Pampa Energia(PAM) - 2023 Q4 - Annual Report

Audit Report Auditor's Opinion The independent auditors issued an unqualified opinion, affirming the fair presentation of Pampa Energía S.A.'s consolidated financial statements as of December 31, 2023, in accordance with IFRS - The auditors concluded that the consolidated financial statements present a fair view of the Group's financial position and performance for the year ended December 31, 2023, in accordance with IFRS[3] Key Audit Matters Key audit matters included oil and gas reserve estimates, impairment of non-financial assets, and fair value determination in acquisitions and divestments - Estimates of oil and gas reserves were a key audit matter due to their significant impact on the depreciation and recoverability of Property, Plant and Equipment (PPE) and goodwill in the oil and gas segment. These estimates involve numerous uncertainties and subjective judgments[10][11][14] - The impairment of non-financial long-lived assets for the Rincón del Mangrullo and el Tordillo / la Tapera cash-generating units was a key focus. Management's analysis led to the recognition of an impairment loss of $30,456 million as of December 31, 2023[15][17] - The audit focused on the fair value determination related to the acquisition of an additional interest in the Rincón de Aranda block and the divestment of Greenwind S.A., which involved significant management judgment and complex valuation models[17] Financial Statements Consolidated Statement of Comprehensive Income Revenue more than doubled in 2023, but profit for the year decreased to $36.7 billion from $64.9 billion in 2022, primarily due to higher income tax expense Key Income Statement Data (in millions of Argentine Pesos) | Indicator | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Revenue | 513,727 | 242,182 | 144,641 | | Gross profit | 193,603 | 92,521 | 53,690 | | Operating income | 117,754 | 88,451 | 56,426 | | Profit of the year | 36,691 | 64,900 | 23,786 | | Total comprehensive income | 1,545,345 | 222,754 | 70,362 | Earnings Per Share | Indicator | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Basic and diluted EPS | $25.25 | $46.97 | $19.29 | Consolidated Statement of Financial Position Total assets significantly increased to $3.8 trillion from $840 billion, driven by Property, Plant and Equipment, with total equity rising to $1.95 trillion Key Balance Sheet Data (in millions of Argentine Pesos) | Indicator | 12.31.2023 | 12.31.2022 | | :--- | :--- | :--- | | Total non-current assets | 2,738,024 | 601,881 | | Total current assets | 1,079,172 | 238,183 | | Total assets | 3,817,196 | 840,064 | | Total equity | 1,950,696 | 404,620 | | Total non-current liabilities | 1,444,818 | 323,746 | | Total current liabilities | 421,682 | 111,698 | | Total liabilities | 1,866,500 | 435,444 | Consolidated Statement of Changes in Equity Total equity increased to $1.95 trillion from $404.6 billion, primarily driven by $1.5 trillion in other comprehensive income and $36.7 billion profit for the year - Total equity grew from $404.6 billion at the end of 2022 to $1,950.7 billion at the end of 2023[50][53] - The main drivers for the increase in equity during 2023 were the profit for the year ($36.7 billion) and other comprehensive income ($1.5 trillion)[53] Consolidated Statement of Cash Flows Net cash from operating activities more than doubled to $177.1 billion, with significant outflows for PPE acquisitions, resulting in a $48.7 billion increase in cash Net Cash Flow Summary (in millions of Argentine Pesos) | Activity | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Net cash from operating activities | 177,099 | 81,197 | 72,029 | | Net cash used in investing activities | (75,354) | (75,055) | (45,793) | | Net cash used in financing activities | (53,093) | (5,064) | (31,804) | | Increase (Decrease) in cash | 48,652 | 1,078 | (5,568) | - The largest cash outflow was for the acquisition of property, plant, and equipment, amounting to $194.3 billion in 2023, a significant increase from $51.9 billion in 2022[56] Notes to the Consolidated Financial Statements Note 1: General Information Pampa Energía, a fully integrated Argentine power company, operates in a volatile economic environment characterized by GDP decrease, high inflation, and currency depreciation - The company is one of Argentina's largest independent power generators with an installed capacity of 5,332 MW, representing approximately 12% of the country's total capacity[58] - In the oil and gas segment, as of December 31, 2023, production reached 10.3 million m³/day of natural gas and 4.8 thousand boe/day of oil[59] - The Argentine economy faced significant challenges in 2023, with a 1.6% GDP decrease, 211.4% cumulative inflation (CPI), and a 356.3% depreciation of the peso against the U.S. dollar[69] Note 2: Regulatory Framework Operations are heavily influenced by Argentina's complex regulatory framework, including electricity and gas pricing, production incentives, tariff renegotiations, and foreign exchange market restrictions - Generation revenues are derived from multiple regimes: sales contracts with large users (MAT), supply agreements with CAMMESA (under various resolutions), and sales to the Spot market, with remuneration values frequently updated by the Secretary of Energy (SE)[72] - The GasAr Plan and its successor, the Reinsurance Plan, are key government programs to promote natural gas production, under which the company has committed to significant production volumes through 2028[161][172] - Gas transportation (TGS) and electricity transmission (Transener) tariffs are subject to ongoing renegotiation processes (RTI) with the government, with transitional tariff adjustments being granted periodically[219][255] - Access to the foreign exchange market (MLC) for imports and debt payments is highly regulated by the Central Bank of Argentina (BCRA), with a new import monitoring system (SEDI) replacing the previous SIRA/SIRASE systems in December 2023[264][270] Note 4: Accounting Policies Financial statements adhere to IFRS, using the U.S. dollar as functional currency and Argentine Peso for presentation, with key policies for oil and gas, PPE, and business combinations - The company's functional currency is the U.S. dollar, and the presentation currency is the Argentine Peso, as required by the CNV[307] - For oil and gas exploration and production activities, the company uses the successful efforts method of accounting, where exploration costs are expensed as incurred, but exploratory well drilling costs are capitalized pending determination of proved reserves[356][357] - Depreciation for productive wells and machinery in the oil and gas segment is calculated using the units of production method based on estimated proved developed reserves[347] - Business combinations are accounted for using the acquisition method, with identifiable assets and liabilities measured at their fair values on the acquisition date[328] Note 5: Group Structure This note details corporate reorganizations, including the 2021 Edenor sale, 2022 VAR acquisition, and 2023 Rincón de Aranda asset swap, alongside interests in associates and joint ventures - In June 2021, the company completed the sale of its 51% controlling interest in the electricity distributor Edenor[465][466] - On December 16, 2022, the company acquired 100% of VAR (Arauco II Wind Farm) for a price of US$171 million[486][487] - On August 16, 2023, the company acquired the remaining 45% interest in the Rincón de Aranda block (reaching 100% ownership) by transferring its 100% equity stake in Greenwind S.A. (Mario Cebreiro Wind Farm). This transaction resulted in a gain of $2,485 million from revaluing the previously held stake and a gain of $85 million on the asset swap[495][497][500] Note 6: Risks Critical accounting estimates and financial risks, including market, credit, and liquidity, are managed, with a 23% leverage ratio and 48% credit concentration with CAMMESA - The company is exposed to foreign exchange risk, primarily from the Argentine peso. In 2023, the peso devalued by 356.3% against the USD, resulting in a net foreign exchange gain of $43.6 billion for the company[620] - Credit risk is concentrated with CAMMESA, which accounted for approximately 48% of the company's trade receivables as of December 31, 2023[635] - As of December 31, 2023, 95% of the company's financial debt is at a fixed interest rate, mitigating exposure to interest rate volatility[630] Leverage Ratio | Indicator | 12.31.2023 | 12.31.2022 | | :--- | :--- | :--- | | Net debt | 580,683 | 163,153 | | Total capital | 2,524,419 | 566,616 | | Leverage ratio | 23.00% | 28.79% | Note 7: Segment Information The company operates in Generation, Oil and Gas, Petrochemicals, and Holding segments, with Generation being the largest contributor to 2023 revenue and operating income 2023 Segment Performance (in millions of US$) | Segment | Revenue | Operating Income | | :--- | :--- | :--- | | Generation | 648 | 272 | | Oil and Gas | 666 | 140 | | Petrochemicals | 507 | 45 | | Holding and others | 14 | (33) | | Consolidated Total | 1,732 | 424 | Note 11: Non-financial Assets and Liabilities Details PPE, intangible assets, inventories, and provisions, noting a substantial increase in PPE to over $2 trillion and $30.5 billion impairment losses in Oil & Gas - Net book value of Property, Plant and Equipment increased to $2,056,974 million as of Dec 31, 2023, from $383,464 million in the prior year[684][687] - Impairment losses of $30,456 million were recognized in 2023 for the Rincón del Mangrullo and el Tordillo / la Tapera CGUs in the Oil & Gas segment due to rescheduled or suspended future drilling activities[693][696] - Total provisions amounted to $124.5 billion, with the largest components being for contingencies ($88.0 billion), asset retirement/decommissioning ($22.2 billion), and environmental remediation ($13.3 billion)[706][707] Note 12: Financial Assets and Liabilities Financial assets include fair value instruments, while total borrowings significantly increased to $1.17 trillion in 2023, primarily non-current USD corporate bonds Borrowings Breakdown (in millions of Argentine Pesos) | Category | 12.31.2023 | 12.31.2022 | | :--- | :--- | :--- | | Non-Current | 989,182 | 237,437 | | Current | 181,357 | 48,329 | | Total | 1,170,539 | 285,766 | - In 2023, the company issued several new series of corporate bonds, including Class 15, 16, 17 (a green bond), and 18, while redeeming others like Series T and Class 11[762][764][768][769] Note 13: Equity Components Details share capital changes, including a capital reduction by canceling 20.1 million shares, resulting in $25.25 basic and diluted EPS for 2023 - On April 26, 2023, the Shareholders' Meeting approved a capital reduction through the cancellation of 20.1 million shares[799] Earnings Per Share Calculation | Indicator | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Earning attributable to equity holders | 34,488 | 64,859 | 27,097 | | Weighted average outstanding shares | 1,366 | 1,381 | 1,405 | | Basic and diluted EPS | $25.25 | $46.97 | $19.29 | Note 18: Investment Commitments Significant investment commitments include the US$500 million PEPE VI Wind Farm (300 MW) and US$217 million for hydrocarbon exploration and exploitation through 2027 - Construction began on the PEPE VI Wind Farm in February 2023, a 300 MW project with an estimated total investment of US$500 million. Stage 1 (94.5 MW) is expected to be operational in mid-2024[840][841] - The company has committed to hydrocarbon investments of approximately US$217 million through 2027[845] Note 24: Subsequent Events Post-year-end, the Secretary of Energy approved a 73.9% increase in remuneration values for spot energy generation, effective February 2024 - On February 8, 2024, SE Resolution No. 9/23 updated remuneration for spot energy generation, providing a 73.9% increase effective from February 2024[873]