Ladies and gentlemen, thank you for standing by, and welcome to the Tenaris S.A. Fourth Quarter and Full Year 2020 Results Conference Call. At this time, all participants' lines are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference call is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Giovanni Sardagna. Please go ahead, sir.

Thank you, Gigi, and welcome to Tenaris 2020 fourth quarter and annual 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 are Paolo Rocca, our Chairman and CEO; Alicia Mondolo, our Chief Financial Officer; Guillermo Vogel, Vice Chairman and Member of our Board of Directors; German Cura, Vice Chairman and Member of our Board of Directors; Gabriel Podskubka, President of our Eastern Hemisphere operations; and Luca Zanotti, President of our U.S. operations. Before passing over the call to Paolo for his opening remarks, I would like to briefly comment our quarterly results. During the fourth quarter of 2020, sales reached $1.1 billion, down 35% compared with those of the corresponding quarter of the previous year, but up 12% sequentially, driven by a gradual recovery in drilling activity in the Americas and a good mix of products sold in the Middle East. Our quarterly EBITDA at $192 million, which included several charges of $37 million and one-off gains of $70 million was 79% sequentially, reflecting a better industrial performance and the operating leverage of higher volumes on a lower fixed cost base after the restructuring measures implemented during the year. Our quarterly EBITDA margin recovered to 17%. Average selling prices in our tube-operated segment declined 2% compared to the corresponding quarter of 2019, but were up 2% sequentially. During the quarter, cash flow from operation was $139 million. Our net cash position remained stable at $1.1 billion, following the payment of an interim dividend of $83 million in November last year and capital expenditures of $38 million. The Board of Directors has decided to propose for the approval at the Annual General Shareholders' Meeting to be held at the beginning of May, the payment of an annual dividend of $0.21 per share or $0.42 per ADR, which includes the interim dividend of $0.07 per share or $0.13 per ADR that we paid at the end of November of last year. If approved, a dividend of $0.14 per share or $0.28 per ADR will be paid on May 26. Now, I will ask Paolo to say a few words before we open the call to questions.

Thank you, Giovanni, and good morning to all of you. 2020 was a particular year, which has left an invariable mark on the world. The pandemic is reshaping societal expectations and changing established paradigms. But it is still too early to understand the full extent of the transformation that has been going. The energy transition is also accelerating. We, as a company, wish to maintain flexibility in the short term as we redefine our strategy and action to meet the new reality. At Tenaris, we opened the year by concluding the acquisition of IPSCO, and with the expectation that U.S. drilling activity will soon start to recover after a year-long decline. Instead for us after, everything changed as the pandemic spread rapidly around the world. From one day to the next, demand for our products and services began to shrink and our way of working changed. Global oil demand collapsed over prices we fit, even becoming negative at one point. In the U.S., drilling activity plans precipitously, and we had to close most of our newly acquired facilities. The challenge involved every aspect of our business and affected all of our employees. We had to adopt the new safety protocols for sure the safety of all the person entering our plants and offices, to have production while minimizing labor cost efficiencies as demand plummeted, to provide support for the medical system in many of our communities, to find new ways of making customer commitments, to change the way we work and communicate, all while implementing an intense restructuring program to ensure financial stability and long-term sustainability of our company. We responded rapidly and have been disciplined in implementing our objectives. I would like to give a special thanks to all our employees for the way they adapted to the circumstances…

[Operator Instructions] Our first question comes from the line of Igor Levi from BTIG. Your line is now open.

Thank you. So as you mentioned, in 2020, you generated over $1 billion in free cash flow from working capital, maybe about $200 million from operations. Does the working capital tailwind turn into a headwind in 2021 as the market recovers? What is the best way for us to think about free cash flow this year?

Thank you, Igor, for your question. No doubt during 2020, we have been able to do an extraordinary effort in reduction of our working capital. Now the market is picking up. Our volume is picking up, and we need to start building back some of our working capital, starting in the first quarter of 2021. You also have to consider that even in the fourth quarter 2020; we anticipate some procurement of some of our metallics, envisaging the price increase that was coming. So to some extent, we started increasing some of our working capital even in some items during the 4Q. In the first Q, we will recover. But then I think we will be able overall to continue to maintain a strict discipline in our working capital in the following quarter. The level of operation will also be relevant for this.

Great. Thank you for that. And could you provide a little more color on the pilot projects around carbon capture and hydrogen? And what is the road map, like, to grow that business? Would you plan to develop it mostly internally? Or would you also be looking to make bolt-on acquisitions in this space?

Well, we are very confident in exploring new avenues to reduce the carbon content of our product. And in this sense, the pilot project that we are launching on hydrogen is an interesting event. We will basically use renewable power energy together with our partner in this project, which is Edison and Snam, for transforming [indiscernible] in hydrogen for feeding hydrogen to our electrical furnaces and to the extent possible to the heat treatment in our plant in Dalmine. This is, let's say, first pilot project in which we will explore the feasibility, the cost and the complexity and the technological requirement for utilization of hydrogen in substituting carbon in - for heat purposes. This will the first project. We estimated at this moment this project may be economically viable. If we consider the cost of carbon in the range of $80 to $100, there will be - we will use support - financial support from the European community. We want to explore this project, and by adopting an internal value for carbon, we will reevaluate investment in the different area of the company in light of carbon emission and see where we can eventually extend similar projects or substitute traditional carbon with renewable or project for heat utilization in some of the states.

Great, thank you. I'll turn it back.

Thank you. Our next question comes from the line of Ian MacPherson from Simmons. Your line is now open.

Hi, thanks. Paolo, you mentioned the raw material inflation, which we've seen has been staggering recently, but you are getting pricing to offset that. And when we think about your goal towards getting to 20% EBITDA margins over the course of this year, what level of average selling price do you need to average into in order to get to 20% margins relative to where your Q4 ASP was?

Well, thank you, Ian, for your question. I would say that to evaluate the evolution of our cost of goods sold; you should consider the cost of the input like metallics that are getting into our cost of sales gradually because of the inventory rollover. So this will enter gradually into our cost of sale, but then also the increase in production will improve absorption. So this is also important in the evolution of our cost. On the other side, on the prices, up to now, the Pipe Logix went up by around 23% since, let's say, August last year up to now. Also, this price increase will continue because if you look at the structure of the pricing, the Pipe Logix is driven by welded and seamless. But in the case of welded, the increase has been 28%, reflecting the extraordinary increase in the cost of coils, not only in the United States, but also elsewhere in the world. So the increase in price, in our view, will gradually get into our sale and also, the cost will increase. But we think that we can reach and maintain a margin in the range of 20%, considering some additional increase of the Pipe Logix, not much compared to a step that has been done up to now.

Okay, understood. Thank you. I also wanted to ask about your insights into the U.S. land market. I think we've been positively surprised by your results so far and your expectations for this year, given that the recovery has been driven so much by the private E&Ps, and we think of your business being much more oriented towards the bigger players. And so maybe you can speak to the recent evolution and the expectation going forward with your customer book as the more commodity price-sensitive privates are driving the increase of the share of activity so far. And when you think - well, what sort of visibility you have really for your larger independent and E&P customers to get back in the saddle and have more activity in the second half of this year or into next year? Thanks.

Yes. Thank you, again, Ian. Well, our view of the dynamics of activity in the United States probably is not considering now the level of price of oil above $60 that we see today. Now this may introduce some additional level of activity because in the end, shales are showing increased free cash flow now with the price of oil at $60 or $62, they are adding cash flow to this, and we will see how they will react. But I will ask Luca Zanotti to give a view on the dynamics of different clients in the U.S.

Yes, Paolo. Good morning, everybody. Thank you, Ian, for the question. Now on top of Paolo is saying, I would add that, yes, we are seeing the market to - continuously improving because, as you probably have listened to some of the large independent conference call, they are thinking to gradually step in and increase activity. But there are two additional effects that I would like to mention that are relevant for Tenaris, at least in the United States. First, is the effect of the consolidation. You know that we have been seeing consolidation and so far, we have been able to roll out our contracts to the company that has been acquired by our customer - historical customers. And we think that this will continue going forward, given the long-term relationship that we have and all the tools that we introduce, the technology that is helping them to reach longer lateral. So we think that this will continue. So, I believe that this is something that is also important. And as Paolo was mentioning before, third, with US$50, US$55 a barrel, the great majority of the shale plays are profitable. So it's going to be a decision of the operators on where they want to invest their proceedings. And we believe that also towards the end of the year, if the situation maintains at core level, in general, we're going to see the bigger guy to even increase further. So, I believe that these three points are explaining a little bit our forward-looking environment.

That's great. Thank you, Luca. Thanks, Paolo.

Thank you. Our next question comes from the line of Sean Meakim from JPMorgan. Your line is now open.

Thank you. I thought maybe we could follow up on the energy transition topic. Could you maybe just elaborate on any incremental technological capabilities that maybe you don't have today that to be necessary to take on a leadership role, whether it's hydrogen, carbon capture? Whether it's necessary to pursue some of these with internal R&D or if there could be technology, bolt-on acquisitions that may help you in those pursuits?

Thank you, Sean. Well, first, Tenaris is because of its process based on electric arc furnaces, today, emitting much less than the average in the industry. And the other collaboration that is using iron ore is using in Argentina on DRI, so also with a very limited carbon. Now we see the target - you have seen the target that we set for 2030, a reduction of 30% could be achieved within the existing technology, heat recovery, intervention of - on the electric arc furnaces, reaction or ways in some of our operations and better use or better, let's say, selection of supplier in our operations, so we can reduce scope one, two, three overall by around 30. Now when we think about 2050, we will need to reduce disruptive technologies like hydrogen. We are considering offsetting investment in renewable to support part of our system. So we are looking globally at all what we can do to decarbonize our chain. But this will require five or 10 different endeavor to explore possibility - opportunity for reduction. In terms of carbon capture and storage, we may have or participate in progress jointly with other companies in which we capture part of the carbon we are emitting. This will not be something that could be done on the scale of our operation. Needs to be integrated into projects with other companies. These are only, let's say, ideas. On that side, Tenaris would be very important in promoting decarbonization and promoting extension of the project, then maybe you're right in this sense. I'll give you an example on hydrogen. We are producing cylinder for very high-pressure hydrogen riser, and we are producing pipes for infrastructure use in the hydrogen chain. We are also important in supporting projects that are focused on carbon capture and storage. One example is Northern Light in North Sea. I mean, the know-how that we developed on [indiscernible], on steel-making and on all the chain of our production could be very important in all of the segments of technologies that could contribute to decarbonization. We will do it, and we will actually be starting this. But today, we have no road map clear for, let's say, the second step of decarbonization that grant us - let's say, that would make the definition of a reasonable target for, for instance, 2050.

Very interesting and very helpful. Thank you. Offshore, activity stays pretty challenged. But we did have a lot of FIDs into 2019, and they'll need to ramp activity in '22 and '23. Can you maybe just talk about which markets you see offshore as most attractive medium term? I think Brazil looks like one market, maybe just broader South America, North Sea could be another, perhaps Asia Pac, to some degree. Just how are you seeing the offshore market on a medium-term basis?

Well, if we look at the perspective of offshore, let's focus on, let's say, the deep offshore [ph]. We have a suite of products that are pretty unique and on which we can have an important leverage. But the region are basically the South America and Brazil and Guyana, is Gulf of Mexico, is North Sea and Far East, to some extent. We see also, to a lesser extent, some development in Africa that will be important. We are present in all of them. But I would ask Gabriel, who's responsible for Eastern hemisphere, to start on them with some of the projects that could be relevant from this model, if I understand well your question. Gabriel will follow up on this, and then Luca could comment briefly on Gulf of Mexico. I don't know if Luca is on the line.

Yes, I can take it over while...

On the Gulf of Mexico sector.

Yes. So as you said, Paolo, we are present in all the developments that are now going on and are forecasted to start in the Gulf of Mexico. And in some cases, we are also increasing our participation on, let's say, shifting the technology towards our Dopeless. And so I believe that as far as Gulf of Mexico is concerned, we are very well placed. Not to mention then, Guyana, where these big Exxon projects going on. And even there, we are the incumbent, and we are well placed in continuing, let's say, leveraging this opportunity. So as Gulf of - sorry, as offshore is going to improve, we're going to see also our activity improving in this respect. I don't know if...

Just to remind, we have a very complete suite of products for shore and special deep offshore. We go from the connector to the riser, to all the parts of the column in the most demanding high-pressure, high-temperature product for deep offshore the port. This is recognized by the operator, not only in Gulf of Mexico, but also in Brazil, in Guyana, where we work with all of the major. I don't know if Gabriel is...

Yes. Hello, Paolo, can you hear me? Can you hear me? Hello?

Yes, yes, yes. Yes, we can hear you.

Okay, okay. Okay, great. Sorry, I got disconnected there. I called back. So Sean, on the point of offshore in the Eastern Hemisphere, first, I would comment that the drilling activity in this second year in the major offshore basins has been decreasing over the last 12 months. We're probably running today at a level of about 35% below the levels that we had at the - below the - before the pandemic. So this is what we see today. We expect this to be the bottom, and we foresee a gradual recovery of a pickup of activity towards, especially the second half of the year. The key areas that probably were going to lead this increase are the core countries in the Middle East, could be Saudi Arabia, could be Qatar, UAE, Kuwait. These are the areas that they have some onshore and some offshore activity as well. And these are going to - as the curtailment of production reduces during the year, we see this increase in production supporting a higher level of activity. The other basins of North Sea, West Africa, Southeast Asia, will remain challenged. It will take longer to this - for these markets to recover. We're going to see some pockets associated mainly with gas, maybe Indonesia, Papua New Guinea, Egypt, Mozambique as well. So some projects and exploration that is going on related to gas developments, either for export or existing infrastructure or domestic markets, those are going to be areas of interest into the future, but it will take a while before these markets pick up again activity.

Thank you, Gabriel. As far as the South America, I mentioned, but I think that Brazil and Guyana will be - will increase and will expand on a long run, to our, let's say, dynamic offshore deepwater area in which we are very present.

Very good. Thanks for that detail.

Thank you. Our next question comes from the line of Marc Bianchi from Cowen. Your line is now open.

Thank you. I wanted to follow-up on the margin and pricing discussion. I heard that the Pipe Logix is up 23% from August, and the expectation is to get to your 20% is that it doesn't need to go up quite that much, the increase from here would be less than 23%. I'm curious if you don't get that increase, what would margins look like? Because there is some component of operating leverage that you mentioned. And then the next question is, what kind of increase? Is it something like 2% or 3%? Or are we talking about a 15%-type increase there that you would need?

Thank you, Marc. Well, on one side, the increase that I mentioned is - I mean, the index is - the historical index, I mean, the index that comes out yesterday is showing the increase that I mentioned overall. So today, many of the formula that we have start incorporate this increase. Now the point is will, in the coming months, the price of pipe continues to increase to reflect, let's say, the stronger cost - the higher cost of the raw material in MAUs will not increase in the same pace, but we will have additional increase. Now considering what has been there in demand, there is, let's say, the reference for any new contract. Flat or minus, it depends from negotiation from the difference in product, in terms of service, but this is a reference for the new contract. So it's something that is in the market today; so we are pretty close that on top of what has been done, price will continue. Also, I think that we will face a price of hot or cold or iron ore and of commodity relatively high for a while. I mean, it's not that we are in a spike, but I think that there is demand. And if we assume that stimulus in the United States and additional stimulus in the other region, some increased mobility because of the progress of vaccination, everything should drive the economy to rebound and to some extent, should preserve uptrend in cost, but also in price in our product. This is the view we have, and this is the view on which is based our vision of a medium-term 20% margin, compensating with price, which we perceive are the increase in costs that we're getting. And as I was mentioning before, in terms of absorption, keep in mind that if - the market really progressed, and we put into operation facility in the United States, in corporate, in Ambridge and in finishing facility, there will be some stock buildup that will also absorb some of our - so some of our fixed costs.

Thanks, Paolo. I guess following on to that, you've had some nice improvements in your - just in the way you run your business, right, larger proportion of Rig Direct in North America. You've done the M&A, which gets you more integrated. I'm curious now, do you think - what do you think the medium-term or long-term margin profile is for the business as it exists today? Could we be into the mid-20s? Or do you care to put a number out there?

You are referring to the margin - the midterm to long-term margin in the U.S. market or you mean as a whole for our business? No, sorry because I say if you're referring to overall margin in North America because the line is not so good. If you can repeat the question?

Okay. Thank you very much. I'll turn it back. Yes, sorry. Certainly. The question is, you've made some structural improvements to your business. You've taken the cost out. You've gotten more integration and more Rig Direct. But even still with these high raw materials, you think you're going to be to 20% in the back half of this year? I'm wondering if - as we get into 2022 and beyond, what type of margin would we expect for your overall business compared to this 20% level? Could we be seeing something at 25% or higher than that? What's your medium to long-term expectations for the overall company?

Well, I don't think that - it will depend on the level of recovery and the level of drilling and activity. We have today around 400 rigs in the States. And the bottom has been 250 rigs. Now we are in the range of 400 rigs under BakerHughes. We expect that these number of rigs could increase to around 500 rigs by the end of the year. But if the drilling activity and free cash flow of the company allow, let's say, higher investments in the United States and the recovery also in the East Hemisphere, but with a price of coiler relatively higher than what it is today, we will obviously have more pricing power given in an environment that is more dynamic. But it's difficult to say this today.

Yes, understood. Thank you very much.

Thank you. Our next question comes from the line of Frank McGann from Bank of America. Your line is now open.

Hi, thank you very much. I wanted to just ask your - basically, your view based on what you're seeing from your clients and in your conversations. And this follows a little bit up on an earlier question, but just with a little bit longer-term view. There is a view that oil prices are going to stay quite robust and since it could go much higher over time, given that producers are going to continue to exercise significant capital discipline even with higher prices because of shareholder demands and their own concern for balance sheet, etcetera. I was just wondering, do you see that happening? Do you think that the main companies, your largest customers anyways, are likely to continue for an extended period to see very limited activity for those reasons? Or do you think, over time, things can loosen up pretty substantially if we continue to see oil staying at $65, $70 and potentially higher?

Well, I think that we are talking here about very different players. You have a player like the major that are promoting large complex products that for sure are following discipline in the project. So you can expect that the progress in big complex projects, offshore, the production will be, to some extent, contained. Then you have the Middle East, the player that has large reserve and they're playing a different game. They want to remain the key supplier. This is also true for Russia. I mean, player that bets on the fact that any transition will any way require important supply of oil and gas to the world. These players are following their own products. Then even in U.S., you have the divided opinion because there are companies that are focusing on cash flow, dividend and shareholder, so other that are betting. And they are betting that if the transition, the energy transition will any way leave space for oil and gas, and the price of oil and gas could be assuring important return. They look at issues like the Texas freeze, and they perceive that in balance in the energy system, they offer opportunities. So it's a diverse group of players, there are players that are very disciplined and wants to shift out from this, but others that want to take the place that the first one are leaving. So in my view, you cannot have, let's say, one attitude fit all. And in this environment, I frankly think that investments in oil and gas, maybe by different players, in the U.S. and outside, will be continuing. Maybe the more complex products will be proceeding at a more careful pace.

Okay. Does that - it sounds like you believe then that, that can lead to at least over a period of time or a number of years, a pretty substantial recovery in activity.

I think that any transition associated with expansion of the world economy will require, let's say, substantial investments in the fossil, oil and gas, especially in the coming years. So this is not a transition that could be done without substantial investment. There are companies that bet on this. There are companies that bet on reducing their exposure. We have to follow this. But in the end, in an aggregate view, I think that there will be recovery in 2022 and beyond. And if the growth in the emerging markets continues, this will need to be substantial.

Okay. Thank you very much.

Thank you. Our next question comes from the line of Alan Spence from Jefferies. Your line is now open.

Thanks and good afternoon. I've got two questions, and I'll take them one at a time. The first one is around working capital. You released about $1.6 billion combined in the last two years. Is there any component of this that we should think is structural? Or is it going to be predominantly technical and ultimately, in the next few years come back in?

If I understand the first question is concerning our working capital. There will be a recovery of working capital because when - especially in the first quarter and probably because the volume is increasing, and we have to activate some of the longer lead time road will be recovering the working capital need. And then there is, I would say, a second issue that is when we activate Koppel steelmaking in the United States, finishing in United States, these new mills may require and will require some working capital. On the other side, the introduction of much higher level of digitalization, programming and, let's say, designing of production into the system, there is something that is part of our digital transformation will contribute to a strict discipline in the existing facility. So the combination of these two, in my view, will not bring back Tenaris to the same level of inventory that we had in the past, but we will increase our inventory requirements in the first quarter and to some extent, also in the second quarter, while we are comparing the startup of the plant.

Okay, thank you. And the second one, on this 30% reduction in CO2 intensity. If I understood correctly from an earlier question, I think you said that could be achieved with your current portfolio of assets. Does that mean that you don't foresee any material increase in CapEx related to achieving that - those targets medium term?

Well, we will have to invest. We are - as you see, our investment has been reduced in 2020 to around $200 million. Now in 2021, we plan to remain in the range of $200 million of CapEx, including some of the first in the line investments in energy savings, but including also, let's say, the startup investment in the translation of the plant of Prudential to Sault Ste. Marie in Canada, the venture in Emirates in each line. So this will be the range of investment for 2021. Then, I think that the decision of CapEx for the following year will very much depend on the evolution of the market in the second part of 2022. The investment to reach a reduction in our carbon of 30% are let's say, in a period of 3, four years, not, let's say, of an order of magnitude that is strong. We think that we will require in the range of $150 million in the coming four years to reach the target of 30% reduction.

Very clear and very helpful. Thank you.

Thank you. Our next question comes from the line of David Anderson from Barclays. Your line is now open.

Hey, good afternoon. Just a question on the U.S. OCTG market. Where do you think the inventory kind of overhang is today? Something you kind of keep an eye on. And I'm just kind of curious how much it's come down and where you think it needs to come down, how much more needs to come down before demand starts to kind of truly improve, just looking at the U.S. land market?

Thank you. On this, I will let Luca to give an overview of how we see the situation of the stock curve in the market.

Yes. Thank you, Paolo. Good morning, David, in the U.S., as we speak, we see a level of inventory in the range of six to 6.5 months of inventory, which, as you know, is starting to get in a situation in which in some cases and some items we're going to be short. And you can easily see this when you look at the Pipe Logix detail as well. Now going forward, I believe that we're going to see a little bit of additional decrease. But then when production in the States and, to a certain extent, imports, we begin, the situation is going to be stabilizing. And this is basically it - as far as the inventory on the ground in the United States are concerned.

Okay, great. Thank you. My other question probably for Gabriel, I don't know if he's still on the line. But you had indicated the Middle East was pretty strong for you this quarter. It's not something we've heard from the service companies so far, haven't seen really rigs being picked up, and we're generally hearing kind of Middle East NOCs are planning to ramp up in the second half of '20. So I guess I'm just wondering, are you seeing your customers in the Middle East are starting to order OCTG in advance of that? I guess I'm just wondering, are we starting to see the beginning of potentially a prolonged international cycle?

Well, thank you. On this, I will have Gabriel, who is very close to the major client in Middle East to give with you the view. Gabriel, it's up to you.

I had a feeling we're going to have that problem. That's okay. You can follow up with me afterwards.

I understand you. Our view in general, I can tell you, it is that the rig went down during this period and didn't recover yet. We expect 2021 to be subdued in the Middle East even if the projects that we see in Qatar, the unconventional in Saudi are sustained and substantial, [indiscernible] very important plant. But we will see this more in 2022 than in 2021. This is relevant for us because, I mean, we expect our - probably our sales to be more contained in - during 2021. This is important because some of our very special products are going in that part of the world but still, we are very confident in the recovery in 2022.

Great, makes sense. Thank you very much.

Thank you. Our next question comes from the line of Amy Wong from UBS. Your line is now open.

Hi, there. A couple of questions from me, please. The first one relates to - I think you mentioned you guys have an award for Qatar LNG North field expansion. Can you give a bit more color on that project, what you're delivering there, whether it's casing, line pipe or both? And kind of when those deliveries will start for you? That's my first question, please.

Just to clarify, you were mentioning the project in Qatar. If I understand well. Sorry, because the line is not so clear. Is this true?

Yes. Yes, sorry, yes. The Qatar North field, you mentioned in your opening remarks that you guys have won some work there. So I just want to get a bit more color on the size of the award, when you're going to start delivering.

Well, work that - the program that Qatar has in line is substantial. They revived, they [indiscernible] too and they will develop this. We have a very solid relation, and we developed for this project Dopeless product that are very much appreciated like Koppel. And let's say we will be a supplier of this product. Now in our understanding, Qatar is proceeding aggressively. Again, we will have the - the project is a long-term project. So we will have demand growing in 2020. We expect in respect to 2019. And we will say 2021, more or less in the same level. But the project is very important. The relation is strong, product development systems solid, and I think we have a good opportunity for the long run while they develop stores of LNG. They have a big program for enhancing production of LNG, and they need the gas coming from North East. I don't know if Gabriel is back for additional comments or color on this. If he is back, I will ask him to add his comment.

Yes, Paolo, I'm back. Apologies for the interference with the line today. I guess the topic was Qatar Project LNG, correct?

Yes.

Yes, okay. Yes, this has been an important project that we have been sourcing for the last couple of years under a framework of a multiyear agreement that we have with Qatar Gas, the major operator of the LNG in Qatar, which they have recently this quarter FID and a first expansion. This is - we are having a dominance there in this important development. Majority of the supply is with our Dopeless technology. The drilling team in Qatar has selected the technology based on its safety and efficiency concerns. So this is something that will have pushed our shipments supporting 2020, and it's something that we expect to increase into 2021 and beyond. This has been one of the pockets of highly differentiated products that helps our shipments into 2020.

Okay. Thank you, Gabriel.

Okay. Thank you for that. I just have another separate question unrelated to that, and it's regarding your target of reducing carbon emissions intensity by 30% in 2030. Could you talk a little bit more about how you're defining that? Is it your total CO2 emissions over the tons of tubes produced? But just give a bit more color on what metric you're using and give us what the baseline you're measuring against is.

We will define that we are following this on the three scopes. The scope one of our emission, scope two of material and energy that we buy, electric energy that we buy, the scope three with this material that we acquire and carbon emitted in our chain. So we are, let's say, following the standard design by the worldsteel, and we will have this in the process of qualifying for the Carbon Disclosure Project. We will [indiscernible] in a market size and verifiable way. We plan also to ask to PriceWaterHouse when we issue our sustainability report to audit the data that we will present and the number that we will present. So we will be very demanding on the clarity of our definition, the transparency of our number and the clarity of our commitment. And then, we will follow this quarterly in our Board. Probably, we will have a full qualification by CDP, maybe during next year because of the process of qualifying and presenting our case with the carbon disclosure program and get rated by them. But this will be a process. There will be, let's say, audited and qualified and followed with numbers that are in line according to the standard. We are also considering, let's say, to rely on the plant-based target process for defining with clarity the action that we are taking and the impact that we are expecting on our decarbonization road map.

Great, thank you. Looking forward to get more information on that. Thank you.

Thank you. Our next question comes from the line of Connor Lynagh from Morgan Stanley. Your line is now open.

Yes, thank you. Thanks for squeezing me in. I just wanted to square some of the comments you made around the Eastern Hemisphere. In the release, it sounded relatively conservative. You pointed to some longer-term potential in the Middle East. It sounds like offshore is probably maybe stable, but not really increasing much. I just sort of wanted to square that in light of the expectation that most of the OPEC producers will be raising production somewhat this year and the commentary that we've heard from the other service companies that suggest a second-half ramp in Eastern Hemisphere activity. Do you think there's a destocking effect that you're pointing to or are you just being conservative because customers haven't communicated these plans yet? I'm just wondering if you could sort of square the circle in terms of why you wouldn't expect that to be recovering more significantly this year.

Very good. Well, I don't know, on this issue, maybe if Gabriel recovered the line, he may just add some comments. I would leave it maybe to you to add some color on the attitude that you see in our major clients in the Gulf.

Yes. Thank you, Paolo. Thank you for the question. Indeed, the activity is expected to slowly go up for the major countries in the Middle East, especially in the second half from a low level. This is what we expect. On the other hand, as you're pointing out, there has been - there is a destocking, there is an efficiency and optimization of cash flow going on in some of the key markets in the Middle East. That's why with this subdued activity, coupled with this delay in some shipments, some purchases; we expect apparent demand and shipments in 2021 to be lower than in 2020. And as activity improves during this year and the purchasing cycle normalizes, that's why we expect a rebound into 2022.

Okay, got it. I mean, I guess, that seems - sorry. Yes. I guess the sort of follow-up here is you have these relatively large projects. I guess just one small clarifying question. You were alluding to the threading plant in the UAE being online next year. Are you going to be making shipments under the ADNOC contract before that's completed? Or is that necessary in order for that to move forward? I think the prior expectation was back half this year that would start up. But I guess the follow-up question in a greater sense is could you maybe level set once this destocking, presumably, activity is recovering. It seems like you're setting up for - with some of these specific things, a relatively big year-over-year growth in 2022 in the Middle Eastern area. Could you maybe quantify at all how we should think about the magnitude of that?

Yes, yes. Indeed, related to the UAE, the mega tender contract that will last for at least five years, and there are options to extend, started in 2020 with very little shipment because as there is a change of the supply chain model into our Rig Direct. Typically, in this contract, it takes one or two years to work through the existing inventories until we synchronize shipments with drilling activity. So contracts started. We have the new service center in Abu Dhabi in place, started at the mid of 2020. This year, we'll slowly during the year ramp up our shipments as steel inventories come down, and it's probably going to be until 2022, that we will have our full shipments in line with the level of consumption of ADNOC. So, this is how typically the first two years this contract will be played out and then continuing to the following years with an increase of expected of activity of ADNOC in the midterm. This is something that will give strength to this in this year. And in other areas, although they are not working on the Rig Direct, but still, there is an intense of the NOCs to keep CapEx still contained. There is a cash flow concern as well in some of these countries. So delays of purchasing, delays of tenders are putting some, let's say, additional lower shipment scenario in this 2021, but we foresee that to stabilize apparent demand and consumption to be more in line into '22.

All right. Thank you.

Thank you, Gabriel.

Thank you. At this time, I'm showing no further questions. I would like to turn the call back over to Giovanni Sardagna for closing remarks.

Thank you, Gigi, and thank you all for joining us. Sorry for the inconvenience with part of our lines, and we hope we will do better next quarter. Thanks a lot.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.