Tenaris S.A. (TS) Q2 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Q2 2012 Tenaris SA Earnings Conference Call. My name is [Clar] and I’ll be your operator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of the conference call. (Operator Instructions) As a reminder this conference is being recorded for replay purposes. I would now like to turn the call over to Giovanni Sardagna, Investor Relations Director. Please proceed.

Thank you [Clar] and welcome to Tenaris 2012 second quarter results conference call. Before we start, I would like to remind you as usual that we will be discussing forward-looking information in the call and that our actual results may vary from those expressed or implied here-in. Factors that could affect those results include those mentioned in the company’s 20-F and other documents filed with the SEC. With me on the call today are Paolo Rocca, our Chairman and CEO; Guillermo Vogel, Vice President of Finance and Member of our Board of Director. Ricardo Soler, our Chief Financial Officer; Alejandro Lammertyn, the Managing Director of our Eastern Hemisphere Operation; and joining us from Huston, Germán Curá, the Managing Director of our North American Operation. I’d like to start by mentioning that we will host an Investor Presentation in New York on August 18, and we look forward to see many of you there. Before passing over the call to Paolo for his opening remarks, I would like to briefly comment our results. During the quarter, sales increased significantly in each of our operating segment but sales grow in Tubes segment was held back by seasonal lower sales in Canada. During the second quarter of 2012, sales increased 17% to $2.8 billion compared to $2.4 billion recording in the second quarter of last year and 7% sequential. Our EBITDA reached 760 million, which was 39% higher than the corresponding quarter of 2011 and 8% higher sequentially. Our EBITDA margin of 27% was 4 percentage point higher than the corresponding quarter of last year and in line with the first quarter. Average selling prices were up 7% compared to the corresponding quarter of last year and 3% sequentially supported by good seamless welded product mix. During the quarter, cash flow from operation remain strong at $450 million and we ended the quarter with the net debt position of $540 million after the position of comp of non-controlling interest for close to $760 million and a pigment of $295 million in dividend and capital expenditure of $205 million. Now I will ask Paolo to say a few words before opening the call to questions.

Thank you, Giovanni, and good morning to all of you, this quarter our results reflect a trend that we have anticipated of increasing demand for premium OCTG product. Today 60% of our seamless OCTG shipments of premium product, which compares with 45% two years ago. We are confident of maintaining this level in the future, demand and consumption of premium products is growing, reflecting rated drilling complexity lead by growth in deepwater wells, horizontal drilling in unconventional application and sour and high pressure gas wells. The investment we have made in the past few years are already paying their way. The introduction of new products such as the TXP and the Wedge 625, the increasing penetration of our principal premium technologies particularly the Wedge series, Blue series and Dopeless and at the global deployment of technical support for our product. And all contributing to strengthen our position in the premium sector, this quarter we benefited from higher sale to oil and gas customer in Iraq and Eastern Hemisphere as a whole. For the future activity we’ll continue to increase in these region. Our North American operation continue to perform well, sales for deepwater application in the Gulf of Mexico were particularly strong during the quarter. As our Wedge series 500 is well established in the market. [Six steams] of our new wedge 625 connection were successfully run in the Eagle Ford. In the coming quarter we expect the recount in U.S. to decline, but we’re confident on the long-term perspective of this market. In June, we announced our strategic decision to invest in a new seamless production and logistic center in the United States. We are currently penalizing the selection of the site and expect to start up the new mill at the beginning of 2016, this decision as I say reflects our confidence in the long-term growth prospect for the North American market, and the impact of changes in drilling technology, on product requirement and supply chain efficiency resulting from the development of the shale reserves. Since the acquisition of Maverick and Hydril five years ago, we have grown and consolidated a strong competitive position in North America, which we plan to complement with these new investments. Brazil in addition to our series of conductor and surface casing, we’re concluding a five year agreement under which we will supply Blue Connection for casing stings, which will be used offshore. Our welded pipe business in Brazil has changed with the development of the Brazilian offshore pre-salt complex. Previously most of our sales were online, were offline pipe product for onshore pipelines. But today a large part of our sale and operating margins comes from the sale of premium OCTG product and offshore line pipe, very similar to the rest of our Tubes business. Following our acquisition of the minority interest in Confab, we have reorganized the management of our operation in Brazil bringing them more fully into our Tubes operating structure. And from the third quarter, we will reflect this change in our reporting. And four, we will combine Tubes and Projects in one single segment. Looking ahead in spite of the macroeconomic uncertainty. We perceive that our customers in the oil and gas sector all around the world are maintaining their investment program. While in the industrial sector especially in Europe, we see we expect to see lower sales. In the second half as a whole, we expect revenues to increase compared to the first half even if in the third quarter our sales will be affected by the investment in maintenance plant stoppages that we have program in different plants all around the world and lower shipment to the Middle East for this quarter. Our focus therefore will be on execution and meeting the demands of a challenging market. We expect to maintain our operating margin close to the level at the level at which that we had reached in the past two quarters. In this respect talking about the execution, I will mention the special recognition that we have received on our performance recently this quarter. RasGas, which is a joint venture between Exxon and Qatar Gas selected us out of more than 300 business partners for their 15 years quality and safety award. We are proud of these award, and we consider it an honor and recognition to our consistent capability of execution. This is something that we plan maintain and enhance in the future. We will open now the conference for your questions.

(Operator Instructions) Your first question comes from the line of Bill Sanchez with Howard Weil. William Sanchez – Howard Weil: Thank you for taking my call. German, my first question is for you interesting I guess in the press release that you noted, we expect drilling account certainly to be down in the back half of the year in North America. And I’m assuming that was an onshore comment, but it’s also interesting that when you guys talk about your second half of the year sales you don’t note, I guess an expected decline in North America as a whole relative to first half of the year. I’m just wondering, if you can talk a little bit about some of the mix impact perhaps that we’re seeing as it relates to higher Gulf of Mexico shipments and positively impacting your tonnage volumes, the shift that we have seen from gas rig count to oil. And maybe you can talk a little bit about just the pricing trends. Clearly there’s a lot of concern continuing on the low end side of the market. If you could, just share your thoughts with us on that as well?

Thank you, I will let German to get in from Houston on these questions.

Thank you, Paolo. Good morning, Bill, but I will try Bill, to be as short as possible, but well, let's, well, let's say, we, as I think everybody else in the industry, do expect a mild rig count reduction between now and the end of the year. We have some 50 rigs already gone, and we're expecting some more between now and December. Of course, this is partially offset as far as North America is concerned by some increased demand in the Gulf of Mexico. But, in overall tons, I think it is important to distinguish the fact that Gulf of Mexico represents only a small portion of the upper demand in the States. Now, we've seen, I believe, stable volumes into the third quarter. They may come down into the fourth as far as the US is concerned. But it's important to probably highlight that this is fundamentally driven by the business model of Tenaris in the US, which is aiming more at direct end user rig requirements as opposed to inventories, and, therefore, we're not so exposed to inventory overhangs in the event of rig reductions. Hopefully, that answers the questions. William Sanchez – Howard Weil, Inc.: Right, and, German, just on the low-end side of the business as we think about the Korean imports that have come in and people's concerns about seeing pricing deterioration there, can you maybe just kind of size for us a little there? Just give us a feel how you see Tenaris competing in that environment right now, kind of relative exposure there for you, as well, because my sense is that there's a belief there's a lot more exposure for you on that more low-end side of the market in general than what they are probably actually is for the Company?

Well, there's no doubt that the low-end segments in the States are under equal pressures, where supply continues to exercise a fairly important element of, I would say, just price pressure overall. We've seen that reflected in Pipe-Logix in the last three months. We don't expect that to change in the remaining part of the year. And, as we have said, the strategy for us in North America is try to reposition the Company at the higher-end spaces, where we continue to see demand growing, where we continue to see demand pull. And this is somehow allowing us to sustain prices between now and the end of the year. William Sanchez – Howard Weil, Inc.: Okay. One other question, and I'll turn it back. Regards to the seasonal factors noted in third quarter, it sounded like that's clearly more of a mill issue in terms of some maintenance. I know that the second quarter of last year we talked about an expectation in 3Q for the lower sales of line pipe and, I think, in the Other Projects section as it relates to European distributors. I'm just wondering if that's an impact, as well on 3Q and should we take that prepared comments as meaning that seamless volumes are going to absolutely be down 3Q versus 2Q?

Yes, we have mentioned this, because this year where we have intervention and I would call it maintenance investment and Brownfield investment in very key plants. We have intervention in Dalmine, Italy income side in Mexico, in Algoma, in Canada, and, in the US, Hickman and (inaudible). We are intervening, strengthening our capability to produce high-end, value- line, premium line, heat treatment and finishing line. These interventions are different than in the past years. So we have to consider this in looking at the shipment of seamless for the third quarter. William Sanchez – Howard Weil, Inc.: Are you able to size maybe just on a percentage basis, what the volume decline might be sequentially in seamless second to third quarter?

No, because in the end, it will depend also from the shipments. You know we have stocks in process and finished stock. In the end, this will cushion, let's say, in the intervention. So I wouldn't say, let's say, the size of this. As I say, we look at the second semester as a whole part of this will be compensated in the fourth quarter. So, as a whole, for the next semester, we'll be, as I say, slightly higher in revenue and more in line with the present level of March. William Sanchez – Howard Weil, Inc.: Thank you all for the time. I will turn it back.

Your next question comes from the line of Ole Slorer with Morgan Stanley. Ole Henry Slorer – Morgan Stanley & Co. Llc: Thank you very much. Quick question on Mexico seems to be an area that’s picking up, could you give a little color exactly on what’s going on there as this was just the low-end to the election or is it offshore or is it unconventional. So what is that’s driving the Mexican recovery.

Yes, well I think Mexico has been growing in 2012 compared to 2011, but I would like to Guillermo Voguel to comment on what would we expect in the precision time as far as at Pemex and private driller activity is concerned.

Again thank you Paolo. Hi, Ole. Ole Henry Slorer – Morgan Stanley & Co. Llc: Hello.

Hello, everybody. Actually, Ole, we are not seeing right now any of the election still on Pemex activity. What we are seeing is that from we’re in the second quarter of the year, we’re working on solid but a stable situation second quarter, we shared around 145 rigs operating and I think this is very much deliver that we’re expecting for the second half of the year. And as you know at the election and Mr. Pena Nieto has expressed on several times that he sees higher involvement of foreign investments on the energy side, specifically, on Pemex. But he hasn’t said and I think it's still very early to try to see the tools and how this is going to be implemented. So what we are seeing at this point in time is for higher payment activity in 2013, especially on the second half of the year. We had some activity for E&P contracts that are valid in the Northern region, so those are going to start to have an impact next year. There were some brief that we are higher also for the second half of 2013. So at this point in time we have a good perspective in terms of the intention of the new government to increase the activity in the energy sector in Mexico. And we are seeing some actions that have been taking there going to have positive effects in 2013. Ole Henry Slorer – Morgan Stanley & Co. Llc: Okay, thanks Guillermo. So picked up in the second quarter and stable throughout the rest of the year, but based on the contracts that you are already seeing, you should have a good growth in 2013, right?

Right, right. Especially I would say 2000, in the second half of the year, we’re going to see something in the first half. Ole Henry Slorer – Morgan Stanley & Co. Llc: Perfect. And one quick question, German, on North America. The rig count going down I think is something most agree on right now. But also hearing from a number of the E&P companies is that they are drilling faster and reducing the cycle time and can therefore do what they are planning with fewer rigs than originally budgeted. So they are not obvious that it is terribly negative for the tubular demand. Could you give your color on that?

Yes, German, yes, if you can pick up this question on intensity of in terms of pipes for?

Yes Paolo, thank you, good morning Ole. You are correct we’ve seen cases like for instance in Canada it’s only now developing the shales, where rig count comes down and despite that the number of meters drilled are in the area of 10% higher. So it is true that industry some how offsetting as far as operational consumption is concerned with these new efficiencies within those ability to horizontally drilling or not. But it is also that truth to contemplate the notion that inventories today in the States are at a level of, give or take five months projected on rig count closer to 2000. The situation we’ve seen is that we may between now and end of the years overall the inventories going up in terms of months associated to the fact that rig counts would come down. Ole Henry Slorer – Morgan Stanley & Co. Llc: Okay. But you agree with the fact, for example, Marathon stated very publically I think, three or four other companies did too that they can actually reduce the rig counts and maintain their number of footage drilled or meters drilled, so what does that mean from a mix standpoint? Is this mostly benefiting the higher end, or is it mostly benefiting the lower end?

Well. This is something which is characteristic of the shale development, where drilling has become more of an industrial operation than not. Therefore, drilling efficiencies have are sitting at the core of what operators are doing and they continue to push the bar in terms of improving the mode of what we call industrial aspect than not. From a mix perspective, it's more associated to the shales mix, which we now is a lot richer on alloy and to some extent, also on premium connections. Ole Henry Slorer – Morgan Stanley & Co. Llc: Okay. Thanks, German. Paulo, just finally in the first quarter I think it is 54% in premium and I think you did 56%, should this sort of be the steadily quarterly progress going forward, do you think?

If I understand the question, if we can what we expect in terms of share of the high-end Ole Henry Slorer – Morgan Stanley & Co. Llc: Yeah, it went up 200 basis points I think

Yeah, I think we should in terms of share of premium on total OCTG, seamless OCTG, I think we should be able to maintain the level that we are today. Consider that there is also some growth of our market in Latin America even in HPI business. So when our market, our overall sales are growing the areas like Columbia and other parts of Latin America, like Argentina, these growing sales are growing HPI. So this will enlarge base. On enlarged base I think that premium should remain in the level of 60%. If we look at the rate of the market, there could be some, let's say, in the mechanical area, some reduction because of the situation, the macroeconomic situation and the industrial situation in Europe, they affect some of the high-end component of our industrial. So then maybe in high-end we’ll be in the second half of the year, more or less at the same level than in the first half of the year, between 55% and 60%; this range moving quarter-by-quarter, this is what we expect. Obviously, in the long run gradually, we’ll continue to push this line through investment, Brownfield investment in new line, and in our commercial activity. So overtime these lines will be moved to a higher level. Ole Henry Slorer – Morgan Stanley & Co. Llc: Okay, it sounds like you’re on track, Paolo, thank you very much.

Thank you, Ole.

Your next question comes from the line of Michael LaMotte with Guggenheim. Michael Kirk Lamotte – Guggenheim Securities, Llc: Thanks, good morning everybody. Paolo, first question for you, If I look at volumes in the for seamless in the first half of this year, they’re essentially flat with the second half of last year and obviously the fourth quarter last year is a very strong quarter. What I’m trying to get out is what could we expect in the second half relative to the first half in seamless. Year-over-year, I guess the numbers are up about 9%, could we be up 8%, 9%, 10% year-over-year looking at the second half of 2012 versus the second half of 2011?

We expect the volume of seamless in the second half to increase compared to the second half of 2011. You know the plant in Mexico, the new plant is ramping up, it’s stepping up its level of production, so gradually in spite of what we could expect in the industrial segment and possibly on the low-end side in the U.S. as the rigs go down, we expect that we should be able to increase level of seamless shipment as a whole in the semester. This will not be the case in the third quarter because of the stoppages in the plant that I mentioned before. Michael Kirk Lamotte – Guggenheim Securities, Llc: Understood. I think, looking at in a semester basis is a good way to do it, given the seasonality of both maintenance and shipments. A question for you, the reduction in ERW volumes in the second quarter from the first, how much of that was just Canada versus inventory management in lower 48? It’s almost, I guess a 20,000, 15,000 tonne reduction?

Good morning. Mike, I would say mostly Canada and the Canadian breakup that this year was particularly given the wet characteristics of a breakup that made it particularly longer than initially anticipated. Michael Kirk Lamotte – Guggenheim Securities, Llc: Okay. So there really was no response, I guess to the commodity price in terms of managed inventories on the alliance, from your alliance partners in the second quarter?

We could say that, we’ve seen no effects through the second quarter of recount of its actions in the states, notwithstanding the fact Mike that I think is fair to recognize that the adjustment is only now taking place in the last very few weeks anyway. Michael Kirk Lamotte – Guggenheim Securities, Llc: Okay, fair enough. Ricardo, I have got a couple of questions for you if I may. First the translation adjustment on the cash flow statement, $62 million was pretty significant, can you address what is behind that number?

Yes I will ask Ricardo to comment on the CTA adjustment this quarter alone.

Yes basically the CTA adjustment in this quarter is related to our operations in Brazil and in Italy. In relation to the – because you remember the depreciation of the real developed in Brazil was close to 11% during the quarter. So it’s quite significant. So the number that you are reading there is just an effect that we’ve had on our working capital as we are showing in the cash flow, the working capital variation as a whole, figured in dollar terms. And this is here an effect that real is not – it is not positive cash flow coming from the reduction of inventory for example it is just a monetary document of our inventories in Brazil and we are adjusting there. Michael Kirk Lamotte – Guggenheim Securities, Llc: Okay and very good, thank you. And then on the tax rate, Ricardo can you just what to expect in the second half of this year?

For the second part of the year, we expect expense rate, I would say flat, similar to the first half of the year (inaudible) in this rate. Michael Kirk Lamotte – Guggenheim Securities, Llc: Okay, and that is, I think down from certainly what I was expecting closer to 30%, is that a function of the geographic mix of sales?

Two comments in relation to that. The first one was as already said the mix of companies performing during the whole year and secondly we have our transaction close to 2% less than 2% that is in relation to what is statutory profit sharing plan that was at Mexico. In previous years, we've had that – we had considered that something similar to an income tax and now following the IFRS rules in Mexico that they started one year ago, the common understanding is this is not longer an income tax, it is just a part of the labor costs. So we have an advantage in that line close to 2%.

And we have – this is also reflected in comparatively higher cost of sales because of the cost of labor in Mexico, there is incorporating this component of our cost. Michael Kirk Lamotte – Guggenheim Securities, Llc: Okay. So, if I'm understanding correctly, structurally, there's 200 basis points of reduction that's effectively permanent as a consequence of this change?

And the rest is geographical structure in terms of production and sales. Michael Kirk Lamotte – Guggenheim Securities, Llc: Okay, great. Thank you so much, gentlemen.

Thank you.

Your next question comes from the line of Stephen Gengaro with Sterne Agee. Stephen Gengaro – Sterne Agee: Thank you, good morning, good afternoon guys. The two questions, I’ll start with the deepwater side. And I sort of look back, and some of the data you've given in the past suggested I think deepwater was 8%, 9% of your revenue base and you’ve made some comments around the deepwater Gulf after Macondo. Can you give us a sense for the significance in current business mix of deepwater and how you see that evolving?

When deepwater is a very key segment for our sale, especially because it's an area in which we have been able to differentiate very much. And, after Macondo, the requirement for quality, consistency, and reliability by the oil companies has really helped us differentiating even more. And, also, this is important. It's not so much in terms of volume, it’s more important in term of margin and differentiation than in term of volume. You can expect the overall market for the quarter and maybe in the range of 15% the overall premium market, but it is very important for all the opportunities it offer to us. Well we see this to the most Gulf of Mexico, Brazil, South Africa, today Western Africa, tomorrow Eastern Africa and in the Far East. Where we are more active for instance our presence is very stronger in Gulf of Mexico and in West Africa, these are the area in which we’re very focused and Brazil. We participate in these. And we have some very interesting presence in – in the Southeast Asia and project. Some of this project are very demanding and if you talk about deepwater, but also if you talk about offshore in general, we recently – for instance, we've been awarded one project that is very demanding in term of product and condition, which is the Wheatstone project in Australia. These are the kind of projects in which Tenaris really has the production, commercial, technical sales, logistics and R&D activity that fit for this, but I will ask to Alejandro maybe to add some color on how important deepwater is could be even in the future course for us.

Yeah it’s, in terms of offshore and Paolo mentioned specifically, sub-Saharan Africa, we are seeing very solid activity purely in our traditional markets. That is Angola and Nigeria, where we have been present for many years establishing our presence with our long-term agreements. Today we are even at a very good level. We are also seeing a good activity in North Sea, where we have established a strong presence with our Dopeless connections, mainly in Norway and Denmark, we are looking at also at the new opportunities that are coming from the east coast Angola that is being developed and the new opportunities in the east coast, like Mozambique, where E&I has a strong presence. In terms of the rest of the areas, we are also looking in the offshore as opportunities in the Mediterranean Sea and in the Black Sea where the new exploration coming on. And in Southeast Asia and more looking also at the shallow water, we are having the contract now with Indonesia with a two long-term agreement confirmed, one was Total and the other one we shared on. So the offshore operations in general are very solid as we see it in the financial year.

Okay, thank you. And One comment on the quarter, we did see in 2012, an increase in the range of 50% of demand upside for deep offshore between 2011 and 2012. Stephen Gengaro – Sterne Agee: You said 55.0%?

50% increase between of 2012 demand of the quarter, compared to 2011. Stephen Gengaro – Sterne Agee: And is that a Tenaris specific comment or an industry comment?

It is a situation of the demand industry. Stephen Gengaro – Sterne Agee: Okay, thank you. And just as a follow on, you said the deepwater was about 15% of the premium market and you mean for the global OCPG market, not for you?

Yes, it’s also a comment, it’s our estimate of the share of the quarter compared to the share of premium world wide. Stephen Gengaro – Sterne Agee: Do you have a comment on the share of Tenaris’s premium?

No, we usually do not comment on this. As a whole, our market share in premium as you know is in the ranges higher than 30% between 30% and 35%. It is the overall share on premium, but we do not get more specific on this. Stephen Gengaro – Sterne Agee: Right, thank you. And then just as a second question, when we look at your expansion in the U.S. market is, you obviously have a pretty optimistic outlook, as do we, on sort of the long-term North American business. Is all the products are going to be driven for the U.S. market specifically, or you expect to move product out of the U.S.?

Well, I think basically, we are confident of the long-term perspective on the U.S. market already. But we are also confident in the ability to operate industrially from the U.S. and there could be opportunity from the U.S. and the region of the world. The Trust Energy is creating opportunity for industry getting back into the U.S. in some segment. So of this could be increase our client base in energy and outside of the segment, but also we consider that the location of the plant, the logistic of our operation will allow us to fully integrate our logistic and production operation in U.S. into our overall system of Tenaris worldwide. Stephen Gengaro – Sterne Agee: Very good, thank you.

Thank you very much.

Your next question comes from the line of Frank McGann with Bank of America. Frank McGann – Bank of America Merrill Lynch: Hello, good day. Just two things if I could. One, in terms of the portfolio of products that you’re selling in, as you look at prices, I’m going through the third and fourth quarters based on the pressure you’re seeing in commodity oriented product plus better situation for the premiums. How do you see average prices trending over the next couple of quarters? And then I was wondering, if you could provide a little bit more color on the developments in Brazil, because Brazil seems to be happily increasing focus of your business now and one where you seem to be gaining some increased traction. And you mentioned the five-year agreement that you’re close to concluding, perhaps you could provide just a little bit more visibility on beyond that agreement, what else you’re seeing for the next 12 to 24 months in the Brazilian market?

Well, first on price. As we mentioned in the press release, we expect prices on some of the less differentiated segments to decline slightly. But from our point of view in our profit and loss, in our revenue side, we think that this could be, in our case could be compensated by their continuing change of mix on different access, on proper access, on geographical access, and on the mix between welded and seamless more in general, so we think, we can compensate this. And to some extent, the containment of our raw material could help us in containing also the cost of a more complex mix and that’s how we come to our margin forecast. Now, we’re making this assumption assuming that the macroeconomic environment, in which we move, we remain substantially the same with price of oil more or less in the broad range in which it is today. Obviously, if there are major change of crisis or the situation in Europe from a financial point of view and then from a macroeconomic point of view should deteriorate more on this, we will have to face and we would be facing a different scenario. But basically, this would be affecting us more in the, maybe to some extent in the fourth quarter, but especially in the coming years in 2013. So this is what we see in crisis. And let me comment something also on prices. I see that if you look at the Chinese mill, really Chinese mill pick up a group of them and if you look at the result in 2011. In spite of having a 13% rebate that supports all their exports of OCTG, they're showing net losses all together. So, also, competition in the low end, and I don’t think we’d continue to be so aggressive worldwide even in the future cost arising to some extent. In China this mill is showing consistently losses. This is hampering that our belief is best research and development in premium in commercial actions. So this also has an impact. It is reducing their aggressive dynamic to some extent. And this is affecting the low end part of the market. As far as Brazil is concerned, we are signing now the long-term agreement for casing that will be used offshore. But it is important for us, because we are establishing our technology, the Blue technology, the product will be blue. So we will participate in a market in which we have a lower market share than our competitor. But Brazil is moving also on different accounts. For instance in the project business, we expect in the coming quarter, the project business to get up. We will be delivering some of the line pipe. The investment planning in Petrobras is huge and could really be very interesting for us, especially in our new alliance with Usiminas. Our integration upstream allows us to develop the steel that we will need to serve complex segment, complex market and demanding market in pipeline and in OCTG. So in this environment, we will depend on ability of Petrobras to execute, avoiding delays and execute. This has been an issue in the past. But we expect this to be accelerating in the future. One segment of our business that is not doing well and will not do well in the next quarter is the equipment business. This as you know is managed by (inaudible) in the project center. But the delays in some of the investment refinery by Petrobras are reducing our market in that segment. This year was contributing nicely to our line, but for the next two quarters, we’ll probably have less contribution. Frank McGann – Bank of America Merrill Lynch: Okay. Thank you very much.

Your next question comes from the line of Geoffrey Stern with Cheuvreux. Please proceed. Geoffrey Stern – Cheuvreux: Yes, hi, good morning. I was wondering, if you could share with us your expectation with regard to U.S. OCTG market growth for the upcoming 5 to 10 years, given your investment decision you made recently. And I was wondering as well to what extent, it's also shows that it’s also U2 to really increase the utilization rate of your our well did mails into U.S. which are running I guess it’s around 60%. So it sounds like, the real issue for you was to gain market share in the high end part of the market in the U.S. And investing in a similar was key for you. So, I was wondering if you could comment on this. And the second question is a housekeeping question I was wondering if you could give us some estimates for your depreciation charges in 2012 because despite the ramp up of the New Mexico we are not really seen the impact on the depreciation line? Thank you.

Well, thank you we’re quite on well we are did you see in my opening remarks, we are confident of the long term trend in the U.S. market the reserves we got the opportunity are there for oil and gas and as I see in the past energy independence for U.S. is a very strategic long-term target for an administration. Now, they have the material resources that could leaded to the target this, as I say will also today is driving increase in drilling for oil in the future. Today gas is already declining because of the price of gas, but if you look at three, five, year from now we expect also the market and the demand for gas to get in different vault between supply and demand, demand will increase and supply will have to start again increasing and drilling will start back into the gas field. So we are positive on this we see today a market that is which may import or representing more or less 50% of the market I don't think this could be sustainable in the long run. The industry needs sole reaction it needs a much effort reduce lead time and faster reaction well you have. In the high-end and also in the low-end so, I think there will be opportunities to for our investment and to transform the structure of the market if you look at five, six, seven years from now. In this frame of mind and with this I’d say we just constructing mine we are now undertaking our major expansion programs we can imagine we would complement well that seamless trillium very sophisticated product in all the range. Ability to support all the end convention - and the conventional drilling offshore and to do this we believe time required and with the most efficient logistic and industrial structure. Now on the second question a depreciation in our – would be your comment how our investments are getting let’s say in our depreciation over time?

Yes, thank you Paolo. Regarding depreciation and amortization, I would say that for the whole year, we expect a value close to $550 million. And regarding specifically depreciation the volume will be around $650 million and here we have perfect one a fan related to the new capital expenditure in Mexico, that we are fully depreciated now during these year, but of course the values and depreciation especially in some countries that we don't have yet the financial and currency the dollar, we are reducing in some way for some technical reasons and exchange rate issues, the depreciations in Brazil, the depreciations in Italy a rollover, because we have now a lower property, plant, and equipment in U.S. terms because of the depreciation of the euro and the depreciation of the Brazilian real.

Yeah, I would add also that, for instance, in Argentina, we’re not allowed to adjust the value of our fixed investment before inflation. So in the end, we are paying a relatively low level. We have a relatively low level of depreciation in our balance sheet, which has a negative impact of our tax rate

Yes, for tax purpose the fact that in a country level, it’s important, we are suffering this for tax purposes, yeah. Geoffrey Stern – Cheuvreux: All right. So you – share of 560 million is a good estimate, yeah.

Yes.

Your next question comes from the line of Paula Kovarsky with Itaú BBA. Paula Kovarsky – Itaú BBA: Hi, good morning. I have a couple of follow-up questions. The first one regarding the operations in Brazil, you mentioned some sort of reorganization, changing management, or perhaps adjusting more to the scenarios style. And also a little shift in the mix of products, but more focus on premium OCTG line pipe to offshore. Could you perhaps give us a bit of a sense of how much does that represent in terms of potential margin improvements in the Brazilian operations? So that’s question number one. The other one relates actually to the operations in Argentina, what we’ve seen from YPS presentation last week is more and more government intervention in the company, a lot of uncertainty on how the developments of the shales will go ahead. Of course, they want to grow our production, but no one knows exactly how we’re going to do it and who is going to fund it. So the question is what exactly is your reading for Tenaris operations in Argentina, and to any extent you see the risk of some sort of intervention going up for your part of the business higher labor cost perhaps, restrictions or what have you, so if you could share with us a little bit of your views on what happens to the operations in Argentina, that would be great.

Well, thank you for the question. On the first question, well, it’s clear that we consolidated our operation in Brazil by acquiring 100% of contract now, we can integrate fully Confab into Tenaris operations. And we have no issue with minority interest in the company, we allow us to reorganize the company and insert the company to our organization. This is driving investments for instance in research and development that will be performed in Brazil in the new center that we're building (inaudible). But we will work for all of our system worldwide and the system of R&D will also work for Brazil. So we are integrating areas like R&D. But we are integrating actually also premium joint development in a much more efficient way. We are also, thanks to the investment in Usiminas, establishing strong ties in the product development together with Usiminas. This has the potential, not only for Brazilian market, which means developing product specifics for offshore demand in equipment pipes, transportation pipeline, or drilling, but will also be connectors, for instance, but will also be important for strengthening competitiveness of our welded operation in Brazil abroad in Latin America in the surrounding countries. , : The second question about Argentina, one question was – first question concern will cost, no doubt in this moment, we feel pressure in our cost especially on labor cost inflation is higher than evolution. So, we had an cost pressure in our Argentinean operation especially due to labor, but we’re operating normally from every other account in our operation. Now, future development, it is clear that that Argentina has a great potential for developing resources for oil and for gas. The country need to gas and oil to strengthen its balance of payment, needs to export more oil, and needs to reducing import of gas, this is a clear need. Now they have to define a regulatory framework that allow the investment to be realized area. There is a willingness to do it, I think that we will start seeing – growing investment, realized directly by Petrobras, by WCF sorry. At the beginning, but overtime, I think the country will find a way to develop the resources and satisfied the need of reducing important sector. At the moment, in the next quarter, we will have higher demand, because like that is reacting on the role within their financial capability. During 2013, we expect that this level of operation would be increased, if the government could take their policies even to attract more capital. The second question about Argentina, one question was – first question concern will cost, no doubt in this moment, we feel pressure in our cost especially on labor cost inflation is higher than evolution. So, we had an cost pressure in our Argentinean operation especially due to labor, but we’re operating normally from every other account in our operation. Now, future development, it is clear that that Argentina has a great potential for developing resources for oil and for gas. The country need to gas and oil to strengthen its balance of payment, needs to export more oil, and needs to reducing import of gas, this is a clear need. Now they have to define a regulatory framework that allow the investment to be realized area. There is a willingness to do it, I think that we will start seeing – growing investment, realized directly by Petrobras, by WCF sorry. At the beginning, but overtime, I think the country will find a way to develop the resources and satisfied the need of reducing important sector. At the moment, in the next quarter, we will have higher demand, because like that is reacting on the role within their financial capability. During 2013, we expect that this level of operation would be increased, if the government could take their policies even to attract more capital. Paula Kovarsky – Itaú BBA: Yeah, just another quick follow-up you mentioned in the beginning of your presentation that volumes shipments to the Middle East are likely to go down in the second half, compared to the first, is there any specific reason for that.

No, we are seeing that shipments to the Middle East will go up during the next semester, but in the next quarter, in Middle East we have ups and down, and it depends on some projects and shipments. this we expected to be relatively low in the next quarter, but as a whole, it will be higher on the semester compared to where we are coming from in this semester. Paula Kovarsky – Itaú BBA: Okay. and very last question on Mexico, you comment on potential irrelevance under the new government, but what’s your guys view on Mexico effectively developing their part of the Gulf of Mexico and the deepwater operations, I mean do you think the Mexican – how much can the Mexican move ahead on its own and how much or not I mean they desperately need foreign investments, and then would you bet on the timeframe for that to be possible?

Well, I will let again Guillermo to give a comment on this.

Well, Pemex is actually working in deepwater in the Gulf of Mexico. There is always one well that is being drilled there on the Perdido area. And in the second half, we’re going to see another well. So we see some activity and I think that moving to the future, Mexico is going to look at some foreign involvement there, trying to develop contracts similar to that one was working in the mature fields. But it’s not something that we’re going to be seeing probably in 2013, I in the natural field but it’s not something that we’re going to be seeing progress into 2013, I think it’s something that we’re going to start to see the effects – we’re going to see a slow increase, increasing there by Pemex and proabably by 2014, we’re going to have a clear picture of having more involvement of foreign companies operating there.

Okay. yes, one comment on Latin America, Paula. From my point of view, Latin America is a very strong area from the point of view of Tenaris. first, we are very much present in every country in which, there is drilling, exploration, transportation, hydrocarbon related activity. Second, the country needs to develop the resources and they will do the same independent telecom whatever macroeconomic scenario the world to tackle. I would expect all of the currency of South America and including Mexico that we have in North America these product of these world we’ll go on and expand compared to what we’ve seen in the last two or three years. So this would apply, I think to all of the country including Argentina, Brazil, Columbia Ecuador, Peru and Venezuela also and Mexico overtime. Paula Kovarsky – Itaú BBA: Okay.

Your next question comes from the line of Amy Wong with UBS. Amy Wong – UBS: Hi, good afternoon. I just want to follow-up on a couple of questions on your investment in the U.S. Are you able to quantify, I guess some of the quantitative assumptions behind your decisions and such as the growth in the [Red Canton] also the percentage perhaps to a percentage increase in the OCTG consumption both for the OCTG market and specifically for the premium market. And secondly, could you give us the timing for the cash. I know its very early stages right now you’re so selecting the site, but we get an idea of what the cash out for profile is going to be over for the next few years.

Thank you Amy, I will ask German to give some comment. Now, I know his answer is the right.

Thank you, Paolo and good morning Amy. Amy Wong – UBS: Good morning

And yes I will not be in a position Amy to share with you some of our projected statistics for competitive reasons that I’d hope you would understand. But going back to where we saying during the call we continue to see North America and U.S. in particular, in three side different dimensions, oil U.S. has become one of the fastest growing oil provinces in our industry, and structure that in-depths there to stay. Yes, we don’t really repeat that a $253 price band is sustainable. And therefore, working under the assumption that we will see a gas free count turnaround and therefore, that will be associated to us again OCTG demand growth. And finally, the notion of services-input. We believe that there is a clear opportunity for us to expand the domestic footprint and therefore be able to work to replace this component of this 50% input level that we see today. I hope that answers at least at the qualitative level part of the issues questions you have. Amy Wong – UBS: Great

I would now like to turn the call over to Giovanni Sardagna for closing remarks.

Yes, thank you Clare, and thank you all for taking part of this conference call. And this ends the conference call for to today. Thank you very much.

Thank you.

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Have a great day.