Transportadora de Gas del Sur Q3 2023 Earnings Call Transcript

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Provided by Quartr
November 7, 2023

There are 2 speakers on the call.

Operator

Hello. Good morning, everyone. I'm Kamlo, Head of Investor Relations. I would like to welcome everyone to TCS Third Quarter 2023 Results Video Conference. TCS issued its earnings report yesterday.

Operator

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 accompanying remarks, we will host a Q and A session. All questions will need to be submitted in writing through the Q and A chat box. Before we begin the call today, I would like to remind you that forward looking statements made during today's 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.

Operator

All figures included herein were prepared in accordance with International Financial Reporting Standard, IFRS, and stating in constant Argentine pesos as of September 30, 2023, unless otherwise noted. Joining us today from TGS in Buenos Aires is Alejandro Basso, Chief Financial Officer. And now I will turn the video conference over to Mr. Basso. Alejandro, please begin.

Speaker 1

Thank you, Carlos. Good morning, everyone, and thank you for joining us today to discuss the 2023's Q3 earnings and highlights for this year. To begin the call today, I would like to share with you recent news about the company. In terms of our midstream business in Vaca Muerta, last July, we commissioned the 32 kilometer extension of the North Branch pipeline with a cap rates of $49,000,000 With this extension, our 60,000,000 kilometers per day capacity gathering pipeline in Machamorita reached a length of 192 kilometers. This allow us to currently provide out of specification natural gas, transportation and conditioning services in our recently expansion 15,000,000 cubic feet per day plant to several natural gas producers.

Speaker 1

Furthermore, we continue working on additional 2 condition capacity expansions, which will increase the total capacity to 28,000,000 of pyramids per day by 2024, with the CapEx of approximately $300,000,000 It is worth mentioning that these expansions will consist on the installation of 2 new modules, which can be converted to a truck LPG. This is in line with our intention to start providing processing services for the gas producers in Tafajnou. The Argentine government, through EnerSA, is currently revising the offers for the reversal of the TGN North pipeline, which consists of the construction of 122 kilometers pipeline to connect the 2 main TGN's pipelines, 2 loops of 62 kilometers in the TGN North pipeline and the reversal of the natural gas flow of 4 compressor plants. The Argentine government expects to commission this work before next winter given that Polya will stop playing for natural gas volumes starting August 2024. This incremental demand added to the new one to be generated by transportation capacity expansion of the first tranche of Presidente Natural Kitchener Pipeline after the commissioning of the 2 compressor plants expected in the coming months as well as the construction of the second tranche of the Presiente Natural Kitchen Pipeline expected by the end of 2024 will give us plenty opportunities to continue growing our midstream services in Vaca Muerta.

Speaker 1

On September 8, in compliance with the terms stipulated by natural gas law, TGS requested Energas to extend its license, which expires in 2027 by another 20 years to 2,037. Energas is working on a report that will include the evolution of the company's background. A public hearing will be held and additional steps will be taken to formalize the process. We expect to obtain the renewal in 2024. Coming now to Slide 4.

Speaker 1

I will briefly address some of the highlights for the 2023 Q3 results. Please keep in mind that all figures presented for this quarter and comparisons made with the previous quarters are expressed in constant pesos as of September 30, 2023, following the provisions established by IRAFares for financial reporting in hyperinflationary economics. As seen in the slide, we reported net income totaling $4,900,000,000 during the Q3 of 2023, which was below the $11,400,000,000 reported for the same quarter of 2022. The decline in the net income is mostly attributable to the $5,700,000,000 negative variation of the financial results and the $4,000,000,000 decrease in the liquids EBITDA, which was partially offset by the continuous quarterly EBITDA growth recorded in other services, totaling BRL3.4 billion this quarter. Moving on to Slide 5.

Speaker 1

EBITDA for natural gas transportation business decreased slightly by $1,000,000 but was affected by the negative inflation effect on revenues at 10,100,000,000 euros However, this impact was offset by a 7,300,000,000 higher revenue attributable to the 95% transitional tariff increase that became effective at the end of April, along with $1,900,000,000 in lower PP and E maintenance expenses and a $7,000,000 decline in other operating expenses. On Slide 6, you can see EBITDA from the Liquids business decreasing by 31% in the Q3 of 2023 to €9,000,000,000 compared to €13,000,000,000 reported in the same quarter of 2022. The main effect was related to lower revenues in the amount of $10,100,000,000 related to the 30% decline in average reference international prices of the LPC. In addition, volumes of propane exports fell from 43 1,000 metric tons to 14,000 metric tons, resulting in a $3,800,000,000 decline in revenues. And higher natural gas volume purchased in the Q3 of 2023 resulted in higher cost of sales of €2,500,000,000 that permitted a higher production of 20,000 metric tons.

Speaker 1

These negative effects were partially offset by higher revenues of €9,600,000,000 derived from a higher ethane volume sold, increasing from 43,000 metric tons to 19,000 metric tons. To a lesser extent, the monetary effects, lower average cost of natural gas, which dropped from $4,700,000 per 1,000,000 of Etu to 4.4 dollars €1,000,000 EBITU and lower export taxes positively impacted the liquids' EBITDA by $1,600,000,000 $1,100,000,000 $766,000,000 respectively. Turning to Slide 7. EBITDA from other services increased 46 percent to $10,800,000,000 from 7,400,000,000 Higher revenues generated by incremental volume of natural gas transported and conditioned in Vaca Muerta amounted to $5,900,000,000 Transporting natural gas volume rose from an average of 15,000,000 of cubic feet per day in the Q3 of 2022 to 23,000,000 of cubic feet per day in 2023 quarter, while natural gas conditioning volume increased from an average of 10,000,000 cubic feet per day to 15,000,000 cubic feet per day. In addition, during the Q3 of 2023, dollars 1,100,000,000 revenue was generated by services provided to Enarson.

Speaker 1

In relation to the Natural Kitchen pipeline commissioning, the construction of Mercedes Cardale pipeline and the compression plant placed in Mercedes. These higher revenues were partially offset by BRL 1,400,000,000 monetary effect loss, especially considering that the annual inflation rate was above the annual foreign exchange rate increase. And in addition, operating expenses increased by BRL 2,300,000,000. Euros On Slide 8, we can see that financial results recorded a negative variation of 5,700,000,000. This variation was mainly explained by a higher foreign exchange rate loss of $14,100,000,000 This was mostly attributable to a higher depreciation of Argentine pesos.

Speaker 1

And in addition, there was a negative inflation exposure result variation of EUR 5,700,000,000. These effects were partially offset by a higher financial asset income totaling EUR 15,200,000,000 mostly resulting from higher financial investment denominated in pesos and, to a lesser extent, higher yields for our peso denominated financial investments. Finally, turning to the cash flow on Slide 9. Our cash position in real terms increased slightly to $210,300,000,000 which is roughly equivalent to $600,000,000 EBITDA generation in the 3rd quarter amounted to $27,100,000,000 of which 73% was generated by the non regulated businesses, while the additional 27% came from the transportation business. CapEx for the period amounted to €19,200,000,000 $19,800,000,000 We obtained loans for $11,600,000,000 and our working capital increased by $11,200,000,000 Income tax advance payments totaled $5,600,000,000 Finally, financial income contributed to the cash increase in approximately $13,000,000,000 As you can see, we maintained a comfortable level of cash position, which gives us enough liquidity continuity to continue investing in our business investment plan, mostly in Vaca Muerta midstream business.

Speaker 1

This concludes our presentation. I will now turn it over Carlos, who will open the floor for questions. Thank you.

Operator

Thank you. Now the floor is now open for questions. You have questions, please send us through our Zoom chat. We will read and answer the question in order in which they are received. Please make sure to state your name and company so we can introduce you to the audience.

Operator

The first question is regarding the propane volume that were exported that fell in so many tons. What is the reason?

Speaker 1

Okay. Juan, it's as you are saying, it's seasonality, the reason for the decrease in the spiking volumes. Last year, we have a special well, so we can we could be able to export more than this year. Hopefully, we are waiting to compensate that in the Q4.

Operator

The next question is regarding the CapEx. What we expect for 2023 and 2024?

Speaker 1

Okay. For 2023, we are expecting 200,000,000. And for 2024, a total of 210,000,000 approximately, out of which EUR 140,000,000 should be the finalization of the expansions that we are performing at Vaca Muerta and Cartagena.

Operator

And the third question is to remind, is asking if the contracts in Vaca Muerta for the midstream services are going to link, yes, they are going to be linked, both transportation and the condition. The 4th question, why it would take additional debt considering the service cash that we have?

Speaker 1

Well, this additional debt is for to be able to pay for the import goods and services. You know that currently, we have no access to the official exchange market. So we have to take offshore financing for the services. And in the case of the goods, these loans should be paid next year with assets to the official market at that moment.

Operator

Next question I heard from Marina Martes. The first question is regarding any progress about the request to extend the license for another 10 years.

Speaker 1

Well, hi, Marina. How are you doing? Well, our expectation for the extension is that it should be given to us next year. Obviously, for our business plan, for our strategic planning, it's a very important step given the fact that we have to refinance the bond probably next year, the bond that is due May 2025 and also for our Volusia business expansions, okay?

Operator

And another question regarding these extensions. If there is any potential implication for the company, in the operation and strategic planning regarding this change in our extension?

Speaker 1

Well, I already answered that. It's very important for us, for our all our projects in the non regulated business also given its relation with the regulated business.

Operator

The next question regarding the status of the both projects, LNG and NGL projects.

Speaker 1

Well, these projects are currently under study. We are receiving part of the consultant works. We are expecting to receive more of the remaining consultant works for the remainder of this year. We expect to be able to decide our decision to go ahead with the project next year in the second semester or the half of next year.

Operator

Hello, Christian. It's Yanferra from Balance. His first question is regarding that there is a very good performance on the Vaca Muerta listing services and if we can expect for this segment to continue growing and what we expect for 2024.

Speaker 1

Hi, Cristiano. How are you doing? Yes. As we already said, we are expecting to increase volumes from 15 cubic feet per day to 28,000,000 acuity per day, both in the transportation side and in the conditioning side of the business. These two expansions are expected to be put in services in 1 in May and the other one maybe in July or August.

Speaker 1

So the increase in our revenues in this business should be accounted for in half of the next year, okay?

Operator

Another question from Fang Vakas. He's talking about the estimation of the big cash that we have. What is probably the destiny for this level of cash.

Speaker 1

For the LNG, pressure? Yes. The LNG low or which one? Okay. Fine.

Speaker 1

Okay. Okay. Yes, I would say that we are going to use our cash and fund generation in the following years in the project that we have, okay, in NGLs or LPC project and LNG project. That's our main results right now. Obviously, we may use something in the for the liability environment with our goal.

Speaker 1

Okay?

Operator

Carlos, Moraes. The question is regarding the gas tariff increase. You will have some news, the natural gas transportation.

Speaker 1

Okay. Right now, we are in talks with Lennar Gas to have a transitional adjustment. And also, we have already started the tariff revision process. I cannot give any perfect perspective for the net tariff increase and net tariff transitional adjustment and how long it will take to go ahead with the tariff revision. We expect that it should be run-in a short term, but maybe 6 months or more than that will be necessary.

Operator

Another question from Pan is concerned about if the license tension will not be renewed.

Speaker 1

No. I would say that the license extension should not be denied by Enel Regas if they as we comply with all our obligations all these years. So it should be renewed. Okay.

Operator

Florencia Pashorga from Mail Life is talking about detail in the FX restrictions that we are facing.

Speaker 1

Well, you know, Financia, how are you doing? The restrictions that everybody is having right now, we are not given access to the official exchange rate just for the interest payments. So this was a very good news, but not for buying or purchasing services or goods. So that's the reason why we are mostly taking loans for that. We expect that this all these restrictions should be ending in the next month.

Operator

Another question from Florencina regarding the midstream EBITDA, the high level that it will convert it into the largest EBITDA contributor in the company.

Speaker 1

That could happen maybe in 2025, 2026. It will depends on the renegotiation on the transportation business also because the transportation business EBITDA for this year is expecting around $60,000,000 and it should be around $300,000,000 if you we have a right tariff provision. So everything will depend on that, okay? But maybe in 2026, the midstream services would be the higher contributor to our net income, hopefully.

Operator

Next question from Florencia. Is there any conversation with advisers of 2 presidential candidates regarding the debt of revision or tariff hikes?

Speaker 1

Well, we have some conversations regarding the current administration is what I already said. We are expecting a transitional new agreement and the tariff revision. And regarding the other candidate, they are talking about very, I would say, liberal deregulated scheme and go ahead with the tariff revision also.

Operator

Luciano Buschho, from Ares. He's asking about the working capital increase. Well, I will answer this question that there are some several issues there that will have some trade receivable increases because for exchange and also in the military services because we provide more services. This is the main important factors. And also, we have EUR 1,000,000,000 trade receivables regarding within our side because of the restructuring pipeline services that we collect for the company.

Operator

We collect everything. Ivan Tabarza, his question is if we will have any benefit from the reversal of the TCM pipeline.

Speaker 1

Yes. We have a direct benefit regarding our business in Vaca Muerta because higher quantity of gas is going to come through our system in Vaca Muerta regarding pipeline and our conditioning plan.

Operator

His next question from Ivan is about the revenues and EBITDA that we should expect in annual terms after the recent expansion of the Deferation and Conditioning plan.

Speaker 1

Poland? I don't have the figures right now. Maybe, I don't know, dollars 150,000,000 of annual revenues, a full year effect.

Operator

We don't have any more questions. This concludes the question and answer section. Now we'll turn to Alejandro for final remarks.

Speaker 1

Well, thank you all for participating in this year's Q3 2020 3 conference call. We look forward to speaking with you again when we release our Q4 2023 results. If you have any questions in the meantime, please do not hesitate to contact our Investor Relations department. Have a good day.

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Earnings Conference Call
Transportadora de Gas del Sur Q3 2023
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