Aug 13, 2020
Margarita Chun
Hello everybody. Good morning, ladies and gentlemen and thank you for waiting.
I'm Margarita Chun from IR. We would like to welcome everyone to Pampa Energía Second Quarter 2020 Results Videoconference.
We inform you that this event is being recorded and all participants will be in listen-only mode during the presentation. After the company's remarks there will be a question-and-answer session only available on browser or through the app.
[Operator Instructions]. Before proceeding, please read the disclaimer that is located in the second page of our presentation.
Let me mention that forward-looking statements are based on the beliefs and assumptions of Pampa Energía Management and on information currently available to the company. 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 Energía and could cause results to differ materially from those expressed in such forward-looking statements. Now, I'll turn the videoconference over to Lida Wang, our Investor Relations Officer of Pampa Energía.
Lida you may begin the videoconference.
Lida Wang
Hello everyone and thank you for joining our conference call. I hope you and your loved ones are safe and well.
For the interest of time, I will make a brief summary of the quarter’s key figures, the impact of COVID-19 and the latest events since our last call. We will focus on the core businesses of Pampa, power and E&P, as TGS and Edenor already held their calls earlier this week.
As you can see, our CEO Mr. Gustavo Mariani and CFO Mr.
Gabriel Cohen are both here and joining us for Q&A. Before we begin, let me remind you that Pampa’s figures follow U.S.
Dollar as functional currency. In the case of Peso-linked subsidiaries such as our utilities, their figures are adjusted by inflation and shown in dollars at the end of each reporting period FX.
Also, you can see in this slide what businesses are included when we talk about of Pampa consolidated, as well as Pampa restricted group, a definition we use for covenant purposes. As you know, Argentina has been affected by COVID-19 pandemic and Federal Government set up a mandatory lockdown from March 20.
Restrictions has been softening across the country but certain places such as Buenos Aires metro area has been extended from time to time, so activity still limited and therefore, affects the economy. Most of Pampa’s businesses were deemed essential, and we are running our operations with all the necessary safety and health protocols such as minimum personnel in place, new workflows to keep social distancing, minimize exposure such as lengthen working shifts as well as off-duty time, and so on.
Very important is that no wages have been adjusted nor personnel subject to furlough; almost 40% of our personnel is working remotely now. As we said in the last call, we revisited our CapEx and OpEx budget, reducing primarily in E&P, until improved environment.
We also are proud to see Genelba second CCGT operating and an outstanding power generation performance through this tough quarter. E&P faced the lowest prices in the last five years as a result of fall in demand, which tested our endurance but also went through satisfactorily.
The fact we haven’t given in much production during Q2 facilitated the ground for winter season, as demand rebounded and production rose to above 250 mcf per day. Finally, it is worth noting our proactivity towards financial management, preventing us to be in a hurdle during macro instability.
The agreement with sovereign bondholders constitutes a great step for Argentina, we remain prudent. We witnessed an improvement in collection rates across all the businesses, helping our working capital.
So let’s start commenting the quarter’s key takeaways. As shown on slide 5, revenues fell year-on-year 40% to $544 million, mainly because of collapse in gas prices, the lesser fuel self-procured as this year, CAMMESA took over most of the Grid’s fuel consumption, tariff freeze for over a year impacting our regulated businesses, partially offset by new power generation units priced under PPAs.
In Q2, 20 around 40% of our sales were dollar-link roughly 75% in net EBITDA term this is including Edenor which is [indiscernible] but the dollar link thing is mainly coming from our core businesses; power, capacity like E&P. Adjusted EBITDA decreased year-on-year by 56% to $120 million in the quarter mainly explained by lower E&P price and volume, tariff freeze at reg.
utilities and lesser legacy and plus margin at power generation partially offset by new capacity lower E&P OpEx and royalties related to activity downturn. The positive effects from Edenor’s Liabilities Regularization Agreement in Q2 last year and the dilution of peso-nominated costs because of FX depreciation.
Quarter-on-quarter, EBITDA decreased by 46% because of the lockdown impact over prices combined with off-peak seasonality, therefore lower spot prices for power and gas. As we show on right below, power generation takes 70% of the consolidated adjusted EBITDA, while E&P takes 5%, purely led by gas, and the rest driven by TGS and Transener at our equity stake and marginally by petrochemicals.
Moreover, as shown in the chart left below, in the second quarter of this year our CapEx decreased significantly compared to last year, mainly because Genelba Plus’s expansion project was nearly finished, E&P halted drilling and completion due to uncertain pricing environment, lower CapEx at Edenor because of deval and tariff freeze plus PEPEs were completed in Q2 2019. In this slide 6, we want to briefly show you the impact of the lockdown in the Argentine power grid during Q2.
The average demand reached 13 GW, 6% lower than last year. But if we compare it with a pre-crisis year, 2018, the drop was 13%, although smooth if we compare it to other sectors of energy, industry or GDP, which is estimated to have fallen by 21% year-on-year, this is according to macro consensus.
Industries are the most impacted by quarantine, especially those considered non-essential, while distcos are hit because of collapse in SMEs consumption, but partially offset by residential demand due to stay at home order and colder autumn. As we go into winter, demand recovers surpassing 2019.
Moving to the power generation segment as seen on slide 7, during the second quarter of 2020 we posted an adjusted EBITDA of $95 million dollars, similar to Q2 2019, mainly given by the reduction and pesification of spot prices as from February 2020, in addition to lower margin and volume sold in Energía Plus. The latter and legacy’s lack of inflation adjustment plus FX deval are the negative effects of COVID-19 in power generation.
As from July this market is improving but still far from pre-pandemic levels. These effects were partially offset by our stake at Ensenada Barragán power plant, PEPE 2 and 3 windfarms with private PPAs and Genelba Plus capacity increase, as well as lower costs related to lower energy purchases and the deval impact on our Peso-nominated costs.
Quarter-on-quarter, off-peak pricing for spot energy and lower power dispatch in Q2 20 contributed to the 16% decrease in EBITDA. While spot energy comprises 65% of our capacity, only represented [48%] of our power generation EBITDA in the quarter, and will keep shrinking thanks to the commissioning of the second CCGT at Genelba, and further once Ensenada expansion is online.
In Q2, generation was 7% lower year on year, in line with lower electricity demand in the national grid because of the lockdown. As the demand is lower, the marginal unit to be dispatched is cheaper, but also renewables are disrupting the dispatch ranking, therefore, the combined cycles are the last units to fulfill the demand.
Our two combined cycles at Loma and Genelba were fully dispatched, as well as our non-conventional energy, but the remaining thermal units – open cycles were mostly not required. Quarter-on-quarter, power generation decreased 25% mainly because of the lockdown and seasonality.
Despite the demand contraction witnessed in the country, the power generation business model relies on capacity payment, so lower dispatch does not much impact on the revenue making as long as availability is outstanding, especially for PPA-based energy. The availability rate in the second quarter of 2020 reached 98.6% with installed capacity of 4.8 GW operated by Pampa, 330 basis higher than same quarter last year, mainly because last year Piedra Buena and Plus unit at Güemes faced outages.
As I mentioned earlier, we are proud to have achieved one of the most important milestones at Pampa’s 15- year history, with the commissioning of the second CCGT at Genelba on July the second. CAMMESA granted clearance to the second steam turbine for 199 MW, completing the expansions for a total of 400 MW, priced under a 15-year PPA executed with CAMMESA.
Despite the pandemic and the delays incurred until it was deemed essential, Pampa executed COVID-free protocols with contractors, thus achieving the COD on time and disbursing roughly $320 million, this is 9% lower than the budget, mainly because FX diluted peso CapEx. Now Genelba is the largest and one of the most efficient thermal plants in the country, as you can see on slide 8 the picture of the existing CCGT and the new one, with a total installed capacity of 1.2 GW, located in the gate of Buenos Aires metro area.
The remaining expansion in the pipeline is Ensenada Barragán thermal power plant, as you can see on slide 9. This is a 280 MW CCGT project at the south of Greater Buenos Aires, which is a critical infrastructure for Argentina’s grid.
During May and June we placed a purchase order for the cooling tower and kept digging to set the foundation base. However, works were halted for most of July, until July 20, when we got an essential waiver and resumed operations focusing on the construction of critical path to achieve COD by Q1 2022, therefore to bill a PPA for 10 years with CAMMESA.
The lockdown negatively impacted the domestic gas demand, but to a way lesser extent than crude oil and GDP, dropping year-on-year 8% in Q2, mainly driven by the lower industrial consumption because of the nonessentials shutdown and economic downturn, lesser gas fired by CAMMESA due to lower power demand, plus less gas for cars and exports. This was partially offset by higher retail consumption because of colder weather.
Moreover, during second quarter the lockdown coincided with the gas off-peak season, which bottoms at fall and spring in Argentina, dropping even sharper the gas demand and therefore, bringing down traded prices. Gas consumption is rising right now as we are in winter season, but we are still below previous years watermark.
However, CAMMESA demand is unfulfilled and is covering with imported gas and liquid fuels. So moving on to the results on E&P, as you can see on slide 11, during Q2 2020 this segment posted an adjusted EBITDA of $6 million, 88% lower than in Q2 2019, mainly because of COVID-19 impact to lower prices, partially offset by lesser costs related to activity downturn, lesser royalties and deval dilution on peso costs.
Despite the tough environment, our overall production in Q2 2020 decreased 10% year on year but only 5% quarter on quarter, reaching around 44 thousand barrels of oil equivalent sold per day, of which 91% is composed by natural gas. On the oil side, which represents only 14% of the segment’s revenue in the quarter, volume sold decreased 17% year-on-year and 23% quarter-on-quarter, reaching 4.1 thousand barrels per day, mainly due to the collapse in demand and prices affected by the lockdown and lack of storage capacity, resulting in drilling activities on standby.
During Q2 2020, the crude oil sales price decreased year-on-year by 65% and quarter-on-quarter by 58%, reaching $21 per barrel. Although in mid-May the Government set barril criollo at $45 per barrel in the domestic market, but the demand was collapsed.
Consequently, we exported at the discounted price on Brent a total of 2.3 barrels per day of Escalante and for the first time we exported Medanito. The 59% of our production is Escalante heavy oil, which is sweet and given the current clean fuels trend is pricing premium to Medanito light oil.
Regarding the gas production, on slide 12 we can see Q2 20 reached an average of 253 million cubic feet per day of volume sold, 10% lower year-on-year but stable quarter on quarter despite the price collapse due to the lockdown and the lack of long-term contractualization. Lower pricing impacts on the breakeven equation, therefore producers respond with a lesser drilling rate and natural decline takes place.
And because of that, production was lower in Rincón del Mangrullo and Río Neuquén, and a minor decrease at Sierra Chata and Aguaragüe blocks, which were partially offset by increases at El Mangrullo, this is a block in which evacuation infrastructure was expanded given the outstanding productivity and upside potential, and also keep in mind that it is fully owned by us, holding operatorship as well. In Q2 20, El Mangrullo reached 153 million cubic feet per day of gas production, this is 5% higher than Q2 19 and contributing close to 65% of our overall gas, ranked fourth highest gas producing block at Neuquina basin.
It is also remarkable that 7% of Q2 20 production corresponded to shale gas from the completion of two horizontal wells at El Mangrullo block last year. During second quarter 2020, our average price for gas was $2 per million BTU, 37% lower year-on-year and 15% lower quarter-on-quarter, mainly driven by the sharp price reduction on CAMMESA tenders in April and May.
The lockdown led to a drop in demand, especially from large users, and lesser thermal power; supply overhang forced producers to adjust prices to prevent curtailments and keep billing. CAMMESA outcome also affected industrial segment and spot prices.
But since June increased close to the reference price of $2.7, [indiscernible] reflecting the demand recovery due to winter season and lockdown easing, but prices are still in the lowest point in years and barely covering the replacement cost, impacting the investment horizon. Also as you can see right below, our production year-to-date is skewed towards CAMMESA and our Energía Plus units, leaving 15% to other segments.
Since the commissioning of Genelba Plus CCGT, we’ve been procuring our own gas, rising the intersegment exposure from 14% to almost 25%. The lower domestic prices were partially offset by exports to Chile, which GSA ended on mid-May.
Since then we are fully selling domestically, but we are awaiting from the Secretary of Energy’s clearance to continue exporting to Chile. Regarding our activities, due to COVID-19, the mandatory lockdown and uncertainties in gas prices, we have been reassessing our activities as from March of this year, but continuing with the operation of our oil and gas fields with the minimum but essential requirements.
Therefore, no drilling and completion was registered in Q2 2020, in line with the sector. Currently we have 11 wells drilled but pending of completion, of which 8 are located at El Mangrullo, awaiting for better pricing horizon.
Moving on the bottom line of the P&L, in terms of net income attributable to the owners of the Company, Pampa reported a consolidated profit of $4 million dollars in the second quarter of this year, whereas in the same period of last year, $400 million dollars was reported. Mainly due to the one of [indiscernible] properties in Edenor of last year $308 million in addition to lower operating margins in oil and gas and regulated businesses, and lesser inflation exposure gain because of lesser passive net monetary position allocated to the electricity distribution segment and income tax charge.
Finally, moving on to slide 14, our proactivity towards the cash and liability management paid-off. In this slide we show all the layers of the company, from restricted group to consolidated figures, but for covenant purposes let’s focus on the restricted group, that is primarily Pampa parent company.
We continued optimizing every aspect of our indebtedness, highlighting that during Q2 2020 Pampa paid at maturity $23 million in addition to $45 million buyback at face value, partially offset by new short-term Peso bonds for a total of $26 million as well as net borrowing in pesos of $20 million. Therefore, the restricted group gross debt in Q2 ‘20 recorded 1.6 billion dollars, similar to March 2020.
The gross debt is 89% denominated in U.S. dollar, which was 92% in March quarter-on-quarter mainly bearing average interest rate of 7.7%.
Average life remained around 5.3 years. The cash amounted to $393 million, which is slightly higher than the $373 million dollars in March 2020, mainly due to the positive working capital as a result of lower billing and faster production so we have DSO improvement, collection of Plan Gas 2017 as well.
So the restricted group net debt remained similar to last quarter below $1.2 billion and net debt to LTM EBITDA stayed at 2.6 times. After Q2, we issued Peso bond for $87 million, plus domestic net borrowing of $10 million.
Pampa also repurchased bonds for $27 million face value and redeemed Peso bond series 4 for $17 million. Therefore, we are fully shifting our banking debt to local currency.
It is worth highlighting that the cumulative maturities from now until 2022 amount to $186 million, which 90% is in local currency. In terms of consolidated including affiliates at ownership, Pampa recorded a net debt of $1.5 billion this is two times EBITDA and $105 million less than last quarter of March due to the reduced net leverage at Edenor and affiliates.
Finally we have a share buyback program with a price cap of $13 per ADR and outstanding of $38 million. As of the date, we hold $2.2 million treasury ADRs in treasury, so Pampa’s outstanding capital amounts to $61.7 million.
So this concludes our presentation. Now, I will turn the word to Margarita, we will open the floor for questions.
We will gather in them the platform. Please write there and we will read it up there.
Thank you.
Operator
Thank you. The floor is now open for questions.
[Operator Instructions] We have questions from Ezequiel Fernández from Balanz.
Margarita Chun
He sent us when are you planning, what we are planning to go back to drilling new unconventional wells? Well, right now we have a stock of 11 wells, we could but we need more signals.
How many unconventional wells are you targeting for the remainder of 2020 in which blocks Pampa will be focusing? As we said in the script it will be, well right now with the prices that we are seeing among us is the most competitive but we'll see for the remaining of the year what's going to happen with the pricing if it's worth it to keep drilling as we already have a stock.
Gustavo Mariani
Lida, hi. Gustavo here.
I'm through the phone because of technical problems. So I apologize to the audience for not being able to be on the video call.
I don't know whether it's myself getting old and not getting along with the technology or the Murphy Law in this case. Anyway, I wanted to join for the Q&A and I have [Lida and Gabby] with some of the questions.
Regarding this one of how many unconventional wells. As you know, there is the plan -- the new plan, gas, what is called the plan gas four that is being discussed with the authorities, not yet formally announced.
Last week, there was a formal meeting that the Minister of Production announced to the producers that we will be soon the invitation. The idea of the authorities is to do the auction in September and started with this program in October.
So whether it will drill new unconventional wells or not will depend on how we do on the disruption, but mainly we are not foreseeing unconventional wells this year and most probably it's that we will fulfill the new Plus [indiscernible] production requirement through our tight gas reserves, not shale gas and that addition is for 2021, maybe for 2022, it's going to be a different case. Sorry Linda, you can continue with the rest of the question.
Lida Wang
All right. There is another question from Ezequiel saying is the current remuneration for legacy thermal power units enough to sustain.
plant availability at high levels or are we at the limit already? Gus?
Gustavo Mariani
Well, I wouldn't say that we are at the limit already. At least in our case, we're still making margin.
But as you know, this legacy pricing was supposed to get inflation adjustment monthly right from the beginning and then, it was because of the COVID crisis. The Secretary of Energy issued a Resolution postponing the adjustment.
We hope that as the COVID crisis eases, they will restart with the inflation adjustment of the pricing scheme. And as I said, I wouldn't say that we are really at the limit.
That's our case, but maybe some of our colleagues, which have all the equipment are probably already in that position, so not our case. But I wouldn't -- but I don't think that the average of the sector is far from there.
Margarita Chun
Okay, another question from Ezequiel, he is asking any news on asset disposals or M&A, a lot of people asking this, so as Ezequiel.
Gustavo Mariani
No, not. Currently, we are not working on any asset disposal.
Lida Wang
And M&A?
Margarita Chun
We are studying the things. So there are several things in the pipeline as always, having there study, but nothing concrete.
Lida Wang
Okay. And there is another question that from Ezequiel, the last one he says our price -- our gas price was $2 and quite low.
Peers in the sector reported something around $2.5. Why we are lower than the peers?
Gustavo Mariani
Lida, You will answer this question better than me, but I would say that my first guess regarding our peers is that they're probably enjoying some of the -- some of them the benefits of Resolution 46, which we do not. So probably that makes the explanation of the difference.
I don't know, you might have another...
Lida Wang
We are audited, right? But basically, we -- our -- as we've shown in the presentation and you can see, I think in Slide 11, our sales are skewed to CAMMESA and our reserves also and that prices like it's been reduced significantly because of the tenders.
So -- and we don't have any exposure to distribution, very little, less than 5% to retailers. Retailers right now are the most -- the highest price income.
So right now, as I said, the spot market, it follows CAMMESA. So in CAMMESA, it is reducing.
So that's reason why this is the price that we have. Going forward, June, it's -- already I was saying, June, it's like more about buying -- bounding to the reference price of $2.7 and July as well.
August, it's -- well, August, the tender was a little bit lesser, but still above $2, so we are expecting an improvement hopefully. Okay.
This is the questions from Ezequiel. Then, we have a question from Anne.
When are the capacity and generation payments on Genelba's second steam turbine coming online now and how much incremental EBITDA do you estimate the plant will have?
Gabriel Cohen
Okay.
Lida Wang
Yes. The capacity payments on Genelba is $20,000 per megawatt per month.
This is in the earnings report. The EBITDA estimated to add, it's like roughly $8 million per month.
That is $24 million, $25 million next quarter. So this quarter in Q2, we didn't book anything, will be booked next quarter.
And that's it. Then nothing, the initial payment and that's it.
Then the second question from Anne. She is asking there are reports of what [indiscernible] of Ensenada.
Will Pampa be interested in this stake?
Gustavo Mariani
I would say it's that if YPF decides to move forward on that, we will certainly look at it, but so far, there is nothing concrete.
Lida Wang
What are the options of Transener considering that for 2021, $100 million bond maturity, local markets, are there.. Actually, Anne, it's $90 million outstanding.
So, it's lesser than $100 million, because we reported.
Gabriel Cohen
Yes, hello, Gabriel speaking. Well, clearly as all the other companies to do a [indiscernible] will be an option or to just fund through own cash generation and depending on the outlook on future cash flow generation.
But on one side, it's not a significant amount. On the other side, depending on the outlook moving forward, there is something that will be required to take an action -- specific action.
Lida Wang
Okay. Another question from Anne.
What is the outlook, estimate for CapEx for the remainder of 2020 in each of Pampa's main divisions? The estimate for the remainder of 2020, actually for the year, we have E&P $65 million of forecast of CapEx like half maintenance, half non-recurring.
This is very little because, at the beginning, we always said the budget of 2020 was $130 million, more than $130 million and this was like half. And then for power generation, this one is not much.
Basically, it's $3 million from Genelba commission, which is already done, while another $40 million for the year, okay, in the maintenance. So far as of -- year-to-date as of June, we already completed half of it.
So we are like in line.
Margarita Chun
Our next question comes from --
Gabriel Cohen
I just wanted to try. So very minor CapEx going forward because we just completed Genelba.
So there are no CapEx other than maintenance CapEx, which are rather small this year, around $45 million. So in the remaining of the year, less than half of it.
And on E&P, it will depend on the Plan Gas, but still a small amount.
Margarita Chun
Perfect. The next question comes from Matias Castagnino from BCP.
What do we know about the new potential and gas prices, timing, etcetera. Is Pampa joining this potential program or no?
What would be the break-even price to develop reserves? That is the first question he has.
Gustavo Mariani
Okay. I mentioned a few things.
About the timing as I had said, again, nothing has been published yet, but we do expect that is what the minister explained to us last week. Then in the next few days, we will be receiving the invitation to participate in the auction with all the terms.
And that auction should take place during September and the new plant gas start accruing in October. The goal of the plant gas is not a huge increase of production it's rather and basically because of the constraints of evacuation capacity from the Neuquina basin.
So they are going to auction a flat production throughout the year and a three-month peak for the winter. It will have a cap of around $3.40 that will be increased 10% per year.
So those has been what has been also published in the media. The main big issues of the plant gas.
Regarding break-even price, it depends on your own portfolio of assets. So each company will have a -- the asset that you need to develop.
So each company will have its own price and it's going to be a competitive auction in which, yes, we are looking to participate.
Gabriel Cohen
Thank you. The next question of Matias is what is the impact of the EBITDA due to the legacy remuneration specification?
Gustavo Mariani
Lida, I think you already covered this one. I don't know if you want to add something.
Lida Wang
Yes. So basically given the trend and the FX, official FX, the inflation trend we are forecasting around $45 million, $50 million hit because of the lack of the adjustment and the FX promotion over the legacy contribution.
And this is matching our contribution from -- for this year. So it's kind of like we are estimated that one effect will offset with the other.
Gabriel Cohen
Next question from Matias is regarding Edenor. What would happen if Edenor needs financial aid?
Is Pampa going to transfer cash to Edenor?
Gustavo Mariani
[Indiscernible] Yes. Hello, no we are not expecting any support from the plant to Edenor.
There was since we got it there were never any the company flows, and not even any dividend collection from Edenor to Pampa.
Margarita Chun
Gabriel Cohen
Our next question comes from Bruno Montanari from Morgan Stanley. He is interested about the cost controls, how we are dealing with in each businesses regarding the cost?
What will be expected for the cost and CapEx in the near future?
Gustavo Mariani
Sorry Maggie, can you repeat it pleas again for me?
Margarita Chun
Yes. Of course.
The question comes from Bruno Montanari from Morgan Stanley. He wants to know about the cost control regarding each businesses, each business and how we are going to deal with the cost CapEx for the near future?
Gustavo Mariani
Bruno as I said, what we can, we are always revising and especially in this situation going over and over to our OpEx to see which one of them, there is [Indiscernible] Edenor. I don't know [Indiscernible] somebody.
Margarita Chun
Sorry somebody has the microphone on.
Gustavo Mariani
Can you find out the person?
Margarita Chun
Yes. I am going to find the person.
Gustavo Mariani
Okay. So as I was saying we don't, there is not much that we can do to reduce costs obviously we are revising all of them, but it's very marginal and on second decimal in terms of the numbers of Pampa.
When it's relevant for Pampa, it's CapEx and in this situation and thanks for the planning. We are in a very low CapEx environment thanks because we have already completed the Genelba expansion and we are awaiting the new terms of the plant gas before deciding new investments there.
Maggie, continue?
Margarita Chun
Yes. Our next question comes from [Indiscernible].
Sorry before I continue if there is somebody with a microphone on, please turn it off so that we can listen to the answers clearly. Our next question comes from [Indiscernible] Securities.
He has two questions. First one is, how do we see the evolution of electricity tariffs and power prices and the payment from CAMMESA.
Lida Wang
Gus, do you want to answer that?
Margarita Chun
I think he is muted also.
Lida Wang
He is muted. So how do you see the revolution of electricity tariffs.
We honestly, this is in the midst of the pandemic. I don't think electricity tariffs will be raised right now and actually the government then place an extension of the tariff rates.
I don't know if you remember there was an emergency act passed last year, and that up to 180 days, no tariff increases, cell phones, mobile anything will revise, risen, that ended on June and they extended for another 180 days. So should be the fees for tariffs will be done by December.
Our prices, honestly the legacy is, it is what it is it. We will be keep [Indiscernible].
We don’t give any inflation adjustment, and honestly this is in the same line as of the previous answer. I don't see this happening in the midst of the pandemic, though it is true and we’re addressing in the call, working capital is performing better.
I think everybody, all the peers are talk about this. We are seeing better collections from the retailers Edenor collecting more, gas distribution companies which is conducting more so, they're passing through this kind of behavior to CAMMESA or to gas producers as well, and CAMMESA has been factor as well.
So in this quarter we had real positive working capital with CAMMESA versus last quarter when we had this call sales outstanding was watermark was 86 days more or less. And we are 10 days earlier.
So this 10 days one third of the average is like $20 million better if we do this for the whole year, right for 12 months effect. Maggie, the other question from Alexander [ph]?
Margarita Chun
The other question, the second one from Alexander is and it's very similar to the question of Ricardo [Indiscernible] from JPMorgan. And it's about our investment in the upstream of gas volume evolving in the near future.
If we are joining the new potential plant gas, especially second half of the 2020 second half of this year and for next year. Gustavo is on mute.
Lida Wang
Well again as Gustavo was addressing this, if we have it, it will be a great signaling, and a great push through the sector that really needs it. One of the questions that [Indiscernible] was asking what prices do we need, what prices are the break-even, this is the prices that makes it break even.
We almost have a break even EBITDA. I would say that this is the bottom and this is very low.
Anything that may help, anything that contributes it will make this sector more prospective. So of course we don't have nothing in paper, but it's in dialogue and that we are working on it.
So already addressed by Gustavo.
Margarita Chun
Thank you. Now we are polling for more questions.
Please wait for a few minutes. I got a question and answer session.
Danielle, is also asking what is the minimum CapEx you can deploy before significantly damaging the operation?
Lida Wang
Well this is the minimum CapEx, absolutely. And not really in anything, well the first quarter of the year we drilled almost nothing, because first quarter was -- we were thinking about the second quarter to be preparing for winter season, which is our hot season, but then lockdown COVID-19.
So nothing, we did nothing so and basically well this year we have the drive of last year's activity. Last year was a surprised good year for E&P, active in the drilling and improvisation.
Last year we were doing shale drilling, even we were doing shallow drilling. And because of the CapEx that we are diversion this year so far I was saying $65 million this is forecast for the year $60, $65.
Next year we are estimated, that if nothing happens that will mean the decline in production. So if this is already very low.
There is another question [Indiscernible].
Margarita Chun
This is about the regulating utilities, if we are seeing non-tariff adjustment in the second half of this year, what do we think about the tariff adjustment for next year?
Lida Wang
Yes. Well so we already said this.
We are in the midst of the pandemic and there is a decree preventing on that. So we don't expect any tariff increases in our regulated businesses.
Though we had dialogue, there is dialogue to think about what's going to happen after the pandemic.
Margarita Chun
Hello. We are polling for questions.
Please wait for a few minutes.
Lida Wang
There is another question from [Indiscernible]. He’s asking about the current payment delays from CAMMESA.
I was saying right now we are around 75 days. This is 10 days better than the last call that was the high watermark.
Tariff, this is tariff CAMMESSA tariff with gas production with everybody, all the clients. Gas transportation, electricity transportation everybody is getting paid from CAMMESA around this 75 days sales outstanding, so it's a 10-day improvement.
There is another question from Daniel.
Margarita Chun
Actually it's from Andre [Indiscernible] from Citi. He is asking, are you considering to have a better market.
Some of your peers seems to be getting very low interest rate, local markets, both in local currency and dollar link instruments. If that is the case, what would be the use of proceeds?
Lida Wang
Mari…
Gustavo Mariani
Yes. Hello.
Yes, I was on mute. Well in respect of transactions on our peers that have accessed the local market, the international market, we clearly have seen that there are friendly transactions for the corporates, but we understand that they have access essentially to do liability management because they were required to do so.
As you know our debt profile, our first maturity is on 2023, by July 2023. So we don't have any requirements to access the local markets now and even if we would want to do something on 2023 it would not act much, would concentrate a lot on the 2027.
So essentially we feel very comfortable with debt profile and our cash flow generation. So we don't think there is a requirement so far with the current business strategy that we have.
On the other side, we have strengthened our liquidity onshore by accessing the local capital markets in shorter term as you have, there was in the press we had about $90 million in the local market for 13 months. So that's what we did.
Margarita Chun
There is another question [Indiscernible] asking the same. What portion of the EBITDA generation of the power generation units comes from units with PPAs and how much from legacy?
Lida Wang
So just to give our famous chart is that 65% of our megawatt is from legacy, but only 40% less than 40% actually 38 its legacy EBITDA. And the opposite 35% of our megawatts it’s operated EPAs.
[Indiscernible] everything that you know but they constitute 62% of our EBITDA and this distortion, this inequality will grow even wider as we have Genelba right now coming online in Q3, and one. He asks, Daniel also as well do you foresee any material risk that government may modify EPAs with CAMMESA?
I think we addressed it twice before. It's something that it's always a risk but right now we haven't talked or seen anything actually we've been paid actually there is improvement on payments today.
Gustavo Mariani
And besides and yes, besides I think we would like also to stress something of what we said is that those contracts already have been affected considering that the owner of the official exchange rate. So in terms of your equity that you have deployed to the capital, you don't have access to, you don't have really access to exchange rate to recover your original cost of capital, okay.
Gabriel Cohen
Okay. [Indiscernible] also asking on plant gas.
We already addressed it. Thank you Lily for the questions.
People asking for new bonds issues. I think Gabriel already answered it.
Thank you for your question also in that sense. Someone from the audience asking how regarding hydrocarbons production, how we expect demand will change during Q2 -- the second half of the year sorry?
Is it growing? Yes right now it's growing because we are in winter but Q4 because it's off-peak season, and historically as you can see the charts it's always goes down, but it's a seasonality that's not unknown.
So but the Q3 it's the hot season for Argentina and as you can see the year-on-year decrease it's not that much compared I don't know GDP or other sectors like [Indiscernible]. I think this is, can you please comment on TGS results, a new project in Vaca Muerta by Lily Young from HSBC.
It's a small project actually. It's really good because it makes more use of the cabin pipeline that we built with [Indiscernible] and just transport by TGS.
This is a huge project I don't know if you remember. TGS like $300 million about two years it was finished last year.
We started operating and actually started to build and it contributed a lot more but not so huge but important part to the Q2 EBITDA at TGS and basically it's part of the ecosystem at Vaca Muerta that TGS is trying to build, right. And this is a treatment plan that it will be in the north part in the north trench of this gathering pipeline.
It's a two-year contract TGS will operate and treat this gas that the people from Shale and YPS [ph] lives on [Indiscernible] what else? I think that's it.
Margarita Chun
I think there is one more question from Chris [Indiscernible]. Have there been any further discussion with the authorities about changes to the U.S.
denominated PPAs in light of current blue chip right a continuous monetary policy?
Lida Wang
I think Gabriel already addressed it. I think so.
I think that's it right. There is no more.
There is a poll after this presentation. Thank you so much for joining us.
Margarita and I we appreciate you are here. Any question you may have you can reach us both to every contact line that we have, and please stay safe.
I will see you next quarter.
Gustavo Mariani
Thank you to everyone.
Operator
Thank you.
Gustavo Mariani
We will be available for any further questions through Lida, Maggie and the team.
Operator
Thank you Gabi, and thanks for your participation. This concludes today's presentation.
Thank you for joining. You may disconnect at this time.
Goodbye.