• Production capex to double to $500m a year, chairman says
  • Pampa to increase gas output from low-cost tight sands

Pampa Energia SA, Argentina’s most diversified energy company, may double annual spending on natural gas development as the country looks to reduce reliance on imports, Chairman Marcelo Mindlin said Tuesday.

The company aims to produce 13 percent of Argentina’s gas output in three to five years, up from 10 percent, Mindlin, 52, said in an interview at Bloomberg headquarters in New York. Pampa Energia can self-finance spending of $500 million a year, up from the current pace of about $250 million, he said. Shares of the Buenos Aires-based utility owner, which bought a controlling stake in explorer Petrobras Argentina SA in July, surged to a record Monday.

Self-sufficient in energy little more than a decade ago, Argentina began importing gas in 2008 as demand rose and subsidies curtailed output, becoming one of the first destinations for cargoes of the fuel from U.S. shale basins. Pampa Energia plans to boost domestic production by focusing on gas trapped in tight sands, as opposed to better-known shale deposits such as those in the Vaca Muerta formation.

“The country needs gas tomorrow, not in five years,” he said. “The big star has been tight, not shale. It has much more productivity and it’s much cheaper to exploit.”

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The current subsidized price for new gas production is $7.50 per million British thermal units, he said. That price could drop to $7 without subsidies since the cost of importing gas into Argentina is around $6.50, he said.

Capital spending will be funded by operations, not debt, Mindlin said. Pampa Energia wants to maintain its ratio of net debt to earnings before interest, taxes, depreciation and amortization at 1, although it could rise to 1.5, he said. The company plans a $500 million bond sale to repay a bridge loan it used to buy Petrobras Argentina.

Pampa Energia fell 0.2 percent to $30.80 in New York on Tuesday after closing a day earlier at a record $30.87. It’s up 50 percent this year.

Emerging Market

Pampa’s shares have climbed after Mauricio Macri, who became the country’s president in December, took steps to eliminate subsidies that reduced domestic fuel production and aggravated national debt. MSCI Inc. said in a June statement that Argentina, South America’s second-largest economy, will be included in its 2017 annual market review for an upgrade to emerging market status from the frontier category, where it has been for seven years.

Macri devalued the currency, ended foreign-exchange restrictions and began removing subsidies from edible oils to fuel in an attempt to make the country more competitive and trim a fiscal deficit that had ballooned under past presidents. He ended a 15-year fight with bond holders in April that had frozen Argentina out of debt markets.

Pampa Energia’s stock is among the most liquid in Argentina, making it attractive for investors, Mindlin said.

“Investors are looking for ways to invest in Argentina,” he said. “They all understand that we are going to become again an emerging market.”

(Corrects fifth paragraph to show Mindlin’s estimate reflects the cost of imported gas and clarifies company’s focus on tight sands as opposed to shale in third paragraph.)
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