Tenaris SA (TS) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Tenaris Fourth Quarter 2010 Annual Results Earnings Conference Call.

My name is Marcella, and I will be your coordinator for today.

(Operator instructions).

This conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today, Mr.

Giovanni Sardagna, Investor Relations Director.

Please, proceed, sir.

Thank you.

Welcome to Tenaris 2010 fourth quarter and annual results conference call.

Before we start, I would like to remind you, as usual, that we will be discussing forward-looking information in the call and that our actual results may vary from those expressed or implied herein.

Factors that could affect those results include those mentioned in the Company 20-F and other documents filed with the SEC.

With me on the call today are Paolo Rocca, our Chairman and CEO; Guillermo Vogel, Vice President of Finance and member of our board of directors; Ricardo Soler, our Chief Financial Officer; German Cura, the Managing Director of our North American Operations; and Alejandro Lammertyn, our Eastern Hemisphere Managing Director.

Before passing over the call to Paolo for his opening remarks, I would like to briefly comment our results.

In 2010, our earnings per share of $0.95 were 3% lower than those of the previous year.

Our net sales decreased 5% to $7.7 billion, compared to $8.1 billion recorded in 2009.

Our EBITDA, which we measure before impairment charges, contracted 13% and reached $2 billion for the year.

EBITDA margin, at 26%, decreased 2 percentage points from last year.

During the fourth quarter of 2010, sales increased to $2 billion, or 12% compared to the fourth quarter of the previous year and 2% sequentially.

Our EBITDA reached $560 million, which was 12% higher than the corresponding quarter of 2009 but 3% lower than the third quarter of 2010.

Our EBITDA margin, at 25%, was flat compared to the one posted in the fourth quarter of 2009 and 1 percentage point lower sequentially, mainly due to a less favorable mix between seamless and welded tubes and higher SG&A expenses due to end-of-year charges and the effect of foreign exchange currencies on fixed and semi-fixed expenses.

During the year, seamless sales volumes were 14% higher than those of the previous year, while welded volume sales, excluding Projects, more than doubled, mainly reflecting the strong recovery in drilling activity in the USA and Canada.

Sequentially, however, seamless sales volumes decreased 4%, mainly due to lower OCTG shipments to Venezuela and line pipe products to Middle East and Africa.

Welded volume sales, always excluding Projects, were sequentially 8% higher as we continued to benefit from the healthy operating environment in the main regions in which we operate.

Average selling prices of our Tube division were down 11% compared to 2009 and flat sequentially.

In 2010, results of our Project operating segment were significantly lower than the one recorded in 2009.

However, during the fourth quarter, results finally started to recover.

During 2010, our net cash position declined by $400 million to about $280 million at the end of the year following substantial investment in capital expenditure amounting to around $850 million and an increase in working capital of $640 million, reflecting a higher level of activity.

The board of directors has decided to propose for the approval of the annual general shareholders meeting to be held at the beginning of June the payment of an annual dividend of $0.34 per share, or $0.68 per ADR, which includes the interim dividend of $0.13 per share, or $0.26 per ADR, that we paid at the end of November.

Now I will ask Paolo to say a few words before opening the call to questions.

Well, thank you, Giovanni, and good morning to all of you.

2010, we made good progress in positioning the Company to meet the demand of the energy cycle now underway.

We strengthened the capabilities and competitiveness of our global industrial system.

Our new rolling mill in Veracruz will reach full production capacity in the second half of this year once the heat treatment, threading, and inspection lines start up.

In Dalmine, we have extended the range of high-end products and improved productivity and environmental performance.

In the United States, we have invested in new tubing and heat treatment facilities.

We are now manufacturing Dopeless connection in our main industrial plant.

These and other investments will allow us to provide a more extensive range of specialized products and enhance our competitive performance in terms of costs, quality, health and safety, and compliance.

In North America, demand is growing, and we have consolidated the leading market position.

Our alliance business model is gaining new customers and is being implemented in new areas.

Our TenarisHydril range of premium connections is the market leader.

We are focused on growing market segment, such as the shales and the Canadian thermal project, which require new products and services.

In the past two months, we have successfully run our new TenarisXP connection on seamless and welded pipe for separate customers in the shales and run Dopeless connection at the (inaudible).

On the other hand, demand in Mexico has been affected by a reduction in drilling at the Chicontepec and at the Burgos development.

In South America, OCTG demand recovered in 2010 in most markets, except Venezuela, where nationalization and payment issue have affected activities.

In Colombia, Ecuador, and Peru, we have enhanced our competitive position by establishing new service yards and extending our just-in-time service model, adding new customer and new services.

In Brazil, offshore drilling activity continued to grow in 2010, but pipeline construction activities slowed down markedly.

We are working closely with Petrobras and other market players, providing significant share of OCTG and line pipe requirement, both onshore and offshore.

Our Confab Equipamentos business, which serves the refinery and nuclear markets in Brazil, is also growing.

In the Eastern Hemisphere, our regional headquarter in Dubai is fully operational, and we are starting to see the benefit of closer contact with customers.

We have strengthened our local content and service capability throughout the region.

In Iraq, we were able to move quickly to establish a leading market position in the reactivation of the oil in that industry.

Exploration activity is increasing throughout the region.

Complex projects are being undertaken in areas like west Africa, the Poland shales, Russia, the Caspian, and Australasia, where our technology, service, and local presence allow us to provide differentiated solution to our customers.

The event now taking place in north Africa, however, will affect demand in the first half of 2011 and could spread and have a wider impact on investment in the region.

Our results for the year only partially reflect the progress made.

Shipment in our Tubes operating segment rose 27% overall with higher increase for OCTG product and a lesser one for line pipe products.

Sales and operating income declined, however, as prices fell, reflecting a post-crisis competitive environment with excess capacity, particularly for standard API product.

Global demand for oil and gas recovered in 2010 and is expected to continue to grow, fueled by the economic development of Asian and other major non-OECD nations.

A new exploration cycle is underway.

Major operators are investing heavily in shales and other natural gas development worldwide, with the conviction that natural gas will play an increasingly important role in the global energy matrix.

Demand from oil and gas industry for OCTG and other pipe product should continue to grow in 2011, and demand for premium products should increase more than that for standard API product as well.

As well, complexity is increasing.

Demand from other sectors should also increase.

Also, our selling prices are expected to rise.

These increases are likely to be initially offset, as we say in the press release, by increases in raw material and other costs.

Accordingly, we expect that our sales and operating income will increase in 2011 compared to 2010.

Thank you.

We can open now for questions.

(Operator instructions).

Ole Slorer, Morgan Stanley.

You have a little cost inflation for you now relative to your pricing cycle.

So I wonder whether you could elaborate a little bit on how that plays out in the first quarter.

Clearly, mix will also be -- have a very big impact, but there's nothing that we see how that moves from one quarter to the next.

What should we expect for the quarter we are in at the moment?

No doubt we are perceiving the cost inflation.

In fact, the recovery in the overall economy is driving an increase in some of the costs that are essential in our production.

If you look at this from a longer perspective -- for instance, scrap compared to where it was in June 2009, increased by almost 100%, iron ore by 230% in the same period of time, and, also, this is reflected in the hot roll coils increase.

This increase has been particular strong in the last three months.

Since November, we have seen hot roll coils, for instance, going up substantially.

Now, compared to this our prices are recovering but are recovering a little slower compared to this.

If you look at the Pipe Logix, Pipe Logix only recovered compared to 2009 by 7%.

After a higher level in the middle of 2010, it went down and is now recovering for the first time.

We expect this to continue, and these increasing prices should offset the increase we are seeing in cost.

We announced that price increase in North America of $300 for welded pipes to be applied from January, February, and March.

And I think that this recovery in price will allow us to offset the increase in costs.

Also, keep in mind that, expecting the increasing costs, we increased our working capital, our inventories in the fourth quarter of 2010.

So our inventories increased by around $200 million over this period of time.

We anticipated some of the procurement of some of the material.

So, as a whole, considering the price increase and the anticipation of some of the procurement, as a whole, we expect to be able to offset the price increase.

This will be more solid over the course of this year because demand is good.

But we think that we can also -- this could also be so in the first quarter.

Okay.

So, just in terms of modeling the margins from the fourth to the first quarter, you will expect a flat margin and, of course, the rising sales that come with the seasonality and the general recovery.

Would that be a fair way of thinking about it?

Yes.

I think you are getting right what we would expect in the transition from fourth quarter to the first quarter.

On to the premium side, last year was, of course, a year where the API and welded was driving the volume increase.

You're now saying that 2011 as we look further into the year will be a year when premium will start again growing faster than the markets overall.

And, in listening to the conference call from one of your big competitors, it sounds as if the market is -- must be at a pretty high capacity utilization at the moment.

Could you give some comments on where you think the markets for premium products stands right now, not only in the US but globally, as we go into this drilling cycle?

Well, you're right that, as a whole, the premium market improving at a stable pace, in the range of 20% in 2010 against 2009.

And another 20% is what we expect in 2011 against 2010.

Now, the overall market increased a little more in 2010, as you correctly said; you can say around 30%, because of the increase, especially, in the welded side of this.

But, for instance, if you pick up the seamless part, premium increased more than seamless OCTG in general.

This will also -- is something that we expect for 2011.

We expect seamless and OCTG in general to increase in the range of 10% to 11%, in this range.

It will depend for many things.

But, basically, this is a reference.

And we expect premium to increase by 20%.

The drivers for this are several -- offshore outside the Gulf of Mexico, shales not only in the States but also worldwide, turmoil in Canada, and some of the projects that show complexity in the Middle East that are also driving increase in premium.

So this is a trend that we perceive should be, let's say, creating good conditions for our differentiation effort during 2011.

How do you see the industry utilization and the competitive landscape change as this demand looks to continue for a few years now?

How far away are we from where the industry or some of your competitors get closer to being fully utilized?

What's your view on that?

It strikes me that the market is very finely balanced even ahead of this recovery.

We recovered our utilization in seamless and welded.

We have now close, probably, to 80% to 85% of where we were in October 2008.

Now, we enter into 2011 with a new mill that is picking up speed.

Finishing line and heat treatment will be completed from February, March, and June.

This will also increase our capacity in premium couplings.

I think that we are operating at a high level of capacity, but we still have the capacity to satisfy the demand of an increasing market during 2011.

And would you care to comment on how you see the industry as a whole, rather than just Tenaris?

I would say that, in the API product and in the low-end line pipe product, there is still excess capacity around the world because of Chinese producer overcapacity build in the last four or five years.

But, when you go to the more demanding products, I think there is not -- At this point in time, I don't see much capacity available in reasonable terms.

Reasonable terms means, let's say, in cost-efficient terms because sometimes some of the plants could operate or put additional shift or work on Sunday, but then you are stretching from the cost side.

So, in rational terms, I think that there is not so much capacity available in complex products.

Thank you.

Just one final one, Paolo.

On the [EXP], we've seen a huge interest by overseas capital coming into the US for shale drilling.

Is there -- ?

Does the EXP connection allow you to potentially market some of the welded products as

XP has been a very important and interesting develop for us.

I will let German, who is in this moment very committed in promoting the use of this product in the shales in the United States for welded and seamless pipe, to evaluate the perspective.

I think, short answer, Ole, is yes.

XP is being very wide received, both seamless and welded.

We have run it already in Eagle Ford, Woodford, and Marcellus.

At the present moment, there is a major company testing it.

It opens up a fairly important opportunity for us to encase the API component of the shale wells into a premium connection that meets the requirement but yet is not as, if you like, complex as the ones used in offshore Gulf of Mexico and so on.

Okay.

We'll take more on that offline, but thank you very much.

Blake Hutchinson, Howard Weil.

Just trying to gauge, if we go back to the last quarter in our seamless deliveries of 581,000 tons -- I guess, at the time, the outlook was for, perhaps, volumes to be slightly up.

Is most of the effect between that explained away by Venezuela?

And what's the status currently of shipments into Venezuela?

Is this just something that's moving from fourth quarter into first quarter?

Can we venture a guess -- here we are two-thirds of the way through the quarter -- some approximation of where our first quarter seamless deliveries may be?

In fact, you are right.

Part of the invoicing for the fourth quarter has been affected, basically, by some delays in Venezuela and also some line pipe projects.

In line pipe projects, we have in many occasions, a very long chain.

We produce the pipe.

Then we have to coat.

Then we have to organize the shipment and the shipping.

And sometimes it's a big project that could be delayed and moved from one quarter to the other.

In the case of Venezuela, the question is different.

It's a question of credit.

We are supplying Venezuela according to their ability to fulfill their financial obligation and to cover their bid.

So we are following closely our receivables and our payment and so on.

Last quarter was a quarter in which we were limiting some of our shipments because of credit issues.

For the time being, this is continuing also in the first quarter.

But it is not stopping our shipments.

We are limiting our shipments compared to what could be, let's say -- according to the tender that we have won and the material that we could really supply.

But there is continuing flow of payment.

Venezuela needs the material.

There are good working relations with Petrovesa.

We are getting service to them on different ground from the stocks to running the systems to develop (inaudible) program.

So we think that this is a continuing operation at the pace at which Petrovesa could effect payment.

Okay.

Great.

I take that -- That continues to be a limiting factor in this quarter towards visibility, getting back towards that 600,000-ton delivery range.

Yes.

This is in the case of Venezuela.

But, anyway, we expect in the first quarter higher volume of seamless shipped compared to fourth quarter.

But it depends from all of the rest of the market and the clients.

In the case of Venezuela, I would say expect to be stable.

Okay.

Then, you mentioned in your comments, obviously, the kind of widely broadcast by PEMEX shift from -- officially, shift from Burgos and Chicontepec to the south and offshore.

Can you just talk a little bit about how this quantitatively and qualitatively affects the Tenaris franchise, the shift either in the volumes demanded per well or the quality per well or however you'd like to frame the shift in drilling activity in Mexico?

I wouldn't say that PEMEX is shifting from Chicontepec and Burgos to the south.

Basically, PEMEX is reducing its program for development at Chicontepec and Burgos.

This has been a very strong reduction in the course of 2010, and so our shipment in Mexico has been reduced quarter by quarter in the course of 2010.

As far as the perspective of this is concerned, maybe Guillermo Vogel could give us a point of view on what we can expect.

For sure the price of oil is strong.

This is improving the cash flow of PEMEX.

So maybe we will see -- In the course of 2011 we may see stronger and stronger investment.

To give you a little bit of color in terms of how we see PEMEX, I will start by mentioning that PEMEX is starting the year with a budget increase in 2011 versus 2010 of around 10%.

I think this should give PEMEX a little bit more flexibility in terms of increasing the activity.

But, having said that, I would like to mention that we see two limiting factors moving ahead.

One is the change in PEMEX law, which actually changed the procurement procedures in PEMEX.

And this is delaying, to some extent, the process.

And the other is the effectiveness in terms of being able to go ahead with the new way PEMEX is working in terms of their contratos incentivados, which I think are coming on stream a little bit slower than expected.

So, actually, what we are perceiving is that, the first half of this year, we're going to have a very similar level of activity than the second half of last year.

And second half of last year was affected by what Paolo was saying, a strong reduction in the Chicontepec and Burgos areas.

Second half of last year, we were working probably around 20% below the volumes that we were handling in the first half of the year.

What we are seeing now is a first half of 2011 very similar to last second half.

And then we are seeing now that PEMEX is going ahead with the bidding process of new rigs.

We see these coming on stream in the second quarter.

So we are perceiving an increase in the level of activity but for the second half of the year.

So, more or less, this is the perspective that we have with PEMEX right now.

Thanks, Guillermo.

That's helpful.

I appreciate it, and I'll turn it back.

Steve Gengaro.

Can you talk about the mix in the seamless side in the fourth quarter, the percentage of premium versus seamless, and give your comments how you see that evolving as we go forward?

If I understand well, your question is -- how is the mix in high-end and in the fourth quarter?

There has not been a big change.

In the fiscal year, we were in the range of around 46% in high-end and, for the fourth quarter, also around 47% high-end.

This is the share in our overall sales.

We expect during 2011 that this should go up because we're also putting in line a new heat treatment, a new capacity.

So we should be able, I think -- With all the effort in product development and our focus on complex projects, we should be able to increase this component of high-end in the course of 2011.

When you look at mix, you have more -- It sounds like you expect more seamless growth than welded and maybe a little more premium seamless versus commodity.

So you have two sort of positive factors on the margin front and maybe the negative of materials.

Can you -- We should expect kind of a ramp-up in margin in the second, third, and fourth quarters.

Is that a fair way to think about that?

I think we will increase in welded and seamless alike, because in the US market, the very important US and Canada markets that are important for welded, we expect that they will continue to grow in the course of 2011.

So the share of welded that has been in 2010 in the range of 25% should not change substantially because, in the end, we expect growth in US and Canada, and this will drive growing in our welded market.

We also will expect an increase in our Project business.

The Project business should have reached almost the bottom.

In Brazil, we were -- This year has been, 2010, very, very low compared to the past, and we expect that this could increase substantially in 2011.

So this will contribute to -- let's say for serving in the share of welded and seamless in our overall shipment.

Okay.

That helps.

Thank you.

Dan Boyd.

Can you just maybe recap or refresh us on the expected ramp-up you expect in volumes out of the Veracruz facility and then, if Mexico is not strong at that time, what markets that that pipe would be ideal for?

We expect the gradual ramp-up.

The mill should be fully operational by the fourth quarter of 2011.

We will have also the finishing facility, the inspection, and heat treatment, at full capacity, basically, by the fourth quarter of 2011.

The mill will be focused on the small-diameter requested by Mexico.

Even if Chicontepec and Burgos are operating at lower levels still, we will be very effective in serving this market.

And we have cost savings in serving all the need of the OCTG within Mexico.

A second target that is important is the market for industrial product within Mexico.

We will have now a plant that is very well positioned for line pipe, power gen, and mechanical industrial pipes in small-diameter in Mexico, something that we didn't have before.

Third, we have in Canada a very good integration between the operation in Mexico and the operation of our seamless plant in Algoma, so we will be able to complete this.

And, also, finally, I think that the international market for specialty product -- for premium and for high-demand (inaudible) product in that range could be another area in which the plant from Veracruz could operate.

Okay.

Just to be clear on that, the US market wouldn't be a target market for that smaller-diameter pipe?

We could complement our position.

This is also something that we could consider.

But let's say this will be part of our strategy for North America operation.

In North America, we are operating with all the range of products, from welded to seamless, small-diameter to large-diameter, and premium, basically, locally but also from different sources -- from Canada, and some could come also in Mexico.

And then, on North America, just looking at your revenue in your Tubes business, North America was up just 1% sequentially.

I would have thought that might be a little bit higher, given the volume growth that you saw on the welded side.

Can you just help me understand why that maybe wasn't higher and then, also -- I'm sorry if I missed this -- but what utilization levels you're at in the US?

Yes.

I will ask German to comment on all of these North America -- the dynamics, let's say, of the market in North America and what we expect for the future.

A few comments about North America overall.

In the US, as we anticipated in a prior conference call, our volumes were fairly well aligned to what they were in the third quarter, despite the fact that we've seen that the upper-end demand came down by about 11% sequentially when you compare Q4 to Q3.

The reasons behind the typical seasonal reduction are inventory, [tax] issues, and so on.

But our alliance model has somehow allowed us to isolate that effect fully from what we do in the States.

Canada did very well.

Of course, when we compare quarter to quarter, we service Canada at the peak of the season in a year that proved to be probably a bit better than what industry anticipated at the beginning of the season.

Mexico remains stable.

I think Guillermo commented clearly as to what may happen during Q4, Q3, and the expectations for the first half of 2011 as well.

Overall, we've seen volumes slightly up and, of course, with slight mix that was somehow much more formed by welded than not.

Okay.

That's actually very helpful in understanding.

And then, just a last one is -- I think one of your competitors in the premium market internationally has been talking about trying to penetrate some national oil companies that they historically did not have a strong presence with.

I was just wondering if you can comment if you actually saw that out of any of your competitors, what the dynamic looks like?

I assume, based on your earlier comments, though, that that market is tightening up anyway.

So, potentially, we could have [saw] more competitive pressures in the second half of '10 from particular competitors but that could then loosen up going forward.

What are your thoughts on that?

I don't know about the policy of competitor.

We are focusing our efforts on all the three segments -- national oil company, international major oil company, and independent oil company.

If you look at the perspective of the growth in the exploration and production expenditure, all these three groups are planning for important increase in the course of 2011.

Now, the independent has been very, very active during 2010 and will be active also during 2011.

Probably the major has been slowing down a little their exploration and production expenditure in 2010, but they are picking up.

We see a new cycle of investment.

They are, I think, raising their investment in 2011.

So we basically try to focus on these three segments, identifying the projects in which there are more demanding products and more complex problems to be solved from the point of view of reaching the hydrocarbon, transporting the hydrocarbon, and so on.

It's offshore.

It's deep well, high-pressure, high-temperature, high-corrosion projects.

And we target projects accordingly because, in this area, we can have our differentiation play in our favor.

We know that also some of our competitors that have technology in this area are following and competing with us in this.

But maybe there are some examples from US or international.

Maybe, German --

Only detail of color which deals precisely with the premium space.

It's sure growing in terms of volume.

But let's also try to bring back the rationale of new, additional requirements to qualify.

This is primarily the result of the Macondo problem and the need for the industry today retest a good number of premium connection products under -- I say in generic terms -- far more stringent operational capacities.

[Alejandro], maybe you want to add something on the international space.

Yes.

On the international space, we see, as Paolo was mentioning, growth in all sectors.

If you look at the national companies, clearly, we foresee a bigger development in 2011 from Saudi Arabia and from Kuwait -- Saudi Arabia with projects important at (inaudible), where we are very much present and developing product for their needs.

In sub-Saharan Africa, we see a combination of majors getting in and also important independents like Vanco operating in Ghana, where we are also taking an important share.

And then, looking at new developments, new areas like Poland shales, where the major oil companies and some independents are looking to replicate what has been done in the US in continental Europe.

So these are flashes of examples of things that are happening.

We are also looking at, clearly, southeast Asia as an area that is developing.

There, we also got a contract for Papua New Guinea that is important for our establishment and basis in an area that we needed more development.

That's very helpful.

Maybe just one last follow-up on the point on international business.

I assume, with all the CapEx increases we've seen from a bunch of oil companies so far, that your visibility might be improving on what the first half of the year will look like in terms of seamless volumes.

I know you touched on this earlier -- that you do expect them to go up.

How does the visibility look, and what magnitude of increase might we see?

As I mentioned, we expect in 2011 overall market to increase by around 10% in OCTG and, in premium, by around 20%.

The exploration production investment should increase also by national oil companies by around 10% to 13% for the major and for the national.

We are presently in all the national oil companies, from Statoil to CNOC, the Chinese, the Middle East, the southeast Asian, the Latin American.

In every company, we have participation, and we have technical relation and contact.

So one of the targets of our marketing plan is to identify the area in which we could be more helpful.

In this environment, I think the market is increasing, and also our sales will increase in first two quarters.

Okay.

Thanks.

I'll turn it over.

Amy Wong, UBS.

Just two quick questions from me this afternoon.

You made a comment in your opening remarks about the unrest in north Africa possibly affecting business.

I understand there's still a lot of uncertainty there.

But could you just give us a little bit of granularity of what percentage of your revenues are directly exposed to countries where we are now seeing unrest, including Libya?

And then my second question is -- do you expect any significant startup costs for your Veracruz plant?

Thank you.

The first question, the revenue from, let's say, the north African region, from Algeria, Tunisia, Libya, and Egypt, in the range of 2% to 3% of our sales.

So this is not something that -- a disruption in the -- it is something that we expect in the first quarter of 2011.

But this is not something that will be too significant for Tenaris.

I think also that there will be, for sure, disruption in Libya in our sales.

But, to some extent, Egypt -- we have our operation on the ground.

Our people are operating now there.

In Libya, we relocate our people, and we left our yard in Mizurata that is the center of our operation there for the moment unattended.

And we will see how things will evolve in that area.

But, in Egypt, I don't know if you want to add something, Alejandro.

I think the disruption will not be so --

Yes.

In Egypt, we had some reduction in shipments, minor.

We see that Egypt also has a possibility of an upside because part of the dealing that was done in Libya may go to Egypt.

They will need also to invest in the oil sector.

But what we don't know is what will happen after Libya -- what could happen in the rest.

Of course, this is -- every day, it's a new country with problems, so we have to look careful how it will evolve in the whole region, not only in north Africa.

The second question, if I understand well, is about the startup in Veracruz.

We are in line with our expectation.

We did a program two years ago.

(Inaudible) program within one or two weeks of delays in the different part of the mill.

So we are on time.

In terms of cost savings, we said, I think, in the last conference call that we expect when the plant is fully operating overall saving in the range of $100 million, considering that, if we do not expand the perimeter of our operation.

We hope also that, in fact, we could expand the perimeter of our operation to some extent.

Great.

Thank you very much for that.

Sergio Torres, J.P.

Morgan.

Just a couple of questions on the performance of the South American market.

In your press release you mentioned Argentina and Colombia registering good volume growth.

And I was wondering if you could elaborate that a little bit.

In terms of Argentina, are you seeing exploration drilling more on the gas side -- tight gas?

There's been a lot of talk about shale gas potential there as well.

I'm wondering if it's more gas related or also on the oil side.

And, in Colombia, and I think this has to do also with your Project segment, I wonder if the tenders for the Bicentennial pipeline project are already out and how you see competition to take place there.

And, also, for the fourth quarter, I would have expected actually less volumes than what you had in the Project side because of the headlines that we saw about the expansion of the gas pipeline there -- the gas pipeline in Peru.

I wonder if you could give us an update on that and whether you're still going to see volume in Peru throughout 2011 or all of the growth comes from, potentially, Colombia.

Thank you.

A quick view about Latin America.

In Argentina, we are seeing a good level -- an increasing level of drilling.

Some of the changes introduced on the price of gas, the gas-plus, is stimulating additional exploration development in gas.

And, in the case of shales, we are assisting Apache and Repsol in their drilling on the shale sand area in Neuquen.

This is a very promising prospect.

I don't think today we can say -- nobody could say how important or -- and commercially accessible are the resources.

But, for sure, there is a lot of interest, and wells are being drilled by Apache and by Repsol but not only by them.

And we are following this, as well as in Poland.

We are using -- We are leveraging the know-how we got United States; for instance, important -- we are serving any Conoco, (inaudible) -- all of the companies that are working on shales.

This is one of the good things of the development in the United States.

If you look at Colombia, rigs are operating at record levels.

Colombia has a -- Many companies are doing exploration in [the Llanos] and in the new leases that are being tendered in different opportunities.

Also the Bicentenario project.

We compete, but we lost some price.

And we think that it is very likely that it will not be for us.

On the contrary, in Peru, we supplied the Camisea expansion project.

This is been shipped during last quarter to some extent and even in the third quarter.

I think this is the situation.

As far as Brazil is concerned -- Our focus today is on OCTG.

We are investing and building a new research center in Rio de Janeiro together with Petrobras.

This is a very important investment for us because we will work there on premium, on complex welding condition.

And in development offshore, there could be then also leverage in other regions.

And for the pipeline, I think we touched the bottom.

Last quarter was the bottom for this.

We really reached a very, very low level.

We invoiced almost half of what we were invoicing for this the previous year.

And we really could think that this should increase substantially in 2011 because of the expansion plan of Petrobras.

I think these are the main aspects of the activity.

But, also, drilling in Ecuador and Peru after the renegotiation of contract (inaudible).

So we expect, let's say -- Apart from Mexico, that we consider North America, we consider a good level of activity.

And Venezuela is really bad from the ability to pay on the part of Petrovesa.

Now, in the Pacific coast of Latin America, some of the material is very low-end.

We have a plant for welded in Colombia, TuboCaribe.

But this plant is very often competing with Chinese supplier on API.

And this is a factor from a competitive point of view.

Great.

Thank you very much for your answer.

Thank you.

Marcus Sequeira, Deutsche Bank.

Just one quick question.

I understood that the volume weakness in the quarter was due to some shipment delays.

I just wonder if you could confirm that.

And, if that's really the case, what can we expect -- we could expect this to be resolved in the first quarter of this year?

Thank you.

As I told you, some of the delay there will continue to affect us over the next quarter.

But, as a whole, we expect in the next quarter a higher level of shipment in seamless.

This will include also some of the recovery in the delay that we suffer in the fourth quarter.

Okay.

Thank you.

Paula Kovarsky, Itau.

I actually have two questions; the first question back to this discussion about the behavior of the premium markets.

It seems quite clear that -- the fact that Chinese and, eventually, the Russians now have to be more concentrated in selling the API products into Asia and Europe.

It's clearly forcing people like yourselves and your main competitors in the premium to be more focused in this market and eventually shift capacity into premium.

So I'd like to follow up on two questions on that.

The first thing would be -- Is this a moving trend which, at some point, will cause even the premium market to face more competition?

And how long will it take for the likes of China and Russia to get closer to your premium market?

And if you see this as a threat in the mid/long term.

That's question number one.

And question number two is more specific for the quarter.

We've seen (technical difficulties) increase in SG&A in the fourth quarter, which is arguably seasonal but also carries the heat from FX into your numbers.

So I'd just like to understand what's the impact of the FX and how recurrent this would be going forward if we think about SG&A levels in 2011 as compared to 2010.

On the first question, you rightly point out to this.

But we really think the -- Our industry, the oil industry, tends to be a risk averter when it comes to the selection of material.

And the events of this year -- Macondo, is one of these -- is only playing in this sense, in the sense that everybody here is playing on the safe side when it comes to material selection, security, and so on.

So this on one side.

The other side also -- compliance with environmental safety and different aspect of quality in the plants.

These are the areas in which we differentiate ourselves.

And this is the area in which we work for many, many years.

And I think we have a lead here that we can preserve and enhance over time, especially when premium is concerned, because premium usually goes in projects that has high pressure or high temperature, high risk as a whole.

Think of the offshore, but think also of the shales.

So, in this sense, I think that there is a pressure on the part of our competitors.

But I think that we are well positioned to consider and bring those through market innovation, service, industrial excellence, product development.

And this is our playing field in the end.

As far as the SG&A, it's correct that, this quarter, this had a higher impact.

But I will ask Ricardo to make a few comments if this is something that will stay there or we may reduce this in the first quarter.

Regarding SG&A this quarter, we have the effect of some revaluation of some currencies -- the euro and the Brazilian real against the dollar.

If you compare average to average quarter to quarter, we have an increase, and this affected our SG&A, especially labor.

But going into -- you compare the full year, you will see that this quarter was an average of the year, 19.6% as a ratio regarding sales, the same as the whole year.

Coming to 2011, we think that we are going to reduce the ratio, and we will be around 18%.

As a whole, you can say that, considering the volume, the price, costs, and SG&A, we can say that the first half of 2011 should be better than the second half of 2010 from all of -- from the point of view of our results.

Okay.

I think we can close this.

Close the call.

Yes.

Thank you very much to everybody.

Thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect.

Have a great day.