Transportadora de Gas del Sur SA (TGS) 2023 Q2 法說會逐字稿

Well, good morning, everyone. I'm Carlos Almagro, Head of Investor Relations. I would like to welcome everyone to tgs Second Quarter 2023 results video conference. tgs issued its earnings report yesterday. We would like to inform you that this event is being recorded. (Operator Instructions)

Before we begin the call today, I would like to remind you that forward-looking statements made during today's video conference do not account for future economic circumstances, industry conditions and company performance and financial results. These statements are subject to a number of risks and uncertainties.

All figures included herein were prepared in accordance with International Financial Reporting Standards, IFRS, and are stated in constant Argentine pesos as of shown June 30, 2023, unless otherwise noted.

Joining us today from tgs, in Buenos Aires, is Alejandro Basso, Chief Financial Officer. And now I will turn video conference over to Mr. Basso Alejandro, please begin.

Thank you, Carlos. Good morning, everyone, and thank you for joining us today to discuss the 2023 second quarter earnings and highlights for tgs. To begin the call today, I would like to share with you some news that are relevant to our operations. In terms of our midstream business in Vaca Muerta after increasing the conditioning capacity of our plant (inaudible) to 15 million of cubic meters per day with a $32 million CapEx that we mentioned during our last call.

This month, we are commissioning the 32-kilometer extension of the North Tranche pipeline. This expansion will allow us to provide transportation and conditioning services to gas producers who operates farther northern fields by investing a total CapEx of $49 million. It is worth highlighting that in June, ENARSA awarded tgs the operation and maintenance of the President Néstor Kirchner Gas Pipeline for a period of 5 years, which is renewal for an additional year.

After putting the pipeline into condition, the pipeline started the natural gas transportation with an initial capacity of 11 million cubic meters per day and which is expected to increase to 21 million cubic meters per day before the year-end. Following the commissioning of the 2 compressor plants, which are being built in Tratayén and Salliqueló.

With the objective of transporting natural gas from Vaca Muerta to the Northwest Argentina, following the dramatic reduction of natural gas imports from Bolivia, ENARSA, the state-owned company, will come soon for a bidding process with a goal of building a 120 kilometers new pipeline to connect the 2 main Techint pipelines and reversing the natural gas flow of Techint North Pipe. The estimated CapEx for the projects, which totals over $700 million, will be mostly financed by the [CRF] Development.

In addition, it is expected ENARSA will call for a new bidding process for the construction of the second tranche of the President Néstor Kirchner Pipeline, which will connect Salliqueló to the Techint North Pipeline in San Jerónimo in the south of Santa Fe province.

Turning now to Slide 4. I will briefly address some of our 2023 second quarter results highlights. Please keep in mind that all figures presenting from this quarter and comparisons made with the previous quarters are expressed in constant pesos as of June 30, 2023, following the provisions established by the IFRS for financial reporting in hyperinflationary economies.

As seen on the slide, we reported net income totaling ARS 12.1 billion during the second quarter of 2023, which was slightly higher than ARS 11.4 billion reported for the second quarter of 2022. The decline in EBITDA of the Liquids and the Natural Gas Transportation business segments amounted to ARS 4 billion and ARS 2.2 billion, respectively, was more than offset by the ARS 6.9 billion positive variation of the financial results.

Moving on to Slide 5. EBITDA for Natural Gas Transportation business decreased by ARS 4 billion and was mostly affected by the annual inflation rate of 116%, which negatively impacted our revenues in ARS 9.2 billion. However, this effect was partially offset by a 95% tariff increase, which became effective at the end of last April and contributed to additional revenues of ARS 4.8 billion. In addition, operating expenses decreased by ARS 160 million.

On Slide 6, you can see that EBITDA from the Liquids business decreased by almost 17% in the second quarter of 2023 to ARS 10.8 billion compared to ARS 13 billion reported in the same quarter of 2022. The main negative variation was related to lower revenues in the amount of ARS 5.6 billion due to the decline in reference international prices, with LPG average price decreasing by more than 40% while natural gasoline price dropped by around 30%.

In addition, the monetary effects negatively impacted the Liquids' EBITDA in ARS 2.1 billion with inflation increasing 115% in the last 12 months compared to a 96% increase in the foreign exchange rate. Both external conditions negatively affected this segment, especially when considering that most of the Liquids revenues and variable costs are dollar denominated. These 2 negative effects were partially compensated by higher volumes, sales, which increased by 15,000 tons from 232,000 tons to 297,000 tons and resulted in higher EBITDA of ARS 3.9 billion.

Propane exports and ethane sales increased by 37,000 tons and 23,000 tons, respectively. In addition, the ethane contract generated onetime higher revenue of ARS 1.2 billion as higher price of ethane increased revenues by ARS 323 million. Total production volume increased by 6% or 17,000 tons rising from 266,000 to 283,000 tons. Production in the second quarter was the highest of the last 5 years.

Turning to Slide 7. EBITDA from Other Services increased 21% to ARS 6.3 billion from ARS 5.2 billion. Higher revenues generated by incremental volume, natural gas transportation and conditioning in Vaca Muerta amounted to ARS 3.6 billion. Transported natural gas volume increased from an average of 13 million cubic meters per day in the second quarter of 2022 to 21 million cubic meters per day in 2023 quarter.

Meanwhile, Natural gas conditioning volume increased from an average of 9 million cubics meters per day to 13 million cubics meters per day. This higher revenue was partially offset by ARS 1.8 billion monetary effect loss, especially considering that the annual inflationary rate was above the annual foreign exchange rate increase. And in addition operating expenses increased by ARS 581 million.

On Slide 8, we can see that financial results recorded a positive variation of ARS 6.9 billion. This variation was mainly explained by a higher financial asset income totaling ARS 13.5 billion, mostly resulting from higher yields of our peso-denominated financial investment and to a lesser extent, a higher financial investment denominated in pesos. The positive -- this positive effect was partially offset by a higher foreign exchange rate loss of ARS 5.3 billion, which was mostly attributable to a higher depreciation of Argentine peso. And in addition, there was a negative inflation exposure result variation of ARS 1.5 billion.

Finally, turning to the cash flow on Slide 9. Our cash position in real terms increased slightly to ARS 144.8 billion, which is roughly equivalent to $565 million. EBITDA generated in the second quarter amounted to ARS 22.2 billion, of which 77% was generated by the nonregulated business, while additional 23% came from the transportation business. CapEx in the period amounted to ARS 18.8 billion. We paid interest of ARS 4 billion, and our working capital decreased by ARS 1.9 billion. Income tax advanced payments totaled ARS 434 million.

Finally, financial income contributed to the cash increase in approximately ARS 5 billion. As you can see, we maintained a comfortable level of cash position, which gives us enough liquidity to continue investing in our business investment plan, mostly in Vaca Muerta midstream business. This concludes our presentation.

I will now turn it over to Carlos, who will open the floor for questions. Thank you.

Thank you, Alejandro Basso. The floor is now open for questions. (Operator Instructions) Please hold a while we poll for questions.

(inaudible) make some questions. Good morning. He is talking about the reason why the EBITDA per ton of NGL dropped.

The reason was, as you explained in the question that it was just only mainly because of the fall of the international prices, okay? In the case of the price of the natural gas decreased in this quarter compared to last year.

His second question is regarding the CapEx estimate for the expansion in Tratayén [conditioning] plant, which will (inaudible) to increase the capacity to almost 30 million cubic meters per day, which are these amounts.

Okay. Total investment in the current expansion that we are carrying on in Tratayén is around $280 -- $275 million total, which we are expecting to spend $220 million this year and the remainder next year. Obviously, given current conditions, there may be some carryover to next year from this year, okay?

Christian from (inaudible). His first question is regarding the Néstor Kirchner operation maintenance agreements. He is asking about the estimation of the annual EBITDA.

Okay. We are estimated around $2 million to $3 million of EBITDA from this project. It's not a very big amount of (inaudible) regarding (inaudible) just okay? But it's important for us to have this contract.

His second question is regarding the jump of the local price of the liquids that it doesn't follow the fall -- the decline of the price of international prices if the government authorize any price adjustment?

Okay. Domestic prices in the case of propane are tied to the international prices. There you can find some as on (inaudible) maybe 1 month, but it sets for prior to these. And regarding the butane, the butane prices -- regulated prices, which is below the cost of natural gas. So we have some loss there, which is more than compensated from the margins that we are obtained (inaudible) price.

His third question regarding the (inaudible) of natural gas, which was processed in [serving] considering the seasonality. What was the reason that we have a higher inflow of that?

Well, it was warmer-than-expected weather, warmer than average temperature we had this last quarter in Argentina. And in July, we keep on having some higher temperature as compared with the average. So that's the main reason. Obviously, since almost, we have the Néstor Kirchner pipeline in place. So we are still expecting (inaudible) important flows to have some (inaudible) more than close to sell close to sell.

His question regarding projects of the Asia business in the (inaudible).

Okay. We are working hard analyzing the different alternatives. For instance, we are realizing is the expansion that is economic reasonable for this expansion of NGLs to include the same. So we are working with our partners in that direction, also analyzing the cost of -- we are calling for a bid for -- to have proposals for equipment and starting the different engineering for the process, okay? At the same time, we have -- we need a low similar to the LNG low to have the with the same benefits of quite similar then.

His fifth question is regarding the LNG process -- the status with (inaudible).

Okay. Regarding the LNG process, we are waiting for awards that are conducting 3 different engineering companies that are -- we are going to have 3 different alternatives and going ahead with the project. And with that, we are going to have also the cost of the project -- estimated cost of the project and different alternatives. I think that they are going to finalize in the next 2 or 3 months. At the same time, we have reached an agreement with the (inaudible) for the space that we need there for the plant and for the port also.

Jhoan has another question regarding we will take some debt to face this CapEx as he mentioned about the ARS 270 million expanding the conditioning capacity of the Tratayén plant?

No we are going ahead with this expansion the current expansion of the plant without any additional liquidity. You may find some additional in our balance sheet in the next months, but due to the need of financing some imports because of the problem that we have with the dollars, okay? So we are being obliged by the government to obtain additional financing for our for some imports of equipment for this project and also for spare parts for tgs.

Hello, Florencia (inaudible) she's acting the same question as Jhoan, regarding the -- we expect any (inaudible) adjustment, [Brazilian] in the short time this year.

Florencia. No, no, we are not expecting any additional increase in tariffs this year, despite the fact that we are requesting this tariff increases given, I would say, political conditions, it's going to be very, very tough to obtain any adjustment.

Her second question is regarding the candidates, the national candidates if they -- how they -- how we see that they consider the more business regulated and nonregulated business as they are a strategic partner.

In that regard, I would say that all parties here now have realized -- have realized them and assets are strategic for the development of the country. And so I think the answer is yes.

We think that the opportunity to ahead with the liability management is going to be next year, maybe mid of next year or something like that. Obviously, we expect that macroeconomic conditions will be much better.

Marina from [Muki] Securities. It's a question first regarding the upcoming general tariff review. We anticipate (inaudible) EBITDA improvement or 2024? Or is it for 2025?

It's difficult to say. Maybe what we can, it will depend if there is a change in the maybe a new reinstation will start with the transitional tariff adjustment, I would say, consider inflation and something more. Inflation is going to be very high, in my opinion this year. So it's going to be difficult to have the increase is much higher than inflation, but it should be the case because we are quite below inflation in the past 4 years.

But I would say, Marina, that a more realistic is to expect for a higher increase in 2015 with the full tariff review finalized by the end of 2024 or something like that.

All other questions were answer from Bruno from (inaudible) Lucas from PPI. And then I have a question on Mushano. What is the stated in the press release, please explain that it is about $530 million, and it's all dollar denominated.

Florencia made another question regarding the FX restriction now we play these problems.

Florencia, as every company in Argentina, we are facing restrictions for importing equipment and services from abroad. From time to time, we received an approval of these imports. But we have to, as I say -- as I said before, we -- currently, we have to finance these imports with, I would say, 1 year loan or 180 days loans, okay?

Currently, total loans from imports are amounted to $18 million, $19 million, but it's going to increase in the net small services. I think that we have imports and services for more than an additional $50 million in the remainder of the year, something like that.

Well, having no more questions, this concludes the question-and-answer section. Now I will turn to Alejandro for final remarks.

Well, thank you for participating in tgs Second Quarter 2023 Conference Call. We look forward to speaking with you again when we reach our third quarter 2023 results. If you have any questions in the meantime, please do not hesitate to contact our Investor Relations department. Have a good day.