Pampa Energía S.A. (PAM) Q2 2018 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everyone to Pampa Energía's '18 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 and 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. Wang, you may begin your conference.

Good morning, everyone, and thank you for joining our conference call. We will briefly go through every business segment, reviewing the quarter's key figures and the latest events since our last call in May, and then head straight to the Q&A. As you know, you can always reach us out for more details on the results or any doubts you may have. Remember, our strong 2018 and for the comparative periods, we are redistributing corporate expenses among the operating segments that is power generation, oil and gas and petrochemicals. Also, we are not considering divested assets at oil and gas and refining and distribution segments, which are reported as discontinuing operations. So as you can see on Slide 4, beginning with adjusted EBITDA, in the second quarter of 2018 we recorded ARS7.5 billion, 134% more compared to an EBITDA of ARS3.2 billion in the same period in 2017. The large variation was due to increases of ARS1.6 billion in power generation, ARS1.2 billion in electricity distribution, ARS487 million in oil and gas segment, ARS44 million in petrochemicals segment and ARS926 million in holding and others plus intersegment eliminations, partially offset by a decrease of ARS49 million in refining and distribution. The higher EBITDA of ARS1.6 billion at our power generation segment was mainly driven by the large peso devaluation experienced since May of this year, therefore, impacting all our power generation sales reaching invoices in U.S. dollars, in addition to the full fare billing since November 2017 for the legacy capacity, which currently is 75% of our total of 3.9 gigawatts installed capacity. In Q2 2017, we were remunerated under a lower fair minimum and base as the new legacy scheme was implemented gradually throughout 2017. Moreover, higher dispatch at Pichi Picún Leufú because of the rainy season and new power generation also contributed to the EBITDA that on top of the new PPAs invoicing in Parque Pilar, Ingeniero White and Loma de la Lata, since June of this year, we commissioned our first wind farm, Mario Cebreiro, for 100 megawatts, which is also the first project of this size and using this technology to reach such a milestone under the RenovAr 1 tender. Pampa invested a total of ARS139 million, and we are proud to say the commercial operation date was achieved before the date originally stipulated in the PPA, showing our full commitment to the four projects we commissioned to date. On July 20, we achieved the generation record in the wind farm of 2.3 gigawatt hours, showing a load factor beyond 50%. The increases were partially offset by lower dispatch request at Piedra Buena and the open cycle turbine in Genelba power plant, plus lower generation at Diamante hydro power plant because of lower water flow. Also, we managed to maintain an outstanding availability rate of 98% with increased installed capacity, in comparison with 86% achieved in the same quarter of last year. This improvement is basically explained by Piedra Buena's poor performance during last year's outages from maintenances and also new units operation availability. Before I move on from power generation, I wanted to give you a quick update of our expansion projects. We began in Q4 last year with Genelba closing to CCGT for 383 megawatts as soon as we got awarded. And as you can see in the pictures in Slide 7, we finished tidying up the ground and have started to set the foundations for the new turbine. This plant will be operating as open cycle in Q2 2019 adding 187 megawatts and as a combined cycle in Q2 2020 adding another 196 megawatts. On the renewal front, we began with the construction of Pampa Energía II and III wind farms for 106 megawatts, which COD sets in second quarter of next year. In Parque Eólico Pampa Energía or PEPE III, as we call them, internal growth were finished and we started to build the foundations of the poles. In PEPE III, we are building the internal rows and the platform to place the tower's transformation station. In May, we announced a fourth wind farm expansion project named PEPE IV for 50 megawatts of installed capacity, which is located in Las Armas area in the province of Buenos Aires, and will be an additional investment of $74 million. Remember that the electricity generated from these three wind farms will be sold to large users through private PPAs, targeting their need to comply with the national renewables law. Moving on to the distribution segment, which was previously reviewed by Mr. Montero yesterday in Edenor's earnings call, as shown in Slide 9, during the second quarter of 2018, the EBITDA increased by ARS 1.2 billion compared to the same period of 2017, mainly because of the full fare billing on the distribution tariff granted within the Comprehensive Tariff Review, RTI as we call it, up from January 1, 2018, plus the cost variation recognized in August 2017 and February 2018 of cumulative 25%. Additionally, Edenor invoiced another 3 installments generated by the gradual application of 2017's tariff increase for ARS 395 million. The positive variation for Edenor's EBITDA was offset by the increased losses, showing 18.6% in the second quarter 2018 compared with 17.2% for the same period 2017, mainly explained by the colder weather in the area. Associated cost increased by 99% year-on-year due to the application of the new seasonal price tax, by the way, still subsidized compared to the full cost of generation. The Ministry of Energy announced that as from August 1, seasonal price of electricity will be raised from ARS1,100 per megawatt hour to ARS1,470 per megawatt hour for residential and SMEs, while large users in distribution were raised to ARS2,283 per megawatt hour. Though overall electricity sales did not experience significant changes, the EBITDA decrease is also explained by the decline in SME's demand in line with the economic downturn, partially offset by the stable consumption [indiscernible] in residential and aggregated large users consumption, mainly due to the elastic demand through tariff increase, but low temperatures compared to the Q2 2017 also impacted in their consumption behavior. In line with our actions for energy recovery, we experienced a 3% increase year-on-year on registered clients, mainly because of the installation of the special inclusion meters to foster self-management consumption and the integration of users having a non-regular income. Last, in electricity distribution, on July 31, Edenor agreed with the Ministry of Energy to differ 50% of the costs variation adjustment, without this implying a negative economic impact for Edenor or affecting the service quality parameters resulting from the tariff review. Therefore, the calculated cost variation was 16%, being 8% applicable as of August 1 and the balance of six monthly consecutive installments as from February 1, 2019, which shall be adjusted to the applicable cost variation index on that date. As part of the agreement to the first half of the cost of the variation increase, the Ministry of Energy agreed to carry out the necessary actions towards the realization of the outstanding regulatory asset and availability issue. He also agreed to promote the pending issues related to the energy consumption in shantytowns, known as Framework Agreement. In oil and gas segment, please note that we will only talk about continuing operations, not discontinued. In the second quarter of 2018, we posted an adjusted EBITDA of ARS2.1 billion, 31% higher than the Q2 2017. The EBITDA considered the crude oil utility company OldeVal's EBITDA adjusted by our 23.1% ownership, which contributed ARS53 million. The positive variation is also mainly due to the effect of the peso devaluation over the oil and gas dollar-linked sale prices, in addition to a higher oil price in dollars, partially offset by lower crude oil production due to the service remuneration at Medanito La Pampa block and lower accrual of Plan Gas second generation. We will refer to Plan Gas second generation to the incentive program in force in 2013 and expired in June 30 of this year. All former Petrobras Argentina's blocks were included within the set program, while former Petrolera Pampa's assets were included in the Plan Gas first generation. That one ended in December 2017. Our overall production in Q2 2018 declined 6% compared to Q2 2017, explained by lower crude oil production and reaching to 45,900 barrels of oil equivalent per day, which 90% is composed by 247 million cubic feet per day of natural gas, and the remaining 10% of this production by 4,800 barrels of crude oil per day. Regarding the gas production, in Q2 2018, it remains stable year-on-year and equal quarter-on-quarter, mainly due to the increase in the drilling activity at El Mangrullo, Río Neuquén, which has also increased -- also recently increased its evacuation capacity, and shale development of Parva Negra Este block, offset by the natural decline and a lower drilling rate at Rincón del Mangrullo block. During the second quarter of 2018, our accrued weighted average sales price was $5.5 per MMBtu, of which 12% was contributed by the Plan Gas second generation subsidy. This price is 14% lower than the same period in 2017, as the company decided not to accrue Plan Gas second generation compensation corresponding to former Petrolera Pampa blocks until the Ministry of Energy issues the formal approval. It is worth mentioning that after merging Petrolera Pampa into Pampa Energía, being Pampa the continuing company as from October 2017, the company carried out all the necessary process to include former Petrolera Pampa blocks into Pampa's Plan Gas second generation. We are convinced that we are in entitled to the incentives. However, in light of the recent economic developments in the country as well as net new restrictions in fiscal policy binding in the IMF agreement, the management prefers to take a conservative approach until the resolution is actually issued. We expect to get approved because we understand all conditions requested by the program have been met. So in that case, we will accrue ARS 729 million for the 6-month period of 2018, and the Q2 2018 accrued average sales price for gas will be $6.1 per MMBtu. This negative effect was partially offset by 70% year-on-year increase on Plan Gas second generation accrual because of the peso devaluation and because higher incremental production at Pampa El Mangrullo and Río Neuquén blocks. In the oil side, the decline in production of 2,600 barrels of oil per day corresponding to the end of Petrolera Pampa service at Medanito La Pampa block, partially offset by higher production at El Mangrullo block, as of Q2 2017, this block was affected by weather conditions. During Q2 2018, the accrued sales price increased year-on-year by almost $11, reaching to $63.2 per barrel because the domestic price now correlates with international price of barrel to Brent. Keep in mind that Pampa's Plan Gas second generation ended on June 2018. So to date, we are not recording any incentive plan. So to qualify through Resolution 419 a.k.a. Plan Gas for unconventional resources, we needed that our four key blocks in gas to be categorized as unconventional through a 35-year extension in exploration license. The block Río Neuquén obtained such extension in 2017 -- '16, also Rincón del Mangrullo in 2017. And in that case, in June and July -- in that sense, in June and July of this year, El Mangrullo and Sierra Chata blocks were granted 35-year unconventional flotation concessions by the province of Neuquén. The committed investments during the next five years are $205 million at El Mangrullo block and $520 million at Sierra Chata block, aiming to continue developing tight gas at Mulichinco and Agrio formation and explore the shale gas potential of the Vaca Muerta formation. Remember that Sierra Chata's block figures are 100% and Pampa's contribution in -- according to each state is 45% to 55%. El Mangrullo is 100% owned by Pampa, both El Mangrullo and Sierra Chata are operated by Pampa. Pampa Energía has filed its application for the new Plan Gas for unconventional resources awhile ago. Once we get approved by the Ministry of Energy, we will start recording the compensation in our P&L retroactively for the period approved. Neuquén province has already approved our gas project in El Mangrullo, Río Neuquén and Sierra Chata blocks. Therefore, Ministry of Energy's clearance is pending on these blocks. We are awaiting approval from Neuquén province for the Rincón El Mangrullo block as we have to resubmit the filing. During the second quarter of 2018, we continue with our investment budget plan, which was downward adjusted due to the delay in the granting of Sierra Chata and El Mangrullo blocks unconventional exploitation concession. Therefore, we are budgeting, for the year, 65 wells to be drilled and 69 to be completed. Being in both cases, still more than 50% targeting unconventional gas. As of June 2018, 33 wells were drilled and 28 were completed, expecting an acceleration in the drilling activity onwards. Our focus is the development of blocks with tight gas reservoir, which are available at El Mangrullo, Rio Neuquén, Sierra Chata and Río -- Rincón del Mangrullo. In these blocks, during Q2 2018, we drilled 12 tight gas wells and completed 5. Hence, Q2 2018 gas production run rate kept very similar to the past quarters' performance. In addition, regarding our shale activities as a result of our aforementioned license extensions, we will start our drilling campaign to Vaca Muerta formation at El Mangrullo and Sierra Chata blocks. We already hired a dedicated drilling rig of 7,500 psi for the three years -- next three years, extendable for two additional periods of three years. Finally, among other news in the oil and gas segment, on August 1st, the Ministry of Energy through Resolution 46-2018 set a new reference price for natural gas testing to power generation, fixing it a weighted average price of $4.2 per MMBtu, being $4.42 per MMBtu for the gas from Neuquen Basin. As of today, the company is still analyzing its impact and implementation. In the refining and marketing segment, we will only comment on our continuing operation, as the discontinued were gone on May 9 when Pampa closed the divestment in Trafigura. The EBITDA of this segment is basically Refinor's EBITDA adjusted by 28.5% ownership, which registered a loss of ARS29 million in Q2 2018 compared to an EBITDA gain of ARS20 million recorded in the same period of 2017. This increase is attributable to the decline in the refining margin as a result of higher crude oil cost in dollars and the difficulties impacting through the peso devaluation over the refined products side. In petrochemicals, we posted an EBITDA of ARS 45 million in the second quarter of 2018, ARS 44 million higher compared to the same period of 2017, mainly due to the high international pricing references denominated in U.S. dollars, partially offset by lower sales volume and higher operating and raw materials cost, which is also mostly denominated in U.S. dollars. The adjusted EBITDA does not consider the contingencies update with the customs for ARS 125 million. In operating terms, total sales volume in our petrochemicals segment decreased by 11% in the second quarter of 2018, totaling 95,000 tons compared to the second quarter of 2017, but 9% higher than this last quarter. This increase -- this decrease, sorry, mainly responds to the halt in the reforming plant as Oil Combustibles is out of business and is not delivering the virgin naphtha, resulting in lower production of reforming products for domestic sales, but partially offset by higher export sales of styrene and synthetic rubber. Finally, our holding and others segment presented an adjusted EBITDA of ARS 1.4 billion in the second quarter of 2018 compared to ARS 420 million in the same period of 2017. This is mainly due to the adjusted EBITDA by ownership from TGS and Transener, the higher income from fees and lower expenses, as they've been redistributed between the operating segments. TGS' EBITDA, adjusted by our indirect stake of 25.5%, contributed to Pampa almost ARS 1 billion in the quarter for an inclusive total of ARS 3.8 billion, significantly higher compared to the Q2 2017, mainly due to the tariff increase resulting from the RTI for gas transportation business, being implemented the full adjustment plus PPI adjustment in December 2017 and in April 2018. Moreover, the margin improvement in the liquids processing segment, which was due to higher dollar prices and local sales volumes, contributed to the EBITDA performance in TGS. The adjusted EBITDA in Q2 '18 excludes the charge for arbitration award of ARS 553 million as a result of a claim made by Pan American Energy against TGS back in 2015, in which they originally claimed $306 million, but they got awarded by ICC $21 million, interest included. Moreover, on June, TGS was granted a second tranche to the concession to build and operate a gathering gas pipeline crossing different blocks in the Vaca Muerta formation. The South Tranche will add 20 miles length and 800 million cubic feet per day of transportation capacity and will demand an investment of $41 million. Therefore, the total Vaca Muerta project will have 68 miles long pipeline with a transportation capacity of 2.1 Bcf per day, $300 million of investment and should be commissioned by second quarter next year. Also, TGS dropped the lawsuit against [indiscernible] before the exit, as a condition of the tariff review. In the case of Transener, its EBITDA, adjusted by our indirect shareholding of 26.3%, contributed ARS 313 million in the second quarter of 2018 for an implicit total of ARS1.2 billion, 40% higher than the same period in 2017, mainly explained by the application of RTI tariff scheme in only one installment after February 2017, the reconsideration award in October 2017 and the cost variations update in August 2017 and February 2018 of cumulative 24%. In July, the electricity regulator announced a Comprehensive Tariff Review for the independent power transmitters among TIBA, operated by our Transener's subsidiary Transba; the Fourth Line, operated by our subsidiary Transener; and Enecor, a subsidiary of Pampa. It was three business days to fulfill that information and we requested an extension. Moving to the latest news in the segment regarding the merger of former Petrobras Argentina, we finally swapped the outstanding 10% of Petrobras Argentina shares into Pampa. Also, we got clearance to undertake the second merger collapsing Petrolera Pampa and some power generation companies like Loma, Güemes and the hydro holdcos, issuing additional 144 million ordinary shares or 5.8 million ADRs. Moreover, the company fulfilled a $200 million share buyback program announced in April 27, and in June 22 launched a second $200 million program, repurchase program. Keep in mind, we can only repurchase 10% of our issued share capital. As of today, the company repurchased 5.7 million ADR at an average price of $45.2 per ADR, using this full first program and 28% of the second program. Therefore, next Wednesday after performing the outstanding merger swap that we were talking about, the final issued share capital will amount to 2,083 million shares or 83.3 million ADRs of Pampa, which as of yesterday net of repurchases will be 1.9 billion shares of Pampa or 77.6 million ADRs. In terms of net income attributable to the owners of the company, Pampa presented a consolidated loss of ARS2.7 billion in the second quarter of 2018 compared to ARS91 million in the same period of 2017. This is mainly explained by the accrual of ARS11.3 billion of losses due to the 43% peso depreciation against the dollar in the quarter, especially offset by better pricing as a result of tariff reviews, increases in remuneration and FX effects. Finally, moving on to news related to the debt in Slide 16, we must, again, highlight the low leverage of the company compared to other peers in the same industry and within the country as a result of the active liability management. As of June 30, 2018, the consolidated gross debt including affiliates at ownership stayed at $2.3 billion, of which 95% is denominated or linked with U.S. dollar, and 81% is placed at the parent. As we did with the corporate expenses in our earnings release, you can see how we are redistributing the debt and the cash among the operating businesses at the parent to properly reflect their capital structure. The average interest rates are 6.9% in U.S. dollars and 24.9% in pesos. Average life is 5.3 years. Cash, netting the share buyback after the quarter -- second quarter '18 closing, amounts to $1.1 billion, which is down from the $1.6 billion in March 2018, mainly because of the share repurchases of $256 million we've done so far, coupon payment of $15 million of the parent bond, some expansion capital divestment and the devaluation of the peso cash position. Now we are holding two thirds of our cash in U.S. dollars, therefore, net debt is $1.2 billion. So this concludes our presentation. Now I will turn the word to the operator, who will open the floor for questions. Thank you very much.

Thank you. The floor is now open for questions. [Operator Instructions] Our first question comes from Frank McGann with Bank of America Merrill Lynch. Please go ahead.

Now I was wondering if you could just provide a little bit of view on how you see production, both oil and gas, developing over the next six to 18 months through 2019 in terms of drilling plans and how you think that will affect overall level of production. And then in terms of gas prices, there have been, obviously, a lot of changes and still some uncertainty, but the market seems to be moving into a position where gas supply is going to be much more available, and therefore, the government seems to have the flexibility to become a little bit more open, I guess, in terms of how prices are set. And I was just wondering what you think the longer-term prices will be for gas prices as we move into a more competitive market.

And production, this is a very good question. Oil is declining for the natural depletion. In production of gas, now we are stable at 7 million cubic feet -- cubic meters per day as you see, moving like that, but we are capped by the capacity. So in El Mangrullo, we are building new facilities to open more production there for 500,000 cubic meters per day. We also are increasing our capacity there in the Río Neuquén, the production there. Now it's in June, it's 4 million cubic meters per day, but currently right now, Río Neuquén is producing 4.7 million cubic meters per day. Remember that in that block, we have 33% stake. So by -- and in Río Neuquén, we are aiming at increasing the production beyond 5 million cubic meters per day. So your question about the end of the year production, we are envisioning at 7.5 cubic meters per day -- million cubic meters per day at the end of the year. For the next year, it's still unknown, but I think it's around there. In the oil, I answered. In the prices, the long term, this is such a difficult question. It's quite uncertain right now. So I think we'll have to yet see how everything will deploy.

Okay, if I can follow up just on another question. You mentioned the virgin naphtha supply is limiting some of your production in petrochemicals. I was just wondering do you have a claim against the refinery that's supposed to supply that? Or is that just something that you no longer have the supply, so you will lose those sales?

No, what we're doing is that -- so Oil Combustibles have the refinery there. They broke and they went out of business and the agreement was they will supply us with virgin naphtha, and we will give them the value added from that, okay? So we are importing or we are buying from third parties the virgin naphtha. So that's what we're doing. But of course, we're like kind of seeing what's the outlook of the market, which is not very, very promising.

Our next question comes from Rodolfo De Angele with JP Morgan.

You mentioned that you're currently in the application process for the unconventional gas plan. Can you just update us on what's the expected time line, if any, next steps? It is just wait and see at this point? And my second question is on the -- also recently announced changes with CAMMESA capping the prices of gas that they are paying for generation. I just wanted to hear your thoughts on how is Pampa going to deal with this? What's the new strategy? Should we see the company trying to sell more into other segments? Any insights would be very welcome.

So regarding the -- if I understood well your first question about the 419 to make a new Plan Gas, so we file the -- for the three main blocks, we already filed before the Ministry of Energy. It's just pending from their review. I guess it's in the queue. And for Rincón del Mangrullo, we are, I think it's going to be very soon out from the province and going after in the queue in the Ministry of Energy. So let's see. Then you said about the prices of gas in the case of power generation. It's too early to tell how our strategy is going to deploy because everything's very recent, right? But right now, we have a contract called Gas Plus with CAMMESA, okay, and we are fulfilling with that. It's not very much. It's less than 2 million cubic meters per day. And also, we are refining our strategy to focus more on the large users' demand. So we are selling to them. Right now, it's high pricing, but the demand of large users. But we are staying at 5.5 until we have the approval to clearance from the 419 and the Plan Gas II, we will make sure that we record that, and that will be reflected in our average accrued sales price.

Our next question comes from Gustavo Fingeret with Bradesco BBI. Please go ahead.

One quick question regarding the price of gas for power generation. You mentioned that the reference price is $4.2 per million BTU. And what you think is going to be next winter, considering that Argentina is a net importer, especially during the winter period and it no available gas at $4.2 per million BTU? What do you think is going to happen? Prices will go up? Then your reference price will be higher, and you expect a lower production moving forward in the midterm. What are your expectations here?

So first of all, it's still, we don't know how the auctions mainly by CAMMESA will be developed, okay? We still don't know if they are going to do it for only the summer season, for the whole year, so we don't know how that impact, how that will impact the local market. But it's true what you said. Winter is a very stressful moment of the year for the gas market, for the gas consumption demand because local gas production is short of the demand and we're importing. And yes, that's all factor is there but it's very early to tell how it's going to be developed in the next year. I hope I could give you a better answer than that.

And just one follow-up question is regarding -- do you expect that given the auctions on the gas prices, we will see some normalization on generation prices especially on the legacy plants?

I'm sorry. Can you repeat the question? Because I didn't understand very well.

No basically, you were saying you have a legacy price -- prices for old plants, let's say. Now you have auctions on the price of the gas. So did you expect looking forward that we will see some normalization on generation prices especially for the legacy plants?

Well, let's keep it very separate. The legacy remuneration without the fuel, we don't expect any changes on that, okay? We don't expect upward or downward, which is fair. Now this is true, that with the minister said in the press conference that but it's not yet in the papers, is that the legacy capacity will be -- will have to procure themselves the fuel. And it's yet not very clear how are going to be the terms for that. It's not very clear. It could be a positive thing, so that will contribute to their margin or not. We don't know because there's nothing out there yet.

Our next question comes from Florencia Doris from PPCS. Please go ahead.

Just I would like to ask you for any update of the sale of government stake on ENARSA's plant.

Is that your only question, right? So basically, well, the stake is public. There's a time line for that. I think in September 19? September 19 is the last day, September 19, right, is the last day to submit the bids. And in October 2, we will know who's going to be awarded. And I think in the last few days, all the technical teams from the bidders, they went to see the plant and to see how they work, so that's the whole thing. There's nothing more than that.

Our next question comes from Alex Monroy with Jefferies. Please go ahead.

I have two questions. First question is have you guys had any approaches from ENARSA or anybody with respect to changing the capacity payment for your legacy generation or imposing limits on the effects that can be transferred through to those? And then also, have you guys had any approaches on any potential changes on the PPAs that you had gotten recently by the Macri government? And then my final question is, there was an item in the news that suggested that your address popped up in the famous notebooks for an entry dating back to 2009. Has there been anything that happened in that respect? Have authorities contacted you? Or has there been any sort of follow-up?

About your first question, about the legacy capacity remuneration of the PPAs, we don't expect any changes at all. That's very quick. Regarding second question...

So just to be clear, you're still getting paid for those in dollars, no problem?

Yes. That's what it is. And regarding your second question, we are aware of the fact that you are mentioning, which we saw that in the media, specifically the mention of our former address in the notebooks attributed to this Mr. Centeno. But we do not know him at all. In accordance with Pampa's policies regarding disclosure, and given that there is an ongoing traditional investigation related in so far as we know to the industry in which Pampa carries out its business, we may not and we will not make any comment at all. What we may confirm to you and everybody is that neither Pampa or either any officers of the company has been served with notice, any subpoena or any other form of judiciary request in connection to this investigation. And there have not been any searches, judicial searches or raids in Pampa's office nor have been notified of any search warrant or [indiscernible] measures so far. This is very important. Of course, that has always been the case of Pampa and we -- Pampa and the senior management and everybody, we are available to cooperate with the authorities in the investigation of the case, so if the intervening court, if the judge decides so. We can also confirm that Pampa has always acted in accordance with the applicable laws, and that according to our corporate governing standards, we are not -- we are conducting right now our own internal investigation regarding the mentioned facts, and we will communicate to the market if we have any material finding, if necessary.

Our next question comes from Julián Ríos with Nomura Securities. Please go ahead. Julián Ríos: I have a couple of questions just to follow up. On the case of the legacy [indiscernible] payments that were dollarized last year in the PPAs, could you comment on the payment -- payments coming from CAMMESA? Have they been delayed in any manner? And if so, for how long? And secondly, I just wanted to clarify the proportion of your 7 million cubic meters per day in gas production that goes -- or is being sold to CAMMESA for end use of generators. I just want to get a sense as to what proportion of that is going to be subject to the lower prices.

So regarding your first question, CAMMESA, every like the 10 or 12 they have the due date. And for the last two due dates, the May transaction and now, August, the last Friday, I think in August 10th was the June transaction due date, they were paid perfectly 100% without any due date, okay? The only bump in the road that we have is that in the April transaction that was due in June, I think June 11th, they paid partially for the first time in 20 months. They called us and they told us, we have this -- it was common knowledge that the peso devaluated 50% in one month. So they paid us 70%. In the next two days, they performed the whole payment for the PPA. In the next two weeks, they performed the whole payment for the legacy capacity. So now, that was in June. In July, they paid perfectly for everybody. In August, the -- last Friday, they perfectly paid everything. And there is one thing I want to notice to you, that for the first time, when they partially paid and they delayed a little bit the payments in June, in the transaction of May, they paid the due -- the delay interest, something that never happened -- not never, but a long time, a long, long, long time it didn't happen at all. This is positive thing now. In the second question you asked me about the 7 million cubic meters of gas that we sell -- that we produce, let me tell you that actually we sell a little bit more. This is the thing that we produce 7 million cubic meters per day, and we sell some too, because we buy, we do trading as well. So actually, we sell on average per day on the year is like 7.7 million cubic meters per day. As of now, it was 50% destined to power plants, basically CAMESA. Now -- 50% of the average of the year, 50%. Now around 20%, 22% of discos and the remaining to the industry's large users or to ourselves. Because Pampa is a large consumer of gas in the petrochemicals fixed facilities and also because of the Energia Plus, which is the only power generation that has to procure them from the field. So basically, that's the story. That has to be revised with the new tenders and the new development, right? Julián Ríos: Yes, so I guess, it makes good sense of how much of your production or your sales volume actually is exposed to the lower prices from CAMMESA. And one last question, following up on what Alex Monroy was asking relative to the notebook scandal and the few headlines that we saw last week, naming the address of the company as a destination. I wanted to ask you whether anybody in the management team has offered to take a leave of absence, and whether the board has considered anybody to take such a -- to grant such leave of absence, like we've seen in other utilities that have been implicated.

Not at all. No one asked for a leave of absence or anything. And I mean, nor any -- made any further comments on that.

Our next question comes from Patrick Wolff with Grandmaster.

I have two questions, I guess, both financial questions. The first one is probably a little bit more housekeeping. I just want to confirm, because there's no statement of cash flow in the release here. So I want to confirm that the other financial results expense due to the revaluation of the U.S. debt, that's a balance sheet revaluation that needs to flow through the income statement, but it's not a cash cost. Is that correct?

That is correct. I'm sorry, sorry. That is correct. It's basically that you see this ARS13 billion that you see in the financial figures for the 6-month period and I think ARS11 billion in the second quarter that's noncash because 95% of our financial debt is U.S. dollar-denominated, while our assets are not. They are recorded in the financial statements in pesos at historical levels. This is a -- they are not adjusted by inflation at all. So that's why you can see this such a big loss.

Yes, so I understand.

It's a reporting thing.

That's what I thought. And then the second question I guess, this is a little bit -- maybe a little bit more challenging. But I really like to ask you to explain and justify the share buyback program. So I think as you know, I've been investing in the stock for 2.5 years. I'm sure many other investors agree that the stock certainly seems cheap. But at the same time, I would note first of all clearly, this is a very difficult macroeconomic situation, as I'm sure I don't need to tell you and although Argentina has clearly much, much better leadership than some other countries like Turkey that's getting into a lot of trouble, nevertheless, Argentina clearly is vulnerable, the first point. The second point is you have taken dollars, which I would think given the macroeconomic situation be quite valuable. And you've taken those dollars and purchased ADR shares with them, which is essentially using dollars to buy your own peso-denominated assets, rather than using pesos to invest in your own business to build new oil -- to drill new wells, to build new electricity generation, to do all the things that you need to do, that presumably have a very high rate of return. And so I'm sitting here half a mile away -- half a world away as an investor and I'm really puzzled why you decided, why the company decided to spend dollars to buy its own peso-denominated assets in this particular time, rather than keep the dollars and invest pesos in all of these high-return investment projects that you have. It's quite frankly, it's kind of frustrating, and I'd really like to hear a good explanation. Are you there?

Yes I'm here. Wait a second please. I'm sorry, Patrick. Because here, we have -- we do not agree with you there. Because we are -- we consider that we are repurchasing below three times EBITDA right now. And you said, well, your assets are peso denominated, yes for financial statements. Because in Argentina, we are enforced this kind of financial statements. They are not adjusted for inflation since 2002, right? So first, that's a -- what you see in the financial statements that's different from the reality. Now the parent company, power generation, E&P, petrochemicals in a very lower sense, they generate in dollars. So Pampa parent it's a 100% dollar generator of cash flow. So there, we have -- we see like one of a kind opportunity. The utilities are subsidiaries, so they are subsidiaries to Pampa, okay? We do invest -- we do aggressive investment in Pampa, in CapEx to achieve high returns. But they are again, returns for project that they generate in dollars. So that's why we see this is a great opportunity to buy back our own share at such a low multiple that in another SIDCO, there wouldn't be that multiple at all. This is -- we are located in a place that right now is -- there is turbulence. But the fundamentals of the assets are really good, and we still believe that, and that's how the management sees it.

I mean look, as you know, I have tremendous respect and admiration for all the team and for what you've done. And I haven't sold a share, and I'm not going to sell a share. And Lord help me come if it gets low enough, I'll buy more. It's already a big position for me. I agree with you about the state of the company and the valuation. I think the point I'm making though is that if your costs are in pesos, and you're using dollars to buy your assets in, a period of time when even given the tremendous fundamental position you have at home, it's difficult to know what's going to happen in the world. And obviously, I don't need to tell you, Argentina can be buffeted by what happens, not just in terms of what the market does but in real things. But I think a lot of investors wonder, is the value disconnect so incredibly large that it's worth taking those dollars to buy back your own assets, rather than to keep the dollars to be in a stronger position as possible and just keep investing domestically? I think that's the question.

Well, [Audio Gap] I understand your point. Here, we have a heated discussion because we really do not see that way. Again, we first of all, we are seeing that we are generating a lot of more value with the cash flow, instead of having it in our cash position that already is very strong enough. It's beyond 1 billion. In the stand-alone basis, it's almost $1 billion of cash. So besides that, we are buying an asset that there is no one to be seen. You can't see a kind of this quality of assets being bought at less than 3 times the EBITDA pro forma. So we are considering that we are buying cheap. In the meantime, because we wanted to give value to the investors, and we feel like tax-wise, it's more intelligent to repurchase shares than to distribute a dividend. This is because I don't know if you are familiar with in Argentina, there is enacted a new law saying that, for example, you can ask, okay, you can distribute dividends if you don't have nothing to do with it. Yes, we could, but there is a tax, very high, that's 35% for that. So we rather to give value to you as an investor and shareholder of Pampa to buy back shares, there's no tax in that. It's like a dividend. But again, we feel like we are buying back an asset that's right now and still it is and going forward, we believe that the fundamentals are very good. The quality of assets is nowhere to be seen in the world with this cash flow generation. And you said it, they are remunerated in dollars. The costs are largely in pesos. I think that there's nothing more that I can add there. I hope you can see my view here.

No, absolutely. Thank you for the explanation. I do want to reiterate, tremendous respect and admiration for what you guys are doing. I certainly agree with the quality of the assets and so I hope you approved 100% correct on the capital allocation.

Yes.

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

Well, thank you very much for hearing this hour long call. Any questions you may have, please reach us out. We are here to help you and have a nice day.

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