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Pampa Energia S.A. (NYSE:PAM)
Q4 2019 Earnings Call
Mar 11, 2020, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everyone to Pampa Energia Fourth Quarter 2019 Results Conference Call. [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 conference over to Lida Wang, Investor Relations Officer of Pampa Energia. Mrs. Lida, you may begin your conference.

Lida Wang -- Investor Relations Manager

Thank you, Grant.

Good morning, everyone, and thank you for joining our conference call.

I will make a brief summary of Pampa's consolidated figures, reviewing the year we just gone by and the quarter's highlights. This time, given that Edenor and TGS already held their calls on Monday, we will focus more on the core businesses of Pampa, that is, Power and E&P. Our CEO, Mr. Gustavo Mariani, and our CFO, Mr. Gabriel Cohen, are both here and joining us for Q&A.

Before we begin, let me remind you that Pampa holds US dollar as functional currency since January 2019. For the 2018 comparative, according to IFRS, figures are reported in pesos adjusted by inflation as of 2018 year-end and shown in dollars at closing FX. This comparison might be difficult to comprehend. Therefore, for a like-for-like basis 2018 compares with reported nominal figures in Q4 2018 and converted to dollars at the average FX. In the case of peso-linked subsidiaries such as our utilities, their figures are adjusted by inflation and shown in dollars at the 2019 year-end FX. So having made these clarifications, we can start.

2019 was, once again, a year full of political uncertainty as a result of the presidential elections, the worsening of the recession that continues striking the country and the general deterioration of all macroeconomic variables. Pampa navigated this tough waters with confidence, owing to the outstanding job done by the whole Company over the last years, including the divestment of non-strategic assets, focus on our core businesses, carry out significant level of investments, though at the same time maintaining high levels of liquidity and extending the average life of our financial abilities, among other options. Therefore, in 2019, once again, we can say we had a positive year in several aspects, an achievement that makes us proud.

As shown in slide 4, revenues in 2019 [Indecipherable] decreasing by 6% despite the peso collapse witnessed again last year. While 50% of our sales were dollar linked, in EBITDA terms, almost 71% came from dollar denominated core businesses, power and gas. However, E&P is still affected by the downward pricing environment in gas in addition to the FX volatility and holds [Phonetic] to the tariff increases affecting our regulated businesses, offset by higher gas production and power capacity, which contributed to deliver a $915 million EBITDA in 2019, 15% lower year-on-year, but keeping competitive margins. Power Generation keeps leading the share thanks to the new commissiongs, PPA outperformance and newly [Indecipherable].

Company's control and co-control by Pampa continue pursuing their investment commitment with the country having diverse over $1 billion last year, a figure slightly lower than 2018. But if you see the chart below, at Pampa, we take pride in having remain committed to the country energy needs for all our history. Out of the total investment, half was diverged for the maintenance of our assets, especially the rendering of quality service by our regulated subsidiaries and the other half was allocated to expansion projects, mainly distributed between the construction of new wind farms, the closing to combined cycle at Genelba Plus, TGS' Vaca Muerta gas carrying pipeline and the exploration campaign targeting Vaca Muerta formation.

On slide 5, let's make a quick start by reviewing the quarter's financial highlights. EBITDA fell year-on-year by 9%, mainly explained by lower hydrocarbon prices, reduced spot remuneration and devaluation effect on our tariff frozen utilities, partially offset by the commissioning of new power units, more gas production destined to self-procurement, more electricity demand at Edenor, the acquisition of Ensenada Barragan and inflation outpacing devaluation during Q4 '19. Quarter-on-quarter, EBITDA decreased by 9% [Phonetic], mainly because of lower legacy and gas prices due to the off-peak season.

As we show right on the right below, oil and gas share shrunk further at Pampa's consolidated EBITDA, given the current pricing environment in E&P, while electricity takes the other 72%, mostly led by power generation. Moreover, as shown in the chart left below, in the fourth quarter of this year, our capex decreased 33% compared to 2018, mainly explained by lower pace in power generation as projects are commissioned and then as expansion works just began, in addition to a lower than announced capex because of the devaluation, offset by increased E&P activity in El Mangrullo. However, capex increased by 21% [Phonetic] quarter-on-quarter, mainly explained by stronger peso driving up Edenor's investments measured in dollars and the execution of the final milestones at Genelba Plus closing to combined cycle.

So, as you can see on slide 6, in the fourth quarter of 2019 we would reach a consolidated adjusted EBITDA of $179 [Phonetic] million, 9% less compared to the $187 million EBITDA recorded in Q4 2018, mainly explained by decreases in oil and gas as we detailed before, lower international spreads on petrochemicals and minor EBITDA from holding and others, partially offset by the increases at power and electricity distribution as we detailed before.

Moving to Power Generation segment. As we have seen in slide 7, during the fourth quarter of 2019, we posted an adjusted EBITDA of $107 million, 13% higher than 2018, mainly given by the newly commissioned wind farms with PPAs and Genelba Plus new gas turbines as well as the recently acquired Ensenada Barragan power plant that we co-own with YPF and we add to our 50% stake, and the devaluation impact on our peso denominated costs. These effects were partially offset, mainly by the reduction on legacy from our remuneration as per Resolution 1 of 2019 in which lower the capacity payment during spring season of October and November by around 40% for [Indecipherable] turbines as they are the lowest utilization units in our portfolio. The impact on our [Indecipherable] under legacy thermal that is Genelba and Loma la Lata combined cycles is the smaller throughout the year but during the off-peak season, it gets 20% lower. Moreover, in Q4 2019 Energia Plus volumes and prices were lower year-on-year. Quarter-on-quarter, winter season pricing for legacy in Q3 '19 contributed to the 18% decrease in EBITDA.

For the second consecutive year, we have positioned ourselves as the largest independent power producer in Argentina, representing 12% of the country's total generation. In Q4 '19, generation was 14% higher than last year, mainly due to the higher dispatch at Loma and Piedra Buena because we managed to get the gas and therefore competitive by production costs known as CVP to get dispatched. Plus, it also contributed the commissioning of Genelba Plus thermal power plants gas turbines as well as the higher generation coming from the wind farms, which ranked senior in the dispatch priority because the cost is close to zero, and the operatorship at Ensenada Barragan. These effects were partially offset by the scheduled maintenances at Genelba's old CCGT, lower load factor at [Indecipherable] caused by the higher CVP from the partial recognition of the imported gas, therefore placing them behind the grid's dispatch priority, plus low water flows at Mendoza hydros. Quarter-on-quarter, power generation decreased mainly because of Genelba's old CCGT overhaul.

The availability rate in the fourth quarter of 2019 was almost 98%, with installed capacity of 4.8 gigawatts. That includes the recently acquired Ensenada Barragan, similar to the availability achieved in the same quarter last year and also compared to the Q3 2019. Thermal availability in Q4 also reached 97%, similar to the year of 2018 but a little bit lower than the Q3 of this year -- 2019 because of Genelba's overhaul.

On this new section, as from January of this year, legacy power generation pricing scheme was changed to one in pesos and sets up an automatic update factor that follow CPI and PPI, being the latter more correlated to the dollar. Also, this new spot pricing changes the capacity payments, reducing them and making it more variable compared to the previous scheme of Resolution 1, a way to make it more flexible, in line with the government's intention to lighten up power divestments but also seeks to protect the highest load factor units in the grid. Hence introduces an additional remuneration in the hours of high thermal dispatch.

To understand these changes, please turn your attention to the chart on slide 8. Assuming an FX of ARS60 per $1, the thermal units with the highest load factor, especially during the so called high demand hours in peak or off-peak season will end up billing on an average capacity payment of the year a little bit higher than the previous scheme. On the other hand, should the unit dispatch be lower than 70%, power remuneration is reduced by $1,000 per megawatt per month, and it gets wider if the load factor is below 30%. Pay attention that lower utilization units now get an average of $3,150 per megawatt per month, which is coincidentally the average back in 2015.

Regarding the expansions in the pipeline, we are currently at 99% completion of the closing to combined cycle of the 383MW at Genelba Plus, which began in October 2017. The before and after is remarkable. On slide 9, you may appreciate how it looked like 30 months ago in October 2017 right before the expansion works began and a great difference compared to now, as seen on page 10. We are preparing for the first steam key to run the CCGT commission tests before reaching CAMMESA's final approval scheduled on June 2020. Hence, Pampa will become the largest operator of combined cycles in Argentine grid, with four of the 25 combined cycles still in the country, thus contributed to generated the least possible impact to the environment.

Also, as you can see on slide 11, a few days ago we kicked off with the expansion works to CCGT at Ensenada Barragan, a 280-megawatt project at the [Indecipherable] of the Buenos Aires city. Hence, once finished, we will become one of the most efficient and largest thermal plants in the country. We estimate COD by the end of 2022, reaching [Indecipherable] PPA for 10 years with CAMMESA. The capital required is fully pre-finance, not representing an issue for the expansion project.

As you can see on slide 12, during Q4 2019, the oil and gas segment, we posted an adjusted EBITDA of $20 million, 60% lower than in Q4 2018 mainly because this is still reflecting the downward trend in the gas prices driven by CAMMESA, lower oil prices resulting from the FX freeze discretionarily set by the government and drop in the international oil reference prices; the increasing activity El Mangrullo demanding higher gas exploration and transportation costs and lower oil production, partially offset by 15% higher production of gas motivated by the vertical integration with power generation, lower royalties and peso linked expenses. EBITDA, quarter-on-quarter decrease was similar, mainly explained by the lower gas prices and production as Q4 is mostly off-peak months, partially offset by lesser deval impact on the peso link in expenses as well as the slightly higher oil production.

Our overall production in Q4 2019 increased 12% year-on-year, but quarter-on-quarter decreased 4% reaching to nearly 48,000 barrels of oil equivalent per day, of which 90% is composed by natural gas. On the oil side, production level year-on-year decreased 8% reaching to 5,000 barrels of oil per day, but quarter-on-quarter grew 4% mainly because of the lower well completion rate at [Indecipherable] and lesser drilling activity at Rio Neuquen, offset by production resuming at Chirete since last November, as well as shale oil contribution from Rincon de Aranda since last August.

During Q4 2019, the crude oil prices decreased year-on-year by 17% but slightly increased quarter-on-quarter, reaching to $50 per barrel, mainly explained by the government imposed freeze in prices in pesos for domestic oil until November 2019, selling at the average of 20% discount in addition to Brent prices falling in Q4 2019. 55% of our oil production is Escalante heavy oil which is sweet [Phonetic] and given the current clean fuels trend, narrows the Medanito prices.

Please turn to slide 14 where we want to explain in deeper detail the situation in gas. Regarding the gas production, the quarter reached an average of 256 million cubic feet per day, 15% year-on-year increase but decreased 5% or quarter-on-quarter, mainly explained by the increase in El Mangrullo -- in which evacuation infrastructure was suspended accordingly, given the outstanding productivity and upside potential. And also keep in mind that it's purely owned by us, holding operatorship as well.

In Q4 2019, El Mangrullo reached 151 mcf per day of gas production, 53% higher than Q4 2018 and contributed almost 60% of our overall gas, ranked fifth highest producing block [Indecipherable]. It is also remarkable that 10% of Q4 2019 production corresponded to shale gas from the completion of two horizontal wells at El Mangrullo block in last August. These positive effects were partially offset by the lower production in other gas bearing blocks because of the lack of visibility on sale prices which impacts on the breakeven equation.

Prices have been going down due to the excessive supply driven by the restructuring of shale developments, specifically backed up by the floor design on conventional gas plant as well as the local demand drop due to the seasonal and inability to pass through actual prices to consumers. These effects negatively impacted on Rincon del Mangrullo block with lesser drilling and natural decline and a minor decrease in Rio Neuquen and [Indecipherable] blocks. In the case of Sierra Chata, it gets a similar production due to the completion of two horizontal type wells in the last September.

During fourth quarter of 2019, we accrued [Phonetic] weighted average sale price of gas, $2.6 per MBTU, roughly 25% lower year-on-year and quarter-on-quarter, mainly due to the reduction on the reference price for gas-fired power plants and the tenders on the interruptible basis conducted by CAMMESA as well as the demand seasonality compared to Q3. Since September, the drop in CAMMESA reference price reflected the off-peak season whereas last winter sale price was 37% [Phonetic] higher in dollars. This effect also impacted negatively the commercialization in industrial segment and other spot prices.

The fuel procurement -- sell procurement for our power generation helped to recover the gas production levels [Indecipherable] most of our production there. Though it did not improve the pricing, we covered our breakeven cost and it helped to have a certain offtake, especially during the weak demand periods and to monetize some synergies between power and gas. Although our largest power plant, Genelba [Phonetic] was under programed maintenance during the one month in Q4 2019, export binding volumes still increased and also we made use of our bids awarded to CAMMESA tender. Moreover, since December 2019, the gas supply management for power plants is set for Energia Plus was restored to CAMMESA. Therefore, today we are selling roughly 70% of our production directly to CAMMESA.

As you can see on slide 13, the average price -- gas prices that we are recording to demand have been plunging since second half of 2018, falling to the lowest point in years and hardly recovering the country's marginal breakeven costs. Winter season picked up prices, but as evidenced in the past, the domestic production was not enough to cover the domestic gas demand needed to cover 15% and during the worst of times 30% of the gas consumed with gas imports from LNG and Bolivia at much higher prices than those paid by two domestic producers.

We find that a significant reduction in -- uncertainty overhanging the gas sector, which is so critical for the country is paramount. We are concerned about the lack of predictability faced by the business, which has caused the activity to be at historically low levels. This, added to the fact that at the present more than half of the national gas production comes from unconventional fields which the decline rate is much higher than conventional, makes us fear that if the negative trend in reserve development is not reversed, the country might fall again in the growing need for gas imports, with the resulting negative macroeconomic impacts.

We believe CAMMESA understand this and since February tender CAMMESA changed the approach by adding 30% [Phonetic] deliver or pay binding condition, raising the price at wellhead at an average of $2.5 MBTU at Neuquina Basin, as we can see in the chart in page 14. This is a huge step compared to the previous situation when non-binding tenders were getting bids at an average of price as low as $1.7 to $3 per MBTU which were detrimental to the development of domestic gas.

Before I move on from the oil and gas, I wanted to give you a quick update of our E&P operations. We closed the year 2019 with 57 wells drilled and 51 completed. In the case of gas wells, more than 90% were targeting unconventional gas. Eight [Phonetic] gas wells targeting simultaneously two tight sand formations were drilled at El Mangrullo as well as work-overs to formerly [Indecipherable] wells targeting to another formation called Agrio [Phonetic] which is very important for the maintenance of the record production in the block. We also drilled and completed two horizontal wells in Sierra Chata, as we said, helping to sustain the production.

During 2019, we began derisking our resources in Vaca Muerta formation. In the gas window, we drilled and completed two wells at Mangrullo, each with horizontal extension of 8,000 feet completed with 35 fracking stages, which resulted in a sudden outstanding joint initial gas production of more than 30 million cubic feet per day. Today it's around 20 mcf per day. Moreover, a vertical pilot well was drilled in Sierra Chata and completed with the first pilot vertical well and a horizontal branch with an extension of 7000 feet at Rincon del Aranda, completed with 27 fracturing stages, resulting in initial flow of 1,100 barrels per day, in line with expected rate.

As a result of this exploration campaign, 8% of our production in 2019 came from shell and oil, a major milestone for our businesses, which we expect to increase in 2020 by completing the remaining two wells real last year and if the context improves with new drillings. The remarkable results allow us to certify [Technical Issues] reserve from Vaca Muerta formation for the first time in Pampa's history. Even with a year-on-year growth in production, we also recorded once again a 1.3 positive replacement ratio and an average life of roughly eight years, with proven reserves reaching 135 mboe, being 90% gas.

In terms of the net income attributable to the owners of the Company, Pampa reported a consolidated gain of $9 million in the fourth quarter, whereas in the same period of 2018, $289 [Phonetic] million was recorded, mainly explained by the lower accrual of losses from FX difference and inflation exposure as a result of the change in the functional currency, as I explained at the beginning of this call, lower gains from affiliates and higher loss from impairment of fixed assets.

Finally moving to the slide 17. We must highlight the resilient balance sheet of the Company compared to other peers in the industry and in Argentina. We have always been very proactive toward the cash level at the management, especially after witnessing narrow window in the international markets. We continue redeeming lending facilities highlighting that in 2019 paid at maturity and pre-canceled roughly a total of $366 [Phonetic] million. After Q4 we paid down $25 million more. Therefore, the outstanding maturity for 2020 is $76 million.

Despite the challenging situation in Argentina, we continue receiving support from the capital markets which recognize Pampa's credit extending the maturities by the issuance of a 10-year international bond for $300 million back in July in addition to new banking debt in pesos for $74 million. Therefore, the consolidated gross debt, including affiliates at ownership remains at $2.4 billion, $25 million lower than September 2019, mainly because of our repurchase of own bonds and loan amortization.

Consolidated gross debt is 93% denominated in US dollars, same as the last quarter closing, bearing an average interest rate of 7.7% and 75% is placed at the parent company. The average life remain around 5.4 years. Consolidated cash amounted to $790 million, which is higher than the $699 million in September 2019 due to the lower capex and collection of credits. Consolidated and restricted group net debt remain unchanged at $1.7 billion and $1.2 billion respectively. Moreover, net debt to EBITDA remain low at 1.8 times at consolidated level and 2.2 times at restricted group.

During 2019, we also continued with the Company's share buyback program started almost two years ago, buying back further 10% of the outstanding capital stock at a considerable discount to the intrinsic value and 5% of the notional value of the Company's bonds. Based on our conviction on Pampa's financial strength, which includes a sustainable generation of funds, strong cash position and comfortable debt maturities profile, this allow us to undergo the volatility and uncertainty with the least impact possible and leverage our position to analyze acquisition opportunity opportunities if they arise.

Meanwhile, we have also analyzed the available alternatives for cash allocation and have concluded that the risk return equation favors the investment in our own assets. Since the first buyback program, we have acquired a total of 18 million ADRs, that is 22% of the initial capital stock of 83 million ADRs. Currently, excluding capital reductions and shares held in treasury, the outstanding capital amounts to 65 million ADRs. Also, Pampa's approved the sixth share buyback program for $27 million with a price cap of $13 [Phonetic] per ADR.

So, this concludes our presentation. Now I will turn the word to the operator who will open the floor for questions. Thank you.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Bruno Montanari with Morgan Stanley. Please go ahead.

Bruno Montanari -- Morgan Stanley -- Analyst

Good morning. Thanks for taking the question. I have two questions. First, I believe the Company, prior to this downturn, was considering perhaps to move a little bit more to oil investments, taking advantage of the better fundamentals. Now, with the decline in the commodities, probably that no longer makes sense. So I was wondering if we could get an idea of what is the priority for capital allocation, at least in 2020, which would be super helpful.

And then second question, I think the Company has done a very good job on executing the buybacks, not only announcing but following through with it. But how much of the total cash position would the Company be willing to deploy on the buybacks, say over the next one, two years? Thank you very much.

Gustavo Mariani -- Chief Executive Officer

Hi, Bruno, Gustavo Mariani speaking. How are you? Thank you for the question. Regarding the first question regarding our oil investment going forward, we did our first shale oil well in Rincon de Aranda late last year and we started production early this year with excellent results. The same way that we did our first two wells in the shale formation in Vaca Muerta to the gas window in El Mangrullo also in the second semester of last year with excellent results as well.

Our idea initially was to do another two or three exploration wells in Rincon de Aranda, that is on the oil window this year. We are operators of Rincon de Aranda and we are partners with Total. And we wanted to do two or three more wells this year, but Total was way more conservative than us and didn't want to go forward. So the decision...

Gabriel Cohen -- Chief Financial Officer

Sole risk.

Gustavo Mariani -- Chief Executive Officer

Yeah. So -- and we didn't want to do it in on a sole risk basis. So, those wells have been postponed. So currently we don't have any new wells to be drilled this year on the window in Vaca Muerta. Actually, we are very -- so we are not planning new wells on gas either this year because of the price environment, and we will look forward to more certainty and price signal from the government going forward. Otherwise, we don't have any new wells to be drilled either in oil or in gas. We have a stock of gas wells to be completed that we may do so as the winter approach in Argentina, but it will depend also on the pricing scenario, which we are -- we have currently uncertainty. So a very modest capital deployment on the E&P business going forward this year.

And the same can be said about power generation, where we're finishing in a few months. We will start operation the Genelba plant, the new combined cycle at Genelba that Lida mentioned. That is almost 95% already everything paid, a small amount of money remaining to be paid to complete that expansion. That will provide new EBITDA in the second semester of this year.

The decision that we have taken together with YPF is to move forward in starting the closing of the cycle of Central Termica de Barragan which is a subsidiary 50% owned by each of us. It's a project that requires about $200 million of investment. But with the cash position the Company already has, that is $120 million, plus the cash generation of the Company going forward, that capex is by the subsidiary is already -- fully funded. So it will not require a capital deployment from Pampa or from YPF. So all in all, in terms of capex, we are going to be very conservative this year until this scenario -- this new scenario.

Regarding -- sorry?

Gabriel Cohen -- Chief Financial Officer

Buyback.

Gustavo Mariani -- Chief Executive Officer

Yeah, the buyback. You ask how much of the cash we are planning to use. And I don't have an answer to that question because we will monitor as the year advances. We feel that the Company is producing a healthy free cash flow. So using part of that free cash flow to buy back our stock or our debt depending on price movement is a wise thing to do. How aggressively, it will depend on pricing and on the scenario that we see in the future. So, unfortunately, I cannot give you -- I have no figure, but it's something that we will monitor. We will continue as long as we feel comfortable.

Bruno Montanari -- Morgan Stanley -- Analyst

That's very helpful. Thank you very much.

Operator

Our next question comes from Jamie Nicholson with Credit Suisse. Please go ahead.

Jamie Nicholson -- Credit Suisse -- Analyst

Hi. Thank you so much for the call. I have two questions. My first relates to the debt that you have bought back. And I'm just wondering if that's accounted for on your balance sheet and financial assets at fair value or if you've canceled the debt. That's my first question. And then my second question is, if you could update us on any payment delays you're seeing from CAMMESA; if you're seeing trade receivables increasing or how you're monitoring the payment from the CAMMESA. Thank you.

Lida Wang -- Investor Relations Manager

Hi, Jamie, good morning. So, regarding the bonds that we repurchased till now, we have 84 million face value that they are net in our loans that, it's shown in the balance sheet. We've put a footnote as well. So they are net. They are not canceled but they are net. So there, it's lesser debt for the Company at face value. Okay?

Then regarding the payments delays, there is I think tomorrow I think we have the January maturity of the transaction for power and for gas as well. During 2019, we've been selling the gas through our facilities for our power generation. Very little was sold directly to CAMMESA. So the days were like very similar. But now we have to see -- power generation will have higher delays than gas or vice versa. Today, power generation is carried on at 75 -- a little bit above 70 days of delays. This is as of the December transaction?

Gabriel Cohen -- Chief Financial Officer

Sorry, just one correction. It's not 70 days of delays. It's 30 days of delays because CAMMESA pays at 42 days. That's the rule that's been in place since the '90s. So, it's 30 days of delays at CAMMESA is paying currently compared to -- last year, that was...

Lida Wang -- Investor Relations Manager

8 days, 8.5 [Phonetic] days. So that's it. What we've been hearing from gas producers that they sold to CAMMESA directly last year that they haven't been collected in 30 days delay. They have been collecting in a little bit more. So we'll see. So far right now they're pari passu.

Jamie Nicholson -- Credit Suisse -- Analyst

Okay. Thanks. That was helpful color. Thank you very much for the call.

Lida Wang -- Investor Relations Manager

You're welcome.

Operator

Our next question comes from Laurenza [Phonetic] Merola [Phonetic] with Midlands [Phonetic]. Please go ahead.

Laurenza Merola -- Midlands -- Analyst

Hi, Gustavo. Thanks for the call and for taking my questions. Just one question regarding the oil and gas business. You already show a very good production in terms of natural gas, maybe from sound works made on Mangrullo over the year and also in 2019. What's your expectation on production for this year? If you are expecting also reduce some level of capex? Thank you.

Gustavo Mariani -- Chief Executive Officer

Hi. Thanks for the question. No, as I tried to explain on my first answer, because of the lack of visibility and the uncertainty, especially -- today are after these events that we all know about, we also have uncertainty about what's going to happen with the oil price in Argentina. But what concern us more, because 80% of what we sell is natural gas, it's the uncertain environment regarding natural gas. And since we are not drilling new wells and we don't know whether we will put in operation the stock of wells that we have already drilled but we have not completed, today, what is expectable is that our production will decline.

Lida Wang -- Investor Relations Manager

[Speech Overlap]

Gustavo Mariani -- Chief Executive Officer

Yeah, that will naturally decline of production for the year going forward.

The situation in the industry is that oil -- all the players are in the same situation that we are so that nobody is drilling new wells. And although we don't expect it may impact this winter, it will certainly have a high impact on 2021 if this situation is not reversed. So we hope that the authorities -- yeah, I know that they are aware of the situation. They understand that now total production in Argentina, more than 50% comes from unconventional production, which, as you know, declines much more quickly than conventional production.

So with no new investments in the industry, the local production of natural gas sooner or later will start to decline at that higher rates that had declined in the past when we faced this problem back in -- I don't know -- yeah, 10 years ago. So I hope that as an Argentine citizen, we are not going to face -- we're not going to repeat exactly the same problem, and I hope that the authorities react as soon as possible. But that's as much as I can tell you, and we have a set of very uncertain scenario.

Laurenza Merola -- Midlands -- Analyst

Okay. Thank you so much.

Operator

Our next question comes from Carolina Carneiro with Credit Suisse. Please go ahead.

Carolina Carneiro -- Credit Suisse -- Analyst

Hi guys, good morning. Thank you for the call. Just wanted to know if there are any updates in regards to the discussion for the VAD of transmission unit tariffs update after the tariff freeze set last December. Do you have any timeline or possible calendar for the discussions of the future tariff increase? Thank you.

Gustavo Mariani -- Chief Executive Officer

No. There is no calendar at all about this. And when we speak with the government official at the technical level, we are all aware that they need to face -- they need to get rid of the freeze of tariff as soon as possible because the country also faces fiscal restraint. So with this high inflation environment, if we have tariff, it's very painful for the -- and will soon impact the fiscal account.

But it's the politicians who take the decision, and so far they have announced that we have a freeze of tariff for at least -- sorry, for up to 180 days -- yeah, since December. But we -- although when the law was published with this up to 180 days of freezing of tariff, we felt very optimistic that they were aware of the problem and they would try to stop the freeze sooner than the 180 days. Today, we are not that optimistic. And don't expect any news on the tariff front until the June of this year.

Carolina Carneiro -- Credit Suisse -- Analyst

Okay. Thank you.

Operator

Our next question comes from Alejandra Aranda with Itau. Please go ahead.

Alejandra Aranda -- Itau -- Analyst

Hi, Gustavo, Lida, thank you for the call. In the past, we had the government requesting those endless Excels to fill out with information in order to be able to figure out what to do in policy terms. At this point, have you been approached by government officials requesting that kind of information from you? Are they moving ahead or is it just stand still till the debt is solved?

Gustavo Mariani -- Chief Executive Officer

We haven't been approached with those kind of requests. No, not at all. So, yeah, I think solving the debt issue is the number one priority today. But this is not the rest of the government is on a paralysis until that is solved. I'm sure that the energy team is working on explaining the situation to their bosses and making proposals. But so far yet, we haven't heard of any -- they haven't expressed any decision regarding these matters.

Alejandra Aranda -- Itau -- Analyst

Okay.

Operator

[Operator Instructions] Our next question comes from Laurenza Merola with Midlands. Please go ahead.

Laurenza Merola -- Midlands -- Analyst

Hi again. Just a question regarding the use of cash as you are making some share buyback programs. Are you also expecting to go back to the bond buybacks or at current levels you believe that we will wait a little more? Thank you.

Gabriel Cohen -- Chief Financial Officer

Bond buyback [Indecipherable].

Gustavo Mariani -- Chief Executive Officer

Yeah. The question was whether we will buy back bonds again. Again, it will depend on prices. We bought this $85 million, $84 million of face value of debt -- I think it was in September or...

Gabriel Cohen -- Chief Financial Officer

August.

Gustavo Mariani -- Chief Executive Officer

It was in August of last year at an average price of $0.75. After this week's events, prices have fallen. Not yet reached that level. So, again, we will monitor the situation, but we don't disregard [Phonetic] that we might do bond buyback if prices fall again.

Laurenza Merola -- Midlands -- Analyst

Okay. Thank you.

Operator

Our next question comes from Chris Detario with Marathon. Please go ahead.

Chris Detario -- Marathon -- Analyst

Hi. Just want to know if there was any update or if you had any maybe further discussions with government authorities, let's say this year relating to sort of the future disposition of the PPAs, any renegotiation of the PPAs, whether that's the 287, the Resolution 21 or 220s, just anything that may have transpired on that front this year so far, and also if your outlook for those has changed at all.

Gustavo Mariani -- Chief Executive Officer

Our vision has not changed, and I think we have been saying for a while -- for a long time the same. That is basically that making changes to those PPAs on a unilateral basis is, it's going to be very painful or will have several implications down the road that are going to be very bad for Argentina. So, as you know, since basically -- since 2001 because from the crisis of 2001 until 2010, there was no new installed capacity in Argentina. Since 2010 until today, all the new installed capacity was done through PPAs.

The country, because of the installed capacity of the build in the last few years, and because of the recession and the hike in tariff, the demand is not growing. So currently Argentina doesn't need new capacity. But if things reverse sooner rather than later -- and also keep in mind that doing a combined cycle, it's a project that takes at least three years since the moment that you start thinking about it. So, at some point in the next couple of years, Argentina will need to begin thinking about new installed capacity in power generation.

And if they attach unilateral PPAs, so they will have problems attracting the private sector to do those investments. So I think that despite all that has been talked about last year, I think that this administration understands these. That means that PPAs -- it will depend on the degree of the macro deterioration in Argentina, what happens with the debt restructuring, etc. and etc. So we believe that the government will do an effort to maintain the PPAs without touching them. But it will depend on how it goes with the macro situation and their degree of the determination, basically.

Chris Detario -- Marathon -- Analyst

Got it. Thank you.

Operator

Our next question comes from Antonella Rapuano with Santander. Please go ahead.

Antonella Rapuano -- Santander -- Analyst

Hi, Lida, Gustavo, thank you for the call. I just wanted to know on the generation segment, two things. If you could give us some guidance of the impact of the price cut and the specification of the legacy energy from last February? How much that would be -- the impact in EBITDA in an annual basis, if you could give us some guidance on it. And the second question is on the Ensenada Barragan capex. I recall you said it's about $200 million. But I was wondering if this is total capex or if this is Pampa capex or if $200 million includes YPF also part. And also, when do you plan to move forward with these works in Ensenada Barragan? Thank you.

Gustavo Mariani -- Chief Executive Officer

Okay. The works at Ensenada Barragan, we have taken the decision a couple of weeks ago, and they have already started. It's less than $200 million, the total capex. And as said already, fully financed. So no -- Ensenada Barragan will not need capital...

Lida Wang -- Investor Relations Manager

Further capital.

Gustavo Mariani -- Chief Executive Officer

Yeah, further capital from the shareholders. And the first part of the question was?

Antonella Rapuano -- Santander -- Analyst

[Speech Overlap] generation, the legacy.

Gustavo Mariani -- Chief Executive Officer

Yeah. The legacy will be something -- the impact for us, we estimate that will be around $30 million of less EBITDA in 2020. That would -- obviously will depend on the availability of the [Indecipherable] [1:04:55] on the availability on the high requirements of -- yeah, it will depend on several things, also how moves the inflation vis-a-vis the official exchange rate, etc. and etc. But we are assuming something around $30 million, less than $30 million.

Antonella Rapuano -- Santander -- Analyst

Great. Thank you.

Operator

This concludes the question-and-answer session. At this time, I would like to turn the floor back to Mrs. Wang for any closing remarks.

Lida Wang -- Investor Relations Manager

Thank you so much for joining our call. Please take care. Anything you may need, just contact us. We are more than available for you. Thank you and have a good day.

Operator

[Operator Closing Remarks]

Duration: 70 minutes

Call participants:

Lida Wang -- Investor Relations Manager

Gustavo Mariani -- Chief Executive Officer

Gabriel Cohen -- Chief Financial Officer

Bruno Montanari -- Morgan Stanley -- Analyst

Jamie Nicholson -- Credit Suisse -- Analyst

Laurenza Merola -- Midlands -- Analyst

Carolina Carneiro -- Credit Suisse -- Analyst

Alejandra Aranda -- Itau -- Analyst

Chris Detario -- Marathon -- Analyst

Antonella Rapuano -- Santander -- Analyst

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