Pampa Energia Q2 Earnings Call Highlights

Key Points

• Pampa Energia approved a $2.7 billion urea plant in Bahía Blanca, with planned annual capacity of 2.1 million tons and completion targeted for 2029. The project will use Vaca Muerta gas and power, primarily serving Brazil and other Southern Cone markets.
• Second-quarter adjusted EBITDA reached $415 million, driven by record production of 107,500 barrels of oil equivalent per day, stronger power-market margins and improved petrochemical pricing. Oil and gas EBITDA more than doubled year over year to $182 million.
• Rincón de Aranda oil output is targeted to reach a 28,000-barrel-per-day exit rate this year and a 45,000-barrel-per-day plateau next year, although hedges reduced realized crude prices to about $59 per barrel. Pampa expects leverage to rise to 1.5–2 times as it funds its investment program.

Pampa Energia NYSE: PAM said its board approved the final investment decision for what it described as Latin America’s largest urea plant, while the company reported second-quarter adjusted EBITDA of $415 million, supported by record oil and gas output, stronger power-market margins and improved petrochemical pricing.

The planned fertilizer facility, to be built in Bahía Blanca, would have capacity to produce 2.1 million tons of granular urea annually. The $2.7 billion turnkey project is scheduled for completion by the end of 2029 and marks Pampa’s entry into the fertilizer business.

Urea project targets regional import demand

Investor Relations and Sustainability Officer Lida Wang said the project is intended to monetize Pampa’s Vaca Muerta shale gas resources through a higher-value industrial business. Natural gas and electricity represent about 70% of urea production costs, and Pampa expects to supply both inputs to the facility.

The plant is planned for a company-owned site near the Port of Bahía Blanca, with connections to existing Vaca Muerta pipelines and proximity to Pampa’s thermal and renewable generation assets. It is expected to consume an average of 3.3 million cubic meters of gas per day and 75 megawatts of power.

Wang said Brazil, which imports an estimated 7 million to 8 million tons of urea annually, along with other Southern Cone markets, will be the primary markets for the project. She said the investment could support import substitution and exports, with an estimated annual foreign-currency contribution of about $1 billion.

The company is awaiting formal publication of approval under Argentina’s national RIGI investment-incentive regime after the evaluation committee cleared FertilPampa’s application. It has also applied for Buenos Aires province’s investment regime. CFO Adolfo Zuberbühler said the two regimes are complementary and that the provincial program could provide a gross-sales-tax benefit.

Zuberbühler said Pampa expects to finance the plant with a limited-recourse project-finance loan, targeting an approximately 60% debt and 40% equity structure. The company expects financing to close during the fourth quarter, although terms remain under negotiation. He said equity contributions would begin this year, with the largest capital deployment expected in 2028.

Oil and gas output reaches record

Pampa reported quarterly record production of 107,500 barrels of oil equivalent per day, driven by the ramp-up at its Rincón de Aranda development and gas supply to its own power plants. Oil and gas adjusted EBITDA rose to $182 million, more than doubling from a year earlier and increasing 74% sequentially.

Crude production rose threefold year over year, entirely due to Rincón de Aranda. The asset averaged 22,000 barrels per day during the quarter, up 22% from the first quarter, despite no new wells being tied in since March. Production reached a record 27,000 barrels per day on May 21.

Pampa said its quarter-end production rate was temporarily reduced to 16,000 barrels per day after certain wells were choked while nearby pads were completed to avoid frac hits. Ten wells completed in July were expected to be tied in during August, and management maintained its target of reaching a 28,000-barrel-per-day exit rate this year. The longer-term target remains a 45,000-barrel-per-day plateau once the central processing facility and Vaca Muerta Sur oil pipeline are operational next year.

The company’s Rincón de Aranda RIGI application was approved July 21 as a long-term strategic export project. It includes 259 wells, a central processing facility, oil and gas pipelines and water-treatment facilities, with estimated investment of $4.5 billion through 2041. Pampa expects to export all production from the project through the Vaca Muerta oil pipeline.

Oil lifting costs per barrel declined 28% from a year earlier to $15 during the quarter. Management expects an exit-rate lifting cost of about $10 per barrel with two temporary treatment facilities in operation, falling toward $5 per barrel by the second quarter of next year after the permanent facility is completed and output rises.

Hedges weigh on realized oil pricing

Realized crude prices averaged nearly $59 per barrel, which Pampa said was reduced by its hedge position. Without hedges, realized prices would have been about $91 per barrel, equating to approximately $64 million in additional sales, according to the company. Exports accounted for 57% of total oil volumes sold.

Zuberbühler said Pampa does not plan to unwind its hedge position. The company has hedged current production through the first quarter of next year at a weighted average Brent price of about $67 per barrel, while incremental production growth will remain unhedged.

Gas production increased 10% year over year and 4% sequentially to more than 14 million cubic meters per day. Average gas prices rose 15% from a year earlier to $4.60 per million BTU, reflecting higher fuel-cost pass-through in power generation and increased retail prices.

Power EBITDA rises as market framework changes

Power generation adjusted EBITDA was $155 million, up 39% from a year earlier and 8% from the prior quarter. Pampa attributed the result primarily to stronger spot and business-to-business power-purchase-agreement margins, as well as LNG procurement margins under Argentina’s new regulatory framework.

The result was partly offset by the maturity of Energía Plus contracts, outages at generating units and underperformance at the PEPE wind farms. Total generation availability was 88% during the quarter, though the company said it continued to outperform peers in the national grid.

Pampa expects power-generation EBITDA of about $600 million for 2026, assuming winter conditions and energy consumption remain broadly similar. Management said 2027 EBITDA could increase by roughly $100 million as new gas transportation capacity becomes available, though expiring PPAs are expected to weigh more visibly on results in 2028.

Free cash flow was negative $128 million in the second quarter but improved both year over year and sequentially. Cash and cash equivalents totaled $1.3 billion at quarter-end, while gross debt was $2.6 billion and net debt was $1.3 billion, representing 1.4 times trailing-12-month EBITDA. Zuberbühler said net leverage could rise to between 1.5 times and 2 times over the next two to three years as Pampa funds its investment program.

About Pampa Energia (NYSE:PAM)

Pampa Energía SA is Argentina's largest independent energy company, with integrated operations spanning electricity generation, transmission, distribution and oil and gas activities. The company holds a diversified portfolio of thermal and hydroelectric power plants, along with growing investments in renewable energy projects, serving both domestic and regional markets.

In its electricity business, Pampa Energía develops and operates plants that supply energy to Argentina's power grid.

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