Transportadora de Gas del Sur SA TGS

Recording in progress. Everyone for attending TCS fourth quarter 2021 results video conference. TCS issued its earning report yesterday. If you did not receive a copy, you do not hesitate to contact us by email. We would like to inform you that this event is being recorded and all participants will be in listen-only mode during the presentation. After the company's remarks, we will host a Q&A session. All questions will need to be submitted in writing through the Zoom chat box. Before we begin the call today, I would like to remind you that forward-looking statements made during today's video conference do not account for future economic circumstances, industry conditions, and company performance and financial results. These statements are subject to a number of risks and uncertainties. All figures included herein, we are prepared in accordance with International Financial Reporting Standards, FRS, and stated in constant Argentine pesos as of December 31st, 2021, unless otherwise noted. Joining us today from TCS in Buenos Aires is Alejandro Basso, Chief Financial Officer. And now I will turn the video conference over to Mr. Basso, Alejandro. Please begin.

Thank you, Carlos. Good morning, everyone, and thank you for joining us today on this video conference to discuss the 2021 Fourth World Learnings and Highlights for Transportadora de Gas del Sur. To begin the call today, I would like to share with you some of the relevant news that have occurred since our last quarterly earnings call in November. To start, and speaking about our natural gas transportation business, the NRGAS granted us a transitional tariff increase of 60% starting March 1, as stated in Resolution No. 60. It is worth noting that this resolution follows a public hearing which was held on January 19, during which we requested an 80% tariff increase starting March and a second adjustment of 25% starting September of this year. both as a transitional increase previous to the one that is to be defined by the NRGAS as a result of integral tariff revision, which is set to end by year-end. The tariff increase that should be applied if we consider the lack of increases since April 2019 should be around 224%, following the evolution of the wholesale price index between March 2019 and January 2022. It is important to mention that TCS is not obliged to make any mandatory investments, but at the same time, the company cannot make any dividend payment until the integral tariff revision is completed. Moving now to our midstream business segment, it is relevant to say that after the execution of the 2021 cap of 16 million, which increased the condition in plant capacity by 2.4 million square meters per day, we are currently investing another 22 million to commission a new capacity increase of 7 million cubic meters per day, which is to be ready by next winter. In addition, a new model will be built during 2022 and 2023, adding new conditional capacity of 6.6 million cubic meters per day in winter of 2023, surpassing a total conditional capacity of 20 million cubic meters per day. The capital allocated to this project is estimated at $82 million. All this expansion works respond to the increasing gas producers' shale gas production at Vaca Muerta and additional needs for more misting services to transport and condition the incremental gas volume before its injection in the regulated pipelines. New agreements with gas producers were already negotiated and should be signed soon. Gas producers have been making relevant investments to increase natural gas production following the convenient local market price related to the gas plan launched by the government at the end of 2020. This gas plan pushed natural gas prices up to an average of $3.5 per million of BTU until 2024 and also allowed some gas producers to export to Chile during the summer season. Finally, last month, the Secretary of Energy issued the Resolution No. 67 to create a program to begin the construction of a natural gas pipeline that will be named President Néstor Kirchner, connecting Tratayén in Neuquén to our pipeline in Saliqueló in the province of Buenos Aires during the initial stage. And at the second step, it will connect Saliqueló to the south of the province of Santa Fe near San Jerónimo. In addition, TGS pipeline will be extended in the north of the province of Buenos Aires from Mercedes to Cardales. The TGS pipeline flow will be partially reverted and expansions of the TGS and TGN pipelines will be carried out. Following this resolution, the executive branch issued Decree No. 76, through which granted a 35-year concession to IASA, a state-owned company, to build, maintain and operate the Presidente Néstor Kirchner Pipeline. These works are essential for TGS in order to further grow its mystery business in Vaca Muerta, as well as execute other projects that TGS is currently evaluating. Turning to slide four, I will now briefly address some of the highlights of our 2021's fourth quarter results. To remind you, all figures presented in this quarter and comparisons made with the previous quarters are expressed in constant pesos as of December 31, 2021, following the provisions established by DRAFARES for financial reporting in hyperinflationary economies. As seen on the slide, we reported net income of 6.8 billion during the fourth quarter of 2021, compared to a loss of 5.4 billion reported in the sixth quarter of 2020. Total EBITDA increased by 593 million, with the natural gas transportation EBITDA decreasing by 3.2 billion, and is explained by the lack of tariff adjustment. This negative impact was more than offset by the liquid EBITDA increase of 3.4 billion, which was mainly driven by the high international prices recorded during the fourth quarter of 2021. In addition, other services EBITDA also rose significantly, by 392 million and is related to the midstream business growth at Vaca Muerta. However, the main explanation of the bottom line positive variation of 12 billion stems from two negative accounting effects that were registered during the fourth quarter of 2020. The first one amounting 7 billion is related to the financial asset loss registered in the financial results which is included in an 8.7 billion positive variation. The second effect is related to the 4.7 billion property plan and equipment impairment. Moving on to slide five, EBITDA for natural gas transportation business decreased by almost 3.2 billion. Once again, as mentioned in the previous quarter, this EBITDA decrease measured in constant pesos is explained by the lack of the tariff adjustments in April 2019. So, as you can see in the slide, our operating margins have been deteriorating quarter after quarter. However, we expect that the recent 60% transitional tariff increase will bring some relief. It is important to highlight that approximately 80% of the transportation business segment revenues have been generated by field transportation contracts, with an average life above 10 years, allowing us to generate a stable cash flow of nominal peso revenues. Also, in the quarter, we recorded a higher property plan and equipment maintenance expense of $509 million due to the pandemic slowdown in 2020. On slide 6, you can see that the EBITDA from the liquids business increased in the fourth quarter of 2021 from $5 billion to $8.4 billion. As mentioned before, the main driver of this increase was the higher international prices, which have doubled. compared to the liquid average prices recorded in the fourth quarter of 2020, thus generating higher revenues amounting to 5.2 billion. Revenues also increased by 2.5 billion as export volumes rose by 27,000 metric tons, moving from 37 to 64,000 metric tons. Additionally, 770 million revenue increase is related to a higher ethane price. This ethane price increase was due to higher natural gas prices as established in the agreement signed with PBB Polisur. These positive effects were partially offset by a 2.6 billion higher natural gas cost, which is mostly explained by the average price increase to 2%. $2.5 per million BTU from $1.4 previously. Also, and to a lesser extent, we recorded 796 million negative variation due to monetary effects as inflation increased by more than 50% versus the 26% increase of this change rate, as well as higher export taxes of $715 million and $405 million due to higher natural gas consumption. Turning to slide 5, EBITDA from other services increased by 36%, mainly due to higher revenues of 777 million generated by misting services. 636 million out of these higher misting sales were generated by the service rendered at Vaca Muerta as a result of the growing volume of shale gas we transported in our gathering pipeline and conditioned in our plant located in Tratagena. As the annual inflation rate of 51% was higher than the annual foreign exchange rate increase of 26%, revenues were negatively impacted by 444 million. On slide 8, we can see that financial results recorded a positive variation of 8.7 billion. This variation was mainly explained by the financial asset loss of 7 billion generated in the fourth quarter of 2020. In addition, who recorded a lower foreign exchange rate loss of 2.1 billion, which was attributable to a lower increase of the exchange rate of 4% in the fourth quarter of 2021 versus 10% in the same quarter of 2020, as well as a lower dollar-denominated net liability balance. Additionally, financial asset income increased by 1 billion due to higher financial investment denominated in pesos and higher yields. These effects were partially compensated by a lower inflation exposure gain of 1.2 billion. Finally, turning to cash flow on slide 9, our cash position in real terms increased by 3 billion in the fourth quarter of 2021 from 37 billion to 40 billion. equivalent to around $390 million. EBITDA generated in the fourth quarter amounted to almost $12 billion, out of which more than 80% was generated by the non-regulated businesses. Capits amounted to $3.3 billion, and our working capital increased by almost $1 billion. We also bought back $1.3 million nominal value of our own debt and paid income tax of $714 million. As you can see, our cash position remains robust with no debt amortization until 2025. In 2022, we expect to finance our $150 million capets, mostly with our cash generation. This concludes our presentation. I will now turn the word to Carlos, who will open the floor for questions. Thank you.

Thank you, Alejandro. The floor is now open for questions. If you have a question, please send it using the Zoom chat, the Q&A chat box. We will read and answer the question in the order in which they are received. Also, please make sure that your name and company are displaced to introduce to the audience. Please lower your hands once your question is answered. Should any participants need assistance, send us a message in the chat box. Please call while we call for questions. Thank you. Well, he said, I'm a lady for a woman. And he's asking about the sustainability of the higher NCL merchants. We are maintaining right now. But he's he's asking is about the trend of the international prices and the cost of gas for 2022.