Pampa Energia(PAM) - 2023 Q3 - Quarterly Report

Report on Review of the Consolidated Condensed Interim Financial Statements This section presents the independent auditor's review and conclusion on the unaudited consolidated interim financial statements, affirming their preparation in accordance with IAS 34 Auditor's Conclusion The independent auditor, Price Waterhouse & Co. S.R.L., has reviewed the unaudited consolidated condensed interim financial statements of Pampa Energía S.A. for the period ended September 30, 2023, concluding they are prepared in all material respects in accordance with International Accounting Standard 34 (IAS 34) - The auditor's review concluded that the financial statements appear to be prepared in accordance with IAS 34, but this is a review conclusion, not a full audit opinion[4][6] - The Board of Directors is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards (IFRS) and IAS 34[3] - As of September 30, 2023, the company's accrued debt to the Argentine Integrated Social Security System was $730.5 million, none of which was claimable at that date[8] Consolidated Financial Statements This section provides an overview of the company's financial performance, position, equity changes, and cash flows, highlighting significant growth in profitability and asset base Consolidated Statement of Comprehensive Income Pampa Energía reported a significant increase in financial performance for the nine months ended September 30, 2023, compared to the same period in 2022, with revenue more than doubling and net profit surging Consolidated Income Statement Highlights (in millions of Argentine Pesos) | Metric | Nine Months Ended 09/30/2023 | Nine Months Ended 09/30/2022 | YoY Change | | :--- | :--- | :--- | :--- | | Revenue | 346,957 | 168,748 | +105.6% | | Gross Profit | 137,004 | 64,725 | +111.7% | | Operating Income | 114,609 | 61,408 | +86.6% | | Profit for the period | 119,960 | 42,762 | +180.5% | | Total comprehensive income | 561,138 | 142,118 | +294.8% | - Basic and diluted earnings per share for the nine-month period increased to $87.51 in 2023 from $30.74 in 2022, reflecting the strong growth in profitability[15] Consolidated Statement of Financial Position The company's financial position strengthened significantly as of September 30, 2023, with total assets more than doubling and total equity seeing substantial growth Consolidated Balance Sheet Highlights (in millions of Argentine Pesos) | Metric | As of 09/30/2023 | As of 12/31/2022 | Change | | :--- | :--- | :--- | :--- | | Total Assets | 1,813,187 | 840,064 | +115.8% | | Non-Current Assets | 1,243,563 | 601,881 | +106.6% | | Current Assets | 569,624 | 238,183 | +139.2% | | Total Liabilities | 847,032 | 435,444 | +94.5% | | Total Equity | 966,155 | 404,620 | +138.8% | Consolidated Statement of Changes in Equity Total equity increased from $404,620 million at the end of 2022 to $966,155 million by September 30, 2023, primarily driven by profit for the period and other comprehensive income Key Changes in Equity (in millions of Argentine Pesos) | Item | Nine Months Ended 09/30/2023 | | :--- | :--- | | Equity at start of period (Dec 31, 2022) | 404,620 | | Profit for the period | 119,960 | | Other comprehensive income | 441,178 | | Capital reduction | (20) | | Equity at end of period (Sep 30, 2023) | 966,155 | Consolidated Statement of Cash Flows For the nine months ended September 30, 2023, net cash generated by operating activities significantly increased, while investing activities resulted in a net outflow, leading to an overall increase in cash and cash equivalents Consolidated Cash Flow Summary (in millions of Argentine Pesos) | Cash Flow Activity | Nine Months Ended 09/30/2023 | Nine Months Ended 09/30/2022 | | :--- | :--- | :--- | | Net cash from operating activities | 126,648 | 50,724 | | Net cash used in investing activities | (113,445) | (48,687) | | Net cash from financing activities | 14,726 | (2,954) | | Increase (Decrease) in cash | 27,929 | (917) | | Cash at end of period | 64,117 | 14,259 | Notes to the Unaudited Consolidated Condensed Interim Financial Statements This section provides detailed notes on the company's business operations, regulatory environment, group structure, segment performance, financial instruments, investment commitments, and significant subsequent events Note 1: General Information Pampa Energía S.A. is a fully integrated power company in Argentina, with significant operations across the electricity and gas value chains, including power generation, oil and gas, petrochemicals, and interests in electricity and gas transportation - The company has an installed power generation capacity of 5,332 MW, representing approximately 12% of Argentina's total capacity, with an additional 140 MW under expansion[28] - In the oil and gas segment, production for the nine-month period reached 10.8 million m³/day of natural gas and 5.0 thousand boe/day of oil[29] - The company holds a dominant market share (95-100%) in the domestic petrochemicals market for styrene, synthetic rubber, and polystyrene[30] - Through joint ventures, Pampa has significant interests in electricity transmission (Transener, 86% market share) and gas transportation (TGS)[31] Note 2: Regulatory Framework This note details significant updates to the regulatory framework affecting Pampa's operations in Argentina, including changes in generation, oil and gas, and transmission sectors, as well as foreign exchange and tax regulations Generation Regulatory updates in the power generation sector included modifications to the penalty system for renewable projects (MATER), changes to the dispatch priority system, and new remuneration schemes for combined cycles, with the company participating in tenders for new thermal generation capacity - SE Resolution No. 165/23 modified the penalty system for MATER and Renovar renewable energy projects for breaches in committed supply[33] - The company executed availability and efficiency optimization agreements with CAMMESA for its CTLL and CTGEBA combined cycles, effective March 1, 2023, to February 29, 2028, setting remuneration at US$ 2,000/MW-month[38][39] - Pampa submitted a tender for the 300 MW CTGEBA II expansion and an 11 MW expansion for CTB under the "TerCONF" call for reliable thermal generation[43] Oil and Gas Key developments in the oil and gas sector include the extension and assignment of natural gas export quotas and the commencement of operations for the President Néstor Kirchner Gas Pipeline's first tranche, increasing transport capacity from the Vaca Muerta field - The company was assigned additional natural gas export quotas for various periods in 2023 and 2024, supporting its export activities[46][48][49][50] - The President Néstor Kirchner Gas Pipeline (Tratayén – Salliqueló tranche) commenced operations in August 2023, adding an initial transportation capacity of 11 million m³/day from Vaca Muerta[51][52] Gas Transportation The gas transportation segment, through TGS, received a 95% transitionary tariff increase effective from April 2023 and formally requested a 10-year extension of its gas transportation license beyond its 2027 expiration - TGS received a 95% transitionary tariff increase on natural gas transportation, effective April 29, 2023, under the 2023 RTT agreement ratified by the government[56][57] - On September 8, 2023, TGS requested a 10-year extension of its license, which is set to expire on December 28, 2027[58] Transmission In the electricity transmission segment, the regulator ENRE initiated a comprehensive tariff review (RTI) process for Transener and Transba, with interim remuneration values increased in August and November 2023 to preserve revenue purchasing power - ENRE launched a comprehensive tariff review (RTI) process for electricity transmission companies in April 2023[60] - Transener and Transba received tariff remuneration increases of approximately 20.9% and 37.3% (for Transener) effective August 1, 2023, and November 1, 2023, respectively[63] Regulations on Access to the Foreign Exchange Market (MLC) The Central Bank of Argentina (BCRA) introduced further restrictions and requirements for accessing the official foreign exchange market (MLC), including prior authorization for certain service payments and extended waiting periods for companies involved in securities transactions - BCRA now requires prior authorization to access the MLC for certain service payments before 60 days from the approval of the SIRASE affidavit[65] - The waiting period for companies transacting with securities before accessing the MLC was extended to 180 days for foreign-law securities and maintained at 90 days for Argentine-law securities[66] Tax Regulations The Argentine government extended the PAIS tax to cover the acquisition of services abroad and certain import transactions, while granting exemptions for goods associated with the energy sector, benefiting the company's operations - Executive Order No. 377/23 extended the PAIS tax to certain import and foreign service transactions[68] - The company's energy sector imports, including goods for gas pipelines and power generation works (including PEPE II, IV, and VI wind farms), are exempted from the PAIS tax[69][70] Note 5: Group Structure This note outlines significant changes in the company's portfolio of assets and investments, including the acquisition of the Rincón de Aranda shale oil block through an asset swap and updates on investments in associates and joint ventures Acquisition of Rincón de Aranda and Divestment of Greenwind On August 16, 2023, Pampa acquired the remaining 45% interest in the Rincón de Aranda block, reaching 100% ownership, by transferring its 100% equity interest in Greenwind, a strategic move diversifying its portfolio with a high-potential shale oil block - The company acquired a 100% interest in the Rincón de Aranda exploration block by swapping its 100% interest in the Greenwind subsidiary[80] - The transaction resulted in a recorded profit of $2,485 million from revaluing the previous 55% interest in Rincón de Aranda and a profit of $85 million on the asset swap[85] Associates and Joint Ventures The company's investments in associates and joint ventures totaled $325,458 million as of September 30, 2023, a significant increase from year-end 2022, with a share of profit of $14,044 million for the nine-month period, largely attributable to exchange differences on translation Investment in Associates and Joint Ventures (in millions of ARS) | Category | 09/30/2023 | 12/31/2022 | | :--- | :--- | :--- | | Associates (OCP, TGS, etc.) | 19,311 | 14,487 | | Joint Ventures (CIESA, Citelec, CTB) | 306,147 | 145,346 | | Total | 325,458 | 159,833 | Share of Profit from Associates and Joint Ventures (in millions of ARS) | Category | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | | Associates | 1,013 | (734) | | Joint Ventures | 13,031 | 14,344 | | Total | 14,044 | 13,610 | Oil and Gas Participations The company adjusted its oil and gas portfolio by increasing its interest in the Parva Negra Este block, terminating agreements for other blocks, relinquishing the Río Atuel block, and securing an unconventional exploitation concession for the Rincón de Aranda block - The company plans to increase its interest in the Parva Negra Este block to 85% (from 42.5%) following the assignment from ExxonMobil, pending provincial approval[105][106] - The company fully relinquished the Río Atuel block, leading to a write-off of exploration wells amounting to $1,702 million (US$ 6.6 million)[115][116] - After acquiring 100% of the Rincón de Aranda block, the company was granted an unconventional exploitation concession (CENCH) and plans a pilot program with an estimated investment of US$161 million[113][114] Note 7: Segment Information Pampa Energía operates across four main segments: Electricity Generation, Oil and Gas, Petrochemicals, and Holding and Other Business, with the Generation segment being the largest contributor to profit for the nine months ended September 30, 2023 Segment Performance for Nine Months Ended Sep 30, 2023 (in millions of US$) | Segment | Revenue | Operating Income | Profit of the Period | | :--- | :--- | :--- | :--- | | Generation | 507 | 228 | 311 | | Oil and Gas | 548 | 166 | 16 | | Petrochemicals | 389 | 26 | 26 | | Holding and Others | 11 | (6) | 105 | | Consolidated Total | 1,370 | 414 | 458 | - The Generation segment's high profitability is notable, contributing $311 million to the total profit of $458 million[127] - The Holding and Others segment's profit of $105 million was significantly influenced by financial results and share of profit from associates and joint ventures[127] Note 12: Financial Assets and Liabilities This note details the composition and changes in the company's financial instruments, with total borrowings significantly increasing due to new corporate bond issuances and active debt management Borrowings Total borrowings increased to $574,215 million as of September 30, 2023, from $285,766 million at the end of 2022, primarily due to new Corporate Bond issuances and currency translation effects, with the company also redeeming its Series T CBs Borrowings Breakdown (in millions of ARS) | Category | 09/30/2023 | 12/31/2022 | | :--- | :--- | :--- | | Non-Current | 451,083 | 237,437 | | Current | 123,132 | 48,329 | | Total | 574,215 | 285,766 | - The company issued multiple new Corporate Bonds in 2023, including Class 15, Class 16, Class 17 (a green bond), and Class 18, raising a mix of ARS and USD-denominated capital[167][168][170] - On June 8, 2023, the company redeemed all outstanding Series T CBs, which had a balance of US$ 92.9 million[171] Note 18: Investment Commitments Pampa Energía is actively expanding its renewable energy portfolio with significant investment commitments, including the completed PEPE IV wind farm expansion and the commenced construction of the larger PEPE VI wind farm - The 81 MW expansion of PEPE IV was fully commissioned as of September 17, 2023[202] - Construction began on the PEPE VI Wind Farm, a 300 MW project with a total estimated investment of US$ 500 million[204] PEPE VI Construction Stages | Stage | Capacity Addition | Investment | Expected Operation | | :--- | :--- | :--- | :--- | | Stage 1 | 94.5 MW | US$ 186 million | Q3 2024 | | Stage 2 | 45 MW | US$ 83 million | Q4 2024 | Note 22: Subsequent Events After the reporting period, Pampa Energía opted into the government's Export Increase Program, received a 28% increase in spot remuneration values for energy generation, and a new mechanism was approved allowing companies to offset penalties under Renovar program contracts with investments in new renewable capacity - The company participated in the Export Increase Program, allowing it to settle a portion of its export proceeds at a more favorable exchange rate (marketable securities swap rate)[214][215][216] - SE Resolution No. 869/23 updated spot remuneration values for energy generation with a 28% increase effective from the November 2023 transaction[217] - A new regulation (SE Resolution No. 883/23) allows Renovar program awardees to offset penalties by investing in new renewable power generation capacity, providing a new avenue to manage project delays or deficiencies[218][219]