Pampa Energia(PAM) - 2020 Q4 - Annual Report

Key Information Exchange Rates The report details the historical Argentine Peso to U.S. Dollar exchange rate, noting significant Peso depreciation and its impact on ADS value and dividends Historical Exchange Rates (Pesos per U.S. Dollar) | Period | High | Low | Average | Period End | | :--- | :--- | :--- | :--- | :--- | | Year ended Dec 31, 2016 | 16.030 | 13.200 | 14.782 | 15.890 | | Year ended Dec 31, 2017 | 19.200 | 15.190 | 16.572 | 18.649 | | Year ended Dec 31, 2018 | 41.250 | 18.410 | 28.093 | 37.700 | | Year ended Dec 31, 2019 | 60.400 | 36.900 | 48.234 | 59.890 | | Year ended Dec 31, 2020 | 84.150 | 59.815 | 70.599 | 84.150 | - Fluctuations in the Peso-to-U.S. Dollar exchange rate affect the U.S. Dollar amounts received by ADS holders from cash dividends and can impact the market price of the ADSs[34] Risk Factors The company faces substantial risks from Argentina's volatile macroeconomic and political environment, operational hazards, and specific business segment challenges - The company's financial condition and results are significantly dependent on the macroeconomic, regulatory, and political conditions in Argentina, which has a history of volatility, high inflation, and currency devaluation[43][52] - The Argentine government has historically exercised significant influence over the economy and the energy sector, with potential for expropriation, price controls, and changes in taxation policies that could adversely affect the company[59][91] - The COVID-19 pandemic has caused significant market disruption, a decline in demand for crude oil, and may have a material adverse impact on business operations, financial condition, and results[97][99] - A material portion of the business operates under public concessions from the Argentine Government; the revocation or termination of these concessions would have a material adverse effect on the business[104] - Substantial declines and volatility in the prices of crude oil, oil products, and natural gas, influenced by global factors, may adversely affect operational results and financial condition[183] Information on the Company History and Development of the Company Pampa Energía S.A. evolved into Argentina's largest integrated energy company through strategic acquisitions and corporate reorganizations - The company was acquired by its current principal shareholders in 2005 to serve as a corporate vehicle for investments in Argentina, later changing its name to Pampa Energía S.A. in 2008[256] - In July 2016, Pampa acquired 67.2% of Petrobras Argentina, a transformative acquisition that solidified its position as a major integrated energy player in the country[257] - Since 2016, Pampa has engaged in a corporate reorganization process, merging key subsidiaries like Petrobras Argentina, Petrolera Pampa, CTG, and CTLL into Pampa Energía S.A. to simplify its structure[258] Our Business Pampa Energía operates as Argentina's largest integrated energy company across power generation, oil & gas, petrochemicals, and strategic infrastructure holdings Pampa Energía Business Segments Overview (as of Dec 31, 2020) | Segment | Key Metrics | Details | | :--- | :--- | :--- | | Power Generation | 5,250 MW | Total capacity including expansions (Thermal, Hydro, Wind, Co-Gen) | | Electricity Distribution | 3.2 million customers | Through Edenor; classified as a discontinued operation. 20% market share | | Oil & Gas | 45.0 k boe/d | Production from 13 productive blocks | | Petrochemicals | 85-98% Market Share | Produces Styrene, SBR, and Polystyrene | | Other Businesses | TGS, Transener, Refinor | Interests in gas pipelines, high voltage lines, and refining | - The company is actively expanding its power generation capacity, with 295 MW of projects under development, aiming for a total installed capacity of 5,250 MW[262] - A significant strategic event was the December 28, 2020 agreement to sell the company's controlling interest in its electricity distribution subsidiary, Edenor, leading to its classification as a discontinued operation[265][303] Relevant Events Pampa Energía underwent corporate reorganizations, achieved generation milestones, participated in the new Gas Plan, and divested Edenor while managing COVID-19 impacts - Strategic Divestment: On December 28, 2020, Pampa agreed to sell its 51% controlling stake in Edenor to focus on its core businesses of power generation and unconventional gas development[303][308] - Generation Milestone: The second combined cycle at the Genelba (CTGEBA) thermal plant was commissioned on July 2, 2020, adding 400 MW and increasing its total capacity to 1,253 MW, making it the largest thermal plant in Argentina[274] - Gas Plan Participation: Pampa was awarded a base volume of 4.9 million m3/day and an additional winter volume of 1.0 million m3/day under the new Plan Gas.Ar, committing to significant investment to boost natural gas production[288][810] - COVID-19 Impact & Response: The pandemic led to decreased electricity and fuel demand, delays in payments from CAMMESA, and operational adjustments[309][313] The company implemented a QHSE policy and a Preventive Committee to manage the crisis, ensuring operational continuity for essential activities[323] Our Generation Business Pampa Energía's generation business, with 4,955 MW installed capacity, saw increased net generation in 2020 and has 295 MW under expansion Generation Asset Summary (as of Dec 31, 2020) | Technology | Installed Capacity (MW) | Market Share | 2020 Net Generation (GWh) | | :--- | :--- | :--- | :--- | | Thermal | 3,811 | 9.1% | 14,065 | | Hydroelectric | 1,144 | 2.7% | 2,404 | | Wind | 206 | 0.4% | 859 | | Total | 4,955 | 11.8% | 16,470 | - The company has 295 MW of thermal generation capacity under expansion, including a 280 MW combined cycle project at CTEB estimated for completion in Q2 2022[334] - The Genelba (CTGEBA) thermal plant is the largest in Argentina, with a total installed capacity of 1,253 MW following the 2020 expansion[336] Our Oil and Gas Business Pampa's Oil and Gas segment focuses on unconventional gas, holding 141.8 million boe in proved reserves, with 2020 production impacted by COVID-19 Oil & Gas Key Metrics (as of Dec 31, 2020) | Metric | Value | | :--- | :--- | | Proved Reserves | 141.8 million boe | | - Natural Gas | 90% of total | | - Liquid Hydrocarbons | 10% of total | | Average Daily Production | 45.0 kboe/d | | - Natural Gas | 244 million cf/d | | - Crude Oil | 4.4 k bbl/d | - The company's proved reserves increased by 5% in 2020 compared to 2019, rising from 135.4 million boe to 141.8 million boe, primarily due to revisions, improved recovery, and discoveries in the El Mangrullo area[447][448][449] - Drilling activities in 2020 were significantly limited by the COVID-19 pandemic, with only 15 gross development wells drilled compared to 48 in 2019[404][405] No new exploration wells were drilled[406] - The company has committed to an investment plan exceeding US$250 million for the 2021-2024 period, with a strong focus on developing unconventional gas reserves to meet commitments under the Plan Gas.Ar[1048] Our Petrochemicals Business Pampa's petrochemical business dominates the Argentine market for styrene, polystyrene, and elastomers, with mixed sales volumes in 2020 - The company is the only producer of styrene, polystyrene, and elastomers in Argentina, with a dominant domestic market share of 85-98%[507][508] Petrochemical Sales Volumes (in thousand tons) | Product | 2020 | 2019 | | :--- | :--- | :--- | | Styrene (incl. propylene & ethylene) | 47 | 55 | | SBR (Rubber) | 37 | 27 | | Polystyrene | 47 | 44 | | Others | 205 | 217 | - In 2020, rubber sales volume increased by 39% compared to 2019, primarily due to a rise in exports to Brazil[510] Our Holding and Other Business This segment includes Pampa's strategic interests in Argentina's energy infrastructure, notably TGS, Transener, and Refinor - Pampa holds a 27.7% direct and indirect interest in TGS, Argentina's primary gas transportation company, which operates a 9,231 km pipeline network[269][514] - The company has an indirect interest of 26.33% in Transener, the leading high-voltage electricity transmission company in Argentina, operating 21,092 km of lines[269][544] - A 28.5% interest is held in Refinor, which owns a refinery in Salta and a commercial network of 91 gas stations[269][573] Our Distribution of Energy Business Pampa's energy distribution business, Edenor, serving 3.2 million customers, is now classified as a discontinued operation due to a sale agreement - The distribution business is operated through Edenor, Argentina's largest electricity distributor with 3.2 million customers[583] - On December 28, 2020, Pampa entered into an agreement to sell its controlling stake in Edenor, resulting in the classification of the entire distribution segment as a discontinued operation[584] Operating and Financial Review and Prospects Results of Operations Pampa Energía reported a US$468 million net loss in 2020, primarily due to discontinued operations and reduced profitability in continuing segments Consolidated Results of Operations (in millions of US$) | Item | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Revenue | 1,071 | 1,338 | 1,436 | | Gross profit | 408 | 527 | 605 | | Operating income | 243 | 462 | 618 | | Profit from continuing operations | 124 | 603 | 91 | | (Loss) Profit from discontinued operations | (592) | 197 | 196 | | (Loss) Profit of the year | (468) | 800 | 287 | Operating Income by Segment (in millions of US$) | Segment | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Generation | 241 | 322 | 324 | | Oil and gas | (32) | 72 | 250 | | Petrochemical | 6 | 6 | (61) | | Holding and others | 28 | 62 | 106 | | Total operating income | 243 | 462 | 618 | Liquidity and Capital Resources Pampa's liquidity shows decreased borrowings and cash in 2020, with lower capital expenditures and a 2021 focus on gas segment investments Financial Position Summary (in millions of US$) | Item | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | :--- | | Total Borrowings | 1,614 | 1,947 | 2,177 | | Cash and Cash Equivalents | 141 | 225 | 241 | Capital Expenditures by Segment (in millions of US$) | Segment | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Generation | 61 | 240 | 235 | | Distribution of energy | 135 | 173 | 227 | | Oil and gas | 41 | 191 | 192 | | Petrochemical | 3 | 4 | 4 | | Holding and others | 2 | 3 | 7 | | Total | 242 | 611 | 665 | - The company plans to finance future capital requirements, debt payments, and working capital primarily from cash from operations, new debt, and potential divestments[1045] - The 2021 capital expenditure program of US$204 million will be heavily focused on the oil and gas segment to develop unconventional gas reserves in line with commitments made under the Plan Gas.Ar[1044][1048] Directors, Senior Management and Employees Board of Directors and Senior Management The company's governance structure includes a ten-member Board of Directors with independent members and an Audit Committee, led by key executives - The Board of Directors consists of ten directors and a number of alternate directors, elected for three-year staggered terms[1069] Four of the ten directors are independent[1069] - Key leadership includes Marcos Marcelo Mindlin as Chairman, Gustavo Mariani as Vice Chairman & CEO, Ricardo Alejandro Torres as Executive Vice President, and Damián Miguel Mindlin as Executive Vice President[1075][1081] - The company has an Audit Committee composed of three independent members, with Miguel Bein serving as the designated "audit committee financial expert"[1108][1110][1383] Compensation Director and officer compensation, including a stock-based plan, is subject to Argentine legal limits and variable pay agreements tied to market value - For the fiscal year ended December 31, 2020, total compensation for the Board of Directors was set at Ps. 436.4 million[1128] - The company has a stock-based compensation plan for officers and key staff, utilizing repurchased shares to align employee and shareholder interests[1129] In 2020, 0.7 million shares were delivered under this plan[1131] - Main executives have compensation agreements that include a variable component equivalent to 3% of the company's annual market value appreciation, capped at 1.5% of adjusted EBITDA[1133] Employees As of December 31, 2020, Pampa Energía had 1,937 full-time employees, with approximately 46% unionized and covered by collective bargaining agreements - The company had 1,937 full-time employees as of December 31, 2020[1142] - Approximately 46.01% of the workforce is affiliated with a union and is party to collective bargaining agreements[1143] Major Shareholders and Related Party Transactions Major Shareholders As of March 31, 2021, major shareholders include ANSES and key management, with the company actively reducing capital through share cancellations Beneficial Ownership of Common Shares (as of March 31, 2021) | Shareholder | Percentage of Capital Stock | | :--- | :--- | | ANSES | 21.09% | | Marcos Marcelo Mindlin | 18.03% | | Damián Miguel Mindlin | 3.20% | | Gustavo Mariani | 3.00% | | Ricardo Alejandro Torres | 1.99% | - The company has executed multiple capital reductions by canceling treasury shares, including the cancellation of 140.8 million shares approved in December 2020 and 56.6 million shares approved in April 2021[1151][1152] Financial Information Legal Proceedings Pampa Energía faces various legal proceedings, including customs disputes and environmental claims, with US$103 million accrued for potential losses - The company has established provisions totaling US$103 million for contingent liabilities from legal proceedings as of December 31, 2020[1166] - A significant provision of US$86 million relates to customs summary proceedings where tax authorities challenge the tariff heading used for gasoline exports between 2008 and 2014[1167] - Pampa is a defendant in multiple environmental claims seeking restoration and compensation for alleged damages from hydrocarbon activities in the Austral and Neuquina Basins, and industrial activities along the Matanza-Riachuelo River Basin[1171] Dividends Pampa Energía did not declare dividends for fiscal years 2018-2020, with distributions subject to shareholder discretion and board recommendation - No dividends were declared for the fiscal years 2018, 2019, and 2020[1184] The Offer and Listing Trading History Pampa Energía's shares trade on BASE and NYSE, with the company actively engaging in share repurchase programs to address valuation discrepancies ADS Trading Range on NYSE (U.S. Dollars per ADS) | Year | High | Low | | :--- | :--- | :--- | | 2018 | 72.98 | 24.93 | | 2019 | 39.89 | 12.01 | | 2020 | 16.69 | 8.72 | - The company has conducted multiple share repurchase programs[1194] In 2020, Programs VI and VII were completed[1196] Program VIII was active at year-end and has since terminated[1198] A new US$30 million program (Program IX) was approved in March 2021[1198] Additional Information Memorandum and Articles of Association Pampa Energía's by-laws define its broad energy-focused corporate purpose, shareholder rights, and mandatory public tender offer provisions for control changes - The company's by-laws require a mandatory public tender offer for 100% of outstanding capital stock if a person or group acquires 35% or more of the voting stock[1278] - A separate mandatory public tender offer is required if a person or group acquires more than 50% of the voting stock or otherwise gains control[1279] - Shareholders have preemptive rights to subscribe to new share issuances proportionate to their holdings, though these rights can be limited or suspended by an extraordinary shareholders' meeting[1251][1253] Exchange Controls Argentina's exchange controls restrict access to the official Foreign Exchange Market (MLC), imposing affidavit requirements, transaction limits, and debt refinancing mandates - Access to the MLC requires an affidavit certifying that foreign currency holdings in Argentina are in local financial institutions and that liquid foreign assets do not exceed US$100,000[1288] - Companies accessing the MLC are restricted from conducting security sales settled in foreign currency or transferring securities abroad for a period of 90 days before and after the access date[1291] - A mandatory refinancing plan is required for certain foreign debts, allowing access to the MLC for only up to 40% of the principal, with the balance needing to be refinanced with an average life of 2 years[1293] Taxation The report details Argentine and U.S. tax implications, including capital gains exemptions, dividend withholding, and the company's non-PFIC status - Argentine Tax: Capital gains on publicly traded shares are generally exempt for foreign beneficiaries not residing in non-cooperating jurisdictions[1303] Dividends from profits accrued since Jan 1, 2018 are subject to a 7% withholding tax[1313] - U.S. Tax: For U.S. holders, dividends are generally taxed as foreign source dividend income[1352] Gains on the sale of ADSs are typically treated as U.S. source capital gains[1356] - PFIC Status: The company believes it was not a Passive Foreign Investment Company (PFIC) for the 2020 taxable year, which is favorable for U.S. holders as it avoids adverse tax treatment on distributions and gains[1349] Controls and Procedures Disclosure Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2020, ensuring timely and accurate SEC reporting - The company's CEO and CFO concluded that as of December 31, 2020, disclosure controls and procedures were effective[1375] Management's Annual Report on Internal Control over Financial Reporting Management affirmed effective internal control over financial reporting as of December 31, 2020, based on COSO 2013, with an unqualified audit opinion - Management assessed the company's internal control over financial reporting as effective as of December 31, 2020, based on the COSO 2013 framework[1378] - The effectiveness of the internal control over financial reporting was audited by Price Waterhouse & Co. S.R.L., which issued an unqualified opinion[1379][1415] Financial Statements Consolidated Statement of Comprehensive Income Pampa Energía reported a US$468 million net loss in 2020, primarily due to discontinued operations and reduced profitability in continuing segments Consolidated Statement of Comprehensive Income Highlights (in millions of US$) | Line Item | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Revenue | 1,071 | 1,338 | 1,436 | | Operating income | 243 | 462 | 618 | | Profit of the year from continuing operations | 124 | 603 | 91 | | (Loss) Profit of the year from discontinued operations | (592) | 197 | 196 | | (Loss) Profit of the year | (468) | 800 | 287 | Consolidated Statement of Financial Position As of December 31, 2020, total assets decreased to US$4,890 million due to Edenor's reclassification, impacting total liabilities and equity Consolidated Statement of Financial Position Highlights (in millions of US$) | Line Item | Dec 31, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Total non-current assets | 2,473 | 4,322 | | Total current assets | 948 | 1,362 | | Assets classified as held for sale | 1,469 | - | | Total assets | 4,890 | 5,684 | | Total non-current liabilities | 1,652 | 2,421 | | Total current liabilities | 448 | 854 | | Liabilities associated to assets classified as held for sale | 1,021 | - | | Total liabilities | 3,121 | 3,275 | | Total equity | 1,769 | 2,409 | Consolidated Statement of Cash Flows In 2020, net cash from operations was US$693 million, while investing and financing activities resulted in net cash outflows, leading to a decrease in cash and equivalents Consolidated Statement of Cash Flows Highlights (in millions of US$) | Line Item | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Net cash generated by operating activities | 693 | 802 | 610 | | Net cash (used in) generated by investing activities | (255) | (369) | 19 | | Net cash used in financing activities | (445) | (390) | (470) | | Cash and cash equivalents at the end of the year | 141 | 225 | 241 |