Q2 2018 Transportadora de Gas del Sur SA Earnings Call

Aug 09, 2018 PM UTC 查看原文
TGSU2.BA - Transportadora de Gas del Sur SA
Q2 2018 Transportadora de Gas del Sur SA Earnings Call
Aug 09, 2018 / 02:00PM GMT 

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Corporate Participants
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   *  Alejandro M. Basso
      Transportadora de Gas del Sur S.A. - CFO & VP of Administration, Finance & Services
   *  Carlos Almagro
   *  Jorge Javier Gremes Cordero
      Transportadora de Gas del Sur S.A. - CEO & General Director

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Conference Call Participants
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   *  Bruno Montanari
      Morgan Stanley, Research Division - Equity Analyst
   *  Chelsea Colon
   *  Florencia Mayorga Torres
   *  Francisco Sersale
   *  Gustavo Fingeret
      Bradesco S.A. Corretora de Títulos e Valores Mobiliários, Research Division - Research Analyst
   *  Juan Manuel Vazquez
   *  Matias Vammalle

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Presentation
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Operator   [1]
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 Good morning. My name is Doug, and I will be your conference operator today. At this time, I would like to welcome everyone to TGS Second Quarter 2018 Results Earnings Conference Call.

 TGS issued its earnings report Friday. If you did not receive a copy via e-mail, please do not hesitate to contact us in New York City at (646) 284-9435.

 Before we begin the call today, I would like to remind you that forward-looking statements made during today's conference call do not account for future economic circumstances, industry conditions and company performance and financial results. These statements are subject to a number of risks and uncertainties. All figures included herein were prepared in accordance with International Financial Reporting Standards, IFRS, and are stated in nominal Argentine pesos, unless otherwise noted.

 Joining us today from TGS in Buenos Aires is Javier Gremes Cordero, Chief Executive Officer; Alejandro Basso, Chief Financial Officer; Leandro Perez Castaño, IR and Finance Manager; and Carlos Almagro, Investor Relations Officer.

 And now, I'd like to turn the call over to Mr. Basso. Sir, please begin.

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 Alejandro M. Basso,  Transportadora de Gas del Sur S.A. - CFO & VP of Administration, Finance & Services   [2]
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 Thank you. Good morning, everyone, and thank you for joining us today on this conference call to discuss the second quarter earnings and highlights for Transportadora de Gas del Sur.

 Please go to Slide 3. As we announced in the beginning of June, this year has been granted an extension of the transportation concession to develop and operate a 20-mile new gathering pipeline with a transportation capacity of 800 million cubic feet per day, which will connect some southern fields in the Vaca Muerta formation with the 57-mile north branch whose construction was announced in last April. This would imply an additional investment of $41 million, and will be in operations starting April 2019.

 As of now, agreements have been signed with some gas producers. It is important to stress that the tariffs for this project are nonregulated, and are denominated in U.S. dollars.

 As we move on to the Slide 4, I will now give you a brief explanation of 2018 second quarter results. Figures are expressed in pesos and comparisons are with the same period of 2017.

 As you can see, we recorded a 73% increase in terms of net income. The increase is mostly explained by higher operating income generated by the Natural Gas Transportation business segment of almost ARS 1.8 billion, which was partially offset by a negative variation of the financial results of ARS 1.3 billion.

 Moving on to Slide 5, Natural Gas Transportation revenues during the second quarter increased by 178% to more than ARS 3.3 billion compared to ARS 1.2 billion in the same period of 2017. Most of the variation is due to the tariff increases that came into effect in April 2018 at 50% and in December 2017 at an average of 78%, which have generated higher revenues of ARS 1 billion and ARS 920 million, respectively.

 On Slide 6, you can see that the revenues generated by production and commercialization of Liquids increased by more than 100%. To a great extent, the most important variation is due to a higher average U.S. dollar exchange rate, which increased by 50% and generated higher revenues of ARS 685 million.

 Secondly, higher international and local prices explained ARS 361 million of the variation along with the 29% increase in the volumes of butane sold in the second quarter of 2018, which also had a positive effect of ARS 299 million.

 As shown on Slide 7, other services revenues rose by 83% to ARS 377 million. This increase is mainly explained by a 50% increase in the average foreign exchange rate, which generated higher revenues amounting to ARS 64 million.

 Additionally, more services were rendered for natural gas treatment and compression, operation and maintenance of facilities as well as higher steam generation for electricity production. All of which generated total higher sales of ARS 55 million.

 Furthermore, additional construction services were rendered, increasing revenues by ARS 51 million.

 On Slide 8, we can see the variation in the cost of sales, which rose 86% to ARS 2.7 billion. This is finally explained by higher cost of natural gas used in the Liquids business, which rose ARS 750 million, and is mostly attributable to a higher-average exchange rate. In addition, operating cost of the Natural Gas Transportation business segment grew by ARS 235 million and labor cost by ARS 93 million.

 Moving on to Slide 9, administrative and selling expenses rose by 82% to ARS 414 million. The increment is mostly attributable to an increase in turnover tax at ARS [118 million], mainly due to higher regulated revenues, along with higher labor cost of ARS 26 million.

 On Slide 10, we consider negative variation of ARS 487 million recorded in other operating results. This is mainly explained by the award of $21 million this year paid to Pan American Energy as a result of the arbitration initiated by this company against TGS in 2015. Pan American Energy claims that TGS lower allocation of liquids in the execution of 3 natural gas processing contracts during the period between 2006 and 2015.

 On Slide 11, we can see the financial results for the quarter showing a negative variation of ARS 1.3 billion. This variation is mainly explained by the significant peso devaluation during the second quarter of 2018, in which the exchange rate increased by 43%, impacting on the net dollar denominated liability, which resulted in a loss of more than ARS 1.5 billion.

 In addition, the interest expense increased by ARS 306 million due to the premium paid to cancel the 2020 notes and the higher-average debt balance in this quarter. These negative effects were partially compensated by higher-interest income earned during the second quarter of 2018 as our total average financial investment denominated in pesos was higher as well as the average yield.

 Moving on to Slide 12. We would like to remind you that TGS launched a share repurchase program in May. As of today, we have invested ARS 700 million out of the maximum amount approved for this program of ARS 1.7 billion. We have bought 1.7 million ADRs representing about 1% of the total capital stock. In addition, the Board of Directors meeting held on July 6 approved a cash dividend payment of ARS 912 million related to the net income of 2015. The dividend was paid on July 17.

 Yesterday, the Board of Directors approved another cash dividend payment of ARS 1,220,000,000 to be paid on August 22.

 This concludes our presentation. And I will now turn the call back to the operator, who will open the floor for questions. Thank you.

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Questions and Answers
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Operator   [1]
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 (Operator Instructions) Our first question comes from the line of Gustavo Fingeret with Bradesco.

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 Gustavo Fingeret,  Bradesco S.A. Corretora de Títulos e Valores Mobiliários, Research Division - Research Analyst   [2]
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 I have 2 questions for you. The first one is, we saw [FM] volume sales to be growing significantly in the first half of the year. The question is if this trend should be expected to continue in the next quarters. And the second question is related to dividends. You have been -- the dividend payout that you'd recently announced is, like, 44% of 2017 results. Should we expect the management to propose to the Board to keep moving forward with this type of dividend payments in the fourth quarter, basically increasing the payout relative to 2017 numbers?

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 Alejandro M. Basso,  Transportadora de Gas del Sur S.A. - CFO & VP of Administration, Finance & Services   [3]
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 Okay. Gustavo, it's Alejandro Basso. Regarding liquids volumes, we had an important increase in this quarter and the semester. There is additional Natural Gas in Argentina. So we have not suffered from any cuts in the Cerri production, and we are expecting the same for this winter, for the rest of the winter. Okay. That's very good news for us. So currently, we are seeing that scenario. And regarding the dividends, we are not able to predict a new...

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 Unidentified Company Representative,    [4]
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 Payment.

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 Alejandro M. Basso,  Transportadora de Gas del Sur S.A. - CFO & VP of Administration, Finance & Services   [5]
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 Payment. It's a decision that...

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 Unidentified Company Representative,    [6]
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 The Board.

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 Alejandro M. Basso,  Transportadora de Gas del Sur S.A. - CFO & VP of Administration, Finance & Services   [7]
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 Is going to be made by the Board, okay.

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Operator   [8]
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 Our next question comes from the line of Matias Vammalle with Argo Capital Management.

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 Matias Vammalle,    [9]
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 I was wondering if you can touch on working capital. There was a significant outflow in the working capital for the second quarter. As far as I can see, a trade down on the receivables, inventories were the main drags in terms of flows. And then receivables was actually an inflow. So if you can explain a little bit of those changes and what you expect going forward. And then the second question is, I haven't had a chance to go through the actual financials in Spanish yet, but from the press release, there is a inflow of around ARS 10,470,000,000 of dividends paid to the company's shareholders. I was wondering if you could just clarify, I would've thought that was a negative and that should actually -- seems to include some of the bond issuances. You issued the 2025 notes that would have been a significant inflow of cash, so it wasn't very clear from the press release and the cash flow statement the section on financing activities. So if you can maybe walk me or walk us through that.

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 Alejandro M. Basso,  Transportadora de Gas del Sur S.A. - CFO & VP of Administration, Finance & Services   [10]
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 Okay. Regarding the working capital increase, you have 2 causes there. One is the increase in [tariff of fuel] due to the increases in tariff. Second one, in other credits, with other receivables, we have the prepayments that we have already paid for the Vaca Muerta project to the suppliers, the pipe construction, the pipelines and the [gas leaching] plant. And regarding the press release...

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 Carlos Almagro,    [11]
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 Yes. Sorry, this is Carlos Almagro. You mentioned you see the ARS 10 billion dividend collection impact. This is a mistake. And this is regarding the debt we operate in May, at the beginning. So this is the inflow from the debt we show in -- on May. Okay.

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 Matias Vammalle,    [12]
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 Perfect. And I think that's probably net of the 2020 buyback, no?

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 Carlos Almagro,    [13]
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 Sorry?

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 Matias Vammalle,    [14]
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 No, that's fine color. That's very clear, yes. That's the inflow of the new bonds but net of the payment that you did to buy back the old bonds.

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Operator   [15]
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 Our next question comes from the line of Florencia Torres with TPCS (sic) [TPCG].

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 Florencia Mayorga Torres,    [16]
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 I would like to ask you what is your view of upcoming [or something] for inflation in the next tariff in October.

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 Alejandro M. Basso,  Transportadora de Gas del Sur S.A. - CFO & VP of Administration, Finance & Services   [17]
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 Okay. Well, we are expecting to be granted the wholesale pricing, this adjustment that is written in the resolutions of ENARGAS, okay. We know that the electricity companies has received the adjustment in installments with additional interest, but it's not written in our case. So we are expecting for that, but we cannot assure that this is going to be what is going to happen, okay.

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Operator   [18]
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 Our next question comes from the line of Bruno Montanari with Morgan Stanley.

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 Bruno Montanari,  Morgan Stanley, Research Division - Equity Analyst   [19]
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 Just a follow-up on the prior question, for the October tariff increase. I understand that the '18 is the index to be used. But I also understand there are potential discussions of [shaping] this to CPI in October given the volatility of the exchange rate. First question is, is the company comfortable with these being in line with the RTI, with the tariff review process? And two, would be something that management would be willing to do for the October hike?

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 Alejandro M. Basso,  Transportadora de Gas del Sur S.A. - CFO & VP of Administration, Finance & Services   [20]
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 Okay. Well, we expect to receive the wholesale pricing that we've been. If ENARGAS chooses standard payment, there are some allowances that ENARGAS can make here in the resolution regarding other buyers. But in the resolution, you can read that the wholesale price index is a fair index to be used. And it's the correct index that is the most correlated with our cost and our theme. So we expect to receive the wholesale price, okay. Then we have not analyzed any actions if the wholesale price index is not growing or it's reduced or strong. Okay.

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 Jorge Javier Gremes Cordero,  Transportadora de Gas del Sur S.A. - CEO & General Director   [21]
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 In addition, I may say that, in the public hearing, we will present the wholesale price, full wholesale -- sales price index applied.

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Operator   [22]
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 (Operator Instructions) Our next question comes from the line of Chelsea Colon with Aegon.

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 Chelsea Colon,    [23]
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 My question has actually been answered.

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Operator   [24]
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 Our next question comes from the line of Francisco Sersale with LP (sic) [PointState Capital LP].

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 Francisco Sersale,    [25]
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 My question is on the share buyback. I'm wondering what you plan on doing with the shares you bought back, will you cancel the shares? Will you keep them as treasury stock? What is the plan?

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 Alejandro M. Basso,  Transportadora de Gas del Sur S.A. - CFO & VP of Administration, Finance & Services   [26]
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 Francisco, well, we don't know what's going to be made with shares that we already buy back -- bought back. It will be a decision from the board. We have a period of 3 years to...

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 Unidentified Company Representative,    [27]
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 To design.

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 Alejandro M. Basso,  Transportadora de Gas del Sur S.A. - CFO & VP of Administration, Finance & Services   [28]
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 To design our policy regarding that.

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Operator   [29]
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 (Operator Instructions) Our next question comes from the line of Juan Vazquez with Puente.

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 Juan Manuel Vazquez,    [30]
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 This is more a conceptual question. I'd like to know what sort of bottlenecks we could experience in the future in Argentina, if Vaca Muerta really starts growing in terms of production. And what are your plans regarding that? I mean, we know (inaudible) is increasing production very heavily right now. So my question is, basically, what are your thoughts if Vaca Muerta were to increase production by, I don't know, 40 million cubic meters per day, 50 million cubic meters per day? What would happen to the transportation system if that were to happen?

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 Jorge Javier Gremes Cordero,  Transportadora de Gas del Sur S.A. - CEO & General Director   [31]
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 It's Javier Gremes speaking. Our expectation is that Vaca Muerta will start to grow in production, with the recent results. Of course, at some point in time, we're willing to think about the expansions of the transport system, the transition system. But we are following this really, I may say, every month with producers, with the government. And of course, we will need to anticipate to that situation. This is not the situation right now. We still have a capacity in our pipelines, and we need to take into account what are the important expansion that I mentioned, we need to take into account the investment plans of the producers, the inclination of the -- because it also effect, not only Vaca Muerta growing but the conventional gas going down because of the inclination of the reserves, no. So I mean, everything is taken -- is being taken into account in order to define this expansion. The bet is that Vaca Muerta is going to be developed at some point in time. And then we need to anticipate for that expansion, but it's not something that we would see right now.

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 Juan Manuel Vazquez,    [32]
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 That makes sense. And just as a follow-up, so basically the way the market works right now in Argentina is we have a peak in demand in the winter. And we get to around 180 million cubic meters per day, more or less, which is, of course, including the imported Natural Gas, and so on. And then in the summer, we go down to, let's say, 120 million, 130 million cubic meters per day. Right now, [we're in the period]. So my question is during the winter, what sort of yield capacity you have, and what happens in the summer in terms of yield transportation capacity?

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 Jorge Javier Gremes Cordero,  Transportadora de Gas del Sur S.A. - CEO & General Director   [33]
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 What we said right now, what we see -- it's difficult to anticipate what's going to happen next summer. It depends on the producers' projections. Looking month/month, we can see that we have in our systems 10 million cubic meters per day of capacity available. So it will depend how production -- as I said, if production evolves, that we may have a bottleneck. As you have said, consumption reduces in summer, mainly in homes. But as you know, power generation is very important in summer, of course, the thermal power generation. Then we need to balance all that information in order to see what will happen. I think that something that we will see next summer is that Argentina, as a whole, will need to export natural gas. Perhaps, Chile is the -- and you have -- I guess, that you have heard the Ministry to -- saying that Chile is going to be the first step in export from Argentina. And well, I think, it's something that we may help in the next summer, if, again, if production continues growing as it's growing and if consumption continues as we have seen in the last year. Then going forward, yes, it's difficult to say. It's difficult to say going forward. As I said, following what producers are doing, what consumption is -- is going on with the consumption. At some point in time, we will need to think in an expansion of the transition system. And to create a market for that incremental gas, because at some point, our demand will recover. However, I would -- I'm saying that Argentina's demand will recover and then we need to create market for that additional gas.

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 Juan Manuel Vazquez,    [34]
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 Exactly. And that's pretty much where my question were aiming at because as we discussed previously, I mean, when you have this shrink demand, which increases very heavily in the winter and then in the summer goes down dramatically, mainly explained by the residential segment, which goes to -- from 20 million cubic meters per day to, let's say, 70 million cubic meters per day in the winter. So the increase of production coming from Vaca Muerta will happen, provided that you have additional demand, right. So my question was pretty much directed to when you see that happening. And if that happens and we can actually produce as a country, let's say, 160 million cubic meters per day instead of our operation right now. And maybe, in 2026, we don't renegotiate a contract with Bolivia, what would happen in terms of your install capacity, transportation capacity? So basically, you would need to basically increase that capacity.

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 Jorge Javier Gremes Cordero,  Transportadora de Gas del Sur S.A. - CEO & General Director   [35]
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 Yes, yes, sure. That's for sure. Yes, yes. And at that level of production where we need to...

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 Alejandro M. Basso,  Transportadora de Gas del Sur S.A. - CFO & VP of Administration, Finance & Services   [36]
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 To expand the system.

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 Jorge Javier Gremes Cordero,  Transportadora de Gas del Sur S.A. - CEO & General Director   [37]
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 To expand the system, yes.

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Operator   [38]
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 (Operator Instructions) Our next question is a follow-up question from the line of Matias Vammalle with Argo Capital Management.

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 Matias Vammalle,    [39]
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 Just recapping on the Vaca Muerta capacity expansion on the project. Can you tell us more or less, how much of that you have already contracted? And give us some type of indication as to the pricing of that potential project. Are you pricing either on cubic meters or cubic feet, just so we can have a sense, please? And what is your expectation on CapEx for the full year, given that this is $41 million? Is that going to be all spent in 2018? And what's the overall 2018 CapEx guidance, please?

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 Jorge Javier Gremes Cordero,  Transportadora de Gas del Sur S.A. - CEO & General Director   [40]
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 Okay. Regarding the capacity sold, you know that we have signed agreements with the producers for exclusivity agreements. So they have to -- we have the -- they have to move all the gas that coming from their fields to the Vaca Muerta piping -- gathering pipeline, okay. Regarding the ship or pay agreements, it's around less than 1/4 of the capacity of the pipeline consulting. Then the next question is about the CapEx. The total CapEx is around $270 million. This year is $80 million to $90 million. And the rest, in next year. You have an additional question?

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 Matias Vammalle,    [41]
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 No. I think that's it. But so full year 2018 $270 million. And actually can you give us some indication on 2019, please?

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 Alejandro M. Basso,  Transportadora de Gas del Sur S.A. - CFO & VP of Administration, Finance & Services   [42]
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 $230 million from the Vaca Muerta project. Then you have to sum another $100 million for the regulated business plus another $15 million, $20 million from the other businesses.

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Operator   [43]
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 There are no further questions in the queue. I'd like to hand the call back to management for closing comments.

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 Alejandro M. Basso,  Transportadora de Gas del Sur S.A. - CFO & VP of Administration, Finance & Services   [44]
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 Okay. Well, thank you for participating in this year's second quarter 2018 conference call. We look forward to speaking with you, again, when we release our third quarter results. However, if you have any questions in the meantime, please do not hesitate to contact our Investor Relations Department with any questions. Have a good day.

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Operator   [45]
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 Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.




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