Pampa Energía S.A. (PAMP) Earnings Call Transcript & Summary

Hi, good morning, everyone. Pardon for my voice. My name is Lida Wang, I'm Investor Relations Manager of Pampa Energía. -- Manager of Investor Relations Manager of Pampa Energía. Thank you for joining us today in our Investor Day here in New York. I'm going to just kick it off our Chairman and Co-Founder, Mr. Marcelo Mindlin is here, so he will start off, and we expect by 9:30 to have -- to finish the session and start the Q&A. Thank you so much.

Good morning, everybody. Thank you for coming. As you know, we are here in New York because yesterday, we celebrate the 30 anniversary of TGS in the New York Stock Exchange. So we are in the bell ringing ceremony, it was very nice. So since we were all here, we decided to visit shareholders, investors and do this Investor Day for Pampa. We founded Pampa almost 20 years ago, in those almost 20 years, we were able to build a unique portfolio of energy assets diversified across all the subsectors of the energy world. And we've created one of the most liquid stocks in the capital markets in Argentina, and we think that we have one of the best credits in the corporate world of Argentina our bonds are yielding the lower spread in our history yielding 7.5%. So we have built a fantastic credit. As you can see here, and we're going to be further describing the sectors and the opportunities. We have 15% of all the power generation in Argentina with 5.5 gigawatt of power, of capacity, have developed our gas and oil business. And today, we have 9% of the market of natural gas. And as Horacio is going to be describing later, we are now focusing to develop also our shale oil reserves. We have the core control of the two backbones or infrastructure backbones. We have the co-control of Transener that transport 86% of all the electricity in the country, and we have the co-control together with the Sielecki family of TGS that transport 60% of the gas in Argentina. But more important than that is that TGS has the treatment and processing plants that are the entry of Vaca Muerta gas to the rest of the system. So every gas, almost every -- almost all the gas that comes from Vaca Muerta should go through our treatment and processing plants and pipelines of course. And in petrochemicals, even though it's very small, we have 100% of several markets. And even though it's not a critical part of our portfolio, it produce a nice EBITDA every year. One of the transforming moment of Pampa was when in 2016, we bought Petrobras, Argentina. And with Petrobras Argentina, we've received many, many assets. The most important of which were the power and the fields, the oilfields in Neuquén that later on, we realized that was very important because it was covering 8% of Vaca Muerta. So that transformation, that key moment of Pampa in 2006 was critical for us. And since then, we have been growing, as I said, the power from 3,800 megawatts to 5.5 gigawatts. And we almost more than double our production of gas becoming or representing today 9% of all the gas -- natural gas supply of Argentina. How did we fund this growth? Basically by issuing shares, we issue up to 85 million -- 83 million ADRs especially to consolidate all the assets that we were acquiring or developing. And since 2019, we started our buyback programs and we were able to repurchase 35% of the outstanding ADRs using our cash flow. So today, we have 54.5 million ADRs listed in New York, of course. And on top of this program of repurchasing shares to consolidate the financial position of the company, we were able with our positive operating cash flow, to reduce our net debt 50% from the peak we had when we bought Petrobras to only $700 million at present. I think that today is more than $400 million. So every quarter, as we produce cash flow, we are reducing our net debt. So that allows together -- combined with our very strong cash position, gives us the potential to continue growing in the different sectors that our -- my colleagues are going to describe in the next minute. So Gustavo, if you can take the microphone now.

Thank you, Marcelo. Good morning, everybody. Thank you all for being here. I will go quickly through power generation and as requested by many of you give the prime time to my colleague, Horacio, for the -- to explain the E&P business that will be the start of the bright spot of Pampa in the coming years. So I'm sure you all know this because we've been in this segment from the very beginning. We are the leading IPP in Argentina, not in terms of installed capacity, but in terms of energy that we provide to the system. And this speaks well about the relative efficiency of our power plants. We have a high stage for another second year, please Raquel. We have hydro wind farms and thermal capacity. And consistently along the years with very outstanding availability, well above our peers. So doing all the proper maintenance of the equipment. To next slide, this is how the business is splitted. We have, in total, a capacity of 5.4 gigawatts that is splitted between the new -- what we call the new capacity that is everything that has been installed after 2012 and the legacy capacity, both thermal and hydro capacity. The new capacity generates almost 75% of the EBITDA of the segment. These are the PPAs. These are PPAs with CAMMESA, which is basically state-owned entity and B2B with large industrial users in a split roughly 80-20. These PPAs have a an average maturity of 7 years, so they will provide very stable cash flow throughout the following years. Going slightly up next year because we just finished our sixth wind farm of 140 megawatts of capacity that will add $35 million of EBITDA on an annual basis. So starting right now, but it will impact fully on 2025. The other 68% of our capacity, that's about 3.7 gigawatts of installed capacity is the legacy part. That generates only, despite being 68% of our total capacity, generates only 25% of our EBITDA. As we will see in the following slide, this is a segment that is subject to the impact of the new deregulation that we are expecting in the sector. So the PPAs for several years down the road, contributing a very stable cash flow for the company and some upside potential on the legacy or spot market in energy. Another relevant thing to say about this segment is that maintenance CapEx for all these 5.4 gigawatts of capacity, it's around $80 million per year. So this segment will contribute for the company, a very strong free cash flow north of $300 million pretax every year, the following years, so contributing to the health of the company. What are we expecting on the deregulation and on power generation. And here, let me -- let me say that I'm sure you know this, we have the privilege of having in the room not only ex-Minister Domingo Cavallo, which is honestly, for me an honor being present in front of him, but also Carlo Bastos, who was his former Secretary of Energy. And the person responsible of putting in place during the '90s, all the regulatory framework that lasted several decades and that we all want to go back to something similar to that. I'm not sure if I should say this, but current Secretary of Energy, Eduardo Rodríguez Chirillo, was a former -- was a former under -- was -- by in his staff also, I would say, pupil of Carlos. So they share -- they share the view. So probably after the end of the meeting, you can talk with Carlos to give you his view about the potential deregulation. What we expect here is the government wants to eliminate the role of CAMMESA, that CAMMESA has been having in the past few years as a central planner of the system, deciding all the expansion and managing all the fuel of the system. The idea is to recreate a competitive system among the IPPs, given the price signals that the system needs in order to become -- for the power generators to become the off-takers of the needed infrastructure that the country needs to lower the cost of producing electricity. So that is the basic idea behind the expected deregulation. More in detail, what do we expect for the -- what we call the new capacity, the PPAs, we don't expect any change. It will remain as a year until those contracts mature. For the legacy and spot remuneration, we expect a marginal price system initially we see that it's going to be easier for that free market between large users, IPPs later on, distribution companies can join that market. The very relevant thing for Pampa is fuel procurement. Today, CAMMESA centralized all the fuel of the system and for pump and iterated company is extremely important will be extremely beneficial to manage and to be able to source its power generation plant with its own natural gas plant. To give you an idea, our power consume, on average, 2/3 of the total production of natural gas of Pampa. And the other -- and in terms of for future expansions, they are all decided by CAMMESA or by the Secretary of Energy. In the future, we expect CAMMESA to maintain a role of organizing the market, but that large users and distribution companies will be the ones demanding and contracting directly with the IPPs. The other -- so one reason that why it's quite important for us is, as I explained, self-procurement of fuel of being able to consume our natural gas production on our power plants. The other thing is that our CCTGs, we have four CCTGs, a total capacity of gigawatts. And they rank among the best, most competitive in the industry. not only for they're all -- and I'm comparing CCTG, so they are all very efficient in terms of consumption of fuel. But ours have the peculiarity that they are very well located in terms of -- they are on top of the -- on the Neuquén Basin. So we don't require gas transportation that is basically -- we are very competitive, even assuming our power plants well, most of them consume natural gas all year round, while several others today, they need to consume leaked diesel oil because there is lack of infrastructure to reach the power plant with gas during wintertime. Even thinking of a moment when all the infrastructure, all the new pipelines are built and all the power generators consume natural gas. Our power plants will remain very competitive because we have very cheap transportation, no transportation need or very cheap transportation cost. Next. I'm done. Horacio, your time.

Okay. Good morning to everybody, and thank you for coming to our Investor Day. We will be explaining the E&P business. And most importantly, the unique opportunity of unlocking shale oil block that we recently acquired. That's called Rincón de Aranda. First of all, we've heard many times about Vaca Muerta. Just a few words about it. It's a massive geological formation. It's a blessing for Argentina as well. The total resources are in the range of 16 billion barrels of oil and 300 Tcf of natural gas. That accounts for 90 years of consumption of oil and approximately 150 years of consumption of natural gas for Argentina. So definitely, in both cases, the international market is way out. There's no way Argentina can consume that, okay? So everybody is focusing today in exporting those surpluses as quickly as possible. We can see that the increase in oil production in Argentina surged in the past years. Vaca Muerta, 6, 7, 10 years ago, was nonrelevant in terms of production. Currently, it accounts for approximately more than 30% of the total growth of Argentina's oil production with a share of 60% in our total output, while the conventional reservoirs are declining. Just one word about its productivity. If you look at the right of the slide, you can see the different performances of the different shale plays in the U.S. vis-a-vis Vaca Muerta, and we can see that it's extremely productive and very competitive. Having said so, it's important to point out that in the U.S., more than 200,000 wells have been drilled and in Argentina, only 2,300. So the learning curve that the Americans had to pay in the past 20, 25 years, we are taking advantage of that and quickly catching up on productivity. Now all of these export potential that needs a lot of infrastructure. Both in natural gas and in oil. So let's take a quick look at the oil infrastructure that is needed in order to have these exports going on. We are currently building a new pipeline from Neuquén to Bahía Blanca that's called [ Duplicar. ] That accounts for 300,000 barrels per day approximately. And there is a project in which we are taking part as well, for building a big pipeline, a new big pipeline going from Neuquén to the province of Rio Negro at a site called Punta Colorada that will increase approximately 0.5 million barrels per day. So if we add up the Duplicar with the new pipeline, the Vaca Muerta Sur [ Tramodos ], we will end up with approximately 800,000 barrels per day of additional oil production. All of it is going to be facing the export market. So Argentina will become an exporter of oil with figures that we range the 1 million barrels per day. Investments required to do so will be in the range of $5 billion in the next 3 years. Next, please. In terms of natural gas, something similar happened. Argentina was importing significant amounts of natural gas in the past 5, 6 years. A new pipeline was built, Néstor Kirchner pipeline, reducing considerably the imports of Argentina. And also the participation of Vaca Muerta in the overall production of the country. We went from almost new participation of Vaca Muerta to currently about 60% of the natural gas being produced in Argentina comes from that formation. And in the coming years, probably more than 80%, 85% will be so. That has a significant and very important impact on our trade balance. We are reducing around $4.5 billion in 2024, and we are raising our exports, particularly to Chile so far and eventually to Brazil in the coming future in around $1 billion per year. Now we are going to become a net gas exporter. So what we are seeing there is our gas pipeline infrastructure that the most important portion of it is owned by our colleagues of TGS. In orange, you can see the new pipeline, the Néstor Kirchner pipeline that accounted for approximately 30% of increase in our total output production and reduce considerably our imports. We are currently producing for the year 2024, 4.6 billion cubic feets per day. And there are two major oil LNG export projects online, one that's in the range of 2.5 million to 6 million tons per year and a big one that is led by YPF with 10 million to 30 million tonnes per year. If we take that into account by 2030, we will have the first project going on, and that will boom or boost our production to approximately 6.3 billion cubic feets per day. And eventually, in 2035, with the second project online, we will be producing and exporting 6.5 additional billion cubic feets per day. Just to have in mind the impact that this will have is around $20 billion per year of net exports. If you add up that to the 1 million barrels per day of oil, which is additional $20 billion, you will end up with approximately $40 billion of additional exports for Argentina in the coming 6 to 7 years. Now where are we positioned in this new game of Vaca Muerta? We own key assets in Vaca Muerta. We are partners with Exxon in Sierra Chata, almost 50%, As you probably know, Exxon is going or undergoing, has been of process, which is not yet finished. But we are operators in Sierra Chata. We also own a fully, 100% El Mangrullo with 48,000 acres, Sierra Chata is massive 201,400 acres. And we recently acquired, we will go into that detail, a shale oil block, shale oil lease that's called Rincón de Aranda around 60,000 acres that we are in the process of developing. As Marcelo mentioned before, we are the third unconventional gas producer in Argentina, it accounts for 10% approximately of the national gas output and the figures have already been shown. We produced approximately 600 million cubic feets during the winter peak. Next, please. Now what was the story behind our natural gas output. If we look back only at 2021, we were producing 250. And as I mentioned recently, we are now producing 600. So we were capable of multiplying by 2.4, our gas production in only 3 years, is an impressive growth, and we will try to show you why it happened. This is a curve that represents -- is a histogram. It represents the cumulative probability of the wells, of all of the gas drilled in Vaca Muerta. Vaca Muerta, as I mentioned before, has 2,300 wells being drilled, out of which 70%, around 1,600 were drilled to oil and 1,100 were drilled with a gas target. Out of those, our Sierra Chata wells are the orange spots there. You can see that we range in the top 10% of all of the gas wells that were drilled in Vaca Muerta. So Sierra Chata is an outstanding reservoir. It has a lot of potential, and we were capable of developing the techniques that are convenient for developing that well, that reservoir as it should. And now we will go particularly into Rincón de Aranda, we'll show a very, very short video and we will just start with the project. [Presentation]

Well, for those of you that are -- they have a lot of expectations about Rincón de Aranda, this is to show you that there, we have almost nothing yet being built or constructed. We are starting right from scratch. That is very good news because we can try to do things well done from the very beginning, and this is what we're trying to do. The story behind Rincón de Aranda is that we acquired 45% of the block from TotalEnergies. Actually, we traded the 45% for our windmill farm that we had, the Parque Mario Cebreiro. It was a very interesting transaction that has implicit a price of $1,650 per acre, when the historical average is around $6,000. So it was a pretty convenient deal for us in order to acquire new acreage in the shale oil window. Next, Rincón de Aranda has 60,000 acres. Our estimation on resources is around 400 million barrels. So it's quite impressive. What is interesting about Rincón de Aranda is that it's located very, very close to different developments that have already been taken place. Around more than 300 wells have been drilled south of Rincón de Aranda by different companies, Vista, YPF, Pan American Energy. And those -- if we, again, if we draw the histogram of those wells being drilled and it's not a small amount of observations are 330 wells. You can see the curve on the right and the green spot is where we are position with our well, our exploratory well, the RDA 2001 that performed pretty well in the 70% top of the curve. Next. Where are we going with Rincón de Aranda? Our expectations are to reach a plateau of 45,000 barrels per day at 2027. We have an inventory of around 300 wells, a total investment of $5 billion in the coming years. We are planning to develop this new field with three rigs and one fracture fleet. And we expect to keep the 45,000 barrels per day for 15 years. Some things to take into account is that if you look at the distribution of our patch at the left of the slide, you can see that they're pretty well concentrated in two blocks. And one of the things that we have in mind if the figures show right is to try to reduce as much as possible the carbon footprint by the use of electricity for moving not only the drilling equipment, but eventually the frac equipment. So this is something that we are -- we have on top of our minds, and we are looking at constantly. Next. Now the key issue on any shale oil or shale gas development is the operational excellence and the permanent reaction of costs. So we see here 3 stages, both in terms of the operational cost and the CapEx associated with the project. Currently, during 2024, we are working with extended well testing equipment, particularly for the well that we already are producing, which is the RDA 2001 and the coming wells that we are already drilling and will be completing by the beginning of 2025. but only until May in which we'll finishing the construction of our temporary facilities plus a pipeline for the evacuation of the oil that will reduce considerably our lifting cost from $22 per barrel to approximately $7 per barrel. And with the construction of our definite -- our final central processing facility by mid-2026, we will be in a position to reduce additionally 2 more dollars per barrel and go to a $5 per barrel target, which is pretty competitive in the industry. In terms of the CapEx per well, we are currently at around $18 million per well. We are planning, and we aim to get that down up to $15 million per well in the development stage. Many things have to be done to achieve so, particularly the signing of large-scale contracts, the use of close sand. We currently have a mixture of 70-30 sand that's far away from the field. We are trying to move together with the other operating companies into using what we call [ arena arcania ] or closed sands. So all of these small steps will allow us to reduce the CapEx per well from $18 million to $15 million in the coming 3 to 4 years approximately. This is our production ramp-up curve. Currently, we are producing around 1.2 -- 102,000 barrels by the end of '25, we'll be producing 20,000 barrels per day by the '26, and this has to do with the coming up of our transportation and our treatment facilities, we will be reaching almost 40,000 barrels per day. And by the end of 2027, we will be reaching a plateau of 45,000 barrels per day. The ramp-up CapEx for the period, 2025, 2027, an average will be a little bit more of $600 million per year. Our maintenance CapEx going forward from 2028 when the plateau has already been reached forward is around $250 million per year and an estimated EBITDA of $700 million per year by -- when we reach the plateau of course. Now in order to in order to achieve this production increase, we definitely need to secure our evacuation capacity because all of the new oil being produced in Rincón de Aranda will be exported. What we do have now are 8,000 barrels per day secured through the older OldelVal, Duplicar, and we have additional agreed capacity agreements with other operators in order to move approximately 2,000 barrels per day. So that and adds up to 20,000 barrels per day that we showed by the end of 2025. And we are currently working on a total guaranteed pipeline capacity in the Vaca Muerta Sur. That's the blue one in the south together with the consortium in which we have YPF, PAE, Vista, Chevron, Shell and other big majors working of 25,000 barrels per day by half -- by half -- first half 2026 and an additional 25,000 barrels per day by the end of 2027, that we will end up with more than that we need for the 45,000 barrels per day. So in a nutshell, what's our estimated growth in production, both for gas and oil? That's where we're standing. We were standing in 2020, 46 million equivalent barrels per day. By 2024, we are doubling almost that figure to 82 million. And by the end of 2017, we will be producing, hopefully, 122 million barrels per day -- sorry, 102,000 barrels per day. Our revenues for year 2024, almost $800 million and that will boost up to $1,720 million or $1,700 million by the end of 2027 with a very important combination that we will be exporting out of the $1,700 million, $1,100 million. That will be the world as a market. We will be selling crude oil, hopefully, to companies all around the world. That will have an impact in our EBITDA that will go from $370 million, our estimation for 2024 to more than $1 billion by the end of 2027, tripling our EBITDA in the coming 3 years. So that's -- but we aim to do with Rincón de Aranda. Thank you very much for your attention.

Three more slides before we go into Q&A. As explained throughout the presentation, we have these two segments of our business, power generation and shale gas production that, in the near future, they have potential to continue growing, but in the next couple of years, they will remain more or less about the same size. So there are two segments generating about $400 million of EBITDA each. And each of them around $100 million of maintenance CapEx going forward. So each of them generated significant free cash flow that we will use to fund the development of Rincón de Aranda as Horacio just explained. Just one clarification in the slide, Horacio mentioned, $5 billion of total CapEx for the development of Rincón de Aranda that is throughout the 15 years of development of the area. In the next 2 years, we are investing about $100 million this year. And we will be investing $600 million each 2025 and 2026. So that is going to be basically financed by the free cash flow generation of the other two segments that will not grow in the next couple of years. A part of that, and we can show that in the following slide, we have a very robust balance sheet. Those figures are as of June, if I'm correct, if you look at our numbers today, gross debt is about the same, but cash and equivalents are north of $1.3 billion, so an extremely comfortable situation with net debt today at this point of about 0.5x EBITDA. And as you can see, our debt profile very well spread throughout the years with no significant -- no year with a significant maturity that will put any stress on our financial position. So this is giving us the chance to continue growing as we have been. Lastly, next -- now that's -- let me find our words that I will replace Marcelo. Pampa for the next 5 years. Almost 20 years ago, we had nothing on power, nothing on shale gas, nothing on shale oil. Today, we are a key player in Argentina. As we said, the largest IPP, almost 10% of the total production of natural gas in the country and developing Rincón de Aranda that will -- we will become a key player as well. So 20 years ago was, being an investor in Pampa was a bold decision. But I think we are very proud of what we have achieved in these 2 decades, not only in terms of production, but the team that we have put in place. So the team in power generation, our capacity to build new plants on budget, on time with excellent performance. The team that Horacio has put together to do the kind of growth that we have seen on our EMP business and that we'll see in the coming year. And these three segments as explained, upsize in the near future. The deregulation on power generation, further monetization of our, I would say, unlimited gas reserves and the best gas reserves, the most competitive that has been so far discovered in the Neuquén Basin with Sierra Chata. And we have several projects that we are starting in order to monetize these reserves. We are starting, as Horacio explained, LNG projects. We are starting now, and we will do so throughout the next year and urea project that we potentially an important offtaker of natural gas. We are starting to study the possibility of data centers for AI, I mean, natural gas. So there are several opportunities down the road in the country to monetize our unlimited and excellent gas reserves. Shale oil, what Horacio has just explained, in the next 2 years, reaching a plateau of 45,000 barrels of oil production that eventually could go even higher as we learn about the area further. And also, there could be eventually M&A opportunities in Argentina down the road that we may take thanks to our strong financial position to take advantage of. So currently, about $1 billion of EBITDA with exports of $300 million, looking forward in the next few years, to double our EBITDA generation and exporting a significant portion were total revenues. So this concludes the presentation, and now we open for Q&A.

All right. Everybody, if you have any questions, just raise your hand, and I will go gently by your side. I bring the microphone. Yes. Please introduce yourself.

My name is Andres Cardona from Citigroup. And of course, the question go to Horacio. Two questions about the assumptions you have for the development plan? What is the oil price? I see a footnote, I think it's $60 per barrel, but do you want to confirm what is the EUR assumption for each of the wells. And maybe a third one is, how has the process to contract the rigs because what we have been reading is there is low availability and maybe demand to import incremental equipment. So it's local equipment that was already there and how we see to bring new equipment and what is the type of technology that you have been able to get to develop the project.

The first one is on price. Prices in $60 -- our expectation is the future curve. Our expectation is a future curve that it's around $60, okay? So that was the first question. Second question was the EUR. EUR for these wells is around 1.2 million barrels. 1.2 million to 1.5 million. And regarding the drilling equipment, we secured already two high-performance drilling rigs, one from the [ assigned ] company and the other one from H&P. The high spec that we use are the 1,700 psi standard drilling rigs for this type of horizontal wells. There is availability today in Argentina. There is a lot of availability in the U.S. There are a lot of idle equipment, drilling equipment, idle in the U.S. currently. We don't foresee a major problem or a constraint in the -- in procuring these rigs. All of them are walking rigs and -- they are the type of rigs that will eventually bring those CapEx costs down from $18 million to $15 million in the coming years.

Thank you, Horacio. Next question. Please introduce yourself.

Sure. I'm Alejandra Andrade from JPMorgan. I cover you guys on the credit side. Two questions for me. First, terms of the competitiveness of LNG, we've obviously seen a lot of headlines of international companies perhaps shying away from Argentina because of the competitiveness of the -- some of the LNG projects. So just some comments on that? And then secondly, obviously, you're very comfortable from a cash and debt position. Could there be opportunity to do something additional in international capital markets converting the success you had this year?

So we can start.

Who want to start?

Regarding the competitiveness of the LNG projects, as you know, they are very big projects, very big CapEx and long term, like 4 to 5 years. So we are currently studying different projects. The one is the YPF, PETRONAS one. That is a very big one. And the other one is a floating liquification plant. That has been brought to Argentina, the project by Pan America. We are starting both of them. And at this moment, we cannot say whether it makes sense from a rate of return perspective to come into these projects. Together with that, as Gustavo was saying, we are starting the urea project. That is a big off-taker of gas of natural gas. And as you know, Brazil and Argentina are importing like 10 million tons per year. So that would be another way to, like to export gas for the urea and monetize our reserves. Then about capital markets. Now, as Gustavo was saying, we are producing a strong cash flow and we have a very strong cash position. So we are not expecting to go to the market, except for advance -- to replace maturities, the same way we issued the bond a few months -- a few weeks ago was to replace the 2027 bond. So we had -- that's the only scenario where we would be tapping the market just to renew in advance.

I'm Lily from HSBC. Just for a quick change. I would like to ask about the Power business. You mentioned your 2030 ambitions to reach $2 billion EBITDA by then. I see most is coming from the Rincón de Aranda new field. But what could be the upside on the power business, you mentioned about deregulation. So even a normalized scenario, right, how could that be down the power business grow and what you think. Thank you.

Thank you for the question. Now we are in a stuck situation because this administration doesn't want the government of CAMMESA to be the offtaker of PPAs, which I think is a healthy decision but they haven't yet deregulate the market in order to free the forces so that private sector can contract among each other. So we need to see this regulation happening. And after that, there might be opportunities to build new power plants. And regarding renewables projects that those are -- that is the only segment where there's still a free market where you build a renewable wind farm or solar farm and you sell it to large industries. That's been I don't think that's going to continue in the near future because thermal capacity is more competitive with the cheap gas that the country has. It's more competitive than renewables. Renewables have been always a low IRR project that in the past few years, why we were doing them because taking advantage of the spread between the official dollar and the blue-chip swap. For example, this wind farm that we are finishing now 140 megawatts of capacity that cost us $240 million official dollars. Real dollars were half that amount. So when measured in official dollars, the IRR is not very attractive. Now the that the spread between the official and the blue chip swap has compressed significantly. It provides a good IRR. But going forward, that -- there is no chance to take advantage of this because there is no longer that spread. I'm not sure it will make sense to continue building renewables in Argentina.

Guillermo Infante, JPMorgan. I wanted to understand the strategic rationale of the pet chems business. It seems to be a little bit different from the other areas where you guys are at. The other question is there are some articles in the press about Loma Negra potential interest. I don't know if this is something you guys can comment on.

Pet chem is -- and you noticed that we hardly mentioned it because it's almost an insignificant part of our portfolio. It's a segment that, in the past, has generated a small positive EBITDA down the road in a more open economy, it's a tougher environment for the segment, but we expect it to remain cash flow positive. And we are starting M&A alternatives for the segment. It's not easy, but we are on that.

Yes. Just to remind that petrochemical is part of the inheritance with Petrobras Argentina. When we bought Petrobras Argentina, those assets came with the company. So they were never strategic and they are not now, so not significant. So if we could divest that, we should do it, just to focus on the main business of Pampa. And regarding Loma Negra, as the -- we never wanted to mix it with Pampa. Pampa, we want to keep it 100% focused in energy. The partners of the -- our partners, we are, as individual, we were taking -- we were participating in the process. We presented an offer that I understand that Muerta is the controlling shareholder of Loma Negra is going through another route. So at this time, we are not having any kind of conversation. We did present offer.

I'm Carlos Moraes from Morgan Stanley. I have two questions on the generation side. Do you -- can explain to us a little bit how is it going, the transmission, that review for the transmission companies? And could you give us a little bit of timing about the generation -- the legacy generation remuneration change. And for gas, how you're seeing the possibility of Argentina exporting gas to Brazil to Bolivia.

Thank you. For the internal tariff review for yesterday, there was news that the public audience will be postponed. So you see that the government is concerned about the impact of inflation. But it's important to keep in mind that early this year, both for -- on the natural gas, on the electricity for transportation and for distributors. There was an initial price adjustment that put the companies in a comfortable situation. For example, for Transener, been in a very tight situation. Now with this initial increase or temporary increase is with an EBITDA of $170 million. So it's able to wait until the government defines when to go ahead with the internal tariff revision. I don't have any clarity just been postponed yesterday. I don't have any clarity on when they will move ahead.

Yes. Regarding gas exports to Brazil, there is -- the is now a project that's being completed, that's the reversion of our North pipeline that will enable to export gas from Neuquén eventually to north of Chile or alternatively to Brazil through the pipelines in Bolivia. What we need to negotiate yet is the tariff, the transportation tariff, both in the Bolivian territory and also from Bolivia to Sao Paulo. So that's what we are initiating right now. But there are many Brazilian companies that have already contacted us for bringing Argentinian gas to Sao Paulo.

Good morning. Thank you for the presentation. I'm Anne Milne from Bank of America. First question is on the oil and gas, by the way, I'm waiting for that $1 billion EBITDA number to come through. So I hope it will come soon. But on the upstream side, -- are you -- you're just talking right now about organic growth. Could you talk a little bit about inorganic growth M&A and maybe in particular comment on Exxon, who is a partner with you in one of the fields. And if you would entertain options there. And then just a small question on the side of what do you see as the future of the hydroelectric concessions that keep getting extended going forward?

Yes. I'm also looking forward to see the $1 billion EBITDA. No, we are very confident. About Exxon, Exxon, we participated at the beginning of the process. It's a very long, complicated, tiresome process that is being undertaken by Exxon and Qatar authorities. So was very long. Like a few months ago, we were out of the process because we understand taking rumors from the market that the price they are offering now is around $1.7 billion, $1.8 billion for the area. And at that price, we consider that's not attractive or very expensive. On top of that, they have to invest another $1.7 billion or something like that because it's an area totally undeveloped. So there is a really significant number of money. When we compare the Exxon area with Rincón de Aranda, for Rincón de Aranda, we paid for the total part an implicit value of $200 million. So comparing, it doesn't make any sense. I understand that there are two groups competing. And it's, as I said, it's a very unclear, not very organized process.

Regarding hydro concessions, as you said, they have expired and they are renewing. The government is deciding whether to give some kind of a PPA and so in order to try to obtain money throughout the new concessions or just do a process where the one offering the least tariff, the smallest tariff to do the operation and maintenance of the plant, gets the extension of the concession. They haven't yet decided which way they go, I mean, the next 6 months. And I think that they even published resolutions that within the next 6 months, they need to decide on this and move forward with reprivatize extending the concessions of the hydro facilities.

Did they ask for some bids that they were not acceptable prices?

No, no. They haven't asked for anything. They just extended the concession for another year.

Orlando Muyshondt, Elena Partners. I had a question about the -- you mentioned about the regulation, the electricity regulation. Just curious how that could evolve and how it could impact the legacy energy. I guess I was not as familiar with the regulation, the original from the '90s. I'd love to hear just about that. And also just one other question on Sierra Chata, you said that there's pretty much unlimited inventory. So that's -- it's just a matter of finding the offtake for that gas basically you have.

Yes. Regarding the deregulation, we are comfortable we are optimistic. I'm more than comfortable because what I explained about the competitiveness of our CCTGs, but implementing this regulation is a hard thing to do. We've been in 20 years of complex regulation. We have a contractual inertia because gas producers have contracts until the end of 2028 with CAMMESA. So there are several things that make this deregulation complex and probably will happen in stages and it will take time. And certainly, it needs strong team in the Secretary of Energy that they are putting it together. So that's why it's taking time. So I don't know when is it going to materialize. I think that the sooner the better because the system needs new additional capacity. And as I explained, government doesn't want to be the offtaker of the PPA. So the need to deregularized in order to -- for this expansion to happen. That is the power generation question on the Sierra Chata.

Sierra Chata, it's a massive block. Our estimation of our -- the working interest resources are more than 12 Tcf. That's 6 years of total Argentine consumption.

Sorry. And the question about the -- to complement. Today, the market is fulfilled in Argentina. So there are excess production during the summer. During the winter, we continue import in LNG and diesel oil that we consume in power plants, but we lack the infrastructure, the pipelines to be able to use local gas for -- to eliminate the imports. So if the pipelines are extended, we are counted on TGS to the expansion of the pipeline in the next couple of years, there is going to be an opportunity for our gas production to increase just in the winter time. Then marginal export to our neighbor countries, but it's not significant and the LNG project. So there is no -- the market, the demand in Argentina is constrained until the big LNG projects appear. And despite our competitiveness in the market, beside our colleagues, until 2028, because of the contractualization of the market, there is no chance for us to gain market share. So that's why we explained that the growth on natural gas production besides having the reserves is going to be limited until this big infrastructure projects materialize.