Tenaris S.A. (TEN) Earnings Call Transcript & Summary

Well, good morning, everybody, and welcome to Tenaris investor presentation. Thank you very much for joining us today. We are very happy to be back in London after quite a long time. Before we start, I would like to remind you that during the event, we will be discussing forward-looking information and that our actual results may vary from those expressed or implied during the event. Quick introduction on the program for the day. We will start with a short video on our operations and services around the world, and then we will move on to a presentation by our Chairman and CEO, Paolo Rocca, together with our Chief Operating Officer, Gabriel Podskubka; and the President of our U.S. operation, Luca Zanotti. After the presentation, we will have a Q&A session. And for that, we will also have Alicia Mondolo, our Chief Financial Officer; and Guillermo Vogel, Vice Chairman of our Board of Directors. After the Q&A, for those of you who wish to stay, there will be light lunch that will be served just outside the theater, and we hope you can stay and join us. So that's all for me. We can now start the video. [Presentation]

Well, good morning to everybody and pleasure for me to have the chance to come back to London. Thank you to all of you for coming for our Investor Day. Let's start with the, let's say, something that is embedded in the video you have seen and one of the messages we want to convey. The first one is the relevance of the sector in which we are the pipes for the energy business. Everything related to energy requires pipes. From the reservoir to the platform, from the reservoir to the surface, transportation of hydrocarbon and gas and refinery processing unit, transportation then of the product all around. So pipes are in the core of the energy system. There are no technology that can, let's say, substitute pipe and is a critical part of the energy of the core because the risk involved and associated with transportation, evacuation from the field, and extraction are high. So we want to convey this to understand where Tenaris stands. In this environment, which pipe are essential, Tenaris occupy a central place in it. Tenaris is an absolute leader, is different from any other company and is focused on this. For us, what is essentially, and is a big driving force for our results also, is the dynamic of the energy sector, in particular, of oil and gas. Oil and gas are the center and the variable that is so key for us. Now we're positive. We -- when we look at the program of all the countries, the situation on the environment in the different, let's say, countries in their endeavor to follow a path to energy transition. But at the same time, we see the constraint that this is there. And our vision is that basically, we will have oil and gas growing to some extent and then picking and maintaining a high level of production and demand in the future. Here in this slide, you'll see basically data that we are extracting from the Exxon last report that are showing the expectation of Exxon in the metrics -- in the energy metrics from now until 2050. As you can see, and we share this view, the oil and gas will increase in the period by around 15% between now and 2050. We'll pick at the beginning of -- the oil will pick at the beginning of -- for the 30s. But then the need in absolute term of oil and gas is expected to increase until 2050 even if the share on the overall metrics go down from 56% to 54%. Within this world of oil and gas, gas will take a highly -- slightly larger share of this and oil will go down. Obviously, all the renewable will increase very fast at the expenses of coal. This is the expectation of the Exxon. The International Energy Agency in the steps projection has a similar view. It's not very different. The reduction in oil and gas is stable in absolute term, but the share in the matrix is going down. This is, in our view, -- this is reflecting our view, the increase in population from 8 billion to 10 billion in this period. The need of giving access to energy to a large vast area of population, almost 50% of the world population doesn't have access to a standard minimum energy requirement. 700 million people do not have access to electric energy. So in these metrics, you will see a reduction in the CO2 emission by around 25% in an environment in which the demand for energy is increasing by 15%. This is the reference that we are using for our planning environment. We all need to address the climate change and to find a path to energy transition. But we think that this will be occurring in a progressive way. And on this, we are planning our -- let's say, our strategy, our investment. When we look at the expenditure in oil and gas, the investment in new oil and gas production, we have to keep in mind the level of decline. Declination has changed over time. 10 years ago, we were looking at declination rate in the range of 8% -- 7% to 8% based on conventional field. Now the increasing share of the shales has changed this. Today, declination rate is much higher, between 13% and 15% per year. So you see in the graph on the bottom, if just the world stop investing, the blue area is showing what may happen. The drop is very sudden and strong. Now maintaining investment in the existing field still between now and 2050, you will see a substantial reduction in it. Our world, the world of the new resources project and investment in the green area is the area in which our market is concentrated. We need to look at this. It's true is a relatively stable market, what we have in front of us. But we have also to consider that the declination rate may increase even further in the coming year. And the space there will be the need, for instance, of more wells, more drilling, the space for our market could be expanding over time. We think that this is what will happen. The more we go on, declination rate will increase, the need of the CapEx may increase. In the graph on the top, you have the level of CapEx expected until 2030, relatively stable. But when we look ahead, we should assume that the level of CapEx, these are in nominal terms, should be increasing if we want to be able to maintain and to satisfy the increasing demand of energy. Now this is our world. This is the world we have in front. And in this world, Tenaris is an absolute leader. It's different from any other company. There are no competitor that has the same level of global reach worldwide, presence in many country, investment in the industrial structure, a portfolio of product complex and extent than the one we have and a component of service aggregated to our supply of pipe. Also from environmental performance, Tenaris is possibly the lowest carbon emitter in our world. So the company is not comparable to any of our competitor or any other company acting in this. This is important because we have to keep in our work, in our investment program and so this leadership in this world will be driven by energy, will be driven by pipe, will be driven by level of declination and the demand, but in this world, we want to continuously invest to maintain this absolute difference, the differential position that we have. I will invite Gabriel Potzkowska, Chief Operating Officer, to get into this aspect of our differentiation to make it more clear.

Thank you, Paolo. Good morning, everyone. It's a pleasure to be here. And as Paolo suggested, let's go a bit deeper into these 5 points that he introduced. These are intrinsic capabilities, competitive advantages that Tenaris developed over time, and are the key of our successful strategy. So we start with our industrial system. What makes Tenaris industrial system unique. The first aspect is our global footprint, okay? We are operating in 15 countries, but these are not isolated operations. This manufacturing facilities integrate into one management system, okay? This is a key aspect and very distinctive aspect to any of our competitors. We produce and deliver about 10 million pipes every year. All these 10 million pipes are manufactured and delivered to our global customer base under the same quality system, under the same quality standards. It's also worth to mention that all the thousands of order items that we receive every day from our customers are processed, planned and organized in our manufacturing system centrally. So that means that we are able to allocate in the different manufacturing mills, the different order items that we receive in order to minimize total cost for Tenaris, reducing logistics, certainly, matching the delivery times and contractual commitment. So we have a central planning for the organization of the supply chain. This multi-mill setup provides a unique reliability, a unique security of supply, which is very important, especially in a world of geopolitical disruptions and risks and also supply chain disruptions as we have seen in the last year. Another very distinctive aspect of industrial system of Tenaris is its ability to bring innovations, to adopt the newest technologies into the manufacturing system. As Paolo mentioned, CapEx, in the range of $600 million every year. The core of that CapEx programs go into our industrial system to keep it up to date, to keep it modernizing. We have many examples of innovations across our multiple plants. I think one that is a flagship is the Bay City Mill in -- the seamless mill in Texas, okay? This is the most modern, the most fully automated plant in the world. We have more than 8,000 sensors, about 30 robots, making it a plant that is really distinguished and unique, okay? With this level of automation, we arrive to world-class levels of lead time and efficiency. To give you an idea, in this plant, from the steel bar to the finished product, we finished a pipe in a few days. The standard in some legacy mills in the industry is measured in weeks, okay? This is particularly important for our redirect model in the U.S. Another aspect of labor productivity and efficiency. In this plant, given this level of automation, we typically have a labor component, a manpower component that is 80% lower than any other comparable mills in the states, okay? So we created something very unique. How do we do that? Besides the financial investment, certainly, a green project that we invested $1.8 billion at the time, but there was a lot of Tenaris proprietary knowledge into this. We had proprietary knowledge into the design of the layout, lean manufacturing. We have also our engineers involved in the design and the construction of the critical machines and also all the work and experience done from our R&D process into process control, quality, fully automated equipment that is installed in this plant, okay? So this is a -- has created a great advantage out of the many that we have. We are also -- I think we announced in the last conference call that we are ramping up the new Consteel furnace in Argentina. This is something that we inaugurated last month. It's another example of innovation. This requires Consteel proprietary technology of a sister company, Tenova. This is really a game changer in steelmaking, as it allows to reduce energy consumption, allows to reduce consumables which are the cost in steelmaking transformation cost, okay? So these are just an example of the innovations that we have in our industrial system. Last aspect that I want to also bring to your attention is the progress that we have done in digitalization. Over the years, we have invested a lot in digitalizing our industrial system. Today, in some of our plants, we are already able to link each pipe to its manufacturing journey. That means capturing all the critical process variables, capture the tooling associated with the manufacture of that pipe and use and make -- take advantage of this data. Today, with the models of Big Data, we see big potential in our ability to correlate this information and further find optimization inefficiencies in our industrial system, okay? So this is just as a summary of the key points. So the industrial system of Tenaris has been and continues to evolve to be a key pillar of our strategy. I will move on to the second point, which is related to the product portfolio. I think some of you that have followed Tenaris for some years, this is not new for you. I think we have a consistent track record of bringing many innovations into our industry. The Dopeless technology is being one of the main innovations that we brought to market that today has become a standard, for example, in the offshore industry, okay? And all these innovations are built by our team of in-house R&D. We have a team of about 350 engineers, scientists, people that are in the front end, in the face with the customers in the regions, also in our R&Ds, contributing and giving inputs, finding new products, new solutions for the new challenges of the future. Today, we are working on 180 product development projects from concept design to customer qualifications. So we have a broad portfolio. Maybe just comment on one of them to give you an idea of how this works and the challenges that our engineers are working, which is the so-called 20k projects. These are projects in the ultra-deepwater Gulf of Mexico, maybe you heard some of them that you follow the oil service industry, but this is one of the most challenging projects. We have 2 super majors trying to extract oil from these ultra deep waters. Imagine that you need to go through water depth of 5,000 feet. And from the seabed, you need to go another 30,000 feet. The pressures under there are 20,000 psi. These are the so-called 20k projects. I don't know if that tells you much, but the car tires that we have in our cars are 30 psi, so this is 20,000 psi to give an idea. So the loads at our toolers and connections are subject too in these conditions are really extreme, okay? And we need to design and manufacture pipes tailor-made dimensions with ultra high collapse resistance, even designed new connections for this type of extreme applications, okay? And all this has to be tested full scale to assure field performance, okay? This is just one of the 180, one of the many. Some of them are niches. Some others are more massive, like the work that we are doing to help our customers, for example, in the shale environment, reach the 4-mile laterals that they want to reach with special connections. To give an idea of the impact of this R&D, you know that OCTG is our main product line in Tenaris. About 75% of our revenues of OCTG are of proprietary products, either grades or connection that have been developed over time through our R&D and product development programs, okay? So this is quite relevant. These capabilities are not only for OCTG are extending to our whole portfolio of products. In line pipe, for example, we are also advancing in many things. And from that point of view, the addition of Shawcor has been instrumental as Shawcor coating services. Probably you're aware, it's a company that we acquired this year that is an absolute leader with a solid track record, patents and products. in the field of deepwater coating as well. So this we are also preparing for the new segments of clean energy. We are already testing. We're already helping the users define the new standards for the clean energy, the hydrogen, geothermal and CCS. This is today covering a reduced part of our sales, but we are ready and well positioned for when and if these segments pick up into the future, okay? So overall, a very comprehensive product portfolio. If we move along, service integration. I believe the video did a good job in a very visual descriptive about the Rig Direct process and the integration along the supply chain. Let me give you just a figure to give you about the reach, the breadth that we have accomplished over the years. Today, 70% of our OCTG sales globally are under the Rig Direct model, okay? We manage a network of 43, 44 service centers all over the world, arriving directly to the rigs. The number of rigs that we serve last month, 530 globally. Consider that today, we have in the world, 1,700 rigs operating according to the BakerHughes rig count, okay? So we are already serving 530 out of the total. So this is quite significant. This is a model that over the years has gained traction in many regions. Customers see a lot of value. They see the simplicity in the supply chain. They see the security of supply. Tenaris is taking care of all the tubular supply chain until the well site. Pipes, accessories arrive just in time, ready to run and with full digital traceability. This has a lot of value. This reduces working capital and makes the operation safer, okay? So this is very important. And we also have field specialists that are supporting the installation of the pipes with the proprietary tools on-site or monitoring. And this also assures well integrity, which is another value that the customers give high value to, okay? And this is a performance of our service in the OCTG. In the pipeline business also, there is a service potential, but as the business is completely different, we have -- it has developed in a different way. If you look at the pipelines, the majority of the operators, there is a clear trend in the industry to shorten the period from appraisal to production, okay? To shorten the lifetime of the project. This has been in the past, typically 5 to 6 years. Now the majority of the operators -- oil and gas operators are targeting 2 to 3 years, okay? This is what fast track used to be an exception is more to the -- more than rule than the exception. And this put immense pressure of all the suppliers that are trying to comply with these new needs. The average response to this need is what we call One Line, which is a service that is entailing a dedicated project team that is coordinating the supply of tubulars, coatings, bends and accessories, which are an integral part and in the critical path of the supply chain of this project. This is very important. We get involved very early even in front-end engineering and design, we reserve capacity and we allow flexibility for changes that are normal in these type of projects along the design until the setup is based. So this is One Line. It's a different concept of service that we're bringing into the pipelines world and is gaining traction, okay? So these are some of the examples that give us a high degree of integration with our customers. Let's talk about a bit, Paolo introduced the concept of environmental performance. As you can probably have read in our sustainability report, within environmental management, we cover several topics: Air quality, water management, climate change, circularity. But let's focus today on decarbonization, which is probably one of the aspects that has more relevance and more attention, okay? The first point that I want to make, you see the chart, is that our 1.18 tons of CO2 per ton of steel is the lowest in our field, okay? This is the ratio that we have for 2023. We compile and publish this every year, and this has been the lowest. We have made a commitment that we will reduce our intensity in the carbon footprint by 30% into 2030 based on the base of 2018. You see 2018, 1.43. We have a target of 0.98 and we are walking the talk. We are already halfway into the targeted reduction by 2030, okay? Many actions at the different level, operative level, investments as well. You see there $700 million in a continuous investment program. One that I think you've heard before, it was the wind park, the first park in Argentina. It's fully operative, has given -- is achieving great level of performance, and we have already launched the second wind park that we will inaugurate later next year. By the time that this is completed, 80% to 90% of the electricity needs of our Siderca in Argentina will be covered all by this renewable energy, okay? So we are doing fundamental steps. Another point that is worth to mention is that in the pipe making, steelmaking accounts for 70% of the emissions, okay? So Tenaris has already a structural advantage since our 5 steel shops use electrical furnaces, different from blast furnaces, which typically are more widely used in the world of steelmaking and have a higher carbon footprint, okay? So this is also giving us a strong advantage. It's worth to mention that you see the line is kind of flat in the last 3 years, and this is -- or we have made progress in all the different color components. The top one, the pink one is the one that has even increased. This is related to the mix of welded. The mix of welded products has increased in the last few years. You probably heard some of the successes that we have in many of the pipelines. These are welded products. In this case, we don't melt our own steel like we do in the seamless. So we procure hot-rolled coils and plates. And typically, the carbon footprint of these players is higher than ours, but out of transparency, we need to incorporate theirs in our Scope 3 emissions and incorporate that. So this is sort of penalizing our progress because of a greater welded product. So we are working on that front as well. We have a few suppliers like Nucor in the U.S. or Hadeed in Saudi Arabia. They have a better than average footprint. And this is something that has also in our radar and in our attention, okay? So this is an area that we are making progress. We absolutely feel that we're going to reach the target. And this has not only been important for our environmental performance and our industrial performance, but this also has been highly recognized by our communities and by our employees, especially the younger generations, give a lot of value on working for companies that care for sustainability, okay? In terms of customers, we have to be honest to say that we don't have customers today that are explicitly putting a value on our lower carbon footprint but there is an increasing exchange of information. So at the end, I think with due time, this is going to give us a concrete value, but it's already today positioning Tenaris as a clear leader also in this dimension, okay? Let's go to the last point, global reach. I think Paolo alluded to this at the beginning. Tenaris is present in more than 37 countries, has a unique global footprint and is virtually present in every oil and gas basin that is relevant in the world. If we look at the OCTG demand in the chart, as you can see, has been, if we look at the long series, hovering around the 15 million tons per year. And if we look at 2024 and 2025, we see a slight reduction as you can see there, driven mainly by a reduced level of activity in the U.S., the green component from 5.5 to 4.8. This is quite remarkable. It's known that the drilling activity in the U.S. has decreased in the last year or so. But on the other hand, the oil and gas production has maintained at very high level. So there has been a very important increase in productivity, at least there is a reflection point or a question mark if this is sustainable in midterm. And Luca will give us some color later on, on the dynamics on the U.S. market. If we look at the international front represented in blue, I think this is something that you probably have listened to in the conference calls, Middle East investing. The offshore, also in a good positive cycle. So we expect on the international front to the demand to continue to be there at high level compared to the past. And in the Latin America, which is another very important market for Tenaris, appears to be stable at 0.7, 0.8. But in reality, we know that the political and economic uncertainty in Latin America has not been easy. In some countries, has been a factor. Argentina, Mexico, Colombia have probably been operating at levels that are below their full potential. So Paolo, as usual, he will share some insights about Latin America shortly and see what expectations to have into the future. I think with this, we can conclude and let's see, Luca on the U.S. and Canada.

Thank you, Gabby. Good morning, everybody. So let's talk about the U.S. now. U.S., obviously, and there's nothing new to you, is central to our strategy and in general, to the energy, say, dynamics. U.S. and Canada are the largest producer of oil and crude 25%, even they are the largest exporter of LNG. And they are going to be increasing this dominance going through 2030 with an addition of 13 billion cubic feet per day, which will double the extra capacity of this range. Now what is important to Tenaris because Tenaris is the leader in this space. There is no other company, not only in our sector, but even in the service company that can show a level of penetration that we can see in this space. Now what is that again is happening in the United States. Consolidation. You see we have gone through a number of consolidation recently. And this is very beneficial to Tenaris because as Gabriel was anticipating before, we are tied with the largest operators. Just to give you a color. Today, if you rank the U.S. operators by a number of rigs operator, you're going to find out that 10 companies are responsible of 45% of pipe consumption. And our position with these guys, and I'm going to go back on the why, but our position on these guys is very, very strong. Very other service company can explain this kind of competition with these guys. Now this company are also important because through acquisition, they have been putting together the best assets. And this is clearly a good prospect for the long term because these guys in the end, having accumulated the largest number of Tier 1 locations are the ones that are set for being more successful going forward. Now question is, what is going to happen to the rest of the market? So far, this consolidation has brought to a very high efficiency. If you look 2029, you see the market 5.5 million; 2024, 4.8 million. The market in terms of consumption went down 15%. But when you look at the rigs 2019, 1,000 rigs. Today, roughly speaking, 600 rigs. 40% decrease in rigs but only 15% decrease in market. Now is this sustainable? Well, this is a big question mark. Because Tier 1 locations are very concentrated, and there are many operators in the United States that don't have these locations. So we expect, over time, that these guys will have to start drilling more to maintain their production to a certain level. So we may see this a little bit reverting further on as the shale gets more mature. How did we get to this position? Through services. And again, the video showed the services we've done. But the United States is the place where we somewhat, I wouldn't say part of it because the rig are ready. Rig Direct was already developed in other countries, but we brought this concept to a bigger scale. Today, 90% of what we sell in the United States in terms of OCTG is sold Rig Direct. And 50% is sold under the condition of RunReady. And all the well integrity services that Gabriel was explaining before, are well advanced with our major customers. Obviously, this provides an element of differentiation. There is nobody else that can replicate this because of the nature of the industry. Traditionally, the industry has reorganized the mill distribution, the CBD cruise that goes to the well, all the services that run around the rig and then the running company. Well, we are doing everything up until the pipe is delivered into the well. Now there is no other company that can put everything together because they are all different companies and organizing this complex supply chain is going to be almost impossible unless you manage it all as one company. Now trade. Trade is obviously an opportunity and a threat. If you look at the chart, you clearly see that the level of imports compared to the total size of the market is 40%, while in the rest of the steel products, this number is 20%. So one could say why this big difference? Well, there are many reasons, but certainly, we are working to reduce this gap. And if we reduce this gap, this is going to give us and all the domestic industry additional space to go, which are the initiatives that we, as a domestic industry, are entertaining right now. Well, you know what happened with Korea -- sorry, with Thailand. Thailand has been found that they have 2 producer that were bluntly cheating. They were Chinese pipe bought to Thailand. In some cases, they were extensive. In other cases, they were really coming, already extensive made in Thailand and ship them over to the United States. Now in this case, those company -- actually, the importer of the record of the company, is going to have to pay the antidumping duty and the countervailing duty, which go the 2 together well above the 100% mark, starting from February 2024, which is the date in which we filed this petition. As a result, you didn't see any Thai import coming in for quite some time already. Other things, Austria. Austria, up until June 2024, was enjoying a very particular situation in which they had access to a Tier 2, which was the quota that was given to the U.S., to the Europe through the negotiation on the global agreement on sustainable steel. But also, they had an additional quarter of 90,000 tons. Now from June on, this additional quota is no longer there. And as you see, imports from Austria came down to a level of 5,000 to 6,000 tons per month, which is more manageable. And noticeable is that this action is on seamless pipe, which is the core of our production. Obviously, we are working on it. There is a space. And we believe that any administration is going to be keen in working on defending domestic manufacturing. It is also a threat because if we are not successful in reducing the level of imports, well, then we're going to have to reduce our footprint in the least effective or efficient plants, which we're going to bring a saving on the cost side because we're going to be eliminating the marginal relevance. So this is, in a nutshell, the United States. Obviously, I'm available for questions when we're done. And I believe that I turn it back to Gabriel for the offshore.

Thank you, Luca. For that, let's go into the offshore. This is the segment where it's very important for Tenaris. We have seen investments in the offshore ramping up in the last 3 years. We see the level of FIDs, final investment decisions, at record levels in the last decade. So we have every indication to see that this is going to be a positive multiyear cycle for the offshore. As you can see there in both charts, the top one being the offshore exploration well CapEx. So basically, in a way, including the OCTG spend in the offshore. You see the trend of investment going up and sustaining in 2025-2026 at high levels. The bottom chart, an indication is another source, an indication of the pipeline installation activity in the offshore. We are also seeing an increase in this years, a sustained high historical levels, okay? So every indication about the strength of the cycle. Another important learning from this chart is that the complex component is increasing over time. In the top chart, you see the, I don't know if you were able to see, but deep water is red. The red component has a mix of total CapEx increases. In the bottom, in the pipeline installation activity, deep water in red, ultra deep water in blue is also increasing over time, okay? So we're getting deeper, more complexity, this high technical complexity, critical risk management. Remember on the fast track. Also, this serves Tenaris and is advantageous for Tenaris. Tenaris is a partner of choice for these complex technical developments, okay? We have many examples, both on the OCTG and the pipeline side. Just to mention some of the interesting pipelines that we are working on. Last month, for example, we completed shipments for North Field Expansion pipeline, 330-kilometer pipeline in Qatar, devoted to the expansion of LNG in that country. Very sour, very harsh conditions that are involved in sophisticated specifications. Immediately after, we started the production of a new challenge, [ Erea ] export line in Brazil, 220 kilometers of an export line to reporting gas from the deep waters -- ultra deep waters of Brazil into the shore. Again, sophisticated and demanding specs, concrete coating and very also sophisticated internal coatings that we are producing and we will produce probably during the next 3 to 4 quarters. We're also working on the seamless side, and important pipelines. We are manufacturing and delivering as we speak, seamless pipeline for Sakarya, deepwater development in the Turkish Black Sea. It's very complex pipes, demanding specifications, specialized coatings, bents, accessories. We're working with the main EPCs in that part of the world. And this is some of the concrete examples that we have that Tenaris has been selecting as a partner of choice in these demanding applications. And this goes back to the point that Paolo early introduced. These concrete examples, these pipelines are at the corner store of enabling energy development. At the end, these are pipelines are supporting global energy needs, LNG needs and also increased domestic energy in important economies like Brazil and Turkey. This is also true in the OCTG space. We have long-term agreements with the most demanding offshore applications. We are present in ExxonMobil, Guyana's development with our conductors, our Dopeless casings. We're also delivering our Wedge 600 series to all the majors in the deepwater Gulf of Mexico. We are serving from our base in Angola, full strings with Rig Direct services to all the majors operating in the part of West Africa. In Brazil, we also have contracts for connectors in the -- Brazil and also for corrosion resistant alloys completion. So Tenaris is very well positioned to take advantage of this positive offshore cycle. This is a profitable market, advanced products and technologies. And this is a segment that has been growing over time, reaching today 20% of the total revenues of Tenaris, okay? So this give you an idea how we are well positioned for this segment into the future. I would move into Middle East. I think it's clear the agenda of the major governments of the Middle East, to utilize the vast oil and gas resources, to modernize, to develop their economies. This is increasing domestic demand in addition to the traditional exporting role of energy that this region had. We see this happening in traditional conventional fields, but we also -- the Middle East moving dynamically into new areas, into new challenges. To give you some examples, Saudi Aramco moving into nonassociated gas, production of unconventionals in Jafurah. We see ADNOC in Abu Dhabi as well starting a program of unconventionals, moving to sour gas fields to fulfill their expectation of self-sufficiency in gas and also to feed their new LNG trains. We also see Qatar, as we mentioned before, and a massive expansion of their drilling campaign since they have lifted the moratorium a few years ago. They have continuously kept a high level of drilling activity for gas in the Arabic Gulf. And Tenaris is present in all these areas. Another component that is very important in the Middle East is the local content, okay? Besides the technical complexity helping the governments and our customers promote the local development is something that is very high in the agenda for all our customers in the region and as such, Tenaris has moved consistently in that direction. Last year, we acquired GPC, our second welded pipe facility in Saudi Arabia. Earlier this year, we inaugurated our state-of-the-art threading, finishing facility in Abu Dhabi that complements the service center that we have there to serve on a Rig Direct basis. And also, we are working on other initiatives in other parts of the Gulf. So overall, this technical superiority together with local deployment have allowed us to have long-term agreements with al lthe major NOCs in the Middle East. So we see the level of activity high continue at current levels. Probably we don't see a further expansion on drilling activity, but the majority of the areas that we're covering are keeping a high level of drilling activity, and Tenaris is well positioned to take advantage of the position in Middle East. So we expect Middle East to continue to be resilient and important area for Tenaris into the future. Paolo, we'll go to Middle East, nobody better than you to explain this.

Yes, comment on Latin America. Latin America, the overall volume in Latin America in the range of 800,000 tons is not big, but our market share in Latin America is very high. It's very high in all of the regions. So we are very relevant. This is a region that is very relevant for us. And in the last few years has not been particularly dynamic. We had the growth in the offshore that Gabriel was mentioning, in the Guyana region with Exxon, extraordinary development. Also, Petrobras in Mexico. We have seen outside in Brazil also in -- I mean, there's been activity in the offshore. But when you look at the traditional driver investment like Pemex in Mexico, there has been slow down level of activity. Starting with Mexico. In Mexico, Pemex today is producing around 1,000,000 point, the country, 1.8 million barrel a day, 7% less than last year. The level of debt and the financial situation in Pemex is very complex. This has had an impact on the level of activity. Now with a new government, a new President, looking ahead, we think there should be a reset in the approach to the financial situation of Pemex. And this will be something that we will see and has an impact probably in 2025, not so much 2026, more likely. The private area, Woodside is investing in Trion, and we are supplying the key component of complex offshore process. When you go down Colombia, for the decision -- political decision taken, we see a slowdown in the level of activity, and we do not expect any substantial rebound. Brazil is different. The combination of Petrobras and private action like Equinor will expand the level of operation in -- especially in the offshore. The onshore is relatively limited compared to the potential of the offshore. But we can expect in Brazil, additional drilling, and have a question come in line coming to the cost for increasing supply of gas would be very rational to proceed in this direction. Brazil will be moving on this. In my view, the potential -- the larger potential for the region comes from Argentina. There is no doubt that the potential of development of Latin America is huge. There are 3 directions in which Latin America could expand. One production of oil. Today, Latin America is producing around 500,000 barrels a day. It should arrive around 1 million by 2030. It's very logical. It is efficient in terms of capital investment, would make a lot of sense. This is one way of developing. The second way is gas for the region. The demand in Brazil, in Chile and the integration at the regional level would also make sense. The level of price of gas in Brazil today is much higher 3x, 4x, depending on the season of the price in Brazil, in Argentina. There is logic of this integration, especially now that Bolivia is going down. And the reserve in Bolivia are going down, and the policy will not increase exploration in this. The third area of development is a potential LNG. Condition may become favorable for this, but this is a medium, long-term development. You do not expect that this could take place fast even because it's the complexity of design, financing offtake and so makes this project very relevant product, but for a different time horizon. Now in my view, this is the area in which Latin America has not been strong driving force for Tenaris in the last 2 years. Well, in 2023, we had big pipeline. So not bad, but in 2024, this has not been a big driving force. I expect this to increase in Latin America mainly in Argentina, but not only in Argentina, in the coming 2025, 2026. So it's an area that could be an engine for driving growth in -- for Tenaris. Now I think we get here to the final blocks on the basic number of Tenaris. After this, let's say, review of the strength and the difference of Tenaris. In my view, Tenaris is difference on any other company. Also, from the point of view of the profitability, the potential that has been shown in the past and also what we can do in the future. Here, you have a panoramic view of, let's say, the last 5 years and the first semester in 2024. Our business is cyclical. When the OPEC+, the shales, the war, the geopolitical issue are affecting price of oil, move our business follow, as I was saying at the beginning, follow the dynamics of energy, no doubt. But in the last 2 years, you see that the impact of our repositioning -- or our positioning in the United States, the new mill basically established. The acquisition that we made in the last 5 years are showing a potential that we see also in the top line. There has been -- 2022 and 2023 has been a record year for Tenaris, no doubt, but it's also showing a structural positioning of the company and the strength that we -- of our position in the United States, in Canada, in the offshore and in the different region in product and in the industrial excellence. In the first half of 2024, we see a reduction in our top line. It is also a reflection of the lower level of Pipe Logix. Pipe Logix due to the impact of import in the United States, went down by 55%. So our top line is reflecting the impact of the Pipe Logix drop. Now Pipe Logix, in the last months, start to stabilize. In my view, arrive to stabilize at the present level. This is important. What we expect for the next semester between July and December is probably the floor of our performance. Volume will be around 10% below the volume of the first semester. The top line will be in the range of 15% below of the previous semester. And the margin, I was guided between 20% and 25%. I think we will be in the middle of this range, and we will be able to stay in the middle of this range. You can see that this will be basically a floor for looking also into 2025. 2025, there are potential upside. There are the ones that we commented. But this is what we can expect beyond this. When you go down, you see the EBITDA and the EBITDA adjusted margin, very strong performance in the 2 record year. The 27 in the first semester. And as I was mentioning, reduction in the next -- in the semester -- in the second semester of 2024, but within the, let's say, the approximate limits that I was mentioning. Solid operating income and solid net income. The return on equity has been strong. And when we look at the financial performance, this is also reflecting the level of differentiation, the continuous effort in developing segment of higher margin. We also have segments like fracking in Argentina. There are not exactly in our -- in the center of our pipe business, but are contributing to this overall search for higher margin segment, and this contribute to these results. In the -- when we look at what we can expect in the future, there is also -- we have to consider we have a reduction of our cost plan for cost reduction underway. This is based on many multiple points, concentrating a more efficient facility, reduction of shift in some of the area in which we have inefficiency of lower productivity, redesign of our supply chain from the procurement point of view. We have the action in this area and action in productivity, efficiency, automation. Gabriel was mentioning, but our research and process is working on how we use Big Data, artificial intelligence and so to contribute to our process improvement. Our cost reduction plan is basically a set of action on many different areas, but is contributing to the support of our level of margin. When we look at the cash flow, you'll see a company that has a very strong cash flow from operation. The position -- net financial position is -- has been increasing over time. Today, we have a net financial position, there is, let's say, very substantial. Capital expenditure will be in the range between $600 million and $700 million, depending on, let's say, specific project that we maybe carry on in our path to transformation, modernization and research and development. But we do not expect major issue. When you look at company with integrated steel producer, you have the relining the coke -- the coke furnace and the coke oven and the different areas that require substantial investment. In our case, we completed with Bay City, the new furnaces in Siderca, a substantial plan of modernization. During these months, we are doing the start-up and everything is doing pretty well. So after this step, we will maintain capital in this range. Now there, we always look for opportunity for growth. We need to identify area in which we can expand and leverage our position. Our position worldwide is very strong, but we are continually looking for opportunities for leveraging our position in areas in which we can make investment. If we do not identify areas in which we can have investment, we need to continue to increase our distribution of results to our shareholders. You see that the dividends has been increasing. And we started the buyback in the decision in 2023 and 2024. This is our approach. We will maintain a conservative approach in the financial position of the company, but we are aware that if we cannot identify a clear target, we'll have to continue in this path that is reflected in this increase. This is a company that is, let's say, even in the, let's say, floor condition that we may have in the next -- in this semester, is able to generate cash. And this is giving to the company the possibility and the option of understanding where we can invest for expanding our operation or if we do not identify a clear target to enhance our distribution to the shareholders. This is something that does not depend for the management, but will be considered by the Board. I think we can close here and open for questions. The key message that we wanted to transmit are our confidence in the energy sector, the key and essential role of pipes in this and the leadership and unique position of Tenaris in this market. This is a unique company for the different aspects that we contemplated and that we explained. I would stop here and leave open for any questions. We will be all here to respond on this.

There is a microphone. Yes?

Arun Jayaram from JPMorgan. I'd love to hear about your buildup of your demand forecast. You talked about maybe 500 kilotons of growth. I think 200 of that is between China and Russia. But talk us through what your -- the buildup of that model, what you're thinking about internationally because there are some concerns around international spending growth next year?

Well, the...

I think he was referring about this slide.

You were looking at this slide. When we -- when the conflict started in the invasion of Russian, Ukraine, we thought that maybe the ability of Russia to redirect export of oil could have been limited. Reality is that when you look at the reality, the combination of Russia and China and the support one of each other has been able to, let's say, preserve the level of activity in Russia. And this is what you see here in the demand for pipes. Russia and China are maintaining this level. Now today, the situation in China, as you all know, slowdown in the economic activity is creating excess capacity in every segment of the industrial system from the renewable to the steel to any other area, and all the world is reacting to this. The slowdown in the dynamic of China is also having an impact in the demand for oil as part of the, let's say, the relative weakness of price in oil. I think it's difficult to predict in the complex geopolitical environment, which will be, let's say, this -- the dynamics of drilling and the demand also of pipes in the China and Russia environment in this. What we are more focusing on, we have a plant in China, but we supply a very small niche of this, very special niche, not massive production. And we concentrate on the, let's say, on the area of U.S., Canada, Latin America and all the rest of the world and the Gulf. So I don't think we will recover access from -- as a company to Russia and China to a substantial level in the coming years because the geopolitical situation do not allow us, I think. Remember, we had activity in Russia, but today we're basically forced out from it.

Marc Bianchi from TD Cowen. I'm curious about capital allocation going forward in terms of -- you've done a lot of M&A over the past 15 years. But it seems like in some markets, you might be bumping up against your ability to do more M&A within your traditional business lines. How are you thinking about the opportunity set for M&A outside of traditional business lines? And how does that play into capital return?

I think that we have an extraordinary position in terms of global reach, in terms of development, industrial capability service. We developed a model that is unique in the field. But up to now, we didn't identify clear target outside our precise scope on which we can leverage. And we will move only if we understand clearly the perspective of it. So for the time being, I think our M&A could be limited to acquisition like, for instance, Shawcor, the size of which is not substantial. There is contribution to our technological position but not, let's say, a game changer for the company. That was the reason why I also mentioned our vision of capital allocation between potential investment or, let's say, flows of resources to the shareholder. I don't know if this is -- but we didn't identify up to now, clearly, let's say, synergic areas in business that could be obviously related to energy, but that has, let's say, point of contact with our capability.

The one specifically that I was thinking of, I think it was mentioned, Gabriel, on having everything but tubular running. So is that something that could make sense? Or is it just from an industrial perspective, wouldn't really add anything?

No, I think we should remain focused, this is my point. I mean...

Yes, we analyze at some point.

We analyze it, but I think the strength of the company has been focused. We open up to, for instance, fracking, but in a situation like Argentina, in which we have a presence from a service point of view that is a clear competitive advantage. But we could not do this in different United States in a different market. We are not considering today.

Alessandro Pozzi, Mediobanca. You come a long way since you listed over 20 years ago and certainly improved the industrial efficiency of your sites. Clearly, the quest for efficiency is not over. And I was wondering what are the next key investments that you envisage to further improve your industrial footprint, reduce cost and basically improve the profitability? The second question is on Argentina. You mentioned there's going to be potentially quite a lot of opportunities there. I think the rig count come down a little bit in the last few months. But can you give us a sense of what could be the scale of the opportunity there in terms of potential rig count, in terms of potential volumes that you can achieve in Argentina in the next 2 to 3 years if indeed, this growth towards the 1 million, 1.5 million happens?

Well, on the first part, there is huge potential of productivity increase. Our system, 57 plants all around the world are acting or in some case, in parallel, in some case in series, operating in different process. Automation, robotics, and so we are continuously investing this. It's not something you do immediately on total scale. It's progressive. And this is transforming the industrial system. There is a lot of work on this. And there's a lot of work on process improvement. We have, let's call it, waste of material lead time. There is, let's say, largely in area in which process control could really change the way we act. And also, we have investment -- we are considering investment that maybe transforming some of this plant. It's a chain of intervention or a combination of intervention, like the furnace in Argentina intervention in the range of $100 million, $150 million. The wind farm, $200 million. This is the range. There is kind of, let's say, coherent with the $600 million, $700 million that are not far from our depreciation that is $600 million. So we are in this rate. When you look at Argentina, Argentina, if Argentina reached 1 million-barrel a day in 2030 in oil, you can imagine that from 30 rigs in Vaca Muerta could increase to 45% or 46%, increase by 50%, 60%. This could be, let's say, the need, the level of activity that may support a platform of production at higher revenue, but there is also investment in pipelines. You know there is one Vaca Muerta under study and there are other pipelines then also needs to enhance evacuation capacity from the 500,000 barrels a day today to the 1 million. 1 million is a reference because it's achievable within a period of time, but it's not the final limits of it. The Vaca Muerta reality may support even more than this. The point is always condition from the point of view of the economic, political and social circumstances in Argentina that need to be, let's say, supportive of larger investment. These are, let's say, the size of what we can expect for the -- but the resources are big. And so potential for development is important.

What is the volumes that you produced for Argentina in 2023?

Well, the volume, we don't give specific data for country in this. But let's say, last year, overall revenue in Argentina are very important number in the range of 2 billion, in the last year, in '23, when we completed pipeline. This year will be much lower because we have no substantial pipeline in 2024.

It's Mick Pickup from Barclays. Obviously, a lot of what you've been talking today is increasing complexity of product, higher automation, lower costs. So can you just put your medium-term hat on and say you're thinking there's a floor at the moment. Where do you think margins can get to in that medium term?

I think we will -- we are having results, let's say, that gradually gets into our profit and loss. We mentioned in the range of $200 million that we were expecting of saving within 1 year from the last conference call. This is basically where we are focused. Now at the same time, we are identifying other areas of investment for the next cycle. We completed 1 cycle of planning and investment that should arrive at these results within basically by the middle of 2025.

It's James Ley from Rystad Energy. I'm just wondering when you look at the M&A side, are you guys considering or exploring moving into kind of like for CRA OCTG, so kind of nickel alloy super duplex manufacturing or potentially like on the line pipe -- the alloy line pipes, the cloud mechanical line pipes? We see very strong demand outlooks there with places like Qatar and Brazil. Is that an area that's attracting your attention as well?

It's important, but I will ask Gabriel to summarize our position in all the CRA and the high CRA.

Yes, indeed, we see what you see, a high demand for CRAs and for 13 chromes and super 13 chromes as well, different grades of stainless. On the CRA front, we have a strategic alliance with Alleima used to be Sandvik Tubulars, which they have been increasing capacity as well. So we expect the alliance to continue expanding capacity according to the needs of the market. And as you are mentioning, we are stepping up our capabilities. They are stepping up their capabilities. We're well positioned in ADNOC in Qatar, in Brazil and some of the other areas that are requiring the CRA. This is also an expectation of demand on CCS. If the demand of CCS picks up, there's a high degree that the completions on CCS would be on the CRA side, okay? So we are very much in tune and working, not with an M&A, but in a strategic alliance on the CRA. When you go back to the 13 chrome and super 13 chrome, there, is an area where we have invested heavily in the last 3 years to step up our steelmaking and manufacturing of pipes of these special grades that are mainly used in offshore and sour service conditions for completion. So this is a capability that we have developed. At the same time, we have a strategic alliance with JFE in Japan that complements our own capability. So between the support of our ex-partner in NKKT and the facility that we had as a JV in Japan, plus our development of our own internal capabilities, we are pretty comfortable that we will be able to continue to increase shipments as we are doing and our position in this segment. So this is -- it's a niche within the global of Tenaris, but this is a growing importance, both the CRA and 13 chrome, and this is something that we are addressing.

During the presentation, you touched on the situation of the U.S. imports. Could you please update us on how you see the situation about your, say, exports from Argentina and Mexico into the U.S.? Because it seems that the U.S. government has reopened some of the proceedings, the appeal is ongoing and so on.

I think, Luca, you can answer.

Yes. I mean, briefly speaking, I mean, you saw what's happening on the import side. I believe that there is still work for us to do import on the welded. So far, I mean, the target was basically seamless -- or seamless and the cheating from China basically. Now there are -- if you look at the size of the market, we do believe that there is still work to be done on the welded side, especially on the South of Korea. And this is as far as the imports are concerned. Now as far as our -- the export from Argentina and Mexico, we obviously -- first of all, there's going to be a revision whose preliminary results are going to be available around November, December, which will address the topic of the antidumping margin. And obviously, we are Argentina because this is the country, it's not -- Argentina and Mexico are also appealing to the WTO and to the Commercial Chamber of Commerce in the United States for the review of the antidumping case, which, in our opinion, has points that need to be addressed by these 2 courts. It is too early to say what is going to happen, but this is the status of the 2 antidumping processes that are undergoing.

Yes. In November, we will have the first review of the antidumping procedure. This will be, let's say...

Rodrigo Almeida from Santander here. And I wanted to go back to the value aggregation to clients and talk a little bit about the Rig Direct that you're implementing in the Middle East. And if you could give us some color on what are your intentions? How fast can you implement something similar to what you have already implemented into the U.S.? What sort of volumes and sort of capital that you're going to need to implement that, say, project? And also if you could talk a little bit about this similar project. It seems like you're also trying to implement in South America. I think it would be nice to get some color as well, especially as we see growing, say, activity in the region as well over the next few years on the offshore side?

Yes. Well, we are doing Rig Direct everywhere in the world. This is not only U.S. Let me tell you, the Rig Direct has been an essential component. There is also laid some of the major oil company, for instance, like Exxon to choose Tenaris as substantially, the supplier worldwide. And one of the reason is that our model has allowed them to reduce working capital, has a weight on our working capital, obviously, but proportionately lower. So we are managing. Let's say, their saving with capital investment there is much lower than the potential investment of all the oil company because of this ability to manage in an integrated way all the facility, all the logistics, all the supply chain in a system that is following pipe by pipe. Every pipe has name and surname that goes through the system until the very well. This has been, let's say, a very innovative approach and has driven some of the -- especially the major oil company independent, so to choose this, not only in America, but also in Middle East. Maybe you can add, Gabriel, because you follow the reaction in area that are outside U.S.

Yes, indeed, the model as we were explaining, and as you are saying, is very much entrenched in the majority of the -- of where we are, very clear in South America. Probably majority -- virtually all our sale OCTG in Latin America are under the Rig Direct model has grown a lot in the U.S., is growing and gaining traction in Canada as well. We are also increasing our footprint in Canada. When you go to Europe, we have the North Sea. This is a model that also has been always under Rig Direct. Continental Europe. Romania is also an area that has been consistently utilizing that. I mean Middle East is probably the most challenging area where we have made inroads in clearly ADNOC, where we pioneered this new system where today, we're serving 8 rigs in Abu Dhabi to ADNOC under this Rig Direct. We see the other NOCs looking at this model. Sometimes the difficulty is on not other company offering a similar type of service and this capability. For the NOCs in the Middle East is important in the quest for competition and not putting all the eggs in one basket to have alternative scenarios. And in many parts of the world, Tenaris is the only one that can bring this level of proposition with the capability and with the financial strength on putting this model. We are doing some inroad works, and we have won some contracts in Egypt lately. So the Middle East is probably the most challenging area in which this Rig Direct will take some time until it's ingrained. Africa, I mentioned Africa as well. Angola, Ghana, also the system is working there as well. So we believe it's a model that adds value, certainly has a cost, but adds value and we capture part of the value, not only adding on the revenue stream services that adds with the margin. But this level of integration in the supply chain allows for us to be closer to our customers, to understand better the operations, to spot for other opportunities and to develop new solutions. And typically, this integration of the supply chain in our experience has worked in a way that the level of loyalty gets increased. So many of these programs end up being long-term agreements and strategic partnerships. So there's an intrinsic value besides on the cost and the capability and additional margin services that for us has been very important.

This approach goes together with long-term contracts. And has been, let's say, came out from basically an approach to the shale. Because the shale are more industrial approach to drilling and, let's say, are very favorable environment for developing and highly service-oriented strategy. And then we've been able to expand this in different areas. But always with the underlying long-term approach has an underlying long-term contract. This is giving a more predictable -- I mean our model is built on forecast accuracy. These are the things that are important to be efficient in the management of the working capital also.

Kevin Roger from Kepler Cheuvreux. I have 2 questions on the U.S., if we may. We largely talked about the import but not really on the local supply. So have you seen any big change over the past 12 to 18 months on the local supply in terms of key competitors? And what could be the potential implication of U.S. steel being bought by someone else? And the second question, we soon have the U.S. election with a lot of talks around the Inflation Reduction Act and the potential implication, et cetera. Is there anything for you from that Inflation Reduction Act as an opportunity for '25, '26, please?

Well, on the first, I don't see major change in the -- from the supplier -- the local supplier. Even the potential proposal, the proposal by Nippon Steel to acquire part of U.S. Steel shouldn't change, let's say, the competitive environment from the point of view of the pipes. I don't think there will be, let's say, major changes there. And on the IRA and this -- Luca, maybe you can add if you perceive...

On the domestic, what you see, you should look at the investments that these guys are putting in place. And if you see, yes, they've been investing to update a little bit, but there's nothing major coming on. So it would be difficult for us to think the plants that have been down for years already like Lorain, yes, it's been down 4 or 5 years, no investment. So for this capacity to come back, it's going to take time if it will ever come back. So there is capacity in the United States, but nothing has changed, as Paolo was saying recently. The only one that really have invested are very few players. Among those players, Tenaris obviously had the lion's share. The IRA. The IRA, for us would be a source of, let's say, capital. If we, for example, invested in, I don't know, carbon capture for our plant which, obviously, we are looking at it. But we see this coming is very difficult. I mean, it's -- the economics still for our business, at least in the States, even we support of the IRA or for the grants of the DOE because also the grants from the Department of Energy, economics is not very clear, but it's creating demand. For example, all the carbon capture is going on, is going ahead. And obviously, this will require pipe -- very sophisticated pipes. So this is the part of the IRA or even the bipartisan infrastructure bill that will provide additional demand over time, though. Because, as I was saying, the economics of the CCS still, even with IRA, will take time to develop. But this is the part where we're going to see an impact, not impact directly on us, impact on the creation of demand.

[ Dave Anderson ], Barclays. Gabriel, you talked about the Middle Eastern opportunities. I was wondering if you could talk specifically about Saudi. A couple of years ago, I think we had talked -- you had talked about they had about 2 years of inventory. So volumes into Saudi were sort of under -- kind of underutilized essentially. Can you give us an update as to kind of where those inventory levels are today? And then secondarily, you touched on Jafurah, a completely different field, unconventional. We're talking U.S. style horizontal wells. I can't imagine the inventory they have there is the same type of pipe use. We're talking 400 or 500 wells a year. Does that change the next several years in terms of your outlook in the Middle East?

Thank you very much for the question. Very interesting. Saudi indeed has been increasing the drilling activity, has been dropping some of the offshore oil rigs at expense on increasing the unconventional Jafurah rigs. This, overall, we see a very stable, high level of consumption of pipes. In terms of the supply chain, Aramco has been changing in the last few years. They were notorious for this stop, restock and then stop for a few years. So the cycles 5, 10 years ago, those who have been following Aramco have been notorious of buying. And even we have periods, I remember, 1.5, 2 years of no orders. This happened in the cycles of Aramco. But this has changed. Since the company become public, since the company has done a lot of efforts to strengthen the local supply chain and the local players on the seamless, on the finishing, on the ERW welded, SAW welded. So there has been an important work of Saudi Aramco in the last few years to increase the network of local suppliers that are really working as an ecosystem. And this has created that the level of inventories in general in Saudi are much more healthy than the old cycles that we used to have. Also being a public company, Saudi Aramco as well, there is more attention to cash flow as they had in the past. So I think this -- we will still see cycles, either in activity or stocking or destocking, but they would be much narrower maybe of a few months compared to what we see in the past. We used to see 2 years of inventory in that large stock in service center that Aramco has in Dhahran, it was something normal. Today, the inventory levels are in the range of 3 to 6 months. And also, they are requesting the local network of suppliers to carry also 3 to 4 months of inventory. So it's a more balanced, more local and much better in terms of working capital, assuring the security of supply that many years ago when the majority of the pipe were coming from outside was not possible. But this has changed. This has changed. Jafurah, extraordinary opportunity. There is a big mandate and a big drive in Saudi to substitute oil, especially for generation of electricity locally. The demand of electricity in Saudi is increasing, and they have a target. 50% will be addressed with renewables, 50% will be addressed with gas, okay, non-associated gas. So there is a clear drive, and we believe that this progression of rigs increase in Saudi, which is clearly like any shale and conventional operations is very pipe intensive, will continue. They are also going through the learning curves like we've seen in the U.S., in Argentina or in Canada, in the Montney of extending the laterals. So we're also bringing part of our wedge technology and experience that we had from other places in the world to help Aramco bring these longer laterals, which give them more exposure to the field at the end better productivity. So we are working closely with them. And we see this as an opportunity and a strong driver of demand for gas in the Kingdom.

Yes. Let me add just we have better visibility today because we have more than 1,000 people working in the different plant in Saudi. So I think also this has created better introduction of Tenaris into the reality of the oil and gas system in Saudi. We are more part of this than maybe 6 years ago when we were mainly affected by this sudden shift. This is important and I think it is a potential for us. Yes, after.

Luigi De Bellis from Equita. I have 3 questions. The first one is, which visibility do you have for 2025 for large projects or big pipelines like the Argentina one in 2023? And how much of 2024 volumes are related to pipeline or large projects? The last question is looking to first half of 2025, we can imagine to come back to 1 million volumes per quarters after the minus 10% of second half of 2024 compared to the first half, also considering the stabilization on the end of the stocking in Middle East.

Well, on the last question, as I was mentioning and looking at the number, we will not be far from getting back to the 1 million per quarter. It will depend from, let's say, some, let's say, specific or some projects, but we will not be very far. Also in an environment in which -- we assume that China, let's say, reduces level of growth, but not much more than what is happening today. I think the change in the interest rate worldwide in the U.S. and also in China, may stabilize level of activity at this level. This will maintain a certain demand -- level of demand for oil, not far from the level of today, price of oil will be stable. In this environment, I think we will be not far from the 1 million back in 2025. Now, the pipeline, maybe you can comment on our -- the visibility we have on the very large project that are very interesting for us, and we are very focused on it.

For sure. On the pipeline business, the backlog that we have today give us visibility until the first quarter of 2025, okay, with the offshore pipeline, the one that one that we commented in Brazil and some others that we have already in the backlog, we have a very good concrete backlog until the first quarter of 2025. Then we are in several bits, several competitive mechanisms where we are well placed, and we believe that later on, in second quarter of 2025, this will be -- we are counting on the pipeline business in 2025 to be important and relevant. Many projects in Argentina have been discussed, in Middle East and in other parts of the world. So we are quite confident on the volume of pipelines in 2025, considering addition that we have also Shawcor that is a great addition as a competitive tool that we didn't have in the past.

Pipeline are very different from the onshore pipeline in which the competitive environment is different and the complexity is different. And the offshore pipeline we're quoting and so, in which there is a competitive environment is totally different. And let's say, these are much more sophisticated product, higher margin, different story. So we tend to look at this in a separate way for onshore pipeline Argentina is important. In Argentina, conditions as set for the investment. The laws that were required has been approved. The new regime for large investment has been approved. The situation -- also, some of the key conditions -- macroeconomic conditions are more suitable for investment. So for instance, there is one large pipeline for evacuation from Vaca Muerta. There is under discussion now. We do not know exactly when and what, but this kind of project onshore, like the one in Argentina will go on. We are positive on this. Yes?

I would like to ask a little more about U.S. pricing. So Paolo you said I think sort of stabilization here at the level of the most recent Pipe Logix we've seen, and I don't know maybe this is for Luca, but just what is the mechanism to see prices start going up? Do we need to see rig count go up? Is it a matter of just absorbing the imports that have been come in and the overhang from the last several quarters. What do we need to see an uptick in prices?

There is a major formula. That is price of oil eventually higher, import contained or going down. A price of hot-rolled coils supportive, which is important because in the end, there is always part that is welded. There is, let's say, follow the -- this and rig count. In our focus, we are not envisaging for the next 2 years, let's say, the need to drill more to overcome some slight reduction in productivity of the well. What Luca was saying, the Tier 1, okay? When the Tier 2 start to the integration, you need to drill more because the well will have specific production is slightly lower. So this is maybe a factor that may impact on the rig count over time. We don't include this -- we don't consider this in the 1, 2 years. But over time, there will be something of this. So the magic formula depends from different factors. I think, Luca, when the magic formula will start operating?

Now the magician. No. And there is one point that needs to be taken into consideration, which I somewhat hinted during my presentation. You guys -- you look at rig count as a proxy of pipe consumption, which is true to a certain extent. And there was an indication in the slide. 2019, 1,000 rigs, 5.5 million, but total is Canada and U.S. in that chart. But you see now today, 600, ballpark, 4.8 million. Minus 15% -- actually, minus 12%, 13% in consumption, minus 40% in rigs. Now this tendency of increased productivity is continuing going on. It's not that necessarily the best rig is drilling in less days or is going longer. But you see the consistency, and Paolo was mentioning this, shale being more kind of manufacturing process. You see the consistency of all the rigs getting more and more accurate and around. And so the mean value of the rig days that are needed to drill is getting closer and closer and closer. So these rigs are consuming much, much more. Now in the last quarter of 2020 -- sorry, second quarter 2024, there was another step increase in this productivity. And just to give you a flavor, if this productivity will be maintained throughout the 2025, this would mean with same, let's say, input in terms of imports and domestic production, wiping off 1 month of inventory on the ground. So there is this increase in productivity that is very important. So yes, one of the magic component of the formula is rig, but these rigs are continuously consuming more and more pipes.

Next, Chris Kuplent from Bank of America. Two questions. First, I wonder whether you can give us a little bit of an update on your maintenance that's going on? And secondly, you mentioned 20% to 25% EBITDA margin, a healthy backlog into Q1, and I know '25 and '26 are a long time away. But you suggested we're sort of close to a trough. Would you argue that's true for the EBITDA margins as well, which is, of course, a product of U.S. and international trends as you laid out, going in somewhat different directions? So I'll leave it here for now.

Well, on the maintenance, we completed some of the major intervention. Intervention in Mexico is ramping up. It's doing well. Intervention in Argentina, in which we substituted one electrical furnace with one electrical furnace that has the capability of, let's say, fulfilling basically, the large part of the production of the steel in Argentina, and is doing well. We are starting now other Canada and the U.S. So we have some -- this, but I would say at least halfway, we are doing well. In this quarter, maybe the only event that affected us has been the sinking of one ship with 7,000 tons in the Gulf, but this is something that one, let's say...

Collision of 2 vessels.

Collision in the [indiscernible]. But apart from this, there are things that obviously could impact, I think, is. We are getting out of the maintenance cycle pretty well. As far as my comment on the -- what can envisage in 2025. If there are no particular change in the level of prices or so, I would expect that we will be able to maintain to not to go below what we could expect in the next -- in this semester with a margin in the range, I would say, between 20% and 25%, I think we are in the middle of it probably for this. On revenue, on a top line, that is possibly 15% below what is the top line of the first semester. Then in 2025, if the conditions do not change and in Argentina the demand is gradually increasing, this is, let's say, what I would consider a floor from which we can go.

I got a follow-up on how you and the Board are thinking about cash return. If you do not find an investment opportunity to pursue, when do you expect to update the market on your capital return plans? Number one. And would it be reasonable to assume a similar program as you've outlined last November? And then maybe just one of the questions we get from investors is, do you see the value in Tenaris maybe providing a more visible cash return framework so investors can think about how you plan to distribute excess free cash flow throughout the cycle. So maybe formalizing a framework.

Well, you have seen in the slide on the results that we have been increasing our dividend over time, and we have introduced buybacks. I think it would be reasonable in the next Board meeting in November to consider to use the authorization -- the existing authorization of $700 million for additional buyback that could bridge until, let's say, the general assembly or the assembly that are in May. So this would be a reasonable assumption, but the decision is obviously up to the Board and looking at the different circumstances that are affecting our cash generation capability. So this is where we are. And these are, let's say, the visibility probably we can give. On the long run, it will depend from, let's say, opportunity. If we see -- we understand that even for a conservative company, the level of cash is high, and that's the reason why you see in the trend, this increase and this buyback that we started because we almost -- we completed the tranche that we -- were launched in August, completed this. So now the Board in November will have to reconsider this.

The investments that you're making in renewable energy, what kind of returns on that investment are you expecting to see? And are you expecting more of investments in energy infrastructure beyond that?

Return on investment on...

The $200 million that you're spending on wind farms, what do they have a payback period that we can rely on?

Well, the wind farm, the one that is operating has an extraordinary level of capacity factor. We are talking about 60%...

Yes, about 60%.

I mean more than probably the best to in farm, you can find in offshore North Sea. No, for instance, is -- why? Because the southern part of the process in Argentina, is suitable for this. And the second farm is in the same place. The rate of return depends on, let's say, how you compare your cost of energy and which will be the expected cost of energy in Argentina, but is -- with no subsidy, I would say, is interesting rate of return with no subsidy in any point of the system. So this is uncommon. If we want to do the same in Europe, it would be very difficult. It will be impossible. This is telling us something also on, let's say, what we can do in this. I don't know if this is answering your question, but because the return in the end is compared to the alternative that we have. And even in Argentina, in which the cost of energy is probably almost much lower than in Europe and not far from the level of U.S. In this environment, the wind farm has a significant return.

It's also a point of reliability as well because in Latin America, we have seen over the years -- I mean we have some shutdowns of electricity. So this -- our own generation of electricity, besides giving us an advantageous cost, give us also an important security of supply of energy.

In the case of Argentina, Argentina in this summer will be exposed, not because of our wind farm, but because of the network and the lack of generation in the area of Buenos Aires. So we are not really exempt from possible interruption due to the curtailment that could happen if the demand in the Buenos Aires in summer is very high and due to lack of investment in the last 10 years in generation and grid. So Argentina has issued that are coming from his previous government that will have to be addressed and solved over time. This could be maybe affected, to some extent, our, let's say, the ability of using all these capability directly. Okay. I think we -- there are no other questions. Well, let me thank you very, very much for participating, for coming and paying attention to Tenaris. And please keep in contact with our people in Investor Relations for any questions you may have or any doubt also on the material and the comment that we made. Thank you very, very much.