Business Context and Reporting Period
Company: Transportadora de Gas del Sur S.A. (TGS)
Reporting Period: Fourth Quarter ended December 31, 2021 (4Q2021)
Filing Date: March 8, 2022
TGS is Argentina's leading natural gas transporter, moving approximately 60% of the country's gas consumption through over 5,700 miles of pipelines. The company also operates as a major natural gas processor and midstream provider in the Vaca Muerta formation. Financial results are presented in constant Argentine pesos (Ps.) in accordance with IFRS and IAS 29 (Hyperinflationary Economies).
Key Financial Metrics
| Metric | 4Q2021 (Ps. Million) | 4Q2020 (Ps. Million) |
|---|---|---|
| Total Revenues | 25,358 | 20,132 |
| Operating Profit (before depreciation) | 11,914 | 11,328 |
| Total Comprehensive Income | 6,755 | (5,353) Loss |
| Net Debt | 12,436 | 35,196 |
| Cash Flow from Operating Activities | 9,187 | 8,220 |
| Cash Flow from Investing Activities | (6,321) | (11,210) |
Segment Performance:
- Liquids Production: Revenues of Ps. 17,501 million (69% of total), driven by higher international prices for natural gasoline and LPG and increased volumes.
- Natural Gas Transportation: Revenues decreased due to a lack of tariff adjustments since April 2019, offsetting inflation effects.
- Other Services: Revenues increased by Ps. 350 million, primarily from midstream services in Vaca Muerta.
Material Changes vs. Prior Period
- Profitability Turnaround: The company shifted from a comprehensive loss of Ps. 5,353 million in 4Q2020 to a profit of Ps. 6,755 million in 4Q2021. This Ps. 8,697 million improvement was driven by financial gains on the fair value of financial assets and the absence of the Ps. 4,700 million PPE impairment recorded in 4Q2020.
- Revenue Growth: Total revenues increased by 26% (Ps. 5,226 million). The Liquids segment contributed Ps. 7,092 million in additional revenue, partially offset by a Ps. 2,216 million decline in Transportation revenues.
- Debt Reduction: Net debt decreased significantly from Ps. 35,196 million to Ps. 12,436 million, reducing the net liability position in foreign currency.
- Cost Increases: Operating costs and expenses rose by Ps. 4,584 million, attributed to higher natural gas processing costs (linked to USD prices), increased export taxes, and maintenance expenses.
Outlook, Risks, and Management Commentary
- Tariff Adjustment: On February 23, 2022, a transitory tariff adjustment of 60% was ratified, effective March 1, 2022. This agreement prohibits dividend distribution, early debt cancellation with shareholders, and M&A activity until further notice.
- Investment Plans: The Board approved US$ 82 million for the expansion of the Tratayén conditioning plant, expected to be completed by mid-2023 to meet producer demand.
- Regulatory Environment: New government decrees (No. 96/2022 and No. 91/2022) declared the construction of the President Néstor Kirchner pipeline as a public interest project, which is essential for TGS's midstream growth in Vaca Muerta.
- Risks: Results remain sensitive to inflation restatement effects (IAS 29), exchange rate fluctuations, and regulatory decisions regarding tariffs and investment restrictions.
Investor Verification Checklist
- Verify the impact of the 60% tariff adjustment on future cash flows given the restriction on dividend distribution.
- Monitor the execution of the US$ 82 million Tratayén expansion and its timeline for mid-2023 completion.
- Assess the sustainability of Liquids segment margins given the volatility of international natural gasoline and LPG prices.
- Review the company's ability to maintain debt reduction trends amidst potential inflationary cost pressures.
- Confirm the status of the President Néstor Kirchner pipeline project and TGS's role in its development.