Pampa Energía S.A. Q1 2023 Earnings Call
Speaker 1: I'm Mararita Chun from IAR and we would like to welcome everyone to Campaign Erijia's first quarter 2023 results video conference. We 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&A session.
Speaker 1: Questions can only be submitted in writing through Zoom. Should any participant need assistance, please send us a chat message.
Speaker 1: Before proceeding, please read the disclaimer that is located on the second page of the presentation. Let me mention the forward-looking statements are based on pump energy as 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. Let me mention the forward-looking statements are based on pump energy as management beliefs and assumptions and information currently available to the company.
Speaker 1: Investors should understand that general economic and industry conditions and other operating factors could also affect the future results of Campa Nargia and could cause results to differ materially from those expressed in such forward-looking statements. Now I'll turn the video conference over to Lira Wang, Investor Relations and Sustainability Officer of Campa Nargia. Lira Wang, Investor Relations and Sustainability Officer of Campa Nargia
Speaker 1: I will try to make it short and skip some parts already explained in the earnings release So we have plenty of time for Q&A with our CFO , Mr. Nicolas Minlin and our special guest here Mr. Rocio Turui, our Head of Upstream
by the addition of PPAs and a solid power dispatch, better gas and spot prices, plus trans-denerous tariffs increase. However, the EVDA increased 12 percent quarter-on-quarter because of the PPA additions, trans-denerous tariffs, and higher liquid margins in TGS, offset by soft gas sales and lower reforming sales. It is worth to note that 76 percent of the EVDA was dollar linked.
As you can see in the right below, the share between electricity and oil and gas is almost even, though power is in the pipe thanks to our PPAs.
Cateches in Q1 more than double year on year mainly because we keep up a new wind farm in PP6. Cateches in Q1 more than double year on year mainly because we keep up a new wind farm
plus the NPGEL drilling and completion activity in preparation for the winter peak season. Moving on to power generation as seen on slide four, we posted an EVDA of $108 million in Q1, down 11% year on year but up 26% quarter on quarter.
mainly explained by Barragán's whole PPA that expired in April last year, and higher labor expenses.
offset by the addition of wind farms plus the kickoff of Aragán's new PPA in late February of this year and better spot prices thanks to a special remuneration for later CGTs. He won this patch rose 11% year-on-year about the national power grid 8% growth.
in response to a hot wave that drove new records of power demand. Paragon's new CCGT contributed most of the increased low factor, offset by less olivian fuel and force.
and schedule outages at some thermal units stored within the core.
The availability is essential to collect pay-for-pay capacity payment, especially from PPAs contributing most of the EVDA. In Q1, we reached 93%. This is below
availability rate due to the thermal outages mentioned before, but still outstanding compared to the grid's 69% availability.
Moving on to wind power expansion, we are in 54. The project is highly advanced. In April , we commissioned 18 more, so we have 54.
Mail us online out of the 81.
the total useful capacity. In addition, almost all the remaining wind turbines are assembled and we estimate to complete the FUSE by the end of this month.
Regarding PPCs, we also kick off the second phase this month, adding 45 megawatts more. So the total capacity will be 140 megawatts by investing $265 million approximately.
For the first phase of 95 megawatts, we just started with the civil works for the path, platforms and the foundations.
And for the second phase of 45 naira, we are procuring 10 additional Vesta wind turbines.
We estimate what you achieve with COD next year, the first phase by Q3 and the second phase by Q4.
Keep in mind that the expansions are also under B2B PPAs. Also to finance this PP6 we issued in May our second green bond in Pestos in the local market raising
and equivalent.
to $22 million still in one year.
you sliced six
Our EMP business posting at total adjusted a BDA of $62 million in Q1, 10% up year on year because of the gas export prices and local oil demand, offset by lower gas export volumes and soft retail demand that drove production curtailment.
plus the higher costs for payroll and growing activity.
plus the higher cost for payroll and growing activity. However, quarter on quarter,
EVDA is down 14% driven by cell curtailment and
They worked fine.
Our total lifting cost almost double yearly.
explained by payroll and increased activity. However, it decreased quarter-on-quarter due to lower facility costs from a crucial block.
Efficiency wise, the listing cost per BOE was up 23%.
year on year, but very similar space, quarter on quarter, recorded $7 per BOE.
In Q1, our total production average was 58,000 BoE per day.
Crude oil will be sending 9% of that. Still, it reached 24% of the segment's revenues.
mostly because of the increased local demand, upset by the drop in the brand pricing, getting a realized price of almost $68 per barrel. Our gas production grew similarly but slightly down poorly.
I'm raging almost 90 million few meters per day.
Mainly explained again by the retail detail, a demand, vis-a-vis the seasonal contracted volumes under planned gas. In addition to lesser exports to Chile as permits were limited.
Furthermore, though the country experienced record high power demand and thermal and still capacity fire as much as possible, Canessa was not able to procure additional gas because of pipeline bottlenecks.
Hence, the Mangrove Shill output was curtailed over the quarter to 5.7 million km per day. However, Sierra Chata, with six drilling connector shells as well, have been outstanding, dramatically increasing the production. As you can see below, the results of Sierra Chata have performed the benchmark.
of the quarter was four dollars per minute BTU.
This is 11% year-on-year increase.
mainly due to export prices. In Q1, sales were skewed to Kemisa as they were buying gas to up from the high power demand.
Exports were lower but remain Undertaker Pay contracts until June of this year.
The petrochemical business posted $7 million in BTA in 2001.
primarily contributed by styrene and polystyrene cells, plus lower cost of propane, upset by a fall in SPR volume and higher labor costs. However, quarter on quarter is shrunk to by more than a half.
driven by a reduced supply of oil gas line and export margins.
Sales volume was up.
13% year-on-year mainly because last year some reforming products were dispatched as façons, so not BLS volume solved. In Q1, 39% of the total cells were exported.
So, moving to the cash flow in Q1, we recorded a free cash flow outflow of $29 million. This is mainly due to the expansionary capex that we are doing in power and gas.
Higher debt service, driven by special debt.
through principal gets diluted by devaluation plus worsening of payment collections from CAMESA that it went from 70 days to 100 days full cycle
That represents roughly $80 million of working capital buried.
In addition, we raised $97 million net from the local market.
In summary, we generated $68 million of net cash flow in the quarter, achieving 768 million cash. In summary, we generated $68 million of net cash flow in the quarter, achieving 348 million
in the end of the period.
So moving to the slide 11, we show our consolidated financial position, including our ownership, the affiliate ownership.
But just let's focus on the restricted group that reflects the BOM perimeter.
just let's focus on the restricted group that reflects the bond perimeter. We focus
We posted a gross debt of $1.7 billion. This is similar to the last quarter.
net debt and leverage ratio decrease to our solid cash flow position.
generation recording 900 a little bit about 900 million dollars and 1.2
The Irish life also reduced to 3.4 years.
Taking advantage of the domestic liquidity, we kept diversifying the currency and source. As a result, 81% of the dollar denominated offshore, bearing an interest rate of $2.5 in account of our own iris home withhold looks 1 percent wallet.
8.5%
So that bears an interest rate below trailing CPI, so onshore debt.
dollars is zero coupon.
Also, as mentioned before, we recently raised a second wind bond for five billion pesos. This bond was accomplished after musicals out of Spanish Christmas special,
That's $22 million roughly and issue $56 million of hard dollar bonds in the local market. This is non-MEP, but during 2025 at 5%.
A few days ago, we announced the reinvention of the remaining 2023 bonds for around $93 million. And we are now in the middle of a new era of the
So until 2027, PAMPA does not face any relevant dead maturities.
So, this concludes our presentation. Now, I will turn to Margarita, so she will poll for questions. Thank you very much.
Thank you, Leah. Now the floor is open for questions. If you have questions, please send us through some chat. We will read and answer them in the order received. Also, please make sure your name and company are correctly displayed to introduce you to the audience.
Should any participant need assistance, send us a chat message or raise your hand. Please call while we call for questions.
the official effects for principle of debt payment and import of equipment. What are the company tools to have access to the official effects of the central bank?
Okay. name..
Okay, so.
As for now, we are not having any issues to access to US dollar.
for imports of capital goods and raw materials.
But we have seen some delays in the case of services, but nothing significant.
For the maturities and interest payments we have not had any problem so far.
payments. We have not had any problem so far.
So, if the central bank stops selling us US dollars, we will need to finance those dollars forward.
But I think that even the current conditions, it will be at very expensive rates. So if that happens, I think we should reassess our...
our aggressive strategy regarding CapEx and investment, but we don't see this happen.
in the near future.
Thank you, Nicole. The next question is from Paola from TPCG. She has three questions. The first one is how are collections from the plant gas and the Nester-Gissner pipeline doing? Has there been any delay?
Thank you.
So the situation with CAMESA's payment and also regarding PlanGAS subsidy, how it rated a lot in the last few months.
And it has reached a delay equal to the worst that we have seen, that is of approximately 100 days.
are equal to the words that we have seen, that is of approximately 100 days. So as of today,
The debt amounts to 40,000 million pesos approximately in the case of Camela and 2,000 million pesos in the case of Plano Sarsi.
This delta grows interest per bank on a sion active interest rate that is around 104%
interest per bank on a C on active interest rate that is around one Korean 4% but
to mitigate this issue.
We issued everything in the last few months, taking advantage of the liquidity in the local market.
This acts like a hedge against a discrete devaluation.
we are hedging this with these three instruments and also we can hedge this.
the future dollar market. Thank you, Nico. The second question of Paula is, is there any plant that could enter into the new PPA contract under resolution 59?
CCTT, we managed to include Ensenada Barragán gas turbines. They are not.
They are part of a CGT, but they are the customers around their legacy. So they're very important. So we managed to include them as they are, as if they are CGT. So
All in all, we are calculating that the total impact of resolution 59 will be around close to $19 million in 2023. Still, however, that's, uh, it's.
A lot of that is upset by the devaluation curve. If there's no any further inflation adjustments to the legacy pricing.
Thank you Liz. The last question of Paula is regarding EMP business. Do you have any sensitivity analysis of how much an increase of 1% inflation impact on the lifting cost?
She has one more in the EMP, but let's focus on the first one.
Hello everybody.
Okay
Can you hear me now? Okay. Well, this question needs further analysis. Since now we have most of our costs based in US dollar linked.
And what we are seeing is particularly significant increase in wages.
and dollar inflation is starting to pick up. But all in all, we understand that probably we will have one third of the inflation being transferred to the lifting costs, more than that.
Thank you, Horacio. Paola's last question regarding the NP business is how much more expensive or cheaper is to produce natural gas in shale fields than in tight gas wells – in tight gas fields?
There is a trade-off there between capex and opex. In terms of capex, obviously the shale wells are more expensive than tight wells, but from an opex standpoint, as you are producing in high pressure rather than medium and low pressure, you don't need any compression.
and that significantly reduces the lifting cost in the shale fields vis-à-vis the time. Thank you, Horacio. The next question is from Alejandro Demichelis from Nao Securities.
He has two questions, but the first one is very related to the EMP business. How do you see inflation impacting on the drilling and compilation, especially on the Shell wells and the optics?
I think it is covered, but if you want to add something more.
Okay, I think he's particularly asking about drilling and completion. In that sense we've seen approximately a 10 to 15 percent increase in D&C costs, always related to dollar link when you compared to last year.
that they are saying in the media right now.
Thanks, separ Vic.
So of course we will be starting this project to see if we can participate at competitive prices.
Since the beginning of PAMPA, we have participated in every round to add power generation. But our main focus this year is in our very aggressive investment plan to run pipe gas production and to grow our renewables capacity.
Thank you, Nico. The next question is from Bruno Montanari from Morgan Stanley . He has a few questions. The first one is regarding the EMP business once more.
Can you comment on gas demand in the second quarter of the year? You mentioned on the release that retail demand was soft in Q1 and there were also bottlenecks with pipelines. So we would like to get a sense of how much volume are performing right now. Do you see more space for PAMBA to increase export to Chile on top of the additional 0.9 give us your thoughts on the coming year?
week we are starting to see some low temperatures and we foresee that probably we will go to the 9 million cubic meters per day that was mentioned before to around 11 million cubic meters per day during next week.
and stabilizing in around 12 million cubic meters, which is what we had forecasted for this time of the year.
keep on increasing our production reaching 15.6 with the commissioning of the Nestor-Kishner pipeline. So this is what we can say about our projected production for the coming months.
Regarding exports to Chile, we have already been awarded additional 900,000 cubic meters a day, May and June , and an additional almost 900 million cubic meters per day, July-September. I don't foresee any additional exports being granted to Pampa in that period, rather than that. So we will be exporting around 2.2 million.
and also prices. And do you see any challenges with securing the necessary equipment or are you seeing any inflationary pressure? Okay, what we committed for 2023, which basically is the additional 4.8 million for the
commissioning of the Nester-Kister pipeline. It's all of it drilled and already cemented and cased. We only are missing the completion of approximately 60% of the wealth which we think...
are confident in delivering by the commissioning of the pipeline. So I think that answers the first topic of the question. Second was if we have to secure equipment. We don't think that's gonna be necessary.
until the beginning of next year. We already have contracts with drilling and completion companies that secure our campaign until September of this year. And we will restart our negotiations for long term.
ventures, particularly with completion companies to secure equipment for 24 and 25. Thank you, Oresteo. And the last question of Bruno is regarding macro side.
It sounds like Argentina could be getting closer to a material official currency devaluation. Can you help us understand how PAMPA is preparing itself for the day after the potential devaluation?
So firstly, around 80 percent of our income is U.S. dollar linked.
and the rest is adjustable by inflation.
that is also affected by evaluation. I think the main negative impact for us would be regarding the outstanding debt of Kamesa.
If it is already pending, is it just also an interest rate in pesos?
But will be affected negatively if we have a discrete devaluation.
On the other hand, as I mentioned before, we have a big amount of testingopentas that we should
In the last month, taking advantage of the liquidity in the local market and that debt will also be diluted in case of an evaluation. So as our debt in pesos is higher than our credit, I think the net impact should be positive for us. We are also hedging our credit with Kamesa in theharmonica area.
in the US dollar future market in perfect.
in the US dollar future market in perfect. And also – in the US dollar future market in perfect.
An important part of our liquid is in dollar lean corporate bonds. So I think we are prepared for that scenario.
Thank you, Nico.
The next question is from Matias Castagnino from BCP. The first question is regarding spot energy combined cycle differential remuneration. This is Resolution 59. In which currency is being collected? If it's in pesos what is the increase?
Hi, Mattias. So basically in general last year the Secretary of Energy already scheduled all the increases and they scheduled one of 25 percent in general for all the legacy units in TESOS. There's another one upcoming in August and that's it.
It's accumulated in 2023 of 60%. Of course, the valuation is higher than that, so we expect further increases to match it up. Beyond that, CCGTs of the legacy scheme, they are granted a sort of a partial dollar.
pricing. It's a way to kind of hedge their costs in dollars. Dollar wise right now they are a little bit ahead, but it's not that significant. So yes, for example in a discrete evaluation they will be better because partially they are dollars.
So, that's this elimination, partial elimination dollars starts in March of this year, started already in March of this year.
Thank you Liz. Mattias second question is also regarding power generation. If in dollar terms energy – the legacy energy got increased and the PPAs are dollar linked.
why the average price in dollar per megawatt term decreased? Well, unfortunately, this quarter we experienced some outages in the thermal units in Noma, with the commissioning process of Ensenada Aragán and so on.
Availability is very important. As you know, it's 93% in this quarter, but it's already solved. And in the Q2, it's back to the close to 100% that we usually do. But the lower footprint on the availability affected the taker-pave side of the remuneration.
It's basically...
contributed to the EBITDA. And then also for those contracts that they are not under ticker pay, that is Mater, Jablus, especially Mater, the wind farms did not perform very well in the wind side, the capacity factors.
as not as we expected. So basically, that's the two reasons behind why the average pricing was weaker this quarter.
Thank you Liz. Mattias third question is regarding gas production. Considering the quarter-quarter decrease in gas production the release refers to commercial water commercial issues.
the seed aspect, the future expansion of vaca morta, we thought that any additional surplus production could be destined to export if local demand is satisfied. Okay, the nature of consumption in Argentina is highly seasonal.
What we saw during the past summer was a reduction of the retail demand and an increase in Kamesa's demand particularly. Now the problem is that Kamesa did not retain enough firm transportation.
so it was not able to acquire all the natural gas that it needed and that this
finally impacted in the need to burn liquid fuels.
during the summer season. So the issue was that our reduction in sales was linked to the availability of transportation from Camisa.
Now, for the future, we don't foresee that problem happening, partially at least with the commissioning of the Néstor Kisner pipeline and the future expansions of the transportation system. Now, regarding the question of exports to Chile, now we are exporting all of the transportation capacity that is available to Chile.
What we'll see probably in the coming future is the possibility of exporting additional volumes to Chile through another pipeline that connects Argentina and Chile in the central region and also in the north. But with the restriction of first having to redirect the gas.
flows from the north to the south in the Noroeste pipeline and turning it from Baca Muerta into the north of Argentina and further into the north of Chile. Thank you, Horacio. The next question is regarding petrochemical business. This is the fourth question of Matias.
So, there are different factors affecting EVDA this year in comparison to last year. First of all, during the first quarter, we have processed less EV versus NAFSA in the reformant.
seen and the styling have worsened.
have worsened this quarter.
And our fixed costs in dollars have increased also because of the impact of inflation against devalues
On the other hand, local premiums in prices in styling and polystyrene have risen, bigger and poorer in local macro conditions.
Thank you, Nicole. Mattias, last question is regarding the debt market. Why are you executing debt in pesos at a variable rate and not dollar length?
Yes, that is a question. So first of all, the Basel rate is lower than inflation.
Secondly, we are also issuing dev team
Taking the dividend pesos from local banks at fixed interest rates that are below inflation. And third, we also issued a dollar linden.
almost 100 million dollars this year. In the case of valuation, it is much better to have 17 pesos than dollar links. If we take into account the current situation, we prefer now to have more than 15 pesos, even at a floating rate that is below inflation.
This rewill besecond for.
The thir pro be cour before it.
I think it was already covered. Yes, thank you. So it was already covered. And the second question is, could you please comment on the media report that mentioned that the government would not extend expiring hydro concessions?
Well, not much to comment on that. Basically we've been asked for information. We have two questions.
The hydro power plants are due next year, October , June and October . The Mendoza power plant and the other one, the one that is in the again, it matures in late 2029, I think. So basically, they're...
far away from them, but we've been asked for information, much more than that. We provision some, expecting what happens with the concession, but the concession agreement says that if it ends, we part ways. We don't get anything and we don't have to pay anything.
Thank you, Liz. The next question comes from Andrés Cardona. Once more for the EMP Disney. What have you learned so far from shale wealth in terms of drilling cost per well?
particularly in terms of productivity, we were able of finding sweet spots both in Mandrujo and Sierra Chiata and we were surprised with the performance of the wells. As Lida showed before during the presentation, we had a
one of our flagship wells in Sierra Tata with an output of more than 1 million cubic meters per day, which ranks top three in the Newquina basin. So from a productivity standpoint, we feel pretty confident in going and proceeding with the development of black tamar. In terms of potential use of black tamar,
still in very early stages we are running the pilot programs right now so probably we will see a significant decrease in our investment as well in the development phase.
Q2 and Q3. Daniel Warriola is from BTG. Okay, Nestor Kishner pipeline is doing pretty well. We
probably see the pipeline being commissioned by the end of June , first days of July . So it's would be on schedule. We are ready to deliver the gas that we committed for the plan gas for this for this new demand, which is approximately 4.8 million cubic meters per day of additional gas. And well, that will obviously have a significant impact in the every generation for the third quarter, second and third quarter.
So in this question, we don't have PPAs expiring in the next four years. The next few years, the next expiration is in 2026.
And of course, most of the data is dollar-ling because PPAs are in dollars and they generate roughly more than 75% of the power generation business. So the next is just one PPA expiring in 2026. This is no one but the big junk.
It's a 305 mailbox in 2027 and the next one is in 2035, 30A and 40 so we have 20 of time.
Thank you, Leeds. And the next question comes from, and mainly from Bank of America.
She has a question regarding new tariff schedule for legacy power plants, which plants are venous feeding and how much additional revenue or cash flow will generate on an annual basis. Is there any conditional or additional capital expenditure required?
So, hi, I'm basically again, the benefit, and this is intended to raise, as I mentioned before, the ability of the system is declining. Actually, we are one of the, we are one of the old and those in a few years.
Right now, that's just the 9%. So the environment wants to keep it up, ramp out the living degrees, especially so there are no excuses for maintenance. They are partially converting in dollars for the CCGTs. We are including here Loma La Latta, Genera.
assuming that there's no further increases in general for legacy prices, matching the inflation.
That $19 million delutes to merely $5 million for the year. So basically, it's very important that the legacy prices keep it up with inflation.
Thank you, Liz. The next questions come from Ludovic, Cosfroge, from Autonomy. During which month or weeks, during which month or weeks would you reach your gas production target of 15 points?
Thank you, Horacio. The next question comes from Jim Musil from Magenti Road. What is the average BPCMP business question? What is the average IP initial production rate for wells in shale gas? What is the average lateral length? What is the break-even price for to support listing capex and provide a good IRR?
800,000 cubic meters per day. The
The lateral length of our Baca Marta wells is 2500 meters and we've been drilling and completing wells only of the lateral length. We haven't explored any longer lateral wells yet.
Regarding the price, I would say that we've been beating at prices that are reasonable for us to have a reasonable rate of return. Thank you, Horacio. Please wait while we pull for more questions.
Our head of EMP here, I hope all the questions that you have been answered. If anything, it's of any interest, contact us, Margarita and I, and all the other things that are freely available for you.
Thank you, have a good day, have a good week, and see you next time.