Pampa Energia S.A.

Good morning, everyone. Thank you for waiting. I'm Raquel Calas from IAR, and we would like to welcome everyone to Pampa Energía's second quarter 2024 results 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 participant need assistance, please send us a chat message. Before proceeding, please read the disclaimer in 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 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 Lydia. Please go ahead.

Hi, thank you, Raquel. Hello, everyone, and thank you for joining our conference call. I will make a quick summary of the Q2. You may find more details in our earnings release and financial statements. Today, we are having a Q&A with our CFO, Mr. Nicolás Mindlin. Mr. Horacio Turri, our head of the MP, is here. And Adolfo Zuber-Müller, our head of finance, is also here. Unfortunately, our CEO, Gustavo Mariani, can't join us today because he is in Paca Muerta hosting our president-elect. The gas production is what definitely stands out the quarter's figures. Again, we've beaten all company records, delivering a 37% increase year on year. In Q2, I'm recording a new daily record high of 16.8 million kilometers per day. The output surge is explained by the latest land gas contract we've been awarded. enabled by the new pipeline bill last year. It also helped the early winter freeze, driving retail and thermal power generation. The production increase is backed by shale gas, harvesting the campaign we began last year. Shale gas now represents almost half of our total output this quarter, a significant increase compared to last year's 23%. Therefore, this quarter, the adjusted VDA amounted to $288 million, an increase of 30% compared to last year's figure, mainly because of the gas outperformance and TGS's contribution, which surged by the 675% carrying hike. granted in April. Lower gas exports, sales to industries, and thermal dispatch partially upset this effect. The quarter-on-quarter increase is explained by the seasonality and Camisa's haircut recorded in Q1 and last year, Q4. It is worth noting that almost 80% of the quarter's EBDA was dollar-linked, And the share now is led by EMP, which is mainly due to the gas production. CapEx in Q2 is 28% lower year-on-year, mainly because in 2023, we had a strong shale gas drilling and completion campaign and the construction of PP4. This was partially offset by the last diversions of PP6, which is estimated to be fully commissioned by October this year and the beginning of the pilot plan for Shell Oil in Rincón de Aranda. Moving on to the power generation segment, as seen on slide 4, 5, sorry, we posted an adjusted VDA of $106 million in Q2. This is 9% higher year on year. mainly explained by lower operating costs, the full commissioning of PP4 in June last year, and the strong spot sales in Genelva, partially upset by reduced Energia Plus sales, which is in line with the decline in industrial activity, in addition to Mario Cebreiro's divestment last year. Q2 dispatch increased 3% year-on-year. This is mainly due to the lower gas availability for thermal dispatch that mainly affected our CCGT. Partially upset by a better dispatch in the old CCGT in Geneva, which in Q2 last year had more days out of service for maintenance, higher water levels at Mendoza hydros, and the before's contributions. The incur pay capacity payment, especially from PPAs, explains most of the ABDA. It is driven by availability, and in Q2, we reached 98% availability. This is higher than last year's 95%, mainly due to the previous year's thermal outages that we mentioned. So now turning, let me give you a quick brief on PP6, the expansion, the project. It's highly advanced, 94% between July and August. Tempestous wind turbines were commissioned by Cabeza, totaling 45 MW. We are testing to commission another four. The 500 kV high voltage grid and transformer station have been fully energized, as well as free wind turbine circuits. The estimated fuel COV will be in October. And PPSX The P6 energy will be sold under B2B PPAs in the matter. Going on, on slide eight, our EMP business posted an adjusted PPA of $121 million in Q2. This is 24% higher year-on-year. This increase was driven by PlantGas' latest round, unlocked by the commissioning of the new gas pipeline, in which we We're awarded a long-term contract for 4.8 million kilometers per day flat during the year. The yearly freeze also helped. Lower gas exports and sales to industries upset this. In Q2, our total production averaged almost 91,000 barrels per day. This is 35% higher than last year. When we zoom in, crude oil just represented 6% of our EMP output and 50% of the sector's revenue. Total gas just keeps taking the lead, representing 94% of our total production. Higher maintenance and treatment costs due to the increased activity. and explained that our total lifting costs grew by 11% year-on-year. Still, the rising output possibly impacted lifting costs per BOE, which decreased 17% year-on-year, recording $5.3 per BOE and monetizing the economies of scale. Quickly commenting on gas, Our production in Q2 increased by 37% year-on-year and 24% quarter-on-quarter. This is averaging almost 15 million cubic meters per day in the quarter. As commented before, shale gas is the main contributor here, and 63% of the quarter's production came from El Mangrucho and 23% from Sierra Chata, our flagship shale gas field. Sierra Chata production grew 50% year-on-year without connecting or drilling a well this quarter, while El Mangrucho experienced a 45% surge with only three wells tied in. The average gas price over the quarter stood at $4 per million BTU. This is 14% down due to the lower exports to Chile, as you can see right below. the higher deliveries of local gas were destined for thermal power generation. This is a quick review on Rincón de Aranda sharing the promising results. Horacio surely will comment more on the Q&A. As you can see here, our wells performance is within the range in Our neighboring shale oil blocks and our daily production reached above 1,600 barrels per day once we connected the shutting well in Shun. We have already placed a drilling rate in the block to start drilling a pad of four wells plus another pad next year, meaning to produce by mid-next year and reaching plateau production between 40,000 and 45,000 barrels per day by 2027. The petrochemical business went on to another business, posted a $50 million ABDA in Q2. This is 50% growth year on year, mainly because of the higher sales of reforming and improved exports of SBR margins, offset by the domestic sales due to the economic downturn. Hence, the export share is getting more and more important. Moving on to slide 12. Moving on to slide 12. We show the restricted group figures that reflect the bond perimeter. In Q2, we recorded a free cash flow of $60 million. Our working capital We have recovered since chemists last quarter. As of today, days of sales outstanding is 55 days total. This means a delay of only 13 days. The payment normalization allow us to cancel that. So the net debt is significantly below last quarter, as you can see here. In summary, we can increase $69 million of net cash in the quarter, achieving a $914 million cash position by the end of the period. Well, this slide shows our consolidated financial position, including our affiliates of ownership, but let's keep it focusing on restricted group figures. We posted a gross debt of $1.6 billion. This is 3% lower year on year and a 5% growth in cash. After settling peso debts and depreciations of the peso, 92% of the gross debt is in U.S. dollars. the net debt recorded $691 million. This is 12% year-on-year lower and one time to last 12 months EPTA net leverage. The average life was 2.6 years and until 2027, we just don't face any relevant debt maturity. So this concludes our presentation. Now we'll turn the word to Raquel, who will poll for the questions. Thank you very much.

Thank you very much, Lina. So the floor is now open for questions. If you have any questions, please send us through Zoom chat. We will read and answer them in 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 pull for questions.

Thank you.

Thank you very much for waiting. Our first question comes from Alejandra Andrade from JP Morgan. First one is, how are Camisa payments? She wants to know how are Camisa payments nowadays?

Hello. Hello, everybody. Okay, so Camisa is paying quite well. As of today, we are not experiencing many delays. which is in line with historical minimums as Lida showed in the presentation. On the other hand, Enarsa has been paying with a delay of almost a month, but we understand that this should normalize in the coming month. And in any case, we are seeing goodwill and reasonable delays in line with the historical minimums that we have seen.

Thank you, Juanico. In line with this, she also asks, the $23 million impairments are unrecognized CAMESA interests.

Yes, so as we communicated at the time, we accepted CAMESA's proposal to settle transactions for December and January with the AE38 bonds. So this proposal did not recognize accrued interest. So considering the bond market prices at the time of the payment, we recognize a loss of 53 million dollars, of which 23 million were unrecognized interest.

Thank you, Nico. The third question of Alejandra, she asks, how are the infrastructure projects progressing?

Good morning, everybody. Well, we have two main lines of infrastructure, the gas pipelines and the oil pipelines. In terms of, let's go first to the gas pipelines. we are probably going to see the end of the reversion of the NOAA pipeline by September or October of this year. So this will provide gas to the north of Argentina and reduce considerably the imports from Bolivia. On the other hand, TGS has already presented iniciativa privada to the government in order to expand the transportation capacity of the existing Néstor Kirchner pipeline with the addition of compression in the first tranche and some works in the TGS infrastructure that would boost the capacity transportation or the transportation capacity to approximately 14 million cubic meters per day of additional gas. This is currently being already presented to the government and it's being analyzed. It's a very important infrastructure project to take into account. In terms of oil, we will have by March-April of next year, the Duplicar project of Oldelval already commissioned that will give additional 300,000 barrels per day of transportation capacity. We will also have the Tranche 1 of the Vaca Muerta Sur project from YPF going from Loma Campana to Allen. We call this the collector of the main pipeline that is also in progress now in the engineering phase, which is the connection of Allen to Punta Colorado. that will be commissioned by the first tranche by September of 26 with approximately 180,000 barrels per day and an additional 180,000 in September 26 and an additional 180,000 barrels per day by September of 27. And currently they're analyzing the possibility of an additional 20,000 cubic meters more or 120,000 barrels more by September 27. This basically resumes the new infrastructure projects that are currently in progress in Argentina.

Thank you, Horacio. Last question from Alejandra. She asks if we have expectations of returning to international markets.

Okay, so this is a good question. So we know there is currently an interesting window in the market for Argentine corporates. And as you know, our financial position is quite solid. And our next significant maturity is in January 2027. This is a 750 million bond with a 7.5% coupon, which is below the yields of Pampas bonds right now and comparables and recent issuance from companies, for example, TGS. On the other hand, our cash position of nearly $1 billion allows us to comfortably meet our dead maturities and growth plans, such as Queen Condoranda, in the coming years. So for this reason, we are not in a hurry to undertake a liability management at the moment. and to tap the markets, but we will closely monitor market conditions and do not rule out doing something early if the conditions are favorable or, for example, if there is an M&A opportunity in the market.

Thank you, Nico. The next question comes from Alejandra de Michelis from Jefferies. He asked, what participation can we expect from Pampa in the recently announced LNG export project?

Okay. We definitely will have a very active participation in the LNG export project. We are still in the process of analyzing the project and our participation, but it's definitely the way out to our massive gas resources in Bacamorra.

Thank you, Horacio. Next questions come from Marina Mertens from Latin Securities. First one says, Rincón de Herana has delivered promising results. How do we anticipate crude oil production will develop in 2024 and 2025, given the planned midstream expansions, and what additional evacuation capacity will be needed to meet your 2027 production targets?

Okay. 2024, we don't foresee any increase in our production in Rincón de Aranda, basically two wells that are already being hooked into the production lines. By 2025, as Lida mentioned before, we will be probably drilling and completing two paths, and that will give us the possibility of boosting our production to around 10,000 to 12,000 barrels per day. And that matches as well our transportation capacity from Onderwal and the possibility of acquiring additional capacity from companies that will have idle transportation capacity in the Duplicar project. By 2027, we foresee, as I mentioned before, that the Vaca Muerta Sur Tramo 2 of YPF will be finished, and we have an overall capacity contracted of approximately 48,000 barrels. So hopefully by the end of 2027, at least our aim is to be in the range of 45,000 to 48,000 barrels per day.

Thank you, Horacio. Next question from Marina says, considering the increase in natural gas production, is it realistic to expect that it could remain stable through the summer when local demand declines?

Well, Argentina is a seasonal market with a strong component of domestic demand. So I don't think it's realistic to think that the demand will be constant during the off-peak or the non-winter season.

Thank you, Horacio. Next questions come from Bruno Montanari from Morgan Stanley. First one says, how is natural gas demand performing into a third quarter of 2024? Can we expect higher volumes versus this quarter?

Okay, well, so far we only have one month of the third quarter, which is July. In July last year, we delivered around 10.8 million cubic meters per day compared to 15.3 this year. So we are 42% up July, July 24, 23. And August is just starting. So it's hard to say. what's going to happen because it's very much variable depending on the, particularly on the, on the, uh, weather.

Thank you. Next question from Bruno says, what is the potential maximum volume of natural gas production? Once, uh, the second tranche is delivered and how much would to achieve that production?

Okay. Um, We were awarded in the last round of the plan gas with the 4.8 million cubic meters per day on a flat basis. So the commissioning of the compression plants do not change our participation in plant gas. So we already reached our demand on plant gas basis. So we don't see an additional production due to the... And I understand that you are asking about the commissioning of the two compression plants. So we don't see an additional capacity affecting the Pampa's demand on plant gas. So that was the first question and the other one. In order to keep the production levels that we have, both plant gas plus exports plus industries, we foresee approximately four to six wells being drilled per year in order to just keep the production the constant production rates. So that would amount to approximately $100 million per year with no increase in our production curve, just keeping our curve as it is.

Thank you, Horacio. The last question from Bruno says, can you talk about the evolution of the project to develop the company's shale oil acreage? Is the company on track to deliver the plant for 40,000 barrels per day plateau by 2027? What are the infrastructure bottlenecks and investments required to reach the production plateau?

Okay. Well, I already mentioned that we are currently drilling our second pad in Rincón de Aranda, and we will be drilling two additional pads in 2025. The bottlenecks basically have to do with treatment and transportation. In terms of treatment, we are already starting the construction of all the necessary evacuation pipelines in terms of oil pipelines and gas pipelines and temporary production facilities, both owned by Pampa and eventually being negotiated with neighbors in order to be able to deliver those 10,000 to 12,000 barrels per day I mentioned before by 2025. And also we are currently finishing the engineering of our central processing facility that will have four blocks, basically the oil plant, the gas treatment plant, the water disposal plant, and the generation plant. that will be ready by May 2026 for the first tranche of 3,500 cubic meters per day. And by September, October 26, the second tranche of our national 3,500 totaling 7,000 cubic meters per day or 42,000 barrels per day. In parallel with our evacuation and treatment from the Rincón de Aranda itself, we are currently negotiating with YPF our participation in the Vaca Muerta Sur, Tramo 2, connecting Agen to Punta Colorado for, again, I mentioned before, 48,000 barrels per day. We already have contracted with YPF. the transportation from Loma Campana to Agen through the contract of the Vaca Muerta Sur Tramo 1.

Thank you, Horacio. Next questions come from Ann Mill from Bank of America. First one, she says, can you give us an update on the construction of various infrastructure needed to grow Argentina and Pampa Soil and Gas business in Argentina? If there are any delays, how do you think they will be?

I think we already covered this.

Okay. Next one says, is Pampa looking at any other non-conventional oil areas at the moment?

We are always looking at new opportunities.

Okay. And the last one says, where do you see Pampa's hydrocarbon production five years from now in terms of volumes and breakdown between natural gas and crude oil?

Okay. In terms of oil, we already mentioned that our aim is to reach a plateau of around 45,000 to 50,000 barrels per day, and that's what we're probably going to be keeping as our goal. Eventually, we are looking at new opportunities, but what we have today in the pipeline is that. And in terms of natural gas, until 2028, we have the plant gas which are current basically the the current volumes that we are delivering into the market we still have to see what happens with the expansion of the gas pipelines uh as i mentioned before that represents around 40 uh 14 000 14 million cubic meters per day uh I guess that probably we will keep around 20 to 30 percent out of that market share. So we are talking three to four additional million cubic meters per day of natural gas during the winter season. That's approximately 100 to 120 days. So, basically, those are the main drivers of our future production, not to mention the possibility of the development of the LNG projects that we mentioned before.

Thank you, Horacio. Next question comes from Gustavo Faria from Bank of America. First one, he says, how do you see the demand for gas export in the second half of this year? And could you give a little disclosure on the export prices in the second half of 2024?

Okay, for the second half of 2024, we have committed 600,000 cubic meters per day to Chile through Gas Andes. Minimum price and the price at the same time that was approved by the Secretary of Energy, 7% of Brent, which turns out to be around $5.5 per million BTU well ahead.

Thank you, Horacio. Next question from Gustavo. He says, we saw an important drop in the lifting cost in the second quarter of 2024. Do you see any room for additional lifting cost improvement in the gas upstream segment, or do you consider the current level as the plateau?

No, we consider that what we reached is probably the plateau. We won't be seeing any substantial decrease in the future.

Thank you, Horacio. Next question comes from Ignacio Zniekowski from Invertir en Bolsa. First one, he says, regarding future increases in regulated prices, do you have any estimation of when these hikes will finally translate into effectively higher income for the company rather than merely substituting subsidies?

It's a good question. So less subsidies means less dependence on camisa delays, and it's more reliance on the demand. Basically, the higher hikes on the electricity, the famous electricity raw price in the final bills, That means lesser subsidies. That means lesser subsidies for Camisa and then Camisa can pay us faster. It's not going to be materially we getting more money. We as a company are getting more money, but that's meaning we getting a better quality on the collections, on the payment side, on the receivables. This is mainly the biggest importance here behind the lowering of subsidies. Another thing that is very important is that the other regulated prices, the gas price, the final bills, the higher the gas prices for retail, the lower the subsidies it is. So we collect the less plant gas compensation. But again, we collect it for the distribution. So, I mean, it's getting a better credit profile and lesser dependence on the government's diversions. Just to note this, the government just passed a few actually they passed last June the regulated prices until the end of this year for electricity and for gas. They already put the outlook for what's going to be the subsidies until the end of the year as well for what kind of subsidies will be for those that are under retail social tariff or middle income as well as The government just passed, just a few days ago, the monthly increase for inflation, 6% for transmission, for Transcendent, 4% for TGS, and 3% for legacy prices, legacy energy.

Thank you, Liz. Next question from Ignacio is about gas production volumes going forward. Do you see these levels of production being sustained in the forthcoming quarters, or was this peak due to an exceptionally cooler quarter?

I think we covered that.

Okay. So the final question is, are there any M&A opportunities being considered, or all the cash will be devoted to CAPEX in order to accelerate and ramp up Rincón de Aranda.

Okay. So we know that our financial position and level of indemnities allow us to grow inorganically. And we have been analyzing all the opportunities that have been in the market recently, particularly in our core segments, including unconventional areas. But unfortunately, no attractive opportunities in terms of price have appeared yet. So currently developing our best gas fields, such as El Mangrucho and Sierra Chata, and now Rincón de Aranda in oil, along with all the necessary infrastructure, is much more profitable for Pampa than paying a high entry price for new assets. So as always, we remain open to potential opportunities that may appear in the market and are always evaluating what is best for the company, but we haven't found anything interesting so far.

Thank you, Nico. The next question comes from Fernando Pueyrredon. He asks, have you discussed alternatives with the government regarding the cancelled Genelva 3 greenfield and Barragán expansion projects?

So, as Nico, if you don't see here, we have presented two projects. The big one, the 300 MW, of course, it's not going to pursue because this was canceled. But the other one, actually, we did present it. We won it. Well, the Tercon auction is canceled, but we're doing it anyways. This is a way to improve the efficiency even further, the efficiency of the plant. And we are doing this very small capex. It's $15 million. for increasing 111 megawatts. So we are doing it.

Thank you, Willy. Next question comes from Walter Chiavesio from Santander. First one says, can you please update on Rinconderanda total drilling and production curve, evacuation capacity, et cetera?

I think we already covered this.

Next one, any update on potential energy price regimes to be introduced by the regulator?

No, we covered that.

Okay. Next question comes from Florencia Machardo from Medlife.

She says, the deterioration... She told me that it's okay. Okay.

Pedro Letelier.

Next question comes from Pedro Letelier. He wants to know, do you have some color related to export in terms of restrictions? Can you sell all that you want abroad? Sorry.

We are talking about oil, gas or electricity, but I'm not so sure about it. If it is oil, there's no restriction whatsoever. And in terms of gas, it's the same thing. We are restricted by the transportation capacity. There's no regulatory restriction under the new Ley de Bases in order to export. It's a free market.

Thank you, Horacio. Now, yes, from Florencia from Medlife. Regarding hydros, we are recognizing a provision of termination of Mendoza hydros, which was the value. Any update on next steps?

Yes, we've been making provisions. If you can see, quarter on quarter, in light of this very close expiration, the only update we have is that we'll be granted a 12-month extension. So this is complicated because there's two concessions in this hydro program. That is, one is the provincial, the one is the national one. The provincial one has been granted for 12 months, but the state, the national one, it's only for six months, extendable for another six months. So in light of this, it looks like it's going to, in ISA, will be expiring if there's no extension provided, granted on November of this year. We'll see. That's how it is.

Thank you, Oli. Next question comes from Ludovic Kastrush. First one says, according to the press, some companies have signed export contracts of natural gas to Brazil. With the reversion of North Gas Pipeline, would PAPA export gas to Brazil too?

Yes, we could export gas to Brazil, absolutely. And we can also export gas to the north of Chile, which is a market that will compete with Brazil. Definitely, we can do that.

Thank you. And next question from Jorge Luis Mauro. After the recent increase in gas prices and electricity prices, how much of the cost is paid by end users for gas and electricity?

For electricity, the other day I got the number. The cost was $91, the average cost of the grid, and the coverage was 61. So it's pretty much, the coverage was 61%. It's pretty high. Last year, the coverage was 20%. So it's increasing. The government has to diverse the other 40%, right? For example, for retail users that are non-subsidized, such as me, I'm not subsidized at all. I am paying in my bill $72 per mail an hour. Of course, again, against the real cost, $91. still subsidized, but I've been hike from $20 last year. So it's been increasing hike. Then in gas, I don't remember the coverage because winter, the prices go up very much because of the liquids. It's difficult to assess. But for example, full non-subsidized people such as me, I'm paying $3, $3.3 from the BTU. Last year, I was paying $1.50 per million BTU, so it's been increased. And low-income people are paying, instead of cents, 30 cents, 20 cents, now they're paying 1.8, but just for a block. If they consume more than that, if they excess in consumption, they have to pay the full fare, that's 3.3. So the idea is to lift it up, the prices, little by little. In the case of the people that can't afford it, such as myself, it's the full fare. But it's still a little bit lower than real cost, but very close, as you can see.

Thank you, Lee.

Very close. Do we have more questions?

so next question comes from you have just announced a share buyback program would you consider to return more cash to shareholders so we just announced the program and you're already asking for more so

In the last five years, less than five years, we have repurchased almost $600 million of shares at an average price of $22 per ADR. And now we are announcing a new program. So that's all for now. We are not considering anything more.

Thank you. so we don't have any more questions I think I don't see more questions if you have any questions about the financial statements or anything you can just do it we just uploaded in our website the earnings we have all the backup information there I think we had hit the top of the hour we appreciate very much you joining us on this call I appreciate you, Horacio, Adolfo, and Nico for joining us for the Q&A. Any questions you may have, please send us an email. We will be more than happy to help you. I hope I bid you a good day.

Thank you very much. Have a good day.