Pampa Energia Q3 Earnings Call Highlights

Key Points

• Adjusted EBITDA rose 23% year over year to $398 million, as stronger power-generation margins and self-supplied gas offset weaker crude-oil results; power-generation EBITDA climbed 33% to $160 million.
• Pampa secured new gas-transport capacity and expects Argentina’s electricity-market changes to improve power margins, including greater access to spot-market and B2B revenues. Its projects approved under RIGI represent about $30 billion in total investments.
• Capital expenditures surged 85% year over year to $585 million, contributing to negative $388 million in free cash flow. Management expects free cash flow to remain negative next year and turn positive in 2028; it is not planning dividends or share repurchases while funding its projects.

Pampa Energia NYSE: PAM reported third-quarter adjusted EBITDA of $398 million, up 23% from a year earlier, as improved power-generation margins and greater use of internally supplied gas offset weaker crude-oil results and lower thermal dispatch.

Investor Relations and Sustainability Officer Lida Wang said the company’s quarterly EBITDA was supported by stronger spot-market and business-to-business power-purchase agreement margins, as well as the benefits of supplying its own natural gas to thermal plants. EBITDA declined 4% from the prior quarter, however, reflecting lower crude inventories and the impact of oil hedges, partly offset by higher realized gas prices.

Oil and gas remained Pampa’s largest EBITDA contributor, accounting for 55% of the total. Quarterly capital expenditures rose 85% year over year to $585 million, driven primarily by spending on the Fértil Pampa urea project after its final investment decision. Spending at the Rincón de Aranda oil development moderated as that project approached its initial production plateau.

Gas transportation and long-term investment plans

Wang said all seven projects in which Pampa participates have received approval under Argentina’s RIGI investment-incentive framework, representing approximately $30 billion of approved investments. Pampa is directly involved in the Fértil Pampa urea project and the Rincón de Aranda development, while it holds stakes in the other approved projects.

The company also secured 9.6 million cubic meters per day of new gas transportation capacity through the Perito Moreno pipeline. Combined with 2.5 million cubic meters per day previously contracted and 3.5 million cubic meters per day consumed at the wellhead by the Central Loma La Lata power plant, Pampa has access to 15.6 million cubic meters per day of capacity, excluding the San Matías pipeline.

Management said the additional capacity will support integration between its upstream gas business, thermal power plants and planned urea facility. It also could enable sales into the Buenos Aires metropolitan area, exports to northern Chile and Brazil, and higher power-generation margins. Under Argentina’s revised electricity-market rules, generation fueled by gas transported through new infrastructure can capture the full dispatch margin in the spot market.

Chief Executive Officer Gustavo Mariani said Pampa expects the regulatory changes to lift power EBITDA through a greater share of spot margins, expanded B2B contracting and full-margin eligibility for Genelba once new transportation capacity becomes available. Beginning next year, generators will be allowed to capture 25% of the spread between marginal spot prices and production costs, compared with 15% currently, he said. Legacy thermal units also will be permitted to sell up to 60% of generated energy under B2B contracts beginning in April, up from 20%.

Oil and gas performance

The oil and gas segment generated adjusted EBITDA of $170 million, roughly unchanged from a year earlier but down 7% sequentially. Production averaged 99,700 barrels of oil equivalent per day, with oil representing 22% of total output. Lower gas demand from power plants amid milder El Niño-related weather and temporary oil-well shut-ins weighed on volumes.

Gas EBITDA totaled $119 million, up 6% year over year but down 2% from the second quarter. Gas production averaged 13.2 million cubic meters per day, down 6% from a year earlier. Sierra Chata output increased 29%, while El Mangrullo production fell 35%.

Pampa’s average gas price was $5 per million BTU, up 12% year over year, helped by higher recognition of self-supplied gas used for power generation during the winter. Head of Oil and Gas Horacio Turri said management expects dry shale gas to establish Argentina’s marginal gas price after Plan Gas ends because associated gas alone is not expected to meet demand. Pampa remains in Plan Gas through 2028.

Crude-oil EBITDA fell 14% year over year to $51 million. Total crude sales reached 23,000 barrels per day, up 15% from a year earlier, but the realized price after hedges, export duties and discounts fell to $55.70 per barrel. Without hedging, Pampa said its realized price would have been $84 per barrel, representing about $60 million in additional sales.

Rincón de Aranda averaged 21,000 barrels per day in the quarter, though production exceeded 26,000 barrels per day in September after 10 new wells were connected. The project reached a daily record of 28,700 barrels on Sept. 12. Turri said Pampa expects to reach 28,000 barrels per day by the end of 2026, rise to 40,000 barrels per day by the end of 2027, and achieve maximum capacity of 45,000 barrels per day in the first quarter of 2028.

• Rincón de Aranda capital spending totaled $158 million during the quarter.
• The company plans to drill 32 wells and complete 27 wells at the development next year.
• Management expects total drilling and completion costs of about $12 million to $12.5 million per well.

Power results and financial position

Power-generation adjusted EBITDA rose 33% year over year to $160 million, driven by stronger thermal spot and B2B margins. Pampa’s total plant availability was 94%, recovering from 88% in the prior quarter, while thermal availability reached 95%, above the national grid’s 80% level, according to the company.

Contracted capacity represented 37% of Pampa’s 5.2 gigawatts of installed capacity and contributed 59% of segment EBITDA. The company said B2B contracts generally command prices roughly 40% higher than spot-market sales. Mariani said Genelba may favor spot sales after new pipeline capacity comes online because the plant would be able to capture the full margin.

Free cash flow was negative $388 million during the quarter, reflecting elevated capital expenditures, crude-hedge collateral requirements and prepayment for Perito Moreno transportation capacity. Cash and equivalents exceeded $1 billion at quarter-end, while gross debt was $2.8 billion and net debt was $1.7 billion, equal to 1.7 times trailing-12-month EBITDA.

Chief Financial Officer Adolfo Zuberbühler said free cash flow is expected to remain negative next year as Pampa completes Rincón de Aranda investments and contributes capital to affiliates and gas-capacity prepayments. He said free cash flow should turn positive in 2028, excluding potential dividends, asset sales, acquisitions or other nonrecurring items.

For the $2.7 billion urea project, management said the full amount is covered by a lump-sum turnkey contract that includes provisions for delays, performance and quality. Pampa has invested $300 million so far, expects to spend roughly $600 million to $700 million next year and about $1 billion in 2028. Zuberbühler said the company was targeting project-financing completion by year-end.

Management said it was not planning share repurchases or dividends while it funds its investment program.

About Pampa Energia (NYSE:PAM)

Pampa Energía SA is an integrated Argentine energy company engaged in electricity generation, oil and natural gas exploration and production, and related energy infrastructure. Its power-generation portfolio includes thermal, hydroelectric and renewable facilities that supply electricity to Argentina's wholesale power market.

The company's upstream operations are focused primarily on Argentina, including conventional and unconventional resources in the Neuquén Basin and the Vaca Muerta formation.

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