Pampa Energía Q3 2024 Earnings Call Transcript

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Provided by Quartr
November 7, 2024

There are 5 speakers on the call.

Operator

Recording

Speaker 1

in progress. CAROLINA 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 and A session. Questions can only be submitted in writing through Zoom.

Speaker 1

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 Energia'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 Energia and could cause results to differ materially from those expressed in such forward looking statements.

Speaker 1

Now, I'll turn the video conference over to Rida. Please go ahead.

Operator

DA Hello. Thank you, Raquel. Hello, everyone, and thank you for joining our conference call. I will make a quick summary of Q3. You might find more details in our earnings release and financial statements.

Operator

Today, we are having our Q and A with our CEO, Gustavo Mariani our CFO, Mr. Nicolas Bindi and Horatio Turri, our Head of E and P. Let's start with the quarter's figures marked by the solid outperformance from gas upstream and power generation, which helped to overcome the winter peak. This is the year's most critical period. Gas production increased 8% year on year with a growing contribution from Shell.

Operator

Our CCGTs achieved high load factors supported by strong gas and capacity availability. Our balance sheet remains solid with extended maturities and improved liquidity, bringing net debt to its lowest level since 2016 when we acquired Petrobras Argentina. Adjusted EBITDA amounted to $279,000,000 up 14% from last year, driven by increased gas deliveries through the new pipeline under planned gas, higher spot prices and excellent dispatch and availability performance in our Power Generation segment. Carat increases also boosted contributions from TGS and Transener, lower gas exports, power and gas B2B sales and petchem margins partially offset these gains. The quarter on quarter decrease is explained by warmer September temperatures, gas pipeline curtailments and higher operating costs.

Operator

It is worth noting that 75% of the quarter's EBITDA was dollar linked and E and P leading the share. Excluding most regulated peso businesses, the dollar share goes up to 85%. CapEx in Q3 is 59% lower year on year, mainly because of the shale gas ramp up and Pepe IV construction in 2023, partially offset by final payments for PP6 ongoing development in Brincona Aranda. Moving on to power generation on Slide 4. We posted an EBITDA of $112,000,000 in Q3.

Operator

This is a 23% increase year on year, mainly explained by the operating outperformance and higher legacy prices, partially offset by lower industrial demand, increased operating expenses and the divestment of Marias Eberre. Q3 dispatch rose 19% year on year, driven by our CCGPs at Genelba, Barragan and Loma, supported by greater gas and power availability. Lower water levels at Pichipicun del Fu Hydro and the divestment of Mario Severeiro partially offset the decrease. Take or pay capacity payment, especially from PPAs, contributes most of the EBITDA. It is driven by capacity availability.

Operator

And in Q3, we reached 96%, up from 94% last year, helped by fewer thermal outages. A quick review on Pepe 6 expansion. The civil works were completed. All well mills are installed since October, and the project now is 98% advanced. Between September and October, '50 megawatts were commissioned additional were commissioned by CAMMESA, reaching 130 megawatts operational out of the total planned 140 megawatts.

Operator

We are now conducting the final tests and full COD is expected just next week or before the end of the month. TEPE VI energy will be sold under B2B PPAs in Matar. Going on, Slide seven. Our E and P business posted an EBITDA of $122,000,000 in Q3. This is 8% down year on year, largely due to higher operating costs related to Vinconderanda, reduced exports to Chile and lower industrial sales due to the economic downturn.

Operator

These factors were offset by increased gas production from the latest round of Cangas. The beginning of Rinconeranda pilot plant and increased gas treatment costs raised the total lifting cost by 16% year on year. However, lifting cost per BOE slightly rose to $6 per BOE. Higher output lowered the gas lifting cost by 2% to $0.80 per MMBtu. Total production averaged nearly 88,000 BOE per day and 8% higher than last year.

Operator

When we saw mean crude oil represented only 6% of the output and 16% of the E and P revenue, while gas accounted for 90% of our production. Gas production in Q3 rose 3.8% year on year. As you can see here, the deliveries have been increasing throughout the year to date, thanks to the new gas pipeline and peak during the winter. However, bottlenecks due to the delays in the commissioning of compressor plants, warmer September and more significantly soft demand from industries in Chile impact the volumes. Still, deliveries stay above take or pay levels that we do in the winter way above.

Operator

In Q4, demand is expected to ease with warmer weather. El Mangrullo contributed 57% of the quarter's production and Sierra Chata provided a growing share of 29%. Sierra Chata's production grew 18% year on year and reached a new all time high record of 5,000,000 cubic feet per day in July without connecting or drilling any wells this quarter. Mangrullo experienced the same thing, no new wells tidying and a 7% increase year on year. The average gas price for the quarter was $4.4 per million BTU, 6% down due to the lower exports to Chile and sales to industries, partially offset by better retail prices due to tariff increases.

Operator

As you can see right below, increased local gas deliveries were directed to retail and thermal power generation. On Slide 10, we before we move on from E and P, let me briefly summarize what we presented during the Investor Day about Rinconeranda. Production is currently at 1,000 barrels per day. This is primarily crude, low water, low gas company. The development plan targets a production plateau of 45,000 barrels per day by 2027.

Operator

This is aligned with the ongoing pipeline expansions. We are building facilities, securing evacuation capacity in Vaca Muerta Sur and planning to drill seven pads annually for the next two years. This is why we procure four drilling rigs right now. We estimate to invest over $700,000,000 in 2025, with a total of 1,500,000,000 in CapEx between 'twenty five million and $27,000,000 A quick note on petrochemicals. We posted $2,000,000 on EBITDA in the Q3.

Operator

This is an 88% drop year on year due to higher costs and peak demand due to the economic downturn, partially offset by higher volumes and prices of reforming products. Through though the spread to official effects shrink, the export dollar helped Pepcane to stay afloat this quarter. Okay. So moving to the Slide 12, we show restricted group figures that reflect the BOM parameter. In Q3, free cash flow reached $80,000,000 supported by improved working capital with days of sales outstanding at forty eight days, just six days delay, besides the robust operating cash flow.

Operator

This last year's CapEx was shale gas ramp up. This year's spending capital spending was mainly maintenance for maintenance at $74,000,000 In September, we issued a $410,000,000 international bond maturing in 02/1931 and to improve the debt profile, partially the redeeming at par the 2027 notes. Overall, this resulted in a net cash increase of $272,000,000 raising our cash position to $1,200,000,000 by the September. This is a 23% increase compared to last year September and $150,000,000 more compared to June of this year. This slide shows our consolidated financial position, including our affiliates out of ownership, but let's keep it on restricted group figures On top of the $1,200,000,000 cash that we've described before, we posted a gross debt of $1,700,000,000 up 5% year on year and 93% in dollars.

Operator

However, the net debt recorded $539,000,000 down 20% year on year and 0.8 times to the last twelve months EBITDA, the lowest ratio and amount in the last eight years. So this concludes our presentation. Now I will turn the word to Raquel. She will poll for questions. Thank you so much.

Speaker 1

Thank you so much, Real. The floor is now open for questions. If you have a question, please send us through Zoom chat. We will read and answer them in order received. If you have also please make sure your name and company are correctly displayed to introduce you to the audience.

Speaker 1

Should any participants need assistance, please send us a chat message or raise your hand. So to begin, first question comes from Bruno Montanari from Morgan Stanley. First question he asked is, can you talk about the initial performance of Rincon Nerana and how should we think about the path of drilling in the coming quarters through the end of twenty twenty five?

Speaker 2

JOSE Good morning, Bruno and all the audience. Regarding Brincon de Aranda, as Lida mentioned before, we have two rigs actually working, two high spec rigs plus at one spudder. And our forecast is to drill from today as to the end of twenty twenty five, '7 pads of four wells each. So we will be drilling around 28 wells in the period November 24, December '20 '5. In terms of our forecasted production, we are expecting to hit 12,000 barrels by April, May '20 '20 '5 and eighteen thousand barrels by September of twenty twenty five.

Speaker 1

Thank you, Oracio. Next question is for you too, I think. Regarding the evacuation capacity,

Speaker 3

Bruno Gustavo. First of all, I want to thank Horacio, who's coming right from the airport. He's not our millennial E and P Director, but he's been very kind to rush from the airport to the office to take the call. Regarding evacuation capacity, producers don't own evacuation capacity for natural gas. So the ones who owns the transportation capacity are either the distribution companies or the industries.

Speaker 3

If your question relates to the situation of the gas evacuation capacity of the Neuquina Basin, this year, early in the winter, one of the compression plants of the Gasoluton, Storkischer, became online, though increasing its capacity from 11,000,000 to 16,000,000 cubic meters of natural gas per day. And the second plant, I think, is supposed to be online anytime soon. Despite the fact that during the summer, it's not needed, it will be needed and used next winter, and it will be, for sure, ready by then. By that moment, the evacuation capacity of the Nestor Kishner will be a total of 21,000,000 cubic meters per day. And the situation will not improve until a new infrastructure project is online.

Speaker 3

So the other change that happened this year was with the inauguration of the project, the reversion of the North pipeline. So now the pipeline that used to bring gas from Bolivia and the North Of Argentina to the center of Argentina is reversed, and the Neuquina Basin can supply to the North and eventually export gas to the North Of Chile and to Brazil. But just to keep in mind, that is not additional production from the Neuquina Basin, it's gas that used to go to Littoral, to the East Of Argentina, and now it's able to go to the North. Relating oil, we, as we've mentioned, I think, if I recall correctly in the previous call, we are part of the consortium that has been formed for the project Vaca Muerta Sur for several weeks or more than weeks. There are currently daily meetings to discuss the documents.

Speaker 3

We are very optimistic that this project, that we will finish the documentation, and we will sign the final agreement among the different players of the industry probably by month end and that the project will be launched before

Operator

year end.

Speaker 1

CARLOS Thank you, Gustavo. Third question from Bruno is regarding Argentina's LNG project. How have discussions about LNG projects evolve? Is Pampa still interested in being directly involved? And if so, in which portions of the projects would the company be more interested in, the floating units, the land facilities or perhaps only the infrastructure part?

Speaker 3

Definitely, we are very interested in the LNG projects that are being discussed currently in the country. Our interest is basically because we want to monetize our very competitive dry gas reserves that we have in Sierra Chata. And we see the export of natural gas through an LNG facility is the only way to do so in a significant number in the long term. We believe floating units make more sense than the land facilities, basically because of the fact that even capital restrictions and high cost of capital for Argentina, It makes more sense to hire or to rent the facilities rather than having to own it and build them and own them. But so far, we are giving priority to all evacuation.

Speaker 3

So today, we are focused on the Vaca Muerta Sur, that's our priority. And the LNG project can come once we have once Vaca Muerta Sul is on the way.

Speaker 1

Thank you, August. Next question comes from Alejandro Demichelis from Jefferies. It's regarding Exxon's process. How do you see the situation of the Sierracchata block and a potential change in the partner there?

Speaker 4

Hello, good morning. So we do not have information about the process relating to this asset. I think in the only official statement from Exxon did not specify whether this asset was included in the package or not. So that's the only information we have. But the important thing about this is that we are the operators of the area, and we will continue to operate the area in the same way.

Speaker 4

So our plans are not changing because of the results of this process.

Speaker 1

Thank you, Nico. Next question comes from Martina Martins from Latin Securities. First one is regarding Energia Base or spot energy prices. The latest increases granted to the Energia Base Scheme, Outpass devaluation, improving legacy asset remuneration. Do you expect this trend to continue?

Speaker 3

Marina, yes, we expect this trend to continue as the remuneration of the legacy assets are, despite the improvement, are still at very low levels. So yes, we do expect this trend to continue. On a marginal, not something huge, but similar to what has happened on the past few months that the increases were a few points above the average inflation. And we expect this trend to continue until the deregulation that we expect to be announced at some point next year finally published. REPRESENTATIVE:]

Speaker 1

Thank you, Jugos. The second question from Marina says, there has been news about a potential urea plant in Bahia Blanca. Given Pampa's focus on developing Rincon de Randa in the coming years, can we expect a start date or a go or non go decision on the urea project?

Speaker 3

You are totally right that today's focus for Pampa is definitely to Rincon De Aranda, which is a major challenge and a significant capital deployment. Having said that, as we mentioned a few times, despite its size and given the free cash flow generation of the other two segments of Pampa gas production and power generation, we don't expect a significant impact on our ratios, on our net indebtedness because of the development of Rincona Ronda. So Pampa having the debt profile that we have and the cash position that we have, we feel totally comfortable to move ahead with a project the size of the urea project once we are convinced that it makes sense. When we will be convinced or when we will know if it makes sense or not, it will not be before one year from now. In the next six months, we will be the team will be working in designing and preparing the documentation so that we can request from the EPC providers the price for a turnkey project to build the urea project.

Speaker 3

We don't expect to receive that. The soonest will be around one year from now because we need to prepare the documentations that will take us. Now we hope to be ready by some point in the first quarter of next year, and then the EPC providers will require like another six months to prepare their bid. So this is so the gono go decision will happen probably in the at some point in the second half of next year.

Speaker 1

CARLOS Thank you, Gus. Next questions come from Daniel Guardiola from BTG. First one was about Serrachata situation, but we already answered that. So second question is about Oleloval. He asks for an update on the entry date for the doubling capacity and how many barrels of capacity are guaranteed in this pipeline?

Speaker 1

Considering there will likely be spare capacity, how many barrels do you expect to transport by doubling in 2025?

Speaker 2

All right. The Oliva Duplicar project is expected to come online by April of twenty twenty five. We have already secured 6,000 barrels in this first stage of Olaval. And on top of that, we already have agreements with other producers in order to make use of their idle capacity for an additional 6,000 barrels. So we will be then in a position to have by April of next year '2 thousand barrels of evacuation capacity, which will match our production forecast.

Speaker 2

On top of that, we have enough treatment facilities by September of twenty twenty five in order to produce 18,000 barrels, which we expect to be in a position to make use of idle capacity of other producers in the original Ol' Del Valle duplicate project and move those additional 6,000 barrels through that pipeline. At the same time, we are working with Ol'Devall, still in the first steps of what might be an additional increase in their total transportation capacity that adds up to approximately 120,000 additional barrels, out of which we will be in a position to eventually contract 12,000 barrels additional capacity.

Speaker 1

Thank you, Gracias. Next question from Daniel was about Trincon de Arana's plans, but we already answered that. So fourth question is about power generation. What would be the EBITDA impact in Pampa's units if Pampa decides to adhere to the Secretariat of Energy plants? And we would like to know if this plan would involve additional CapEx commitments.

Speaker 1

Do you consider increasing the company's footprint with new generation plants? What is the current state of Argentina's energy metrics and when do you foresee an energy shortage?

Speaker 3

Okay. Regarding the impact on EBITDA of this incentive that the government has published a few weeks ago. We estimate that it's an impact of around $10,000,000 per year. And regarding CapEx, obviously, it requires in all of the equipment some additional CapEx that we are still working on. We haven't replied yet the request from the Secretary of Energy.

Speaker 3

So this is a work in progress. But yes, it requires additional CapEx. In terms of EBITDA, it's around $10,000,000 per year. Regarding increasing our footprint in power generation, it's a possibility. But today, there's we've been doing so on renewables, and we are, as Lida explained, we are about to complete the our six wind farm with 140 megawatts of capacity.

Speaker 3

In terms of thermal generation, we presented last year a proposal for a 300 megawatt thermal plant in Genelba, but that was for the auction that was finally this administration decided to cancel or postpone. So we and today, given the regulatory environment, in terms of thermal generation, there is no possibility to increase because the deregulation has not happened yet. And you also asked about the situation of the energy metrics or the energy generation. I think Argentina has enough capacity in place to supply the system most of the time. There are a few weeks during the year, so there are probably six weeks a year with very extreme weather conditions.

Speaker 3

Those could happen in summer in Argentina, and they could happen either in December or in February or March, January because of the holidays, usually, there is no problem. But in those months, in the weeks with prolonged very extreme weather, the requirements of the system might put the system to a limit. As long as we are able to import as we have been importing electricity from Brazil mainly and from Uruguay, we should be okay unless something unexpected happen. And during winter, it's the same situation with a little bit less stress. So there are a few weeks a year with a stressful situation, and that needs to be addressed.

Speaker 3

Other than that, the system is okay for its current requirement.

Speaker 1

Thank you, Aguos. Next question from Manuel. Says, could you give us an update on the gas transportation and transmission tariff schemes?

Operator

DYBECK Well, basically, TGA has already requested to extend the date. Right now, it's no longer RTI. The name is Recuta. RQI. RQI, right?

Operator

King Kienyal, like for the next part, it's RQI. And basically, they're requesting to extend the due date of December 31 to more because that the processes have really delayed behind against the electricity utilities. Electricity utilities, however, they did have a schedule, polyhearing for TransEnero on November 4, and it was postponed with no date, and we are expecting a new date. I am talking about Transcendental. And then TGS, what we've been doing lately actually is focusing on extending the license.

Operator

And actually, in the last week, we had the that's not the other week. Had two weeks ago, right? Yes. The license extension, probably hearing that, that was a very key part of the process to get the license extended. So but the processes are pretty good.

Operator

The idea is to have the RQIs or RTI sooner than later.

Speaker 1

Thank you, Ulitz. Last question from Daniel is about CAMMESA. What is the current status of Pampas and its subsidiaries receivables with CAMMESA? And in what time frame are the invoices being paid?

Speaker 3

They're basically paid on time, as has been the case since early this year. We are paid last six months, we have been paid with three or four days of billings. So right on time, both from CAMMESA and from EDARSA.

Speaker 1

Next questions come from Ignacio Snykowski from Invertir and Bolsa. First one says, do you see any chance of renewing Mendoza's hydro concessions?

Speaker 3

The government has not yet decided what to do with those concessions, although we believe that the intention of the government is that they will remain on private hands or operated by private operators. So once they decide how they move forward, we will be able to give you a more straight answer. Definitely, we do have interest It could be the Mendoza or it could be any other hydro concession in the country because if they are all if they are auctioned again by the government, that could be all of the concessions will be for an opportunity, a potential opportunity.

Speaker 1

Thank you, Ross. Next question from Ignacio is about Vaca Muerta Sur project. So we already answered that. And the last one, it's about OCP Ecuador. What are the negotiations or extension plans for the concession of OCP Ecuador?

Speaker 4

So finally, we've been informed that the government has decided that the asset should be returned to the state at the end of the concession on November 30, with plans to launch a new bidding process later on. So now we are collaborating with them and following on the contractual steps needed for the return of the asset to the government in this initial phase that they are proposing.

Speaker 1

Thank you, Nico. Next questions come from Gustavo Faria from Bank of America. First one is about Rinconerana. So we already answered that. And the second one is regarding the reversal of the Northern gas pipeline.

Speaker 1

How do you see the upsides from gas from local market and exports to Brazil in terms of production and pricing? And what are the pending developments to increase the gas exports from Argentina?

Speaker 2

Okay. Regarding the opportunities of exporting gas to Brazil, we've been developing contacts with Brazilian traders. The issue here is what's going to be the final transportation tariff to go from Neuquen to eventually the end consumer in Brazil. That's going to be basically the big question mark on whether the Argentinian gas is going to be competitive in Brazil or not. But luckily, we do have an alternative for the gas flowing through the Northern pipeline, which is the Chilean generation market in the mining sector of Chile, in the North Of Chile.

Speaker 2

So it would be a competition of these two markets for the Argentinian gas flowing north, which accounts approximately from 4,000,000 to 5,000,000 cubic meters per day. So in a nutshell, we do have two markets, one, which is the Chilean market, which seems pretty anxious to get some of the Argentinian gas as well as the Brazilian will be, in this case, a question mark of how competitive the overall transportation tariff is going to be.

Speaker 1

Thank you, Gracia. Next question comes from Raul Singh. Can you please provide guidance related to gas production for 2025 and onwards? JOSE

Speaker 2

Yes. We are forecasting to end 2024 with a production of on average of around 13,000,000 cubic meters per day, reaching peaks of around 16,000,000 cubic meters per day. Next year, we see the average production of Pampa increasing a little bit to 13,100,000, 13 point two million cubic meters per day and reaching peaks of around 14,300,000, 14 point five million cubic meters a day, including exports to Chile. So that's more or less the I think answers the question.

Speaker 1

Thank you, Gracias. Next question comes from Florencia Mansouraga from MetLife. After refinancing 27 and leverage at 0.8 times, which are the next steps for the group?

Speaker 2

ROBERTO

Speaker 4

hello, Florencia. So after the refinancing of the twenty seven that I think it was a very good deal for the company and the country, issuing debt with the minimum coupon for an Argentine company in the last five years. We are very comfortable with our level of indebtedness and our debt profile, considering all of the projects that the company has in the pipeline nowadays. So we do not see a necessity to go to the markets in the short term, although we will not rule out taking action in the coming months to extend the maturity of the remaining 27 if we see a very favorable window in the markets.

Speaker 1

Thank you, Nico. Next question comes from Matias Casaruzzi from ADCOP. First one says, with the proposed government reforms allowing free contracting in the term market, How does Pampa plan to position itself competitively?

Speaker 3

Hi, Natias. Thank you for the question. Our competitiveness, we are very optimistic of we are eager for this regulation to happen because we believe Pampa has many strength to manage itself in a free market. For two big reasons, one is because Pampa is an integrated company. So the flexibility of being able to so the fact that we produce the gas that our thermal plants will burn give us a significant competitive advantage.

Speaker 3

The second is related to our portfolio of power generation plants. And not only we have several combined cycles, extremely efficient in terms of thermal efficiency, but they are also well located in terms that the cost of gas transportation because they are located at wellhead is insignificant or inexistent, and that give us a competitive advantage vis a vis other power generation plants that need expensive transportation capacity and even they need new infrastructure to be built. So and the third thing is that we have a very seasoned, very with a lot of a team with a lot of expertise. Our commercial team for in power generation is well trained with a lot of expertise. We are one of the biggest players on the matter.

Speaker 3

So we are very comfortable to face that expected new environment.

Speaker 1

DA Thank you, Jose. Next question from Matias is regarding hydro concessions. So we already answered this. Now Sebastian Lacunza is asking regarding LNG projects, which we already answered. And the next question says, is Pampa seeking to sell legacy plants in Tucuman?

Speaker 3

So

Speaker 4

first of all, we don't have power plants in Tucuman. And secondly, we are not seeking buyer for any of our power generation assets.

Speaker 1

You, Juanico. I don't know if you have if we have more questions.

Operator

There's one from Mattia Catarucci. I think it's a follow-up. It says, how much upside can you have from the deregulation of the segment's EBITDA in the following years? I guess he's talking about power, right?

Speaker 3

Yes. But that's too soon to tell. Let us read the new regulation and do the math. Yes, I'll come back to you, but we don't know what is it going to look like yet.

Speaker 1

So we don't have any more questions. Thank you, everyone, for your questions. And now I will turn to Lida for final remarks.

Operator

LUIS I know, Us or Gracias, thank you so much for speeding up to get here. Us or Nico, I don't know if you have any remarks that you wanted to add. I think we've covered it all pretty well, right? The next call is next year. So we don't see you all until the next year.

Operator

Beforehand, we will if you have any questions or doubts or if there's any unanswered questions, just let us know, contact us, investor. Pampa dot com. We're always happy to help you. I wish you a good day. Bye.

Speaker 3

Thank you for joining. Bye. Thank you.

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Key Takeaways

  • Adjusted EBITDA reached $279 million in Q3, up 14% year-on-year, while net debt fell to its lowest level since 2016 and 75% of EBITDA is dollar-linked.
  • Gas production grew 8% year-on-year and power generation EBITDA rose 23%, supported by a 96% capacity factor across combined cycle plants.
  • Rincón de Aranda expansion is 98% complete with 130 MW already commissioned and full COD expected by month-end, selling under B2B PPAs.
  • Free cash flow reached $80 million in Q3, cash balance rose to $1.2 billion after issuing a $410 million 2031 bond, and net debt/EBITDA stood at 0.8x.
  • E&P segment EBITDA fell 8% year-on-year due to higher lifting costs and reduced exports, despite an 8% increase in total production.
AI Generated. May Contain Errors.
Earnings Conference Call
Pampa Energía Q3 2024
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