Q1 2024 Tenaris SA Earnings Call
Operator: Good day, and thank you for standing by. Welcome to the Q1 2024 Tenaris S.A. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Giovanni Sardagna. Please go ahead.
Good day, and thank you for standing by and welcome to Q1 2024 at the Noughties SA earnings Conference call.
At this time all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session.
I'll ask a question during the session you will need to press star one one on your telephone.
You will then hear an automated message advisor your hand is raised to withdraw your question. Please press star one one again please.
Please be advised that today's conference is being recorded.
I would now like to hand, the conference over to your Speaker today Giovanni started Danya. Please go ahead.
Giovanni Sardagna: Thank you, Gigi, and welcome to Tenaris' 2024 first quarter conference call. Before we start, I would like to remind you that we will be discussing forward-looking information during the call, and that our actual results may vary from those expressed or implied during this session. With me on the call today are Paolo Rocca, our Chairman and CEO, Alicia Mondolo, our Chief Financial Officer, Gabriel Podskubka, our Chief Operating Officer, and Luca Zanotti, our President of our U.S. operation.
Yeah.
Giovanni: Thank you Gigi and welcome to <unk> 2024 first quarter conference call.
Giovanni: Before we start I would like to remind you that we will be discussing forward looking at formation in the call and actual results may vary from those expressed or implied during this school.
Giovanni: With me on the call today are Paolo Rocca, our chairman and CEO, Alicia Manuel <unk>, Chief Financial Officer, Gabriel put call Scott, Our Chief operating officer, and Luca Zanotti President of our.
Giovanni: Our U S operations.
Giovanni Sardagna: Before passing the call to Paolo for his opening remarks, I would like to briefly comment on our quarterly results. Our first quarter sales reached $3.4 billion, down 17% year-on-year and flat sequentially, as an increase in volume and the full consolidation of the coating business acquired in the previous quarter offset the impact of lower selling prices in the Americas. Average selling prices in our Tubes Operating Segment decreased 15% compared to the corresponding quarter of 2023 and 6% sequentially.
Speaker Change: Before passing over the call to Paolo for his opening remarks, I would like to briefly comment on quarterly results.
Speaker Change: Our fourth quarter sales reached $3 4 billion down 17% year on year and flat sequentially as an increasing volume and the full consolidation of the coating business acquired in the previous quarter offset the impact of lower selling prices in the Americas.
Speaker Change: Average selling prices in our tubes operating segment decreased 15% compared to the corresponding quarter of 2023 and 6% sequentially.
Giovanni Sardagna: Our ABDA for the quota was up 1% sequentially to 987 million. However, our ABDA margin remained flat at around 29% as the reduction in average selling prices was offset by a strong operating performance, a positive contribution from our newly acquired coating business, and a $25 million gain from legal claims resolutions in Mexico and Brazil. With operating cash flow of $887 million and capital expenditures of $172 million, our free cash flow for the quarter was $715 million.
Speaker Change: Our EBITDA for the quarter was up 1% sequentially to 987 million.
Speaker Change: Our EBITDA margin remained flat at around 29% as the reduction in average selling prices was offset by a strong operating performance the positive contribution for our newly acquired coating business and 25 million gain from legal claims solutions in Mexico and Brazil.
Speaker Change: With operating cash flow of 887 million and capital expenditures of 172 million, our free cash flow for the quarter was 715 million.
Giovanni Sardagna: Following share buybacks of $311 million during the quarter, our net cash position increased to $3.9 billion, up from $3.4 billion at the end of last year. Now I will ask Paolo to say a few words before we move on. The call to question.
Speaker Change: Following the share buybacks of $311 million during the quarter, our net cash position increased to $3 9 billion up from $3 4 billion at the end of last year.
Speaker Change: Now I will ask Paolo to say few words before we move.
Paolo Rocca: Thank you, Giovanni, and good morning to all of you. We have had a good start to the year, maintaining our sales and EBITDA at the same level as in the fourth quarter of last year. Despite the unfavorable pricing environment, it is affecting our sales in the American market. This reflects the strength of our global positioning as well as its solid performance across our business. In the coming quarters, however, our results will be affected by a soft U.S. recount, by low natural gas prices, by an increase in OCTG imports, and by an extended decline in profit. Our free cash flow will remain.
Paolo Rocca: The call to questions.
Paolo Rocca: Thank you Giovanni and good morning to all of you.
Paolo Rocca: We have had a good start to the year, maintaining our sales and EBITDA at the same level as in the fourth quarter of last year.
Paolo Rocca: Despite the unfavorable pricing environment.
Paolo Rocca: Affecting our sales in the Americas.
Paolo Rocca: Reflect the strength of our global positioning as well as a solid performance across our business lines.
Paolo Rocca: In the coming quarters. However.
Paolo Rocca: Our results will be affected by a soft U S rig count.
Paolo Rocca: Victor by low natural gas prices.
By an increase in New York City Dream Parks.
Paolo Rocca: And then extended decline and practices, our free cash flow will remain solid.
Paolo Rocca: During the quarter, our newly acquired Tenaris shock core pipe coating operation, where we successfully completed an exceptionally large project with concrete-weighted coating for a pipeline in Mexico, made a positive contribution to our sales. Tenaris Shock Core was also awarded a $108 million project to supply wet insulation and anti-corrosive coating for the offshore pipeline for the ExxonMobil Whiptail development in Guayaquil. This project will be supplied during 2025. Around the world, offshore projects are moving forward, and with our extended reach, we are providing a wide range of integral solutions for this complex problem.
Paolo Rocca: During the quarter, our newly acquired at an average broker pipe coating operations, where we successfully completed an exceptionally large project with concrete concrete weighted coating.
Paolo Rocca: The pipeline in Mexico made positive contributions to our sales and EBITDA.
Paolo Rocca: They're not as Shawcor also awarded one other than 8 million project to supply wet insulation and anti corrosion coating.
Paolo Rocca: Sure pipeline for the Exxon Mobil Whiptail development in Guyana.
Paolo Rocca: This project will be supplied during.
Paolo Rocca: 2025.
Paolo Rocca: Around the world offshore projects are moving forward and our extended reach here, we are providing a wide range of integral solution for these complex development.
Paolo Rocca: The Middle East is another area which has seen growth. In Saudi Arabia, we are benefiting from the increase in demand for their gas development program and the consolidation of our GPC large diameter welded pipe. In the United Arab Emirates, with our new premium trading facility in full operation, we have been awarded a two-year extension of our rigged direct contract. While our long-term agreement with Qatar Energy LNG has also been extended for three years to cover the drilling in the northwest field, Supply the latest expansion.
Paolo Rocca: The Middle East is another area, which has seen growing activity.
Paolo Rocca: Saudi Arabia, we are benefiting from the increasing demand for <unk>.
Paolo Rocca: <unk> got development program and the consolidation of our GPC large diameter welded pipe operation.
Paolo Rocca: In the United Arab Emirates.
Paolo Rocca: With our new premium strategy facility in full operation, we have been awarded a two year extension of our rig direct contract.
Paolo Rocca: While our long term agreement with <unk> LNG has also been extended for three years to cover the drilling in the node, we're thrilled to supply the latest expansion program.
Paolo Rocca: In Canada, we have been successfully repositioning our variation and extending our redirect program following the Canadian government's decision to impose a normal value on Chinese post-CTG and the investment we made in our SOSA Marine. LDLNG Canada and other LNG projects move forward. Operators are increasing their operations in the mountain shade, and we recently awarded a long-term rig direct contract to supply a major operator. We participated in the Sero Week conference last month, where we were able to share views on the energy transition and the prospect of the oil and gas market over the long term.
Paolo Rocca: In Canada, we have been successfully repositioning or variation in extending our rig direct program. Following the Canadian government decision to impose normal value on Chinese for CTG inputs.
Paolo Rocca: And the investment we made in our so summary.
Paolo Rocca: LNG, Canada and other LNG project moved forward.
Paolo Rocca: It also had increasing their operation in the Montney shale well.
Paolo Rocca: We recently awarded a long term rig direct contract to supply a major operator out there.
Paolo Rocca: We participated in the Cerro week conference last month, where we were able to share a view on the energy transition and the prospect of the oil and gas market over the long term.
Paolo Rocca: What came out of the discussion was the sense that a more pragmatic approach to the complexities of the transition is required, with a focus on reducing emissions using all means available across the energy industry and its value chain.
Paolo Rocca: What came out from the discussion with the sense that a more pragmatic approach to the complexities of the transition is required.
Paolo Rocca: With a focus on reducing emission using all means available across the energy industry in this value chain.
Paolo Rocca: At the same time, due to the enormous cost and complexity of the transition, oil and gas will continue to be required for many years to support the growing demand for secure, affordable energy, particularly from developing countries, and to support technological development such as artificial intelligence. This year, in the third quarter, when we have a seasonal slowdown in demand, we will implement a major investment and maintenance program that has been postponed over the last two years of intensive operation. This event will involve stoppages in our five steel shops and our main seamless rolling mill.
At the same time due to the enormous cost and complexity of their transmission oil and gas will continue to be required for many years to support the growing demand for secure affordable energy, particularly from developing countries to support technological development such as artificial intelligence.
Paolo Rocca: Yeah.
DCF in the third quarter, when we have a seasonal slowdown in demand we will implement a major investment in maintenance program that has been postponed over the last two years of intensive operations does it really will involve stoppages in our five shops and our main seamless.
Paolo Rocca: In Argentina, we will install an electric furnace that will be fed by a corn steel scrap reheating furnace and by our DRI. Once we complete our second wind farm in 2025, the new furnace will use 100% renewable energy to produce steel with a minimum level of carbon emissions. We will upgrade our copper-steel shop, installing a new backhouse system to reduce emissions. At several of our facilities, we are enhancing our capabilities to produce high alloy chrome products.
Paolo Rocca: Rolling Mills.
Paolo Rocca: In Argentina.
Paolo Rocca: We will install in electric arc furnaces that will be fed by a constrained scrap of reheating furnace and by our DIY plant.
Paolo Rocca: Once we complete.
Paolo Rocca: Our second wind farm.
Paolo Rocca: <unk> 2005, the new furnace will use at 100% renewable energy to produce steel with a minimal level of carbon emission.
Paolo Rocca: In the U S.
Paolo Rocca: We would have greater our corpus the shop, installing a new <unk> system to reduce emissions instead.
Paolo Rocca: Several of our facilities, we are enhancing our capabilities to produce higher Lloyd chrome products.
Paolo Rocca: Demand for these high-value products is, In Mexico, we will have the first major maintenance of our Thomson medium diameter rolling mill in four years, in addition to a maintenance shutdown that was. This investment will be executed within our previous CAPEX guidance, but it will limit, to some extent, our capacity during the second half. We are now ready for any questions you may have.
Paolo Rocca: <unk> for these high value products is growing.
Paolo Rocca: In Mexico, we.
Paolo Rocca: We'll have the third major maintenance of our Tam some medium diameter Rolling mill in four years.
In addition to a maintenance shutdown at OFC is the issue.
Paolo Rocca: This investment will be executed within our previous capex guidance, but they will limit to some extent our capacity during the second half.
Speaker Change: We are now ready for any question you may have.
Operator: As a reminder to ask a question, please press Star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press Star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Arun Jayaram from JP Morgan Securities, LLC.
Speaker Change: Yes.
Speaker Change: As a reminder to ask a question. Please press star one to one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one one again.
Speaker Change: Please stand by while we compile the Q&A roster.
Our rooms: Our first question comes from the line of our rooms, you're wrong from Jpmorgan Securities LLC.
Arun Jayaram: Good morning, Paolo and team. Gentlemen, I wanted to get your thoughts on... Trends in U.S. pricing. You know, we received the latest PipeLogic number, which did suggest continued declines in the 3, 3.5% range, and so maybe I was wondering if you could give us a sense of where your average selling price in 1Q trended to where leading-edge prices are per the PipeLogic Index and how does this impact your thoughts on 2Q in the back half of the year
Arjun: Good morning, Paolo and team.
Arjun: Gentlemen, I wanted to get your thoughts on.
Arjun: Trends in U S pricing.
Speaker Change: We received the latest pipe logic number.
Paolo Rocca: Which did suggest continued declines in the three to three 5% range.
Paolo Rocca: And so maybe I was wondering if you could give us a sense of.
Paolo Rocca: Your average selling price in one Q.
Paolo Rocca: Trended, where leading edge prices as part of the pipe logic index and how does this impact your thoughts on <unk> in the back half of the year.
Paolo Rocca: Well, thank you, Arun, for your question. You are right in the...
Speaker Change: Well thank you.
Speaker Change: <unk> for your question.
Speaker Change: You are right in.
Paolo Rocca: Looking at the decline in the pipe logic is a relevant factor. This is mainly due to increased imports in the United States, a soft view on the recount, and the volume... And this, to some extent, has been affecting. I would ask Luca.., to give us a view on the perspective of this for the next quarter and for the second half of 2024.
Speaker Change: Yes.
Speaker Change: Looking at the decline in the pipe logic is it relevant factor.
Speaker Change: This is mainly due to increase import and <unk>.
Speaker Change: At this stage.
Speaker Change: Some.
Speaker Change: Soft view on the rig count.
Speaker Change: And the volume.
Speaker Change: And this to some extent.
Speaker Change: Affecting but.
I would ask Luca to give us.
Luca Zanotti: The view on.
Luca Zanotti: The perspective of this for the next quarter end.
Luca Zanotti: For.
The second half of 2013 fourth okay. Yeah. Thank you Paolo good morning, Arun, Yes, yes, just picking up.
Luca Zanotti: Okay, yes, thank you, Paolo, good morning Arun. Yes, just picking up where Paolo was saying before.
Luca Zanotti: What Paolo was saying before I believe that in this Q1.
Luca Zanotti: I believe that in this Q1... First of all, looking at the spot price in one single month, like April, it really is not representative. We see pipe lodge readings that were better maybe in the past, and so I believe that we need a more long-term approach to these readings. But getting back to what Paolo was saying, here in the first quarter, what we saw is an industry that was expecting a little bit higher activity getting into the first and second quarters of 2024.
Speaker Change: First of all looking at the spot price in one single month like April.
Speaker Change: It really is not representative we see pipe lodging saving that or better maybe in the past and so I believe that we need a more long term approach.
Speaker Change: Two these two these ratings, but getting back to what Paolo as I was saying.
Speaker Change: In the first quarter, what we saw.
Speaker Change: And in this day that was expecting a little bit higher activity.
Speaker Change: Getting into the first quarter second quarter of 2024.
Luca Zanotti: And as a consequence, domestic and especially imports increased. So what happened is that distributors went out and started buying mainly from Korea, which had a reset of quotas, Taiwan, Austria, and Thailand. So the combination of slightly softer expectations for demand and higher imports led to this pressure on prices, and this will delay the stabilization of the pipeline. When it comes to our pricing, you always have to remember that we have a one-quarter delay between the pipe logic trading and the way it gets into our profit and loss. So you're going to see this even going forward.
Speaker Change: And as a consequence.
Speaker Change: Domestic and especially in parks are in.
Speaker Change: So what if any of that distributor.
Speaker Change: When <unk> start buying mainly form Korea that had the reset of quarters, Taiwan and Thailand.
Speaker Change: So the combination of a slightly softer expectations on demand and higher imports led to.
Speaker Change: These.
Speaker Change: Pressure on on.
Speaker Change: On prices and this.
Speaker Change: It will delay the stabilization of the biologics when it gets to our pricing you always have to remember that we have a one quarter delay between the pipe logic trading and.
Speaker Change: The way guests into our profit and loss so.
Speaker Change: You won't see D C van.
Luca Zanotti: Thank you, Luca.
Speaker Change: Going going forward.
Paolo Rocca: Great. And I wanted to see, Paolo, if you could comment on some of the maintenance activities that you've planned for the second half. Could you help us think about what kind of impact this could have, you know, on volumes? I mean, we've generally been thinking that the company could ship four million tons of product this year, but give us a sense of what kind of impact that could have in the second half.
Thank you.
Okay understood.
Speaker Change: Great.
Speaker Change: Sure.
Speaker Change: I wanted to see if you could comment on some of the maintenance.
Speaker Change: The activities that you plan for the second half could you help us think about what kind of impact this could have.
Speaker Change: To volumes.
Speaker Change: We've generally been thinking.
Speaker Change: The company could could ship 4 million tons of product this year, but give us a sense of what kind of impact that could happen in the second half.
Paolo Rocca: Well, as I mentioned in the opening remark, we have been working at full capacity for almost two years. And then... We will, too, take advantage of this slight reduction that we see in the recount and in the demand for concentrating some key interventions in our industrial system. Maintenance, but also we are focusing on some major investments from our point of view, which is the change in the furnace in Argentina and also investment in the other tea shop and in the finishing line of our mill in different parts of the world.
Speaker Change: Well.
As I mentioned in the opening remark.
Speaker Change: We were being working at full capacity for almost two years.
Speaker Change: And then.
We will take advantage of it.
Speaker Change: This is a lie the reduction that we see.
Rig count in the demand for concentrating.
Speaker Change: Sam P intervention on our industrial system part of this is maintenance.
Speaker Change: But also we are.
Speaker Change: Focusing on some major investment from our point of view, which is that the change the change in deferred in a scene.
Speaker Change: Tina.
Speaker Change: And.
Also investment in the others developing in the finishing.
Speaker Change: Nine of our mail.
Speaker Change: Different parts of the world.
Paolo Rocca: We can take advantage of this time for changing our profile in terms of emission, increasing our summation, and also cost reduction over time through this cycle of investment. As I mentioned in the opening remark, this will be in line with our forecast for CapEx in the range of 730 million during 2024. So there is no change with this. Our volume will be impacted only... last year.
Speaker Change: We think that.
Speaker Change: We can take advantage of this time for <unk>.
Speaker Change: <unk> our profile in terms of admission increased automation.
Speaker Change: And.
Speaker Change: <unk> DVT and.
Speaker Change: Also cost reduction over time.
Speaker Change: This cycle of investment.
As I mentioned in the opening eradicate these would be in line with our forecast for Capex in the range of 730.
Speaker Change: 30 million.
Speaker Change: Jewelry in 2024, so that is not changing what they said.
Speaker Change: Our volume will be.
Speaker Change: Impacted already.
Speaker Change: Seamless.
Speaker Change: To some extent.
Speaker Change: I would call it not something substantial.
Speaker Change: That will be impacted in our seamless component so the well the.
Speaker Change: It will remain at the level of last year Youll know.
Operator: Thank you. One moment for our next question. Our next question comes from the line of Alessandro Pozzi from Mediobanca.
Speaker Change: Third quarter is seasonally below overall, the volume will not be very different from last year volume, but with.
Speaker Change: Participation of welded higher than the participation we had of welded last year.
Speaker Change: Yes.
Speaker Change: Okay, great. Thanks, a lot.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our next question comes from the line of Alessandro Pozzi from Mediobanca.
Alessandro Pozzi: Good afternoon. Thank you for taking the time to answer my questions. The first one is on the outlook for the rest of the year. In the Q4 conference call, you mentioned an average EBITDA margin of 25% for the first half of 2024. And given that you printed 29 in Q1, it looks like you are potentially going to have higher margins in Q2. But then I was wondering, given that you have the stoppages in Q3, what should we assume for EBITDA margins in the second half of the year based on what you see, obviously, at the moment?
Alessandro Pozzi: Good afternoon, and thank you for taking my questions.
Alessandro Pozzi: The first one is on the outlook for the rest of the year.
Alessandro Pozzi: In the Q4 conference call you mentioned average EBITDA margin of 25% for the first half of 2024 and give you that as you pointed 29 in Q1, it looks like potentially you are going to have the higher margins.
Speaker Change: Thanks, you too.
But then I was wondering given that you have the stoppages.
Speaker Change: In Q C. What should we assume a.
Speaker Change: For EBITDA margins in the second half of.
Speaker Change: Based on what you see obviously.
Alessandro Pozzi: and also, my second question is on the ducks. So, we've seen those ducks halting since they've reached the peak, and I was wondering if that could potentially be a trigger for having a higher rate count at some point than the nine this year?
Speaker Change: And.
Also my second question is on the on the docks and we've seen that.
Speaker Change: Doug housing.
Speaker Change: They've reached a peak and then was wondering is that going to be potentially trigger for having that higher rig count at some point during the night.
Speaker Change: And this year.
Paolo Rocca: Well, thank you, Alessandro. What we expect is that our margin in the first half of 2024, as you say, will be slightly higher than we anticipated because we had a slightly higher margin. If you look at the adjusted EBITDA, it is in the range of 28 points something. We think that in the second queue we will have lower EBITDA than 25, but as a whole, on average, we will be slightly higher than. When we look at the second half of 2024, there is not so much visibility on price, but for what we are seeing in the evolution of the pipe logic, we should be prepared to enable a margin between 20 and 25. We don't know, let's say, yet how far the price reduction will go and also our reaction in terms of cost reduction that will accompany the pressure that will come. There are many pieces moving.
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: Sandra.
Speaker Change: What we expect.
Speaker Change: Our margin in the first half 2024, as you are saying will be slightly higher than we anticipated because we had.
Speaker Change: Slightly higher if you look at the adjusted EBITDA is in the range of $28 something.
Sandra: We think that the second Q, we will have lower EBITDA than 25, but as a whole on average we will be slightly higher than 25%.
Sandra: When we look at the.
Second half of 2024.
Sandra: That is not so much visibility on price, but for what we are seeing an evolution of the pipe logic.
Sandra: Should be prepare to an EBITDA margin between 20 and 25, we don't know, let's say yet.
Sandra: How far the price reduction will go and also our reaction in term of cost reduction that we are competitive pressure that we're feeling there are many pieces moving here one of the important piece is also Argentina recovery is oil and gas sector.
Paolo Rocca: One of the important pieces is also Argentina's recovery in its oil and gas sector. Let's say there is some uncertainty about the evolution of the recount. So when we speak about the second half of 2024, we are considering a range. It is very difficult to have, let's say, a number for a semester in which we will have different factors affecting our sales and our profitability.
Sandra: There are also.
Let's say some uncertainty about the evolution of the rig count so when we speak about the second half or $2.
Sandra: 74.
Speaker Change: We are considering it.
Speaker Change: Ranger is very difficult to have let's say a number.
Speaker Change: For SMS in Indonesia, we will have a different factor affecting that.
Speaker Change: Sure.
Speaker Change: Our sale and our profitability.
Paolo Rocca: On the question of... Yeah, so just in Q3, given the loss of volumes from Seamless, should we assume EBITDA margins more towards 20% just for that quarter? Thank you. We will have, as I was saying, still prices for the third Q are not entirely defined yet, you know, but if the reduction in the pie project is going on and imports maintain this level in the U.S., we will be slightly higher than what you are saying, but still close. Number, you are, you are, you are. And now... Talking about the duck and its possible influence on drilling, I will ask Luca to
Speaker Change: Yes.
Speaker Change: In Q3, given the loss of volumes from <unk> should we assume that EBITDA margins more towards the 20% just for that quarter.
Speaker Change: Thank you Sir.
Speaker Change: We will have.
Speaker Change: As I was saying is still the prices for the third Q or not being entirely defined yet.
Speaker Change: But if the reduction in the pipe logic is going on.
Speaker Change: An important maintaining this level in the U S.
Speaker Change: Maybe slightly higher than what you are saying, but still.
Speaker Change: Close to that.
Speaker Change: To the number.
Speaker Change: You are saying.
Speaker Change: Now.
Speaker Change: Talking about the DUC and the bulk of our influence on drilling I would ask Luca.
Luca Zanotti: to give us a view of the possible impact of this.
Speaker Change: Right.
Luca Zanotti: To give us a view of that.
Luca Zanotti: Yes, Paolo, thank you. Hi Alessandro.
Luca Zanotti: Possible impact of this yes, Pablo Thank you, Ohio Sandro.
Luca Zanotti: On the DAX, yes, you are right. In March 2014, according to the Energy Information Administration, we had a number for the DAX that was the lowest in the last 10 years. And for example, if you just go back 5-4 years, in Permian, we had 3,200 ducks, and in March, we had slightly less than 900. So you might think that here there is a potential upside, and you may be right. This upside is not in our forecast, and we may have it.
Luca Zanotti: And the docs, Yes, you are right.
Luca Zanotti: March 24, according to the energy information administration.
Luca Zanotti: We had a number of.
Luca Zanotti: <unk> said that was the lowest over the last 10 years.
Luca Zanotti: And for example, if you just go back $5 four yes.
Luca Zanotti: We added 3200 <unk> in March.
Luca Zanotti: Slightly less than nine out there. So you might think that there is a potential upside there and you may be right that these upside is not in our forecast.
Luca Zanotti: And.
Luca Zanotti: On the other hand, I do believe that the business model by which EMPs were building large inventories of DAX, given capital discipline, is no longer on the table. But you're right, there are two aspects that may play, on the upside, which is the number of ducks, one, and also the fact that with these lower rate activities, the U.S. is maintaining crude production above $13 million per day, which is pretty significant.
Luca Zanotti: And we may have it on the other hand, I do believe that the business model by which E&ps. We're building large inventory of the Axa given the the capital discipline is no longer on.
Luca Zanotti: On the table, but you are right.
Luca Zanotti: There are two aspects of it may play.
Luca Zanotti: On the upside of that which is a number with axa Wanda and it's also the fact that that.
Luca Zanotti: With this lower rate.
Luca Zanotti: It is.
Luca Zanotti: <unk> is maintaining.
Luca Zanotti: With production above the $13 million barrel per day.
Luca Zanotti: 13 million barrels per day, which is up.
Luca Zanotti: The significant.
Alessandro Pozzi: Okay, thank you very much. Bye.
Luca Zanotti: Sure.
Speaker Change: Okay. Thank you all very much.
Operator: One moment for our next question. The next question comes from the line from Marc Bianchi from TD Cowen.
Speaker Change: Thank you.
Speaker Change: One moment for our next question.
Speaker Change: Our next question comes from the line from Marc Bianchi from TD Cowen.
Marc Gregory Bianchi: Hi, thank you. I'd like to just first clarify, Paolo, if we could, the progression you outlaid on the margins. I think I heard that the second quarter could be below 20, 25 percent. The second half would be between 20 to 25, with the third quarter approaching 20.
Marc Gregory Bianchi: Hi, Thank you.
I'd like to just first clarify Paolo if we could.
Marc Gregory Bianchi: Progression you outlaid on the margins.
Marc Gregory Bianchi: I think I heard that second quarter could be below 2020, 25%.
Marc Gregory Bianchi: The second half would be between 20 to 25 with the third quarter.
Paolo Rocca: Did that capture it all?
Marc Gregory Bianchi: Approaching 20 did that capture it.
Paolo Rocca: Yes, in the first half, we will be slightly higher than 25, because we had a good first quarter. In the second half, as you are saying, for the visibility that we have, we will be in this range, and in the third quarter, because of the reduction in seamless, we will probably be above 20, but... I'd say slightly above 20, 20, 25.
Marc Gregory Bianchi: Yes.
Speaker Change: In the first quarter, we would be slightly higher than 25, because we are in we had a good first quarter.
Speaker Change: In the second half as Youre, saying total the visibility that we have we would've been in that range and in the third quarter because of the reduction on seamless we will probably be above 20, but.
Speaker Change: Let's say slightly above 22025, let's.
Marc Gregory Bianchi: Okay, that's helpful. Thank you. The press release talked about the Tenaris Shakur project that contributed to the first quarter. Could you maybe discuss how much of a contribution that was and help us think about what the maybe normalized contribution from that business should be as we progress?
Let's say what can be done today.
Speaker Change: Okay.
Speaker Change: That's helpful. Thank you can you use the press release talked about the temporary shock or <unk>.
Speaker Change: Project that contributed to first quarter.
Speaker Change: Could you maybe discuss how much of a contribution that was in.
Speaker Change: Uh huh.
Speaker Change: To help us think about what the maybe normalized.
Speaker Change: Contribution from that business should be as we progress.
Paolo Rocca: Thank you, Marc. You know, the Schuylkill business has ups and downs depending on large projects. It's a business that depends on relevant contracts for relevant projects. But I would ask Gabriel to give us a view on how we see... the prospect of Chocora for the foreseeable future, no?
Speaker Change: Thank you Monica, even though the FERC Roe business that.
Speaker Change: Yes.
Speaker Change: Pass absent down depending from the large project and noise.
Speaker Change: And the reason that the pain on the relevant contract for.
Speaker Change: Even the broader trend, but I would ask.
Speaker Change: Gabrielle.
Gabrielle: To give you a view on how we would see.
Gabrielle: The perspective of Shawcor.
Gabriel Podskubka: Yeah, thank you, Paolo. Yeah, good morning, Marc.
Gabrielle: For the foreseeable future, yes. Thank you Paolo good morning, Mark Yes, Indeed, the Shawcor has contributed importantly to the results of the first quarter.
Gabriel Podskubka: Yes, indeed, the shock core has contributed importantly to the result of the first quarter, given the last stage, the tail of a large concrete weight coating project in Mexico in the Altamira region. So this has had a contribution of about $80 million in revenue specifically in the first quarter for this project, which we will not carry further down in the year. But we are very pleased with the shotgun acquisition. The brand of Chocor is very well recognized as a global leader, and a global footprint of facilities, R&D centers, track record, and product knowledge that complements and strengthens very well the position of Tenaris in the offshore segment. That's a matter of fact, Paolo, and now...
Gabrielle: Given the last stage the tale of a large concrete wait coating project in Mexico in the Altamira region. So this has had a contribution of about $80 million in revenue specifically in the first quarter for this project that we will not carry forward.
Gabrielle: Further in the year, but.
Gabrielle: We are very pleased with the <unk> acquisition.
Gabrielle: The brand of Shawcor is very well recognized as a global leader.
Gabrielle: Our global footprint of facilities R&D centers to track record and product knowledge that complements and strengthens very well the position intervals than arris in the offshore segment.
Gabrielle: As a matter of fact Paolo announced.
Gabriel Podskubka: In the opening remarks, the recent order related to the insulation coating in the Guyana development, more than $100 million, or an insulation coating with good margins and contributions. So we expect the shocker business to continue, supporting revenues and our position in the offshore segment. I would normalize annual revenues in Shockor after this Altamira project in the range of 250 to 300 million dollars annually. This would be a running rate where we see short-term contribution going.
Gabrielle: In the opening remarks, the recent order related to the insulation coating in Guyana, the relevant more than $100 million or an installation coating.
Gabrielle: With the <unk>.
Gabrielle: Good margins and contribution so we expect the sugar business to continue.
Gabrielle: Supporting our revenues our position in the offshore segment I would normalize.
Gabrielle: And the annual revenue soon sugar after this altamira projects in the range of $250 million to $300 million.
Gabrielle: Annually this would be a running rate.
Gabrielle: Where we see shawcor contribution going forward.
Gabriel Podskubka: Thank you, Gabriel.
Speaker Change: Thank you.
Peter.
Marc Gregory Bianchi: Wonderful. Thank you very much. I'll turn it back.
Speaker Change: Yeah.
Speaker Change: Wonderful. Thank you very much I'll turn it back.
Operator: One moment for our next question. Our next question comes from the line of Dave Anderson from Barclays.
Speaker Change: Thank you.
One moment for our next question.
Speaker Change: Our next question comes from the line of Dave Anderson from Barclays.
Dave Anderson: Hi, good morning. I wanted to ask a bit about the Middle East and how that's going to impact your volumes, kind of thinking about kind of 25 and beyond. You just noted a two-year extension on the UAE rig direct contract, but I believe that contract has actually been, the volumes have been fairly slow because they've been working down a lot of the inventory. So I'm curious if you start to see that spike and start to pick up over the next couple of years.
Dave Anderson: Hi, Good morning, I wanted to ask a bit about that.
Middle East and how that's going to impact your volumes kind of thinking about kind of 25 and.
Dave Anderson: And beyond you just noted a two year extension on the.
Dave Anderson: On the UAE rig direct.
Dave Anderson: I believe that contract has actually been the volume has been fairly slow because they've been working down.
Dave Anderson: So the inventory so I'm curious if you're starting to see that spike is starting to pick up over the next couple of years and then secondarily you also mentioned unconventional.
Dave Anderson: And then, secondarily, you also mentioned unconventionals in Saudi, and that looks like a massive opportunity there. And I'd love to understand a little bit from your perspective on how you see that changing things. The Jaffa Wells, I believe, are quite a bit more OCTG-intensive than even U.S. onshore conventionals. If you could talk about those two markets, please. Thank you.
Dave Anderson: Saudi.
Dave Anderson: That looks like a massive opportunity there and I would love to understand a little bit from your perspective, how you see that changing things.
Dave Anderson: Four wells I believe quite a bit more <unk> intensive to meet in the U S. Onshore conventional if you could talk about those two markets. Please thank you.
Paolo Rocca: Thank you, Dave. Also on this question, I will ask Gabriel an overview of the Middle East in general and unconventional in Saudi Arabia, which we also share the view that is a very relevant development for Saudi Arabia and important for us.
Speaker Change: Yeah. Thank you Dave.
Speaker Change: Also on this question.
I'll ask again.
Speaker Change: Nowhere view for Middle East and Joanna and unconventional in Saudi which also we share the view that is.
Speaker Change: Very relevant development for Saudi and are important for US yes. Thank you Paolo good morning, Dave.
Gabriel Podskubka: Thank you, Paolo. Good morning, Dave.
Gabriel Podskubka: Yes, what we see in the Middle East is that drilling activity remains strong. We see continuous investment in the expansion of capacity, both in oil and in gas, with very positive momentum. Saudi clearly remains the brightest spot. During the last quarter, the Kingdom announced and revised upwards the target of gas production increase for 2030. Now they are targeting an increase of 60 percent; previously, the target was 50 percent. So we see that the drilling in gas, onshore gas, related also to the unconventionals that you're mentioning Dave, will more than offset the drilling in offshore rigs related to oil that were also announced during the last quarter. So, overall,
Speaker Change: Yes, what we see in the Middle East is that a daily activity remain strong.
Joanna: See continued investment and expansion of our capacity both in oil and gas with a very positive momentum.
Speaker Change: Saudi clearly remains a bright spot.
Speaker Change: During the last quarter of the kingdom announce and revised upwards.
Speaker Change: Get over gas production increase for 'twenty therapy.
Speaker Change: We are targeting an increase of 60% previously target was 50%. So we see that the drilling in gas onshore gas related also to the unconventional or that you are mentioning Dave will more than offset.
Speaker Change: The decrease.
Speaker Change: In the offshore rigs related to oil and were also announced during the last quarter. So overall <unk>.
Gabriel Podskubka: Saudi Arabia's strong level of activity also the CAPEX guidance for 2024 for the year of Saudi Arabia was given a range but, importantly, higher than 2023. So we believe that with the backlog that we have, with the position that we have in the country for OCDG and pipelines, Tenaris is well positioned to remain. Delivering strong shipments into the kingdom, The Emirates is also expanding. Paolo mentioned the extension of our... long-term agreement with Agnoc. We extended for another two years.
Speaker Change: The strong level of activity also the Capex guidance for 2024 for the year, Saudi was given a range.
Speaker Change: Importantly, higher than 2023, so we believe that with the backlog that we have the position that we have in the country for OCD pipelines. The analysis is well positioned to remain.
Speaker Change: Delivering strong shipments into the kingdom. The immediate is also expanding also mentioned the expansion of our.
Speaker Change: Obviously, a long term agreement with diagnostics.
Speaker Change: Send it for another two years, we had the chance to incorporate other coating services digital services and also expanded our dose range in the M&A, where we have our facility up and running so overall, we also see strength coming from the Emirates in the middle East and last but not least got that all.
Gabriel Podskubka: We had the chance to incorporate other coating services, digital services, and also expanded our dopless range in the Emirates, where we have our facility up and running. So overall, we also see strength coming from the Emirates in the Middle East. And last but not least, Qatar also, during the quarter, made an announcement about an expansion, a further development expansion for their LNG project. This is a Northwest field project.
Speaker Change: Also during the quarter made an announcement about an expansion of further development expansion or their LNG.
Project.
Gabriel Podskubka: These will require the drilling of approximately 50 production and injection wells. In Qatar, also, our long-term agreement with Qatar Energy LNG was extended for another three years. So this is a demand that we intend to meet this year. So with all this... plus the network of contracts that we have. We have very good visibility into 2024 and even 2025, and revenues in the Middle East, in the whole region, will keep the current high levels going forward. Thank you.
Speaker Change: Northwest fill project.
Speaker Change: This win.
Speaker Change: Require.
Speaker Change: Drilling of approximately 50 production and injection wells.
Speaker Change: <unk> also we're a long term agreement we've got that NRG LNG was extended for another three years. So these are the Amanda we intend to cover with you so with all this.
Speaker Change: Backlog.
Speaker Change: Plus the.
Speaker Change: Our network of contracts that we have we have a very good visibility into 2024 and even 2025.
Speaker Change: Revenues in the middle East in the whole region.
Speaker Change: The core and high levels going forward.
Paolo Rocca: Thank you, Gabriel. We are doing well in the region. It's also a region in which there is competition, and to some extent, some areas are also, I mean, prices are also perceiving, let's say, the competitiveness in our business.
Speaker Change: Thank you Gabriel.
Speaker Change: We're doing good inroads in the region is also a region in nature.
Speaker Change: There is competition and two.
Speaker Change: To some extent.
Speaker Change: Some area also.
Speaker Change: Prices are also.
Speaker Change: Okay.
Speaker Change: Ceding, let's say the competitiveness in our business okay.
Dave Anderson: Thank you, Paolo. If I could just follow up on that question. You have some capacity in Saudi Arabia itself, and I believe you have a seamless mill. I'm just curious, talk about a competitive advantage, that is certainly a competitive advantage of having production in-country. Would you expect to maybe build out that capacity? Do you expect to maybe expand the capacity of that facility in Saudi Arabia in order to improve your competitive position?
Speaker Change: Yes.
Thank you Paul if I could just follow up on that question.
Speaker Change: You have some capacity in Saudi and so until you have a seamless mill I'm just curious talk about it.
Additive advantage that is certainly a competitive advantage of having production in country would you expect to maybe build out that capacity do you expect to maybe expand that.
Speaker Change: Capacity of that facility in Saudi in order to improve your competitive position.
Paolo Rocca: We are developing plans for expansion, you know, in this sense, even the SSB is listed on the local market, and the expectations are very high also from the investors. But, Gabriel, you can give us some indication of how we can make it grow, the position we have, and the activity that we have in Saudi Arabia, which is extensive.
Speaker Change: We are.
Speaker Change: The veteran and plans for expansion.
Speaker Change: These sensor even that.
Speaker Change: SSP is least of it.
Speaker Change: In the local market and this presentation.
Speaker Change: At a very high also from the Investor but.
Speaker Change: Gabriel you can you can give us some indication on how we can.
Speaker Change: Make.
Speaker Change: Grow.
The position, we have and the activity that we have in Saudi.
Gabriel Podskubka: Yes, of course, we monitor capacity levels with demand expectations. So far, with the finishing premium capacity that we have in Kingdom, we feel comfortable to accommodate this demand, and this is something that we continue to monitor. The same is true for the welded DRW.
Speaker Change: Yes.
Gabriel Podskubka: We monitor capacity level.
Gabriel Podskubka: Demand expectations so far.
Gabriel Podskubka: Finishing premium capacity that we haven't given them, we feel comparable to accommodate this demand and this is something that we'll continue to monitor the same on the on the <unk> Avenue.
Gabriel Podskubka: And on the GPC, the new recently acquired facility, we are expanding; we are, at this point, commissioning our second line, which roughly will double the capacity for pipelines and conductors in the kingdom to accompany the trunk lines and expansion of oil and gas transmission in the Kingdom. So we are certainly willing and capable of expanding capacity in the Kingdom as we see need for it.
Gabriel Podskubka: Capabilities and the GPC, New recently acquired facility. We are expanding we are at this point commissioning our second line, which roughly will double the capacity for five benefit conducts dose in the kingdom to a company there.
Gabriel Podskubka: Trunk lines.
Gabriel Podskubka: On the expansion of our oil and gas.
Transmission in the chemo. So we are certainly willing and capable of expanding capacity being the gigawatts.
Gabriel Podskubka: Yeah, we are preparing for a pension of the... Gas Master Plan that should go on in Saudi, but hopefully, I mean, the new line and so will, let's say, increase capacity, but this will probably be later on, at the beginning of 2025 or so.
Gabriel Podskubka: As we see need for it yes, we are preparing for the expansion of the.
Gabriel Podskubka: Gas Master plan that should go on in Saudi but hopefully I mean, the new line or so.
Gabriel Podskubka: Let's say increased capacity, but this will be for <unk> and later on.
Gabriel Podskubka: At the beginning of 'twenty five or so.
Dave Anderson: Great. Thank you very much, gentlemen. Have a good day.
Speaker Change: Great. Okay. Thank you very much gentlemen.
Operator: Thank you. One moment for our next question. Our next question comes from the line about Luke Lemoine from Piper Sandler.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our next question comes from the line of Luke Lemoine from Piper Sandler.
Luke Lemoine: Hey, good morning. Luca, you've given us various pieces, kind of a U.S. geography lesson, but could you just talk about your activity outlook and what you think maybe the recount will do for the balance of the year and what conversations with customers you like about activity levels?
Luke Lemoine: Hey, good morning.
Luke Lemoine: Luca you've given us various pieces kind of a U S land, but could you just talk about your.
Luke Lemoine: Activity outlook, and what you think maybe the rig count will do for the balance of the year.
Luke Lemoine: What conversations with customers, who like on activity levels.
Luke Lemoine: No, sorry, I didn't understand the first part. Can you repeat, please, to be clear on the question?
Okay.
Speaker Change: Sorry, I didn't understand the first part can you repeat please to be clear on that yes sure.
Luke Lemoine: Just asking about, you know, you've talked about imports into the U.S., but if you could just talk about general activity and how you see that unfolding for the balance of the year within U.S. soil.
Speaker Change: So the SaaS thing about you talked about tax imports in the U S. If you could just talk about general activity.
Speaker Change: And how you see that unfolding for the balance of the year within U S land.
Paolo Rocca: Yes, yes, I understand, on US land. Chiare, also Luca.
Speaker Change: Yes, yes, I understand on the on your guys' land.
Speaker Change: Yes.
Speaker Change: Also.
Paolo Rocca: Which is your view on the basic level of activity that we may expect? U.S. from your point of view.
Speaker Change: Luca.
Luca Zanotti: What is your view on basic level of activity that we may expect.
Luca Zanotti: Yes, thank you, Paolo. Good morning, Liu.
Luca Zanotti: From your view, yes, thank you Paolo.
Luca Zanotti: Look, as we look forward, what we see is certainly some weakness on the dry gas side. But with these gas prices, we don't see this increasing. Actually, we see this probably going down a bit from where we are today, but the importance of the share of gas drilling in the U.S. is limited. So, what we expect is some weakness over there that is going to be offset by some upsides on the oil side.
Luca Zanotti: But look as we look forward, what we see is <unk>.
Luca Zanotti: Certainly some weakness on the dry gas side.
Luca Zanotti: <unk>.
Luca Zanotti: Gas prices, we don't see these.
Luca Zanotti: Zynga actually we see these probably going down.
Luca Zanotti: Beta pharma, where we are today.
Luca Zanotti: But.
Luca Zanotti: The importance of the share of the gas drilling in the U S.
Luca Zanotti: Limited so while we expect some weakness although they are that there is going to be offset platform one upside some upsides on the oil.
Luca Zanotti: In general, we see flattish drilling activity going through 2024. But this is what we see today. We don't know how this will progress in the second half. There are many factors at play in this case, and we need to go a little bit ahead in the year to give a more firm view on that.
Luca Zanotti: On the oil side in.
Luca Zanotti: In general we see flattish drilling.
Luca Zanotti: Drilling activity going through 'twenty 'twenty four but this is what we see today, we don't know how the answer will probably are asking in that in that.
Luca Zanotti: Second the Alpha there are many.
Luca Zanotti: Factors at play in this case.
Luca Zanotti: And we need to go a little bit ahead in the Europe will give a more firm.
Paolo Rocca: Thank you, Luca. Frankly, from my point of view, with this price of oil in WTI, the level of uncertainty and volatility in the market, and perhaps a further reduction in the interest rate in the States, this is also an important factor. I think that in oil... If the interest rate is going down in the second part of the year, there should be a pickup or stabilization first, but also maybe a pickup of the level of drilling, you know, but we will see, as Luca is saying. A little early today in an electoral year to have an evaluation of what will happen in the second half of the year. Thank you, and look forward to seeing you.
Luca Zanotti: Are you on the second second half of the of the year, Yes. Thank you Luca.
Luca Zanotti: Frankly from my point of view with this price of oil and the WD.
<unk>.
Luca Zanotti: On Saturday and volatility in the market.
Maybe a further reduction in the interest rate in the states.
Luca Zanotti: This is also an important factor in this.
Luca Zanotti: I think that in oil.
Luca Zanotti: There should be.
Luca Zanotti: First rate is.
Luca Zanotti: Drilling down in the second part of this would be.
Luca Zanotti: Yeah.
Luca Zanotti: If the cap or stabilization first but also maybe a pickup of the level of drilling but the we will see is look I think it's too early.
Luca Zanotti: Early today in an electoral year to have an evaluation of what we have been in the second half of 2000.
Speaker Change: Thank you <unk>.
Luke Lemoine: Thanks very much.
Speaker Change: Okay. Thanks very much.
Operator: Thank you. One moment for our next question. Our next question comes from the line of Joseph Charuy from Bank of America.
Speaker Change: Thank you one moment for next question.
Speaker Change: Our next question comes from the line of Joseph <unk> from Bank of America.
Joseph Charuy: Hi gentlemen, and congratulations on a solid set of results. Two questions from me.
Joseph: Alright, gentlemen, and congrats for summit set of results two questions from me.
Paolo Rocca: So net cash now sits at $3.9 billion. If free cash flow is to remain solid across the year, is it safe to assume that the buyback program needs to continue post-November? And if so, could we even see a step up in the run rate above your current $300 million a quarter? Secondly, and again, talking about U.S. onshore, as we see some consolidation via M&A, how has your market share evolved, and how much extra tonnage does this represent?
Joseph: So net cash now sits at $3 9 billion.
Joseph: Free cash flows to remain solid across the year is it safe to assume that the buyback program needs to continue post November.
Joseph: If so could we even see a step up in the run rate above your current $300 million a quarter secondly.
Joseph: And again I'm talking about U S onshore as we see some consolidation via M&A, how is your market share evolved.
Joseph: And how much extra tonnage does this represent.
Paolo Rocca: Thank you, Joseph. Well, on the first part, you know, we enter into our buyback program. This is not a decision. It is a decision that will have to be taken by the board in due time. We have a large cash position and, as I was saying, a very solid free cash flow, even considering the investment and the commitment that we have. This will be taken into consideration. Also, we will, as we have said in the past, always look at the options.
Joseph: Yes.
Speaker Change: Thank you Joseph well on the first part.
Speaker Change: You know we entered into our buyback program is another decision is the decision that we will have to be taken by the board.
Speaker Change: In due time.
Speaker Change: We have a larger cash position and as I was saying is very solid.
Speaker Change: Free cash flow, even considering an investment in the committee and the rehab.
Speaker Change: These will be kept into consideration and also will we.
Speaker Change: We say in the past.
Paolo Rocca: But I would say that if there are no major changes, it is likely that this program may proceed. On the second point, we don't usually give information about market share, but Luca, you could elaborate a little on our position. Decent Vibes
Speaker Change: Always look at the option.
Speaker Change: But I would say that.
Speaker Change: There are no major change.
Speaker Change: It is likely that this program May proceed.
Speaker Change: On the second point, which is that we do.
We'll give you information about market share and usually.
Speaker Change: Luca.
Speaker Change: Operator, let alone our positioning.
Speaker Change: In this environment.
Luca Zanotti: Yes, good morning. On consolidation, obviously, we don't provide sensitive information, but what I can say, Joseph, is that our presence with our redirect model in the large operators is very strong. So we have been benefiting from the consolidation, and if further consolidation is going to happen, we're going to continue benefiting from this consolidation in this segment. Now, bear in mind that in some cases, we are already on both sides of the transaction in terms of supply.
Luca Zanotti: Yes, good morning on the consolidation obviously, we don't we don't provide sensitive information about what I can say Joseph is.
Luca Zanotti: Our presence with our read the Reg modular in the large operators.
Luca Zanotti: He is very strong so we have been benefiting from the consolidation.
Luca Zanotti: And if further consolidation is going to happen that way.
Luca Zanotti: Going to be continue benefiting from fraud.
Luca Zanotti: From this consolidation on the on this segment now bear in mind that in some cases, we are already on both sides of the of the transaction in terms of supply. So you wouldn't need to take these.
Luca Zanotti: So you wouldn't need to take this at face value because this would be misleading. But certainly, consolidation has benefited us, and if further consolidation happens on this side of the market, this will continue to benefit us. Yeah.
Luca Zanotti: Face value because.
These will be misleading, but certainly consolidation that has benefited us or any further consolidation would have been.
Luca Zanotti: On this side of the market that these will continue benefiting us.
Luca Zanotti: Thank you, Luca. To some extent, the consolidation may be one of the reasons why the recount is stable in spite of the relatively high level of the price of oil. It is more understandable. But in my view here, the company is taking time, because these consolidations are also announced but are not really executed in some cases because they still need authorization. So, let's take time, and we will see. The logical thing will be for us, the project, to recount over time to reflect the deployment of this consolidation into a more active level of activity, especially if, as I was saying before, interest rates go down to some extent.
Speaker Change: Thank you Luca and to some extent the consolidation may be one of the reason why the rig count.
Speaker Change: Steve on his face.
Speaker Change: Really high level of.
Speaker Change: For price, so annoyed I am not saying gasoline, which is more understandable.
Speaker Change: But he may view here it is.
Speaker Change: The company is taking a time because also these consolidation I don't know.
Speaker Change: <unk>, but I don't know that <unk> executed in some case because it still they need.
Speaker Change: <unk>.
Speaker Change: So, let's take a time and we will see logical thing will be for us.
Speaker Change: <unk>, two <unk> larger than rig count.
Speaker Change: Over time.
Speaker Change: To reflect deployment.
Speaker Change: These consolidation.
Speaker Change: In in a more active level of activity, especially as I was saying before interest rate to go down to some extent.
Joseph Charuy: Okay, thank you. It's well understood.
Speaker Change: Okay. Thank you well understood.
Operator: As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Our next question comes from the line of Luigi De Bellis from Equita SIMS.
Speaker Change: Thank you.
Speaker Change: As a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced until withdraw. Your question. Please press star one one again.
Speaker Change: Our next question comes from the line of Luigi de Bellis from <unk> Sim.
Luigi De Bellis: Good morning, thank you for taking my question. The first one is about South America.
Speaker Change: Good morning. Thank you for taking my question. The first one is on the South America. So you mentioned, the political and economic volatility affecting that PBT. So can you elaborate on the expected trend for the coming two quarters seen Argentina, and Mexico, even in terms of rig count.
Luigi De Bellis: You mentioned the political and economic volatility affecting activity. So can you elaborate on the expected trend for the coming two quarters in Argentina and Mexico, even in terms of recount expectations? And the second question on pricing. So what is your pricing evolution in your margin outlook for the coming quarters? And when do you expect the bottoming out of pipelogic prices? And you performed very, very well in terms of cost in Q1. How much room do you have to improve the cost structure in the coming quarters? Thank you.
Speaker Change: And the second question.
On the pricing so what is your pricing evolution in your margin outlook for the coming quarters. When do you expect the bottoming out of the pipe logic prizes.
Speaker Change: Are you performing very very well in terms of cost in Q1, how much room do you have a tool to improve the cost structure in the coming quarters. Thank you.
Paolo Rocca: Thank you, Luigi. The first point is South America. Argentina, after the change in the government, the stabilization plan underway has been successful in terms of reducing inflation, reducing the country risk substantially, almost halving the country risk. Now the government is in the process of asking for approval of a very relevant set of laws in Congress. If they succeed in this, these laws include specific treatment for large projects and a hydrocarbon law that, in my view, will stimulate investment.
Speaker Change: Thank you.
Speaker Change: Luigi the his point on South America.
Speaker Change: But.
Speaker Change: Argentina after the change in the government.
Speaker Change: This stabilization plan underway successfully in term of reducing inflation.
Speaker Change: Using the account III risk.
Speaker Change: So essentially almost a halloween.
Speaker Change: <unk> now the government is in the process of.
Speaker Change: Asking for approval of <unk>.
Speaker Change: Very relevant set of lows in the Congress.
Speaker Change: If they succeed in this.
Speaker Change: Set of low include.
Speaker Change: Specific.
Speaker Change: Treatment for large project.
Speaker Change: And in hydrocarbon law.
Speaker Change: They're in my view will stimulate investment in the sector. So.
Paolo Rocca: So, we are in a kind of standstill while... Everybody is waiting for understanding of whether the government is able to get approval for transformational laws like the one they are proposing today in Congress. Once this is done, and I think it will be done, I think that the company will... move on. It will take time.
Speaker Change: We are in a kind of standstill.
Speaker Change: While.
Speaker Change: Everybody is waiting for.
Speaker Change: Standing is the bonus able do it too.
Speaker Change: To get approval for a transformational low than they were.
Speaker Change: One data.
Speaker Change: Proposing.
Stay in the Congress.
Speaker Change: Once this.
Speaker Change: And I think will be then.
Speaker Change: And I think that a company with.
Speaker Change: Move on it will take time.
Paolo Rocca: I would expect that in a positive... environment, starting in the beginning of 2025, we will see actual action, because today the rig count is probably slightly lower than last year. There are marginal rigs that are not operating, but there is new equipment coming in to Argentina moored from the U.S., raising the level of activity, but we will see this, in my view, fully reflected during 2020. At the same time, there are activities for the evacuation of oil and transportation of gas.
Speaker Change: It affected in a positive environment starting in the beginning of 2025, we will see actual action because today the rig count has dropped.
Speaker Change: The slightly lower than last year that I would imagine a rig not operating but.
Sure.
Speaker Change: New equipment coming in to Argentina.
Speaker Change: More from the U S as saw in preparation offer.
Speaker Change: Raising level of activity, but we will see this in my view for enduring 25 at.
Speaker Change: At the same time that our activity for the evaluation of oil and transportation of gas. This is a project that in the case the law for large projects is approved there will also be put in motion now to put in more from the projects that kind of financing private financing organizing all of these.
Paolo Rocca: These are projects that, in the case the law for a large project is approved, will also be put in motion. Now, to put in motion a project, find the financing, private financing, organizing all of this, will take time. So, again, I think this will, we will see, let's say..., and acquisition of key inputs, in the beginning of 2025. Not so much during, while Brazil is growing. Brazil is moving on. It has a program for developing resources.
Speaker Change: Well.
Speaker Change: It takes time so again.
Speaker Change: This will we will see.
Speaker Change: Let's say.
Speaker Change: Real activity.
Speaker Change: And acquisition of <unk>.
Speaker Change: Key inputs.
Speaker Change: In the beginning of 2025.
Speaker Change: Not so much during the <unk>.
Speaker Change: Coming quarter.
Speaker Change: Brazil is growing but it is moving on.
Speaker Change: It has a program for developing.
Paolo Rocca: Resources are rich, so I think this is more predictable. We're gradually moving on in developing deep water reserves and increasing the level of risk. Venezuela is what it is; only Chevron will be allowed to continue to operate, and we are serving, in fact, Chevron and Venezuela, but it's a relatively limited set of operations. Colombia is going down because of the policy adopted by VETRO. Still, the number of rigs must be 10% below the level of rigs last year and may be reduced even further. Mexico, from Mexico
Speaker Change: It's also sir.
Speaker Change: It's a ratio so I would say this is more predictable will gradually moving on in developing the deepwater.
Speaker Change: They serve and increasing the level of rigs.
Speaker Change: Venezuela is what it is on the Chevron.
Speaker Change: <unk> will be allowed to continue as operator, and we are serving in fact Chevron Eni.
Speaker Change: But he has a relatively limited set of operation.
Speaker Change: It won't be as going down because of the policy adopted of IV. It at all.
Speaker Change: Still.
The number of rigor must be at 10% below the level of regular theater and may be reduced even further.
Speaker Change: Mexico.
Paolo Rocca: The level of operation of rigs in Mexico is basically going down slightly in waiting for the change in the government. The new government will have to define the policy of PEMES, probably refinancing or restructuring PAMEX, and deciding afterward.
Speaker Change: So in Mexico.
Speaker Change: The level of operation of Reacceleration in Mexico is basically going down slightly in waiting for the change in the government.
Speaker Change: The new government will have to.
Speaker Change: Defined policy for Panamax, probably refinancing or.
Speaker Change: Restructuring.
Speaker Change: David of.
Speaker Change: Panamax.
Speaker Change: And deciding after the construction of the <unk>.
Paolo Rocca: The construction of the refinery that is almost completed in Dos Bocas will decide which will be the next stage of development for Pemex. Also, I expect in 2025 we will see a stable or increasing activity. It would be very logical with this price of oil and the need for Oil and Gas Development in Mexico. The new government will assume office in December of 2019. This is an overview of Latin America.
Speaker Change: Refinery that is being almost completed in does walk us, we decided which will be the next stage of development for Pemex also this I expect in 2025, we will see a stable or increasing activity.
Speaker Change: <unk>.
Speaker Change: It would be very logical with these price.
Speaker Change: Oil and the need of.
Speaker Change: Oil and gas development in Mexico.
Speaker Change: He will assume in December of <unk>.
2024.
Speaker Change: Overview for Latin America.
Paolo Rocca: The second question is the bottling up of the pipe logic. Basically, it depends on imports. Imports, some of this is unfair, trading conditions have been getting in this quarter. I don't know if this is going on... We will see similar volumes of imports, but I would expect the pathologics to level off, to level the same by the middle of the year because If there is a, let's say... Slight reduction in imports. The level of inventory will..., could go down slowly, and this will allow the level of...
Speaker Change: The second question is that.
Speaker Change: But on an apples a fibrotic basically really depends from inputs impulse at some ods and unfair.
Speaker Change: Trading condition has been to get anything in this quarter.
Speaker Change: I don't know if were going on.
Speaker Change: We will see similar volumes of <unk>.
Speaker Change: Important, but I would expect that.
Speaker Change: Pathologic.
Speaker Change: The level up to <unk>.
Speaker Change: Level.
Speaker Change: Let's say by the middle of the year.
Speaker Change: Because of that.
Speaker Change: If there is a.
Speaker Change: Right.
Speaker Change: Let's say.
Speaker Change: Slight reduction in import.
Speaker Change: The level of inventory of Wil.
Speaker Change: Could go down slowly and that.
This will allow the level offered.
Paolo Rocca: If I have a logical, to level. In terms of cost, you are right that we had a positive quarter. The cost we are considering the reduction in projects, we are launching specific action all around our system to contain variable direct and indirect costs.
Speaker Change: Their favorite artist to level off.
Speaker Change: In terms of cost you are right that we have been.
Speaker Change: We had.
Speaker Change: Positive quarter.
Speaker Change: We are.
Speaker Change: Considering the reduction in favorite RJ, we're launching specific action all around our system to contain a variable direct and indirect costs.
Paolo Rocca: We expect that this will help us.
Speaker Change: Okay.
Paolo Rocca: We expect that this will help us to contain the reduction in the pale pelagic and to defend our margin, especially in the second part of 2024.
Speaker Change: We expect that this will help us.
Speaker Change: Contain the reduction in the pace for logic and to defend our margin.
Speaker Change: Especially in the second part of 2024.
Giovanni Sardagna: Thank you. At this time, I would now like to turn the conference back over to Giovanni Sardagna for closing remarks.
Speaker Change: Thank you Paul.
Paul: Thank you at this time I would now like to turn the conference back over to Giovanni <unk> for closing remarks.
Giovanni Sardagna: Well, thank you Gigi and thank you all for joining us on our conference call. See you soon.
Giovanni: Thank you Gigi and thank you all for joining us.
Giovanni: Conference call and see you soon thanks.
Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: [music].