale gas drilling and completion of wells, plus the construction of the PP6 wind farm. So let me give you a quick simplified explanation of how peso depreciation affects Pampa. There's very important things that they do. In the Q4, we accrued $250 million of income tax. This is an accrued, not cash accrued, which is 150% higher than the last year's period. This is because of this temporary lag between IFRS valuation of PPE And it's tax appraisal. So tax reporting in Argentina follows the functional currency in pesos, and pesos is adjusted by inflation. But, you know, the steep devaluation that happened in December 13 widened this gap between both valuations. So it generated a temporary non-cash deferring context. which if the peso recovers, right, both valuations will be similar and the tax, the set tax should be zero, should reduce to zero. Another effect is on the affiliates. So the affiliates, they also follow financial, the financial reporting follows peso currency and their figures are also adjusted by inflation. So inflation was unnumbered by the grand devaluation that happened in December last year. Should we all follow functional currency dollars? TGS and Transcendent actually posted a higher VBA, making Pampas 2023 a VBA of $831 million instead of $802 million. Taking aside affiliates, the only segment we invoice in pesos today is just legacy. And actually, not the whole legacy. It's just the conventional, thermal, and the hydros, which accounts less than 10% of our total Q4 sales. So let's move on to power generation. As seen on slide six, we posted an adjusted EBITDA of $94 million in Q4. This is 10% higher year-on-year, mainly explained by lower operating costs and new PPAs, offset by soft thermal dispatch, overhauls, maintainances in some GTs, and basically evaluation that impacted the spot energy, plus the divestment on Mario Cebreiro. Despite seasonality, EBITDA remains similar to last quarter. This is explained by the increase in the spot energy of 28% happening in November. There is another 74% clear from February this year. However, as you can see there, spot prices are still behind inflation and devaluation. Q4 dispatch decreased 3% year-on-year. This is mainly due to the lower demand and outages mentioned before, partially offset by Barragan's new CCGT, the hydros, and the new wind farms. Ticker pay capacity is very important, especially for PPAs. It is driven by availability. And in Q4, we reached 93%, below last year's 97%. This is mainly because of Loma La Lata's outage that affected the whole quarter. Moving on to PP6 expansion, the project's progress is 69%. We keep working on facilities and civil works and power transformers that have already arrived from China. That's most of the main components. They are stored in the Vallablanca port. The towers components are being constructed. On Tuesday of this week, we mounted the first wind turbine. There's 30 more to come, right? It's total 31 wind turbines. The estimated COD, it ranges between Q3 of July of this year until October of this year. We estimate to finalize the whole wind farm. It is worth highlighting that this wind farm, PP6, will be sold under B2B PPAs. Well, moving on to YMP, as you can see here, gas deliveries are recovering after Q4's weak demand. The late summer boom and the return to normal of hydro levels are helping domestic sales and exports to Chile. It is not worthy to mention the importance of take-or-pay, a kind of insurance for our investment, because for the first time in 2021, we delivered volumes under the take-or-pay contracts. On slide nine, our EMP business posted an adjusted VDA of $50 million in Q4. This is 30% below year-on-year. The decrease was driven by this sharp decline in local and foreign demand, which affected our gas prices, too. This was partially offset by additional income from export dollars. In Q4, our total production averaged about 56,000 barrels of oil equivalent per day. This is 8% below last year. Zooming in, crude oil representing 8% of our EMP output, but 22% of the segment's revenue, mainly because we're investing 40% to exports more than double last year. The activity rock pop explained that our total lifting costs slightly grew by 5% year on year, and combined with a lower production, this impacted the lifting cost per BOE, which increased 14% year-on-year, recording $7.4 per BOE. Focusing on gas, Our Q4 production decreased by 7% year-on-year. This is averaging almost 9 million cubic meters per day, mainly explained by the lower demand. 53% of the quarter's production came from El Mangrucho and 25% from Sierra Chata, the latter showing a significant growth compared to the 6%. of share recorded last year. The average price for the quarter stood at $3.2 per million BTU. This is 17% down due to lower than expected exports. Remember that the local production that is sold under plant gas, it's covered under GSA. Regarding the campaign, the productivity was outstanding. As you can see, nine walls from Sierra Chata rank among the top 20 producing walls in Vaca Muerta, outperforming Pierce and El Mangrucho, which they are also outstanding by their own right. In this sense, Sierra Chata almost tripled its production year on year, thanks to drilling 10 walls and completing nine during 2023. In Emangrucho, we drilled 15 wells and completed another 14, ranking two of them among the top 20 producing wells in the formation. So, thanks to these outstanding results, especially at Sierra Chata, we recorded an 11% increase in our proven reserves, amounting to 199 million BOE. We almost double-shelled reserves, certified in 2022 to 83 million, Although we held a production record in 2023, the resale replacement was 1.8 times and the average life increased to 8.6 years. The petrochemical business that I'm going to talk briefly posted a $20 million ABDA in Q4. This is 33% higher year-on-year because of lower costs due to the drop in production and higher income from this export dollar. And also that explains the quarter-on-quarter increase. Q4, 45% of the sales volume was exported. This is higher than last year by 30%. In Q4, we recorded a cash flow of $95 million, outflow of cash, $95 million. This is mainly explained by the expansionary capex in shale gas. We also recorded lower debt service quarter on quarter, benefited from the peso devaluation, also diluted the principal amount of the peso debt. Working capital improved as we collected winter sales from CAMESA during December. Additionally, net of redemptions, we paid down $37 million in principal debt. In summary, we reduced $129 million in net cash in the quarter, achieving $834 million cash position by the end of the period. However, we increased our cash position year on year. Moving on on the slide 12, we show our consolidated financial position, including our affiliates and ownership. But let's focus on the restricted group that reflects the bump perimeter. We posted a gross debt of $1.4 billion. This is 10% lower year on year. This is accompanied by a 19% growth in cash. Thanks to the strong liquidity position, our commitment to canceling debt and the debt peso, Argentine peso debt dilution, the net debt and leverage ratio decreased significantly, recorded $614 million and 0.9 times leverage. The Irish life was 3.2 years. Until 2027, as you can see, we don't face any relevant debt maturities. So this concludes our presentation. I will turn the word to Raquel. She will poll for the questions. Thank you very much.

Thank you very much. The floor is now open for questions. If you have any questions, please send them through Zoom chat and 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. To any participants and assistants, please send us a chat message. So our first question comes from Alejandro from Jefferies. The first one says, how do you see upstream production and sales evolving in 2024?

Sorry for the delay.

The question was about sales. Can you repeat that, please?

Yes. How do you see upstream production and sales evolving in 2024?

OK. Oil productions, we see fairly flat. We will put in production wells from Rincón de Aranda that we will be testing in the next few months, but that will have a marginal impact on our overall production of oil. Regarding natural gas, as you recall, in July or August of last year, Once the gasoducto, the Nestor Kirchner pipeline became online, we began to sold what we were awarded in the last round of the planned gas auction. And there we were awarded a flat 4.8 million cubic meters of natural gas per day throughout the day year. So when you compare what we are expecting in 2024 vis-a-vis what we sold in average in 2023, we believe it's going to be around a 30% increase in sales in natural gas 2024 vis-a-vis 2023. That means around an average of 13.5 million cubic meters of natural gas per day average in 2024, vis-a-vis 10.3, I believe, was the average quantity of gas sold during 2023.

That's upstream sales. Yes.

Thank you. Thank you, Augusto. Alejandro, second question says, how do you see power generation sales and prices evolving in 2024?

Helpfully here, but the power generation sales will be increased by the fact that we are currently building a new wind farm of 140 megawatt. that will be fully online by the third quarter of this year, but probably it will have partial inaugurations beginning in June, July of this year. So that sales from those wind farms as they become online will increase our production capabilities this year. Regarding prices, as you know, two-thirds of our EVDA comes from PPAs, from sales through PPAs, where prices are fixed, and so we don't expect any change there. Regarding legacy capacity, that accounts for about one-third of the EVDA generation of the power generation segment. We were just granted in February an increase of 74%. So we hope that the remuneration will remain in real terms fairly flat despite the inflationary environment we are living in. Regarding eventual regulatory changes, we still don't have any visibility on that.

Thank you very much, Bruce. The next question comes from Bruno Montaneris from Morgan Stanley. First one is, can you walk us through PAMPA's 2024 CAPEX budget for each of the business segments? What projects are already sanctioned and are these projects that can still be considered this year?

Projects already sanctioned? Thank you, Bruno, for your question.

Regarding CAPEX, we have a

very aggressive plans, but we are currently revising that aggressive plan given the, let's say, financial crisis that we are living on CAMESA, which is an important part of our revenues. Thankfully, CAMESA today accounts for around 40, 45% of our overall revenues, but the delays that we are suffering are forcing us to revise our CAPEX plans. Basically, before this situation, our CAPEX plan were around $700 million, $500 million, on the EMP segment, basically half of it new wells and the other half infrastructure, both for Rincón de Aranda and for Sierra Chata. On power generation, CAPEX were around, we were expecting to spend around $200 million Around $130 million is the wind farm, PP6, which is already on track and I have already mentioned where we are expecting to be online and that won't be delayed. The other $70 million is regular maintenance of our power plants and we are currently revising what can be delayed and at what cost. So we are currently revising those plans as well.

Thank you very much. Next three questions from Bruno are for the EMP segment. First one says, there were encouraging news from Sierra Chata supporting the increasing gas reserves. What is the production profile expected for the field?

Hello, everybody. Thank you for your question. We've been pretty successful in developing so far Sierra Chata field. And what we foresee in the future is a significant increase of the production that will account approximately to 3.5 million cubic meters a day. We moved our early production facilities from Mangrullo to Sierra Chata due to the productivity we found there. And therefore, that's the total amount of gas we will be increasing in Sierra Chata from approximately 6 million a day to 9.5 million a day. That's on an overall basis, considering our share and Exxon's share.

Thank you. What is your next question? Can you elaborate on your strategy to be more active in your development and production of unconventional oil blocks?

We've been pretty active, particularly in de-risking and trying to understand better our new shale oil field, which is Rincón de Aranda. As you probably know, we already drilled and completed one well, Rincón de Aranda 2000, which had pretty good results. And now we are currently testing Rincón de Aranda 2001. That has as a target the Organico Inferior. And we only have eight days of testing, so there's not much to say about that, other than all the operations are developing normally. We expect to have results probably in 30 days from now.

Thank you. And last question. Is the company interested to participate in LNG projects being discussed in Argentina? What can we expect Bamba's roles to be on future LNG supplies?

As you recall, we mentioned in previous calls, we were studying through our subsidiary TGS one rather small project, we call it a modular project, project that could begin with small size and duplicate those modules. Although the studies have not finish yet, our impression is that the lack of scale is a problem and that this project will lack the necessary competitiveness. So the LNG exporting natural gas is key for Argentina, is key for Pampa in the long term. So Pampa is definitely interested in participating in a big national project like the one that YPF is carrying on with another partner that we hope to be invited in the future.

Thank you very much. Next question comes from Marina Martens from Latin Security. There has been some noise regarding payments from CAMESA, including Trans on Earth's recent release. Would you comment on what CAMPA is experiencing regarding this issue and how it might affect working capital needs?

Sorry, okay.

Yes, as mentioned, we are experiencing, again, delays on CAMESA payments. And the lack of visibility of how this will evolve going forward is adding some uncertainty and stress. To explain the issue a little bit further, prior to February 1st, since February 1st, there's been an increase in what we call the seasonal price. The seasonal price is The price that distribution companies charges, national distribution companies all around the country charges to the final users, final users being residential customers, commercial customers, or industries. And that seasonal price should cover the cost of the fuel for thermal energy. and power plants, the cost of generating electricity, and the cost of transmission. As I was saying, prior to February, in February 1st, there was an increase in that price that will partially help solve the situation. Prior to February 1st, the situation to give you a rough idea and to give you an idea of the magnitude of the problem, the cost of a monthly transaction for Kamesa was around $550 million. How does that $550 million? It goes to pay for the fuel, basically natural gas, to power generation companies and to transmission companies. How Those $550 million were collected by Gamesa. Around $200 million were collected from, or should have been collected from distribution companies, around 40%. So that is what was being covered by the final users. And the other 60% was the subsidy, around $350 million was the subsidy that the national government was injected into CAMESA. From February 1st onwards, given the increase in the seasonal price that was announced, the money coming from distribution companies went from 200 million dollars to $350 million, and the subsidy that the national government needs to inject into CAMESA went down from $350 to $200 million. So figures reversed between distribution companies and national government. Now, two-thirds of the money needed by CAMESA should come from distribution companies, and one-third should come from the national government. Despite this being the situation starting on February 1st, we will start seeing this situation beginning April of May, because February's transaction is collected, or is paid by Kamesa to power generation companies, the transmission companies, in April or May. Until Until that moment, the situation was a previous one where the money needed monthly from the government was around $350 million per month. And the situation is that in 2024, the government didn't transfer any money to Kamesa in January, had only transferred to Kamesa $140 million in February. And so far, nothing emerged. And we don't have any visibility how this will evolve. So this is the uncertainty that we are living, or that we are suffering, ourselves and all the industry, both transmission companies, power generators, and natural gas producers. is the issue that the national government is sending to Kamesa less money than what it should have, and on top of that, the behavior of the distribution companies. Distribution companies, because they have not received the price of their services adjusted by inflation as they should have, They use the money they collect from the end users to finance themselves and pay less than what they should to Camisa. In the last few months, they have been paying around 50% of what they should have. We hope that now that the national regulated distribution companies have received an increase in the value added of distribution. The price for the service they provide, they have received a significant increase beginning February 1st. So for the future, they won't need to finance themselves by using the money that should be paid to CAMESA. We hope that beginning April or May, the situation will accommodate. But it's going to get very tough to get to that moment if the government continues with the same behavior we have been seeing in the last few months.

Thank you very much, Hugo. Next question comes from Christian Feda from Berlin. First one says, it seems a linear hit hard on results. Do you expect this phenomenon to ease by first half of 2024? Ah.

Well, although we are not meteorologists, we understand that 2024 is coming as a neutral year in terms of hydrology. So that's all we have to say about that.

Thank you. Next one says, considering the North River's delay by an hour of that,

What are your expectations for gas exports to Chile during winter? Yes, considering the north reversal delay by NAFTA, what are your expectations for gas during to Chile

Okay.

So during the winter, the exports to Chile, particularly through the Gazandes pipeline, which accounts for the most important export share to Chile, is capped in 5 million cubic meters per day. So our understanding is that that will be fully supplied. So that's the... what we understand is going to be exported to Chile during the winter.

Thank you very much, Horacio. And the last question from Christian. He wants to know if we are experiencing delays in CAMESA.

Yes, I explained at length what we are suffering, the situation of CAMESA. But basically what it means is that the invoice that we should have collected early January, we have only collected 50% from the invoice that mature at the beginning of February. We haven't collected anything and we will have a new invoice maturing I think next Monday. So next week, we will be two and a half month of two and a half transactions. Roughly a transaction for Pampa is around 50 million dollars. Between 40 and 60 million dollars per month of transactions. As you can imagine, this means a significant effort in terms of working capital.

Thank you very much. Next question comes from Paula Larica.

Sorry, this graph that shows here is for the full transaction. So it's not like we are today 28 days a day. Today we are more than 50 days a day. All right. This is just to clarify. And that transaction that Gustavo mentioned, this is still not collected yet. Once we collect it, it will be amounting more than 50 days of the date.

Thank you. Next question comes from the other guy here from PPPG. Any thoughts of the one we have in the next version of the PPPG?

Well, we understand that the government is working on regulatory changes, but so far we don't have any clarity or visibility on what those changes are effectively going to be.

Thank you very much. Daniel Guardiola from BTG asks, what is the...

We've so far drilled and completed only two wells, so it's too early to give information about the EURs or IP of the block. We still have a long way to go.

Thank you very much. Thank you. ask, can you explain how plant gas works during off-peak season? Could you explore the remaining production related to plant gas extension?

Yes. Can you explain how plant gas works during off-peak season? And could you explore the remaining production

either on peak or off peak season what you do have is a take or pay that has to be committed by the off taker and yes you are you are okay to export all the surplus gas to Chile but as I mentioned before there is a cap which is the transportation capacity 9 million Always talking about the Sundays, 9 million during the off-peak season and 5 million during the winter.

Thank you very much. And another question from Pedro is related to a plan gas extension. In 2028, price was $3.5 per million BTU. Is there some price adjustment further?

No, there is not.

It was a fixed price.

It was a... It was a... Everybody bid it and it was awarded from down to top. And that was it. It was a tender.

Thank you, Horacio. Last question is from Alejandra Andrade from . Can you comment on the health of local capital markets

Hi. Well, local markets, as you know, there is a very tight capital controls. So there are a lot of pesos still trapped in the economy. That gives companies and whoever need to cover peso needs great opportunities. You've seen us last year issuing local dollars at 5%. dollar link bonds at zero percent or peso fixed rate rates below inflation so so negative in real terms um these pesos are still available for for companies seeking pesos we were always ready to take any opportunity to cover our needs. And until the CEPO is still tight, I think there will be opportunities for companies to finance in the local markets.

Thank you.

Yeah, but as a last comment, what I wanted to highlight, especially for those of you that, like me, have a very hard time reading these financial statements that are very complicated, even the sharp depreciation of the peso just a few weeks before the year-end, the inflation accounting, etc., etc., The way I see the year, or the way I simplify year 2023 for Pampa that I think was a remarkable year is by taking two pictures, end of 2022 vis-a-vis end of 2023. And what you see in those two pictures is that among several things, but just to highlight a few points, Pampa, in 2023, increase its power generation capacity by 80 megawatts. Part of that was money spent in 2022. Around half of it, the other half of it, was around $150 million was spent during 2023. So we increased our capacity by 80 megawatts of wind farm. Pampa did a huge increase in its natural gas production capabilities in 2023. In 2022, we had the capability to produce 11 million cubic meters of natural gas per day at peak production. In winter 2023, we raise that capability to 16.5 million cubic meters of natural gas per day. That's a 45% increase in production capacity. That is not only drilling new wells, but it's also building pipelines, building gas treatment plants. So significant effort in terms of capital expenditures. And while doing so, thanks to, again, several things, basically the strong free cash flow generation of our assets, thanks to a very successful management of our liquidity, and an excellent liability management, as you explained, given by the peso debt that we took at the beginning of the year, Tampa was able to reduce its net debt by one-third. We had net debt position of $900 million at the end of 2022. We now have At the end of 2023, we have a net debt of $600 million. So we were able to reduce indebtedness by $150 million and increase cash position by $100 million. So $300 million reduction of net debt, putting us in a situation of very strong financial situation with a net debt of less than one time EBITDA. that gives an idea of Pampa capacity to finance future growth. I wanted to end with this optimistic comment.

Thank you both. So, there are no more questions. Thank you very much for your questions. I will now turn to Lida for final remarks.

Okay. Thank you, everybody. I hope all this answers your questions. If you have any more, just contact us. We will be more than happy to help you. I will bid you a good day. Bye.