Transportadora de Gas del Sur Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 8, 2023

There are 2 speakers on the call.

Operator

Well, good morning, everyone. I'm Carlos Almagro, Head of Investor Relations. I would like to welcome everyone to TGS' Q2 2023 Results Video Conference. TGS issued its annual report yesterday. We would like to inform you that this event is being recorded, and all participants will be in listen only mode during the presentation.

Operator

After the company's 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 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. While fields include the hearing were prepared in accordance with International Financial Reporting Standards, IFRS, and as stated in content, Russian time pesos as of June 30th 2023 unless otherwise noted.

Operator

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 'twenty three's Q2 earnings and highlights for TCS. To begin the call today, I would like to share with you some news that are relevant to our operations. In terms of our midstream business in Vaca Muerta, after increasing the condition in capacity of our plant in Patacen to 15,000,000 activities per day, we did 32 $1,000,000 CapEx that we mentioned during our last call. This month, we are commissioning the 32 kilometer extension of the North Tranche pipeline.

Speaker 1

This expansion will allow us to provide transportation and conditional services to gas producers who operate farther northern fields by investing in a total CapEx of $49,000,000 It is worth highlighting that in June, Narsa awarded TGS the operation and maintenance of the Fresenet Electric Vision pipeline for a period of 5 years, which is renewable for an additional year. After putting the pipeline into condition, the pipeline started the natural gas transportation with an initial capacity of 11,000,000 cubic feet per day and which is expected to increase to 21,000,000 cubic feet per day before the year end, following the coming commissioning of the 2 compressor plants, which are being built in Tata Cen and Smirikayo. With the objective of transporting natural gas from Maca Morta to the Northwest Argentina, following the dramatic reduction of natural gas imports from Bolivia and Arsena, a state owned company, will call soon for a bidding process with the goal of building a 120 kilometers new pipeline to connect the 2 main TCNs pipelines and reversing the natural gas flow of the TCN North pipeline. The estimated CapEx for the projects, which totals over $700,000,000 will be mostly financed by the CIF Development Bank.

Speaker 1

In addition, it is expected that next month, Enelso will call for a new bidding process for the construction of the 2nd tranche of the Presiente Refarcisio pipelines, which will connect Sankelo to the TGN North pipeline in San Geronimo in the south of Santa Fe province. Turning now to Slide 4. I will briefly address some of our 2023 Q2 results highlights. 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 June 30, 2023, following the provisions established by the IFRS for financial reporting in hyperinflationary economies. As seen on the slide, we reported net income totaling €12,100,000,000 during the Q2 of 2023, which was slightly higher than the €11,400,000,000 reported for the same quarter of 2022.

Speaker 1

The decline in EBITDA at the Liquids and the Natural Gas and Potentials business segments amounted to €4,000,000,000 and €2,200,000,000 respectively, was more than offset by the €6,900,000,000 positive variation of the financial results. Moving on to Slide 5. EBITDA for natural gas transportation business decreased by €4,000,000,000 and was mostly affected by the annual inflation rate of 115%, which negatively impacted our revenues in €9,200,000,000 However, this effect was partially offset by 90 5% tariff increase, which became effective at the end of last April and contributed to additional revenues of €4,800,000,000 In addition, operating expenses decreased by €160,000,000 On Slide 6, you can see that EBITDA from the Liquids business decreased by almost 17% in the Q2 of 2023 to €10,800,000,000 compared to €13,000,000,000 reported in the Q3 of 2022. The main negative variation was slightly to lower revenues in the amount of €5,600,000,000 due to the decline in reference international prices, with LPG average price decreasing by more than 40%, while natural gasoline price dropped by around 30%. In addition, the monetary effects negatively impacted the liquids EBITDA in €2,100,000,000 with inflation increasing 115 percent in the last 12 months compared to a 96% increase in the foreign exchange rate.

Speaker 1

Both external conditions negatively affected this segment, especially when considering that most of the liquids revenues on Maria Hambrego and cost are dollar denominated. These two negative effects were partially compensated by higher volumes sales, which increased by 15,000 tons from 232,000 tons to 287,000 tons and resulted in higher EBITDA of €3,900,000,000 Propane exports and ethane sales increased by 37,000 tons and 23,000 tons, respectively. In addition, the same contract generated onetime higher revenue for €1,200,000,000 and higher price of ethane increased revenues by 333,000,000 Total production volume increased by 6% or 17,000 tons, rising from 256,000 to 283,000 tons. Production in the second quarter was the highest of the last 5 years. Turning to Slide 7.

Speaker 1

EBITDA from other services increased 21% to €6,300,000,000 from €5,200,000,000 Higher revenues generated by incremental volume of natural gas transported and condition in Vaca Morta amounted to €3,600,000,000 transported natural gas volume increased from an average of 13 1,000,000 of equipment per day in the Q2 of 2022 to 21,000,000 of equipment per day in 2023 quarter. Meanwhile, natural gas conditioning volume increased from an average of 9,000,000 of cubic feet per day to 13,000,000 of cubic feet per day. This higher revenue was partially offset by €1,800,000,000 monetary effect loss, especially considering that the annual inflation rate was above the annual foreign exchange rate increase. In addition, operating expenses increased by €581,000,000 euros On Slide 8, we can see that financial results recorded a positive variation of €6,900,000,000 This variation was mainly explained by a higher financial asset income totaling €13,500,000,000 mostly resulting from higher yields of our peso denominated financial investment and to a lesser extent, a higher financial investment denominated in pesos. This positive effect was partially offset by a higher foreign exchange rate loss of €5,300,000,000 which was mostly attributable to a higher depreciation of the Argentine peso.

Speaker 1

And in addition, there was a negative inflation exposure result variation of €1,500,000,000

Operator

euros

Speaker 1

Finally, turning to the cash flow on Slide 9. Our cash position in real terms increased slightly to 144,800,000,000 which is roughly equivalent to €565,000,000 EBITDA generated in the 2nd quarter amounted to €22,200,000,000 of which 77% was generated by the non regulated business, while additional 23% came from the transportation business. CapEx in the period amounted to 18,800,000,000 We paid interest of €4,000,000,000 and our working capital decreased by €1,900,000 Income tax advanced payments totaled €434,000,000 Finally, financial income contributed to the cash increase in approximately €5,000,000,000 As you can see, we maintain a comfortable level of cash position, which give us enough liquidity to continue investing in our business investment plan, mostly in Vaca Muerta Midstream Business. This concludes our presentation. I will now turn it over to Carlos, who will open the floor for questions.

Speaker 1

Thank you.

Operator

Thank you, Alejandro. The floor is now open for questions. If you have a question, please send it through the Zoom chat. We will read and answer the questions in the order because they

Speaker 1

are

Operator

received. Also, please make sure that your name and company are displayed so we can introduce you to the audience. Please lower your hands once your question is answered.

Speaker 1

Well,

Operator

Juan Marquez made some questions from Fuente. Good morning. He's asking about the reason why the EBITDA per ton of NGL dropped. Juan, the reason was as explained in the question that was just only mainly because of the fall of the international prices, okay? In the case of the price of the natural gas, a decrease in this quarter compared to last year.

Operator

His second question is regarding the CapEx estimated for the expansion in Tracacena, the recent plant, which will permit us to increase the capacity to almost 30,000,000 cubic meters per day, which are these amounts.

Speaker 1

[SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Okay. Total investment in the current expansion that we are carrying on in Sarta JEN is around $280,000,000 $275,000,000 total, of which we are expecting to spend 2 $20,000,000 this year and the remainder of next year. Obviously, given the current conditions, there may be some carryover to next year from this year, okay?

Operator

Hi. Christian from Balance. The third question is regarding the restructuring pipeline operation and maintenance agreement. He's asking about the estimation of the annual EBITDA.

Speaker 1

Okay. Christian, Carlos. We are estimated around $2,000,000 to $3,000,000 of EBITDA from this project. It's not a very big amount of EBITDA regarding just O and M, okay? But it's important for us to have this contract.

Operator

His second question is regarding the jump of the local price of the liquids that it doesn't follow the fall the decline of the price of international prices if the government authorized any price adjustment?

Speaker 1

Okay. Domestic prices in the case of propane are tied to the international prices. They're you can find some asymptomaticity of maybe 1 month, but it sets for parity. And regarding the bode, the bode, the prices, the regulated prices, which is below the cost of natural gas. So we have some loss there, which is more than compensated the margins that we obtained in the export price.

Operator

A fair question regarding the feed of Nacogradar, which was processed in Serbia, considering the seasonality, what was the reason that we have such a higher inflow of gas?

Speaker 1

Well, it was warmer than expected weather, warmer than average temperature we had this last quarter in Argentina. In July, we keep on having some higher temperature as compared with the average. So that's the main reason. Obviously, since Solvos, we have the NESTOR orchestral pipeline in place. So we are still expecting to have important flows to sell natural gas flows to sell.

Operator

Then the question regarding the process of the HCL business in

Speaker 1

Okay. We are working hard analyzing the different alternatives. For instance, we are analyzing is the expansion that is economically reasonable for this expansion of NGLs to include ethane. So we are working with our partners in that direction. Also, analyzing the cost of we are calling for a bid for to have budgetary proposals for the equipments and studying the different engineering for the projects, okay?

Speaker 1

At the same time, we have we need a law similar to the LNG law to go ahead with the project, okay, with the same benefits or quite similar benefits.

Operator

And his first question is regarding the LNG project status with Pampano.

Speaker 1

Okay. Regarding the LNG process, we are waiting for the works that are conducting 3 different engineering companies that are we are going to have 3 different alternatives and going ahead with the project. And with that, we are going to have also the cost of the project, estimated cost of the project and different alternatives. I think that they are going to finalize in the next 2 or 3 months. At the same time, we have reached an agreement with the Port of Bahia Blanca for the space that we need there for the plant and for the port also.

Operator

Juan Marquez has another question regarding if we will take some debt to face this CapEx CapEx as you mentioned about the EUR 270,000,000 expanding the conditioning capacity of the Cartagena plant?

Speaker 1

No, Fran. We are going ahead with this expansion the current expansion plan without any additional debt. You may find some additional debt in our balance sheet in the next months, but due to the need of finance, some imports because of the problem that we have here with the dollars, okay? So we are being obliged by the government to obtain additional financing for our for some imports of equipment for this project and also for spare parts for this year.

Operator

Hello, Florencia for Nelife. She's asking the same question as Juan regarding the if we expect any tariff adjustment Brazilian didn't have in the short term in this year.

Speaker 1

Florencio, how are you doing? No, no, we are not suspecting any additional increase in tariffs this year. In spite of the fact that we are requesting these tariff increases, given, I would say, political conditions, it's going to be very, very tough to obtain any adjustment.

Operator

The second question is regarding the candidates, the national candidates, if they how how we see that they consider our business, regulated and non regulated business as they are strategic or not?

Speaker 1

In that regard, I would say that all parties here now have realized have realized that Tomas Camuerta and our assets are strategic for the development of the country. And so I think that the answer is yes. We think that the opportunity to ahead with the liability management is going to be next year, maybe mid of next year or something like that. Obviously, we expect that macroeconomic conditions will be much better at that moment.

Operator

Well, Marina, for Morgan Securities, It's a question first regarding the upcoming historical review, if we anticipate a notable EBITDA improvement in 2024 or is 2024 2025?

Speaker 1

It's difficult to say. Maybe what we can it will depend if there is a change in the administration. Maybe a new administration will start with a transitional tariff adjustment, I would say, considering inflation and something more. Inflation is going to be very high, in my opinion, this year. So it's going to be difficult to have the increases much higher than inflation, but it should be the case because we are quite below inflation in the past 4 years.

Speaker 1

But I would say, Mariner, the more realistic is to expect for a higher increase in 2025 with the full tariff review finalized by the end of 2024 or something like that.

Operator

The question all other questions were answered from Bruno, Bruno Montanari, Lucas from PPI. Then I have a question from Mojano from CHAP Cap. What is this structural debt? Well, in the press release, it's explained that it's about $530,000,000 and it's all polarity nominated, okay? Florencia, another question regarding the FX restriction, how we face these problems?

Speaker 1

Florencia, as every company in Argentina, we are facing restrictions for importing equipment and services from abroad. From time to time, we received an approval of these imports, but we have to as I said before, we currently, we have to finance these imports with, I would say, 1 year loan or 180 days loans, okay? Currently, total loans from imports are amounted to $19,000,000 $15,000,000 but it's going to increase in the next month, obviously. I think that we have imports and services for more than an additional $50,000,000 there in the remainder of the year, something like that.

Powered by Quartr

Key Takeaways

  • Midstream expansion in Vaca Muerta continues with a 32 km pipeline extension, a new 5-year O&M contract and a US$700 million plan to build 120 km of new pipeline financed by the IDB.
  • Q2 2023 net income rose slightly to ARS 12.1 billion, as a €6.9 billion positive swing in financial results offset operational EBITDA declines in Liquids and Gas.
  • The natural gas transportation segment saw EBITDA drop by ARS 4 billion due to 115% inflation, partially mitigated by a 95% tariff increase effective late April.
  • Liquids business EBITDA fell 17% to ARS 10.8 billion amid a 30–40% slump in international LPG and natural gasoline prices, despite record quarterly production volumes.
  • Strong liquidity was maintained with cash up to ARS 144.8 billion (≈€565 million), supporting ARS 18.8 billion CapEx and ongoing midstream investments.
A.I. generated. May contain errors.
Earnings Conference Call
Transportadora de Gas del Sur Q2 2023
00:00 / 00:00