TGS (TGS) Q3 2026 Earnings Call Transcript

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DATE

Friday, Oct. 30, 2026

CALL PARTICIPANTS

• Head of Investor Relations - Carlos Almagro
• Chief Financial Officer - Alejandro Basso

TAKEAWAYS

• Net Income -- ARS 110 billion, compared to ARS 149 billion, driven by lower segment EBITDA and a ARS 18 billion negative variation in financial results.
• Natural Gas Transportation EBITDA -- ARS 118 billion, down from ARS 141 billion, reflecting a ARS 21 billion revenue reduction caused by the natural gas transportation system reconfiguration.
• Liquids EBITDA -- ARS 83.6 billion, up from ARS 69.4 billion, primarily due to higher international reference prices that added almost ARS 41 billion to the segment.
• NGL Project Capacity -- 96% take-or-pay contracted capacity, with management targeting full capacity by the end of 2026.
• Midstream Volume -- 35 million cubic meters per day, increasing from 32 million cubic meters per day driven by higher activity in Vaca Muerta.
• Financial Results -- ARS 18 billion negative variation, resulting from lower yields on domestic financial assets and a ARS 11.6 billion increase in interest expenses.
• Cash Position -- ARS 329 billion, remaining stable in real terms during the third quarter.
• CapEx -- ARS 526 billion, focused on the NGL project and the Perito Moreno pipeline expansion.
• Estimated Leverage -- Less than 2.5 times, representing the projected peak net leverage during the 2027 capital expenditure overlap.
• Perito Moreno Completion -- April 30, 2027, with the commercial operation date scheduled for May 1, 2027.
• Pampa Agreement CapEx -- $190 million, for a new gathering pipeline in Vaca Muerta under a 15-year term.
• NGL Financing -- $1.4 billion syndicated loan, currently in advanced negotiations with a group of banks for the MGS subsidiary.
• Inflation Mismatch Impact -- ARS 21 billion negative effect in the Liquids segment, as 33.5% annual inflation significantly outpaced the 13.5% currency devaluation.
• Non-Regulated EBITDA -- 56%, representing the portion of total EBITDA generated by non-regulated businesses.
• GPM Expansion Request -- 4.5 million cubic meters per day, representing an additional request submitted to the Secretary of Energy on Oct. 8.
• NGL Total Investment -- $3 billion in cash capital expenditures, plus a $200 million in-kind contribution of existing plants.
• Gas Conditioning Volume -- 31 million cubic meters per day, increasing from 29 million cubic meters per day.
• New Debt -- ARS 268 billion, incurred to finance NGL project imports and residual pipeline expansion costs.
• Insurance Recovery -- $50 million, representing total expenses from a prior flood event expected to be fully recovered by the first quarter of 2027.
• Transition Investment -- $60 million, allocated for stabilization plants and debottlenecking to manage Vaca Muerta gas quality through 2030.

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RISKS

• Basso stated, "It is a challenge for us to manage all this quite rich gas that is coming from Vaca Muerta," regarding the need for $60 million in additional investments for stabilization and debottlenecking to handle gas quality transitions between 2027 and 2030.
• Basso noted that the Liquids segment faced a "ARS 21 billion negative monetary effect, driven by the annual inflation of 33.5%, which was significantly above the 13.5% increase of the foreign exchange rate over the same period," impacting dollar-denominated revenues and costs.

SUMMARY

Transportadora de Gas del Sur S.A. (NYSE:TGS) reported a reduction in net income for the third quarter of 2026, primarily attributed to lower operating results in the regulated natural gas transportation segment and an increase in financial expenses. Management highlighted the official inclusion of the Natural Gas Liquids project in the RIGI investment framework, which provides regulatory stability and tax benefits for 30 years. The company is advancing significant infrastructure projects in the Vaca Muerta region, including a new gathering pipeline and stabilization facilities to manage increasing gas volumes. Financing initiatives are underway to support these multiyear capital investments, with a focus on securing syndicated loans and utilizing subsidiary credit lines.

• CFO Basso stated, "Initial works have already commenced and the main EPC contracts have been executed," regarding the $3.2 billion NGL project.
• The company entered a 15-year agreement with Pampa to build a new gathering pipeline in Vaca Muerta, which will free up space in existing infrastructure for the NGL project.
• Management reported that the $1.4 billion syndicated loan for MGS is expected to reach financial close by December 2026.
• The expansion of the Perito Moreno pipeline reached a ARS 360 million CapEx milestone as of Sept. 30, with 9 million cubic meters per day of capacity already allocated.
• CFO Basso projected that the company will recover revenue losses from the natural gas transportation system reconfiguration over a five-year tariff revision period ending in 2030.

INDUSTRY GLOSSARY

• RIGI: Régimen de Incentivo para Grandes Inversiones, an Argentine framework providing tax, customs, and foreign exchange benefits for large-scale projects.
• EPC: Engineering, Procurement, and Construction, a common form of contracting arrangement in the construction industry.
• Vaca Muerta: A prominent shale formation in Argentina containing significant oil and natural gas reserves.
• NGL: Natural Gas Liquids, components of natural gas that are separated from the gas state in the form of liquids.
• Take-or-Pay: A contractual provision in which the buyer must pay for a minimum volume of product regardless of whether the buyer takes delivery.
• COD: Commercial Operation Date, the date on which a project begins commercial production.
• GPM: Perito Moreno Pipeline, a critical natural gas transportation asset in Argentina.

Full Conference Call Transcript

Carlos Almagro: Hello. Good morning, everyone. I'm Carlos Almagro, Head of Investor Relations. I would like to welcome everyone to TGS Third Quarter 2026 Earnings Video Conference. TGS issued its earnings release yesterday. If you didn't receive a copy of this release, please contact us at inversores@tgs.com.ar. Before we begin the call, I would like to inform you that this event is being recorded. [Operator Instructions] Following the company's remarks, we will host a Q&A session. [Operator Instructions] I would also like to remind you that forward-looking statements made during today's video conference do not account for future economic circumstances, industry conditions or 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 the International Accounting (sic) [ Financial ] Reporting Standard, IFRS, and are stated in constant Argentine pesos as of September 30, 2026, unless otherwise noted. Joining us today from TGS in Buenos Aires is Alejandro Basso, Chief Financial Officer. I will now turn the video conference over to Mr. Basso. Alejandro, please begin.

Alejandro Basso: Thank you, Carlos. Good morning, everyone, and thank you for joining us today to discuss TGS' 2026 third quarter earnings and highlights. To begin the call today, I'd like to share some of the most recent corporate developments. Regarding the NGL project, I would also like to highlight that on October 19, the Minister of Economy announced the approval of the project to be included in the RIGI, which we had submitted our request in early June. We expect the official approval to be published in the official gazette shortly. This approval represents an important milestone as RIGI provides tax and foreign exchange benefits as well as regulatory stability for 30 years.

Moreover, this approval is a condition for our subsidiary, Midstream de Gas del Sur, to raise debt that would partially finance the investment. Furthermore, over the past few months, we have signed additional agreements with gas producers, increasing the project's take-or-pay contracted capacity to 96%. We expect to reach full capacity contracted before the end of the year. Initial works have already commenced and the main EPC contracts have been executed. We are currently in advanced negotiations with a group of banks to obtain a syndicated loan of approximately $1.4 billion to partially finance MGS investment. In the meantime, both of our subsidiaries, MGS and PGS are using bank financing to make imports advanced payments.

In terms of the expansion of the Perito Moreno pipeline and our final tranches following the open season launch last February and the first allocation of 5 million cubic meters per day under a fully prepaid basis, the ENREGE, formerly ENARGAS, finally approved the transportation capacity allocation of the remainder 9 million cubic meters per day last August. The works are currently underway and its completion is expected by the end of April '27. As of September 30, total CapEx stood at approximately $360 million.

In addition, on October 8, we submitted a request to the Secretary of Energy to exercise our option to expand the Perito Moreno pipeline by an additional 4.5 million cubic meters per day out of the total 6 million cubic meters per day authorized by ENARSA. We expect to receive approval shortly. Moving to Slide 4, I will briefly highlight the key financial results for the third quarter of '26. Please keep in mind that all figures presented for this quarter and comparisons made with the previous quarter are expressed in constant Argentine pesos as of September 30, 2026, following the provisions established by the IFRS for financial reporting in hyperinflationary economies.

As seen in the slide, we reported a total net income of ARS 110 billion during the third quarter of '26 compared to ARS 149 billion reported in the same quarter of '25. The decrease in net income was mainly driven by ARS 23.7 billion lower EBITDA in the Natural Gas Transportation segment and the ARS 18 billion negative variation in financial results. In addition, the ARS 14 billion increase in liquids EBITDA was almost entirely offset by the decrease in Midstream EBITDA. Moving on to Slide 5. EBITDA for Natural Gas Transportation business in the third quarter of '26 totaled ARS 118 billion, which is lower than the ARS 141 billion recorded in the third quarter of '25.

It is worth noting that tariff increases generated higher revenues totaling ARS 58.4 billion, which more than offset the ARS 51.6 billion negative inflation effect. In addition, the revenues generated by firm transportation contracts and the provisions of interruptible transportation services decreased by almost ARS 21 billion, explained by the Natural Gas Transportation system reconfiguration, which became effective starting as of May '26, whose initially negative effect will be partially offset by future small monthly tariff adjustments. Finally, we incurred higher PP&E maintenance expenses amounting to ARS 6.3 billion.

On Slide 6, you can see how EBITDA for the Liquids segment increased ARS 83.6 billion during the third quarter of '26 compared to ARS 69.4 billion reported in the same quarter of '25. The increase was mainly attributed to higher international reference prices as a consequence of the geopolitical conflict in the Middle East, which positively impacted EBITDA by almost ARS 41 billion. In addition, a 9% reduction of the average natural gas price from $3.4 to $3.1 per million BTU decreased the variable cost by ARS 6.5 billion.

These positive effects were partially offset by a ARS 21 billion negative monetary effect, driven by the annual inflation of 33.5%, which was significantly above the 13.5% increase of the foreign exchange rate over the same period, especially when considering that revenues and variable costs of this business segment are dollar-denominated. In addition, volumes sold decreased by 3% from 302,000 tons in the third quarter of '25 to 293,000 tons this quarter, resulting in an approximately ARS 8 billion negative impact on EBITDA. Finally, lower ethane price generated lower revenues of almost ARS 3 billion. Turning to Slide 7.

EBITDA from Midstream and Other Services decreased by -- decreased to ARS 67.7 billion compared to ARS 81.6 billion in the third quarter of '25. The 17% decrease is mainly explained by the negative monetary effect in revenues, which explained the EBITDA reduction for almost ARS 21 billion. Revenues generated by midstream services rendered in Vaca Muerta increased by ARS 13.8 billion. Transported natural gas billed volume rose from an average of 32 million cubic meters per day in the third quarter of '25 to 35 million cubic meters per day during this quarter. The natural gas conditioning volume also increased from an average of 29 million to 31 million cubic meters per day.

In addition, lower Midstream service activity, together with higher operating expenses negatively impacted EBITDA by approximately ARS 7.5 billion. As seen on Slide 8, we recorded a negative variation in financial results amounting to ARS 18 billion. This was mainly due to ARS 17.8 billion decrease in income from financial assets, driven by lower yields generated by domestic financial investment despite a higher level of invested funds. In addition, interest expenses increased by ARS 11.6 billion, which is mainly attributable to the $500 million bond issued in November '25, and inflation exposure loss increased by ARS 4.4 billion.

These negative variations were partially offset by a ARS 15.8 billion lower foreign exchange loss, mainly due to the difference in increases of the foreign exchange rate, which was just 1% this quarter versus 13% increase in the same quarter of '25. Finally, turning to the cash flow on Slide 9. Our cash position remained stable in real terms during the third quarter of '26 at [ ARS 329 ] billion, which is equivalent to approximately [indiscernible] exchange rate. EBITDA generation in the third quarter was ARS 269 billion, of which 56% was generated by nonregulated businesses, even after considering the full normalization of the natural gas transportation segment.

This result highlights the increased relevance of the nonregulated activities within the company's overall results. CapEx amounted to ARS 526 billion, largely driven by investments in the NGL project and the pipeline expansion project. Working capital decreased by ARS 138 billion, primarily due to the collection of the second prepayment installment of approximately ARS 157 billion from customers that contracted 5 million cubic meters per day of incremental firm transportation capacity. We also paid ARS 64 billion in income taxes and ARS 39 billion in interest, and we incurred new debt amounting to ARS 268 billion. This concludes our presentation. I will now turn it over to Carlos, who will open the floor for questions. Thank you.

Carlos Almagro: Thank you, Alejandro. The floor is now open for questions. [Operator Instructions] Well, first question is from George Gasztowtt from Latin Securities. His first question is regarding how is the project financing process progressing for the NGL project? And when do we expect to reach financial close?

Alejandro Basso: Okay. Thank you, George. Regarding the project financing process, it's going quite smoothly. We expect the closing by December this year.

Carlos Almagro: His second question is regarding when do we expect to fully recover the revenue loss as a result of the new transportation configuration?

Alejandro Basso: Okay. Well, it's a process -- the process to recover the revenues is under the -- it's in the tariff revision process. So we expect to recover the lost revenues in this 5-year period or 4-year period up to 2030.

Carlos Almagro: His third question is regarding the CapEx needed for the additional GPM expansion, which -- how much is the CapEx? And is this also be included under the RIGI's investment vehicle?

Alejandro Basso: Okay. The incremental CapEx is approximately $100 million, $70 million out of this $100 million is going to be invested in the -- under the RIGI benefits in the new [indiscernible] and the remainder of $30 million in the final tranches in the transportation under the TGS license.

Carlos Almagro: Now we have a question from Mateus Tostes from Citi. Well, the question is regarding the financing of the NGL project that was answered previously. His second question is, what is the deal announced yesterday with Pampa? What does it imply in terms of CapEx?

Alejandro Basso: Okay. Regarding the agreement with Pampa, it's based on the new gathering pipeline that we're going to build for gathering natural gas -- for additional gathering natural gas in Vaca Muerta. So it's a 15-year agreement with the same conditions that we have in the existing pipeline. And so that's all. Pampa is going to change their flow from the existing pipeline to the new one. And so we are going to have additional space for the gas that is going to feed the NGL project in the existing pipeline, okay? Also, it includes a small connection between our plants that links our plant in Tratayen with the new San Matias pipeline. Total CapEx is around $190 million.

Carlos Almagro: His third question is regarding the acceleration of CapEx in Vaca Muerta due to the RIGI and higher oil prices in the upstream sector. If the project can handle this higher increase in volumes of production.

Alejandro Basso: Okay. Well, it's a challenge for us to manage all this quite rich gas that is coming from Vaca Muerta. We are working in some additional investment of around $60 million to be able to manage the transition between '27 up to 2030, '29. We have signed additional contracts with the gas producers to be able to render them additional services, to be able to include all this new quality. We are going to add a new stabilization plant in Tratayen. We are -- currently, we are building one, and we are going to add an additional stabilization plant to be able to manage these liquids and other debottlenecking facilities.

Carlos Almagro: Another question from Mateus is regarding the -- how much do we expect to still recover an insurance claim from the flood event that we had last year. How much and when?

Alejandro Basso: Well, the process is going smoothly. We are expecting to recover -- fully recover our expenses by the first quarter of next year. Our total expenses were around $50 million.

Carlos Almagro: Now we have a question from Andres from Balanz. His first question is the [ 4.5 ] is additional to the [ 14 ]. Yes, it's an additional. And the other question of the CapEx was answered. Another question from Andres is what was the quarterly inflation-linked tariff adjustment for the Transportation segment in percentage terms?

Alejandro Basso: It was around 6%.

Carlos Almagro: Now we have a question from Lorena Reich. Her question is if we can provide the detail of the increase in debt.

Alejandro Basso: Well, the increase in debt is due to the finance of imports for the NGL project and maybe some residual on the private initiative on the expansion of the Perito Moreno, the final withdrawals that we have.

Carlos Almagro: We have a question from Ramiro Guerrero from Bull Market. Some questions were answered, but then he asked, is it recourse to TGS, where should consolidated net leverage peak during 2027 CapEx overlap?

Alejandro Basso: Ramiro, the answer is yes. The financing is going to have recourse to TGS. We are going to have contingent warranties there, okay? And well, it consolidates with TGS net leverage. We are estimating the peak to be less than 2.5x.

Carlos Almagro: We have a question from Zack Van Everen from TPH Research. One of his questions with the expected growth out of the Vaca Muerta, how do we look at future NGL gas and gathering expansion over the next few years?

Alejandro Basso: Well, we are definitely analyzing the expansions for the future in the NGL project. You know that the gas there is very, very rich. So we expect to be -- we are working in analyzing expansions at this moment, okay? And it could -- these expansions could include our gathering system expansions also. Small ones, but it could include it.

Carlos Almagro: Another question regarding this topic is, does this increased contract and NGL project improve returns?

Alejandro Basso: They should.

Carlos Almagro: Now we have a question from Daniel Guardiola. His question is, what mechanism we have put in place to protect from potential delays in the construction phase?

Alejandro Basso: Well, we have clauses in our EPC contracts, obviously. And regarding the -- and we have some buffer in the total project time estimation, okay?

Carlos Almagro: Another question from Daniel that he saw a meaningful increase in our CapEx. If you can comment on what portion was allocated into Perito Moreno and NGL. And going forward, how much CapEx do we expect to allocate to both projects in 2027? When do you expect this year to start generating positive free cash flow considering the high commitment you have?

Alejandro Basso: The Perito Moreno, we estimated $500 million for this year and for the NGL project, $400 million. And the second question regarding the generation of positive free cash flow. Well, the Perito Moreno is going to start on May 1, '27. And for the NGL project, the expected COD is in March 2030. Hopefully, we can have some anticipation of that date, maybe some months, but it will depend on the project, okay?

Carlos Almagro: Now we have a question from Guido Bizzozero from Allaria. The question is, we are expecting to have costs related to the private initiative and NGL project or is everything related to those projects considered CapEx and capitalized?

Alejandro Basso: Guido, regarding the IP, you know that we have -- that we are in charge of the O&M of the Perito Moreno. So we have there the O&M expenses regarding this pipeline that we have already been operating since 2023. So we are going to have incremental expenses when the new plants are going to be put in services. They are going to be put in services in May next year. Regarding the NGL project, all the expenses are capitalized. So we are not going to have OpEx -- additional OpEx up to 2030, approximately.

Carlos Almagro: Now we have a question from Federico Cabelli from AdCap. He mentioned -- he asked the NGL project approved under the RIGI investment over $3.2 billion, about the $3 billion previously announced. How will this CapEx be distributed over time through the next years?

Alejandro Basso: Federico, well, regarding the $3.2 billion versus the $3 billion, the difference is the contribution -- the capital contribution that TGS is going to do regarding the existing plant, the existing processing plants, which are something above $200 million. It's not cash. It's in-kind contribution. And the CapEx distribution of the $3 billion is $400 million this year, $1.1 billion the following 2 years and the remainder in '29 and something and some part of them in the beginning of 2030.

Carlos Almagro: Andres Cardona from Citi. Well, his question regarding how is progressing the project finance was answered. And if we have other credit lines in negotiation.

Alejandro Basso: Well, we have import finance for PGS amounting up to $300 million. And then regarding the MGS, we also have project finance for $120 million and then the project finance of $1.4 billion, okay? The project finance includes the payments or the repayments of the import finance.

Carlos Almagro: [indiscernible] or before there are some other loans that could have some maturity before 2029 -- 2028. Well, we don't have more questions. This concludes the question-and-answer section. Now we will turn to Alejandro for final remarks.

Alejandro Basso: Okay. Thank you all for participating in this year's third quarter '26 conference call. We look forward to speaking with you again when we release our '26 fourth quarter results. If you have any questions in the meantime, please do not hesitate to contact our Investor Relations department. Have a good day.

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