Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Tenaris S.A Second Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode to prevent background noise. [Operator Instructions] Later, we will have a question-and-answer session and the instructions will follow at that time. And as a reminder, this conference is being recorded. Now I would like to welcome your host for today’s conference, Mr. Giovanni Sardagna, Investor Relations Director. Please go ahead.

Thank you, Carmen. And welcome to Tenaris 2016 second quarter results conference call. Before we start, I would like to remind you that we will be discussing forward-looking information in the call and that our actual results may vary from those expressed or implied during this call. With me on the call today from Luxembourg are Paolo Rocca, our Chairman and CEO; Guillermo Vogel, Vice President of Finance and Member of our Board of Directors; Edgardo Carlos, our Chief Financial Officer; German Cura, Managing Director of our North American operations; and Gabriel Podskubka, our Managing Director of our Eastern Hemisphere Operations. I would like to start by mentioning that we will host an Investor Presentation in New York on October 19. And we hope 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. Our second quarter sales at $1.1 billion were down 40% compared to last year and 11% sequentially. Sales have been affected by lower sales throughout North America, the end of pipeline sales in Brazil and Argentina, and by lower average selling prices throughout the world. Our EBITDA margin at 11% declined significantly, reflecting restructuring charges and the lower absorption of fixed cost, driven by a lower utilization of production capacity. During the quarter, we recorded $43 million of severance charges to further adjust the workforce to current market conditions. Our EBITDA margin without these severance charges would have been 15%. Average selling prices were down 22% compared to the corresponding quarter of last year, and 6% sequentially, reflecting the trend of reductions in the market, lower sales of coating services for off-shore line pipe projects and the intense competition for orders of relevant volumes. During the quarter, cash flow from operation remains strong at $380 million and we ended the quarter with a net cash position of $1.8 billion, after the payment of $354 million in dividends that we paid in May. 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. The extent of this oil and gas industry downturn is taking its toll on the results and financial [Technical Difficulty] suppliers. Tenaris is, I believe, one of the stronger suppliers serving the industry, but even so, we have not been immune to the combination of activity and pricing declines that we have seen across the industry. In fact, the market where we have a strong position have been the most effected in this downturn. The results of this second quarter highlight the relative resilience of our performance in a moment when we are close to the bottoming global trading activity levels. Our EBITDA has declined substantially from the level we had two years ago, but remain positive with an adjusted margin of 15%. We had a positive operating cash flow of $380 million, as we made good progress in reducing lead times and increasing efficiency in the supply chain. At the same time, our strong balance sheet remains intact with a net cash balance of $1.8 billion, after paying out $354 million, the final installment of our annual dividend. During the past month, we made good progress in the deployment for our Rig Direct program worldwide. Last month, I was in Thailand to open our new service center at Songkhla. From here, we have already begun to serve Chevron’s operation, with just-in-time delivery of carbon and chromium tubulars and accessories, fully prepared for a full running, and each identified pipe-by-pipe with our unique PipeTracer system. We traded the first premium pipes at our new trading facility and service center in Aktau, Kazakhstan to supply the Karachaganak and the Tengiz fields. The facility is unique in the Caspian area. It’s fully equipped with Dopeless technology capability, which provides significant operational benefit…

Thank you. [Operator Instructions] And our first question is from the line of Michael LaMotte from Guggenheim. Please go ahead.

Thanks. Good morning, gentlemen. Paolo, if I can maybe start with you, the seamless volumes were stronger in the quarter than I was expecting and it looks like Middle East and Indonesia were the reasons for it. Is that early evidence of the restocking that we’ve been talking about for a while or is this activity related?

Thank you, Michael, for your question. No, in fact, I mean, the volume is been driven by the timing of delivery, especially in the Middle-East. But we cannot say that there is a restocking in this moment in the cycle. In fact, we expect volume to go down slightly also in the next quarter. For the time being, we see that stock is going down in different part of the world, but we cannot talk about really a restocking. This will happen probably during 2017.

Okay, very good, thank you. And a question for German quickly, it looks like 90% or so of U.S. rig count growth into yearend is going to be in the Permian. I’m wondering what the trends in that market, what levers they could act for Tenaris, things like consumption for well, use of premium connections, your Rig Direct penetration in the Permian specifically. Can you talk to those things?

Yes, German?

Well, thank you, Paolo. Good morning, Michael. I would probably argue, Michael, that agreeing with the notion that Permian will be the first place where we’ll see the recovery. Our view is that Rig Direct will be the vehicle, which would allow us to enhance our position in the area. Our Midland service center is up in running. We’re servicing a good number of our users already out of our service center. And naturally, the completion of Bay City is scheduled for Q2 next year that would add another very important element in our ability to enhance, expand our position in the Permian.

That’s great. And then, from a capacity standpoint, how much growth do you think you could generate from the facility that you - facilities that you have currently in place?

Well, from a pure, say, capacity, remember that basically we’ll start naturally, we’ll go through a start-up curve. We won’t see obviously during the first semester so they max the output coming out of Bay City. But at the same time, Permian is a, relatively speaking, big welded OCTG user and will be ready to, in the end, expand our production out of Hickman when the time comes.

And on the Rig Direct side?

Same is true. From a Rig Direct perspective, with a mention to not only cope with the existing rigs that we’re servicing, but naturally preparing to absorb the additional level of activity when and if the price allows for a rebound.

Okay. Great, thanks. I’ll turn it back.

And our next question comes from the line of Jordan Patel with Bernstein. Please go ahead, Jordan.

Good morning. This is Jordan Patel from Bernstein. Three questions for me, please. Firstly, could you please confirm the midyear group number? And secondly, could we dig a little bit into the second quarter SG&A charge? Even after adjusting for the exceptional items highlighted, this is the severance and the provision, it appears to have increased by around 600 basis points versus Q1. Could you just give us some color as to why this has happened and perhaps talk a little bit more about that? Thank you.

Edgardo, let’s start with the second question.

Okay. In terms of the SG&A, what we have in the first quarter that we have an extraordinary recovery from our budget provision which is basically everything that exceeded 180 days overdue, that was $30 million collection from PDVSA. Therefore it was a very positive impact at that stage that really has not been recovered. I mean, it is not repetitive in this quarter. Therefore, I mean, taking aside these and taking aside, leaving indemnities that are much more important in this quarter, we are very much in line on dollar base compared to last quarter.

Yes. Thank you, Edgardo. Jordan, can you repeat your first question, because I’m not sure we understood it very well?

Sure, yes, the first question was simply whether you could confirm what the mid-year group headcount number was.

The headcount, well, we did a substantial reduction. We are now in - probably the reduction has been in the range of 9,000 people in our overall headcount. Today, we are at a level of around 19,000 employees worldwide.

Many thanks.

And our next question comes from the line of Bill Sanchez from Howard Weil. Please go ahead, Bill.

Thank you. I wanted to just dig in a little bit as it relates to the guidance offered up in the press release with regard to 3Q being the trough, which I think is certainly consistent with past conference call commentary and then a recovery in 4Q. And just, I think I’m trying to understand little bit better kind of the puts and takes here for the quarter. There was no mention in the press release about raw material cost inflation. And I know that’s a topic that’s in a lot of people’s minds. And maybe talk about the pricing increases. I know we start at a price increase here in 2Q. I think you said, Paolo, you don’t expect any real impact of that until 2017. But maybe help us a little bit thinking about raw material inflation as a negative, price increases, I guess, not really a second-half issue here. And then, 3Q typically we see seamless volumes drop right as you see additional under-absorption in the facilities due to holidays in August. Maybe just talk a little bit about seamless expectations and then just kind of what kind of anchor margin do we think we’re seeing here in 3Q relative to 2Q on the EBITDA side?

Well, thank you, Bill, for your question. I think, in fact we expect the third Q to be lower in volume-ending-wise in compare to second Q. For seasonal reason, this is impacting into this. As far as then that will we recover in the fourth Q, when you talk about the cost, I think that we have been able to manage our purchasing of material in a way that in the end will minimize the impact on - from cost on the third Q. In fact, I think we will be able to maintain this under control. In term of margin, we expect the EBITDA to be double-digit EBITDA in the lower-teens, let’s say, during the third Q and then recover in the fourth Q. On average, we continue to maintain our estimate of EBITDA margin for the year as slightly below 15%. I’m talking about adjusted EBITDA.

No, great, that’s helpful. And, I guess, one for German. German, as we think about North America right now and the recovery, including that you’re getting a lot of successes on the Rig Direct side, talk to us about what you’re seeing from a mix perspective as we start seeing rig count recovering here in terms of seamless versus welded content, desirability by your customers. And then, also my second part of that question would be, I think there is a view that the tonnage consumption per well in these shales, that are being drilled right now, guys drilling their best rock in these longer laterals that there is more consumption of OCTG needed on a per well basis. Can you maybe talk about that dynamic as well and the growth prospects that affords to Tenaris here as we think about the North America recovery? Thank you.

German, this…

Thank you, Bill. Good morning. Well, first, Bill, on the, say, seamless/welded, we are naturally seeing a recovery that is starting in the South, only in the last couple of months. Since late May we’ve seen give or take 60 more rigs. Naturally, the pricing dynamics and volatility is not helping much. But we sense that is give or take here to stay and the South Eagle Ford, Gainesville and Permian primarily are the areas where we see the rebound. Now, other than this second point you made, which is in fact longer lasted of the use of in relative terms a bit more seamless than not and most importantly, say, my Premium Connections. There is not a drastic change in terms of string design. They’re somehow longer, but the typical design of 5.5, 9 5/8, so 4.5, 7 inches continues to be the one in place. I think the important change we see is increased requirement for torque and compression resistance, which is in a way challenging the existence of my Premium products that the market is offering. And in my opinion, it will be without a doubt an area of near future development.

Okay. German, in terms of just if we talk about average tonnage consumption in a North America well for Tenaris at the peak of, let’s say, in 2014 versus what you think it may be 2017, is that same, is it better do you think? Is it less?

On the Shales field I think it will be slightly higher, very low teens or so. But remember that when you look at the overall U.S., we’re going to have the absence of Gulf of Mexico in relative terms and that will have naturally an adjusting element on it.

Fair enough. Thank you for the time. I’ll turn it back.

Thank you, Bill.

And our next question is from the line of Frank McGann with Bank of America. Please go ahead.

Okay. Good morning. Thank you. Two questions if I could. One is related to the recovery. In your comment you tend to sound at least to me quite cautious about how robust recovery is. And I’m just wondering how you see regards to 2016, 2017, 2018 in terms of what you think will be the most likely key drivers of that recovery and how you see pricing in light of the capacity as that you’re having and some other companies are having in the market. And then if you could briefly just comment a bit on the outlooks that you’re seeing currently for Mexico, Colombia and Argentina?

Thank you, Frank. Well, basically the pace of the recovery will clearly depend from the dynamics of the price of oil. Nobody knows. In our view, supply and demands are getting balance and we’re quite positive on recovery for price of oil. But when we look on how recovery will occur, I think that recovery will occur in some of the areas that are very important for Tenaris, because we are very strong in it. This downturn has hit very strongly on some of the segment or the market or the region in which we have a high market share and we have a very strong position. You can mention - you’re mentioning Colombia, imagine in Colombia rigs went down from 40 rigs at the beginning of 2014 to 5 rigs today. This is an area in which we are very present. Another area is Ecuador; Ecuador has 24 rigs in 2014 and now at the end of 2015 and now around 3 rigs operating. Even in areas like Argentina there were 110 rigs at the end of 2014. Now, we’re down to around 69. So these areas in which we have a strong position have been affected very much during accretion [ph]. Now, in the recovery I think that this area where we act and this will be a positive - will be positive for Tenaris. This is also true for United States. In United States, the rigs, United States and Canada went down from around 2,000 to today 417. Reaction and recovery that we expect in 2017 will - we perceive will be very favorable for Tenaris, because of the positioning, because of the Rig Direct, but also because of the enforcement of trade low. You know that recently there has been good time, and good indication, and good decision by the ITC and the Department of Commerce, and also the enforcement of trade low in - by verification, gains elution [ph] and circumvention. And so, may create a favorable condition for any recovery.

Okay. Thank you. Maybe, perhaps, you could also perhaps comment a bit on capacity utilization, and how you’re seeing that developing even perhaps even if the market doesn’t recover that strongly. Could that higher utilization under little bit reduced inventory environment potentially have a material contribution to results?

Well, today capacity utilization is quite low almost in many of our facilities. As you know, during this cycle, during this downturn we’ve decided to temporarily shut down some of key facilities in this space. But frankly, I think that, if the recovery occurs in areas in which we have a strong commercial strategic position, we will be able to increase our capacity utilization in the key facilities that are very efficient and in which we may also reduce the overall cost, because of the increased utilization.

Okay. Thank you very much.

And our next question is from the line of Felipe Dos Santos from JPMorgan. Please go ahead.

Yes, good morning, everyone. Thank you for taking my question. I just want to understand the outlook for - that you’re seeing for 2017 and 2018. Sounds like you’re a bit - a little bit cautious in the recovery - you depend on price et cetera. But would you have an idea or could you share with us the most likely scenario or some scenarios in which you think most likely that we’re going to see the demand and U.S. activity going forward? Thank you.

Well, I think, as I comment before, the general trend will depend from the recovery in the price of oil, because in the end this is the driver for investment in the oil company. There may be delay because of the recovery in the balance sheet. And again, this is a major driver. Now, within this so far any scenario of recovery, more aggressive one or a more conservative one, my message - my point is that Tenaris I think is very well-positioned. Now, the numbers are more difficult to anticipate, because it also depends on general trend. But imagine that the United States, considering the destocking, and the reduction in the rig and the reduction in prices. The reduction in the available amount has been very, very substantial. But the recovery could also be very important, because in the end the destocking will fade out. And at the beginning of 2017, we will be - we’ll have limited level of stock on the ground that is more in line with demand. Any increase of the rigs at that point for us, operating on a Rig Direct concern will turn out into an increase shipment. And hopefully, we should be also be able to see increase in the Pipe Logix during 2017, so the opportunity of potential recovery for a company like Tenaris considering its position in Argentina, in Mexico, in Colombia and Latin America, in the complex project. Now, when we look at the project, like offshore, probably the recovery will come a little later, because in the end the reduction in offshore rigs has been substantial. In areas like West Africa, all of Africa, I would say, in Gulf of Mexico we are talking about reduction in the range between 60% to 50% in the case of Gulf of Mexico. But this will not come back very soon. We expect this, that is also an area in which Tenaris has a very high market share to occur probably starting in 2018 on the medium term, not on the short-term. But this also will contribute to sustain and support the medium-term recovery of our sales and of our margin in the medium-term.

I see. Thank you. And just, remember you spoke at last quarter conference call that you were seeing a situation that wasn’t real and sustainable, meaning that the price - the cost side prices were much higher, much faster than your pricing. And how this situation is established right now and how it’s evolving? And then how do you see this going forward?

Well, I think, that what we said in the last quarter is absolutely - so even if some of the key prices of our supply level off a little, I’m talking about a scrap for instance. But there has been an increase in iron ore, there have been increase in coal, there has been an increase in scrap also in spite of the recent adjustment. And I was saying that this is - it is unsustainable to maintain the level of prices that is reflected in Pipe Logix. I really think so. I think that in this moment many of our competitors are not able to cover any depreciation many has negative EBITDA. So are in no position to support any rebound, the rebound in the level of activity. In some cases, they have financial difficulties. Now, this is also affecting maybe even more the companies that are using hot rolled coils for welded pipes, because the price of hot rolled coils in United States is really great very strongly. In our case, I think we have been able to manage our purchase and our stock in a way to minimize the impact on our cost. We had stock of iron core that we made in some moment. So we manage this in a way to minimize this impact. But if this level of price continues in my view to be absolutely unsustainable. It has recovered something like 1% in the recent - in the last months. I think recovery is under way and will be needed. We will see these in the United States. Remember the impact of the price indicator in the United States will be felt in the rest of the world, because in the end there are many formulas for adjustment in international contract that takes in part the price indicator at Pipe Logix into the formula. So the dynamics of prices in United States will also be impacting the dynamical price outside, but we will see this I think during 2017 gradually getting into our invoicing.

Excellent, thanks so much.

And our next question is from the line of Raphael Veverka with Exane. Please go ahead.

Yes, good morning. Thank you for taking my questions. Three on my side, first, as a follow-up in North America, so you are commenting that operators are starting to add more rigs; I’m just wondering with WTI back to the $40 level, how much scrap do you see for recovery and where do you think we could end by the end of this year? My second question would be on working capital where you delivered another strong performance this quarter. Are you expecting more rise in the coming quarter? Or should we assume that the positive impact we’ve seen so far should at least may be positive EBITDA [ph] as your volume start to recover. And my last point is on restructuring, are we expecting more charges in the second-half of this year? Thank you very much.

Thank you. German, the comment on the rig in the U.S.?

Thank you, Paolo. Good morning, Raphael. Well, few assumptions, Raphael, and briefly - we’ve seen account recovery when we hit and passed the $50 per barrel mark. I think the market is understanding that we’re going to live with volatility. And naturally the $40 of the last capital [ph] which is not helping, but what it can be is that oil is going to stay there. And as we indicated earlier, if we were to be there, I think we’re going to probably see a de-acceleration of what rig count evolution was in the last couple of months. However, a good number of our users are also indicating that they need to enhance the balance sheet. And consequently before going back to work they’re resolving that issue was well. But at that same time, we’ve seen the oil productivity and new costs are in the end translating on very acceptable levels, margins, even at this pricing level. So overall, we’re expecting rig count to stay at the levels that we see and we’re watching careful still what the implications of a lower price of oil may bring.

Yes, by the end of the year, by the way the level of rig count will increase. We don’t want to say which number. You receive different indication from 600 to 750, so nobody knows. What I feel is that the price of oil will recover after a period of volatility and the rig count will continue to increase. Now, it’s difficult to predict if this will arrive to 550, 600, wherever by the beginning of 2017. On the second and third question, could you, Edgardo? You can answer.

Sure, Paolo. Good morning, Raphael. In terms of working capital, you’re right. I mean, we were basically bringing a significant additional working capital recovery this quarter very much in line, what we have done basically in the last 18 months, very much concentrated and very good collections in this quarter and some additional reduction in inventory. Moving to the third quarter, we are still expecting some additional recovery, not at the level that we have in this quarter, but it is still positive, and totally agree with your point. I mean, by the time that we see the recovery in the last quarter of year. We will start building up inventory modestly. Overall, still for our full-year 2016, even though we have been investing almost $900 million in CapEx, we’re going to be exceeding our operation cash flow. So we will have a positive free cash flow for the company in this year. I don’t remember exactly the third question was.

Restructuring charges.

Restructuring charges, basically very much of the restructuring process is behind us. There is still some limited charges that are going to be going in the second-half, but much less than the ones that we have in this quarter in particular.

Okay, great. Thank you very much.

And our next question is from the line of Alessandro Pozzi from Mediobanca. Please go ahead.

Yes. Hi, thank you for taking my questions. I have two. The first one is about recovery in rig count during the activities. If that doesn’t happen within the timeframe that you expect, is the company ready to stay in a prolonged downturn, let’s say, let’s call it lower prolonged scenario or you have to take more actions?

I think we adjusted the company for the present level of operation, the level of rig count do not increase as fast as we think during the coming year. I think we that have maybe some scope of reduction in our variable cost. But we do not see that we need to do substantial adjustment. Now, remember, the company is now working with an EBITDA ratio short of 15%, in the range of 15%. The effect of the results in this environment, we prepare the company for sustaining an extended downturn, but we’re also ready in the same structure to be able to satisfy additional demand. Remember, we will have Bay City new mill facility entering into operation in the middle of 2017. So this will be giving us additional capacity in the right place to satisfy additional demand that we expect in the U.S.

You just mentioned the variable cost. Can you give us an update on the ratios in fixed and variable cost at the moment?

Sure. In terms of the fixed cost, I mean, let me try to show basically what we have done so far compared to 2014. I mean, on an annual basis we are - we have been reducing the workforce and restructuring part of our services and other costs, fixed cost affecting SG&A. So we are basically now we’re running $300 million less that we used to have. We represent almost 30% reduction in cost. Coming into the second-half of this year compared to the first-half, we are expecting full benefit of the reduction basically that has been finished in June to be reflected in the range of $40 million.

Okay. Thanks. And if I have time - last question on dividend. How should we think about the dividend for next year, which is clearly the level of activity that’s dropped materially since 2014? Should we expect a rebased dividend and more in line with the current level of activities?

Well, as we say, in the past the company is very strong, it has a very strong financial position and strong free cash flow. On the other side we say that we are prepared to react to this condition. We will evaluate over the course of the coming month, but you can take as a guidance what we have done in the past. I mean we tend to avoid the sharp changes in our policy, but at the same time to take into consideration the changes here constants [ph]. We can see - you can see from the past what we may suggest to our board for the future, to general assembly.

Okay. It’s very clear. Thank you very much.

And our next question is from the line of David Farrell with Macquarie. Please go ahead, David.

Hi, thanks very much for taking my questions. Two of those, firstly, in terms of looking at the full quarter recovery in Asia-Pacific, Middle-East, how should we think about those areas recovering and overall pricing relative to the current mix. And then secondly, I just wanted to go back to the U.S. and the recovery that which you also alluded to could come to on the fourth quarter. Is that because you’re seeing increased levels of tendering activities from your client-base or is it just your read across from what you’re seeing in Pipe Logix? Thanks.

Well, first, in general on how the recovery could happen. So it indicates the price of oil get stronger. We expect the recovery to be focused on the United States and particularly in Permian beginning, but also in the mature field in different part of the world that will also react to these. So we expect that in an environment of higher price of oil. The first investment that a company will do will be the investment in Permian and the investment in U.S. and the investment in mature field. The mix in this environment is not particularly favorable to us, but the region in which this could happen should be favorable to our position. Because in the end we have a strong position market share and service component in countries that may start to react faster. Then concerning the Middle East, maybe Gabriel, you may give us an indication on how you see an environment higher price of oil the reaction in new region, let’s say internationally.

Yes. Thanks, Paolo. Good morning, David. Regarding, Middle East, we see a strong drilling activity as I mentioned before, Saudi, Kuwait, UAE, are the once I’d highlight. There are even some talks in Saudi are increasing about 20 rigs, about 10% mid next year on the gas side. So we see that demand strong. Other markets in the Middle East are starting to suffer Iraq, Egypt are starting to show some declines in drilling activity. As we commented before, we have a good strong backlog as shown in this quarter. We’ll have a typical reduction of seasonality in Q3, in volumes in Middle East that we go back up again in Q4. Volumes are strong, backlog is strong, but it’s also worth to mention that the pricing environment in the Middle East has been quite competitive, intense competition given the low level of activity in the rest of the world. You mentioned also Asia Pacific, we had a strong quarter in Indonesia, but Southeast Asia is another area that has been going down in terms of drilling activity. Paolo mentioned about Sub-Saharan Africa, 60% down. Southeast Asia is another area that has gone down 60%. Indonesia, Malaysia and Vietnam has gone down in that range. The exception is Thailand. Thailand is an area that is very resilient, drilling activity there continues to be in the range of 500 wells, this is - wells that are targeting us that is nearly 40% of power generation of a country. And as we mentioned before, we started this quarter to operate under a Rig Direct basis, as a single supplier of those well. So in that terms, for us Asia Pacific will start to kick-in strongly this quarter with a full impact in Q4 and going forward for the next seven years.

Okay, thanks. Just as a follow-up. Can I ask about the non-oil and gas related activities. How you’re seeing those markets?

Well, we are doing very well in the automotive business, even if these represent a minor share of our overall sales. As you know, we are a major supplier of airbags worldwide. We are opening facility in China, just in this way, we will inaugurate in September. It’s an example, our activity outside oil and gas. This is an area in which we had a sustained market during this year. And we hope to be following on this. Also in area like conduit pipes that are you used in infrastructure buildings in the United States, we’ve done with this area, the areas that have dynamics much stronger than oil and gas. This is our measure - not let’s say massive market represent around 15% of our overall revenue. I think we answered to your question. There is anything?

No, no. Thank you very much all. Turn it over. Thanks.

And our next question is from the line of Michael Rae with Redburn. Please go ahead, Michael.

Yes, hi. Thanks for taking my three questions. The first is just on your revenue per ton, which fell around 20% year-over-year and that looks to be roughly in line with the benchmark pipe logics price. And I can see historically usually most outperform that. So was there some kind of mix effect, which was negative for you in the quarter? And then the second question is, I missed this earlier on the call, but could you give an update on where Rig Direct penetration is in the U.S. currently? And then finally, just since all the other questions have been asked, can you give a bit of color on the magnitude of the contract to supply Tengiz, what time period that will be delivered? Thanks.

Yes. Well, the first one on our revenue per tons is to that the reason mixed effect. As we said before, these downturn hit on area in which we were very strong. And in which we have a very differentiated offer, on top of this also in offshore, these are the areas that went down the most. So we lost price per ton and sales, because of the mix of sales in this region. Consider area like Mexico, in Mexico has made in which we have a full service contract. The number of rigs in Mexico went down from 67% to 22%. So substantial reduction in an area in which we are used to supply premium product in full service and product packages including accessories. Inevitably, we are losing price per ton, because of mix. On the contrary and in term of - on a comparable ground, I think, that we are losing price less than the pipe logic. In - on the question of Rig Direct, where we are focused in this, where we have Rig Direct everywhere in the world from Thailand, Argentina, Mexico and different region Colombia. But in the U.S., German maybe you can indicate which are the key area in which we are now serving in Rig Direct.

Well, thank you, Paolo. Michael, the U.S. this past quarter will reach the level of above 50%, it was 40% a quarter before. And this time around, it is almost in line with the worldwide Rig Direct deployment of Tenaris. That was mentioned in our opening remarks. I think, the service continues to gain traction and is driven fundamentally by the industry need of finding new efficiencies, reducing ultimately cost in the supply chain, which I think still needs to improve quite a bit.

The last question on Tengiz, the - which is the size thereof, the expected activity in the field.

Yes, today Tengiz is working at above two rigs in activity, this is what we have been serving for many years, and Cartagena, the other active field about the rigs including drilling and work over. With the recent announcement of Chevron and its partners to sanction the project than the expansion, a growth we expect Tengiz to increase up to five rigs between 1.5 and 2 years this is what we will take. And this will give a substantial load for the timely investment that we are ramping up this quarter.

Thank you. That’s great. Thank you very much.

And our next question is from the line of Kevin Roger with Kepler Cheuvreux. Please go ahead.

Hi, good afternoon, everyone. Thanks for taking my question. First one, I’d like to the U.S. coming back on the Direct Rig supply strategy. I was wondering if you could provide us a little bit more color on the success, when you say that it’s 60% of the number of rig. But could you please give us the exact number of rig in the U.S. that are not exactly seven. How can it be compared to the Q1, and also the number of final clients that are now exactly seven, how can it be compared to the Q1. And I was also wondering, what’s the reaction the response of the distributors in the U.S., because in fact you want to squeeze them - in the Permian especially. How it’d be - is there any distributor now seeing that once distribute your products and move to competitors. So it would be great to have a little bit more color on the U.S. Direct Rig supply.

Well, we will not get into the detail of these, because for competitive reason. But I mean, the Rig Direct is successful. We remember, one year-ago in the first quarter of 2015 in the United States we had only 5% of Rig Direct. Today, we have around 50% - close to 50%. So in one year and few months we have been able to shift very large share of our sales into this. And we are doing this without even having the Bay City plant on working, and before completing the deployment of the service center in Midland, in Freeport supporting our plant. So I think it’s successful, it’s well received. The client likes to be invoiced at the moment. The pipe is very helpful in recovery moment in which they want to increase their operation without spending capital and the cash on inventory. I wouldn’t get into the number of rigs or the number of client, because this is really for competitive reason. We would like to maintain this internal information.

Okay, okay. In terms of reaction from the distributors, the impact on the competitive landscape, is there any distributor that you used to work with over the past year that now face - they don’t want to distribute your product and move to the competition?

German, maybe you can answer how the relation we got with distributors now.

Thank you, Paolo. Good morning, Kevin. Well, we, Kevin, tend to say that Rig Direct ultimately is an innovative system. It’s something that the industry has not seen. And fundamentally because as discussed we tend to align sometime our some people, say, synchronize drilling programs to production programs of the plant. Avoid in India, and/or eliminate in India, and the inventory, which as we know has been subject with our IT problems. Now, no distributor can do that. And this is the reason why we decided to engage and deploy and is gaining traction, given the efficiencies that it brings.

Okay. Thanks a lot.

And our next question is from [Matteo Badele] [ph] with Synergies Equities. Please go ahead, Matteo.

Yes, good morning, everybody. I’ve just a very quick question on the price per ton, the average price per ton. If I’m not wrong, you say at the beginning that you are seeing in the marketplace, let’s say, a reaction of the price. So the price is going up in the rest of the month. And I think you said something like few percentage point? Then my second question is with regards to the current, let’s say, average price metric ton, which is around US$2,000 per ton. We should see this level as, let’s say, a sort of breakeven, because now if I’m looking at your numbers taking out the one-off items. You’re around the breakevens, or let’s say, this price could be also lower due to the movement you are doing on the inventory. So the breakeven price should be a little bit higher than what we saw in the first six months of the year?

Well, when you look at the price, you have to consider that there are tender or contract that we negotiated that we are delivering maybe six months, one year later after the tender that happen in the Middle East. So keep in mind that in our sales, you will see even in the coming months; and in the coming quarter, some contracts that has been negotiated and signed in the past six months. These contracts in some cases have regressive price. And they are driving our price-a-ton probably lower from the point that you have now. On the other side, we are now engaging in discussion. And in some case, we are getting increase in the renewal of long-term contract that will enter into our revenues, again, six months or three, four months from now. So this is the relation between the price that we negotiate, the price that we see now in our revenue, isn’t trouble as it’s not synchronic in the recent time. We think that really we have our, I don’t know what you say breakeven, but we have today 15% EBITDA ratio, adjusted EBITDA ratio in this condition. We think that we are working on the cost, in efficiency, on the allocation amount plan in different aspect of our cost. We will get resolved and we can reduce further from where we are. And I wouldn’t say that we are breakeven. I mean, we are probably…

Yes, I was meaning the EBITDA level, yeah.

…breakeven point in this moment.

Thank you.

And our next question is from the line of Michael LaMotte with Guggenheim. Please go ahead.

And if I can just follow-up on a quick one for Edgardo on the working capital, I know you’ve made real structural changes to the cost structure and management of working capital as well. I’m just trying to think, in recovery, particularly with the fact that that Rig Direct implies more finished goods inventory. How should we be thinking about working capital as a use of cash in recovery, maybe provide some guidance on days inventory or DSOs that you’re targeting?

Well, first of all, Rig Direct doesn’t imply necessarily an increase in our inventory when the recovery, when the number of rigs or client can increase, because in the end Rig Direct means the ability to coordinate our production schedule into rationalize and redefine our supply chain. So in the - this is something that you should keep in mind. It’s not automatic and proportional increase in the market, increase in working capital. We think we should be able to engage in an upward part of the cycle, containing the day of talk in our working capital, because of the way we develop our Rig Direct approach. Obviously, if the volume goes up during 2017 we will see an increase in inventory. But I think there has been a structural reduction in our DSO. And I would like ask Edgardo if there is something goes on receivable that may influence the capital in case in the moment of recovery.

Thank you, Paolo. Good morning, Mike. Yes, basically you got very really - I mean, in the terms of the inventory, in terms of the receivables, we are now running at a 78, 80 days of receivables, which we do not expect to go very much beyond this level and it’s very much affected to some extent with now come in the Middle East, which are the longer terms in terms of the payment terms compared to the U.S. market, another market in which we are serving within shorter period of collections. So overall, I do not see except for the normal recovery on the volume base.

That’s excellent, thank you.

And, ladies and gentlemen, this concludes our Q&A session for today. I would like to turn the call back to Giovanni Sardagna for any final remarks.

Well, thank you again for joining the call and we hope to see you in October in New York for our Investor Presentation.

Thank you much. Thank you everybody. Thank you.

Ladies and gentlemen, this concludes today’s conference. Please, you may disconnect and have a wonderful day.