Gas Transporter Of The South Inc Q3 FY2025 Earnings Call

Good morning, everyone. I'm Carlos Almagro, Head of Investor Relations. I would like to welcome everyone to TGS' Third Quarter 2025 Earnings Video Conference. TGS issued its earnings release yesterday. If you did not receive a copy of the release, please contact us at investor.tgs.com.ar. Before we begin the call, I would like to inform you that this event is being recorded. I would also like to remind you that forward-looking statements made during today's video conference do not account for future economic circumstances, industry conditions or 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 Accounting Reporting Standards, IFRS, and are stated in constant Argentine pesos as of September 30, 2025, unless otherwise noted. Joining us today from TGS in Buenos Aires is Alejandro Basso, Chief Financial Officer. I will now turn the video conference over to Mr. Basso. Alejandro, please begin.

Thank you, Carlos. Good morning, everyone, and thank you for joining us today to discuss TGS' 2025 third quarter earnings and highlights. To begin the call today, I will start by sharing some of the most recent news about the company. As you remember, back in June '24, a private initiative was submitted to the government to expand the transportation capacity of the Perito Moreno pipeline by 14 million cubic meters per day. As a result, ENARSA launched a tender offer in May. By the closing of the tender on July 28, only TGS had presented a bid. The project was finally awarded to TGS on October 17. The expected CapEx amount is $560 million, and it involves the construction of 3 compressor plants as well as the expansion of the Tratayén compressor plant, totaling an additional 90,000 horsepower. By April 2027, we must commission the incremental capacity while operating and maintaining the Perito Moreno pipeline for a 15-year period. We are also entitled to commercialize the incremental capacity and collect a dollar-denominated unregulated tariff during the period, after which the facilities will be reverted to ENARSA. Last week, we filed this project with the RIGI authorities in order to obtain the approval soon and get the tax benefits this regime provides. In addition to that project, TGS will invest another $220 million to expand the capacity by 12 million cubic meters per day for its regulated pipelines between Salliqueló and Greater Buenos Aires by adding 20 kilometers of pipeline and increasing compression capacity by 15,000 horsepower in one of the compressor plants. Moving to Slide 4. I will briefly highlight the key financial results for the third quarter of '25. Please keep in mind that all figures presented for this quarter and comparisons made with the previous quarters are expressed in constant Argentine pesos as of September 30, '25, following the provisions established by the IFRS for financial reporting in hyperinflationary economies. As seen in the slide, we reported a total net income of ARS 112 billion during the third quarter of '25 compared to ARS 68.8 billion reported in the same quarter of '24. These higher earnings were mostly explained by the better performance of the liquids business, which contributed with a higher EBITDA of ARS 37 billion and the continuous EBITDA growth in the midstream business segment, which rose by ARS 14.5 billion. In the quarter, we also recorded lower negative financial results amounting to ARS 31 billion, which boosted our third quarter earnings, but were partially offset by the natural gas transportation EBITDA decline of ARS 10.5 billion. Moving on to Slide 5. EBITDA for the natural gas transportation business in the third quarter of '25 totaled ARS 102.4 billion, which is slightly below the almost ARS 113 billion recorded in the third quarter of '24. The ARS 10.5 billion EBITDA reduction in the regulated business segment was mainly due to the tariff adjustment from August 24 to August '25, which resulted in a ARS 29.2 billion revenues nominal increase that were insufficient to offset the inflation adjustment effect of ARS 42.2 billion. In addition, operating expenses rose by ARS 2.4 billion, while revenues increased by ARS 4 billion, mainly due to incremental interruptible transportation services provided during the third quarter of '25. On Slide 6, you can see how EBITDA for the liquids segment tripled, amounting to ARS 55.2 billion during the third quarter of '25 compared to ARS 18.2 billion reported in the same quarter of '24. Most of the EBITDA increase was explained by the higher volume exported of 61,000 metric tons, rising from 43,000 to 104,000 metric tons, which contributed to a higher EBITDA by ARS 18 billion. In addition, higher ethane volumes of 38,000 metric tons were sold, rising from 53,000 to 91,000 metric tons and adding ARS 11.7 billion to the third quarter EBITDA of '25. This higher volume is mainly related to a higher production, which increased from 173,000 tons to 315,000 metric tons as a result of the higher richness of the natural gas process in this quarter and the 3-week plant shutdown for maintenance works implemented during the third quarter of '24. Furthermore, EBITDA increased by ARS 13.2 billion due to higher butane prices in the domestic market following the deregulation of the butane price under the Program Hogar starting January '25, which allows us to sell at export parity price. To a lesser extent, operating expenses decreased by ARS 5.4 billion and monetary effects were positive by ARS 1.1 billion. The positive effects on EBITDA were partially offset by ARS 8.9 billion extraordinary expenses incurred as a result of the March 7 flood, which we expect to recover from the insurance company in the coming months. Additionally, natural gas price increased from $3.1 to $3.4 per million BTU, which impacted negatively the EBITDA by ARS 4.3 billion. Turning to Slide 7. EBITDA from midstream and other services rose to ARS 61.2 billion compared to ARS 46.7 billion in the third quarter of '24. This increase was mainly driven by higher sales derived from the incremental billed volume of natural gas transported and conditioned in Vaca Muerta, totaling almost ARS 21 billion. Transported natural gas billed volume rose from an average of 29 million cubic meters per day in the third quarter of '24 to 32 million cubic meters per day during this quarter. The natural gas conditioning volume also increased from an average of 16 million cubic meters per day to 29 million cubic meters per day. In addition, the monetary effect increased EBITDA by ARS 3.2 billion. These effects were partially offset by ARS 10.4 billion in higher operating expenses. As seen on Slide 8, we recorded a positive variation in the financial results amounting to ARS 31.1 billion. This was mainly due to a ARS 43.4 billion increase in income from financial assets given the much higher yields achieved in the domestic financial investments. Additionally, inflation exposure loss decreased by ARS 10.7 billion. These positive effects were partially offset by a higher foreign exchange loss amounting to ARS 21.8 billion during the third quarter of '25, following the Central Bank's decision to make the U.S. dollar exchange rate float starting early April and the consequent depreciation of 15% compared to the 16% rate in the same quarter of '24 under the previous regime of a 2% monthly crawling peg. Finally, turning to the cash flow on Slide 9. Our cash position in real terms increased by 22% or ARS 160 billion during the third quarter of '25 to ARS 875 billion, equivalent to approximately $638 million at the official exchange rate. EBITDA generation during the third quarter amounted to almost ARS 219 billion, of which 47% was generated by the regulated transportation business and 53% by the nonregulated businesses. CapEx for the period amounting to ARS 87 billion. Working capital decreased by ARS 36.4 billion, and we paid interest amounting to ARS 29 billion while income tax payment totaled ARS 61 billion. In addition, we obtained short-term loans of ARS 28.6 billion. We finally recorded higher yields from our financial investment by ARS 53 billion in real terms resulted mainly due to the higher increase of the foreign exchange rate over inflation for this quarter. This concludes our presentation. I will now turn it over to Carlos, who will open the floor for questions. Thank you.

The first question is from Santiago from Allaria. He is inquiring about the capital expenditures for the expansion of the transportation system and the final tranches. He wants to know how the deployment of the new $780 million is broken down. That’s the first question.

Well, regarding the deployment of the $780 million from the expansion project, for this year, we have some advances to suppliers amounting and some part of the works amounting up to $150 million. Then for the following year '26, we are expecting to spend $450 million and the remaining $27 million in the first 5 months of '27. The financing of the project, we already have almost $70 million in bank loans to fund the imports, which is a regulatory requirement under applicable regulations. We are currently considering other sources of financing for the remainder.

Second question is regarding the insurance claim status for the event. If you can share what is the total expected recovery amount from the insurance and the timeline for collecting the payment?

Regarding the recovery amount, we are estimating this amount could be more than $50 million. And the expectation for the collection is maybe $10 million this year and the remainder in the following year, I don't know, maybe in the second quarter.

We have a question regarding the strong recovery of the liquids this quarter. Can we comment on whether the current levels of production and margins are sustainable into the fourth quarter of this year? Additionally, how do we anticipate prices in 2026?

Okay. Well, regarding the level of production at the current level, which was driven by the richness of the gas stream coming from Vaca Muerta. You know that non-conventional gas is replacing conventional, and there's also the increase in oil production with associated rich gas; the level of the richness of the gas is higher. I could say that this level of richness could be substantial for the next years. Regarding the fourth quarter especially, well, it's a different time of the year. So the gas production is lower in the fourth quarter compared with the third quarter. Despite that fact, the gas stream coming into our plant is higher than the total capacity of the plant. So it's going to be a sort of arbitration between these two variables. Regarding prices for '26, well, current levels of international prices are lower than what we used to have a couple of months ago. So maybe liquids prices could be lower than the average of this year, but it's very hard to anticipate that.

The next question is from an unidentified caller. This is her first question about what you just discussed concerning the future of the liquid business. Her second question is whether we expect an increase in cash CapEx deployment before the end of the year.

Regarding our CapEx, our cash CapEx is going to be higher than previous levels as we have already started with the private initiative project in the Perito Moreno expansion. As I previously mentioned, we are expecting to spend $150 million this year, mostly in the last quarter.

The next question is about the Perito Moreno pipeline, where we have provided as much information as we can. The second question is whether we are interested in taking part in the project to construct a new gas pipeline to supply gas to LNG facilities that are expected to come online by 2027 and 2028.

Well, regarding the new gas pipeline, currently, we are evaluating our participation in this project. I cannot anticipate any news on that for now.

Next question is from George at Securities. He was expecting to pay significant cash income taxes again next quarter?

George, well, regarding income tax payments, the payments could be quite similar in the fourth quarter compared with the third quarter. The bulk of the income tax payment was paid in May this year. Then you have advances that are fairly similar from June to April next year or March next year. So as compared to the fourth quarter with the third quarter, the payments should be in pesos quite similar.

Next question from Daniel Guardiola. When do we expect to reach FID for the Tratayén facility?

Well, we are working very, very hard on the project. The FID could be in the first quarter of next year, hopefully.

Next question, which was already addressed as it pertained to the initial project. The following inquiry was also related to that same project, so it has been answered. There was a question about partners or the number of companies involved in this, considering the balance sheet impact of their participation in the project and potential engagement with equity markets.

We are focused on that. The plan is to collaborate with partners, particularly for the liquids project involving transportation, fractioning, and dispatching facilities. Our intention is to partner in that segment of the project, and we are actively pursuing that. As for equity markets, we are not currently considering that.

Next question regarding the financing of the CPM project that Alejandro explained. Another question asking about the financing of the Perito Moreno pipeline project and the capacity of the CPM.

Yes, the expansion of the CPM will benefit our extreme business by increasing volume, up to the capacity limits of our pipeline and gas treatment facilities. We have ample space in the pipeline.

The first nine months of 2025 saw some impacts from the beginning of September. We received another question from Guido about the Perito Moreno project, and we shared all the information we could. There was the same inquiry regarding the financing of the Perito Moreno project, which we clarified previously. We have no further questions at this time. This wraps up the question-and-answer portion. Now, Alejandro will provide the final remarks.

Well, thank you all for participating in this year's third quarter '25 conference call. We look forward to speaking with you again when we release our '25 fourth quarter results. If you have any questions in the meantime, please do not hesitate to contact our Investor Relations department. Have a good day.