Deutsche Bank Markets Research
Emerging Markets Credit Corporate Credit Date Argentina Energy 2 November 2017
Xavier Olave Research Analyst (+1) 212 250-6135 Pampa Energia Group Initiation [email protected]
Eduardo Vieira Initiating coverage on the Pampa Energia S.A. (‘Pampa’) Group of Companies Research Analyst with a Positive outlook (+1) 212 250-7568 The Pampa Energia Group provides investors with exposure to the full energy [email protected] value chain in Argentina, making it one of the most unique energy companies in Latin America with a seasoned management team that managed to stay My Bui afloat when the regulatory regime in Argentina was adverse and is now set to Research Associate thrive following energy reforms. The Group is set to benefit from unheard of (in (+1) 212 250-5725 recent Argentine history) pricing visibility across all its segments at the very [email protected] least through the medium term. Positively, the group is undergoing a reorganization that is set to simplify its complex corporate structure; this will bring the vast majority of its consolidated cash flow generators under the parent company (which used to operate in a more holding company fashion).. Buy the PAMPAR ‘23s and ‘27s; Hold the rest as the issue sizes for the operating companies’ issuances are relatively small and they are trading to the call (in the short to medium term we expect the operating company notes at Edenor, Transener and TGS to be refinanced) We initiate coverage of the PAMPAR 7.375% ’23s and PAMPAR 7.5% ‘27s with a Buy rating due to the company’s solid and improving credit profile (low consolidated leverage versus EM energy peers), its asset diversity (company owns asset across entire energy value chain), and long-term, for Argentina, pricing visibility given its higher exposure to the lucrative natural gas market segment; we believe the bonds (trading to the call) offer attractive spread to duration versus Argentine peer YPF. At the operating company levels, Edenor, Transener and TGS are benefiting from long-awaited regulated tariff increases. We recommend a Hold on the EDNAR 9.75% ‘22s, TRANAR 9.75% ‘21s and TRAGAS 9.625% ‘20s as their call window is open over the next year, and if the market window remains open we would expect these bonds to be refinanced (but we are constructive on their credit stories). Relative value indicates PAMPAR bonds trading to the call offer an attractive spread pick-up versus YPF, taking duration into account We believe the PAMPAR bonds look attractive on a z-spread basis, both versus domestic peers and especially versus international peers (see relative value charts). Trading to the call, the PAMPAR 7.375% 23’s look attractive versus the similar duration YPFDAR 8.5% ‘21s (rated Hold by DB Research) at a z-spread of ~280bp versus ~230bp with 0.6 years of lower duration (50bp spread pick- up). The PAMPAR 7.5% ‘27s also look especially attractive versus the YPFDAR 8.5% ‘21s at a z-spread of ~360bp versus ~230bp (more than compensating for a higher duration of 0.6 years for the PAMPAR ‘27s with a 130bp spread pick-up). Versus the YPFDAR 8.75% ‘24s (rated Buy by DB Research), the PAMPAR ‘27s also offer a slightly higher z-spread of ~360bp versus ~350bp, but with 1.4 years less of duration. Overall, we like both companies’ credit profiles and credit trajectories, however given the higher mix of natural gas production at Pampa (69% of E&P production at Pampa is natural gas vs. 51% for YPF) and the higher mix of regulated businesses in its cash generation matrix (though YPF should be growing its generation business), we believe Pampa has a more predictable cash flow generation business model. This gives the company the ability to more quickly delever and strengthen its liquidity profile further. As of 10/31/2017
DB New Rec. / Date DB Prev Rec. / Date Avg. Mod Mid Mid Z Sov Issue Issuer Maturity Amount O/S Mdy/S&P/Fitch of Rec.* of Rec.* Life Dur Price Yield Spread Spread PAMPAR 7.375% '23 Pampa Energia 21-Jul-23 USD500m B3 / B+ / B BUY / 11/02/2017 NA 5.7 4.6 109.50 5.42 329 76 PAMPAR 7.5% '27 Pampa Energia 24-Jan-27 USD750m B3 / B+ / B BUY / 11/02/2017 NA 9.2 6.6 109.50 6.13 386 55 TRAGAS 9.625% '20 TGS 14-May-20 USD192m B3 / B+ / NA HOLD / 11/02/2017 HOLD / 09/13/2017 1.5 1.4 108.71 3.67 187 75 EDNAR 9.75% '22 Edenor 25-Oct-22 USD176m B3 / B- / NA HOLD / 11/02/2017 NA 5.0 3.9 106.00 8.25 616 379 TRANAR 9.75% '21 Transener 15-Aug-21 USD101m NA / B / NA HOLD / 11/02/2017 NA 3.8 3.1 102.97 8.80 680 471 Source: Deutsche Bank. * Deutsche Bank recommendation / date of last change or assignment of recommendation. ______
Deutsche Bank Securities Inc. Distributed on: 02/11/2017 06:33:28 GMT DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 083/04/2017. 0bed7b6cf11c 2 November 2017
Corporate Credit: Pampa Energia Group Initiation
Initiating coverage of the Pampa Energia Group; at the parent company level, we initiate coverage of the company’s ’23 and ’27 notes with a Buy recommendation; Strong independent Argentine energy company with diversified market presence We initiate coverage of the PAMPAR 7.375% ’23s and PAMPAR 7.5% ‘27s with a Buy rating due to the company’s solid and improving credit profile (low consolidated leverage versus EM energy peers), its asset diversity (company owns asset across entire energy value chain), and long-term, for Argentina, pricing visibility given its higher exposure to the lucrative natural gas market segment; we believe the bonds (trading to the call) offer attractive spread to duration versus Argentine peer YPF. We believe the PAMPAR bonds look attractive on a z-spread basis, both versus domestic peers and especially versus international peers (see relative value charts). Trading to the call, the PAMPAR 7.375% 23’s look attractive versus the similar duration YPFDAR 8.5% ‘21s (rated Hold by DB Research) at a z-spread of ~280bp versus ~230bp with 0.6 years of lower duration (50bp spread pick-up). The PAMPAR 7.5% ‘27s also look especially attractive versus the YPFDAR 8.5% ‘21s at a z-spread of ~360bp versus ~230bp (more than compensating for a higher 0.6 year duration for the PAMPAR ‘27s with a 130bp spread pick-up). Versus the YPFDAR 8.75% ‘24s (rated Buy by DB Research), the PAMPAR ‘27s also offer a slightly higher z-spread of ~360bp versus ~350bp, but with 1.4 years less of duration. Overall, we like both companies’ credit profiles and credit trajectories, however given the higher mix of natural gas production at Pampa (69% of E&P production at Pampa is natural gas vs. 51% for YPF) and the higher mix of regulated businesses in its cash generation matrix (though YPF should be growing its generation business), we believe Pampa has a more predictable cash flow generation business model. This gives the company the ability to more quickly delever and strengthen its liquidity profile further.
The Pampa Energia Group provides investors with exposure to the full energy value chain in Argentina, making it one of the most unique energy companies in Latin America with a seasoned management team that managed to stay afloat when the regulatory regime in Argentina was adverse and is now set to thrive following energy reforms. The Group is set to benefit from unheard of (in recent Argentine history) pricing visibility across all its segments at the very least through the medium term. Positively, the group is undergoing a reorganization that is set to simplify its complex corporate structure; this will bring the vast majority of its consolidated cash flow generators under the parent company (which used to operate in a more holding company fashion). This event should decrease the risk of structural subordination for the PAMPAR bondholders, with the notable exception of Edenor, which will remain outside the restricted group classification (but we believe will continue to be operated in a fiscally conservative fashion).
Based on our conservative estimates, we see the company returning to positive FCF generation by the end of 2018, and for net leverage to remain at most in the 2x level (which is strong for the rating category). The company’s rating profile should improve alongside the sovereign. Our sovereign credit strategists remain Overweight Argentina (see latest EM Monthly): while they acknowledge that Argentina credit valuation looks tight vs. its current credit standing, they see further scope for further tightening due to: a) potential multiple-notch credit ascension if politics stay on track; b) the flattening of spread / quality curve in EM credit markets under the long-term constructive external backdrop of continued inflows; and c) alternative opportunities (with spread pickup) offered by EUR bonds, select local law USD bonds, and select provincial bonds.
Key risks: Long-term, the key negative risk for the Pampa Group is a reversion of business friendly policies enacted by the current administration in case of a change in administration following the next presidential elections (though the risk seems to have dissipated given the results of the latest Congressional
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Corporate Credit: Pampa Energia Group Initiation
elections). Furthermore, given the relatively mid-level reserve life, the company’s growth prospects are dependent on future exploratory success, though positively Argentina is currently resource rich. In the short-term, key negative risks to Pampa include payment delays from the government for subsidized natural gas prices, structural subordination in case the company’s large unrestricted subsidiaries undertake large debt issuances, expansion project execution in the generation market segment, and tariff increase delays/roadblocks in terms of the company’s regulated businesses. The key positive risks to Pampa include greater than anticipated exploratory/development success, along with the refiner business’s ability to increase domestic fuel prices on a monthly basis following the liberalization of Argentine fuel prices. The company could also unlock value via asset sales, though the company is seemingly content to remain with its current asset base. At the parent level, the company could benefit from improved tariffs at Transener, which could mean greater than expected dividend inflows going forward.
Initiating coverage of Empresa Distribuidora y Comercializadora Norte S.A.’s (Edenor) ’22 notes with a ‘Hold’ rating; Cash flow generation and credit profile improving quickly We initiate coverage of the company’s ‘22 notes (EDNAR 9.75% ‘22s) with a Hold rating as the notes are trading to the call (callable at USD104.875 as of 10/25/18); the distribution sector has faced among the most extreme adverse regulatory conditions since 2001, with recent tariff increases returning the sector to solvency. Following this year’s regulatory tariff review, Edenor received much needed meaningful tariff increases that will return the company to meaningful EBITDA generation going forward. Even with increased capital expenditures, the company should be able to generate solid FCF (before dividends) for the next five years. Like its operating company Pampa Group peers, we do expect that the company will refinance its international debt, and expect the company to increase capital expenditures going forward (mostly catch-up capex), and begin making meaningful dividend payments to its parent. Even under this conservative scenario, we see the company’s gross leverage remaining under 1.5x with relatively predictable cash flow generation and a solid liquidity position.
Key risks: In our view, the key negative risk for Edenor are any significant delays/disruptions on the tariff increases, along with inordinate demand from its parent for cash flow in the form of dividends or intercompany loans (though we find this eventuality unlikely given the relative strength at the parent company). Furthermore, the company needs to settle significant contingent liabilities that could demand incremental cash outflows. Long-term risks, in the Argentine utility sector, could come in the form of a return to less business friendly government administrations in the future. Positive risks would be if the company resolves its contingent liability issues under more favorable scenarios (haircut, payment extensions, etc.). The company should also benefit from the potential normalization of the company’s credit rating (at least to the level of the sovereign) as the sovereign’s rating improves and the company’s cash flow generation ramps up.
Initiating coverage of Cia. De Transporte de Energia Electrica en Alta Tension S.A.’s (Transener) ’21 notes with a Hold rating; Company’s cash generation profile improving, as it attempts to recover from the sector’s regulatory neglect since 2001 We initiate coverage of the company’s ‘21 notes (TRANAR 9.75% ‘21s) with a Hold rating as the notes are trading to the call (callable at USD102.44 on 12/1/17 and USD101.2 on 7/29/17); the transmission sector (along with the distribution and natural gas transportation sectors) has faced the most adverse regulatory conditions in the Argentine utility space over the last decade-and-a- half, and it is just now re-emerging with the implementation of a new tariff regime. Following this year’s regulatory tariff review, Transener received much
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Corporate Credit: Pampa Energia Group Initiation
needed tariff increases, though the capital base utilized for this calculation is still in dispute and could be raised if the company is successful in its appeal. Still, even in a worst case scenario, under the current tariff increase the company will begin generating meaningful cash flows as soon as this fiscal year, with the company deleveraging as EBITDA generation increases. We do expect that the company will refinance its international debt, and expect the company to increase capital expenditures going forward (mostly catch-up capex, though could see incremental expenditures if new projects arise). Even under this conservative scenario, we see the company’s gross leverage remaining under 2x with relatively predictable cash flow generation.
Key risks: In our view, the key negative credit risk for Transener lies on any significant delays/disruptions of the tariff increases, along with inordinate demand from its parent for cash flow in the form of dividends or intercompany loans (though we find this eventuality unlikely given the relative strength at the parent company). Long-term risks, in the Argentine utility sector, could come in the form of a return to less business friendly government administrations. Positive risks would be the company’s successful appeal of the regulatory tariff review, which could yield 25%+ EBITDA generation and does provide upside to our estimates, and the potential normalization of the company’s credit rating (at least to the level of the sovereign) as the sovereign’s rating improves and the company’s cash flow generation ramps up.
Affirming Transportadora de Gas del Sur S.A.’s (TGS) Hold recommendation on the ’20 notes; We remain constructive on the credit story as company’s cash generation accelerates, and expect the bonds to be tendered or called We affirm our Hold rating on the company’s ’20 notes (TRAGAS 9.625% ‘20s) as the notes are trading to the call (callable at 104.81 on 5/14/18), and given the company’s strong credit profile and current favorable financial market conditions we expect for the company to refinance these obligations. We are constructive on the TGS credit story given the Macri administration’s enacted initiatives to transformatively reform utility prices, including natural gas transportation tariffs. Before the current administration took power, natural gas transportation tariffs had been essentially frozen, with a few minor adjustments, since 1999. The company is in the midst of a substantial tariff increase (cumulative 215% tariff increase over April 2017-April 2018 period) following the latest regulatory tariff reviews (though there could be some roadblocks to timing of the tariff increases). The Argentine natural gas transportation business once again is a financially viable business segment for the first time in a decade-and-a-half.
Key risks: In our view, the key negative credit risk for TGS lies on any significant delays/disruptions of the transportation tariff increases, combined with a large decrease in natural gas liquids prices/volumes that would significantly pressure the company’s liquidity (which is currently robust). Furthermore, given the small issue size ( Page 4 Deutsche Bank Securities Inc. 2 November 2017 Corporate Credit: Pampa Energia Group Initiation Relative Value Charts Figure 1: Z-spread (1 Year Performance) Pampa Group 900 800 700 600 500 400 300 200 100 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 PAMPAR 7.5 27 PAMPAR 7.375 23 TRANAR 9.75 21 EDNAR 9.75 22 TRAGAS 9.625 20 Source: Deutsche Bank Figure 2: Z-spread vs. Modified Duration (Argentina Corporates) 700 650 MASHER 12.625 '21 STNEWY 10 '27 600 CGCSA 9.5 '21 CHACO 9.375 '24 550 PRIO 9.75 '25 500 ALBAAR 9.625 '23 ENTRIO 8.75 '25 BMAAR 6.75 '26 450 CHUBUT 7.75 '26 CORDOB 7.875 '24 SALTA 9.125 '24 BUENOS 7.875 '27 BUENOS 9.625 '28 400 NEUQUE 8.625 '28 IRSAAR 11.5 '20 MENDOZ 8.375 '24 AES 7.75 '24 YPFDAR 8.5 '25 YPFDAR 6.95 '27 GNNEIA 8.75 '22 PAMPAR 7.5 '27 350 PDCAR 7.45 '24 PROVSF 6.9 '27 YPFDAR 8.75 '24 Zspread, bps Zspread, BUENOS 9.125 '24 BUEAIR 7.5 '27 ARGENT '27 300 PAMPAR 7.375 '23 AEROAR 6.875 '27 BHIP 9.75 '20 BUENOS 6.5 '23 PDCAR 7.125 '21 IRCPAR 8.75 '23 (to call) GALIAR 8.25 '26 (to call) 250 BUENOS 9.95 '21 CBVS 6.5 '21 YPFDAR 8.5 '21 ARGENT '22 200 BUENOS 10.875 '21 PANAME 7.875 '21 ARGENT '21 ARCOR 6 '23 (to call) 150 BUENOS 5.75 '19 BUEAIR 8.95 '21 YPFDAR 8.875 '18 100 ARGENT '19 BUENOS 9.375 '18 50 0 1 2 3 4 5 6 7 8 Mod Duration Source: Deutsche Bank Deutsche Bank Securities Inc. Page 5 2 November 2017 Corporate Credit: Pampa Energia Group Initiation Figure 3: Z-spread vs. Modified Duration (Latin America Energy Corporates) 500 PETBRA 6.85 '15 450 PETBRA 7.25 '44 PETBRA 6.875 '40 PETBRA 6.75 '41 PEMEX 6.625 Perp PEMEX 6.375 '45 400 PETBRA 5.625 '43 PEMEX 6.75 '47 PEMEX 6.5 '41 PEMEX 5.625 '46 YPFDAR 8.5 '25 YPFDAR 6.95 '27 PEMEX 5.5 '44 PAMPAR 7.5 '27 PEMEX 6.625 '35 ECOPET 7.375 '43 350 YPFDAR 8.75 '24 PETBRA 7.375 '27 ECOPET 5.875 '45 PETBRA 8.75 '26 300 PEMEX 6.5 '27 PAMPAR 7.375 '23 PEMEX 6.875 '26 PETBRA 6.25 '24 250 PEMEX 4.5 '26 Zspread, bps Zspread, YPFDAR 8.5 '21 PETBRA 4.375 '23 PEMEX 4.875 '24 PEMEX 4.25 '25 PANAME 7.875 '21 ECOPET 5.375 '26 200 PEMEX 4.625 '23 PETBRA 6.125 '22 ECOPET 4.125 '25 PETBRA 8.375 '21 PEMEX 4.875 '22 PETBRA 5.375 '21 PEMEX 5.375 '22 150 ECOPET 5.875 '23 ENAPCL 3.75 '26 PEMEX 5.5 '21 ENAPCL 4.375 '24 YPFDAR 8.875 '18 100 PEMEX 6 '20 PEMEX 3.5 '20 ENAPCL 4.75 '21 50 0 2 4 6 8 10 12 14 Mod Duration Source: Deutsche Bank Figure 4: Sovereign spread vs. Modified Duration (Latin America Energy Corporates) 180 PEMEX 6.625 '35 PEMEX 6.5 '41 PEMEX 6.625 Perp 160 PEMEX 6.75 '47 PEMEX 6.5 '27 PEMEX 6.375 '45 PEMEX 6.875 '26 PEMEX 5.625 '46 PEMEX 5.5 '44 140 PAMPAR 7.5 '27 PETBRA 7.375 '27 ECOPET 7.375 '43 PEMEX 4.25 '25 120 PEMEX 4.875 '24 PETBRA 6.875PETBRA '40 6.85 '15 PAMPAR 7.375 '23 PEMEX 4.5 '26 PETBRA 8.75 '26 PETBRA 6.75 '41 PETBRA 7.25 '44 ECOPET 5.875 '45 PEMEX 4.625 '23 100 PEMEX 4.875 '22 PETBRA 6.25 '24 ENAPCL 3.75 '26 PEMEX 5.375 '22 PETBRA 5.625 '43 ENAPCL 4.375 '24 PEMEX 6.375 '21 YPFDAR 8.75 '24 80 PEMEX 5.5 '21 ECOPET 5.375 '26 Sov spread, bps spread, Sov PETBRA 4.375 '23 YPFDAR 8.5 '25 60 PETBRA 5.375 '21 ENAPCL 4.75 '21 ECOPET 4.125 '25 PEMEX 6 '20 PETBRA 6.125 '22 PETBRA 8.375 '21 40 PEMEX 3.5 '20 ECOPET 5.875 '23 YPFDAR 8.5 '21 YPFDAR 6.95 '27 20 PEMEX 8 '19 0 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Mod Duration Source: Deutsche Bank Page 6 Deutsche Bank Securities Inc. 2 November 2017 Corporate Credit: Pampa Energia Group Initiation Figure 5: Z-spread vs. Average Rating (Emerging Market Corporates – 10 Year Sector) 400 YPFDAR 6.95 '27 YPFDAR 8.5 '25 350 PETBRA 7.375 '27 PAMPAR 7.5 '27 PETBRA 8.75 '26 300 PEMEX 6.5 '27 PEMEX 6.875 '26 250 GGBRBZ 4.875 '27 BRASKM 4.5 '28 PEMEX 4.875 '24 ECOPET 5.375 '26 ISRELE 7.875 '26 KZOKZ 4.75 '27 200 FUNOTR 5.25 '26 VALEBZ 6.25 '26 CFELEC 4.75 '27 Z spread (bps) Z spread MEXCAT 4.25 '26 ECOPET 4.125 '25 ENAPCL 3.75 '26 OINLIN 4.0 '27 150 TAQAUH 3.875 '24 CFELEC 4.875 '24 ENAPCL 4.375 '24 CDEL 3.625 '27 CDEL 4.5 '25 CNOOC 3.5 '25 100 SINOPE 3.5 '27 50 6 7 8 9 10 11 12 13 14 15 16 17 AA- A+ A A- BBB+ BBB BBB- BB+ BB BB- B+ B Moody's, S&P, Fitch - average rating Source: Deutsche Bank Figure 6: Z-spread vs. Average Rating (Emerging Market Corporates – 5 Year Sector) 400 GEOPAR 6.5 '24 350 300 LATAIR 7.25 '20 PAMPAR 7.375 '23 250 YPFDAR 8.5 '21 PANAME 7.875 '21 200 EVRAZ 8.25 '21 PETBRA 8.375 '21 PETBRA 5.375 '21 PETBRA 5.75 '20 Z spread (bps) Z spread 150 PEMEX 6.375 '21 KZOKZ 6.375 '21 BRASKM 5.75 '21 VIP 7.748 '21 BRASKM 7.0 '20 100 CFELEC 4.875 '21 PEMEX 3.5 3.5% '20 VALEBZ 5.785 '21 GGBRBZ 5.75 '21 CDEL 3.875 '21 ENAPCL 4.75 '21 CNOOC 2.625 '20 PTTEPT 5.692 '21 PERTIJ 5.25 '21N 50 DPWDU 3.25 '20 SINOPE 2.5 '20 0 6 7 8 9 10 11 12 13 14 15 16 17 18 AA- A+ A A- BBB+ BBB BBB- BB+ BB BB- B+ B B- Moody's, S&P, Fitch - average rating Source: Deutsche Bank Deutsche Bank Securities Inc. Page 7 2 November 2017 Corporate Credit: Pampa Energia Group Initiation Pampa Energia (B3/B+/B): Transformation into Major Player Across the Entire Energy Value Chain in Argentina Post transformational acquisition, Pampa Energia solidified its position as the third largest E&P player in Argentina and the largest fully integrated energy company in Argentina Based in Buenos Aires, Pampa Energia S.A. (‘PAMPAR’) is arguably the leading fully integrated energy company in Argentina. NYSE-traded PAMPA (ADR ticker: ‘PAM’) controls assets in all three major electricity market segments (Generation, Transmission, Distribution), natural gas transportation (via TGS), and upstream and downstream oil & gas operations (via Petrolera Pampa and the former Petrobras Argentina assets). The company was incorporated in 1945, originally as a cold storage warehouse business, and in 2005 Messrs. Damian Mindlin, Gustavo Mariani and Ricardo Torres acquired a controlling stake in the business, changed the name of the predecessor company to Pampa Holding S.A. (eventually to Pampa Energia S.A.), and embarked on a series of acquisitions in the energy sector over the last decade. The vast majority of operations are in Argentina, with some small operations in Ecuador and Venezuela. Upon completion of the acquisition of Petrobras Argentina (previous ticker: PESAAR), Pampa Energia became the successor company and the obligor of the USD500mn 7.375% ’23 notes (issued in July 2016) and the USD750mn 7.5% ’27 notes (issued in January 2017). In the LTM June 2017 period, Pampa Energia reported revenues, adjusted EBITDA and Total Assets of USD3.465bn, USD904mn and USD5.305bn, respectively. We note that the Petrobras Argentina acquisition closed in 3Q16, making that the first quarter where the company’s results are consolidated into Pampa’s financial statements. The first full quarter of consolidated results took place in 4Q16; during the first half of 2017 Oil & Gas accounted for nearly two-thirds of consolidated EBITDA, followed by Power Generation and Distribution, which combined accounted for 38% of total EBITDA. Figure 7: Diverse assets across energy spectrum Figure 8: Oil & Gas is ~60% of company’s cash flow Business Segment Operations EBITDA Distribution (1H17) Petrochemicals Oil & Gas E&P 70k boed 2% Refining 56k bpd Power Distribution Power Generation 3,433 MW 14% Power Transmission * 20,670 km of lines Power Power Distribution 2.9 mn clients Generation Oil & Gas E&P Natural Gas Transportation * 9,184 km 24% 56% Natural Gas Liquids * 1 mn tons/year Petrochemicals 280k tons/year Refining 4% * Not consolidated even though company owns controlling stakes; accounted for using equity method. Source: Company reports; Deutsche Bank Source: Company reports; Deutsche Bank As previously noted, the company has publicly traded equity with a market capitalization of USD5bn (as of 11/1/2017), with the equity trading up 96% YTD. Management owns 18% of the company’s shares, with ANSES (the Argentine pension fund) owning 17% (the remainder is the free float). Page 8 Deutsche Bank Securities Inc. 2 November 2017 Corporate Credit: Pampa Energia Group Initiation Figure 9: Management owns 18% of company’s shares Figure 10: Significant Share Price Appreciation 1700 Gustavo Mariani 70 2% 1600 Marcelo Damian Mindlin 60 1500 Mindlin 2% 12% Ricardo Torres 50 1400 2% 1300 40 1200 ARS/USD FX rate ANSES 30 1100 Other Holders 17% 65% 20 1000 PAM Merval Source: Company filings; Bloomberg Finance LP; Deutsche Bank Source: Company filings; Bloomberg Finance LP; Deutsche Bank Pampa has a complex organization structure, but the main operating subsidiaries are Edenor (electricity distribution), Transener (electricity transmission), TGS (natural gas transportation), and Petrolera Pampa (oil & gas). The legacy Petrobras Argentina assets are in the midst of being absorbed into the Pampa Energia S.A. parent company, and subsequently the company announced a further reorganization that would bring the vast bulk of operating companies fully under the Pampa Energia parent company/operating company umbrella, with Edenor remaining the only major unconsolidated subsidiary remaining. Figure 11: Pampa Energia Simplified Organization Chart (Before Reorganization) *Not consolidated into Pampa Energia top-line; **Petrobras Argentina/Energia financials for the LTM September 2016 period (stopped reporting stand-alone results post transaction). Source: Deutsche Bank Deutsche Bank Securities Inc. Page 9 2 November 2017 Corporate Credit: Pampa Energia Group Initiation Consolidated Financial Performance: Results Have Been in Flux But We Have Reached a Point of Stability Pampa’s oil & gas segment is the dominant cash flow generator for the company; we expect this trend to continue going forward, though, given tariff increases the Generation/Distribution mix should rise. In 2Q17, Pampa showed consistent results as the company’s cash flow generation profile stabilizes and leverage declines due to higher post-transaction EBITDA and higher contributions from its utility subsidiaries (following tariff hikes). In the third quarter, we will for the same time see more like-for-like yoy comparisons given the transaction closed in July 2016. Overall, the company’s results are starting to see improved financial performance in power generation and distribution (following tariff increases), while oil & gas should continue to generate steady cash flows. In the second quarter, on a local currency basis, results came in lighter than consensus (5% below EBITDA consensus), but overall the company’s deleveraging trajectory should continue. Figure 12: Pampa Consolidated Financial Results Summary Income Statement (USDm) 2Q16 3Q16 4Q16 1Q17 2Q17 qoq yoy 2015 2016 LTM Revenues 292 662 842 967 994 2.7% 240.3% 769 2,088 3,465 EBITDA (40) 152 262 246 244 -1.0% -715.4% 436 484 904 Interest Expense (35) (77) (68) (62) (52) -15.9% 49.1% (100) (206) (259) Balance Sheet (USDm) Cash & Equivalents 56 231 89 199 18 -90.8% -67.0% 40 89 18 ST Debt 255 699 673 435 166 -61.7% -34.8% 101 673 166 Total Debt 726 1,780 1,636 2,154 2,069 -3.9% 184.9% 618 1,636 2,069 Net Debt 671 1,548 1,546 1,954 2,051 5.0% 205.8% 578 1,546 2,051 Cash Flow (USDm) Operating Cash Flow 63 47 192 (95) 150 -257.4% 139.0% 391 192 294 Capex (74) (143) (209) (119) (260) 119.4% 250.7% (512) (209) (731) Reported FCF (11) (96) (17) (214) (110) -48.5% 864.3% (121) (17) (437) Basic FCF* (151) (80) (30) 42 (98) -332.7% -35.0% (187) 54 (166) Financial Ratios EBITDA Margin (%) -13.6% 23.0% 31.1% 25.5% 24.5% (91) nm 56.7% 23.2% 26.1% Cash/ST Debt (x) 0.2x 0.3x 0.1x 0.5x 0.1x -0.3x -0.1x 0.4x 0.1x 0.1x LTM Gross Leverage (x) 2.4x 5.3x 3.4x 3.5x 2.3x -1.2x -0.1x 1.5x 3.4x 2.3x LTM Net Leverage (x) 2.2x 4.6x 3.2x 3.1x 2.3x -0.9x 0.1x 1.4x 3.2x 2.3x Interest Coverage (x) -1.1x 2.0x 3.8x 4.0x 4.7x 0.7x 5.8x 4.4x 2.3x 3.5x Basic FCF/Total Debt (%) -20.8% -4.5% -1.9% 2.0% -4.7% (670) 1,604 -30.3% 3.3% -8.0% *Adjusted Operating Cash Flow = Reported Operating Cash Flow + Interest Expense; Basic FCF = EBITDA + Interest Expense + Capex + Taxes Paid Source: Deutsche Bank. Company data Operational Performance: Steady Results in Oil & Gas and Power, offset by Relative Weakness in Other Segments In the second quarter of 2017, the company showed steady results (consistent with the prior quarter) in both the Oil & Gas segment and Power Generation; offset by relative weakness in Distribution, Refining, and Petrochemical results. Oil & Gas: Segment EBITDA of USD143mn (~58% of consolidated EBITDA) increased by 8% sequentially (yoy comparisons are not very meaningful given the acquisition). Production of 70k boed was flat with the prior quarter, though down from 81k boed in 4Q16. Realized price per boe of USD38.6 was also flat sequentially, which means the relative outperformance came in the form of lower costs with cash costs per boe declining by nearly USD2 to USD22.7/boe. Versus 4Q16, operating results were negatively impacted due to lower gas production as the company divested its Rio Neuquen, Aguada de la Arena and Colpa y Caranda assets. Page 10 Deutsche Bank Securities Inc. 2 November 2017 Corporate Credit: Pampa Energia Group Initiation Power Generation: In 2Q17, the company’s generation business had EBITDA of USD59m, which was +148% yoy and +5% qoq. The yoy improvement reflects the dollarization of capacity remuneration starting in February 2017 (RES 19E/17), so this provides a decent run rate looking at the rest of the year. Eighty-percent yoy generation growth was partially offset by technical problems/maintenance at some units. Electricity Distribution: On an individual basis, the company’s distribution business generated adjusted EBITDA of USD27mn, which was under the USD39mn generated in the prior quarter as volumes were down by 4% sequentially (due to lower demand) and cash costs per volume spiked up qoq (in part due to higher power purchase costs). Cash flow, debt, leverage and liquidity: Company on a deleveraging trajectory; Liquidity pressured recently though it holds an adequate cushion and most debt is long-dated Annualizing the last two quarters implies FY17 EBITDA generation of ~ USD1bn, which is a little higher than consensus (in USD terms). This would imply net debt of ~2x, which is well within the company’s short-term target. Cash and equivalents of USD18mn was low in the quarter (0.1x ST Debt) mainly due USD110mn FCF burn. However, the company also holds USD550mn in short-term financial investments, which reinforce its liquidity position. The maturity schedule for the company is fairly long-dated, with the 2023 USD500mn and 2027 USD750mn maturities comprising the bulk of the company’s debt load. On a consolidated basis—this does exclude the non- consolidated TGS and Transener debt, which totals just under USD300mn. Also, approximately 8% of the company’s total financial indebtedness is owed to CAMMESA, which could be considered an account payable rather than financial debt (though for our conservative purposes, we’re including it under our leverage calculation). PAMPA intends to maintain total leverage on a sustained basis of 1x, but noted this could rise to 1.5x during peak capex years (with a higher leverage level shortly after the transaction). We are more conservatively projecting that the company will maintain gross leverage in the ~2x level going forward, which is still relatively strong for the rating category. The company’s stated policy is to maintain a minimum cash cushion of at least ~USD100mn. Figure 13: Following USD bullet issuances in last year, company has comfortable maturity schedule 1,400 1,200 1,000 800 600 400 200 0 Liquidity 2017 2018 2019 2020 2021 2022 2023+ Note: Liquidity includes cash & equivalents plus short-term liquid investments; Maturity schedule excludes non-consolidated subsidiary debt Source: Deutsche Bank Deutsche Bank Securities Inc. Page 11 2 November 2017 Corporate Credit: Pampa Energia Group Initiation There is some FX mismatch given that 87% of the company’s debt-load is dollarized, while approximately 40% of its 1H17 revenues are dollarized (Oil & Gas+Generation). The ratio of dollarized revenues rises to 65% if we include the company’s refining operations given recent government initiatives that liberalized downstream pricing that would allow downstream market participants to adjust pricing based on FX/inflationary movements immediately, rather than on a quarterly basis (which was set in place for 2017). When looking at cash flow generation, the FX mismatch looks more favorably for Pampa as in 1H17 dollarized EBITDA accounted for 84% of total EBITDA generation. Figure 14: 60% of Consolidated Debt Comprised of Figure 15: 87% of Debt USD Denominated/Linked; 84% HoldCo USD Bonds of EBITDA dollarized in 1H17 13% 23% 17% 60% 87% HoldCo USD Bonds Edenor/PEPASA Other Debt USD ARS Source: Company reports; Deutsche Bank Source: Company reports; Deutsche Bank Forward-looking guidance provided by management and other considerations: pricing stability across multiple sectors now evident across all market segments; main capital spending focused on oil & gas segment but projects arising in power generation as well For the first time in a decade and a half, the Argentine energy sector has relatively medium-term (next five years) pricing visibility across all major energy sectors. The only sub-segment that would find itself at a disadvantage is the upstream sector given pricing is no longer at a premium versus international prices. This is more harmful for stand-alone upstream companies, versus integrated players like Pampa and YPF, that can gain a margin on lower upstream prices at the pump. Figure 16: Pricing Visibility Has Improved for the Next Five Years Market Segment Regulator Pricing Policies In 2017, Medanito and Escalante set to decline to USD55/bbl and USD47/bbl respectively; now Crude Oil Ministry of Energy; ENARGAS prices set to fluctuate with Brent prices. Pricing for non-conventional natural gas: USD7.5/mmBTU in 2017-2018, USD7 in 2019, USD6.5 in Natural Gas Ministry of Energy; ENARGAS 2020, USD6 in 2021. In 2017, Prices adjusted on a quarterly basis to reflect FX/inflationary movements in prior Refined Fuels Ministry of Energy; ENARGAS quarter; Prices currently liberalized with expected monthly adjustments. Resolution 19/17 dollarized remuneration scheme for old capacity and provides for minimum remuneration for power capacity based on technology and scale. Spot prices dollarized. Tender Generation ME&M/SEE/ENRE/CAMMESA offers for new capacity priced in USD for long-term PPA's with CAMMESA. Regulated Tariff Reviews: 5-year period granted in February 2017; 98% cumulative increase with scaled increases in February 2017, November 2017, and February 2018. Semiannual cost update, Distribution ME&M/SEE/ENRE/CAMMESA and Regulatory Asset Base of USD2.6bn (post-tax WACC of 8.1%). Regulated Tariff Reviews: 5-year period granted in February 2017; Transener +1168% and Transba +1596% with semiannual cost update and consolidated capital base of USD734mn (post Transmission ME&M/SEE/ENRE/CAMMESA tax WACC of 7.7%) Regulated Tariff Reviews: 5-year period granted in April 2017; 215% cumulative increase with scaled increases in April 2017, December 2017, and April 2018. Semiannual cost update, and Natural Gas Transportation ENARGAS Regulatory Asset Base of USD2.0bn (post-tax WACC of 8.99%). Source: Company reports; Deutsche Bank Page 12 Deutsche Bank Securities Inc. 2 November 2017 Corporate Credit: Pampa Energia Group Initiation The company does not provide official guidance, but did note that it committed to a USD150mn investment commitment to develop (with YPF) the Rincon del Mangrullo Block for an unconventional gas pilot program. Going forward, Pampa plans to invest in lower cost tight sands natural gas production, and plans to spend USD500mn in gas development capex over the next 3-5 years, in order to fulfill its plans to increase its share of the Argentine natural gas output. At the Petrolera Pampa level, the capex budget is set to rise to USD500mn from USD250mn currently, which would take the overall oil & gas capex budget closer to USD900mn-USD1bn level. Also it’s important to highlight that since the acquisition of Petrobras Argentina, the company started a reorganization process to simplify its corporate structure. As noted in the prior section, in late September it announced it would rolling-up several subsidiaries, including Petrolera Pampa, into the Pampa Energia (holdco) organization level. Covenant packages for the group’s USD issuances are fairly standard Argentine HY restrictions; At Holdco level the company is significantly below its incurrence restrictions At the Holdco bond levels (issued at the Pampa Energia level), incurrence covenants limit the restricted subsidiaries to a minimum EBITDA interest coverage of 2x and a maximum leverage defined as a debt-to-EBITDA ratio below 3.5x. For the purpose of the two Holdco issuances (PAMPAR ‘23s and ‘27s), Transener, Edenor and TGS are not classified as restricted subsidiaries. As a reminder, Pampa’s consolidated results do not consolidate TGS and Transener’s results on the top-line (they are consolidated using the equity method); Edenor’s results are consolidated. This does raise the possibility of structural subordination increasing, especially if the three subsidiaries issue incremental debt. Though to the company’s credit, it has a conservative financial strategy track record, and seems committed to consolidated sub-2x gross leverage on a sustained basis. Deutsche Bank Securities Inc. Page 13 2 November 2017 Corporate Credit: Pampa Energia Group Initiation Figure 17: Pampa Group USD Issuances’ Covenant Summaries Amount Outstanding Yield to Issue Security Ranking Description Entity (USD mn) Mid-Price Worst Next Call Call Price PAMPAR 7.5% '27s Senior Unsecured Bullet Holdco 500.0 109.50 4.88 1/24/22 103.75 Guarantees N/A. Transener, Edenor and TGS are not restricted subsidiaries for this issue. Financial Covenants N/A Debt incurrence prohibited unless: Gross leverage of Pampa/designated subsidiaries <=3.5x fixed-charge coverage ratio Incurrence Covenants >=2.0x. Restricted payments allowed as long as below incurrence leverage restrictions and dividends are not >10% of prior year Net Restricted Payments Income. PAMPAR 7.375% '23s Senior Unsecured Bullet Holdco 750.0 109.50 4.88 7/21/20 103.69 Guarantees N/A. Transener, Edenor and TGS are not restricted subsidiaries for this issue. Financial Covenants N/A Debt incurrence prohibited unless: Gross leverage of Pampa/designated subsidiaries <=3.5x fixed-charge coverage ratio Incurrence Covenants >=2.0x. Restricted Payments Restricted payments allowed as long as below incurrence leverage restrictions. EDNAR 9.75% '22s Senior Unsecured Bullet Opco 176.4 106.00 3.45 10/25/18 104.88 Guarantees N/A Financial Covenants N/A Debt incurrence prohibited unless: Gross leverage of Pampa/designated subsidiaries <=3.75x fixed-charge coverage ratio Incurrence Covenants >=2.0x. Restricted Payments Restricted payments allowed as long as below incurrence leverage restrictions. TRAGAS 9.625% '20s Senior Unsecured Amortizer Opco 191.6 108.71 4.86 5/4/18 104.81 Guarantees N/A Financial Covenants N/A Debt incurrence prohibited unless: Gross leverage of Pampa/designated subsidiaries <=3.75x fixed-charge coverage ratio Incurrence Covenants >=2.0x. Restricted Payments Restricted payments allowed as long as below incurrence leverage restrictions. TRANAR 9.75% '21s Senior Unsecured Bullet Opco 100.5 102.97 8.80 11/17/17 102.44 Guarantees N/A Financial Covenants N/A Debt incurrence prohibited unless: Gross leverage of Pampa/designated subsidiaries <=3.75x fixed-charge coverage ratio Incurrence Covenants >=2.0x. Restricted Payments Restricted payments allowed as long as below incurrence leverage restrictions. Source: Company reports; Deutsche Bank We expect credit ratings to remain capped at the sovereign level; Moody’s is the outlier implying a potential negative decoupling in the event of a sovereign rating upgrade Pampa is rated B3/B+/B by Moody’s/S&P/Fitch with a Stable Outlook at all three agencies; this puts the company’s ratings in-line with all three agencies’ sovereign country ceilings, and we expect Pampa’s ratings to be tied to the sovereign going forward, given the strategic linkage between the energy sectors in which Pampa operates and the sovereign’s interests. Moody’s/S&P/Fitch rate the Argentina sovereign at B3/B+/B (POS/STA/STA), with Moody’s being the outlier though its Argentina rating has a positive rating outlook (implying the possibility of a pending rating upgrade). Moody’s: B3 ratings don’t explicitly tie the company to a rating increase if the sovereign rating is upgraded (the Outlook is Stable versus a Positive Outlook for the sovereign), though we would be surprised if the company’s rating is not upgraded in the event of a sovereign upgrade. The agency’s ratings considers the agency’s expectation for negative free cash flow in the next two years due to higher capex (natural gas/power generation), low interest coverage and low retained cash flow to total debt, offset by the company’s strategy to focus on businesses with positive pricing outlooks (especially natural gas and power generation). Positive rating triggers: Would include retained cash flow:total debt ratio (funds from operations less dividends) higher than 35% and EBITDA:Interest Expense of 6x and above (on a sustainable basis). Negative Page 14 Deutsche Bank Securities Inc. 2 November 2017 Corporate Credit: Pampa Energia Group Initiation rating triggers: The company’s ratings could be downgraded if the company “materially” increases its leverage measured as retained cash flow:total debt lower than 10%, or if its interest coverage declined to below 2x on a sustained basis and the company’s liquidity profile deteriorates. S&P: Following the acquisition of Petrobras Argentina, S&P noted that the company expected a gross leverage ratio of around 2.5x and FFO:Debt of 25%- 28% in 2017, with the company beginning to delever starting in 2018 to 1.5x- 2.0x and 40%-45% (driven mainly by Distribution cash flow improvements. Following this week’s increase in the company’s sovereign rating to B+ from B, the agency proceeded to also upgrade Pampa’s corporate credit ratings to B+. Positive rating triggers: the agency noted the stable outlook is in-line with the sovereign outlook and that Pampa’s credit rating is constrained by the sovereign ratings and transfer and convertibility risk in Argentina (implying rating would increase in case of sovereign upgrade; which, as noted, took place as S&P upgraded the sovereign to B+ from B on October 30 and followed this up with a rating upgrade for Pampa). Negative rating triggers: S&P noted that any sovereign rating downgrade or negative outlook would likely also negatively impact Pampa’s ratings. The agency could also downgrade the ratings/revise outlook to negative if it perceives a much more aggressive financial policy than expected (higher leverage or weaker liquidity) resulting in a material increase in the company’s gross leverage to 5x+ or what it deemed material liquidity pressures. Fitch: The agency rates Pampa’s foreign currency issuer default rating at B with a Stable Outlook, which is in-line with the agency’s sovereign rating. Positive rating triggers: In terms of positive ratings driver, Fitch noted that without a corresponding rating upgrade by the sovereign, an upgrade for Pampa “is unlikely in the near term”. The agency did note that a sustained improvement in the financial performance of the company’s distribution segment would be viewed positively (as long as it results in substantial deleveraging). Negative rating triggers: The main risk, as would be expected, remains in the Argentine regulatory front given Argentina’s history of interventionism and the company’s involvement across the spectrum of the country’s energy market segments. Fitch did note that gross leverage of greater than 3x on a sustained basis could lead to a negative rating action, but we believe the sovereign risk implications remain the most important drivers in terms of the company’s ratings. Oil and Gas Segment (56% of EBITDA) Pampa’s oil & gas segment is the dominant cash flow generator for the company; we expect this trend to continue going forward, though, given tariff increases the Generation/Distribution mix should rise. The company’s oil & gas segment is comprised of acquired Petrobras Argentina’s oil and gas assets and its sister company under the Pampa umbrella, Petrolera Pampa (‘PEPASA’), which was founded in 2009. Pampa owns a controlling 49.6% stake in PEPASA, with Pampa chairman Mr. Marcelo Mindlin owning an additional 9.27% (Mr. Mindlin is also the Chairman of PEPASA). Following the acquisition of Petrobras Argentina, Pampa became the operating company holding the Petrobras Argentina assets (after entities were merged). As part of the current reorganization at Pampa, PEPASA will also be fully absorbed into its parent company (with the company upping its equity stake to 100%) Via the transaction, Pampa cemented its status as one of the largest vertically integrated E&P players in Argentina (3% market share of the crude market and 4% share of natural gas). Petrolera Pampa was founded initially as a means to supply natural gas to Pampa’s generation plants, but given the relatively attractive economics of the upstream market segment (prices above Deutsche Bank Securities Inc. Page 15 2 November 2017 Corporate Credit: Pampa Energia Group Initiation international standards), especially in the natural gas market segment, Pampa pivoted its strategy towards increasing its hydrocarbon production/sales above levels needed to simply supply the group’s own power plants. The Petrobras Argentina acquisition holds the key for this strategy pivot. Figure 18: 1H17 Argentina Oil Production Share Figure 19: 1H17 Argentina Natural Gas Production Share Others Others 18% 17% Pampa Pluspetrol 3% 2% YPF YPF Pluspetrol Pampa 43% 46% 4% 4% Chevron Winterfell 4% 9% Sinopec Total 5% Pan American 9% 20% Pan American 16% Source: Company reports; YPF; Deutsche Bank Source: Company reports; YPF; Deutsche Bank Production profile with heavy natural gas mix; a sweet spot in Argentine energy Grupo Pampa acquired all the shares of Petrobras Participaciones S.L., which held 67.2% of the voting rights of Petrobras Argentina on July 27th, 2016 for a total consideration of USD898mn (this total approaches USD1.4bn when taking in consideration incremental USD500mn spent to tender for minority shareholders’ shares). As of the end of 2016, the company completed the tender offer for remaining minority shares, upping its equity ownership stake to 90.4%. The transaction was funded via PAMPA’s own cash generation, the sale of a stake in Transportadora de Gas del Sur (TGS) for USD240mn, USD750mn via bank financing, USD225mn in private financing, and funds provided by Pampa’s controlling shareholders (company used proceeds from PAMPAR 27’s to repay bank financing used for the transaction). On top of the acquired E&P assets, Pampa also gained access to a 1,200 MW energy generation plan, and agreed to sell to Petrobras Brazil 33.6% of the rights and obligations to Rio Neuquen concession area and PESAAR’s Bolivia assets for a net amount of USD52mn. YPF also agreed to pay PAMPA USD72mn for a 33.33% stake of the Rio Neuquen concession area and USD68mn for 100% of the Aguada de la Arena block. When looking at Pampa’s E&P portfolio holistically, it’s clear the company’s focus will remain on increasing natural gas production (Ninety-eight percent of PEPASA’s production is natural gas, while in the LTM September 2016 period, approximately 58% of PESAAR’s production was natural gas). After integrating PESAAR, Pampa’s production was 68% natural gas in 1H17, and expected to increase given the relatively attractive economics of natural gas in Argentina (pricing of USD7.5/mmbtu for new gas production). The proforma P1 reserves (adding PESAAR and PEPASA) totaled 144mn BOE (67% gas), which yields a reserve life of approximately ~5.4 years (reflects asset sales/write-downs and average production during the last three quarters that the company has reported). Given this relatively low level of reserve life, we would expect the company to calibrate, going forward, its oil reserves and production to fully fill its refining needs, at least until the price of crude oil rebounds to higher levels. Pampa owns approximately 5% of the country’s refining capacity and a similar share of the overall downstream market. Figures 20 and 21 show the proforma operating trends for Petrobras Argentina and Petrolera Pampa if the merger had taken place in 2011. Page 16 Deutsche Bank Securities Inc. 2 November 2017 Corporate Credit: Pampa Energia Group Initiation Figure 20: 1H17 Production is 68% Natural Gas Figure 21: 67% of reserves are NG Oil and Gas Production Trends P1 Reserves 120,000 70% 250,000 10.0 100,000 65% 200,000 8.0 80,000 150,000 6.0 60% 60,000 100,000 4.0 Years 55% 000's of boe 50,000 2.0 40,000 Production (boed) Production 50% 0 0.0 20,000 2012 2013 2014 2015 2016 0 45% Oil Gas 2011 2012 2013 2014 2015 2016 1Q17 2Q17 Reserve Life (RHS) Reserve Life Oil (RHS) Oil Gas % Gas (RHS) Reserve Life Gas (RHS) Note: Adding Petrobras Argentina + Petrolera Pampa Note: Adding Petrobras Argentina + Petrolera Pampa Source: Company reports; Deutsche Bank Source: Company reports; Deutsche Bank As of year-end 2016, Petrolera Pampa had managed to grow proved (P1) reserves to nearly 21 million boe, while production grew from 1,100 boed to approximately 18,000 boed. This translates to roughly 3 years of reserve life, which is below average for a high-yield operating profile. For investment grade profiles, ratings agencies typically look for 10 years of reserve life, among a multitude of factors. In 2016, Petrolera Pampa generated revenues and EBITDA of USD191mn and USD165mn, respectively, and had total assets summing up to USD445mn. Figure 22: PEPASA production has increased by nearly Figure 23: …proved reserves have steadily grown, 18x in last five years… though reserve life has fallen as production ramped Oil and Gas Production Trends Growing Reserves 20,000 25,000 12.0 15,000 20,000 10.0 8.0 10,000 15,000 6.0 10,000 Production (boed) Production 5,000 000's of boe 4.0 5,000 0 2.0 2011 2012 2013 2014 2015 2016 1Q17 2Q17 0 0.0 Oil Gas 2012 2013 2014 2015 2016 Oil Gas Reserve Life Years (RHS) Source: Company reports; Deutsche Bank Source: Company reports; Deutsche Bank For its part, Petrobras Argentina (PESAAR) generated LTM September 2016 sales of USD2.1bn and EBITDA of USD620mn. The company has operated in Argentina since 1946 but in 1997 it divested many of its business lines to focus on energy assets. It operates four segments: 1) Oil and Gas exploration; 2) Downstream services; 3) Gas and Energy and; 4) Petrochemicals. As of year- end 2016, PESAAR held 1P reserves of 123mn boe (62% natural gas), of which 67% were developed. Based on 2016 figures, reserve life was 5 years for oil and gas and 4.5 years for oil reserves (5.3 for gas). Total LTM September 2016 production of 67.8k boed is concentrated in three basins: Neuquen, San Jorge and Noroeste. Deutsche Bank Securities Inc. Page 17 2 November 2017 Corporate Credit: Pampa Energia Group Initiation Figure 24: Petrobras Argentina production declining Figure 25: Reserve life declining with asset sales and recently write-downs Oil and Gas Sales Trends Reserves 100,000 250,000 10.0 80,000 200,000 8.0 150,000 6.0 60,000 100,000 4.0 40,000 000's of boe 50,000 2.0 Production (boed) Production 20,000 0 0.0 2012 2013 2014 2015 2016 0 2011 2012 2013 2014 2015 LTM Sep Oil Gas 2016 Reserve Life Years (RHS) Reserve Life Oil Oil Gas Reserve Life Gas Source: Company reports; Deutsche Bank Source: Company reports; Deutsche Bank Petrolera Pampa leverage has declined despite investment ramp-up as production has increased The company’s revenues have increased from USD12mn in 2011 to USD231mn in the LTM June 2017 period, with EBITDA rising from USD3mn to USD174mn in the corresponding period. The increased cash flow generation has increased in-line with the company’s production profile. Company has been deleveraging recently despite the substantial capex program (capex was 162% as a percentage of revenues in 2015) to start-up and ramp production. From gross leverage of nearly 5x in 2011, the company’s gross leverage was 0.9x in the LTM June 2017 period. Quarter-by-quarter results have tended to be lumpy due to payments in arrears from the government for new gas production (this has been an ongoing trend for all major gas players in Argentina). Gas stimulus program is key driver for cash flow stability going forward for Pampa’s Oil & Gas segment Despite enacting the 2013 Natural Gas Additional Injection Stimulus Program, the Kirchner administration’s fiscal difficulties prevented it from making timely payments to industry players. The Macri administration rectified the situation by making these payments in arrears in 2016-2017. As a reminder, the Stimulus Program makes available preferential payment terms to all natural gas producers that submit new projects to increase existing natural gas availability. Under this program, incremental natural gas production/injection can be priced up to USD7.5 MMBtu (the government pays difference between market prices of USD2-2.5MMBtu and the USD7.5MMBtu). As of 2Q17, the company received USD7.50/MMBtu from the Argentine Government for any natural gas volumes for 90% of Petrolera Pampa’s production and approximately 60% of the legacy-Petrobras Argentina natural gas production. In terms of accounting, payments from the government for the Stimulus program are recorded in Petrolera Pampa’s income statement under ‘Other Operating Income’, which can be found under the company’s operating expenses. The company recorded operating income of USD57mn in 2015 and USD103mn in 2016 for these payments, which is the main driver for this unit’s high EBITDA margins. So in other words, the timing of the payments (especially if there are payments in arrears) can lead to fairly exorbitant EBITDA variations from quarter-to-quarter. On March 6, 2017, under Resolution 46-E/2017, the Argentine ministry of energy provided medium-term visibility for natural gas pricing. Under this resolution, in order to incentivize non-conventional natural gas production in the Neuquen basin, pricing for new non-conventional natural gas was set at USD7.5 MMBtu for 2018 (essentially extending current pricing, which was set to expire at the end of 2017), then declining by 50 cents per year with a floor perceivably set at USD6/MMBtu starting with 2021. Page 18 Deutsche Bank Securities Inc. 2 November 2017 Corporate Credit: Pampa Energia Group Initiation Figure 26: Non-conventional Natural Gas Pricing (USD/mmBTU) 7.50 7.50 7.00 6.50 6.00 2017 2018 2019 2020 2021 Source: Ministerio de Energia y Mineria de la Nacion; Deutsche Bank On a combined basis, Pampa and Petrobras Argentina assets had very low leverage base before acquisition; compares favorably with peer companies On a combined basis, the PEPASA+PESAAR combined gross and net leverage metrics would be among the lowest in the Argentine energy complex at 1.16x and 0.95x respectively. Shortly before the transaction closed, Petrobras Argentina refinanced its 2017 USD300mn bond by issuing the PAMPAR USD500mn 2023 Series international note, and subsequent to the deal-close Pampa issued the PAMPAR USD750mn ‘27s to pay-back the bridge loan used to make the transaction. Proforma for the latter transaction, just the Pampa and Petrobras Argentina assets would yield 2016E gross leverage of 2.3x. Figure 27: Petrolera Pampa+Petrobras Argentina oil & gas assets would be very low leveraged (before transactions) (USD mn.) 2011 2012 2013 2014 2015 2016E Revenues 2,701 2,853 2,829 2,598 2,469 2,205 Adj. EBITDA 512 727 768 685 723 656 EBITDA Margin % 19% 25% 27% 26% 29% 30% Capex (434) (668) (481) (544) (759) (439) Capex % -16% -23% -17% -21% -31% -20% OFCF 79 60 287 141 (36) 218 OFCF % 3% 2% 10% 5% -1% 10% Total Assets 4,075 3,874 3,286 3,062 2,557 2,478 Cash & Equivalents 283 259 184 275 175 135 Short Term Debt 13 227 59 37 76 236 Long Term Debt 520 344 350 397 398 525 Total Debt 533 571 409 434 475 762 Gross Leverage 1.04x 0.78x 0.53x 0.63x 0.66x 1.16x Net Leverage 0.49x 0.43x 0.29x 0.23x 0.41x 0.95x Note: 2016 results estimated as stand-alone Petrobras Argentina results in 4Q16 not reported. Source: Company reports; Deutsche Bank Deutsche Bank Securities Inc. Page 19 2 November 2017 Corporate Credit: Pampa Energia Group Initiation In the 2016 period, on a proforma basis (adding both oil & gas assets to combine their results) both companies generated revenues and EBITDA of ~USD2.2bn and ~USD650mn, respectively, with Total Assets of ~USD2.5bn. The proforma figures show that a combined company would have generated negative free cash flow in 2016, though going forward the oil & gas unit has a good opportunity to continually trim significant costs (right off the bat the company has tackled the bloated nature of Petrobras Argentina’s corporate overhead). In 2015, PESAAR registered –USD92mn in Corporate EBITDA, which seems like a low-hanging fruit for an efficient operator such as Pampa to tackle immediately. A 5-10% reduction in upstream expenses post-acquisition, would also lead to a further USD30-60mn in savings, which would help reduce the FCF deficit. This is of course contingent on no major change in natural gas pricing, for which we now have medium-term visibility at least until the end of 2021. Figure 28: Proforma negative FCF due to high investments with opportunities to eliminate this deficit FCF Trends 600 400 200 0 2011 2012 2013 2014 2015 2016E (200) USD millions (400) (600) (800) CFO Capex FCF Source: Company reports; Deutsche Bank Page 20 Deutsche Bank Securities Inc. 2 November 2017 Corporate Credit: Pampa Energia Group Initiation 6% 3% 93 80 98 77 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 86% 239 298 974 175 2016 1.71x 0.34x 1,272 2,914 Grupo Bridas Axion Energy Refiner/Sister Argentina S.A. company to Pan American Energy. 3 1 5 5 9 4.7 6.1 0% 1% 25 35 44 26 18 19 25 n/a n/a n/a n/a n/a 16.0 10.7 14.5 12.4 30% 17% 28% 38% 115 150 148 2016 2.06x 2.62x families Medanito S.A. operations and Small-scale E&P E&P Small-scale Carosio & Grimaldi Grimaldi & Carosio midstream services. midstream 7 4.8 7.0 6.3 7.2 8.6 2% 1% 70 16 16 23 12 41 52 35 72 86 n/a n/a n/a S.A. 10.8 37% 30% 70% 67% 138 378 451 235 2016 2.79x 4.38x CGCSA America services. NA/B-/B Corporacion operations with Small-scale E&P E&P Small-scale de Combustibles some mid-stream mid-stream some Compania General 3.7 4.5 4.2 5.3 7.6 7% 3% 34 59 93 47 97 30 29 13.0 30% 20% 63% 69% 95% 656 439 217 144 100 135 762 2016 0.96x 1.16x 2,205 1,104 1,866 B3/B+/B PAMPAR Argentina. Management Largest integrated Pampa (Proforma) Energy company in 3Q16 (figures annualized). 1.4 2.3 5.2 71 n/a n/a n/a 25.8 12.8 20.4 37% 27% 42% 14% 28% 58% 872 300 100 172 946 333 742 256 2016 1.26x 1.48x 3,184 1,172 BP plc 1,279 1,732 4,965 6,697 PANAME B1/B+/B+ Energy LLC Energy in Argentina. Pan American Largest private upstream company 5.9 4.8 5.3 8.7 11.9 15.4 27% 31% 58% 46% 25% 73% 92% 245 333 577 525 588 815 320 294 677 2016 (513) 2.53x 2.36x 3,835 4,348 1,113 9,719 7,472 14,216 17,191 YPFDAR YPF S.A. B3/B+/B sovereign Argentina in Argentina. Largest integrated Oil & Gas company $ mil $ mil $ mil $ $ $ $ mil $ mil % $ mil % $ mil x x % BBL mil. BOE mil. BOE mil. % BOE mil. % Years Years Years kBBL/D kBBL/D % $ mil Unit kBBL/D kBOE/D kBOE/D % Deutsche Bank Comparative Table versus Argentine Oil Peers & Gas Argentine versus Comparative Table rma figures calculated adding reported Petrolera Pampa figures plus reported Petrobras Argentina figures as reported through through reported as figures Argentina Petrobras reported plus figures Pampa Petrolera reported adding calculated figures rma 29: Throughput % of Country's Reserves Country's of % % Developed P1 Reserves Reserve Life (Oil) Reserve Life (NG) Oil (NG) Gas Natural % Gas Production % of Country's Production (P1) Reserves Oil (P1) Reserves Gas Natural Total Debt/EBITDA Total Debt/EBITDA Net Total Debt/Developed EV/P1 Net Revenues EBITDA Margin EBITDA Capex Capex (% Revenues) of OFCF Crude Oil Processed Oil Crude Cash Equivalents and Total Debt Equity Book Value EV Total Debt/P1 Proved Reserves (P1) Proved Developed Reserves (P1D) Reserve Life Refining Capacity Foreign Currency Ratings Total Production Description Controlling Shareowner Ticker Bond Year Operator Company reports; reports; Company Figure Note: Pampa ProfoNote: Pampa Source: Deutsche Bank Securities Inc. Page 21 2 November 2017 Corporate Credit: Pampa Energia Group Initiation Electric Generation Segment (24% of EBITDA) Pampa Energia is the second largest independent generation group in Argentina. The company’s installed capacity totals 3,433 MW (73% thermal with the balance hydro). Pampa is currently in the midst of a further expansion, adding 420 MW of installed capacity (awarded mainly through thermal—320 MW—and renewable tenders) that will be commissioned in 3Q17 and 2Q18. Approximately 83% of the company’s capacity is considered legacy capacity (tariffs under Res. 19/17), with the remainder under long-term PPA’s. Figure 30: Pampa operates ~11% of country’s installed capacity 25% 33% 10% 10% 11% 11% Sovereign Owned SADESA Pampa AES ENEL Other Private Source: Cammesa; Company reports; Deutsche Bank Tariff increases have been crucial for a recent recovery in EBITDA generation (and increased generation investments); long-term PPA’s providing more cash flow visibility Electric sector (Generation/Distribution/Transmission) tariffs had been essentially frozen since 2001 in the country, with relatively minor adjustments being put in place by prior administrations prior to the dollarization of tariffs set forth in early 2017. As we noted in our Argentina Trip Recap report, two important resolutions in terms of generation price increases were Resolution 21/2016 and Resolution 19/2017. Resolution 21/2016 was a positive first step towards tariff dollarization in the sector; spurring investment in “new energy”. This resolution provided incentives for installation of new generation capacity (awarded via power tenders) by offering USD-rates (settled in ARS) for power. The availability and electricity produced is then sold to CAMMESA (the Argentine market wholesaler) pursuant to 10 year PPA’s denominated in USD with the price agreed via public bidding. For its part, Resolution 19/2017 is the natural next step in normalizing the generation sector; positive for companies with “old energy”. Via this measure, passed in February 2017, the government is attempting to further normalize the electricity sector by dollarizing rates for companies under old ARS-denominated tariff structures. Starting in February 2017, generation capacity installed before 2006 is sold to CAMMESA under a “take or pay” scheme, denominated in USD. With this new scheme, industry players could see their total remuneration rise by 25%-40% (all going to gencos’ bottom-line). Furthermore, and positive for the sector overall, spot prices are now USD-denominated as well. Page 22 Deutsche Bank Securities Inc. 2 November 2017 Corporate Credit: Pampa Energia Group Initiation Regarding Pampa, of its current installed capacity, 2,869 MW are considered legacy capacity (Res 19/17), while 564MW are under long-term PPA’s (Res 21/16); the latter category will rise to 984MW with the 420MW expansion slated for 2017-2018. With tariff increases (including the dollarization of tariffs), EBITDA in the company’s Generation segment has increased by 65% in 1H17 vs. 2H16. The company is engaged in a power capacity buildout, which we are only including in our projections as long as the project has been successfully tendered for (420MW being added in 2017-2018 and a further 383 MW in 2019-2020). With this expansion, we believe the company’s EBITDA generation (in USD terms) can rise to above USD350mn/year range by 2019 versus USD117mn in 2016. Figure 31: Realized Price Recovery as Tariffs Become Figure 32: EBITDA Generation (and Capex) Rising Dollarized 40 350 80% 35 300 70% 60% 30 250 50% 25 200 40% 20 150 USD/MWh 30% (USD millions) 15 100 Revenues % of 20% 10 50 10% 5 0 0% 2013 2014 2015 2016 1Q17 2Q17 2011 2012 2013 2014 2015 2016 2017 LTM Realized Price Realized Gross Margin EBITDA Capex Capex % of Revenues Source: Company reports; Deutsche Bank Source: Companry reports; Deutsche Bank Company in midst of an expansion following Petrobras Argentina acquisition and approved capacity expansions, the company’s installed capacity will have increased by 83% by 2020 Total investment for the company’s 2017-2020 capacity expansion project are budgeted to total USD801mn (~USD1mn/MW), to be funded via internally generated cash flows, corporate loans (e.g., Corti Wind Farm Project funded via credit facility with multilateral finance institutions), and CAMMESA credits. As previously noted, the company is adding 420MW of installed capacity (405MW awarded via recent tenders, of which 75% is thermal capacity) in 2017-2018, for a total capex cost of USD418mn. When fully operational, these four projects should add approximately USD100mn in incremental EBITDA (which are baked into our projections). On October 18, Pampa was awarded a long-term PPA (15 years with capacity payments of USD20,500/MW/month and variable prices of USD6/MWh) with CAMMESA (under a tender offer via Resolution 926-E/17-combined cycle tender) for the Genelba Plus closing of the combined cycle (which would add 383 MW to an 825 MW power plant). The investment is estimated to total USD350mn, with the commissioning of the open cycle in 1Q19 and closing of the cycle in 2H20. Deutsche Bank Securities Inc. Page 23 2 November 2017 Corporate Credit: Pampa Energia Group Initiation Figure 33: Installed Capacity Growth 4,000 3,500 3,000 2,500 2,000 Installed Capacity (MW) 1,500 1,000 2011 2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E Note: 2016 increased capacity due to Petrobras Argentina acquisition, which added ~1,100 GW of installed cqpacity Source: Company reports; Deutsche Bank Page 24 Deutsche Bank Securities Inc. 2 November 2017 Corporate Credit: Pampa Energia Group Initiation 4 3% NA 26 N/A N/A N/A N/A (22) 8.3x 7.4x 21% 18% TGN 124 30.4 23.0 185.6 216.0 193.0 192mn Pipeline TRAGAS B3/B/NA Argentina POS/STA/NA Gasinvest S.A. 8% 9.0 N/A N/A N/A TGS N/A (40) 1.4x 0.9x 27% 35% 499 134 174 98.0 238.0 247.0 149.0 192mn Pipeline TRAGAS B3/B/NA Argentina POS/STA/NA TRAGAS 9.625% '20 9.625% TRAGAS Argentina 50%Argentina stake by Pampa via Petrobras CIESA (51%)--controlled 6 0% 8% 0% 3.4x 3.2x 92% 11% 23% 23% 485 1250 89.0 (479) 3,433 2,088 673.0 963.0 1,636.0 1,547.0 B3/B+/B PAMPAR Argentina STA/STA/STA PAMPAR 7.5 '27 7.5 PAMPAR Integrated + E&P Integrated PAMPAR 7.375 '23, '23, 7.375 PAMPAR Grupo Pampa (cons) Management (21.2%) Management NA 8% 0% NA (49) 92% 11% 38% 54% 310 117 -16% (166) 3,433 B3/B+/B PAMPAR Argentina Generation STA/STA/STA Grupo Pampa (50%+) Grupo Pampa (Genco) (3) 20 -2% 4.0 4.0 N/A N/A N/A N/A N/A (23) 5.0x 4.8x 13% 15% 151 95.0 95.0 99.0 100.5 TRANAR NA/B/NA Argentina Transener NA/STA/NA Transmission TRANAR 9.75% '21 9.75% TRANAR Grupo Pampa (26.33%) Pampa Grupo 1% 13 3.0 N/A N/A N/A N/A N/A 19% 882 -17% 16.0 (167) (154) 12.4x 13.6x 176.4 174.0 177.0 161.0 EDNAR Edenor B3/B-/NA Argentina Distribution POS/STA/NA EDNAR 9.75% '22 9.75% EDNAR Grupo Pampa (51.54%) Pampa Grupo NA NA 0% NA 39 0.6x 1.2x 64% 36% 11% 52% 41% 11% 361 187 80.9 (149) 3,862 147.0 227.9 115.0 112.9 Argentina Not Rated Not Not Rated Not Generation Central Puerto SADESA (74.31%) SADESA 0% 0% 2% 57 300 5.6 (65) 1.8x 1.1x 30% 64% 34% 672 191 122 94.1 100% Capex 218.9 224.5 130.4 CAPXAR NA/B+/B Argentina NA/STA/STA Generation+E&P CAPXAR 6.875% '24 6.875% CAPXAR Grupo CAPSA (75%) 0% 0% 3% 70 250 (30) 4.2x 3.5x 35% 50% 892 202 -15% 53.5 (100) 100% (30%) 143.3 154.3 297.6 244.1 ALBAAR Albanesi B3/NA/B Argentina Generation POS/NA/STA Armando R. Loson (50%)+Sarti Family ALBAAR 9.625% '23 9.625% ALBAAR (1) 0% 1% 91 -1% 350 (92) 2.0x 1.8x 57% 57% 78% 22% 357 161 53.8 15.6 129.8 183.6 168.0 GNNEIA Genneia B3/NA/B Argentina Generation POS/NA/STA + Fintech (25%) + Fintech EMGARR 8.75% '22 8.75% EMGARR Pointstate Capital (44%) 0% 82 48 AES 300 AES (34) 1.5x 1.2x 35% 14% 20% 56% 44% 10% 235 38.9 87.5 29.3 97.2 126.5 2,765 NA/B+/B Argentina Generation NA/STA/STA AES 7.75% '24 7.75% AES AES Argentina AES end is April; Pampa Generation segment results used for comparative purposes. comparative results for used segment Pampa Generation April;end is - Argentina Utilities Comparative Table (2016 Fiscal Year Statistics) Year Fiscal Table (2016 Comparative Utilities Argentina 34: Cash Leverage Gross Net Leverage Capex % OFCF % ST Debt LT Debt EBITDA Margin % Thermal (%) Hydro (%) Other/NCRE (%) Total Debt Net Debt OFCF Market Share (% of Installed Capacity) (2016) Revenues (2016) EBITDA (2016) Capex Controlling Shareowners Installed Capacity (MW) Outstanding Issues Market Segment Corp Ratings (Moody's/S&P/Fitch) Rating Outlook Ticker Bond International USD Bonds Outst. (USD millions) (USD Country Figure Note: Capex S.A.’s fiscal year fiscal S.A.’s Capex Note: Bank Deutsche Source: Deutsche Bank Securities Inc. Page 25 2 November 2017 Corporate Credit: Pampa Energia Group Initiation Electric Distribution Segment (14% of EBITDA) Pampa’s participation in the electricity distribution segment is through subsidiary Empresa Distribuidora y Comercializadora Norte S.A. (“Edenor”). Edenor’s publicly traded debt ticker is ‘EDNAR’, while the company also has publicly traded equity under the ticker ‘EDN’ (Market cap of USD2.0bn as of 11/1/17). Edenor is the largest disco in Argentina in terms of customers and energy volumes (its concession expires in 2087). With 2.9 million customers (as of 2Q17), the company distributes and sells electricity in the north-eastern region of greater Buenos Aires. Figure 35: Volumes by customer type Figure 36: Equity share appreciating with tariff reforms 45 1700 40 1600 24% 35 1500 30 1400 43% 25 1300 20 1200 ARS/USD FX rate 15 1100 17% 10 1000 16% Residential Commercial Industrial Other EDN Merval Source: Company reports; Deutsche Bank Source: Company reports; Deutsche Bank Tariff increases will be drivers for company performance going forward; Operating volumes should rebound along with economy The long-suffering Distribution and Transmission industries have received long- needed price adjustments that should be positive in terms of cash flow generation in the near-term. In terms of electricity distribution, the average monthly residential electricity bill in Buenos Aires was approximately USD3/month before the February 2016 increase to USD16/month (Resolution 7/16). Prior to this increase, distribution companies were dependent on the federal government for financial assistance, which the government ended with the 2016 increase and promise to hold a full tariff regulatory review in February 2017. In February 2017, via resolution 63/17 the sector was apprised of distribution tariff increases, while resolutions 66/17 and 73/17 set new tariffs for transmission. Page 26 Deutsche Bank Securities Inc. 2 November 2017 Corporate Credit: Pampa Energia Group Initiation Figure 37: Edenor Consolidated Financial Results Summary Income Statement (USDm) 2Q16 3Q16 4Q16 1Q17 2Q17 qoq yoy 2015 2016 LTM Revenues 191 228 256 342 366 6.8% 77.0% 412 882 1,192 EBITDA (92) (36) 95 39 27 -30.8% -42.1% 172 13 125 Interest Expense (6) (5) (10) (7) (7) 1.0% 11.7% (24) (28) (30) Balance Sheet (USDm) Cash & Equivalents 21 6 16 4 4 -2.0% -62.5% 10 16 4 ST Debt 18 8 3 8 3 -58.3% -60.1% 4 3 3 Total Debt 192 182 178 188 178 -5.6% -9.8% 194 178 178 Net Debt 172 176 162 184 174 -5.6% -6.4% 184 162 174 Cash Flow (USDm) Operating Cash Flow 24 (4) 81 24 40 68.4% 47.1% 328 128 141 Capex (45) (31) (61) (47) (56) 17.1% 87.8% (219) (167) (195) Reported FCF (21) (35) 20 (23) (15) -35.1% 596.8% 109 (39) (54) Taxes Paid 0 0 0 0 0 NA NA 0 0 0 Basic FCF* (143) (72) 24 (16) (36) 129.8% -439.5% (72) (181) (100) Financial Ratios EBITDA Margin (%) -48.4% -15.7% 37.0% 11.4% 7.4% (401) 5,580 41.6% 1.5% 10.5% Cash/ST Debt (x) 1.1x 0.8x 4.8x 0.6x 1.3x 0.7x 0.2x 2.6x 4.8x 1.3x LTM Gross Leverage (x) 3.8x -3.4x 13.5x 33.9x 1.4x -32.5x -2.4x 1.1x 13.5x 1.4x LTM Net Leverage (x) 3.4x -3.3x 12.3x 33.1x 1.4x -31.7x -2.0x 1.1x 12.3x 1.4x Interest Coverage (x) -15.7x -6.5x 9.7x 5.4x 3.7x -1.7x 19.5x 7.0x 0.5x 4.2x Basic FCF/Total Debt (%) -74.3% -39.7% 13.3% -8.3% -20.1% (1,184) 5,418 -37.2% -101.8% -56.2% *Reported FCF = Operating Cash Flow + Interest Expense + Capex; Basic FCF = EBITDA + Interest Expense + Capex + Taxes Paid Source: Company reports; Deutsche Bank Per Resolution 63/17, Edenor’s tariffs were increased by 42% as of February 2017, with subsequent increases of 19% scheduled for November 2017 and 17%+CPI scheduled for February 2018 (this represents a cumulative 98% tariff increase). The company estimates that under this scenario, annual EBITDA would rise to USD535mn (in a peak theoretical scenario) versus USD13mn generated in 2016; though we are being more conservative with our estimates projecting that EBITDA will steadily rise over the next three years to just under USD500mn. Given the politically sensitive position of distribution companies in the country (tariffs for residential end-users/voters) we believe the sector still contains significant regulatory rzisk. In terms of operating performance, the company benefits from one of the largest concession areas in the country. During 2013-2017, the company’s client base has risen by 5%, though volumes have essentially been flat. Given a rebound in economic activity (the DB economics team is forecasting 2.8% and 2.9% GDP growth in Argentina in 2017 and 2018, respectively, versus a 2.5% contraction in 2016), we would expect to see a rebound in volumes in 2018. Figure 38: Financial Performance Notably Improving Figure 39: Volumes Have Been Flattish since 2013 With Tariff Increases 1,950 2,950 22,500 1,750 2,900 1,550 22,000 1,350 2,850 1,150 950 2,800 21,500 750 2,750 (USD millions) 550 21,000 350 2,700 150 (50) 2013 2014 2015 2016 2017E 2018E 2,650 20,500 (250) 2013 2014 2015 2016 2017E Revenues EBITDA Capex Clients (000's) Volumes (GWh) Source: Company reports; Deutsche Bank Source: Company reports; Deutsche Bank Deutsche Bank Securities Inc. Page 27 2 November 2017 Corporate Credit: Pampa Energia Group Initiation Contingent liabilities remain a wildcard; we expect for gross leverage increases going forward to be more than matched by more robust cash flow generation As of 2Q17, Edenor had approximately ARS5.7bn (~340mn) of contingent liabilities, which include service fines (~USD230mn) owed to the national electricity regulator (ENRE) and the balance being other regulatory obligations for CAMMESA. It’s still unclear how/if these obligations will be paid. We could envision these liabilities being haircut, paid in installments, or in the worst case scenario made whole at once. For the purposes of our analysis, we are assuming an even split of cash outflows starting with 2018. Given increased capex and payment of contingencies, our Base Case assumes that the company will need incremental debt issuances to plug-in these cash requirements. Under our Base Case, the company’s gross debt could rise to USD400mn in 2018 to successfully cover its obligations; under this scenario, the company’s leverage metrics would still remain solid with sub-1.5x gross debt:EBITDA metrics. However, as can be seen in the company’s financial history, the business model remains highly sensitive to potential disruptions to the government’s tariff reforms. We expect credit ratings to remain capped at the sovereign level; S&P is the outlier implying a continued decoupling versus the sovereign rating until the company begins showing steady financial improvements Edenor is rated B3/B- by Moody’s/S&P with a POS/STA Outlook; this puts the company’s Moody’s ratings in-line with the sovereign rating, while the S&P rating is two notches below the sovereign (even after the latest sovereign upgrade at S&P). Moody’s/S&P/Fitch rate the Argentina sovereign at B3/B+/B (POS/STA/STA), with Moody’s being the outlier though its Argentina rating has a positive rating outlook (implying the possibility of a pending rating upgrade). Of the two agencies, we would expect for the credit to be upgraded in case of a sovereign upgrade at Moody’s, but as apparent after the latest sovereign rating action, S&P probably needs more time to equalize the ratings. Moody’s: B3 ratings are tied to the expected improvement in performance after the tariff increases, with the agency noting that the company’s ratings are constrained by the Argentine country ceiling. One caveat is that the agency noted that given its nature as a distribution company, it faces several uncertainties despite the seemingly positive recent news: potential judicial roadblocks and past due amounts owed to CAMMESA plus expectations for increased capex. Positive rating triggers: A rating upgrade would require further evidence of post-tariff increase sustainable higher margins and operating profits (in order to cover large obligations such as CAMMESA obligations and higher capex). The agency is looking for the company to report positive operating income and positive FCF, and any upgrade would require a sovereign upgrade. Negative rating triggers: Downgrades are tied to the sovereign (though they are unlikely given the sovereign’s POS outlook). The agency did note that if the tariff regime prove to be insufficient to reverse its past operating losses or FCF burn, a downgrade would occur. If interest coverage (FFO + interest)/interest is below 2.5 times, and/or leverage metrics such as CFO/debt and RCF/debt are below 20% and 10%, these conditions would exert downward pressure on the ratings. S&P: S&P upgraded Edenor to B- from CCC- in September 2017 on the back of capital structure improvements following the Integral Tariff Review in February 2017 (the rating stood pat after the latest sovereign rating upgrade). The stable outlook incorporates expectations of debt to EBITDA below 3x in the next 12 months, which seems highly achievable. S&P has taken a more show-me conservative stance, as the company operates in what has been historically a very vulnerable industry in Argentina (hence the two notch difference versus the sovereign before the latest upgrade). Positive rating triggers: A rating upgrade in the next 12 months would most likely occur, according to S&P, if resolving the company’s regulatory contingencies' does not end up harming Page 28 Deutsche Bank Securities Inc. 2 November 2017 Corporate Credit: Pampa Energia Group Initiation the company’s credit metrics. Negative rating triggers: Downgrades could occur if the company’s debt to EBITDA ratio exceeds 3x on a sustained basis. Potential negative drivers would be if cash flow generation slows down if tariff increases are delayed or if regulatory contingencies lead to significant cash flow outflows, thereby harming the company’s liquidity and credit profiles. Refining, Petrochemicals, Other Segments (6% of EBITDA) Pampa’s other business segments are highlighted by its refining operations, which currently account for approximately 6% of Argentina’s downstream matrix (5% of crude processing share; 6% of the total number of gas stations in the country). Pampa inherited the downstream operations (Ricardo Elicabe refinery located in Bahia Blanca, which principally processes Medanito crude) when it acquired Petrobras Argentina, and had spoken about possibly divesting of these assets. However, in its latest pronouncements it indicated that it intends to keep them, and this could serve the company well considering the recent liberalization of fuel prices, which provide upside to the segment’s cash flow generation profile. Refining margins were 6% in 1H17, though this could take a dip in 3Q17 (as price increases may have not matched FX changes) followed by better results in 4Q17 given recently enacted price increases. In late September 2017, the government announced that Argentina liberalized fuel prices given upstream prices had reached parity with Brent prices. As a reminder, Medanito (light oil) and Escalante (heavy oil) prices were set to decline this year from USD59/bbl and USD48/bbl down to USD55/bbl and USD47/bbl, respectively, by year-end 2017. As Brent essentially reached parity with light oil prices in Argentina, the government agreed to let refiners adjust prices accordingly. Fuel prices were being kept artificially low to curb potential inflation, with quarterly adjustments reflecting the prior quarter’s FX rate movements. Starting with October, refiners are now able to increase prices based on market and macro dynamics (though they withheld these changes until after the Congressional elections). Following the Congressional elections held on October 22, 2017, refiners announced fuel oil prices would immediately increase by 9%, while gasoline would increase by 10%-12% (depending on the fuel grade). The latest increase would allow refiners to match FX movements and inflation. Figure 40: Crude Processing Share (as of June 2017) Figure 41: Number of Gas Stations (as of June 2017) Others Pampa 5% 5% Others YPF Axion 33% 36% 16% YPF Shell 58% 16% Pampa Axion Shell 6% 11% 14% Source: YPF; company reports; Deutsche Bank Source: YPF; company reports; Deutsche Bank In the Petrochemicals market segment (also acquired via the Petrobras Argentina acquisition), the company is a dominant domestic producer of Styrene (100% market share), Synthetic Rubber (89% market share), and Polystyrene (90% market share). In the 1H17, Revenues totaled USD220mn Deutsche Bank Securities Inc. Page 29 2 November 2017 Corporate Credit: Pampa Energia Group Initiation with corresponding EBITDA generation of approximately USD12mn (6% margins). Besides its Petrochemical business, the company’s other major segment is its Holding/Other Business segment that holds economic interest in the company’s non-consolidated electricity transmission (Transener) and natural gas transportation (TGS) businesses. Although these two businesses are controlled by Pampa, they are accounted for via the equity method. Electricity Transmission (Unconsolidated Subsidiary) Pampa’s participation (26.3% controlling equity stake) in the electricity transmission segment is through subsidiary Compania de Transporte de Energia Electrica en Alta Tension S.A. (“Transener”). Transener’s publicly traded cross border debt ticker is ‘TRANAR’, while the company also has publicly traded equity (though solely in the domestic market) under the ticker ‘TRAN AR’ (Market cap of USD1.07bn as of 11/1/17). Transener owns the national extra high voltage transmission network in Argentina, and transports electricity throughout the country. The company operates 90% of the transmission lines in the country and, as of 2Q16, held a concession (95 year term) over 20,648 kilometers of transmission lines and 149 transforming substations. Figure 42: Share Ownership Figure 43: Volatile financial performance 350 300 250 ENARSA Pampa 26% 26% 200 150 (USD millions) 100 ANSES 50 20% Free Float 28% 0 2012 2013 2014 2015 2016 2017E Revenues EBITDA Capex Source: Company reports; Deutsche Bank Source: Company reports; Deutsche Bank In a common theme, Transener is benefiting from long-needed tariff increases; Transener appealed the tariff increases providing potential upside to our Base Case Since coming to power the Macri administration set forth reforms across the entire electrical system. Post pesification of tariffs after the 2001 crisis, the country’s Transmission sector was among the most negatively impacted. For Transener, it has been a story of keeping afloat via unpredictable government disbursements. That is until RES 66/17 and RES 73/17 were enacted in late January 2017. Under these resolutions, cumulative tariff increases were approved based on the company’s capital base value (based on how much was paid for the assets adjusted for current valuation). Page 30 Deutsche Bank Securities Inc. 2 November 2017 Corporate Credit: Pampa Energia Group Initiation Figure 44: Transener Consolidated Financial Results Summary Income Statement (USDm) 2Q16 3Q16 4Q16 1Q17 2Q17 qoq yoy 2015 2016 LTM Revenues 19 15 90 76 92 20.8% 256.1% 208 151 274 EBITDA (13) (23) 56 42 54 27.6% 8541.6% 71 20 129 Interest Expense (3) (3) (3) (3) (3) 8.5% 2.8% (13) (12) (12) Balance Sheet (USDm) Cash & Equivalents 4 5 4 3 3 -2.9% -90.6% 46 4 3 ST Debt 19 17 4 1 4 206.8% -81.3% 22 4 4 Total Debt 114 112 99 97 99 2.7% -13.1% 117 99 99 Net Debt 110 107 95 93 96 2.9% 22.1% 71 95 96 Cash Flow (USDm) Operating Cash Flow (24) (31) (5) (40) 63 -255.7% -254.7% (120) (101) (14) Capex (8) (5) (5) (7) (6) -18.6% 10.8% (27) (23) (24) Reported FCF (32) (37) (10) (48) 57 -219.0% -223.4% (147) (125) (38) Taxes Paid 0 0 0 0 0 NA NA 0 0 0 Basic FCF* (24) (32) 48 32 45 40.1% -663.1% 30 (16) 93 Financial Ratios EBITDA Margin (%) -68.6% -153.9% 62.3% 55.6% 58.7% 316 12,732 34.1% 13.3% 47.2% Cash/ST Debt (x) 0.2x 0.3x 1.1x 2.9x 0.9x -2.0x 0.7x 2.1x 1.1x 0.9x LTM Gross Leverage (x) 5.2x -7.7x 4.9x 1.6x 0.8x -0.8x -4.4x 1.6x 4.9x 0.8x LTM Net Leverage (x) 5.0x -7.4x 4.7x 1.5x 0.7x -0.8x -4.3x 1.0x 4.7x 0.7x Interest Coverage (x) -4.1x -8.3x 17.2x 14.2x 16.7x 2.5x 20.8x 5.3x 1.6x 10.5x Basic FCF/Total Debt (%) -21.4% -28.1% 48.5% 33.1% 45.2% 1,208 6,659 25.9% -16.1% 94.1% *Reported FCF = Operating Cash Flow + Interest Expense + Capex; Basic FCF = EBITDA + Interest Expense + Capex + Taxes Paid Source: Company reports; Deutsche Bank The regulator asserted that the capital base is equivalent to USD770mn (post-tax WACC of 7.7%; pre-tax of 11.85%), with the company also reimbursed for Operating & Maintenance and Depreciation (adjusted twice a year for inflation). Net-net, this would mean annual EBITDA generation of USD160mn+ (in its corporate presentation, the company estimated a theoretical annual regulatory EBITDA could be up to USD190mn). For our purposes, we are projecting the company generating annual EBITDA of USD160mn/year. In April, Transener appealed the tariff increase decision, arguing that the capital base should be 50% higher (USD1.1bn). If the company is successful, its annual adjusted EBITDA would rise by ~USD40mn/year, which would push the company’s EBITDA generation to the USD200mn/year level (providing 25% upside to our Base Case). Company’s ratings tied to the sovereign though upside will be dependent on no discontinuation to new regulatory regime for transmission companies; only rated by one ratings agency but would expect more ratings once financial performance solidifies on sustainable basis and the company is able to refinance its long-term debt Transener has a single international debt rating at S&P at ‘B’ with a Stable Outlook. The company’s S&P rating was in-line with the agency’s Argentina sovereign at B/STA, but it has decoupled following the latest sovereign upgrade. The agency’s language had made it clear in its previous rating triggers that there was no certainty that Transener’s rating would be upgraded in case of a sovereign rating upgrade. Given the relative weakness of the transmission market segment’s regulatory framework before the latest tariff review, the agency had rated the company at CCC in early 2017, only upgrading it to ‘CCC+’ in February (post ITR review) and then ‘B’ in August 2017 as the company showed positive results from the tariff increases. The agency believes that given its current cash generation profile, Transener would be able to keep gross leverage below 4x even in the event that the company levers up as it finally ramps up investments. S&P noted the company’s regulatory EBITDA generation will be in the range of USD165mn/year going forward, which would translate to sub-1x gross leverage. Positive rating triggers: A one-notch upgrade will depend on the timely implementation of the tariff review, which the agency expects to improve the company’s liquidity and Deutsche Bank Securities Inc. Page 31 2 November 2017 Corporate Credit: Pampa Energia Group Initiation capital structure. S&) is looking for the company’s sources of cash to at least equal its cash usage (organically). Negative rating triggers: The main negative trigger is delays in the implementation of the new regulatory framework for Transener. In addition, if the company’s cost and capex far outstrip its revenue generation under the new framework, this could lead to a ratings downgrade or negative outlook. Natural Gas Transportation (Unconsolidated Subsidiary) Based in Buenos Aires, privately-held Transportadora de Gas del Sur S.A. (TGS) is the largest natural gas transportation company in the country, responsible for transporting approximately 60% of the country’s natural gas supply. TGS was established in 1992, during Argentina’s privatization era, and was granted a license to operate the pipeline system for 35 years (with an option for a onetime ten-year extension). Despite natural gas transportation being the company’s core service offering, the company’s natural gas liquid production and commercialization business is currently TGS’s main cash flow generator; though this trend has once again reversed given tariff increases. TGS also provides miscellaneous midstream services (e.g., natural gas treatment, separation, and removal of impurities) and telecommunication services (via its subsidiary – Telcosur). TGS’s controlling 51% equity stake is owned by holding company CIESA, which is itself controlled by Pampa (Pampa’s effective controlling ownership translates to a 25.5% stake). The remaining equity stake is publicly traded (under ticker ‘TGS’; market capitalization of USD3.4bn as of 11/1/17). The company’s international debt trades under the ticker (TRAGAS). Figure 45: Share Ownership Figure 46: EBITDA Mix (1H17) Other 13% Free Float 26% Transportation 44% CIESA 51% FGS-ANSES Liquids 23% 43% Source: Company reports; Deutsche Bank Source: Company reports; Deutsche Bank Strong operational performance driven by tariff increases and strong liquids performance In 2Q17, TGS showcased its best performance in terms of top-line growth over the past two years, (+13.9% qoq and a 39.3% yoy revenue increase), following a full quarter reflecting the tariff increase. On a dollar-basis, Transportation revenues increased by 44% yoy, closely followed by a 36% increase in liquids revenues as prices have recovered from fuel price troughs. Consolidated EBITDA was up by 54% yoy, which outpaced cash cost increases of 46% in the quarter. In the quarter, Transportation accounted for 56% of total EBITDA followed by Liquids, which made up 30% of the mix. On a dollar basis, we estimate firm contracted tariff prices have nearly doubled since 4Q16 (on a dollar basis). In terms of Liquids, sales volumes increased by 15% yoy and realized prices are up 17% yoy, with the bulk of the outperformance taking place in the domestic market as the external market only made-up 15% of total revenues in the quarter. Overall, we expect Transportation cash flow generation to weigh more heavily going forward as tariff increases fully take effect. Page 32 Deutsche Bank Securities Inc. 2 November 2017 Corporate Credit: Pampa Energia Group Initiation Figure 47: TGS Consolidated Financial Results Summary Income Statement (USDm) 2Q16 3Q16 4Q16 1Q17 2Q17 qoq yoy 2015 2016 LTM Revenues 133 103 164 163 186 13.9% 39.4% 456 499 616 EBITDA 56 29 62 77 87 13.5% 54.1% 104 174 254 Interest Expense (8) (8) (8) (8) (9) -15.6% -18.6% (37) (32) (32) Balance Sheet (USDm) Cash & Equivalents 81 90 98 158 124 -21.6% 52.5% 67 98 124 ST Debt 34 43 9 11 71 545.9% 111.9% 35 9 71 Total Debt 224 282 247 248 243 -1.9% 8.3% 258 247 243 Net Debt 143 191 149 89 119 33.0% -16.9% 190 149 119 Cash Flow (USDm) Operating Cash Flow 33 23 51 70 25 -63.6% -22.4% 50 144 169 Capex (9) (13) (13) (12) (12) 4.2% -34.1% (43) (40) (50) Reported FCF 24 10 38 57 14 -76.4% -43.3% 7 104 119 Taxes Paid (14) (6) (15) (26) (19) 28.1% -35.8% 12 (33) (66) Basic FCF* 26 3 26 30 47 55.9% 80.7% 36 69 106 Financial Ratios EBITDA Margin (%) 42.4% 27.9% 37.6% 47.0% 46.9% (14) 448 22.8% 34.9% 41.3% Cash/ST Debt (x) 2.4x 2.1x 10.7x 14.4x 1.7x -12.6x -0.7x 2.0x 10.7x 1.7x LTM Gross Leverage (x) 1.8x 1.8x 1.4x 1.1x 1.0x -0.2x -0.9x 2.5x 1.4x 1.0x LTM Net Leverage (x) 1.2x 1.2x 0.9x 0.4x 0.5x 0.1x -0.7x 1.8x 0.9x 0.5x Interest Coverage (x) 7.4x 3.6x 8.1x 9.8x 9.6x -0.2x 2.2x 2.8x 5.5x 7.8x Basic FCF/Total Debt (%) 11.7% 1.0% 10.4% 12.3% 19.5% 724 783 14.0% 28.1% 43.7% *Reported FCF = Operating Cash Flow + Interest Expense + Capex; Basic FCF = EBITDA + Interest Expense + Capex + Taxes Paid Source: Company reports; Deutsche Bank Strong capital structure and liquidity; expect company to begin making dividend payments balanced with increased investments Already low net leverage actually increased slightly by 0.1x qoq to a very low 0.5x, mainly due to a 21.6% decrease in cash (higher tax payouts and purchase of financial investments not considered cash). Positively, FCF maintained its positive trajectory (+USD14mn), driven by strong EBITDA growth, though in the second quarter it was negatively affected (-24.7% qoq) by the aforementioned higher tax payouts. Overall, the company has a strong capital structure with a robust liquidity position, and the company has room to grow the balance sheet as it considers potential projects going forward. Per local newspaper, Diario de Cuyo, TGS plans to invest USD800mn to build a pipeline and a gas treatment plant in the Vaca Muerta basin (in order to benefit from the country’s unconventional hydrocarbon boom). The project is still reportedly subject to provincial approval, but given the company’s significantly improved cash generation profile and the country’s infrastructure investment needs, we do expect for TGS (and other infrastructure companies) to ramp-up their spending. More tariff increases to come; we expect a ramp-up in investments, but for the company to still generate substantial free cash flow Following transitional tariff increases seen in 2016-2017, the company’s regulatory review yielded approval for a 5-year 215% cumulative tariff increase. An initial 30% increase effected in April 2017, is then to be followed by two further tariff increases in December 2017 (+40%) and April 2018 (+30%); tariffs will be adjusted semiannually to account for costs. Net-net, the company is estimating that Regulatory EBITDA would increase to USD427mn a year versus USD61mn in 2016. Management has noted that debt is expected to increase going forward, but it will depend on the future projects and potential revenue generation. Capex is already slated to grow slightly as the company is expected to invest ARS143m (~USD8mn) before the end of the year in its Natural Gas Transitional Tariff Increase plan. They have also invested ARS160mn (USD9mn) as of June 30 as part of their five-year Integral Tariff revision investment plan of ARS6.8bn (USD400mn). This investment plan is scheduled to be distributed during the 2017-2022 period. We take this spending and incremental project spending into consideration for our forecast, Deutsche Bank Securities Inc. Page 33 2 November 2017 Corporate Credit: Pampa Energia Group Initiation and still have the company generating significant cash flow, while simultaneously increasing dividend payments. Given credit strength, ratings could remain constrained by the sovereign TGS is rated B3/B+ by Moody’s and S&P, respectively, with POS/STA Outlooks. We believe these ratings are constrained by the sovereign, considering that other investment grade natural gas transportation companies with relatively higher leverage levels are rated at or near investment grade. Both ratings agencies have made it clear that, despite its stronger credit/liquidity profile versus other companies in the same rating category, the company’s ratings remain linked to the sovereign. In their view, the company would not be able to withstand a negative sovereign credit scenario, so we believe that even if the company’s credit metrics continue to improve, the company will remain rated at S&P/Moody’s corporate country ceiling level. TGS’s ratings were upgraded by S&P to B+ from B following the latest credit rating upgrade. Moody’s: The company’s rating, like at S&P, is tied to the sovereign despite expectations for very strong financial performance going forward (given the company’s public utility nature and tariff increases). Positive rating triggers: A rating upgrade of the sovereign could lead to a positive action, and the agency noted it would also require timely tariff adjustments. Negative rating triggers: Given the positive outlook of the sovereign, a downgrade is very unlikely, but again the main change driver will be a sovereign downgrade or change of outlook, and if the new tariff scheme is delayed or does not materialize. Other potential negative rating triggers are if gross leverage increases to 4x or if interest coverage falls below 2.5 times (also if FCF to debt is less than 20%). S&P: The company’s B3 ratings are clearly constrained by the sovereign, despite the company’s strong capital structure and solid expected growth in cash flow generation. Given improvements in the regulatory regime, the agency expects that the company’s financial performance will be less volatile and exposed to commodity prices. The agency expected capex of ~135mn/year, but this doesn’t take into account new projects. Positive rating triggers: A rating upgrade was fully tied to the sovereign rating. Negative rating triggers: Downgrade scenarios are also tied to the sovereign, and potentially to delays in tariff increase implementations, and specifically if gross leverage is higher than 3x or if FOCF to debt is below 15%. Page 34 Deutsche Bank Securities Inc. 2 November 2017 Corporate Credit: Pampa Energia Group Initiation Key recent publications on LatAm energy credits: YPF – Thoughts after Investor Day, 25-Oct-2017, document link: https://gm.db.com/servlet/ShowContent?ResourceType=S&ServerLocation=1&ResourceId=1971884 Petrobras – Attractive LM Offers; Prefer the ‘26s vs. the ‘23s; Buy the ‘26s & ‘27s, 22-Sep-2017, document link: https://gm.db.com/servlet/ShowContent?ResourceType=S&ServerLocation=1&ResourceId=1967664 GeoPark Limited – Initiating on GEOPAR 6.5% ‘24s with a BUY, 19-Sep-2017, document link: https://gm.db.com/servlet/ShowContent?ResourceType=S&ServerLocation=1&ResourceId=1967004 ENAP – Initiating on ’47 Bond Issuance with a SELL rating, 12-Sep-2017, document link: https://gm.db.com/servlet/ShowContent?ResourceType=S&ServerLocation=1&ResourceId=1965988 Ecopetrol 2Q17 – Solid Results; Resilient Metrics; Revising Our Views, 10-Aug-2017, document link: https://gm.db.com/servlet/ShowContent?ResourceType=S&ServerLocation=1&ResourceId=1962156 YPF 2Q17: Downstream Volumes, Gas & Energy Contribute to Outperformance, 9-Aug-2017, document link: https://gm.db.com/servlet/ShowContent?ResourceType=S&ServerLocation=1&ResourceId=1961808 YPF – Initiating on YPFDAR ‘27s with a Hold; Upgrading ‘24s to Buy, 19-Jul-2017, document link: https://gm.db.com/servlet/ShowContent?ResourceType=S&ServerLocation=1&ResourceId=1959110 Corporate Credit – Oil Price Selloff Implications to LatAm Energy; Turning More Cautious, 22-Jun-2017, document link: https://gm.db.com/servlet/ShowContent?ResourceType=S&ServerLocation=1&ResourceId=1955432 Corporate Credit – LatAm Oil & Gas: Skimming the Fat, 23-Dec-2016, document link: https://gm.db.com/servlet/ShowContent?ResourceType=S&ServerLocation=1&ResourceId=1929808 Deutsche Bank Securities Inc. Page 35 2 November 2017 Corporate Credit: Pampa Energia Group Initiation Financial Models Page 36 Deutsche Bank Securities Inc. 2 November 2017 Corporate Credit: Pampa Energia Group Initiation Figure 48: Pampa Energia Consolidated Financial Model (USD) ARS:USD EOP 6.52 8.47 12.93 15.88 17.50 18.20 18.80 19.36 ARS:USD AVG 5.48 8.12 9.26 14.78 16.53 17.85 18.50 19.08 Brent Price (USD/BBL) 108.70 99.45 53.60 45.13 51.69 55.00 55.00 55.00 Henry Hub (USD/mmBtu) 3.73 4.26 2.63 2.55 3.04 3.00 3.00 3.00 GDP Growth % 0.1% -3.1% 2.6% -2.3% 2.8% 2.9% 3.0% 3.0% Pampa Energia S.A. YoY % Change 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2014 2015 2016 2017E 2018E 2019E 2020E Income Statement (USD millions) Net Revenues 974 764 769 2,088 4,030 4,810 5,204 5,667 -21.5% 0.6% 171.6% 93.0% 19.4% 8.2% 8.9% COGS (1,023) (742) (760) (1,681) (2,835) (3,343) (3,603) (3,919) -27.4% 2.3% 121.3% 68.6% 17.9% 7.8% 8.8% Gross Profit (49) 22 9 407 1,194 1,467 1,602 1,748 -144.2% -58.3% 4419.7% 193.5% 22.8% 9.2% 9.1% Gross Margin (%) -5.0% 2.8% 1.2% 19.5% 29.6% 30.5% 30.8% 30.9% Operating Income 315 109 395 145 664 901 1,007 1,092 -65.5% 263.0% -63.3% 358.4% 35.6% 11.8% 8.5% Plus D&A 68 58 77 201 329 335 351 374 -15.9% 33.9% 161.2% 63.4% 1.9% 4.8% 6.5% Adj EBITDA (92) (22) 436 485 999 1,194 1,317 1,426 -75.9% -2057.5% 11.2% 105.9% 19.4% 10.3% 8.3% Adj. EBITDA Margin -9.5% -2.9% 56.7% 23.2% 24.8% 24.8% 25.3% 25.2% Adjustments (9) (29) (16) (19) (50) (20) (36) (28) DB Adj EBITDA (101) (51) 420 467 949 1,173 1,281 1,398 -49.2% -920.5% 11.0% 103.4% 23.7% 9.2% 9.1% DB Adj. EBITDA Margin -10.4% -6.7% 54.7% 22.3% 23.6% 24.4% 24.6% 24.7% Cash Flow (USD millions) FFO 195 253 329 (139) 861 879 886 994 29.5% 30.0% -142.3% -719.6% 2.0% 0.9% 12.2% CFO 229 247 391 295 404 895 1,141 984 7.9% 58.3% -24.6% 37.3% 121.2% 27.5% -13.8% Capex (192) (287) (512) (479) (934) (1,131) (998) (956) 49.8% 78.2% -6.4% 94.9% 21.1% -11.7% -4.3% % of revenues 19.7% 37.6% 66.5% 22.9% 23.2% 23.5% 19.2% 16.9% FCF 37 (40) (121) (184) (529) (236) 143 28 -207.0% 201.6% 52.8% 187.1% -55.4% -160.4% -80.3% FCF Margin 3.8% -5.2% -15.7% -8.8% -13.1% -4.9% 2.7% 0.5% Net Change in Cash 18 (13) 0 50 (72) 311 (114) (6) Check 0 0 0 (0) (0) 0 0 0 Balance Sheet (USD millions) Cash & Equivalents 52 40 40 89 17 329 215 209 -24.4% 0.9% 124.0% -80.5% 1787.1% -34.6% -2.9% Change in Cash 18 (13) 0 50 (72) 311 (114) (6) Total Debt 564 540 618 1,636 2,056 2,770 2,763 2,756 -4.3% 14.5% 164.6% 25.7% 34.7% -0.3% -0.2% Change in Debt (48) (24) 78 1,017 421 714 (8) (7) Net Debt 512 500 578 1,546 2,039 2,441 2,547 2,547 -2.2% 15.5% 167.4% 31.9% 19.8% 4.3% 0.0% Total Debt:DB Adj. EBITDA (5.6) (10.5) 1.5 3.5 2.2 2.4 2.2 2.0 Net Debt:DB Adj. EBITDA (5.1) (9.8) 1.4 3.3 2.1 2.1 2.0 1.8 DB Adj. EBITDA:Interest Expense (1.3) (0.8) 4.2 2.3 3.8 3.6 3.4 3.8 EV:DB Adj. EBITDA (9.4) (18.0) 2.9 5.2 3.2 3.1 3.1 2.9 Operating Statistics OIL & GAS Total Revenues 29 44 100 532 1,032 1,082 1,114 1,149 49.5% 128.2% 430.9% 93.9% 4.8% 3.0% 3.1% Adj EBITDA 19 33 81 360 565 575 582 588 69.8% 148.4% 341.5% 56.9% 1.9% 1.2% 1.1% Adj. EBITDA Margin 65.8% 74.7% 81.3% 67.6% 54.7% 53.2% 52.2% 51.2% Operating Statistics Total Production (000's boe) 908 1,475 3,688 18,342 26,543 27,662 28,666 29,755 62.5% 150.0% 397.3% 44.7% 4.2% 3.6% 3.8% Gas (boed) 2.4 3.9 10 37.3 50.5 53.4 55.9 58.7 65.2% 151.7% 275.0% 35.4% 5.7% 4.8% 5.0% Oil (bbld) 0.1 0.1 162 13.2 22.2 22.4 22.6 22.8 -4.9% 175665.3% -91.8% 68.4% 0.8% 0.8% 0.8% Avg Daily Production (000's boe) 2.5 4.0 172 50.5 72.7 75.8 78.5 81.5 62.5% 4150.6% -70.6% 44.1% 4.2% 3.6% 3.8% % Gas 96% 98% 6% 74% 69% 70% 71% 72% Netback Analysis Price: Oil & Gas (USD/boe) 32.4 29.8 27.6 29.6 38.9 39.1 38.8 38.6 -8.0% -7.3% 7.3% 31.2% 0.4% -0.6% -0.6% Implied Netback (Oil & Gas w/sub) USD/boe 18.5 17.0 22.1 15.1 23.2 20.5 20.0 19.5 -7.9% 29.8% -31.8% 53.7% -11.6% -2.4% -2.7% REFINING Total Revenues 0 0 0 430 1,039 1,025 1,020 1,017 NA NA NA 141.7% -1.3% -0.5% -0.2% Adj EBITDA 0 0 0 (6) 51 15 15 14 NA NA NA -944.3% -70.4% -3.5% -3.0% Adj. EBITDA Margin -1% 5% 1% 1% 1% Capex 0 0 0 (26) (9) (10) (10) (10) NA NA NA -65.0% 13.6% -0.5% -0.2% % of revenues 6% 1% 1% 1% 1% Operating Statistics Total products (000's boed) 0.0 0.0 0.0 14.0 33.3 33.6 33.9 34.3 NA NA NA 137.9% 1.0% 1.0% 1.0% Prices Total Products (USD/BOE) 0.0 0.0 0.0 85.1 85.5 83.6 82.3 81.3 NA NA NA 0.6% -2.3% -1.5% -1.2% GENERATION Total Revenues 316 280 263 310 575 689 742 790 -11.3% -6.3% 18.1% 85.7% 19.7% 7.7% 6.5% Adj EBITDA 33 125 109 117 264 327 362 395 281.0% -12.9% 7.1% 125.8% 23.8% 10.9% 9.1% Adj. EBITDA Margin 10% 45% 42% 38% 46% 47% 49% 50% Capex (9) (48) (164) (166) (550) (551) (371) (277) 414.2% 243.7% 1.3% 231.5% 0.1% -32.7% -25.4% % of revenues 3% 17% 62% 54% 96% 80% 50% 35% Operating Statistics Installed Capacity (MW) 2,217 2,217 2,309 3,433 3,753 3,853 4,045 4,236 0.0% 4.1% 48.7% 9.3% 2.7% 5.0% 4.7% Net Generation (GWh) 7,018 9,008 8,057 11,132 16,264 16,451 17,438 18,426 28.4% -10.6% 38.2% 46.1% 1.1% 6.0% 5.7% Total Domestic Sales 8,909 9,801 8,661 11,921 17,560 17,746 18,822 19,898 10.0% -11.6% 37.6% 47.3% 1.1% 6.1% 5.7% Prices/Margins Realized Average Price (USD/MWh) 35.2 27.7 30.1 25.8 31.1 36.4 37.0 37.3 -21.2% 8.5% -14.3% 20.7% 16.9% 1.7% 0.8% Implied Spot Price (USD/MWh) 36.2 38.2 30.7 31.3 52.9 66.1 66.1 66.1 5.6% -19.7% 1.9% 69.1% 25.0% 0.0% 0.0% Realized Gross Margin (USD/MWh) 7.9 15.0 15.2 11.5 15.0 18.6 19.5 20.2 89.7% 1.3% -24.2% 30.0% 24.0% 4.8% 3.4% Capex (USD/MWh) 1.3 5.3 20.3 15.1 34.1 33.5 21.3 15.0 300.6% 283.9% -25.6% 125.8% -1.8% -36.5% -29.4% DISTRIBUTION Total Revenues 628 443 412 882 1,438 2,140 2,507 2,950 -29.4% -6.9% 113.9% 63.0% 48.9% 17.1% 17.7% Adj EBITDA (160) (219) 196 39 138 307 381 465 36.6% -189.6% -80.0% 253.8% 121.5% 24.3% 21.9% Adj. EBITDA Margin -25% -49% 48% 4% 10% 14% 15% 16% Capex (199) (210) (265) (183) (233) (352) (385) (421) 5.1% 26.4% -30.9% 27.2% 51.3% 9.3% 9.3% % of revenues 32% 47% 64% 21% 16% 16% 15% 14% PETROCHEMICALS Total Revenues 0 0 0 164 447 481 481 481 NA NA NA 172.1% 7.6% 0.0% 0.0% Adj EBITDA 0 0 0 6 25 26 26 26 NA NA NA 305.2% 7.7% 0.0% 0.0% Adj. EBITDA Margin 4% 5% 6% 5% 6% Capex 0 0 0 (4) (5) (5) (5) (5) NA NA NA 20.2% 5.5% 0.0% 0.0% % of revenues 2% 1% 1% 1% 1% Operating Statistics Total Products (kton) 0 0 0 205 465 470 470 470 NA NA NA 126.6% 1.1% 0.0% 0.0% Average Price (USD/ton) 0 0 0 827 962 1,023 1,023 1,023 NA NA NA 16.3% 6.4% 0.0% 0.0% Cost/ton (USD) 0 0 0 856 943 982 982 982 NA NA NA 10.2% 4.2% 0.0% 0.0% Implied Cash Cost per ton (USD) 0 0 0 796 909 967 967 967 NA NA NA 14.2% 6.4% 0.0% 0.0% Source: Company reports; Deutsche Bank Deutsche Bank Securities Inc. Page 37 2 November 2017 Corporate Credit: Pampa Energia Group Initiation Figure 49: Edenor Consolidated Financial Model (USD) ARS:USD EOP 6.52 8.47 12.93 15.88 17.50 18.20 18.80 19.36 ARS:USD AVG 5.48 8.12 9.26 14.78 16.53 17.85 18.50 19.08 Brent Price (USD/BBL) 108.70 99.45 53.60 45.13 51.69 55.00 55.00 55.00 Henry Hub (USD/mmBtu) 3.73 4.26 2.63 2.55 3.04 3.00 3.00 3.00 GDP Growth % 0.1% -3.1% 2.6% -2.3% 2.8% 2.9% 3.0% 3.0% Empresa Distribuidora y Comercializadora Norte S.A. YoY % Change 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2014 2015 2016 2017E 2018E 2019E 2020E Income Statement (USD millions) Net Revenues 628 443 412 882 1,438 2,140 2,507 2,950 -29.4% -6.9% 113.9% 63.0% 48.9% 17.1% 17.7% COGS (749) (579) (560) (827) (1,069) (1,627) (1,905) (2,242) -22.7% -3.3% 47.7% 29.2% 52.2% 17.1% 17.7% Gross Income (121) (136) (148) 55 369 514 602 708 12.1% 8.6% -137.0% 573.8% 39.2% 17.1% 17.7% Gross Margin (%) -19.3% -30.7% -35.8% 6.2% 25.7% 24.0% 24.0% 24.0% Selling (100) (81) (90) (109) (127) (107) (113) (118) -19.0% 10.7% 21.8% 15.9% -15.5% 5.4% 4.6% % of revenues 15.9% 18.3% 21.7% 12.4% 8.8% 5.0% 4.5% 4.0% Administrative Expenses (59) (61) (76) (78) (79) (113) (125) (147) 3.2% 23.7% 3.6% 1.1% 43.1% 10.5% 17.7% % of revenues 9.4% 13.8% 18.4% 8.9% 5.5% 5.3% 5.0% 5.0% Other Operating Expenses (15) (33) (45) (26) (33) (11) (13) (15) 122.6% 36.7% -42.6% 28.2% -67.4% 17.1% 17.7% % of revenues 2.3% 7.4% 10.8% 2.9% 2.3% 0.5% 0.5% 0.5% Operating Income (295) (311) (358) (159) 130 283 351 428 5.3% 15.1% -55.7% -182.2% 116.9% 24.2% 21.9% Plus D&A 39 29 30 24 26 24 30 36 -24.4% 3.8% -21.7% 7.3% -7.4% 25.9% 22.6% Rep. EBITDA (257) (282) (327) (135) 156 306 381 464 9.8% 16.3% -58.9% -215.6% 96.6% 24.3% 21.9% Rep. EBITDA Margin -40.9% -63.6% -79.4% -15.3% 10.8% 14.3% 15.2% 15.7% Regulatory Adjustments 0 0 491 108 0 0 0 0 PUREE 90 59 3 0 0 0 0 0 Other Adjustments 9 5 5 40 (18) 0 0 0 Adj EBITDA (158) (217) 172 13 138 306 381 464 37.3% -179.0% -92.3% 949.6% 122.0% 24.3% 21.9% Adj. EBITDA Margin -25.2% -49.0% 41.6% 1.5% 9.6% 14.3% 15.2% 15.7% Total IS Regulatory Adjustment 535 280 602 107 0 0 0 0 Op. Income After Regulatory Adjustment 240 (31) 244 (51) 130 283 351 428 -113.0% -883.5% -120.9% -355.2% 116.9% 24.2% 21.9% Cash Flow (USD millions) FFO 134 132 214 (168) 196 384 493 588 -1.7% 62.4% -178.3% -216.8% 95.8% 28.4% 19.4% CFO 222 152 328 128 250 300 474 617 -31.3% 115.1% -61.0% 95.7% 19.9% 57.9% 30.1% Capex (163) (172) (219) (167) (212) (321) (351) (383) 5.9% 27.3% -24.1% 27.5% 51.2% 9.3% 9.3% % of revenues 25.9% 38.9% 53.2% 18.9% 14.8% 15.0% 14.0% 13.0% FCF 59 (20) 109 (39) 38 (21) 123 233 -133.8% -645.0% -135.6% -198.0% -155.5% -684.1% 89.8% FCF Margin 9.4% -4.5% 26.3% -4.4% 2.6% -1.0% 4.9% 7.9% Net Change in Cash 23 (16) (11) 6 42 63 (57) 42 Check 0 0 0 (0) 0 0 0 0 Balance Sheet (USD millions) Cash & Equivalents 37 21 10 16 58 122 64 107 -43.4% -52.9% 63.3% 258.7% 108.4% -47.2% 66.0% Change in Cash 23 (16) (11) 6 42 63 (57) 42 Total Debt 207 193 194 178 178 402 402 402 -6.9% 0.6% -8.4% 0.1% 125.9% 0.0% 0.0% Change in Debt (89) (14) 1 (16) 0 224 0 0 Net Debt 170 172 184 162 119 280 338 295 1.1% 7.2% -12.3% -26.0% 134.5% 20.5% -12.6% Total Debt:Adj. EBITDA (1.3) (0.9) 1.1 13.5 1.3 1.3 1.1 0.9 Net Debt:Adj. EBITDA (1.1) (0.8) 1.1 12.3 0.9 0.9 0.9 0.6 Adj. EBITDA:Interest Expense (5.6) (15.8) 7.0 0.5 4.9 10.5 9.5 11.5 EV:Adj. EBITDA (2.2) (1.0) 1.8 14.0 1.5 1.7 2.1 2.2 Operating Statistics Clients (000's) 2,773 2,801 2,835 2,866 2,921 2,976 3,036 3,096 1.0% 1.2% 1.1% 1.9% 1.9% 2.0% 2.0% Revenue/Client (USD) 226 158 145 309 492.7 719.1 825.7 952.6 -30.1% -8.5% 113.3% 59.6% 46.0% 14.8% 15.4% Volumes (GWh) 21,543 21,292 22,381 22,253 21,616 22,027 22,468 22,917 -1.2% 5.1% -0.6% -2.9% 1.9% 2.0% 2.0% Revenue/MWh (USD) 29 21 18 40 67 97 112 129 -28.6% -11.9% 116.9% 67.4% 46.0% 14.8% 15.4% Cash Cost/Client (USD) 319 259 261 354 440 616 700 803 -18.9% 0.9% 35.8% 24.1% 40.2% 13.6% 14.6% Cash Cost/MWh (USD) 41 34 33 46 59 83 95 108 -17.1% -2.9% 38.0% 30.1% 40.2% 13.6% 14.6% Energy Losses 13.0% 14.2% 14.8% 17.0% 16.7% 0.0% 0.0% 0.0% Source: Company reports; Deutsche Bank Page 38 Deutsche Bank Securities Inc. 2 November 2017 Corporate Credit: Pampa Energia Group Initiation Figure 50: Petrolera Pampa Consolidated Financial Model (USD) ARS:USD EOP 6.52 8.47 12.93 15.88 17.50 18.20 18.80 19.36 ARS:USD AVG 5.48 8.12 9.26 14.78 16.53 17.85 18.50 19.08 Brent Price (USD/BBL) 108.70 99.45 53.60 45.13 51.69 55.00 55.00 55.00 Henry Hub (USD/mmBtu) 3.73 4.26 2.63 2.55 3.04 3.00 3.00 3.00 GDP Growth % 0.1% -3.1% 2.6% -2.3% 2.8% 2.9% 3.0% 3.0% Petrolera Pampa S.A. YoY % Change 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2014 2015 2016 2017E 2018E 2019E 2020E Income Statement (USD millions) Net Revenues 29 44 100 191 246 272 302 337 49.5% 128.2% 90.7% 28.6% 10.5% 11.3% 11.5% COGS (16) (25) (70) (118) (143) (152) (163) (182) 58.7% 181.2% 69.9% 20.7% 6.5% 7.3% 11.5% Gross Income 14 19 31 73 103 120 139 155 39.1% 59.7% 138.0% 41.5% 16.0% 16.3% 11.5% Gross Margin (%) 46.9% 43.6% 30.5% 38.1% 41.9% 44.0% 46.0% 46.0% SG&A (6) (13) (28) (40) (39) (46) (51) (57) 111.3% 110.8% 42.0% -0.7% 17.7% 11.3% 11.5% % of revenues 21.3% 30.1% 27.8% 20.7% 16.0% 17.0% 17.0% 17.0% Depreciation & Amortization (0) (0) (0) (0) (1) (0) (0) (0) -18.8% 74.2% 17.8% 551.4% -50.5% 11.3% 11.5% % of revenues 0.2% 0.1% 0.1% 0.0% 0.2% 0.1% 0.1% 0.1% Exploration Expenses 0 0 (0) (2) (3) (3) (3) (3) #DIV/0! #DIV/0! 662.4% 11.7% 6.5% 11.3% 11.5% % of revenues 0.0% 0.0% 0.3% 1.2% 1.0% 1.0% 1.0% 1.0% Operating Income 6 17 58 104 112 125 138 151 185.5% 236.4% 80.4% 8.0% 11.5% 10.0% 10.0% % of revenues -20.4% -38.9% -57.4% -54.3% -45.6% -46.0% -45.5% -44.9% Other Operating Expenses (1) (6) (9) (32) (26) (33) (36) (40) 419.3% 35.0% 271.1% -19.1% 25.7% 11.3% 11.5% % of revenues 4.2% 14.6% 8.6% 16.8% 10.5% 12.0% 12.0% 12.0% Operating Income 12 17 51 103 147 163 186 205 35.8% 208.7% 100.2% 43.1% 10.8% 14.0% 10.4% Plus D&A 6 10 29 58 57 55 55 61 55.0% 190.4% 102.1% -2.7% -4.0% 0.2% 11.5% Rep. EBITDA 19 27 80 161 204 217 240 266 42.4% 201.8% 100.9% 26.4% 6.7% 10.6% 10.7% Rep. EBITDA Margin 63.5% 60.5% 80.0% 84.3% 82.9% 80.0% 79.5% 78.9% Dry Wells 0 0 0 2 2 3 3 3 One-time Fees 1 3 2 1 1 0 0 0 Other Adjustments 0 0 0 0 0 0 0 0 Adj EBITDA 19 29 83 165 207 220 243 269 51.4% 182.0% 99.4% 25.6% 6.4% 10.5% 10.6% Adj. EBITDA Margin 65.8% 66.6% 82.3% 86.0% 84.0% 81.0% 80.4% 79.8% Cash Flow (USD millions) FFO 46 94 134 152 230 254 282 313 103.0% 42.5% 13.8% 51.3% 10.1% 11.2% 10.8% CFO (6) 11 19 57 88 244 262 294 -293.3% 74.4% 202.7% 54.1% 175.3% 7.6% 12.0% Capex (20) (70) (162) (73) (55) (65) (73) (81) 247.3% 133.5% -55.3% -23.9% 17.9% 11.3% 11.5% % of revenues 68.2% 158.3% 162.0% 38.0% 22.5% 24.0% 24.0% 24.0% FCF (26) (59) (143) (15) 33 178 190 213 128.7% 144.5% -89.4% -318.7% 437.4% 6.3% 12.2% FCF Margin -87.3% -133.5% -143.0% -7.9% 13.5% 65.7% 62.7% 63.2% Net Change in Cash (3) 6 (3) 11 47 173 179 198 Check 0 0 0 0 0 0 0 0 Balance Sheet (USD millions) Cash & Equivalents 0 6 3 14 61 234 413 610 8043.2% -48.5% 359.5% 329.3% 282.9% 76.7% 47.9% Change in Cash (3) 6 (3) 11 47 173 179 198 Total Debt 67 118 168 261 163 163 163 163 76.0% 42.7% 55.6% -37.6% 0.0% 0.0% 0.0% Change in Debt 50 93 (98) Net Debt 67 112 165 247 102 (71) (250) (447) 67.2% 47.6% 49.9% -58.7% -169.3% 253.7% 79.2% Total Debt:Adj. EBITDA 3.5 4.0 2.0 1.6 0.8 0.7 0.7 0.6 Net Debt:Adj. EBITDA 3.5 3.8 2.0 1.5 0.5 (0.3) (1.0) (1.7) Adj. EBITDA:Interest Expense 1.8 1.4 2.0 3.4 9.3 9.0 9.9 11.0 EV:Adj. EBITDA 4.0 4.9 2.6 1.9 1.1 0.7 0.3 (0.1) Operating Statistics Production Gas (million m3) 139 229 565 1,013 1,168 1,285 1,413 1,555 Gas (000's boe) 872 1,442 3,551 6,371 7,347 8,082 8,890 9,779 65.2% 146.3% 79.4% 15.3% 10.0% 10.0% 10.0% Oil (m3) 5,621 5,344 9,393 16,338 14,343 13,913 13,496 13,091 Oil (000's bbl) 35,359 33,613 59,080 102,763 90,219 87,513 84,888 82,341 -4.9% 75.8% 73.9% -12.2% -3.0% -3.0% -3.0% Total Production (000's boe) 36,231 35,055 62,631 109,134 97,567 95,595 93,778 92,120 -3.2% 78.7% 74.3% -10.6% -2.0% -1.9% -1.8% Gas (boed) 2,390 3,950 9,728 17,455 20,130 22,143 24,357 26,793 Oil (bbld) 97 92 162 282 247 240 233 226 Total Daily Production (000's boe) 2,487 4,042 9,890 17,737 20,377 22,383 24,590 27,018 62.5% 144.7% 79.3% 14.9% 9.8% 9.9% 9.9% % Gas 96% 98% 98% 98% 99% 99% 99% 99% Prices and Costs Implied Realized Prices Gas (USD/boe) 29.8 28.6 27.6 27.6 27.8 28.6 29.5 30.3 Gas (USD/mmBTU) 5.0 4.8 4.6 4.6 4.6 4.8 4.9 5.1 Oil (USD/bbl) 95.2 80.3 63.7 82.5 0.1 55.0 55.0 55.0 Oil & Gas (USD/boe) 33.7 30.5 28.7 28.9 28.5 29.2 30.0 30.8 -9.5% -5.9% 0.8% -1.5% 2.5% 2.7% 2.7% Reported Gas Price (USD/mmBTU) 5.1 5.0 4.5 4.4 4.6 4.7 4.9 5.0 Reported Oil Price (USD/bbl) 74.4 71.3 71.4 65.5 61.2 58,372.6 58,372.6 58,372.6 Implied Cash Costs USD Cash Costs/boe (Gas) (16.4) (22.4) (21.8) (20.8) (20.3) (21.4) (21.7) (22.0) USD Cash Costs/mmBTU (Gas) (2.73) (3.74) (3.65) (3.48) (3.39) (3.58) (3.63) (3.68) USD Cash Costs/bbl (Oil) (16.4) (22.4) (21.8) (20.8) (20.3) (21.4) (21.7) (22.0) USD Cash Costs/boe (Oil & Gas) (17.0) (22.9) (22.2) (21.2) (20.5) (21.7) (21.9) (22.2) 34.6% -3.1% -4.6% -3.0% 5.5% 1.1% 1.3% Implied Netback (Gas) USD/boe 13.5 6.2 5.8 6.7 7.5 7.2 7.7 8.3 -53.8% -6.8% 16.2% 10.9% -4.3% 8.2% 7.3% Implied Netback (Gas) USD/mmBTU 2.25 1.04 0.97 1.13 1.25 1.19 1.29 1.39 -53.8% -6.8% 16.2% 10.9% -4.3% 8.2% 7.3% Implied Netback (Oil) USD/boe 78.9 57.9 41.9 61.7 (20.2) 33.6 33.3 33.0 -26.6% -27.7% 47.2% -132.8% -265.8% -0.8% -1.0% Implied Netback (Oil & Gas) USD/boe 16.7 7.6 6.5 7.7 7.9 7.5 8.1 8.6 -54.5% -14.2% 19.1% 2.6% -5.3% 7.2% 6.5% Source: Company reports; Deutsche Bank Deutsche Bank Securities Inc. Page 39 2 November 2017 Corporate Credit: Pampa Energia Group Initiation Figure 51: TGS Consolidated Financial Model (USD) ARS:USD EOP 6.52 8.47 12.93 15.88 17.50 18.20 18.80 19.36 ARS:USD AVG 5.48 8.12 9.26 14.78 16.53 17.85 18.50 19.08 Brent Price (USD/BBL) 108.70 99.45 53.60 45.13 51.69 55.00 55.00 55.00 Henry Hub (USD/mmBtu) 3.73 4.26 2.63 2.55 3.04 3.00 3.00 3.00 GDP Growth % 0.1% -3.1% 2.6% -2.3% 2.8% 2.9% 3.0% 3.0% Transportadora de Gas del Sur S.A. YoY % Change 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2014 2015 2016 2017E 2018E 2019E 2020E Income Statement (USD millions) Net Revenues 523 530 456 499 705 905 897 952 1.4% -13.9% 9.4% 41.2% 28.5% -1.0% 6.2% Operating Income 129 115 74 151 258 459 435 470 -11.0% -35.3% 102.7% 71.5% 77.7% -5.2% 8.0% Plus D&A 44 31 28 19 24 39 39 42 -29.4% -9.9% -31.6% 25.2% 62.4% -1.7% 9.9% Rep. EBITDA 173 146 103 170 282 498 473 512 -15.7% -29.9% 65.7% 66.2% 76.4% -4.9% 8.2% Rep. EBITDA Margin 33.1% 27.6% 22.5% 34.0% 40.1% 55.0% 52.8% 53.8% Adjustments (3) 0 2 4 9 0 0 0 Adj EBITDA 170 146 104 174 291 498 473 512 -14.0% -28.8% 67.1% 67.3% 70.9% -4.9% 8.2% Adj. EBITDA Margin 32.6% 27.6% 22.8% 34.9% 41.3% 55.0% 52.8% 53.8% Cash Flow (USD millions) FFO 270 164 151 190 305 560 503 553 -39.4% -7.7% 25.8% 60.3% 83.7% -10.1% 9.9% CFO 231 125 50 144 239 498 501 543 -45.8% -59.8% 185.7% 65.7% 108.6% 0.6% 8.3% Capex (43) (43) (43) (40) (95) (226) (359) (286) 0.5% 0.5% -7.7% 138.2% 137.4% 58.4% -20.4% % of revenues 8.2% 8.1% 9.5% 8.0% 13.5% 25.0% 40.0% 30.0% FCF 188 82 7 104 143 271 142 257 -56.3% -91.5% 1380.9% 37.8% 89.4% -47.6% 80.7% FCF Margin 36.0% 15.5% 1.5% 20.8% 20.3% 30.0% 15.9% 27.0% Net Change in Cash (4) (44) (26) 30 42 300 (112) (15) Check 0 0 0 0 0 0 0 0 Balance Sheet (USD millions) Cash & Equivalents 137 93 67 98 140 440 328 313 -32.0% -27.6% 45.1% 42.9% 214.5% -25.4% -4.6% Change in Cash (4) (44) (26) 30 42 300 (112) (15) Total Debt 385 291 258 247 243 500 500 500 -24.3% -11.5% -4.4% -1.5% 105.9% 0.0% 0.0% Change in Debt 3 (93) (33) (11) (4) 257 (0) (0) Net Debt 247 198 190 149 103 60 172 187 -20.0% -3.8% -21.9% -30.8% -41.9% 186.7% 8.9% Total Debt:Adj. EBITDA 2.3 2.0 2.5 1.4 0.8 1.0 1.1 1.0 Net Debt:Adj. EBITDA 1.5 1.4 1.8 0.9 0.4 0.1 0.4 0.4 Adj. EBITDA:Interest Expense 4.0 3.8 2.8 5.5 9.0 10.2 7.3 7.9 EV:Adj. EBITDA 3.3 2.9 3.1 1.8 1.1 0.6 0.8 0.8 Operating Statistics NATURAL GAS TRANSPORTATION Firm Natural Gas Transportation 96 73 88 100 221 395 388 432 -24.0% 19.4% 14.7% 120.3% 78.7% -1.8% 11.5% Variable Natural Gas Transportation 24 18 22 41 48 76 76 88 -24.2% 19.5% 85.7% 18.9% 57.8% -0.2% 14.8% Total Revenues 121 92 109 141 270 472 464 520 -24.0% 19.5% 28.9% 91.0% 74.9% -1.6% 12.0% Cash Costs (82) (74) (121) (80) (121) (101) (109) (116) -10.9% 64.1% -33.3% 50.4% -16.5% 7.5% 6.6% % of revenues 68% 80% 110% 57% 45% 21% 23% 22% EBITDA 38 18 (11) 61 171 371 356 404 -52.5% -161.7% -642.5% 181.4% 117.1% -4.0% 13.7% % of revenues 32% 20% -10% 43% 63% 79% 77% 78% Depreciation & Amortization (33) (23) (21) (16) (18) (33) (32) (36) -28.8% -10.0% -23.4% 10.8% 85.2% -1.6% 12.0% % of revenues -5% -3% -2% -1% 0% 0% 0% 0% EBIT 5 (5) (32) 45 159 338 323 368 -197.1% 516.6% -238.5% 257.3% 111.9% -4.3% 13.9% % of revenues 1% -1% -3% 2% 4% 4% 4% 4% Firm Contracted Capacity (000's m3/day) 81,813 80,510 79,494 80,604 78,594 79,000 80,000 80,000 -1.6% -1.3% 1.4% -2.5% 0.5% 1.3% 0.0% Firm Contracted Capacity (mmcf/day) 2,888 2,842 2,806 2,845 2,775 2,789 2,824 2,824 -1.6% -1.3% 1.4% -2.5% 0.5% 1.3% 0.0% Average Tariff ARS/000 cfd 183 209 289 522 331 632 635 731 14.4% 38.0% 80.6% -36.5% 90.9% 0.5% 15.0% Average Tariff USD/000 cfd 33 26 31 35 20 35 34 38 -22.8% 21.0% 13.2% -43.2% 76.7% -3.1% 11.5% Daily Deliveries (000's m3/day) 65,921 65,439 66,722 66,036 67,386 69,415 71,498 73,643 -0.7% 2.0% -1.0% 2.0% 3.0% 3.0% 3.0% Daily Deliveries (mmcf/day) 2,327 2,310 2,355 2,331 2,379 2,450 2,524 2,600 -0.7% 2.0% -1.0% 2.1% 3.0% 3.0% 3.0% % firm 84.2% 81.6% 81.4% 80.2% 80.0% 80.0% 80.0% 80.0% % variable 15.8% 18.4% 18.6% 19.8% 20.0% 20.0% 20.0% 20.0% Average Variable Tariff ARS/000 cfd 361 351 463 1,305 419 696 699 804 -2.8% 31.8% 181.7% -67.9% 66.0% 0.5% 15.0% Average Variable Tariff USD/000 cfd 66 43 50 88 25 39 38 42 -34.4% 15.5% 76.6% -71.2% 53.4% -3.1% 11.5% Cash Cost Firm Capacity (ARS)-Fixed 125 168 319 334 588 647 711 783 34.2% 89.6% 5.0% 75.8% 10.0% 10.0% 10.0% Cash Cost Firm Capacity (USD)-Fixed 23 21 34 23 36 36 38 41 -9.4% 66.2% -34.2% 57.4% 1.7% 6.1% 6.6% LIQUIDS Domestic Market 170 216 209 225 270 273 275 278 27.1% -2.9% 7.6% 19.8% 1.0% 1.0% 1.0% External Market 207 184 104 97 123 123 119 117 -11.4% -43.1% -6.8% 26.6% -0.5% -2.5% -2.1% Total Revenues 377 399 314 323 393 395 395 395 6.0% -21.4% 2.8% 21.8% 0.5% -0.1% 0.1% Cash Costs (250) (293) (215) (232) (283) (289) (297) (307) 17.0% -26.5% 7.9% 21.7% 2.1% 3.0% 3.3% % of revenues 66% 73% 69% 72% 72% 73% 75% 78% EBITDA 127 107 99 90 110 107 98 88 -15.9% -7.5% -8.4% 22.3% -3.4% -8.5% -9.7% % of revenues 34% 27% 31% 28% 28% 27% 25% 22% Depreciation & Amortization (9) (6) (5) (1) (1) (1) (1) (1) -31.0% -9.5% -78.9% 2.0% 3.0% -0.1% 0.1% % of revenues 0% 0% 0% 0% 0% 0% 0% 0% EBIT 118 101 93 89 109 105 96 87 -14.8% -7.3% -4.4% 22.5% -3.5% -8.6% -9.9% % of revenues 31% 25% 30% 28% 28% 27% 24% 22% Ethane (000's of tons) 314 300 278 277 310 313 316 319 -4.4% -7.5% -0.1% 11.6% 1.0% 1.0% 1.0% Propane (000's of tons) 296 334 312 326 358 362 365 369 12.9% -6.6% 4.6% 9.7% 1.0% 1.0% 1.0% Butane (000's of tons) 206 238 232 234 235 237 239 242 15.5% -2.2% 0.5% 0.3% 1.0% 1.0% 1.0% Natural Gasoline (000's of tons) 94 98 102 102 116 117 118 119 4.2% 4.2% -0.2% 14.0% 1.0% 1.0% 1.0% Total Production (000's of tons) 910 970 924 939 1,018 1,029 1,039 1,049 6.6% -4.7% 1.6% 8.4% 1.0% 1.0% 1.0% Ethane External (000's of tons) 314 300 278 277 294 297 300 303 -4.4% -7.5% -0.1% 6.1% 1.0% 1.0% 1.0% Propane External (000's of tons) 295 323 315 314 334 337 340 344 9.5% -2.4% -0.4% 6.4% 1.0% 1.0% 1.0% Butane External (000's of tons) 206 231 238 222 216 218 220 222 12.3% 3.0% -6.5% -2.8% 1.0% 1.0% 1.0% Natural Gasoline External (000's of tons) 91 88 107 99 106 107 108 109 -3.4% 21.6% -8.0% 7.5% 1.0% 1.0% 1.0% Total Sales (000's of tons) 905 942 937 912 950 959 969 979 4.0% -0.5% -2.7% 4.2% 1.0% 1.0% 1.0% Ethane (000's of tons) Domestic 314 300 278 277 294 297 300 303 -4.4% -7.5% -0.1% 6.1% 1.0% 1.0% 1.0% Propane (000's of tons) Domestic 175 187 173 176 185 187 189 191 7.1% -7.5% 2.1% 4.9% 1.0% 1.0% 1.0% Butane (000's of tons) Domestic 134 141 147 141 135 136 138 139 5.6% 4.3% -4.0% -4.6% 1.0% 1.0% 1.0% Natural Gasoline (000's of tons) Domestic 0 0 0 0 0 0 0 0 Total Domestic Sales 622 628 598 595 614 620 627 633 1.0% -4.9% -0.4% 3.2% 1.0% 1.0% 1.0% Average Price 000's ARS/000's tons 1,495 2,789 3,246 5,595 7,262 7,844 8,129 8,385 86.6% 16.4% 72.4% 29.8% 8.0% 3.6% 3.1% Average Price 000's USD/000's tons 273 343 350 379 439 439 439 439 25.9% 2.0% 8.0% 16.1% 0.0% 0.0% 0.0% Ethane (000's of tons) External 0 0 0 0 0 0 0 0 Propane (000's of tons) External 120 136 142 137 149 150 152 153 12.9% 4.6% -3.4% 8.4% 1.0% 1.0% 1.0% Butane (000's of tons) External 72 89 90 81 81 82 83 83 24.8% 0.9% -10.6% 0.3% 1.0% 1.0% 1.0% Natural Gasoline (000's of tons) External 91 88 107 99 106 107 108 109 -3.4% 21.6% -8.0% 7.5% 1.0% 1.0% 1.0% Total External Sales 283 313 339 316 336 339 342 346 10.7% 8.4% -6.8% 6.0% 1.0% 1.0% 1.0% Average Price 000's ARS/000's tons 4,010 4,759 2,850 4,544 6,068 6,456 6,456 6,456 18.7% -40.1% 59.4% 33.5% 6.4% 0.0% 0.0% Average Price 000's USD/000's tons 732 586 308 307 367 362 349 338 -19.9% -47.5% -0.1% 19.4% -1.5% -3.5% -3.0% Production Costs (Variable) 1,206 1,962 1,727 2,925 3,699 3,995 4,141 4,271 62.7% -12.0% 69.4% 26.5% 8.0% 3.6% 3.1% OTHER Telecom 5 7 5 4 4 4 4 4 Other 20 32 28 33 37 35 34 33 Total Revenues 25 39 33 37 41 39 38 37 54.1% -15.6% 12.4% 11.9% -6.5% -2.5% -2.1% Cash Costs (17) (17) (18) (18) (20) (18) (17) (17) % of revenues 66% 45% 54% 47% 48% 46% 46% 46% EBITDA 8 22 15 19 22 21 20 20 153.5% -29.7% 28.4% 11.8% -3.7% -2.5% -2.1% % of revenues 34% 55% 46% 53% 52% 54% 54% 54% Depreciation & Amortization (3) (2) (2) (2) (5) (5) (5) (5) % of revenues 12% 5% 6% 6% 12% 13% 13% 13% EBIT 6 19 13 4 17 16 15 15 % of revenues 22% 50% 40% 11% 40% 41% 41% 41% Source: Company reports; Deutsche Bank Page 40 Deutsche Bank Securities Inc. 2 November 2017 Corporate Credit: Pampa Energia Group Initiation Figure 52: Transener Consolidated Financial Model (USD) ARS:USD EOP 6.52 8.47 12.93 15.88 17.50 18.20 18.80 19.36 ARS:USD AVG 5.48 8.12 9.26 14.78 16.53 17.85 18.50 19.08 Brent Price (USD/BBL) 108.70 99.45 53.60 45.13 51.69 55.00 55.00 55.00 Henry Hub (USD/mmBtu) 3.73 4.26 2.63 2.55 3.04 3.00 3.00 3.00 GDP Growth % 0.1% -3.1% 2.6% -2.3% 2.8% 2.9% 3.0% 3.0% Compania de Transporte de Energia Electrica en Alta Tension S.A. YoY % Change 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2014 2015 2016 2017E 2018E 2019E 2020E Income Statement (USD millions) Net Revenues 159 182 208 151 338 327 319 312 14.1% 14.5% -27.7% 124.2% -3.0% -2.6% -2.1% COGS (143) (132) (141) (119) (139) (134) (131) (128) -7.4% 6.8% -15.5% 17.1% -3.8% -2.6% -2.1% Gross Income 17 50 67 31 198 193 188 184 195.2% 34.7% -53.2% 529.2% -2.5% -2.6% -2.1% Gross Margin (%) 10.6% 27.4% 32.3% 20.9% 58.7% 59.0% 59.0% 59.0% Selling (2) (1) (1) (1) (1) (1) (1) (1) -30.5% -7.6% -32.4% 2.3% -3.8% -2.6% -2.1% % of revenues 1.0% 0.6% 0.5% 0.4% 0.2% 0.2% 0.2% 0.2% Administrative Expenses (23) (22) (27) (24) (26) (26) (26) (25) -6.9% 24.9% -11.6% 9.3% 0.9% -2.6% -2.1% % of revenues 14.5% 11.8% 12.9% 15.8% 7.7% 8.0% 8.0% 8.0% Other Operating Expenses 1 (2) (3) (2) (7) (7) (6) (6) -294.0% 43.4% -21.3% 234.2% -6.9% -2.6% -2.1% % of revenues -0.6% 1.0% 1.3% 1.4% 2.1% 2.0% 2.0% 2.0% Operating Income (7) 25 37 5 164 160 156 152 -477.0% 44.2% -86.4% 3193.3% -2.9% -2.6% -2.1% Plus D&A 15 11 10 7 7 7 7 7 -30.5% -7.6% -32.4% 7.4% 0.9% -2.6% -2.1% Rep. EBITDA 9 36 47 12 172 167 163 159 322.2% 29.0% -75.0% 1374.7% -2.7% -2.6% -2.1% Rep. EBITDA Margin 5.4% 19.9% 22.4% 7.7% 50.8% 51.0% 51.0% 51.0% Regulatory Adjustments 39 35 19 8 1 0 0 0 PUREE 18 15 6 0 0 0 0 0 Other Adjustments 0 0 0 0 0 0 0 0 Adj EBITDA 65 85 71 20 173 167 163 159 30.7% -16.8% -71.8% 761.2% -3.3% -2.6% -2.1% Adj. EBITDA Margin 7.5% 5.8% 3.7% 0.9% 3.1% 2.9% 2.8% 2.7% Cash Flow (USD millions) FFO (39) (41) (79) (92) 169 153 183 163 5.8% 93.6% 15.8% -283.7% -9.4% 19.6% -10.9% CFO (57) (56) (120) (101) 97 151 182 162 -2.6% 113.9% -15.3% -195.4% 56.5% 20.5% -10.9% Capex (40) (48) (27) (23) (35) (65) (112) (109) 22.2% -43.3% -14.4% 51.1% 84.7% 70.4% -2.1% % of revenues 4.5% 3.3% 1.4% 1.0% 0.6% 1.1% 1.9% 1.8% FCF (97) (104) (147) (125) 61 86 71 53 7.5% 41.1% -15.1% -149.1% 40.2% -17.6% -24.8% FCF Margin -11.1% -7.1% -7.6% -5.5% 1.1% 1.5% 1.2% 0.9% Net Change in Cash (15) 28 7 (42) 24 202 (78) (63) Check 0 0 0 0 0 0 0 0 Balance Sheet (USD millions) Cash & Equivalents 11 39 46 4 28 230 152 89 244.9% 17.5% -90.8% 574.9% 713.6% -33.8% -41.7% Change in Cash (15) 28 7 (42) 24 202 (78) (63) Total Debt 142 130 117 99 99 294 294 294 -8.2% -10.2% -15.5% 0.2% 196.8% 0.0% 0.0% Change in Debt (13) (12) (13) (18) 0 195 0 0 Net Debt 131 91 71 95 71 64 142 205 -30.1% -21.9% 32.9% -25.2% -9.4% 121.3% 44.6% Total Debt:Adj. EBITDA 2.2 1.5 1.6 4.9 0.6 1.8 1.8 1.8 Net Debt:Adj. EBITDA 2.0 1.1 1.0 4.7 0.4 0.4 0.9 1.3 Adj. EBITDA:Interest Expense 4.3 5.8 5.3 1.6 13.7 8.4 5.5 5.4 EV:Adj. EBITDA 3.2 2.0 1.8 6.8 1.2 1.6 2.9 4.0 Source: Company reports; Deutsche Bank Deutsche Bank Securities Inc. Page 41 2 November 2017 Corporate Credit: Pampa Energia Group Initiation Appendix 1 Important Disclosures *Other information available upon request Prices are current as of the end of the previous trading session unless otherwise indicated and are sourced from local exchanges via Reuters, Bloomberg and other vendors . Other information is sourced from Deutsche Bank, subject companies, and other sources. For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr. 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