Pampa Energía S.A. (NYSE:PAM) Q2 2022 Earnings Conference Call August 12, 2022 10:00 AM ET
Company Participants
Margarita Chun – Investor Relations
Lida Wang – Investor Relations and Sustainability Officer
Gustavo Mariani – Vice President and Chief Executive Officer
Nicolás Mindlin – Executive Director-Finances
Conference Call Participants
Rodrigo Nistor – AR Partners
Margarita Chun
Thank you for joining our conference. We inform you that this event is being recorded. All participants will be in listen-only mode during the presentation. After the company’s remarks, there will be a Q&A session. Questions can only be submitted in writing through Zoom. Should any participant need assistance, please send us a chat message.
Before proceeding, please read the disclaimer that is located in the second page of our presentation. Let me mention that forward-looking statements are based on Pampa Energía’s management beliefs and assumptions and information currently available to the company. They involve risks, uncertainties and assumptions because they related to future events that may or may not occur in the future. Investors should understand that general economic and industry conditions and other operating factors could also affect the future results of Pampa Energía and could cause results to differ materially from those expressed in such forward-looking statements.
Now, I will turn the video conference over to Lida Wang, our Investor Relations and Sustainability Officer of Pampa Energía. Please go ahead.
Lida Wang
Thank you, Margarita. Thank you, Margarita, and everyone [Technical Difficulty] all right, let’s do it again. Thank you Marie, and everyone for joining our conference call. It’s been a great quarter, but in interest of time, I will make it short and sweet. So we have plenty of time for Q&A with our CEO, Gustavo Mariani. Gustavo? Yes, you’re in listen-only mode.
Gustavo Mariani
Gustavo Mariani here; our CFO, Nicolás Mindlin is here and they are waiting for you with the Q&A. So let’s start with the quarter’s figures. Revenues increased 28% year-on-year to $587 million driven by rising gas output, commodity prices, B2B Energía plus sales and higher legacy energy and regulated prices. However, lower income from Loma, Barragán and Piquirenda offset this increases because its PPA’s expire. As a result around 85% of our sales were dollar linked.
The adjusted EBITDA amounted to $253 million, 6% up year-on-year, and 13% up quarter-on-quarter, explained by the same reasons detailed before, and better operating margin offset by increased cost on maintenance and contractors for an intense E&P activity and higher peso-linked expenses because inflation is outpacing devaluation. Quarter-on-quarter seasonality explains the boost in the EBITDA. As you can see on the right below oil and gas led the consolidated adjusted EBITDA for the first time in a long time, thanks to our gas business taking 59%. CapEx in Q2 was 49% up year-on-year and 30% up quarter-on-quarter. This is mainly due to the growing plan gas commitment and power expansions at PEPE III and Barragán.
Moving on to power generation as seen on Slide 4, we posted an EBITDA of $99 million in Q2. This is 18% down year-on-year and quarter-over-quarter mainly due to PPA maturities we mentioned before and higher local currency expenses. Compensated by thermal – better thermal B2B margins and spot energy sales despite the peso depreciation, the outstanding operating performance also contributed to the EBITDA. Q2 generation was up 18% year-on-year, so passing by far the national grid that only achieved 1% aggregated growth. Because of the peak season that began in May, our thermal units were highly demanded with combined cycles dispatching at full capacity and dual units firing with liquid fuels. The power generation business relies on take-or-pay capacity payments. So availability is what matters the most.
In Q2, we reached an outstanding rate of almost 98% with minor outages in Piedra Buena. In contrast, we recorded roughly 96% year-on-year, last year, due to Guemes and [indiscernible] partial outages. So again, Pampa’s availability rate was way above the system average of 77%. Regarding our expansion at Ensenada Barragán, the closing to CCGT is advancing now more than 80% done. We are preparing the facilities to perform the steam blow this month and running the pre-commissioning of the water treatment plan and the cooling tower. More than 450 people are working daily on this project to achieve the COD, which is forecasted by the end of 2022.
Moving to PEPE III wind farm expansion, the project is beyond half-way advanced. We continue with the civil works, working on the wind turbine basis. We have already received the anchor cages and the wind turbine components are arriving at the port of Bahia Blanca this month. The estimated COD is split in two stages, the first 50 megawatts by February 2023 and the remaining 31 megawatts by May 2023.
Now moving to E&P in Slide 7, our gas production reached a new all time high record again, recording 11.2 million cubic meters per day in June. Actually currently this is the level that we are producing. The ramp up is mainly explained by plan gas last tender, which added 2 million cubic per day of deliveries since May. In addition, the exports to Chile, even during the peak season, contributed to the production hike only on a spot basis and higher sales to the industrial segment.
Therefore during Q2 our gas production outperformed by growing 38% year-on-year, and 14% quarter-on-quarter, averaging, 10.2 million cubic meters per day in the quarter and outpacing nationwide growth that only increased by 14%. We drill 12 gas wells and completed 17 all type and mostly at El Mangrullo block where 72% of our production in the quarter came from. Last May, we added 2.5 million cubic meters per day of evacuation, and [indiscernible] capacity at El Mangrullo. By the third quarter of this year, the total capacity of this block will be 14 million cubic meters per day, more and double last year’s capacity. Río Neuquén and Sierra Chata also contributed to the growing output, but a smaller pace.
Tight gas is our main production source, but we expect to increase our shale gas share further soon since we began drilling two horizontal wells at Sierra Chata this month as a part of a new investment plan. We plan to complete 14 horizontal wells targeting Vaca Muerta formation before June 2023.
Briefly commenting on E&P business figures has seen on Slide 8. We posted an adjusted EBITDA of a $102 million in Q2, 39% up year-on-year, and almost double quarter-on-quarter, explained by the gas performance that we mentioned before and higher realized oil prices offset by increased cost-related to the growing activity and export expenses. Our total production average 65,000 boe/day, of which 92% is gas.
Our lifting cost grew by 62% year-on-year and 35% quarter-on-quarter. However efficiency wise, the lifting cost increased just 20% year-on-year and 5% quarter-on-quarter recording, $6.20 per boe. To me crude oil represented 19% of segments’ revenue in the quarter. The revenue sold was similar year-on-year, but 11% down, quarter-over-quarter being 4,700 barrels per day. During the quarter local sales increased, but export reduced their pace to resume it in last month July. Realized price was almost $73 per barrel, primarily due to the Brent and the [indiscernible] domestic price.
Back to gas, our average sale price of the quarter was $4.4 per million BTU. This is 14% up year-on-year and 25% up quarter-on-quarter driven by export prices and local gas prices. And this is due to the seasonal gas demand.
As we are right now in the peak season our sales breakdown is skewed to retail because they have priority in winter under the plain gas, we [indiscernible] despite selling under spot. We aim to keep up with this production level of 11 million cubic meters per day, even after the winter ends. So we are working to place the excess output.
Few days ago, we were cleared by the Energy Secretary to export under take or pay basis 1.5 m3/day per day, to Chile throughout the peak season.
Moving to petrochemicals, it deliver another outstanding adjusted EBITDA of $19 million in Q2, higher than last year’s $16 million. This was primarily contributed by a broader margin spread and volume of reforming products. Plus the increasing demand for polystyrene partially offset by higher raw material costs. Quarter-on-quarter the EBITDA has more than tripled. This is driven by better product margins.
Sales volume was 19% up year-on-year, mainly due to the demand growth for octane bases, polystyrene and naphtha. In Q2 41% of the total sales were exports.
Regarding cash flow, as seen on Slide 10, we’re recorded a free cash flow outflow of $62 million. This is mainly due to the working capital impacted by the seasonal billing. Remember that we are in winter and higher payment delays from CAMMESA. In addition, because of the gas commitment deliveries, we ramp up our E&P CapEx significantly by 55% year-on-year, plus [indiscernible] renewal extension investment. We recorded lesser debt service due to lower stock compared to last year. In addition, we incur a minor debt and collected [indiscernible] final installment.
In summary, we reduced $41 million of net cash in the quarter achieving $566 million of cash by the end of the quarter.
Moving on to Slide 11, this is slide shows, consolidated figures, including our affiliates at ownership, but let’s focus on the restricted group that reflects the bomb perimeter. We posted a gross debt of $1.5 billion similar to the last quarter. This is 97% dollar denominated bearing an interest rate average of 7.8%. The average life decreased slightly to 3.9 years. During the quarter we added minor peso loans though net debt slightly increased to $902 million. Due to the cash outflow mentioned before the net leverage ratio remain similar at 1.3 times.
Regarding our upcoming maturities, we tapped our 2020 free notes last June and carry out an exchange offer that successfully settled this week. Our goal was to strengthen our debt profile and preserve a solid cash position to move forward with an intense investment plan in our core businesses, especially in gas production.
Thanks to our bond holder support, we successfully exchanged $407 million out of the $500 million face value with 48% choosing the cash and notes proposal and 52% picking the new notes compensation.
Thus, we reduce debt by paying $122 million in cash and extended principle by issuing $293 million of new 2026 notes, amortizing annually from December 2024 to 2026 with a fixed interest rate of 9.5%.
In addition, we issue a local loan for AR$28 billion due in 18 months, and also took AR$7 billion net pesos of bearing loans, bank loans. So as you can see in the new debt profile after the exchange until 2027, Pampa does not face relevant debt maturities.
So this concludes our presentation. I will turn now the word to Margarita who will open the floor for questions. Thank you.
Question-and-Answer Session
A – Margarita Chun
Thank you, Lida. The floor is now open for questions. [Operator Instructions] So here we have Gustavo Mariani, our CEO and Lida Wang in the same camera. So our first question comes from Frank McGann of Bank of America. He has three questions. We will start with the first one. The first one is what are the expectation now for oil and gas output for Pampa outside over the next two, three years with a new transportation capacity?
Gustavo Mariani
Sorry, we had a thing that rolling with my iPad, so I had to move to Lida’s position. Hi, good morning. And thank you Frank, for the question. Is it working now? Okay. Regarding oil, currently, we don’t have any land to significantly increase production. Any way, although we are analyzing any – all the alternatives that we have, we are discussing with our partners with one – with the partner in Rincón de Aranda, that’s our Vaca Muerta play in oil that we operate in order to start drilling in that area, but still nothing confirmed on that front yet.
In terms of natural gas, our aim is to continue growing. We are currently at full capacity of all our gas treatment plants. We currently reach as dimension record of 11.2 cubic meters of natural gas per day of production, which we hope to maintain throughout the summer. Thanks to export to Chile in the summertime. And in order to increase that – to increase the production, we are a few months away of finishing a new gas plant treatment in El Mangrullo for another 5 million cubic meters of natural gas.
So we hope by next winter of 2023, be able to use all that capacity that will depend on the outcome of – that will depend on basically on the market, on the outcome of any of what we are expecting. There is a new auction in the – so I haven’t been clear for how long.
So as you know, the contracts have been signed in order to start building the new pipeline to increase the evacuation capacity from the Neuquina Basin. And if everything goes fine and as we expect it, it will go by mid of next winter. There will be an increase of 11 million cubic meters of natural gas of the evacuation capacity out of the Neuquina Basin. So we are expecting that the Secretary of Energy will soon announce a new plant gas in order to fulfill this new pipeline with gas and depending on how successful we are on, on that option will be the plans for next year.
Margarita Chun
Thank you, Gustavo. The second question is about power generation, what plant maintenance is scheduled over the next several quarters in your power plants?
Lida Wang
So the next quarter Q3, we usually do at the end of the quarter between September and October maintenances in our combined cycles. This is in Loma de la Lata and in [indiscernible] number two, the number two combined cycle, the original one. And we have some contains in distinct turbines of Piquirenda and Ingeniero.
Margarita Chun
Thank you, Lida. And the last question of Frank is also about power generation. What additional PPA changes are expected in terms of ending and starting of contracts through the rest of 2022 and in 2023 and 2024?
Gustavo Mariani
Give me a second. Are you seeing me now? Okay. Regarding PPAs, as you know, we are working together with YPF in and as Lida show the picture in finishing the closing of the – Ensenada Barragán that it’s – that without a new steam turbine of 280 megawatts of capacity with a 10-year PPA.
As Lida mentioned, we expect this to finish by the end – the works on the COD to be at the end of the fourth quarter by the end of the year. And so we are expecting the impact of that PPA fully in 2023. Also and regarding the expansion of PEPE III, where we will be adding 80 megawatts of windmills, a minute before this conference starts to the picture of the unloading of the windmills for that expansion.
So everything is on track there. In a few weeks, we will begin putting the windmills on the site. So by February of next year, the first 50 mega should be online. And two months later, the other 30 mega. So that is so in 2023, you have the 50% of the addition of Ensenada Barragán that is canyon 40 megawatt of the PPA plus the 80 megawatt of the new – expand of the new wind farm. And regarding PPAs that will come to an end from now until the end of 2026, we don’t have any maturities. So 2026 and 2027 will be the next maturities in PPAs.
Margarita Chun
Thank you, Gustavo. And our next question comes from Matias Castagnino from BCP Securities. He also has three questions. The first one is regarding the new pipeline. You – Pampa is recording – record high of production of gas. How much does your production growth depend on the new gas pipeline?
Gustavo Mariani
It fully depends on the new pipeline because all our production in natural gas is concentrated in Neuquina Basin, almost all of it is concentrated in the Neuquina Basin. And then Neuquina Basin has reached it’s evacuation capacity, okay, towards the internal market. And also towards Chile during the summer, we are exporting as much as we can. So until there is – until this new pipeline, it’s online, which we expect to happen by mid-winter of next year. There’s no way to increase production other than gaining a little bit of market share within the basin, which is unlikely to happen.
Margarita Chun
Thank you, Gustavo. The second question of Matias is regarding the petrochemicals business, petrochemical recorded another exceptional EBITDA in the quarter. And in the global market, we see that in July and August, there are margins decreasing. So what is your expectation regarding your business for the remaining period of the year?
Gustavo Mariani
You’re totally right. That the petrochemical business having a terrific year, probably it will be a record year again. As you know, our petrochemical business has several – has basically four segments. And as you correctly said, some of those segments are slowing down, but others remain with very good health.
So as we have visibility, the third quarter, we are optimistic that will be a very good quarter. We have less visibility and less capacity to hedge prices for longer-term. So fourth quarter it’s more uncertain but everything looks fine. So I think we are on track on having a very good year because besides some slowdown in some of the segments.
Margarita Chun
Thank you, Gustavo. And the last question of Matias is regarding the net debt. You increased slightly the net debt by $50 million compared to March. And we would like to know what are the main reasons?
Nicolás Mindlin
So, hi Matias. So the increase – this increase in net dept is something [indiscernible] and it can be explained by many different reasons. The first one is working capital. We have been experiencing as Lida said before higher delays in payments from CAMMESA during the last few months, mostly because of seasonal billing.
And secondly, because during soon and so that we have some stationary high CapEx expenditures and some extraordinary expenses regarding the expansion of free wind farm.
And lastly, because soon we face some losses on some financial investments partially offset in July. But we don’t expect this increase in net debt to sustain over time. But obviously this will depend on what happens with working capital and CAMMESA payment delays in the future.
Margarita Chun
Thank you, Nico. And our next question comes from Alejandra Andrade of JP Morgan. She has four questions. We’ll start with the first one. Could you comment on the buildup of account receivable and the day of sales outstanding, day of collection from CAMMESA?
Nicolás Mindlin
So as I just said in the last few months due to seasonal payment delay of CAMMESA have been fluctuated and deteriorating, especially during the last weeks, reaching almost 90 days of delay approximately when last year we were on another as of 70 days. But we hope the situation revert in the upcoming month.
Margarita Chun
Thank you, Nico. Alejandra’s second question is regarding what is the outlook about your production and CapEx level?
Lida Wang
Well, right now, as I said before, the idea is to keep up with the production that we are in the out [indiscernible] 11 million cubic meters per day. This is beyond the off peak season. If we can place the sales that we are very confident on, we will. CapEx for this year in MP because we ramp up heavily. It’s estimated at around $350 million total of the year. But next year we expect to go down to maintain CapEx only, it’s around $200 million, $250 million. Then we have power generation. Power generation, we are close to 19 terawatt of energy this year generated for all our units that we operate. This is quite an increase compared to last year, and this is placing us stronger in the grid. And CapEx for this year is $140 million that’s – this is what we expect to diverse. Mainly, this is $50 million from maintenance and the rest $90 million is coming from PEPE III expansion that we’re doing next year, the divestment left it’s very little.
Margarita Chun
Thank you, Lida. Alejandra’s third question is regarding the 2023 notes that is remaining. It is about $93 million roughly and maturing in July 2023. What’s going to happen with that?
Nicolás Mindlin
So if the current regulation remains the same next year, we understand that we will have access as participation in the exchange was of more than 80%. The amount of holdouts for 2023 is just $3 million that we think is a very reasonable number considering Pampa’s cash flow generation capacity. So in the upcoming month, we will analyze the alternatives, taking track account, the company CapEx plans and also the regulation in place at that time.
Margarita Chun
Thank you, Nico. And Alejandra’s last question is about the inflow of asset sales that we can see in the balance sheet.
Nicolás Mindlin
So this is mainly because during the last week of June and the first week of July, we collected the last $40 million of the sale of the 61% of Edenor. And with this payment, we complete the $100 million and we do not have anything else to collect from the buyers.
Margarita Chun
Thank you, Nico. And our next question comes from Florencia Mayorga from the company MetLife. Her question is regarding the technical problem we had in one of the gas turbines of Loma de la Lata. What is your expectation regarding the insurance company, how much they should cover regarding this technical problem?
Gustavo Mariani
Hi, Florencia. The insurance company should cover basically – what we cover have is in terms of business interruption beyond 60 days, which we hope it will not take that long and the machine will be ready before. And they should cover we have a deductible – between the deductible and the self-insurance retention that we have, it’s about $9 million. So they should cover anything that goes beyond that number. But the reality is that we are discussing with the supplier because we understand that they should cover the damage that we suffer. And we are optimistic on the outcome of that negotiation. We had this kind of issues in the past, and they have responded according to the responsibility. So we hope not to be – to need to claim anything to the insurance company and to solve the issue with the supplier. That’s our expectation of this fault.
Margarita Chun
Thank you, Gustavo. Florencia added one more question and it is about the new official appointment in the Energy Secretary. What is Pampa’s view on this change?
Gustavo Mariani
Well, regarding the change in the Secretary of Energy some of the new appointments are officials that have been working with the government in other positions, which we know them very well and we have an excellent dialogue and relationship. With new appointed Secretary of Energy, although, we know her, and we know her because we have assets in the province where she’s coming from.
We have let’s say knowledge, but we are very optimistic about her capabilities for the position. So far the announcement has been excellent towards the sector, both the tariff, the reduction in subsidies, it’s a significant step forward, very, very important. And all the other announcements regarding – that were made yesterday by the Ministry of Economy regarding VacaMuerta and the incentives to increase production are excellent news for the sector.
So although Argentina, as you will know, is going through tough times in terms of the macro situation, in what is related to our sector, we are very optimistic because they are doing – they’re moving in the right directions of solving issues so that the energy sector becomes an important help to the macroeconomic situation.
Margarita Chun
Thank you, Gus. Our next question comes from Paula La Greca from TPCG. How much incremental revenue will represent exports to Chile in Q3 and four of this year?
Gustavo Mariani
We are about to be granted a 1.5 million firm export permit to Chile, export permits are almost all the paperwork in the Secretary and she’s almost done. So in the next couple of weeks should be published and we will – we are expecting to be granted 1.5 million cubic meter per day of firm export. Those exports will be done in average close to $8 per million of BTU. So it’s an excellent price. And assuming the difference between the local price during the summertime and the export price, being something about the $4 or $5. So the incremental revenue should be around $20 million, $25 million because of the export contract.
Margarita Chun
Thank you, Gus. Our next question comes from Lucas Caldi from Portfolio Personal. He has two questions. The first one is related to the gas export as well, but during off peak season. How much gas do you think you’ll be able to export during the off peak season in the coming months? As Gustavo mentioned, we are having the 1.5 million cubic meters. We apologize, we are having some inconvenience with the internet quality. Please give us a few minutes until we settle the situation, please.
So the first question of Lucas Caldi was related to the gas export, but during off peak season as Gustavo mentioned we are having the paperworks ready to have the export permit of 1.5 million cubic meter per day, since October, until May next year on a take or pay basis. Can you give what would be the expected pricing of those exports?
Gustavo Mariani
Okay. I think I just answered that. But what we are expecting to export during the summer beginning October 1st until the end of April is in firm 1.5 million, hopefully on a – not on a firm basis, but we expect to export around 0.5 million cubic meters of natural gas per day, so a total of 2 million. And the price for the firm gas will be close to $8 per million of BTU for the other 0.5 million, we are still negotiating with our counterparty in Chile.
Margarita Chun
Thank you, Gust, and Lucas. Next question, this is a final question of Lucas, is regarding the next winter, are you expecting to further increase natural gas production next winter, in case the new pipeline is not ready by that time. Could you export to Chile that additional production as you did this winter?
Gustavo Mariani
As said before on the Frank McGann’s question, by next week winter, we will have the possibility to increase production to 16 million or 17 million cubic meters of natural gas per day. Thanks to our investment in infrastructure that will be ready by that time. Whether we reach that level of production or not, it will depend on the visibility we have on our capacity to sell our production through the new pipeline that we expect, it will be ready by mid of next winter. And to export gas to Chile during the winter because of transportation restrictions, during the summer, we can export to Chile, around 9 million cubic meters of natural gas per day from remuneration I’m referring.
During the winter, we can only export less than 5 million [ph] cubic meters of naturals gas to Chile because of transportation restriction. So again, we will have the capacity to grow production, but we don’t have yet visibility on our market share both in the export market or in the local market with the expansion of the new pipeline. So, once we have more clarity on that, we will be able to fine tune our increase in production.
Margarita Chun
Thank you, Gust. Our next question comes from [indiscernible]. He has two questions. The first question is, what percentage of your revenues has the state as a counterpart? On the same line, what are the average collection days and what will be the net effect of a steep overnight evaluation on Pampa’s finance given the amount of unpaid invoices?
Nicolás Mindlin
Sure. So, as I said before, commission payments delay has been iterating reaching approximately 90 days. And obviously any discreet increase in FX will affect our ratios in pesos, right? And the impact on this is difficult to estimate exactly because it will depend on many factors at the time of that positive evaluation as the amount of residuals at that time and the days of delay. But just to give an idea until the day for the two of the day, of the day the ratios has adjusted by FX and after the ratios are adjusted by an interest rate in pesos that two days near to 70%.
Margarita Chun
Thank you, Nicolás. The second question for Gust, is regarding the E&P business, are there any logistics or market restrictions affecting your CapEx execution?
Gustavo Mariani
The question regarding CapEx, no we are not facing any problems, and even yesterday the Ministry of Economy has announced like green channel for in customs [indiscernible] so the government understands perfectly that energy will be part of the solutions to the macroeconomic problems. And so they’re trying to pull bottlenecks and the problems the industry suffers in order to move partner to increase production. So, we haven’t suffer any problems yet. We are – there are some bottlenecks, for example, fracking equipment, lack of fracking equipment in the market that is a bottleneck. So, we need to import new sets in order to be able to increase the rhythm of production volumes as an industry and the government understand that we need to remove any problem. So we are optimistic. We we’ll not have any problem with implementing our plans.
Margarita Chun
Thank you, Gust. Our next question comes from Guilherme Levy from Morgan Stanley. He has two questions. One for E&P, and another one regarding working capital. The first one is, in E&P. What is the planning CapEx for the coming quarters? What is the company doing for to ensure that investment to be executed in this high inflation environment, both in Argentina and in the global industry? What if there is any impact regarding import restriction in Argentina for the short-term investment?
Lida Wang
So basically we can say again, the outlook for the year and CapEx for E&P is around $350 million, and then we have 140 from power generation. This is the outlook for this year. It’s not probably going to happen again next year, because this year it’s loaded with one-offs expansionary CapEx in the case of E&P it’s around $200 million of expansionary CapEx. And in the case of power generations, it’s 90 out of 140. Restrictions in imports, I think Gustavo, just covered recently and working capital we just covered it by our CFO, Nico.
Margarita Chun
Thank you, Lida. So we covered the second question of Guilherme also regarding working capital. We’ll move on with the question of Rafael Nagano of Credit Suisse. He has three questions. The first one is what are the commercialization plans for Loma De La Lata Steam Turbine and Piquirenda given the expiration of their PPA?
Lida Wang
Hi, Rafael. The things that – when the PPAs they mature they migrate to their spot market. That’s how it works. This is for the CAMMESA PPAs. Now for the [indiscernible] they constantly roll.
Margarita Chun
Thank you, Lida. The second question of Rafael is, is there any expectation for new gas supply options? If so when should it come and how big it should be?
Gustavo Mariani
At first, this new pipeline that will be – should be, we hope and we’re optimistic will be online by in the next winter. Without on the first stage 11 million of Genelba Plus capacity that is without compression. Then on the second stage, the compression plants will be ready and that capacity will double.
So it will go from 11 million to 22 million of more capacity from [indiscernible] rates. But because of delay in the supply of the compression plants that is not going to be ready for winter 2023. In winter 2023 just a complaint with our compression that’s another 11 million of cubic feet per day. By summary 2023, 2024 another 11 million, once the compression capacity is added to the pipeline.
So the first option will be of 11 million and with the reduction should be announced any time because the industry needs to continue, the sooner that it’s been announced the better for the industry and for the government in terms of the price that’s going to be offered. Regarding the [indiscernible] at what percentage of those 11 millions are on a year one, so contracted year one how much it’ll be just for winter? We think something like 70% to 75% of those 11 million will be year round demand. And there will be a small peak, especially in 2023, probably 2024. Then all those 11 million loss, Bolivia continues to provide less gas during [indiscernible].
Margarita Chun
Thank you. Our last question from Rafael of Credit Suisse is about, should we expect any additional adjustment to legacy capacity remuneration?
Gustavo Mariani
We hope so. And we’re discussing with the authorities. We have been given since February of last year, legacy capital have basically to adjustment one of 30% that in fact, in February of this year and another 10% in June of this year, but that is since February of 2021 and inflation has been way about those figures. They are aware of it. So we’re currently discussing with the authorities. We don’t have anything confirm yet and we are optimistic that in the coming months, we will have and we just want to compensate the cost inflation.
Margarita Chun
Thank you, Bruce. We will move on with the next question. He’s from Rodrigo Nistor from IRA partners, AR Partners. He has seven questions but most of them were already answered. So we will reply two questions. The first question is do you expect a reduction in payment days from CAMMESA as consumers pay larger portion of energy cost?
Gustavo Mariani
It’s tough to answer. First question is yes, definitely it’s a good news and it’ll help, that the system will require less subsidy from the treasury. That is very good news. So and also what is important about CAMMESA is that the most of the stress that CAMMESA suffer is during the winter, because they need to pay for import of fuel to supply the power plants basically import of Escalante oil and energy, which are very heavy in the winter and we are almost over – about season. So we expect the collection from CAMMESA because of this seasonality. And because of what you have mentioned that in terms of the increasing collections of CAMMESA to the distribution company because of the price increase but then those are two factors that impact positively and CAMMESA we should expect that’s. Let’s be optimistic. That will be the case.
Margarita Chun
Thank you, Gus. And the second question of Rodrigo is how much can you grow production if additional mixing capacity becomes available?
Gustavo Mariani
I think we answered that already and have a capacity to produce 11 cubic meters of natural gas and that is what we’re currently brought mixing. We’re about to finish a new gas treatment plant in El Mangrullo to take the El Mangrullo from 8.5 million that is – our current production in El Mangrullo to 13.5 million, so we are in total of five million new production capacity. We need to drill and complete the work in order to – September and or October that new capacity will be ready, but we will not have, we will not have new wells in production to fill that up. We will have the field that was ready, starting second quarter or next year, but whether we fully fill that up, those five millions or not as said before, will depend on the demand and we see both out of from the domestic market and from export from Chile…
Gustavo Mariani
Thank you, Gus. We have been covering most of the questions. There were some few questions that couldn’t be answered because we are running out of the time. We tried to respect the one hour video conference. Anyway, we will contact directly to the person who answered, who answer the question. So this concludes the question-and-answer section. I’ll turn to Lida for final remarks.
Lida Wang
I would say, it was a great quarter. If there’s any topic or any questions that we had didn’t answered, please contact us. We will reach out to and answer question. This is not seriously. We have a lot of questions. It does that keep us very happy because, we feel like it’s, there’s a lot of activity. Any questions you may have, you can reach us out Margarita and I always be available for you. Gus, do you like to close and Nico.
Gustavo Mariani
Thank you very much for participating. We are very optimistic going forward on the prospect of the company. As Nico and Lida said this past week have been very important for our company. Being able to refinance our 2023 maturity, leave us with the capacity to focus exclusively on growing and on growing production. So it’s been very important to move forward, to reduce our indebtedness and move forward those, that maturity and also the news about the new pipeline.
Finally moving forward and all the measures that have been announced by the Minister, the new minister of Energy and Economy are excellent news for the companies. So we are very optimistic and we’ll be working very hard to fulfill our expectations. Thank you very much for joining.
Lida Wang
Thank you, Gus. This concludes today’s presentation. Thank you for joining. You may be disconnect at this time. Goodbye.
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