In February 2013, Resolution (Res.) No. 1/13 was published establishing the Plan Gas for a term of five years with the purpose of offsetting projects contributing to the domestic gas self-supply. The Federal Government had undertaken to pay a monthly compensation resulting from:

i. The difference between the Surplus Injection price (US$7.5/million BTUs (MBTU)) and the price collected from the sale of the Surplus Injection; plus

ii. The difference between the Base Price and the price collected from the sale of the Adjusted Base Injection.

Petrolera Pampa S.A. (PEPASA), later merged into Pampa, joined Plan Gas in August 2013, with retroactive effects as of March 2013 and until December 2017. As regards the compensation accrued in fiscal year 2017, the Natural Gas Program Bond was received in April 2019.

In November 2013, the Hydrocarbon Investments Committee included by Res. No. 60/13 more beneficiary companies under Plan Gas. Petrobras Argentina, later merged into Pampa, joined the plan on January 30, 2015, effective until June 30, 2018. As regards the compensations accrued in fiscal year 2017, the Natural Gas Program Bond was received in July 2019, whereas compensations corresponding to the first semester of 2018 were collected in cash in April 2019.

Unconventional Plan Gas

On March 6, 2017, Res. No. 46/17 of the former Ministry of Energy and Mining (MEyM) was published creating the Encouragement Program to further investments to produce natural gas from unconventional reservoirs in the Neuquina Basin, effective from its publication to December 31, 2021. This program provided for a compensation mechanism for the unconventional gas volume —either tight or shale— produced in the Neuquina Basin, which was calculated based on a minimum guaranteed price and the total weighted-average gas sales price by each company to the domestic market, including both conventional and unconventional gas. The minimum price was fixed at US$7.5/MBTU for calendar year 2018 and would be later decreased by US$0.5/MBTU per year until reaching US$6.0/MBTU for calendar year 2021.

Later, on November 2, 2017, MEyM Res. No. 419/17 was published amending the terms and conditions, and classifying projects into pilot and developing, the latter having an initial unconventional gas production equal to or higher than 500,000 cubic meters (m³) per day between July 2016 and June 2017.

Pilot projects could obtain the minimum price for their whole unconventional production provided they reached an annual average production equal to or higher than 500,000 m³ per day during a twelve-month period by December 31, 2019. Developing projects could only benefit for the incremental portion on top of the defined initial production. The reference price for calculating the incentive was the domestic market’s weighted average reported by the MEyM’s Subsecretariat of Hydrocarbon Resources (SRH). Furthermore, permanence in the program was conditional upon compliance with the investment plan informed to the provincial authority; otherwise, collected amounts, adjusted by the Argentine National Bank’s (BNA or Banco de la Nación Argentina) interest rate, should be returned.

On November 17, 2017 MEyM Res. No. 447/17 was published in the Public Gazette (BO or Boletín Oficial), which extends the application of the Unconventional Plan Gas to the Austral Basin. Additionally, on January 20, 2018, MEyM Res. No. 12/18 was issued, which introduced the applicable amendments to the Unconventional Plan Gas to apply the incentives provided therein to adjacent concessions operated on a unified basis and meeting all other applicable conditions.

Pampa repeatedly requested before the SGE (former Government Secretariat of Energy) for the inclusion under this program for Río Neuquén, El Mangrullo and Sierra Chata blocks, previously approved by the provincial enforcement authority. However, on January 30, 2019, the SGE informed gas producers affected by the Unconventional Plan Gas, including the Company, that no new projects would be approved under the Unconventional Plan Gas.

Pursuant to Res. No. 599 of 2007, the agreement between the Federal Government and natural gas producers, known as Producers’ Agreement, was ratified, the main goals of which were to secure supply of the domestic demand for gas and the gradual recovery in prices through all market segments. The last residential supply commitment expired in December 2011.

In October 2010, Res. I-1410 of ENARGAS (National Gas Regulatory Entity or Ente Nacional Regulador del Gas) established certain modifications to the natural gas dispatch mechanism, placing a priority on the supply to the Priority Demand, with volumes exceeding those stipulated under Res. No. 599/07 of the former Secretariat of Energy (SE). Moreover, in December 2011, the terms of the Producers’ Agreement were temporarily and unilaterally extended, allowing ENARGAS to continue using gas producers’ shares stipulated in the previous agreement (SE Res. No. 172/11).

In June 2016, MEyM Res. No. 89/16 was published in the BO, which established the criteria for the normalization of natural gas purchase agreements within the Transportation System Entry Point (PIST) by distribution service providers in order to meet the Priority Demand. Additionally, criteria were established to guarantee the meeting of the Priority Demand through the CEE in case of operational emergencies which may affect its normal operation.

Finally, in June 2017 ENARGAS Res. No. 4502/17 was issued, which approved the procedure for dispatch administration in the CEE. In case the CEE did not reach an agreement, ENARGAS defines the required supply taking into consideration each producer’s available quantities, deducting the amounts previously contracted to meet the Priority Demand, with a progressive allocation until matching the proportional quota of each producer/importer in the Priority Demand.

New Natural Gas Prices within the PIST

In early January 2018, the extension period set forth by Law No. 27,200 to the public emergency declared in 2002 terminated and, therefore, Law No. 24,076 was reinstated, which provides that the price of natural gas supply should be determined by the free interaction of supply and demand. As a result, natural gas distributors executed an agreement with the country’s main natural gas producers, including Pampa, effective for a year as from January 1, 2018. Prices were differentiated based on the source basin, the user category, and whether the tariff was full or differential, with periodic increases, and ranged from US$1/MBTU to US$6.5/MBTU.

However, on account of the significant devaluation of the AR$ and the impossibility by distributors to pass this new exchange rate (FX) on to final users’ tariff schemes, in early October 2018, this agreement was rendered ineffective and pricing agreements with distributors started to be governed by the price range recognized by ENARGAS in tariff schemes.

Nevertheless, as regards the FX’s difference between the price of gas purchased by distributors and that recognized in final tariffs, on November 15, 2018, Executive Order No. 1053/18 of the National Executive Branch (PEN or Poder Ejecutivo Nacional) was passed, which established, on an exceptional basis, that the Federal Government would bear such difference for the April 2018 – March 2019 period, in 30 monthly consecutive installments payable as from October 2019.

In mid-February 2019, a tender was launched for the supply of natural gas to distribution companies on a firm basis to take or pay (ToP) and deliver or pay (DoP) up to 70% of the maximum daily volume, for a term of 12 months with seasonality terms, and effective as from April 2019. For the Noroeste Basin, 9.4 and 3.8 million m³ per day were assigned for the winter (April – September 2019) and summer (October 2019 – April 2020), respectively, at an average tender price of US$4.35/MBTU. For the rest of basins, 36.1 and 14.4 million m³ per day were assigned for the winter and the summer, respectively, at an average tender price of US$4.62/MBTU. Pampa submitted and was awarded. Producers would bill to distribution companies in AR$ pursuant to ENARGAS Res. No. 72/19, considering BNA’s average currency FX for the first 15 days of the month immediately preceding the beginning of each seasonal period or, if lower, the FX stipulated in the agreements. However, the FX update which should have been implemented on October 1, 2019, applicable to the October 2019 – April 2020 summer seasonal period, was deferred on several occasions. With the entry into effect of the Solidarity Law (Law No. 27,541), the FX freeze was subjected to a maximum term of up to 180 days.

ENARGAS Res. No. 193-199, 201-202 and 205-207 /19 established gas tariff schemes effective as from April 2019, considering an average PIST price of gas as a raw material for the following 6 months ranging between US$2.14/MBTU and US$4.69/MBTU, including the differential tariff⁽¹⁾. Later, 27% and 12% discounts in the price of natural gas within the PIST were set for the months of April and May 2019, respectively, by means of subsidies and, with the purpose of smoothing monetary expenses for seasonal consumption, a 22% deferral on bills issued during the July – October 2019 period was approved, to be recovered in five installments as from December 2019.

The tariff scheme update corresponding to October 2019 was deferred until February 1, 2020 pursuant to SGE Res. No. 521, 751 and 791 /19 and, with the entry into effect of the Solidarity Law, effective as from December 23, 2019, it was provided that tariffs under federal jurisdiction would remain unchanged and a process for an extraordinary review of the Integral Tariff Review (RTI) would be initiated for a maximum term of 180 days.

Note: ⁽¹⁾ Tariff schemes contemplate a FX of AR$41.003/US$.

On the other hand, seeking that the Wholesale Electricity Market (WEM) should bear the costs of imported gas and, consequently, reflect them in the variable costs the electric dispatch is based on, on October 4, 2018 SGE Res. No. 25/18 was issued, which provided that, in case the supplier is IEASA (Integración Energética Argentina S.A.), CAMMESA (Argentine Wholesale Electricity Market Clearing Company or Compañía Administradora del Mercado Mayorista Eléctrico S.A.) should adopt the acquisition and commercialization cost, effective as from October 1, 2018.

On December 27, 2018, a tender was launched for the supply of gas to power plants effective for the year 2019, in which Pampa took part. At CAMMESA’s tender, indicative prices were received for a total 222 million m³ per day on an interruptible basis, at seasonal PIST prices with a maximum of US$5.2/MBTU and a minimum of US$3.2/MBTU for the June – August 2019 period, and with a maximum of US$3.7/MBTU and a minimum of US$2.2/MBTU for the rest of the year. This tender considered the maximum PIST seasonal reference prices established by SGE Note No. 66680075/18 described in the previous paragraph.

However, SGE Note No. 07973690/19 instructed CAMMESA to recognize in the Variable Production Costs (CVPs) declared as from February 18, 2019 the maximum price for gas equivalent to the weighted average per basin which would have resulted if all the fuel had been acquired under contracts entered into under CAMMESA’s tender for the year 2019. Therefore, gas reference prices within the PIST decreased significantly, and were set in ranges of approximately US$3.70/MBTU during the months of June through August 2019, and US$2.70/MBTU for the rest of the year for the Neuquina Basin.

For 2020 consumption, as of this date CAMMESA launched successive tenders for monthly coverages. On December 27, 2019, CAMMESA’s tender for the January 2020 period took place, and offers for a total 260 million m³ per day were received, with an average PIST price of US$1.73/MBTU in the Neuquina Basin. However, on January 29, 2020, a tender for gas was launched for the month of February 2020, but on a partially firm basis, where the producer commits to deliver a minimum volume equal to 30% (DoP). Offers were received for a total 84 million m³ per day at an average PIST price of US$2.59/MBTU for the Neuquina Basin. CAMMESA replicated this methodology for the March 2020 tender, receiving offers for a total 78 million m³ per day at an average PIST price of US$2.42/MBTU for the Neuquina Basin.

Moreover, as from December 30, 2019, the supply of fuel for power plants was again centralized in CAMMESA (except for generators under the Energía Plus Program).

Moreover, Provision No. 168/19 of the Subsecretariat of Hydrocarbons and Fuels (SHC) of August 2019 approved the export of gas from September 2019 to May 2020, for a maximum aggregate volume of 10 million m³/day, 65% from the Argentine central-western area, 25% from the south, and 10% from the northwest area. In that sense, Pampa obtained a permit to export gas on a firm basis from its production in the Neuquina Basin to Refinerías ENAP in Chile.

In case higher costs are incurred by the Federal Government as a result of the use of alternative fuels for electric power generation by the WEM (imported liquefied natural gas (LNG), coal, fuel oil or gas oil), exporting companies should pay a compensation to CAMMESA. SGE Res. No. 506/19 issued on August 29, 2019 set a minimum value of US$0.1/MBTU and a maximum value of US$0.2/MBTU for the exported volume, which may be offset by receivables from the sale of gas in the domestic market each exporter holds against CAMMESA. This compensation would be included in the cost of electricity within the WEM.

Finally, pursuant to PEN Executive Orders No. 793 and 865/18, a gas export duty of AR$4 per each exported US$ is in effect as from September 2018, with a maximum 12% rate; this rate was later amended by the Solidarity Law, which provided, effective as from December 23, 2019, that it may not exceed 8% of the taxable value or the FOB (Free on Board) price (pending regulation).