Good morning, ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everyone to Pampa Energia 3Q 2018 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 Energia’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 on 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 Energia and could cause results to differ materially from those expressed in such forward-looking statements. Now I’ll turn the call over to Lida Wang, Investor Relations officer of Pampa Energia. Ms. Lida, you may begin your conference.

Good morning everyone and thank you for joining our conference call. I will briefly go through every business segment reviewing the quarter’s key figures and the latest events since our last call in August, and then head straight to Q&A. As you know, you can always reach us out for more details on the results or any questions you might have. Remember as from 2018 and for the comparative periods, we are redistributing expenses and debt at the corporate level among the operating segments at the parent company – that is, power generation, oil and gas and petrochemicals. Also, we are not considering the divested assets at oil and gas and refining and marketing segments, which are reported as discontinued operations. And also before we begin, please bear in mind that our financial statements are prepared according to IFRS but not adjusted by inflation, so the large depreciation of the peso against U.S. dollar affects entirely to our financial liabilities and therefore squeezes our equity net worth. This interim reporting is following local GAAP because in Argentina there’s an Executive Order that forbids inflation-adjusted reporting, therefore the Company could not apply the IFRS International Accounting Standard number 29, which provides that entities with high inflation functional currency, defined as cumulative inflation rate over a three-year period approaching or exceeding 100%, shall state financial information in terms of the measuring unit current at the end of the reporting period. However, there is a law project that renders ineffective said Executive Order and currently holds approval of the Argentine National Congress’ Lower House. Should inflation-adjusted reporting standards applied, and considering a cumulative inflation rate of 32% and an average inflation rate of 16% for the nine-month period of 2018, the equity estimated by the Company would amount to ARS 38 billion instead…

Thank you. [Operator Instructions] The first question will come from Frank McGann with Bank of America Merrill Lynch. Please go ahead.

Good day and thank you very much. I just wonder if you can follow-up a little bit on the new gas program for generation and exactly how that’s going to work. If I heard you right, you said you would price the gas at the marginal price of gas, or I’m assuming that would be an operating cost. But perhaps you could give a better indication of how you’re going to set the price of gas that you include – and then, pardon? And then how that translates into generation prices also that you will bid into the system and before dispatch.

Hi Frank, how are you? Gustavo here. What has been announced so far is just a minor change allowing generators to provide some fuel if they want. So far, for the following two weeks for the – yes, for the second half of November, only CapEx as a generator in Pampa were the ones who took this alternative, so the rest of the generators continue being provided fuel by CAMMESA. Basically, you are capped at the reference price that CAMMESA has for each [indiscernible].

For each basin.

For each basin in Argentina. That is like $4.40 for Neuquen and $3.50 in the Austral basin, et cetera, et cetera. And you are also cap, for example, in the generation plants that are in the todas [ph] of Buenos Aires have to – have a mix of 60% from Neuquen, 40% from the outside basin. So that average is the limit price that you can be clear as the price of gas. In a nutshell, this provides us two advantages. One is the tax advantage as we will stop paying the sales tax that is around 3% here in Argentina when we sell natural gas while the sale of electricity is exempted. So we have this improvement of 3%. And we are marginally selling at a higher price than the – of the gas that we are selling to CAMMESA, now we are selling to our own plants with a slight between 5% and 8% increase in price.

Okay. If I can follow-up maybe just in terms of how you were seeing gas investments now. Your gas production came down in the quarter year-over-year and price obviously came down. Clearly, lower prices are not as good as higher prices. But in terms of your cost structure for new developments and production, many players, I believe, are seeing pretty substantial improvements in technology and in how they are moving forward with developments that are providing pretty significant cost savings. Is that going to be the same, do you think, in your operations that you should be able to find some interesting opportunities to get back on track with new investments?

Well, if this Q3, we find a production that is meeting the value basically because of demand. Also, in Valley, the seasonal reasons had to do with it. Also pricing had to do with it. Right now, we are positioned around 6.9 cubic meters per day. I don’t know how much cumulative it is, but basically, we expect [indiscernible] next year, because of technology – basically, we are doing evacuation improvements in the block in Mangrullo Enterra [ph] and Mangrullo that is key for evacuating more gas. So in the Q1 2018, we should expect that well to increase the gas deliveries by 20%. And next year, we are going to start our more in advance in the shale gas derisking. We started at the end of this year in the Q3. We started with drilling to Vaca Muerta. But this year – next year, it’s more in a full development of the shale gas development plant. The technology’s the same. Everybody shares the same technology. So I don’t see like a disrupted thing coming if that was your question.

Okay perfect thank you very much.

The next question will come from Bruno Montanari with Morgan Stanley. Please go ahead.

Good morning and good afternoon everyone. I have a few questions. First, just to make sure I get the average gas price because a lot of moving parts here. If you could mention how much you are getting for realized prices right now under the mix with industrials, with CAMMESA and your internal procurement, that’d be great. Also, if you can comment on the cost for these initial shale gas wells, both on the exploration and development phases. And maybe a third question to Gustavo, if you could mention how you are thinking about that capital allocation across the different segments of the conglomerate with the current Argentina situation, with the current gas price situation, that would also be highly appreciated. Thank you very much.

Hi, Burno. How are you? Price of gas, we are currently selling at around $4 per million of MMBtu. We hope that this will be the

Value.

The value going forward. We are currently in the Spring here, and this is the period of the year with less demand. There is more demand during the summer basically because of more demand for electricity, for more consumption in power generation. So we believe we are at that – and we hope that we are at the bottom of the prices. And we are currently without any – we are not accruing any incentive plan, and that is also something that we are still optimistic that we will be granted the incentive plan on two areas, in El Mangrullo and on Sierra Chata. We talked about those news before year-end. Then what did you ask about?

Shale gas.

Shale gas. As we began to see, we are just starting our derisking of Vaca Muerta, so we don’t have information about whether what’s the cost of our shale gas interaction. We were not producing any shale gas yet. Everything is tight gas. And we will be spending next year over $200 million in derisking two areas. One is El Mangrullo and Sierra Chata. And regarding capital allocation at Pampa, we are on an overall basis on a conservative mode going – getting into 2019, which we think is going to be a challenging year for Argentina. So in terms of on the LMP business, production will – we hope will remain flat. But we will be investing more than we invested this year because of the derisking of these two areas that I just mentioned. We think it makes all the sense to do this derisking to add proven reserves to the company and to be in a position by the end of next year to decide how to develop and what to do with these proven reserves of shale gas. In power generation, we don’t have any new CapEx on the pipeline. We will continue, what Lida already explained, with the closing of the cycle of Genelba, which next year is going to be around $150 million. The remaining CapEx was for that. And also, the two – finishing the..

Wind farms.

The two wind farms for 750 megawatts that will be online by May or June of next year.

The next question will come from Ezekiel Fernandez with Scotiabank. Please go ahead.

I have three questions I would like to go one by one, if you don’t mind. The first one is related to the distribution segment. Given the postponement of the tariff increase and the complex situation in the country regarding tariffs overall, are you in conversations with the government regarding the quality metrics target for next year like [indiscernible] or maybe the level of losses? And if you can give me an update on what is going on with the talks about the regulatory debt with CAMMESA, the ENRE and clients in general?

Now talking about the government, it’s the penalties, there is some penalties that there weren’t contemplated in the tariff review when they were out there and now they’re implemented, though the figures are very small, not very significant to Edenor. And given the situation, it’s not – it’s something that Edenor is fighting against the regulator and shouldn’t be applied because we are penalized for the nonperforming quality but also penalized for non-CapEx divestment. It’s like double counting. But so far, the Site E and Site B benchmarks are already sent by the regulator in the tariff review. It’s something that we cannot move on. Though we still are below in the macro level, we are still – Energia is delivering below the benchmark, the regulatory benchmark in Site E and Site B. The loss is – this is something on us. It’s not a regulator fee. If we want to curb down the losses, we have to keep working to get it down. It’s not an easy job. It’s many years of $2 per month bill that didn’t incentivize Edenor to [indiscernible] and cause the people that were still in electricity. So it’s a hard job that we have to do and we are – Edenor is doing a lot regarding that and exchanging information with other distribution companies like in Brazil to share experiences of how to overcome this problem. But we are confident that we can take the losses down in the near future.

And regarding the regulatory asset and liability dispute that we have, we have been hoping for several months to have a resolution. And we are still optimistic that we will have a resolution before year-end, but obviously, we cannot give any assurance.

Okay, that’s great. My second question is regarding TGS. Do you think you can increase the volumes in the next year regarding to what we’re seeing so far in 2018? And if you can comment that from a point of view of the physical productive capacity of the plant. And also if you see the lower price of gas, if you can get more exports out there of liquids.

Regarding increases in the production of liquids in TGS, this year, we had an excellent year. It was close to a record year, and we are very close to – we are close to maximum capacity. So in terms of volume, unless we do an upgrade in the plant, you shouldn’t expect significant increases in the volume. The second part of the question was?

[Indiscernible]

Well, yes. The answer to that is yes. The lower the cost of gas, the better the margins. But also, we are selling to – tied to the international markets. So margins will fluctuate with that gap.

And my last question is a follow-up on the Resolution 10, the one about self-billing with generation and gas producers. Do you think that this gives you any opportunity to get PPAs on the private market? Or the change is simply not enough and we should see other developments?

Can you repeat the question?

Yes. If this ability to procure your own fuel with your own gas, does it give you any chance of getting into long-term PPAs with industrial clients?

This is a step in the right direction, but we are not there yet. So still doing long-term contracts within an industry is not allowed. So we think that this is the first step of, I believe, the deregulation of the sector. And one important step, we need to allow to do long-term contracts long-term PPAs with the industry.

For sure, the site selling to ourselves but now it’s 75% of our production. We also, in the 25% remaining, and also we do trade-off gas with third-party gas as well. We do spots with distribution companies, large users, other energy [indiscernible], gencos, for example, we’ve been having small contracts in the past and now they are expired but we are doing a spot back. And also, we can still do spots with CAMMESA and we chose not to.

Okay great thank you very much.

Next question will come from Julian Rios with Nomura Securities. Please go ahead.

I have a couple. Firstly, could you explain how much CapEx was spent during the quarter? And also from your earlier comments on CapEx, I can look at $300 million of CapEx for 2019 in the expansion projects. Can you tell me what the outlook for oil and gas CapEx would be for the next year? And I’ll follow-up with the next question.

E&P, we are currently working on the budgeting next year. But we are expecting – I think it’s going to be something between $300 million, $350million – around $350 million. Out of which, it will be around $200 million for derisking of $200 million – or $230 million for derisking of Vaca Muerta or the two areas that I mentioned and the difference to maintain flat or slightly increasing production. And regarding CapEx in this third quarter, Lida.

Yes. This quarter, we’re only considering E&P, power generation and – E&P and power generation and Edenor as well because we completely fully consolidated, it’s $180 million. It’s ARS 6 billion. But if you take out Edenor, it’s only the parent company, it’s ARS 4 billion. That is a little bit above $100million. For the year, we – this was how the case each quarter. But for the year, we’re expecting at the parent company to invest around $600 million. That is 250 – around 250, 260 in power generation – no, 350 in power generation, 220 in E&P. So a little bit below what we’ve been doing and we were saying for the year and way below the budget. And petrochemicals and refining is very nonsignificant.

Thank you. That makes it clear. Separately, I wanted to ask you about CAMMESA and Energia Base pricing. Have there been any indications of any change or shift to the resolution that was passed last year, dollarizing Energia Base remuneration tariffs?

You mean if the resolution regarding Energia Base changed? They didn’t change. The only thing that changed is the preferred

I had – I realize that it hasn’t changed. I’m just wondering whether you view that resolution as something that’s likely to be a target of specification or further change.

No, I don’t expect a specification. Yes, we do expect – we have been expecting a change in what we are hearing. It’s going to be like just for the thermal legacy capacity or less units to have like a marginal system, very similar to the one that prevailed from 2003 until 2013, which was a marginal system but a cap assuming that no liquid fuel is burned. So assuming only consumption of natural gas. And probably, they will cap the efficiency. So it’s – the marginal price is very inefficient plans are being dispatched, those will be taken into account. So it will be like in a nutshell, marginal price system with a cap. That is what we are hearing and working on.

And what – how much savings do you think the system can generate by eliminating expensive plants that right now are getting compensated for capacity just for being available as opposed to actual dispatch?

[Foreign Language]

[Foreign Language]

Obviously, I don’t have that figure in my mind, and I think we need to wait for the announcement to do this acquisition

And when would you expect that change there?

Let me say – sorry, let me add this information that may be helpful for you. What I have in my mind is the cost of CAMMESA is basically 50% in fuel. The other 50% is basically half, so about 1/4 of the total cost is the old

Remuneration.

Remuneration, and 1/4 are the PPAs. So the saving on the overall system will impact only 1/4 of the cost of CAMMESA. So overall, it won’t be significant.

Yes, that’s helpful in dimensioning. And just staying with CAMMESA, are they continuing to pay on time? Have there been any further delays?

No, no delays. We connected yesterday 100% of the transaction for the month.

Perfect. And then my – just getting here to the end. Your chairman was deposed in October with relation to the notebook scandal. Has – my question to you is has the company itself been any – since then or since the previous results called been target of any investigations? And have there been any changes to your top management as a consequence of this ongoing scandal?

No, we haven’t. There is no news on any of those two fronts that you mentioned.

And then my last question, and this is for sure. Are you – you disclosed that in these results released that you had purchased up around $9 million of 2027 bonds. And my question to you is whether you have remained active in purchasing bonds in the secondary market since the end of the quarter.

No.

Great. Thank you very much.

The next question will be from Jacob Rabinowitz with Callaway Capital. Please go ahead.

Hi, thank you for taking my question. I was hoping you could provide some clarity around the range of potential outcomes to changes of Resolution 19 and then the extent to which you’ve thought about those outcomes, what impact it would have on the business.

Again, we are – there’s been no official announcement. And all we have is – it’s like rumors. We have been working with the rumors that are circulating around. And I cannot say more than what I have already explained. I think they are working on going back to marginal price system where the most expensive machine dispatch is one that sets the price, but – because we still have very inefficient equipment that at some moments of the year is being dispatched. And because still the country lacks especially during the winter the capacity to run on natural gas, and we need to burn liquid fuels, which are significantly more expensive. This marginal price will not take into account those two situations. So when the marginal price is set by a machine that is burning liquid fuels, that will not be taken into account. And the same, if the machine is very efficient below certain limits, that machine also will not be set in the marginal price. So it’s going to be a marginal price system with a cap defined by the regulator. Again, we believe that this change will, for our case, because of the mix of our portfolio, if it goes the way we are thinking it will go, it will have basically no impact on our margins. But obviously, overall, that’s one of the reasons why they will be doing this change, it will have a saving for CAMMESA. One thing that I’ve forgotten to mention is that on top of doing this marginal tax system, I think they will be lowering of the capacity remuneration and accordingly [indiscernible].

Thank you. And one follow-up question for you. Is there any political development that you think would prevent the government from making any of the changes we’ve heard about in the market?

None that I can think of.

Okay. Thank you.

Next question is a follow-up from Ezekiel Fernandez with Scotiabank. Please go ahead.

Yes, thank you for the follow-up. I would like to go back please to Resolution 15 and the sales billing which is being generated from gas producers. If you could provide – and maybe you commented this and I missed it, if you could provide in terms of your total output, at least in the short term, what is the percentage that you will – that you are aiming to procure with your own fuel? And the second question is, if I understand correctly, you will be selling your gas to your own power plant and then get the fuel cost money back from CAMMESA. I wanted to understand what are the terms to get that money back, how many days until you get paid and what effects applies.

Hi, Ezekiel, so this self-procurement is only for legacy machines, okay? The ones that CAMMESA uses now is only for legacy, the ones that they want to do it or they ask for it. This is not changing anything for the power generation companies that are following – that are delivering electricity on their PPAs. Basically resolution 220, 221 and the upcoming 287. So this is basically for legacies. And legacy machines right now are consuming around five million cubic meters per day. That is 75% of our production. And this was in the short term. That’s what we are expecting to be. It’s very difficult to say what’s going to happen either in the next winters. This is in the next few months. This is going to be – take – obviously, if all the machines that we have under legacy are dispatching, this five million is not enough. But as we said in this call, consumption of gas and electricity are in the Valley and basically now all the machines are being dispatched. So basically, only the efficient ones are – the most efficient ones are. So that’s the five million. How does it work? Basically, every twice a month, like the first two weeks, the first centena [ph] and the second two weeks, what we do at the genco is to declare our CVP, our variable cost. And then– CAMMESA, what they do is to rank it. We say, okay. Now our CVP is not – it’s basically the input of gas is made by us. It’s no longer the reference price and no longer the CAMMESA gas price. So basically, the CVP is totally set by us and CAMMESA then decides to rank it in the order of dispatch, and we get paid for that. And on top of the capacity payment, okay? So let’s say, for example, just to give you a quick example, Genelba. Genelba is the CVP. It could be around – below $50 per megawatt hour. It’s currently what it is. So we get paid that in Genelba combined cycle plus the $7,000 per megawatt per month in capacity payments. We get paid the whole thing as a CAMMESA transaction every 12, 11 months by CAMMESA. So that’s how it works.

Okay. So if I understand – sorry, go ahead.

Sorry, I don’t know if you have any more questions about that. I don’t know if it was clear enough.

No – yes. I was just thinking if it’s fair to say that you will get money for the fuel back in the same manner as in terms of the lag in the days of payments and the FX applies – if it’s fair to say that it will be similar to the capacity payment.

Yes, that’s right. It’s the same transaction. So the client is the same. So now they have to pay us more money for gas or fuel.

Great. Thank you very much.

Next question comes from Paul Cowen with [indiscernible]. Please go ahead. [Operator Instructions] Ladies and gentlemen this concludes our question-and-answer session. At this time, I’d like to turn the floor back over to Ms. Wang for any closing remarks.

Okay. It was a challenging quarter again, but we – still, the company managed to deliver solid results. We are open for any questions, follow-up you may have. Thank you for joining us, and have a good day.

Thank you. This concludes today’s presentation. You may disconnect your lines at this time, and have a nice day.