Argentina’s Pampa Energía says US$700mn capex plan at risk

Argentine oil and gas producer and electricity generator Pampa Energía said a financial crisis being experienced at wholesale power market administrator Cammesa could impact planned capex of US$700mn for 2024.

Pampa has a “very aggressive” capex plan but is revising that because of the fallout, Pampa CEO Gustavo Mariani told the company’s 4Q23 results call. 

Generators and transmission firms have sounded the alarm bells over delays in payments to them by offtaker Cammesa and warned of potential risk for the electricity system. 

Such money constitutes an “important part of our revenues,” Mariani told the call. 

Cammesa “accounts for around 40-45% of our overall revenues but the delays that we’re suffering are forcing us to revise our capex plan,” he said, adding it was causing “uncertainty and stress.”

President Javier Milei’s government has reduced transfers to Cammesa while cash-strapped distributors have also been paying less to the wholesale administrator amid a lag in inflation-linked end-user rate increases.  

Pampa is awaiting payment of around US$125mn from Cammesa. 

An improvement could be seen in April-May but between now and then the ride could be bumpy if federal authorities do not change track, the call was told.

State injections, via the treasury, are meant to make up the difference between what Cammesa receives from distributors and what it needs to pay generation and transmission firms and fuel suppliers. A large chunk of power purchase agreements with Cammesa are US dollar-denominated. 

According to an open letter sent to economy minister Luis Caputo by generation chamber Ageera and transmission association Ateera, for February the treasury transferred only 140bn pesos (US$170mn) of the 884bn pesos requested by Cammesa to pay its obligations. 

The situation "puts at risk the operational continuity of the Argentine interconnected system (SADI)," the letter says. 

Under a belt-tightening measure that will need time to take effect, end-user rates have climbed, which should create more revenue for distributors to feed through to Cammesa, a strategy designed to reduce the state’s subsidy bill.   

Planned outlay for Pampa's power business is US$200mn this year, with US$130mn targeting under-construction wind farm Pepe VI which will proceed as planned, the call was told. The balance is for regular maintenance of power plants and we “are currently revising what can be delayed and at what cost,” Mariani said.

The first and second phases – for a total of 140MW – of Pepe VI are due to be completed next half, a target that still stands. Pampa aims to eventually expand the park to 300MW. Pepe VI targets the Mater term market, where the likes of manufacturers ink private power purchase agreements with renewables generators. 

Meanwhile, about US$500mn of capex is earmarked for upstream oil and gas work, half for new wells and half for new infrastructure at shale oil block Rincón de Aranda and gas block Sierra Chata.

SHALE SHIFT

Pampa reaffirmed its strategy of expanding its shale oil footprint.   

The move follows a trend of large upstream firms tightening their focus on shale for export at the Vaca Muerta formation. 

Pampa’s shale oil growth vehicle is the Vaca Muerta block Rincón de Aranda. Last year Pampa became the sole owner of the rights to the 59,154-acre exploration license, under an asset swap deal with Total Austral.

“Pampa E&P is mostly gas production but from now on we aim to diversify with shale oil from Rincón de Aranda,” Pampa investor relations officer Lida Wang told the call.

Last quarter, crude accounted for 8% of upstream production but 22% of associated revenue, spurred by an increase in exports.

Crude production in 4Q23 was 4,500b/d, down 22% year-on-year, with natural depletion of the Tecpetrol-operated El Tordillo license in Chubut province cited as a chief factor.

Oil output growth is forecast to be “fairly flat” for this year as engineers test the second of two wells at under-development Rincón de Aranda, with results expected early April.

The company has previously said it was potentially interested in shale blocks being offloaded by ExxonMobil.

Pampa is Argentina's fifth-biggest gas producer and among the country's smaller oil players.

GAS

Company gas production spiked at a record 16.4Mm3/d last year, up 44% from the previous peak, as average output over the year registered 10.3Mm3/d.

Production in the fourth quarter was 8.82Mm3/d, compared with 9.49Mm3/d a year earlier.

Gas demand slackened last half, in a context of mild weather and reduced thermoelectric dispatch. Gas deliveries have started recovering, the results call was told.

No. 2 operated gas block Sierra Chata is expected to eventually produce 3.5Mm3/d for Pampa. Output was 2.2Mm3/d last quarter, up 283% year-on-year.

Pampa’s flagship operated block El Mangrullo produced 4.7Mm3/d for the firm, down 31% year-on-year.

Both are in the Vaca Muerta formation.

LNG

Pampa unit TGS and US logistics firm Excelerate Energy have a planned modular LNG project earmarked for Bahía Blanca in Buenos Aires province.

The plant, based on past comments, would start with 1Mt/y (4Mm3/d of natural gas) with an expansion projection to 4Mt/y (16Mm3/d).

Mariani indicated that such an approach was not feasible.

“Although the studies have not finished yet, our impression is that the lack of scale is a problem and that this project will lack the necessary competitiveness,” he told investors.

“Exporting natural gas is key for Argentina, key for Pampa in the long term,” Mariani said.

State-controlled oil firm YPF and Malaysia’s Petronas have an LNG project on the drawing board that would start out with a production rate of 1-2Mt/y, before adding 9Mt/y and, in a final phase, over 17Mt/y more. YPF has been courting potential partners.  

“Pampa is definitely interested in participating in a big national project like the one that YPF is carrying out with another partner, and we hope to be invited in the future,” Mariani said.