Encouraged by a significant increase in its 2022 results, which showed a profit of $7,874 million against one of $911 in 2021, General Fuel Company (CGC) projects a strong investment plan for this year in the areas where it operates.
It is the oil company owned by the holding that leads Eduardo Eurnekian and that its core business is in the hydrocarbon sector.
It is controlled by Latin Exploration SLU (“LE”), a Spanish company of which the also owner of Corporación América is the majority shareholder with 70% of the capital, while the remaining 30% is in the hands of Sociedad Comercial del Plata ( SCP).
Eurnekian bought CGC from the investment fund Southern Cross, of Norberto Morita in 2013, when, for US$200 million, it was left with the majority shareholding of the oil company that participates in the energy sector, specifically in the exploration and production of oil and gas (upstream) and in gas transportation.
CGC is also one of the two largest shareholders of Transportadora de Gas del Norte (TGN), together with the oil company Tecpetrol, owned by Grupo Techint.
In addition to the development plans in the Gulf of San Jorge Basin, the company plans to significantly increase activity in the areas of Cuenca Australbased on the award of incremental gas production volumes in rounds 5.1 and 5.2 corresponding to the “Plan for the reinsurance and enhancement of the federal production of hydrocarbons, internal self-sufficiency, exports, import substitution and system expansion transportation for all hydrocarbon basins in the country 2023-2028”.
CGC is controlled by Latin Exploration SLU (“LE”), a Spanish company of which Eurnekian is the majority shareholder.
This is stated by the company in a document sent to the National Securities Commission (CNV) to report on the financial results of 2022, where it states that the program that will be launched this year “will allow you to quickly increase your current production level“.
It will also encourage it to develop short-cycle initiatives in a more profitable way, taking advantage of the market opportunity given by the need for greater local production and the high prices of LNG.
Regarding the macroeconomic and political context, CGC expects to develop its activities under conditions of high uncertainty and possible volatility in the main economic variables.
Elections, inflation and the market, key issues to be considered by CGC
Among the most important factors that the report believes need to be considered are the nationwide Primary, Simultaneous, Open, and Mandatory (PASO) elections in August; the national general elections in October and a possible ballotage for the election of the President in November.
“The company will pay special attention to the evolution of the variables related to the exchange market stability, inflation and access to financing sourcessince abrupt changes in them can affect the execution of the investment plan projected for 2023,” the paper argues.
This has to do with the fact that CGC carries out its operations mainly in Argentina, for which business depends to a large extent on the evolution of the main variables of the country’s macro context, “those that have had strong volatility, particularly the tariff policy measures adopted by the National Government, local social and political conditions and the international scenario,” the company details in its report.
The oil company owned by the holding company that leads Eduardo Eurnekian has his core business in the hydrocarbon sector
He also recalls that Russia’s invasion of Ukraine had an impact on his business since the conflict led to a typical oil supply shock that initially generated a rise in oil from a price of around US$70 or US$80 per barrel (WTI ) to highs of $125 in March.
It also warns that this increase affected the rest of the commodity markets, both energy (such as the price of liquefied gas) and agriculture.
Similarly, he points out that the war in Ukraine and the inflationary acceleration itself disrupted the country’s economic plans since on the one hand, revenues rose more than expected due to price dynamics, both local and international (energy and food); and on the other, the expenses also accelerated due to a greater expenditure for energy subsidies.
“The IMF modified the annual fiscal target due to higher expected inflationraising the primary deficit to almost $2.1 trillion, a goal that will be met thanks to the liquefaction of spending due to the acceleration of inflation (a liquefaction that was not compensated by the payment of various bonuses and food aid to beneficiaries of minimum retirement plans and social) and additional sources of income (the “soybean dollar” I and II in September and December, which swelled the collection of export withholdings in those months, as well as the advance of an advance of the Income Tax corresponding to 2023 for companies with extraordinary profits)”, details the paper.
Optimize capital
In line with these actions, Efforts in terms of financing will continue to be focused on optimizing the capital structure, as well as on the search for additional sources of financing, based on the investment objectives and growth of the company..
In 2022, the company had already defined a process of investments for US$300 million with the objective of addressing projects for the exploitation of wells for the production of gas and energy.
CGC continued with its investment plan in the Austral Basin, with the aim of maintaining production and activity levels
This money will also serve to maintain the new plans, despite the fact that it achieved an adjusted EBITDA with dividends collected corresponding to fiscal year 2022 that amounted to $43,262 million, which represents a decrease of $23,435 million compared to fiscal year 2021.
The purchase, in June 2021, of 100% of Sinopec (now CGC Energía SAU), is also part of this expansion process taking into account that with this operation it was left with shares in hydrocarbon exploration and exploitation areas located in the Cuyana and Golfo San Jorge basins, also allowing its income to increase $5,370.9 million, representing a 3.8% increase, from from $141,920.4 million in 2021 to $147,291.3 million last year, mainly as a result of the consolidation effect of these assets, partially offset by lower incentives (Resolution No. 46-E/2017) accrued in 2022 for $25,775.5 millions.
In addition, 2022 was the first year of full operation of the assets in the Golfo de San Jorge and Cuyana basins, acquired through the purchase of Sinopec Argentina.
During this period, the company says -in its report- it has considerably increased its activity in these areas, almost doubling the number of pulling rigs in Golfo de San Jorge and introducing three workover rigs. Additionally, added a first drilling rig and a second was added towards the end of the year, drilling 15 new wells after several years without activity.
On the other hand, CGC continued with its investment plan in the Austral Basin, with the main objective of maintaining the production and activity levels achieved during 2021, while exploratory wells were drilled to analyze the estimated potential of the basin and its development in a sustainable way.
