Pampa Energia (NYSE:PAM) officially approved the final investment decision for a massive $2.7 billion urea plant in Bahía Blanca, Argentina, while reporting a strong second-quarter adjusted EBITDA of $415 million driven by record oil and gas production.
A Strategic Entry into Fertilizer Production
The proposed facility is set to become the largest urea plant in Latin America, boasting an annual production capacity of 2.1 million tons of granular urea. Scheduled for completion by the end of 2029, this project marks Pampa’s debut in the fertilizer industry. Investor Relations and Sustainability Officer Lida Wang noted that the initiative is designed to monetize the company’s Vaca Muerta shale gas resources by pivoting toward a higher-value industrial output. Because natural gas and electricity account for roughly 70% of urea production costs, Pampa intends to leverage its own vertical integration to supply the plant.
Located near the Port of Bahía Blanca, the site will benefit from existing Vaca Muerta pipeline connections and proximity to Pampa’s thermal and renewable energy assets. The facility is expected to require 3.3 million cubic meters of gas daily and 75 megawatts of power. With Brazil being a major importer of urea, Pampa targets both the Southern Cone markets and international exports, projecting an estimated $1 billion in annual foreign-currency contributions.
Financing and Regulatory Framework
The company is currently awaiting final publication of its approval under Argentina’s RIGI investment-incentive regime. CFO Adolfo Zuberbühler confirmed that Pampa is also pursuing the Buenos Aires province’s investment regime, which could provide additional tax benefits. The financing strategy involves a limited-recourse project-finance loan, aiming for a capital structure of 60% debt and 40% equity. While negotiations are ongoing, the company expects to finalize financing in the fourth quarter, with equity contributions beginning this year and heavy capital deployment slated for 2028.
Operational Milestones in Oil and Gas
Pampa achieved record production of 107,500 barrels of oil equivalent per day this quarter, fueled by the expansion of its Rincón de Aranda development. Oil and gas adjusted EBITDA reached $182 million, more than doubling year-over-year. Crude production tripled compared to the previous year, with Rincón de Aranda averaging 22,000 barrels per day during the quarter.
Despite a temporary production dip to 16,000 barrels per day at quarter-end due to field maintenance, management remains committed to a 28,000-barrel-per-day exit rate for this year. The long-term outlook targets 45,000 barrels per day once the central processing facility and the Vaca Muerta Sur oil pipeline are operational in 2025. Furthermore, the Rincón de Aranda project received RIGI approval on July 21, covering a $4.5 billion investment plan through 2041.
Cost Efficiency and Market Performance
Operational efficiency improved significantly, with oil lifting costs dropping 28% 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 production scales. While hedge positions impacted realized crude prices—averaging $59 per barrel instead of an unhedged $91—the company confirmed it has no plans to unwind these hedges, which cover production through Q1 of next year.
In the power sector, adjusted EBITDA rose 39% year-over-year to $155 million, bolstered by strong margins in the spot and business-to-business markets. Pampa projects power-generation EBITDA to reach approximately $600 million by 2026. Despite a negative free cash flow of $128 million for the quarter, the company maintains a solid liquidity position with $1.3 billion in cash and cash equivalents, positioning it to manage debt levels—currently at 1.4 times EBITDA—as it executes its ambitious investment roadmap.