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Pampa Energia S.A. (NYSE:PAM)
Q1 2020 Earnings Call
May 13, 2020, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Margarita Chun -- Investor Relations

Good morning, ladies and gentlemen, and thank you for waiting. I'm Margarita Chun from IR, and we would like to welcome everyone to Pampa Energia First Quarter 2020 Results Video Conference. [Operator Instructions]

Before proceeding, let's 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 Energia management and on information currently available to the company. They involve risks, uncertainties and assumptions because they are related 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 video conference over to Lida Wang, Investor Relations Officer of Pampa Energia. Lida, you may begin the conference.

Lida Wang -- Investor Relations Officer

Thank you, Margarita. Good morning everyone and thank you for joining our conference call. This is a special call. So 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 more 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 our CFO Mr. Gabriel Cohen are both here and joining us for Q&A.

Before we begin, let me remind you that Pampa's Q1 2019 and 2020 figures are all recorded under US 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 the 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 commonly use for covenant purposes.

It is publicly known that COVID-19 has spread all over the world and Argentina, and Argentina is no exception. The Federal government declared mandatory lockdown effective as from March 20, and has been following its evolution by extending it from time to time. Therefore, all Pampa's businesses were deemed essential except for SBR production at the petrochemicals segment. What does this mean? Basically we are carrying out our operations normally but with minimum personnel in place, and only doing essential tasks.

Therefore, for those who unavoidably have to go to work, their health and safety is our paramount, so we put in place new protocols set by an interdisciplinary committee that is reviewing all the time and to keep it updated with the latest information available. From 9,700 teammates working at Pampa and subsidiaries, two-third are employed at our operating assets or perform operative jobs, and 70% of them are going to work. The other one-third of our personnel are support areas for our businesses and corporate, so -- and only 10% of them are going to work. The rest, that is almost 50% of our workforce, is staying at home working remotely.

Q1 '20 was not much affected by COVID-19, but it is expected to negatively impact somehow in the next quarters. On the one hand, some direct government measures have been enacted that impact Edenor, such as the halt to service disconnections for certain users that fail to pay or delay payments, unable to perform massive consumption readings, whereas the freeze in domestic LPG prices affecting TGS and others. On the other hand, we are witnessing lower demand of oil and gas, lesser power dispatch, collapse in the demand of petrochemical products, and higher delinquency mainly from end-users at Edenor, gas distribution companies at TGS and from CAMMESA, our largest client at power and gas. Therefore, to reduce the impact of the difficult conditions ahead, we have revisited our budget by reducing operating and capital expenses, especially at upstream, without impacting the safety and reliability [Phonetic] of our assets.

So, let's start commenting the quarter's key takeaways. As shown on Slide 5, revenues in Q1 '20 fell 12% year-on-year to $721 million, mainly because CAMMESA took over the fuel procurement at the beginning of the year, in addition to the halts to tariff increases since last year impacting our regulated utilities, lower prices of oil and gas and new pricing scheme in Peso as from February for spot power capacity. These were partially offset by higher sales from new power units as well as improved electricity demand at Edenor. Therefore, in Q1 '20, around 40% of our sales were dollar-linked, but more than 50% in EBITDA terms [Indecipherable], mainly coming from our core businesses, new power capacity and E&P.

Adjusted EBITDA increased year-on-year by 5% to $221 million for the quarter, mainly explained by more power capacity, lower E&P royalties and Edenor's fines due to better quality of service, and dilution of the peso-nominated costs because of FX, partially offset by tariff freeze at utilities and lower prices at legacy power and E&P. Quarter-on-quarter, EBITDA increased by 30%, mainly because Q1 comprises most of the power -- summer peak season for electricity, therefore higher electricity sales, higher spot prices for power, lower fines at Edenor but also lower prices at E&P. As we show on right below, power generation takes more than 50% of the consolidated adjusted EBITDA, while E&P takes 13%, mostly led by gas production and only 3%, and the rest composed of our utilities, Edenor and TGS and Transener at our equity stake.

Moreover, as shown in the chart below, in the first quarter of this year, our capex decreased significantly compared to last year and last quarter, mainly because we are at final stages in Genelba Plus's expansion project and Ensenada just kicked-off. E&P is heavily lowering the drilling and completion pace due to uncertain pricing environment, in addition to the lower capex at Edenor mainly because of devaluation and tariff freeze.

In this Slide 6 that we're seeing, we want to show you the impact of the lockdown in the Argentine power grid. The crisis began in the second half of 2018 -- early crisis, so first half is unaffected. 2019 was mostly hit by the crisis, recovering toward the last quarter. 2020 began with that push, but as the lockdown took place in March 20, April is north 20% on average lower than March, being reduced around 3,000 megawatts of net demand. If we compare it with April 2019, the net demand was around 20% -- 12% down on average, but if we compare it to the year before 2018, net demand is around 20% down. So it is important to highlight that in April it's chiller -- was chiller than previous years, as well May right now, because we are heading into the winter season, that starts probably in June, increasing power demand again. This is why May demand is revamping, as well as many industries that were approved to reopen in the last weeks.

As the power demand is lower, the marginal unit to be dispatched is cheaper, but also renewables are disrupting the dispatch ranking, therefore, the cheapest combined cycles are the last units to fulfill the demand. However, the power generation business model is highly dependent on capacity payment, so lower dispatch does not much impact on the revenue making as long as records outstanding availability, especially for PPA-based energy. Our two combined cycles at Loma de la Lata and Genelba fully dispatched, but the remaining thermal units were mostly not required.

If we take the average of gross power demand pre-quarantine of 19 days versus post lockdown of 48 days as of May 6th, the Argentine demand overall fell by 26% or 4,500 megawatts, mostly driven by industries closed that have not been deemed essential such as carmakers, steel industry, construction, textile, and so on. Distcos also got affected but mainly because most of the SMEs and large users were closed down by the lockdown. Comparing the lockdown period with the same time in 2019, the decrease is 8%, still mostly due to the industries.

Moving to the power generation segment as seen on Slide 8, during the first quarter of 2020, we posted an adjusted EBITDA of $114 million, 18% higher than Q1 2019, mainly driven by the recently acquired Ensenada Barragan Power Plant that we co-own with YPF, our newly commissioned wind farms with private PPAs and Genelba Plus's new gas turbines, as well as the devaluation impact on our Peso-nominated costs. These effects were partially offset mainly by the reduction and pesification in the remuneration scheme for the spot energy as from February 2020, worsened by the FX depreciation. Quarter-on-quarter, summer pricing for spot energy and higher power dispatch in Q1 contributed to the 6% increase in EBITDA. Keep in mind that spot energy comprises 36% of our power generation EBITDA, diminishing its share when ongoing expansions with PPAs become operational.

In Q1, generation was 18% higher year-on-year, mainly due to the commissioning of Genelba Plus thermal plant's gas turbines and higher dispatch at Piedra Buena and Loma, the operatorship at Ensenada Barragan as well as the higher generation coming from the wind farms, which ranks senior in the dispatch priority because its cost is close to zero. Plus, the mandatory dispatch for safety of the transmission grid at Piquirenda and Guemes and higher water input at Pichi Picun Leufu also contributed to the Q1 2020 EBITDA. These effects were partially offset by low water flows at Mendoza's hydros, lower dispatch at Ingeniero White and Pilar for variable cost ranking reasons, [Technical Issues] due to scheduled maintenance at TGS's Cerri. Quarter-on-quarter, power generation increased 21%, mainly because of the scheduled maintenances in Q4.

The availability rate in the first quarter of 2020 was 96.6% with an installed capacity of 4.8 gigawatts that includes Ensenada Barragan thermal power plant, 130 basis points higher than same quarter last year but 100 basis lower compared than the quarter Q4, mainly because of outages at Guemes. Moreover, regarding installed capacity, in Q1, we achieved 4.8 gigawatts, 880 megawatts more than the Q1 2019, thanks to the acquisition of Barragan, capacity increase at Genelba Plus and the windfarms, PEPE II and PEPE III.

On the news section, since February this year, the currency for spot energy remuneration was converted to Peso with monthly inflation adjustment... [Technical Issues]

PRO [Phonetic], we apologize for the inconvenience. Please wait for a few minutes, and we will be back.

Continuing on the news section, since February this year, the currency for spot energy remuneration was converted to Peso with monthly inflation adjustment and the capacity payment was decreased. However, after the lockdown began, on April 8th, the Secretariat of Energy instructed CAMMESA to postpone said inflation adjustment on legacy energy that should have been applied as from March, until further decision. However, as of the date, we did not receive any administrative notice. Had it been updated, weighing 60% CPI and 40% PPI, March transaction would have adjusted by 2.4%.

Regarding our fully owned windfarms PEPE II and III, after their commissioning in May last year, we found out certain defects in the blades of the wind generators, resulting in the outages. Vestas, our supplier, have started the repair and replacement tasks. One of the windfarms is almost resumed and full recovery is estimated by August of this year. We highlight that despite the lower generation due to business interruption, the impact is minor as it was covered by the guarantee of Vestas and the insurance policy.

Regarding the expansions in the pipeline, we are in the final stages of the closing to CCGT of 383 megawatts at Genelba Plus. You can see on Slide 9 the picture of the existing CCGT and the new one under works. Because of the lockdown, expansion works were interrupted for almost three weeks, resuming in mid-April as all private energy infrastructure works, including Genelba Plus and Barragan expansions, were deemed essential. Consequently, we expect COD to be postponed for about 45 days, estimating by the beginning of August.

Also, as you can see on Slide 10, due to the aforementioned lockdown impact, we are resuming expansion works at Ensenada Barragan thermal power plant, a 280 megawatt CCGT project at the southern outskirts of Buenos Aires city. Currently, we are focused on regaining the time lost to achieve the COD by Q1 2020, therefore billing a PPA for 10 years with CAMMESA.

Like in the power, the lockdown negatively impacted the domestic gas demand, but to a lesser extent than crude oil, dropping month-to-month 0.5 bcf per day or 11% in April, driven by lesser power demand, therefore reducing thermal generation dispatch and lesser gas needed to fire by CAMMESA, and to a lesser extent, lower industrial consumption because of the shutdown to non-essentials. This was partially offset by retail consumption, because weather is cooling.

If we take the average gas demand pre-quarantine versus post lockdown as of April 30, demand overall fell by 17% or 850 million cubic feet per day, mostly driven by thermal power generation, non-essential industries closed and gas for cars, offset by gas for distcos but just because weather is becoming colder. Comparing the lockdown period with the same time in 2019, the decrease is 9%, still mostly due to the power generation and industries.

This lockdown coincided with the gas off-peak season, which bottoms at fall and spring in Argentina. However, as we are approaching winter, we expect this consumption trend to reverse at a faster pace like today as CAMMESA is requesting more and more gas again and industries are gradually resuming operations.

Now, I will turn to Lida so that she can continue with the E&P announcement.

We apologize once more. Please wait for few minutes, we will be back. Hello. Can you hear me?

Margarita Chun -- Investor Relations

Yes, of course. You can continue with the EBITDA of E&P business.

Lida Wang -- Investor Relations Officer

So Slide 13. Moving on to the E&P results. Q1 2020 this segment posted an adjusted EBITDA of $29 million, 38% lower than in Q1 2019, mainly because it is still reflecting the downward trend in gas sales -- gas sales price driven by CAMMESA and to a lesser extent, lower crude oil prices, partially offset by lower royalties and peso-linked expenses. EBITDA quarter-on-quarter increased 44%, mainly explained by lower costs due to lower activity and deval dilution, no exploration expenses recorded in Q1 and higher oil production, partially offset by lower gas price and production. Despite all, our overall production in Q1 2020 remained stable year-on-year and quarter-on-quarter, reaching to 46,000 barrels of oil equivalent per day of which 88% is composed by natural gas.

On the oil side, which only represented 3% of the total EBITDA for Pampa in the quarter, production level was similar year-on-year, reaching 5.3000 [Phonetic] barrels per day, but quarter-on-quarter oil production grew 7%, mainly due to higher production at Rincon de Aranda, our first shale oil endeavor. During Q1 2020 the crude oil sales price decreased year-on-year by 9%, but remained similar quarter-on-quarter, reaching almost $50 per barrel, mainly explained by the falling Brent prices since January and worsen since the lockdown in March. Government is analyzing the return of domestic reference price known as barril criollo to ensure domestic production continuity, but as of the date no regulation was issued. 54% of our oil production is escalante heavy oil, which is sweet and given the current clean fuels trend is pricing premium to Medanito.

Regarding the gas production on Slide 14. We can see the quarter reached an average of 244 million cubic feet per day, stable year-on-year and quarter-on-quarter despite prices, which have been going down since 2018, affected by the fact this is a highly regulated market though technically should be competitive, the lack of long-term contractualization, incentive programs poorly designed, and the inability to pass through actual prices on to consumers. 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 Rio Neuquen and Rincon del Mangrullo in the first quarter of 2020, plus a minor decrease at Sierra Chata and Aguarague blocks that were partially offset by increases at El Mangrullo, 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 Q1 2020, El Mangrullo reached 154 million cubic feet per day of gas production, 11% higher than in Q1 2019 and contributing more than 60% of our overall gas, ranked the fourth highest gas producing block at Neuquina basin. It is also remarkable that 8% of Q1 2020 production corresponded to shale gas from the completion of two horizontal wells [Technical Issues]

Dear all, we apologize once more. Please wait for a few minutes. Okay, resuming. So it is remarkable that 8% of Q1 2020 production corresponded to shale gas from the completion of two horizontal wells El Mangrullo last year. During first quarter 2020, our accrued weighted average sales price for gas was $2.3 per million BTU, 26% lower year-on-year and 22% quarter-on-quarter, mainly due to the continuous reductions on the price for gas fired at power plants, which also impacted negatively the commercialization in industrial segment and spot prices. Prices are now in the lowest point in years and hardly covering the country's marginal breakeven cost. Also as you can see right below, our production is skewed toward CAMMESA and our own Energia plus units, leaving only 15% to other segments. The lower prices obtained in domestic markets were partially offset by exports to Chile, which comprised 7% of our production.

So from January this year, CAMMESA is centralizing all the fuel fired at thermal units, concentrating more gas in the market, and taking advantage of the off-peak season until April to keep lowering the purchased prices, so power grid costs are cheaper. Of course, this has trade offs over the long-term domestic production. Since January, tenders are in monthly basis -- tenders are in monthly basis, but this one in particular, was fully non-binding [Indecipherable]. Therefore, offers were in excess of actual production and demand, accumulating almost 5 bcf per day of volume, because no commitment was encouraged and because we were in the off-peak season, and producers rather keep selling instead of curtailing production. As a result, average sale price was $1.7 per million BTU average at Neuquina Basin. However, aiming to discourage speculative bid and provide an investment by now, since February CAMMESA added 30% deliver or pay binding condition, encouraging commitment and reflecting more realistic offer curve. Therefore, offered volumes diminished by more than half and realized prices at wellhead rose to roughly $2 per million BTU in Q1 2020.

However since the lockdown began, the CAMMESA tenders for April and May resulted in even lower average bid prices, as we can see on the chart on Slide 15, driven by the sudden drop in gas demand combined with the off-peak season. We think May should be the bottom in prices, because winter season is approaching, retail is demanding more gas and some industries are allowed to resume operations. Additionally, the country still imports gas from Bolivia, and soon from LNG, with prices that even though are reduced because of the collapse in global demand, still outnumbers the prices for domestic production.

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 gain of $14 million in the first quarter of 2020, whereas in the same period of 2019 $167 million was reported, mainly due to the recording of a loss from impairment of assets, lesser results from net monetary position or also called RECPAM recorded due to the lower passive net monetary position allocated to the electricity distribution segment and higher income taxes charges.

Now I'll turn the call to Margarita, so that she can analyze the final chart about the financial status of the company.

Margarita Chun -- Investor Relations

Hello, can you hear me?

Lida Wang -- Investor Relations Officer

Yes, we can hear you.

Margarita Chun -- Investor Relations

Slide 17, so we have been very proactive toward the cash and liability management and this time 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 stand-alone.

We continued redeeming lending facilities, highlighting that during Q1 2020 Pampa paid at maturity and pre-cancelled a total of $65 million of dollar nominated debt, in addition to bond repurchases of $61 million face value. Therefore, the restricted group gross debt in Q1 2020 recorded $1.6 billion, roughly $170 million lower than last quarter closing. Due to said transactions plus [Indecipherable] accrued interests and Peso-nominated debt dilution. The gross debt is 92% denominated in dollar, like December 2019, bearing an average interest rate of 7.7%. Average life remained around 5.6 years. The cash amounted to $373 million, which is lower than the $537 million in December 2019 due to securities repurchases, debt redemption and higher collection days, offset by lower capex and collection of plan gas credit. So the restricted group net debt remained similar to last quarter at $1.2 billion. Moreover, net debt to LTM EBITDA remained low at 2.4 times.

After Q1, despite a challenging situation in Argentina, we continued receiving support from the capital markets, which recognize Pampa's credit, thus we issued two short-term Peso bonds for a total of $27 million, in addition to net borrowing of $63 million equivalent of peso-denominated debt. Moreover, Pampa further repurchased bonds for $32 million face value at average of [Technical Issues]. Sorry, I'm continuing. Margarita, continuing. Average of $0.64. Therefore, we are shifting to peso denominated debt, and it is worth highlighting that the cumulative maturities until 2022 amount to $172 million, and 75% of that is nominated in Pesos. In terms of consolidated including affiliates at ownership, Pampa Group recorded net debt of $1.6 billion, similar to December '19. Moreover, net debt to EBITDA remained low at 1.8 times.

Finally, regarding our share buyback program, in April Pampa's Board approved the seventh share buyback program for $20 million, with price cap of $10 per ADR, effective once the sixth program concludes. Moreover, last month shareholders meeting approved the third cancelation of shares in treasury, for 6.1 million ADRs, and last Friday the Public Registry of Organizations also known as [Indecipherable] cleared the second cancellation of 6.1 million ADRs in treasury, previously approved by shareholders of Pampa in October last year. As of the date, Pampa's outstanding capital stock amounts to 62.9 million ADRs and holds in treasury 0.9 million ADRs.

So this concludes our presentation. Now, we are going to open the floor for questions.

Questions and Answers:

Margarita Chun -- Investor Relations

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

Bruno Montanari -- Morgan Stanley -- Analyst

Thank you. Margarita, Lida, Gustavo, everyone. Thanks for taking my questions and I hope everyone is safe and healthy as we can see here. I have two questions. First, what measures of cash preservation is the company implementing nowadays and how low can you -- can your total investment be for this year without affecting the operations?

And second question, can you comment on any recovery you are seeing now in May versus the worst of the crisis and the locked down, which seems to have happened in April across the businesses? That would be very helpful. Thank you very much.

Gustavo Mariani -- Chief Executive Officer

Hi, Bruno. Please keep your microphone open, so I didn't write down the questions so I will need your help again. Thank you for the question. And thanks we are all healthy and working from home. As Lida and Margarita briefly explained, and like our -- our peers before the lockdown everything runs smoothly. We have been able to work without any problems at all from home. With now more than 50% of the workforce of the company working from home.

Regarding measures to protect the cash. We've been working on controlling opex, revising everything that we can. In terms of capex, we didn't need to do anything extraordinary because of the lockdown of the new situation because we had very low projected capex for this year. In the case of power generation, just finishing the Genelba expansion, which we are happy, we will be able to do and put it online in a few months from now and continue with Ensenada Barragan basically because there is a subsidiary that already had all the cash needed in order to complete the expansion work over the next two years.

On the E&P side, capex planned for this year were already very low. And yes, there we cut that a little bit further, we were doing some exploration on shale oil, which -- and I remember explained this on the previous -- on the previous call, we decided to postponed. And on the gas side we were not planning any relevant -- any relevant capex for this year. So capital expenditures for this year, as Lida mentioned before, significantly lower than in 2019. If you can please repeat the other questions.

Bruno Montanari -- Morgan Stanley -- Analyst

Sure. I was just wondering if you could comment on any recovery or anecdotal evidence you are seeing now in May versus the worst of the crisis and the lockdown, which appear to have happened in April? Just so we can get a sense of how things are evolving from the worst?

Gustavo Mariani -- Chief Executive Officer

So as Lida and Margarita said we -- we didn't suffer -- in the case of electricity we will. In our case, it was a very small reduction in power generation during the lockdown due to relatively good efficiency of our power plants. So maybe if there -- if the total consumption dropped by about 15%, our consumption dropped around 5%. So we didn't suffer much. We have not seen yet any significant recovery. And same can be -- can be said about the gas consumption that so far the moves are more related to weather than to economic activity. And something that we are not seeing in our business, but I understand that had started to pick up is the consumption of fuels and basically because there is starting to be more activity on the street. So more movement and so [Indecipherable] -- gasoline that originally drop something like 70% is already recovering, but that was something that we can tell you directly, but this the information that we are gaining from the industry. So in our businesses, we are not yet feeling the easing of the locked down, but basically that is because we haven't suffered significant drop in quantities sold either at the peak of the lockdown.

Bruno Montanari -- Morgan Stanley -- Analyst

Great, thanks for the insights.

Margarita Chun -- Investor Relations

Thank you Bruno. Our next question comes from Ezequiel Fernandez from Balanz. Please Ezequiel, go ahead.

Ezequiel Fernandez -- Balanz -- Analyst

Good morning. Thank you very much for the materials, very complete, useful as always. I have two questions. The first one is related to, if you're considering any acquisition, perhaps of the more financially troubled power generation assets in Argentina? And the second question is related to which gas price in terms of course of dollars per MBTU would make you more comfortable in terms of drilling and development activity perhaps going into next year? Thank you.

Gustavo Mariani -- Chief Executive Officer

Hi Ezequiel. Regarding acquisitions we are not seriously guiding any and we that I think most of you are aware of we have a strong financial position and we could eventually analyze potential acquisition. So far we have decided to concentrate on the buyback of stocks and debt, which so far we like them more than an acquisition. Anyway we will keep our eyes open and study anything that comes to us, but we are not -- since we don't have any serious or anything in the pipeline.

Regarding gas prices, yeah, it's not that easy to give price because it's not only matter of price, but it's also matter of conviction of the ability of the off taker to pay it down the road and sustainability of that price in the medium term -- or in the long term. So it is not -- what I want to point out that I think it's not only matter of prices going up, but also having a gradual long-term perspective for investing in anything in Argentina, especially in gas prices -- in gas production. I think the number has to be higher in average for the year, $3.50 that obviously it depends on your -- on your portfolio of reserves and which reserves you are going to develop, but I think long-term tranches in order to activity in the industry to resume, I would say that prices needed to be at least above [Indecipherable].

Ezequiel Fernandez -- Balanz -- Analyst

Okay, that's great. That's all from my side. And stay safe, thank you.

Margarita Chun -- Investor Relations

Thank you Ezequiel. Our next question comes from Santiago Wesenack of AR Partners.

Santiago Wesenack -- AR Partners -- Analyst

Hey everyone. And thanks for taking the question. And glad to know you're all safe and healthy. Actually it's three quick questions if I may. The first one has to do with, how are you seeing collections from CAMMESA on the power generation side? Are there any delays or anything new there? And the second one, also on the power gen side, during the quarter we saw actually area of increase in the gross profit per megawatt [Phonetic] hour so I was -- especially we saw it also on the thermal assets despite the Resolution 31. So was wondering whether this new like $30 per megawatt hour could be like threshold level for the rest of the year? And the third one on the E&P side, I was wondering if you can give us any guidance in terms of what's the natural decline rate for your production given the low prices that Gustavo just talked about? Thank you.

Gustavo Mariani -- Chief Executive Officer

I'll answer the question about the collections from CAMMESA and I think Lida can give you more details about the other ones. We've seen a -- we are experiencing delays from -- from CAMMESA that -- I would say that the delay from CAMMESA started in the third quarter of last year. So from no delays in September or October of last year, today we have like a month and the half of delayed payment from CAMMESA. So more or less every month CAMMESA takes around 70% of the transaction or between 70% and 80% of the transaction and increases its debt against the generation sector by around 20% of monthly transaction that has been roughly in average the behavior in the last -- in the last few months. You can say that it has slightly deteriorated the quarter since the lockdown started. That's basically because distribution companies are paying significantly less to CAMMESA. So the national government has to fill in the gap and provide more support to CAMMESA in order to pay the transaction. So when the lockdown began and since then, more or less is paralyzed [Phonetic].

Santiago Wesenack -- AR Partners -- Analyst

Thank you.

Gustavo Mariani -- Chief Executive Officer

Lida, can you cover the other questions?

Lida Wang -- Investor Relations Officer

Yeah, can you hear me? I don't know. Gustavo is in office. So basically the higher gross margin firstly, because we have -- remember that we are taking into account [Indecipherable] 567 megawatts under our PPA. So that leads to the gross margin. Also, we have [Indecipherable] I mean it is purely gross margins. So that's another reason why we see the big jump and then we have 207 megawatts of new capacity that today they relying [Phonetic] mostly under spot market. So -- and they are dispatching into the sport market. So that's why you see a big contribution year-on-year. We are in the E&P depletion rate, since the business, E&P business usually suggest that because our major gas is unconventional types, you can see [Indecipherable] on average around 15% yearly basis. It's not depletion 15% going around right. So it's cumulative. For this -- for mention that their nature are more conventional, they are around 8% depletion rates.

Margarita Chun -- Investor Relations

[Operator Instructions] Yes, Lida we can hear you.

Lida Wang -- Investor Relations Officer

Santi, thank you. So Santi, tell me if you have more questions.

Santiago Wesenack -- AR Partners -- Analyst

No. Actually, probably the last one, but it's also related to the gross margin [Indecipherable] per megawatt hour. So we are seeing this is $30 positively influenced by as you said [Indecipherable] and pay base and renewables. So this $30 level could be like a new threshold for the rest of the year?

Lida Wang -- Investor Relations Officer

I don't know because -- I will -- I would say no, because we have the legacy, remember that we reduced that from October of this year. The reduction implies around $30 million as Gustavo said in the Q4 conference call. But now we have a said we -- we've been pull that inflation adjustment won't be happening until further notice. So that will be around $25 million more affecting the gross margin. So I will say this year legacy compared to the last year legacy is around $50 million gross margin.

Santiago Wesenack -- AR Partners -- Analyst

Great. Thank you very much.

Lida Wang -- Investor Relations Officer

You are welcome.

Margarita Chun -- Investor Relations

Our next question comes from Jacob Steinfeld from Ashmore. Jacob, go ahead.

Jacob Steinfeld -- Ashmore -- Analyst

Hi, good morning. Thanks for the call. First question was just answered. So on the inflation adjustment, you said $25 million comes from the assumption that there is going to be no in inflation adjustment and then $25 million from the lower remuneration for the legacy power, is that right versus last year?

Lida Wang -- Investor Relations Officer

Well, so $30 million less because of the 11 months of reduced capacity payment plus -- depends on the evolution of the official [Indecipherable] and the evolution of inflation, but it's devaluation ends at the end of the year around 86 I think 82 I don't remember our projection, but we have an average year of 2020 of 72. Last year the average was lower. So if you can see our debt valuation curve, we are expecting around $25 million in total is 65, for the 11 month period OK.

Jacob Steinfeld -- Ashmore -- Analyst

Okay. And then all the bonds that you've repurchased either in the first quarter or subsequently, are those being canceled or are you just holding them at treasury?

Gabriel Cohen -- Chief Financial Officer

Hello. We basically so far they are in our books. They have not been canceled. So that's where we are.

Jacob Steinfeld -- Ashmore -- Analyst

And is there a reason why those aren't canceled versus the shares that were canceled or is the plan to cancel them?

Gabriel Cohen -- Chief Financial Officer

No, it's not the plan to sell those bonds, but it's an instrument of liquidity. Sometimes you might do even repos or whatsoever, so we -- it's a good instrument to -- for liquidity management in any event.

Gustavo Mariani -- Chief Executive Officer

The reason why the shares are canceled are because there is a local restriction that you cannot hold more than 10% of your outstanding stock in treasury. So once we reached the 10% limit, we need to cancel them in order to be able to continue repurchasing shares. In the case of repos, there is no reason to rush to cancel them. So as Gaby said, it's better to have them in the treasury than cancelling. Allow us more flexibility in the future to give us -- to keep them in the in treasury.

Jacob Steinfeld -- Ashmore -- Analyst

Okay. That's understandable. I guess my last question is on the capex. I was wondering if you could provide a little bit more detail, what do you expect to spend for the rest of the year in oil and gas and power generation? And wondering just if -- given the quarantine and the delays whether some of the capex gets pushed out to 2020? Whether due to the quarantine and some of the delays on the power generation projects, for example, some of the capex get pushed out into next year?

Gabriel Cohen -- Chief Financial Officer

At Pampa, we had a -- we said that this year we would only do Genelba project to be completed. With 99.5% of the work were already done and in February we started the commissioning of all the CCTG, that takes several months and we hope it will be completed by late July early August. 95% or between 90% and 95% of the capex of the Genelba project was already spent last year. So this year was only that the tail of the fence. Roughly between $30 million and $40 million were left to be spend in the Genelba project at Pampa.

In terms of maintenance, maintenance capex in generation, this year, we are going to spend between $40 million and $50 million. In the case of E&P, it's between, what we consider, expansion capex, especially the exploratory project and the maintenance capex in order to maintain production or to reduce the decline of the production this year. At the beginning of the year, we were budgeting to spend around $130 million. And now, we think that we are going to spend half of that in 2020. So, between the two segments, around $75 million both maintenance capex and around $70 million of expansion capex.

Jacob Steinfeld -- Ashmore -- Analyst

Got it. Thanks so much.

Margarita Chun -- Investor Relations

Our next question comes from Fernando Lanus [Phonetic]. Fernando, please go ahead. Fernando, wait a second. We are unmuting the microphone. Fernando, can you try to unmute your microphone?

Lida Wang -- Investor Relations Officer

The next one.

Margarita Chun -- Investor Relations

Okay. Our next question comes from Florencia Mature Satori [Phonetic]. Florencia, please go ahead.

Florencia Mature Satori -- Analyst

Hi, Lida, Margarita, Gabriel, Gustavo. Thanks for taking my question. Hope everyone are well. Just a follow-up regarding working capital. You mentioned that collection from Plan Gas were enough to access the delays in the payment on CAMMESA. I would like to know how much you collected regarding Plan Gas. Another question is, regarding a report that S&P published early this week, when lower your rating and several Argentine corporates mentioned some concern regarding the ability of corporates to access to the market to -- but the foreign exchange market to repay debt. I don't know if you government or if you are facing some issues [Technical Issues] rating agencies have that. Thank you so much.

Lida Wang -- Investor Relations Officer

I will loans are about the Plan Gas. And then, I think, [Indecipherable] for doing the second question. Plan Gas, we have 30 [Phonetic] instalments of $4.7 million per month. We've been collecting it in time. The government has been reprofiling some bonds at this one, particularly has not been reprofiled and we'll be collecting on time. So, for the quarter, you can see three months, it's $50 million that we are offsetting it with work -- higher working capital that for this quarter, a breakeven -- almost breakeven. Of course, for working capital, we are expecting that we will be raising cost at the remainder of the year.

Gabriel Cohen -- Chief Financial Officer

Yes, hello. How are you doing? In respect of the question, what Central Bank for dollar repayment. Clearly, the new restrictions had an impact in the short-term for the coming months, because it was that value, but we do not foresee any problems accessing the whole -- in order to pay either on imports or our interest or principal payments of that. Clearly the impact is more on managing your liquidity, if you want to buy or not on the -- the objective of the Central Bank regulation was to limit your ability to buy dollars in their regulated market. There is no expectation to foresee problems in accessing to repay our debt and our imports.

Florencia Mature Satori -- Analyst

Okay, perfect. Just one follow-up regarding the power generation. Do you receive any update on the suspension -- on the inflation adjustment to the legacy? And when do you expect that could be restored after COVID? Just the government, any message on that?

Gabriel Cohen -- Chief Financial Officer

Well, we haven't received any -- no feedback from the government on when they are planning to resume. But as you correctly pointed out, I don't expect that to happen until they see a new normal in Argentina. We are back to business.

Florencia Mature Satori -- Analyst

Okay, perfect. Thank you. Thank you, and stay safe.

Gabriel Cohen -- Chief Financial Officer

Same for you. Thank you.

Margarita Chun -- Investor Relations

Thank you, sir. Our next question comes from Matias Castagnino from BCP. Matias, please go ahead.

Matias Castagnino -- BCP -- Analyst

Yeah. Thank you, guys. So, first, let me say that this was an interesting format. And despite the technical difficulties, I think it's easier to follow the stock performance. So, the questions are kind of a follow-up. The first one, I saw in your cash flow statement, the big increase in the trade payables and that is kind of offsetting the increase in trade receivables. So, is that just a response to the delays of CAMMESA and who are you delaying the payments to?

And then, at $25 million additional impact on the legacy that you commented, is that assuming also the lower demand because of the lockdown or that is not assume? And lastly, if you have any comments on the news that came out today regarding Ensenada Barragan and Pampa is a party at all on that thing?

Gabriel Cohen -- Chief Financial Officer

I think, OK, so I think the first question because...

Lida Wang -- Investor Relations Officer

Yeah. I think you've seen the consolidated financial statements where the cash flow statement taking into account Edenor. you know that we've been delaying payments at Edenor massively. So, in March, not much, but going forward, we have been significantly being lower paced. So that's why we are not having those kind of delays on payables in Pampa per se. It's basically at Edenor. So if you take out Edenor, on the balance, that completes the balance sheet, you will see that Pampa [Indecipherable] stay online.

Gustavo Mariani -- Chief Executive Officer

Yeah. It might get -- just to complete our way, but as we're saying, in case of Pampa, we are not delaying any payments. And in the case of Edenor, and ensure that will be discussed in the conference. Edenor, as most of the distribution companies in the country are delaying payments to CAMMESA due to three reasons. The most important one is the freeze of tariffs that's already almost a year-and-a-half because the last increase in tarrif for MVAD for Edenor was in February of last year. Then because of the recession and especially because of the lockdown, significant drop in consumption, and because of the lockdown, the reduced collections which now are starting to recover because they open up more, so that [Indecipherable] and those kind of collection houses. I don't know how to say that in English. So, they are starting to -- they are starting to recover. But as long as the freeze in VAD continues for distribution companies. Their payments to CAMMESA is not expected to improve significantly.

Regarding the other part of the question, the news about Barragan, I can't see the news. So, if you can -- I don't know Lida, Gabby, have you -- Margarita, have you?

Gabriel Cohen -- Chief Financial Officer

Con you comment on us, what are those years?

Matias Castagnino -- BCP -- Analyst

Casanello prosecuted two former government officials for when the plant was first awarded to the government. And they keep saying that he might be investigating then the sale to YPF and Pampa, that -- do you see in control the June [Phonetic]?

Gabriel Cohen -- Chief Financial Officer

Sorry. The judges are investigating the sale of Barragan to YPF and Pampa, that's the news.

Matias Castagnino -- BCP -- Analyst

No, the news is that he prosecuted two officials. And like he said, there might be a second kind of investigation regarding that.

Gabriel Cohen -- Chief Financial Officer

Yeah. They haven't seen the news. And so far, we haven't been noticed for being part of the investigation or anything. Regarding this, this is that it's all news that there was [Indecipherable].

Lida Wang -- Investor Relations Officer

Illusion [Phonetic].

Gabriel Cohen -- Chief Financial Officer

No. There was a...

Lida Wang -- Investor Relations Officer

New complaint?

Gabriel Cohen -- Chief Financial Officer

Now I see this in the presentation. Okay. But what it is -- I think you it's a politically motivated and is targeting basically the government officials of the previous administration. This was the sale of Ensenada Barragan was a public auction. The first public auction, if I still remember wrong was for the summer of last year. I don't recall whether it was January or February of last year, which nobody show up. And then there was a second round at mid of the year where we decided to be with YPF to participate -- other participants and we won't be, so we want to have them. So that's all I can tell you of the investigation. I have no other news.

Florencia Mature Satori -- Analyst

Okay, thank you. And then, the question that $25 million of the legacy, is that including the lower expected demand.

Lida Wang -- Investor Relations Officer

No, no. We run the Margo -- Margo, it's a model that runs -- stimulates the dispatch in the country. We are already in 2020, we already [Indecipherable] the most inefficient machines, [Indecipherable] won't be such as much. So we were modulating that only [Indecipherable] will be there who'll dispatch. And that's what is continuing. So, it was a pretty conservative goal. And even that, with the COVID and everything we do. The forecast of the dispatch of Pampa remains very similar to last year.

Florencia Mature Satori -- Analyst

Okay. Thank you very much.

Gabriel Cohen -- Chief Financial Officer

You're welcome.

Margarita Chun -- Investor Relations

Our next question comes from Antonella Rapuano from Santander. Antonella, please go ahead.

Antonella Rapuano -- Santander -- Analyst

Hi, thank you all. Thank you, Margarita, Lida, Gustavo and Gabriel, for the presentation and taking my question. My question goes on the -- the technical issues you experienced in the wind farms in the turbines. So if you could give us some details or more insight about this and the potential impact in the generation going forward for Pampa? Thank you.

Lida Wang -- Investor Relations Officer

No, basically we had -- the manufacturer detected some problems in other wind farms from the same model in our country and they told us. So, we -- today with Pampa, we have 28 wind farms from the two -- mining the two -- with the two [Phonetic] and only six of them are out of service. The rest of them, they're serving. So, one of the wind farm has already fully -- almost fully recovered. The other one with the COVID, everything is more slower, but we expect to have it fixed by August. The business direction has been covered fully by Vestas and the insurance policies. So there is no impact for Pampa.

Antonella Rapuano -- Santander -- Analyst

Great. Thank you.

Lida Wang -- Investor Relations Officer

You're welcome.

Margarita Chun -- Investor Relations

[Operator Instructions] Thank you. Here's one. And the next question is from Gunther [Phonetic]. Okay. Please go ahead.

Gabriel Cohen -- Chief Financial Officer

No, we cannot hear you.

Analyst

[Technical Issues]

Gabriel Cohen -- Chief Financial Officer

We can see you, but we cannot hear you.

Margarita Chun -- Investor Relations

Gunther, try to touch on the screen. If you can see the mic icon, or you can send us through the chat -- a private message with your question.

Here's our next one. [Indecipherable] Okay. Gunther fixed your microphone, we can continue with Wolfgam [Phonetic]. Please, Wolfgam, go ahead.

Analyst

Can you hear me?

Gustavo Mariani -- Chief Executive Officer

Yes.

Gabriel Cohen -- Chief Financial Officer

Yes.

Lida Wang -- Investor Relations Officer

Yes.

Analyst

I have a question regarding your share repurchase program. These days, many companies are focusing on strengthening their balance sheet, keeping their cash together. Are you starting to get some second thoughts about continuing to repurchase your own shares, given uncertainty in demand, uncertainty in regulation and fluctuation of exchange rate?

Gustavo Mariani -- Chief Executive Officer

We are perfectly aware of the crisis we are living. We -- obviously we don't know how long is it going to last. On the other hand, we feel that we have a company that is healthy. We are producing significant positive cash flow. We have a strong cash position. We have, as Lida and Gabby pointed out, we have almost no debt maturities until 2023. What we have in 2021 are peso-denominated maturities and very small. So, we are every day revising what we do with our cash, and we still consider that the reason that we are spending that cash with share buybacks, we are comfortable. So, regarding your question, yes, we do revise that. And I would say, on a daily basis, and we are still comfortable with what we are carrying out.

Analyst

Okay. I would just add that, the program that was approved for $12 million, it has been a much smaller amount than previous programs of buyback. Okay?

Gustavo Mariani -- Chief Executive Officer

Okay. Thank you.

Margarita Chun -- Investor Relations

Well, [Indecipherable] She is asking, is there any risk of government renegotiating the PPA? And that's -- that will be the last question of the call.

Gustavo Mariani -- Chief Executive Officer

So anyway, what was the question there -- question, Lida?

Lida Wang -- Investor Relations Officer

Is there any risk of government already negotiating the PPA?

Gustavo Mariani -- Chief Executive Officer

The risk exists, definitely there. But I cannot give a different answer than the one that we have been giving for year-and-a-half at least in is that, I think, the government is aware of the consequences of unilaterally changing those contracts. So, they're trying to -- I think they will try to avoid doing that. But the risk of that happening obviously increases if the macroeconomic condition for Argentina deteriorates significantly. So far, we haven't had any communication from the government at all. And we hope it will continue that way. But it will depend very much on macroeconomic conditions of the country.

Lida Wang -- Investor Relations Officer

I have another question in the chat from Nakkar [Phonetic], Needham man. He is asking, what will be our strategy if CAMMESA payments start to get delayed materially further?

Gustavo Mariani -- Chief Executive Officer

I think that is the strategy, although most important part of the strategy is being one of the strongest Andy the strongest players, stronger agent in the segment. So, our colleagues -- many of our colleagues will have significant trouble ahead of us. So, I hope that by the time that -- those kind of delays starts impacting us, CAMMESA and the government have already begun to react in a positive way.

So, I cannot think of anything other than remain strong. I think that remain financially strong. That will be our goal and our strategy toward that possible outcome. I don't know, Gabby, anything else?

Gabriel Cohen -- Chief Financial Officer

I would just add in that sense was the recent issuance of peso-denominated bonds in the local markets. We'll have a cushion for that having.

Lida Wang -- Investor Relations Officer

Okay. Well, I think, it's my half within the more, but if you have any questions, you don't hesitate to ask us, where -- from wherever you are, please stay safe. Take care of yourself. We are available for you. And thank you for joining this call with all the problems, but I hope you enjoy it and it was helpful for you. Thank you so much.

Gustavo Mariani -- Chief Executive Officer

Thank you. Bye-bye.

Gabriel Cohen -- Chief Financial Officer

Thank you for joining. Bye.

Duration: 84 minutes

Call participants:

Margarita Chun -- Investor Relations

Lida Wang -- Investor Relations Officer

Gustavo Mariani -- Chief Executive Officer

Gabriel Cohen -- Chief Financial Officer

Bruno Montanari -- Morgan Stanley -- Analyst

Ezequiel Fernandez -- Balanz -- Analyst

Santiago Wesenack -- AR Partners -- Analyst

Jacob Steinfeld -- Ashmore -- Analyst

Florencia Mature Satori -- Analyst

Matias Castagnino -- BCP -- Analyst

Antonella Rapuano -- Santander -- Analyst

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