Pampa Energía S.A. (NYSE:PAM) Q1 2023 Earnings Call Transcript May 12, 2023

Lida Wang: Hello, everyone, and thank you for joining our conference call. I will try to make it short and skip some parts already displaying the earnings release. So we have plenty of time for Q&A with our CFO, Mr. Nicolás Mindlin, and our special guest here, Mr. Horacio Turri, our Head of Upstream. Let’s start with the quarter’s figures and go straight to the adjusted EBITDA, which amounted to $206 million in the Q1, 8% less year-on-year mainly because of Barragán old PPA. PGS’ lag tariffs and higher payroll in dollar terms, upset by the addition of PPAs and a solid power dispatch, better gas and spot prices plus Transener tariff increase. However, the EBITDA increased 12% quarter-on-quarter because of the PPA additions, Transener tariff and higher liquids margins in PGS upset by soft gas sales and lower performance sales.

It is worth to note that 76% of EBITDA was dollar-link as you can see in the right below, the share between electricity and oil and gas is almost even though power is leading the pipe thanks to our PPS. CapEx in Q1 more than doubled year-on-year mainly because we keep off some new wind farm in PEPE VI plus E&P shale drilling and completion activity in preparation for the winter peak season. Moving on to power generation as seen on Slide four, we posted an EBITDA of $108 million in Q1 down 11% year-on-year but up 26% quarter-on-quarter, mainly explained by Barragán PPA that expired in April last year. And higher labor expenses offset by the addition of wind farms plus the kickoff of PPA in late February of this year. And better spot prices, thanks to a special remuneration for legacy CCGTs. Q1 dispatch rose 11% year-on year, while the National Power Grid 8% growth in response to a hot wave that drove new records of power demand.

Barragán’s new CCGT contributed most of the increased load factor offset by less Bolivian fuel and forced and scheduled outages at some thermal units restore within the quarter. Availability is essential to collect take or pay capacity payment, especially for PPAs contributing most of the EBITDA. In Q1, we reached 93%, this is below last year’s almost 98% availability rates due to the thermal outages mentioned before but still outstanding compared to the grid 69% availability. Moving on to wind power expansions. Regarding PEPE IV, the project is highly advanced in April, we commissioned 18 more, so we have 54 megawatts online out of the 81 that is the total installed capacity. In addition, almost all the remaining wind turbines are assembled, and we estimate to complete the COD by the end of this month.

Regarding PEPE VI, 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 platforms and the foundations. And for the second phase of 45 megawatts, we are procuring 10 additional Vestas wind turbines. We estimate to achieve COD next year, the first phase by Q3 and the second phase by Q4. Keep in mind that debt expansions are sold under B2B PPAs also to finance this PEPE VI, we issue in May our second Green Bond pesos in the local market raising an equivalent to $22 million due in one year. In Slide 6, our E&P business posted a total adjusted EBITDA 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 curtailments plus this higher costs for payroll and growing activity.

However, quarter-on-quarter EBITDA is down 14% driven by second tailwinds and legal expenses. Our total lifting costs almost doubled yearly, it’s claimed by payroll and increase activity however it decreased quarter-over-quarter due to lower facility costs from El Mangrullo by block. Efficiency wise the lifting costs per BOE was up 23% year-on-year but very similar [indiscernible] quarter-over-quarter, recorded $7 per BOE. In Q1, our total production averaged almost 58,000 BOE per day, assuming crude oil representing 9% of that still, it reached 24% of the segments revenues, mostly because of the increased local demand offset by the drop in the Brent pricing, getting a realized price of almost $68 per barrel. Our gas production in Cuba was similar yearly, but likely down quarterly averaging almost 9 million cubic meters per day, mainly explained again by the weaker retail detail demand vis-à-vis the seasonal contracted volumes on their Plan Gas, in addition to lesser exports to Chile as permits were limited.

Furthermore, though the country experienced a record high power demand and thermoneutral capacity for as much as possible. CAMMESA was not able to procure additional gas because of pipeline bottlenecks. Hence, El Mangrullo output was curtailed during the quarter to 5.7 million cubic meters per day. However, Sierra Chata would with 6 drill in [indiscernible] have been upstanding, dramatically increasing the production. As you can see below the production, the results of Sierra Chata outperformed the benchmark. El Mangrullo also performs very well between the average among peers. We rely on both blocks to ramp up production each reaching all-time high supported by excellent results for now with shale gas wells. The average gas price of the quarter was $4/MBTU.

This is 11% year-on-year increase, mainly due to export prices in Q1 sales were skewed to CAMMESA as they were buying gas to up from the high-power demand. Exports were lower but remain under take or pay contracts until June of this year. The petrochemical business posted $7 million EBITDA in Q1 primarily contributed by styrene and polystyrene sales plus lower costs of propane, offset by a fall in SBR volume and higher labor costs. However, quarter-over-quarter shrunk to by more than half driven by a reduced supply of raw gas line and export margins. Sales volume was up 13% year-on-year mainly because last year some reforming products were dispatched as [indiscernible], volume sold. In Q1 29% of the total sales were exported. So moving to the cash flow in Q1, we call it a free cash flow outflow of $29 million.

This is mainly due to the expansionary CapEx that we’re doing in power and gas. Higher that service driven by peso debt, through principle gets diluted by devaluation, plus worsening of payment collections from CAMMESA that it went from 70 days to 100 days full cycle collection. That’s represents roughly $80 million of working capital. 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 the end of the period. So moving to the Slide 11 We show our consolidated financial position in Greenwind, our ownerships — the affiliates have ownership. But just let’s focus on the restricted group that reflects the Pampa [indiscernible]. We posted our gross debt of 1.73 million.

This is similar to the last quarter, net debt and leverage ratio decrease fence to our solid cash flow position generation, thanks to our solid cash flow position. Generation we call a 900 — a little bit above $900 million and 1.2x leverage, the average 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 8.5%. Peso debt bears an interest rate below trailing CPI, so on onshore debt in dollars is zero. Also, as mentioned before, we recently raised a second green bond for 5 billion pesos that’s $22 million roughly and issued $56 million dollar bonds in the local market, this is [indiscernible] by percent.

A few days ago, we announced the retention of the remaining 2023 bonds for around $93 million. So, until May, 2027 Pampa does not face any relevant debt maturities. So, this concludes our presentation. Now, I will turn to Margarita, so she will poll for questions. Thank you very much.

A – Margarita Chun: Thank you, Lida. Now, the floor is open for questions. [Instructions] Our first question our first question is from Maria Moyano from the Company AdCap. She would like to know regarding the company situation to access to the official FX for principle of debt payment and import of equipments, what are the company tools to have access to the official FX of the central bank.

Margarita Chun: Thank you, Horacio. Please wait while we poll for more questions. So thank you for waiting. This concludes the question-and-answer section. So we will turn this concludes the question-and-answer section. So we’ll turn to Lida for final remarks.

Lida Wang: Okay. Thank you for all joining us in this quarter. Unfortunately, our CEO wasn’t here but our special guest, our Head of E&P here, I hope all the questions that you have been answered. If anything, it’s outstanding, just contact us Margarita and I and the other IR team are freely available for you. Thank you. Have a good day. Have a good week and see you next time.