Pampa Energia (NYSE:PAM) officially approved the development of Latin America’s largest urea plant this quarter, while simultaneously reporting a robust $415 million in adjusted EBITDA for Q2, fueled by record-breaking oil and gas output and strengthened power-market margins.
A Strategic Expansion into Fertilizers
The company is venturing into the fertilizer sector with a massive $2.7 billion turnkey project in Bahía Blanca. Designed to produce 2.1 million tons of granular urea annually, the facility is slated for completion by the end of 2029. According to Investor Relations and Sustainability Officer Lida Wang, this move is designed to monetize Pampa’s Vaca Muerta shale gas resources by pivoting toward higher-value industrial output. The facility will leverage the company’s own natural gas and electricity, which account for roughly 70% of urea production costs.
Located near the Port of Bahía Blanca, the plant will integrate directly with existing Vaca Muerta pipelines and Pampa’s own thermal and renewable generation assets. It is expected to consume 3.3 million cubic meters of gas and 75 megawatts of power daily. Pampa targets the Brazilian market—which imports between 7 and 8 million tons of urea annually—as a primary buyer, with the project expected to contribute approximately $1 billion in annual foreign-currency revenue.
Regulatory Framework and Financing
Pampa is currently awaiting the formal publication of its approval under Argentina’s RIGI investment-incentive regime. CFO Adolfo Zuberbühler noted that the company is also seeking provincial benefits in Buenos Aires to complement federal incentives. The project is structured with a 60% debt and 40% equity split, with financing expected to close in Q4. While equity contributions begin this year, the bulk of capital expenditure is forecasted for 2028.
Record-Breaking Oil and Gas Performance
Operational success defined the quarter, with record production reaching 107,500 barrels of oil equivalent per day. The Rincón de Aranda development was the primary driver, with crude production tripling year-over-year. Despite temporary output reductions in late Q2 to accommodate infrastructure completions, management remains firm on a 28,000-barrel-per-day exit rate target for this year, aiming for a 45,000-barrel-per-day plateau once the Vaca Muerta Sur oil pipeline is operational.
Efficiency gains were significant, as oil lifting costs dropped 28% year-over-year to $15 per barrel. Management anticipates this cost will fall to $10 per barrel by the end of the year and further to $5 per barrel by Q2 2025 as permanent facilities come online. Although hedging positions impacted realized crude prices—averaging $59 per barrel compared to an unhedged $91—Pampa intends to maintain its current hedge strategy through Q1 of next year.
Power Generation and Financial Outlook
The power generation segment delivered $155 million in adjusted EBITDA, a 39% increase from the previous year, bolstered by favorable spot margins and new regulatory frameworks for LNG procurement. While the maturity of certain contracts and wind farm underperformance provided headwinds, Pampa continues to maintain 88% generation availability.
Looking ahead, the company projects power-generation EBITDA of approximately $600 million for 2026. Despite a negative free cash flow of $128 million this quarter, Pampa maintains a solid liquidity position with $1.3 billion in cash and equivalents. Net leverage is expected to fluctuate between 1.5x and 2x over the next three years as the company accelerates its ambitious investment program.
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