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Edited Transcript of PAMP.BA earnings conference call or presentation 14-May-19 2:00pm GMT

Q1 2019 Pampa Energia SA Earnings Call

May 28, 2019 (Thomson StreetEvents) -- Edited Transcript of Pampa Energia SA earnings conference call or presentation Tuesday, May 14, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Gabriel Cohen

Pampa Energía S.A. - CFO & Director

* Gustavo Mariani

Pampa Energía S.A. - CEO, Executive VP & Vice Chairman

* Lida Wang

Pampa Energía S.A. - IR Officer

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Conference Call Participants

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* Bruno Montanari

Morgan Stanley, Research Division - Equity Analyst

* Frank J. McGann

BofA Merrill Lynch, Research Division - MD

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and thank you for waiting.

At this time, we would like to welcome everyone to Pampa Energía's First Quarter 2019 Results Conference Call. We would like to inform you that this event is being recorded. (Operator Instructions)

Before proceeding, let me mention that forward-looking statements are based on the beliefs and assumptions of Pampa Energía's management and on information currently available to both companies. They involve risks, uncertainties and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of Pampa Energía and could cause results to differ materially from those expressed in such forward-looking statements.

Now I'll turn the conference over to Lida Wang, Investor Relations officer of Pampa Energía. Ms. Lida, you may begin your conference.

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Lida Wang, Pampa Energía S.A. - IR Officer [2]

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Thank you very much, Nelly. Good morning, everyone, and thank you for joining our call. I will briefly go through every business segment, reviewing the quarter's key figures and the latest events since our last call in March. Our CEO, Mr. Gustavo Mariani; and our CFO, Mr. Gabriel Cohen, are joining us for the Q&A session.

Let me start by reminding you that our financial statements follow the International Accounting Standard #29, meaning all figures reported are adjusted by PPI inflation. What does it mean? Basically, all figures in the P&L are stated as of March 2019. So Q1 2019 results contain an average inflation of 3.8% in the quarter while Q1 2018 results have a 58% adjustment. This also happens similarly to the cash flow statement, but there, all the nonmonetary items coming from the balance sheet are adjusted according to the day of record. For example, property, plant and equipment. And therefore, that affects the D&A. Balance sheet monetary items that is cash, credit and debt are stock and therefore, there's no need for inflation adjustment. But comparative figures as of December 2018 must be restated as of March 2019, adjusting them by 11%.

So as you can see in Slide 4, moving to the quarter's figures in constant pesos as of March 2019, the adjusted EBITDA in the first quarter of 2019 recorded ARS 8 billion, 34% less compared to an EBITDA of ARS 12.2 billion recorded in the same period of 2018, mainly explained by electricity distribution, E&P and to a lower extent, the petrochemical and the Transener's underperformance, partially offset by our power generation business and our affiliate TGS contribution.

Anyway, this adjustment, by inflation 101 that I just gave to you, is very brief. If you have more questions, please note that you are -- can always reach us out anytime. For convenience purposes only, however, today's results that we are going to discuss are translated into dollars from nominal peso currency, which are reported in our earnings release.

So let me switch to dollars. On the first slide, we want to make a quick start by reviewing the quarter's financial highlights. The revenues fell year-on-year by 25%, mainly because of 98% peso average depreciation over our regulated businesses and 50% lower gas prices, offset by the commissioning of Mario Cebreiro wind farm. Quarter-on-quarter, revenues improved by 4%, mainly because our electricity regulated businesses got tariff increases on account of cost inflation. Being a renowned granted us 32%-plus retroactive charges, and Transener, an average of 25% in addition to a higher variable remuneration from better energy dispatch and gas cut through at power generation, thanks to the fuel self-procurement we are allowed to do since November of last year.

EBITDA also rebounded quarter-on-quarter by 17%, mainly explained by the tariff that increase at a higher rate than the operating costs and debt depreciation, higher contribution from natural gas liquid processing in TGS plus in power generation, a higher variable margin for an operation maintenance and fuel self-procurement. Also it is worth mentioning that since Q1 2018, our EBITDA margin was falling from 35% to the lowest point in Q4 2018 of 23%, rebounding to 26% in the first quarter of 2019.

In light of all the prior conflicts being experienced by E&P, oil and gas share in the E&P in the EBITDA shrunk to almost 1/3 of Pampa's consolidated EBITDA, where our electricity, led by power generation, takes the other 2/3. Also 70% of Pampa's EBITDA is dollar-linked, mainly from gas and power, which contributed to deliver $216 million EBITDA.

Moreover, in the first quarter of this year, we increased our CapEx investment 38% compared to the same period last year, mainly explained by Edenor's maintenance and catch-up investment plans and our power generation expansion undergoing in wind projects and closing to combined cycle. If we compare it to the last quarter, CapEx dropped 39% mainly driven by the fact that we are finishing our expansion in the wind farms, and we will visit the CapEx plan across all our businesses including [NPN] and Edenor

Now moving to power generation segment. During the first quarter of 2019, we posted an adjusted EBITDA of $104 million similar to Q1 2018, mainly driven by the net margin over fuel recognition in the variable production cost that, known as CVP, in addition to the commissioning of Mario Cebreiro wind farm with our PPA under RenovAr program. This effect was partially offset by a lower dispatch rate especially at our thermal power plant and a reduction in legacy remuneration at the Resolution 1 expected from March 2019. Quarter-on-quarter, we generated 20% more, therefore, recording higher net variable margin.

Although we recorded an outstanding 95.5% availability at our power unit and especially 94% at our thermal units, generation was 9% lower year-on-year mainly due to the lower dispatch at Güemes and Piquirenda thermal power plant because they have higher CP from the partial recognition of Bolivian imported gas, therefore placing them behind the dispatch priority in the grid in addition to lower electricity demand in the system because causing a lesser generation at Loma de la Lata, Piedra Buena and Genelba thermal power plants, plus a lower water level at our dams in Mendoza mainly affecting Diamante power plant. This variation was partially offset by the commissioning of Mario Cebreiro wind farm, which was senior in the dispatch priority because its variable cost is close to zero and a higher availability at the Ingeniero White thermal power plant.

Quarter-on-quarter, power generation increased because electricity demand in Greece recovered 6%, plus also Q4 2018 was the lowest consumption recorded in a quarter since 2013 -- '14. The availability rate in the first quarter of 2019 was 95.5% as I've mentioned before with increase in total capacity, slightly lower than the 97.3% availability achieved in the same quarter of Q4 last year mainly because the strategic commercial outages that we're doing at certain thermal power plants we choose to do offset by higher availability in Ingeniero White.

Moving to news in power generation and a quick update of our expansion projects. On May 10, CAMMESA granted its commercial commissioning of Pampa Energía's #2 and #3 wind farms, each 53 megawatt in full capacity and 14 wind turbine as you can see on Slide 7 and on Slide 8. Those wind farms are located nearby Mario Cebreiro wind farm and destined to meet the demand of large electricity consumption users through private PPAs under master framework. The wind farms are fully sold out at a weighted average price of $69 per megawatt hour and the PPA's maturities range between 1 to 10 years with an average life of 5 years. All can be rolled at maturity.

The Parque Eólico Pampa Energía, or PEPE #2 and #3 as we call them, demanded a final investment of approximately $130 million, 5% below the budget. And the COD was the same day as we committed, something that makes us very proud. This is -- with these 2 new additions, Pampa has reached in total 206 megawatts of wind energy making a total of 14 power plants and 4 gigawatts of installed capacity across the country, pointing us as a leading company renewables and the largest independent power producer in Argentina.

Regarding the expansions we have in pipeline, we are currently in the midst of the closing to CCGT of 383 megawatts at Genelba as you can see in the picture on Slide 9. By the end of April, the first fire-up of the new gas turbine took place, and a few days ago, the gas turbine was successfully connected to the grid. Therefore, after testing, it reached 180 megawatts in full capacity. Adding the 20 enhancements to the original gas turbine place in Genelba, we are expecting to start operations for 200 megawatts of power capacity by the next few days, but we'll be building a legacy capacity until the total combined cycle begins operation. Additionally, we have been advancing with the rest of the infrastructure works, which are ahead of the original schedule.

Moving on briefly to the distribution segment, which was reviewed by our CFO at Edenor, Mr. Leandro Montero, yesterday in their earnings call. As shown in Slide 10, during the first quarter of 2019, the EBITDA decreased by $114 million compared to the same period of 2018, amounting to $25 million in the quarter mainly because of low demand of electricity due to mild weather, downturn in the economic activity and price-demand elasticity. Moreover, this quarter's EBITDA was negatively affected by the FX variation higher than the own distribution costs update, a.k.a. CPD, which lags the devaluation, and it is overweighted in this salary index that also lags CPI and the PPI in addition to higher operating cost and energy losses. This is offset by lower labor cost in dollars and deferred income from gradual tariff increase in 2017. Quarter-on-quarter, EBITDA at distribution grew, mainly explained by 8% greater electricity demand and lesser fines recorded.

Energy losses reached 17.4% rate in the first quarter of 2019, 110 basis higher than the 16.3% for the same period of 2018 and 30 basis above Q4 2018, mostly identified in residential end users, especially low-income users that do not have access to gas distribution rate, partially offset by lower volume of energy demand. We are targeting at users that steal electricity from us by performing market discipline actions and installing customized pre-charged meters. Therefore, we are increasing our customer base, but this has been offset by losses on SMEs and large users.

Energy cost increased by 19% in pesos net inflation but decreased 40% in dollars year-on-year due to the peso increases in the seasonal price were outpaced by the peso devaluation. By the way, electricity cost for residential end users, it is still subsidized compared to the full cost of generation. Currently 1/3 of it is estimated to be subsidized. For the remaining of the year, the separate areas of renewable resources and electricity market weighed from increases in the seasonal price for residential users, thus increasing the subsidy share to 50% at the end of the year, but this rate, the seasonal price for nonresidential users in May and in all of this year, which is not subsidized.

Finally, last Friday, Edenor was notified that the agreement to transfer Edenor's concession from national to local regulator was approved without any change in Edenor's license agreement. Moreover, it was notified that the liabilities realization agreement was approved, thus ending cross-claims originated in the 2006 to 2017 transition period. On the one hand, the national government virtually acknowledges Edenor's claim releasing from liability ARS 6.9 billion, which are composed by the energy purchases acknowledged by the government, a fraction of the load granted by CAMMESA and the penalty owed to the national government, all recorded during the transition period. On the other hand, Edenor waives all rights and actions against the national government, including the losses filed in year 2013. Plus Edenor will pay end users for certain penalties corresponding to the same period, thus executing additional investment on top of the RTI for a total amount of ARS 3 billion in the matter of 5 years plus other outflows mainly corresponding to income tax for additional ARS 4.6 billion. We find this milestone very positive for Edenor, as it ends a huge burden for its balance sheet and shall boost the equity value for shareholders.

As you can see on Slide 11, during the first quarter of 2019, in the oil and gas segment, we posted an adjusted EBITDA of $38 million for the continuing operation, 59% lower than the Q1 2018 and 23% lower than the last quarter, mainly because it is still reflecting the downward trend in hydrocarbon's dollar price, especially in gas, distribution of Plan Gas second generation in July 2018 and the lower trading of third-party natural gas, partially offset by slightly higher production and sales of crude oil plus greater intersegment sales to power generation. Please remember that in Q1 2018's EBITDA includes of $19 million from Plan Gas second generation recorded from our block that used to belong to Petrolera Pampa, a subsidiary that was merged into Pampa in 2017. To be conservative, and until obtaining the gas authority's formal approval, this $19 million was reversed in Q2 '18.

Despite prices are falling, our overall production in Q1 2019 increased 2% year-on-year and 10% quarter-on-quarter, reaching to 46,800 barrels of oil equivalent per day, of which 89% is composed by natural gas. On this oil side, the 15% increase in production year-on-year from 4,700 to 5,400 barrels of -- per day mainly responds to the beginning of crude oil production at Chirete, a loss impacting trade that after all discovery reported by the end of November last year with very promising results. During the testing period, the block at 100% stake has produced 1,900 barrels per day, so imagine. It is 30% of the total (inaudible) oil production, and it is considered the most important discovery in this basin since 1984 on top of 50% working interest in this block. Additionally, the increased drilling activity at El Tordillo block also contributed at a -- to a higher oil production. During Q1 2019, the crude oil price decreased year-on-year by $4 reaching to $54.40 per barrel because the domestic price follows international price of barrel brand and Escalante heavy oil narrows Medanito prices being 57% of our oil production at the current.

Please turn to Slide 12, we -- where we want to explain in deeper detail the situation in gas. Regarding the gas production, the quarter reached an average of 249 million cubic feet per day, similar to Q1 2018 but 12% higher quarter-on-quarter, mainly explained by the production increase at El Mangrullo by the installation of an energy production facility and an agreement with YPF to use the neighboring Rincón del Mangrullo processing plant, so we are able to evacuate more gas. By March 2019, the gas production levels at -- of El Mangrullo reached 148 million cubic feet per day, 53% higher than in March of last year. Río Neuquén also presented a 9% increase in gas production year-on-year due to the increase in capacity by second half of 2018.

These positive variations were partially offset by an excess of supply driven by the disruption of shale development, especially specifically backed up by unconventional Gas Plan Resolution 46 and kind of affected by the economic downturn. This effect negatively impacted on Rincón del Mangrullo block with a lower drilling rate and natural decline and a minor decrease at Parva Negra Este and RenovAr blocks.

During the first quarter of 2019, our accurate weighted average sale price for gas was $3.1 per million Btu, 50% lower year-on-year and 9% lower compared to last quarter, mainly due to 35% decline in end user sales price compared to first quarter 2018. The lower sales price to end user was mainly driven by a reduction of the reference price for gas fired at power plants and the gas tenders on a nonfirm basis conducted by CAMMESA, which reflected the demand seasonality and excessive supply, which also impacted negatively the commercialization in the industrial segment. Moreover, Q1 2018 actual price of $6.3 per million Btu included Plan Gas second-generation compensation, which expired at the end of June 2018 and represented $1.4 per million Btu. But of that $1.4, $0.80 was reversed in the second quarter of 2018 as explained before. This drop in prices were partially offset by a slightly higher accrual of retail price from DISCO.

The fuel self-procurement for our power generation has helped recover gas production levels, we are adjusting almost all our production there. Though it does not include pricing, we are currently selling at about spot price but capped at CAMMESA reference price. Plus it helps to have a certain uptake especially during weak demand period and to monetize some synergies between power and gas segments. As you can see on the Slide 12, the average gas prices that we recorded to demand are plunging especially since August 2018 when the energy ministry back then decided to cut the reference price for gas-fired power generation by $1 per MBtu. Afterwards, the combination of off-peak season, shale gas disruption, weak domestic demand, bottlenecks on the evacuation infrastructure, nonexistent ways of exporting or storing gas, CAMMESA as market maker and intervening the spot, all of these factors resulting in gas prices falling to the lowest point in years and currently covering the marginal breakeven cost in the system.

We do not have certainty of gas prices in the winter season with the section of retail segment, which holds take-or-pay contracts. As we approach the winter season, the excessive supply rapidly shrinks and as evidence show in the past, domestic production is not enough to cover the domestic gas demand needing to cover the deficit with extensive gas imports from LNG and Bolivia.

Moving on to the news in the segment. The gas regulator granted new final tariffs for DISCO effective from April to September 2019, which considers the price for natural gas as the raw material for $4.69 per MBtu. That's the average price for the take-or-pay tenders that happened in February of this year. However, discounts in the month of April and May at a subsidy in addition to partial financing possibility of the winter deals to summer season, that will be borne by the -- in theory, by the government. Keep in mind that Pampa was awarded during the last tenure for fiscal on a firm basis for 12 months as of April 2019 at a price above the tender average of $4.62 per MBtu in which 200,000 cubic meters in off-peak season that triples during winter. Moreover, last month, Pampa was credited the natural gas program bond for a face value $89 million maturing on June 2021 corresponding to former Petrolera Pampa as of today for installment equivalent to $12 million have already been collected. We've been approved to credit further $54 million but haven't collected anything, so we are taking all the necessary actions before the corresponding authority.

Before I move on from oil and gas, I wanted to give you a quick update of our operations. During the first quarter of 2019, 6 wells were drilled and 10 wells were completed. Our focus is the development of blocks with tight gas reservoirs and the exploration of shale gas potential in Vaca Muerta reservoir. During Q1 2019, we drilled 1 shale gas well and completed 4 tight gas wells.

Finally, regarding the -- our shale activity during Q1 2019, the side tranche for 2 Vaca Muerta wells at El Mangrullo block were built, each with an horizontal extension of 8,200 feet. These are the first horizontal wells to Vaca Muerta that we operate, and their completion is expected to be in the following month, in which approximately 40 hydraulic fractures are to be performed in each objective. Moreover, since the oil discovery at El Chirete block turned out to be commercially portable, by the end of last month, applications were filed for the granting of an exportation license for the lot known as Los Blancos and a 3-year exploration period extension for the remaining area of the block.

Since we divested all the assets at refining our marketing, we are going to skip all the details and head straight and to briefly comment on petrochemicals, in which we posted an adjusted EBITDA negative of $0.2 million during the quarter of 2019, lower year-on-year and quarter-on-quarter, mainly because of the downward trend in international prices in dollars, weaker demand, domestic demand, export duties and higher cost of imported virgin naphtha. These effects were partially offset by incremental export sales, lower cost of gas purchases and optimization of fixed cost by shutting down 2 small-scale plants that were not functional with the current petchem business environment.

In operating terms, total sales volume of our petrochemicals segment decreased by 5% year-on-year in Q1 '19, totaling 83,000 tons mainly due to the lower sales of the styrene and synthetic rubber plus the closing of BOP plants in Zárate and ethylene plants in San Lourenco, partially offset by higher export of responding products.

Finally, our holding and others segment presented an adjusted EBITDA of $49 million in the first quarter of 2019, similar to the same period of 2018 but overperforming to Q4 2018 by 28%. This is mainly due to a higher income from fees collected from holding partially offset by lower EBITDA in dollars adjusted by our ownership at our affiliates Transener, TGS and Refinor, mainly because of the peso depreciation plus reallocation of expenditures to other businesses and inclusion of Dock Sud's dispatch facility expenses and higher costs of fees to Pampa forward.

I'm going to only briefly review TGS as they just had their earnings call yesterday. TGS's EBITDA adjusted by our indirect sale of 25.55% contributed to Pampa $29 million in the quarter for an implicit total of $113 million, 18% lower than Q1 2018 mainly due to FX variation higher than the last PPIs that covers cost variation for gas transportation business, the drop in reference prices in utilities in dollars per NGLs and higher export duties, partially offset by the full implementation of the tariff increase plus cost variation, higher natural gas per fracking volumes and lower cost of gas per MBtu. For this regulated business, TGS was granted the fourth semiannual cost variation update of 26% as of April 2019 based on PPA variation between August 2018 and February 2019. Also for this midterm business by the end of last month, TGS completed the first stage of 31 miles south tranche carrying pipeline plus partial commissioning of the gas conditioning plant in (inaudible) starting out from this month with firm contracts for 28 million cubic feet per day plus interruptible gas transportation. In line with the strategy in Vaca Muerta, TGS submitted a project for the construction of a gas pipeline of over 620 miles to connect the new (inaudible) to greater Buenos Aires and the Eastern area. As of today, there is no news about that. Moreover, on April 23, TGS paid a total of ARS 7.2 billion of cash dividends.

As for Transener, its EBITDA adjusted by our indirect shareholding contributed $11 million in the quarter of 2019 from an implicit total of $42 million, 30% lower than the same period of 2018 mainly because of the lag cost update was lower than the FX variation partially offset by lower operating cost, mainly due to higher awards for quality of service and lower labor costs.

The fourth cost variation update stipulated in the tariff review was granted on March 22 and effective as from February '19, granting 25% and 27% increase for Transener and Transba, respectively. Moreover on April 25, Transener shareholders approved ARS 3.3 billion cash dividend. Day of payment is 16 -- May 16.

On March 27, the board of Pampa approved a new share buyback program for $100 million. We see a huge upside potential in the value of our assets that will be matured as soon as the market turmoil goes away. In the meantime, we can still repurchase our own shares, one of the best investment accretive actions toward shareholders that we are undertaking. As of today, under this new program, Pampa acquired 2.2 million ADRs and the outstanding shares amount to 73 million ADRs.

Now let me switch back to pesos adjusted by inflation. In terms of net income attributable to the owners of the company, Pampa reported a consolidated gain of ARS 6.4 billion constant currency pesos in the first quarter of 2019, 13% higher than the same period of 2018, mainly explained by the higher gain of ARS 6 billion from the lower deferred tax liabilities, as we joined the optional tax devaluation last March 27, a higher profit of ARS 4 billion due to the tax's net monetary position that we have, partially offset by the underperformance of our EBITDA by ARS 4 billion, higher losses of ARS 3 billion due to the 15% depreciation against dollar in Q1 2019, currency in which we -- most of our company's financial liabilities are denominated, and higher charge of income tax for almost ARS 1 billion.

Finally, moving to Slide 16. We must highlight the low and well-spread leverage of the company as well as historic cash position held compared to other peers in the industry and in Argentina. Always, we have been very proactive towards the cash and liability management especially after witnessing volatility, high yields and narrowing out in international financing markets. We're continually redeeming the short-term facilities, highlighting that as of today, Pampa redeemed at maturity and pre cancel almost $170 million.

As of March 31, the consolidated gross debt, including affiliates at ownership, remains at $2.1 billion, $0.2 billion below December of last year, of which 99% is denominated or linked with U.S. dollars, bearing an average interest rate of 7.2%, and 80% is poised at the parent. Even after canceling almost $160 million, the principal maturities belonging to Pampa stand-alone, they are less in 2019 and combined with 2020 amounts to $278 million, which is exceeded by the pro forma $382 million of cash position at the parent after debt redemptions and share repurchases. Currently, we hold a higher cash position. Moreover, consolidated cash after debt repayment amounts to $605 million, which is down from the $716 million in December 2018, mainly because of the debt redemption and share repurchases, partially offset by the operating cash flow.

Back in Q1 2019 closing, we were holding 86% of our cash in U.S. dollars. Therefore, net debt slightly increased to $1.5 billion and net debt to last 12 months' EBITDA remained low at 1.5x. We also show here stand-alone key debt figures for our bondholders.

So this concludes our presentation. Now I will turn towards the operator, who will open the floor for questions. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Bruno Montanari with Morgan Stanley.

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Bruno Montanari, Morgan Stanley, Research Division - Equity Analyst [2]

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Two quick ones. First on investment. So on the back of the recent macro situation in Argentina and gas prices, how should we think about your CapEx plan and the budget for 2019 in the coming quarters? And the second one, I know it's difficult to talk about gas prices during the winter, but is it fair to assume we have seen the trough in realizations now in Q1 at the $3.1 per MBtu? And if you could try to give us your best estimate of how prices will be set during the winter? So more like the mechanism rather than the actual level that will be good for us to understand the framework.

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Gustavo Mariani, Pampa Energía S.A. - CEO, Executive VP & Vice Chairman [3]

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Bruno, Gustavo here. Bruno, regarding CapEx and due to the environment, we've been adjusting what we could and what we thought will make sense. So we have lower by roughly or slightly more than $100 million our CapEx on the E&P business from $360 million to approximately $260 million that we are going to do this year. In the case of power generation, it's the same number. We will be spending $260 million, and that is to finish the 2 wind farms that we already did plus continuing with the expansion of Genelba, of which we will be inaugurating the gas turbine in a couple of weeks. It has already done its first fire and it's on file. And we are continuing with the closing of the cycle, so the combined cycle of Genelba will be completed by the -- greatly by the second half of next year. Regarding gas prices, I think it was the second part of your question, we believe or we hope that we have seen the troughs.

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Gabriel Cohen, Pampa Energía S.A. - CFO & Director [4]

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The bottom?

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Gustavo Mariani, Pampa Energía S.A. - CEO, Executive VP & Vice Chairman [5]

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Yes, the bottom of the pricing and that with the $3.1 average that we saw on the first quarter, and we should see a pickup during the winter. But honestly, unfortunate still a regulated segment or a regulated market, and it's difficult to forecast pricing and not the only portion of the segment can be contracted short term.

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Operator [6]

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(Operator Instructions) The next question comes from Frank McGann with Bank of America Merrill Lynch.

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Frank J. McGann, BofA Merrill Lynch, Research Division - MD [7]

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Just 2 quick questions. I think, one, just in terms of gas production and perhaps oil production, the expectations for the next several quarters, clearly you're cutting back on the CapEx and the overall pricing environment is less favorable. But I'm just wondering how you are seeing the absolute level of production that you're likely to see. And then similarly, I guess on the generation side with the capacity that is starting up, how should we think of that in terms of potentially higher volumes as we go out into the second quarter or second half of the year?

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Gustavo Mariani, Pampa Energía S.A. - CEO, Executive VP & Vice Chairman [8]

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Well, I think the first part of your question, we couldn't hear you very clearly, but what was regarding what action level for the remaining of the year. So we think we will be producing about 7.5 million cubic meters per day during the winter and slightly lower in production to around 7 million per day after the winter during the -- on the fourth quarter. With cap off the CapEx, approximately half of the CapEx that we mentioned in the previous question. We are able to maintain production flat, and we are not only developing those wells that have extremely good returns even at these prices. Obviously, we don't have a hundred of wells like that to develop, but we have a few very productive wells that we can drill in order to keep production at this level, and even at these prices, are profitable. Can you repeat the second part of your question or whatever that is?

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Frank J. McGann, BofA Merrill Lynch, Research Division - MD [9]

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Yes, just in terms of generation with the capacity that's been completed, how much additional generation could we potentially -- in terms of volumes, can we potentially see in the second half of the year? I know that depends on a lot of other factors as well, but just to give an idea of the kind of upside we could see in terms of volumes.

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Gustavo Mariani, Pampa Energía S.A. - CEO, Executive VP & Vice Chairman [10]

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Frank, what we are having in capacity is since last Friday, we added 100 megawatt of wind farm, of which we are expecting roughly 55%...

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Lida Wang, Pampa Energía S.A. - IR Officer [11]

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Load factor.

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Gustavo Mariani, Pampa Energía S.A. - CEO, Executive VP & Vice Chairman [12]

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55% load factor as an average for both of them and around $25 million of EBITDA annually. So I mean Genelba, what we will be adding in a few weeks from now is 180 megawatts of -- 180 megawatt of capacity out of a total of [385] megawatts that we'll be adding on the combined cycle this close next year. This expansion, I don't have in here in my -- the number of EBITDA that this is another (inaudible) in the combined cycle. I don't have here the additional EBITDA that the gas turbine will be generating for the remaining of the year. But with a number that I have in my mind is that the combined cycle will be adding around $90 million of EBITDA, but that will be next year once the gas -- once the steam turbine results is also operating.

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Operator [13]

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This concludes the question-and-answer session. At this time, I would like to turn the floor back to Ms. Wang for any closing remarks.

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Lida Wang, Pampa Energía S.A. - IR Officer [14]

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Okay. Thank you so much for participating in our call. Any questions you may have, our team is available for you. Have a nice day.

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Operator [15]

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Thank you. This concludes today's presentation. You may disconnect your line at this time and have a nice day.