Argentina’s Pampa Energía: Fourth round of Plan Gas beckons

A fourth round of Argentine gas production incentives program Plan Gas is on the way, local player Pampa Energía indicated. 

Launched in 2020, Plan Gas bolsters producer cash flow stability via supply contracts, which upstream companies bid for in an auction process.

Last year Pampa was awarded a supply contract under the third round of Plan Gas: for 2.01Mm3/d (million cubic meters a day) at a price of US$3.347/MMBTU (million British thermal units). In the first Plan Gas round, Pampa was awarded four-year contracts for 4.9Mm3/d of base volume at an average annual price of US$3.60/MMBTU and 1.0Mm3/d of additional winter volume at US$4.68/MMBTU.

As the government advances a major gas pipeline project to ease a dispatch bottleneck at the Vaca Muerta shale play – which is dampening gas production growth prospects – work is underway to help ensure new supply and processing infrastructure comes online in parallel.

A key objective of the pipeline is supporting domestic production growth as part of a push to substitute expensive winter fuel imports. 

“As this [pipeline] project progresses, the government should be announcing the fourth round of Plan Gas, in order to secure the gas needed to fill up the new pipeline and reduce imports,” Pampa investor relations officer Margarita Chun told the company’s 4Q21 results call.

“The new auction for gas should be launched sooner rather than later, as producers will not only get ready to drill and complete new wells, but also build surface infrastructure to treat and transport the new production to the gathering network,” she added. 

This was echoed by CEO Gustavo Mariani.

“We think that should happen in the next few months, because we and the rest of the industry need to be ready …” Mariani said.

With the infrastructure in place, Pampa could eventually double production levels, Chun said.

The government wants to bring the first phase of the pipeline online by winter 2023, which the industry sees as a significant challenge. 

“I understand that it sounds optimistic, but it’s feasible,” Mariani said.

Works on the first phase are expected to boost capacity by around 10Mm3/d. The pipeline is expected to pay for itself within less than a year, by allowing the government to substitute costly LNG with cheaper, domestic gas. “Financing isn't the issue; the issue is the short period of time we have until next winter and the complex world situation,” Mariani said. 

A tender for the pipes is underway. 

PRODUCTION

Pampa reported production of 58,100boe/d in 4Q21, with gas accounting for around 90%, up from 43,700boe/d in the same period of 2020.

The company, which accounts for 7% of national gas output, produced 9.0Mm3/d of gas in 4Q21, up from 6.7Mm3/d in the same period of 2020, driven by its fully-owned El Mangrullo license, accounting for about 70% of output. 

Gas production will likely grow at least 20% this year, Mariani told the call.

The Neuquina basin-focused company, which also has interests in the downstream, midstream and electric power sectors – including a stake in the country's biggest natural gas transporter, TGS – is expanding its El Mangrullo gas treatment plant. By around the middle of the year, capacity is expected to grow to 9.0Mm3/d from 6.4Mm3/d currently, rising to around 13.5Mm3/d in Q3.

CAPEX

Pampa deployed US$379mn in capex in 2021, up from US$197mn in 2020, according to a company presentation. Funds were pumped into gas production and power sector projects, chiefly, the expansions of the Pepe III wind farm and the Ensenada Barragán thermoelectric plant.

While Pampa does not provide capex guidance, the company expects hydrocarbons and electric power outlay to reach US$400mn this year. About US$280mn of this is earmarked for hydrocarbons and electricity output growth investment, with the balance for maintenance capex.

RUSSIA-UKRAINE

As the Russian invasion of Ukraine drives up global energy prices, which were strong even prior to the attack, Pampa said Argentina faced a steep LNG import bill and the risk of a potential supply shortfall this winter.   

Citing the pipeline's role in supporting higher domestic production, Mariani said the project was important for the wider economy and a “game-changer” for Pampa in terms of expanding output.