Tenaris SA (TS) 2011 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q3 2011 Tenaris S.A.

Earnings Conference Call.

My name is Josana, and I'll be your operator for today.

(Operator instructions).

As a reminder, this conference is being recorded for replay purposes.

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

Giovanni Sardagna, Investor Relations Director.

Please, proceed, sir.

Thank you, and welcome to Tenaris 2011 third quarter 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 CFO; German Cura, the Managing Director of our North American operation; and Alejandro Lammertyn, the Managing Director of our Eastern Hemisphere operation.

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

Notwithstanding the seasonal effect of lower sales to European distributors, third quarter sales increased to almost $2.5 billion, or 23%, compared to the third quarter of last year and 4% sequentially, as we benefited from higher sales in our Tubes segment, where we recorded strong growth in Canada, Mexico, and in the Middle East.

Our EBITDA reached $620 million, which was up 13% sequentially and 17% compared to the third quarter of last year.

Our EBITDA margin, at 25%, was up sequentially as the recovering margin in our Tubes operating segment more than offset a lower contribution from our Projects and Others operating segments.

Average selling prices in our Tubes operating segment were up 9% compared to the corresponding quarter of last year and 3% sequentially.

During the quarter, our sales of high-end seamless product kept increasing and were over 55% of our total seamless volumes.

As anticipated during our last conference call results, our Projects segments were lower sequentially due to lower volumes and lower components of high-value product in the mix.

The Board of Directors approved the payment of an interim dividend of $0.13 per share, or $0.26 per ADR, to be paid at the end of this month, in line with the interim dividend paid last year.

During the first nine months of the year, our capital expenditure increased to $674 million, compared to $561 million recorded in the first nine months of last year, as we are advancing with our investments in Mexico, Italy, and the US.

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

Good morning to all of you.

In September, some of you had the opportunity to visit us in Veracruz.

There, you were able to see our new rolling mill, our research and development center, our Tenaris University training facility, and have a good idea of our Company through talking to our managers and our employees.

We discussed how we were seeing and we are seeing the market, our strategic positioning, and the competitive environment.

And we looked at our competitive differentiation in terms of products, industrial capability, the service we offer to our customer, and the advantages of our global presence.

But, above all, I hope you came away with the impression of our execution capabilities, as this will be our main challenge for the coming quarter and in a demanding market.

Our third quarter results reflected the positive impact of the growing market demand for our oil and gas products and service and, particularly, for our premium products for complex applications.

This is reflected in the increasing sales, in the product mix, and in the operating margin improvement.

Sales in the Middle East and Africa rose 18% sequentially, led by higher sales in Saudi Arabia.

The increasing Saudi drilling activity with the complex projects they are developing, among which are Arabiyah, Red Sea, and Manifa, is now being reflected in our shipments.

Our premium threading facility in Damman will soon operate close to capacity.

For the Arabiyah project, we were awarded an important order for complex, corrosion-resistant, alloy material to be threaded with Blue and Wedge connections at Damman.

Shipments of premium products to the rest of the Middle East are also increasing, as projects in Iraq, in the United Arab Emirates, and Kuwait move forward.

In North America, our sales rose 9%, led by higher shipments in Mexico and Canada.

Drilling activity has increased in Mexico, as PEMEX has resumed operations in Chicontepec.

During the quarter, our sales in Mexico increased 40% sequentially.

In Canada, the numbers of meters drilled in the third quarter was up 28% year on year.

Although gas drilling has been affected by low North American gas prices, oil drilling is up sharply, and thermal and shale projects are moving forward.

Shipments of TenarisHydril premium threaded products rose strongly this quarter.

These shipments included the first of our new Wedge 625 connection, which will be run next week in the Eagle Ford shale.

We have advanced with the testing program for this integral connection, and we are now ready to supply 90% of the sizes required for its target market application in the shales.

We see a growing and demanding market as our customers move forward with their drilling programs and projects, and our perception is that, in spite of the present economic and financial volatility, the situation in our sector looks different from that of 2009, as the oil and gas industry focuses on long-term challenges of increasing production.

Our challenge in this environment will be the execution in every area -- in capital investment, in research and development, in improving operational efficiency, in safety and environmental performance, in containing and reducing costs, and in delivering our products and service to our customer in accordance with their requirements.

I will now give space for questions and answers.

(Operator instructions).

Ole Slorer, Morgan Stanley.

If I look at the trends, Pipe Logix has been flat to a little bit down as of late, but, clearly, input costs are also falling fast in November on the market.

Can you talk a little bit about how this is trending as we go into the fourth quarter?

Well, you are right.

The Pipe Logix is stable.

As you know, and we mentioned this in the last conference call, we consider that Pipe Logix is really reflecting the low end of the market and is not capturing what is happening in a large part of the market, which is especially in the shales and the more complex product environment that now are representing a much larger share.

I imagine that the low end of the market will in the coming quarter -- will not move up so much because there is presence of imports.

There is competitive pressure in this, even in an environment of high demand.

But you are right.

We are seeing our costs going down.

In this quarter, we didn't see this, and probably we will not see all the full effect of this in welded product in the fourth quarter.

But we will see it reflected in the first, in the beginning, and the second -- in the first half of 2012.

But I would ask, German, if you can add something on how we expect this combination of effects between Pipe Logix and costs in the first half of 2012.

I would simply add, Ole, that the dynamics continue to be soft at a low end, but they're fairly different at a high-end portion of the market.

We continue to see a component of, particularly, Korean, low-end imports -- sizeable imports that are creating some pricing pressures.

And we believe that this is going to continue to be so in the coming quarters as well.

Now, as Paolo just indicated, raw materials hot-rolled coiled, in particular, are trending down.

We believe that this is going to remain for the remaining part of the year.

And I understand that we're going to see the full effect of this, most likely, first quarter next year.

Thanks for that.

So, if we then talk about the pricing in premium, which isn't as visible to us as the indexation in Pipe Logix, can you talk a bit about what's going on in the premium?

Are those prices softening as well, or are they holding up?

As you know, we are explaining to our clients what we consider is the limits of Pipe Logix.

We are also renegotiating in some cases or re-discussing pricing formula in some of our agreements.

German, do you see this to have an impact in the pricing of, especially, welded product in the next, first --

Yes.

Well, what we see, Ole, is that the customers are recognizing that the basket of Pipe Logix contains no premium connection items whatsoever.

And, at the same time, and particularly in the States, the premium connection requirements vis-a-vis the total apparent demand have currently increased in a very important way.

So, though Pipe Logix continues to be a reference, I think it's fair to say that, while we discuss premium connection pricing, it's only a reference much more than a direct, formula that is supply.

To some extent, some of our existing contracts with Pipe Logix -- it's just become a reference, and customers are more than flexible in terms of understanding the fact that the premium connection space lives in different dynamics.

So, even though it's (inaudible), with your new connection, you're able to disengage from Pipe Logix indexation?

I said yes.

And this is particularly true on some portions of the market.

The Gulf of Mexico probably is a good example of what we're just talking about.

I would add that some of this material, let's say, goes to the very low end of the drilling in the States.

So we are assuming here, Ole, that we have no, let's say, relevant impact of the economic and financial crisis on the price of energy because this is not the assumption on which we are discussing.

If there is a major change, probably some of this drilling that is requiring low-end material could be delayed or could be -- some of these rigs could get out from the drilling arena.

I don't know if you have Guillermo on the call, but Mexico is an area you highlighted at 40% sequential growth.

I didn't hear if it was sales or if it was revenue or volumes.

But every oil shale services company that's reported so far has been very positive on the rebound in Mexico, both in deepwater and on land.

Can you talk to us a little bit about what you are seeing in Mexico and the outlook?

Yes.

The 40% increase we are talking about is an increase in revenue.

And what we are seeing in Mexico is, clearly, coming back on Chicontepec.

I would, on this issue, ask to Guillermo to give some highlights on how we see the future for PEMEX.

But, clearly, PEMEX has very important development in the medium term, offshore on gas and shales.

And this will be developed over time.

I think that, as we mentioned during the Veracruz trip, we were looking at and we are still looking at a nice rebound of PEMEX in the second half of the year compared with the first half.

Right now, we are at a level of around 135 rigs in Mexico.

And what we are seeing in the short term is that level to be sustainable for this year and for 2012.

I think that a perception we have is that PEMEX is well organized and is working in order to maintain this level with higher activity in Chicontepec and also in the southeast region of Mexico.

And going a little bit forward into the future, I think that we're going to start to see some positive developments, especially in the shale area.

We're starting to see PEMEX focusing much more on the shales.

PEMEX has the advantage that they have a well definition of the shale area because they did all the exploration in terms of Burgos.

So, they were going through the shales trying to get to deeper areas.

And so, although I don't think we're going to see something for 2012, I think that we're going to start to see something more intensive going forward because they are -- they have a lot of information and a lot of data.

As you know, Eagle Ford, for example, expands into Mexico.

And it does not only go into Mexico, but I think it expands the area in Mexico.

So there is a very good chance of seeing some future development there.

And I think that also in Chicontepec, we're going to see some further developments and also in the offshore drilling.

So I think that, on the short term, my perception is that we're going to -- we're going to see that the additional volumes that we are perceiving right now for the third quarter are going to be here for the rest of the year and for next year.

And then we're bullish that we're going to see increases moving forward because of the influence of the shales, offshore, and Chicontepec.

Thank you for that.

Mexico is looking good.

And, finally, just a quick one.

Are you seeing any shale-directed sales outside Mexico or North America in general?

Are there any other emerging shale plays that you're starting to ship to?

Everybody's of course keeping a close eye on your home country, Argentina, and what's going on there.

Is it too early, or are we starting to see some volumes to the international shales?

We'll have to see.

Definitely, activity, mobilization, and investment from the oil companies are going into shales in many different parts of the world.

This is very important for us.

We have built a strong position on shales from a product point of view and from the service point of view.

So the experience we developed in the States and in Canada will be very helpful and position ourselves very well in Mexico.

In Argentina, we are seeing the first wells.

You know Apache and YPF are drilling in Neuquen area for shales.

Still, they are testing, but development will come.

Resources are huge, and Argentina, as you know, is importing 30% of the gas during wintertime.

So there is a definite need to expand the gas production, and there are resources there that have to be developed.

The same is true for Europe -- in eastern Europe, in Poland.

We are supporting different companies operating in that area.

The same is true for China, in which this is starting, but we are more, let's say -- we are not so close to have a clear perspective.

We expect this to happen later on.

But on eastern Europe, this is very interesting for us -- Alejandro can comment something on what we are doing.

Yes.

We have done the first shale projects with (inaudible) and Conoco.

Now Chevron is also moving in Poland.

We are also having very good prospects in Romania and in Austria, where OMV is starting to explore in the shale.

So all our areas are well known for us.

We have also a new service base Ploiesti in Romania that will help us service base for all eastern Europe for shale.

So we think we're in very good condition there to cover the region.

All right, gentlemen.

Thank you very much.

Thanks for answering my questions.

Blake Hutchinson, Howard Weil.

I'm just curious.

Your release outlined pricing mix, as well as plant level -- changes in terms of plant level production in terms of driving operating margins in the tubular section -- or segment.

How important is the shift or additional volumes at Veracruz -- running through Veracruz to the margin we saw in the quarter versus mix and pricing.

And, given that it looks like the mix will be permanently shifting towards Veracruz, should we expect a higher margin profile just for that fact going forward?

Well, the startup of our mill in Mexico is very important.

It is occurring following the startup curve that we designed.

In this month, the plant is producing around more than 25,000 tons.

Now we are completing the startup of the finishing line -- heat treatment, threading.

And the lines are operating and are also on the startup curve.

So, gradually, the mill is deploying its full capability.

This is allowing us to increase -- expand volume in the global level and also to reallocate production into areas in which the mill has competitive advantage.

We see this in the fact that our costs are more or less stable, even when our mix is becoming more and more complex.

We hope that, during 2012, we will really see the full effect of this.

Also, even if the mill has reached the level of rejection and costs, even now, that are probably very close to the steady-state operational condition of the mill, there are still improvements that we can get.

So we will see the impact.

We are seeing this in this quarter.

We will see it in the next.

And we will see it in 2012.

This is displacing production from some mills that have higher costs.

Great.

Thank you.

And, then, just the growth rate in Mexico quarter to quarter -- how much of that would you say is reflective of true, underlying activity versus -- I know we had kind of a catch-up with some invoicing issues through PEMEX from Q2 to Q3.

So should we take that as underlying growth rate, or was there some invoicing catch-up in there as well?

No.

This is on line.

As you know, in Mexico, for the good or for the bad, we are very synchronic.

We supply just in time.

PEMEX has no stock.

We supply just in time.

So the increase in volume and revenue that I mentioned is reflecting real activity.

This quarter has been a good quarter from the point of the weather.

There has been no disruption due to -- no substantial disruption due to heavy rain or storm, obviously.

These are the things that, usually, in Mexico could reduce our share.

In this sense, remember that, in June, in the previous quarter, we had some disruption.

So the increasing revenue is taking into consideration that the starting point, which was the last quarter figure, had some disruption due to operational problem in the drilling plan.

Great.

Thanks.

And then one final question.

You mentioned Saudi volumes driving your success in the Middle East.

I know there's been a large tender out there for a good portion of the year.

Is that an indication that the tender has been decided, and you're getting share from that?

Or is this just more their current operations, and you still expect additional volumes from the result of the tender?

Well, you're right that, in this quarter, we are seeing a relevant increase in our shipments to Saudi in segment and in products that are very high-end products.

But, anyway, I will ask Alejandro to give us a view of what we can expect also for the future from Saudi Aramco drilling programs.

Yes.

As you mentioned, we are starting to see the realization of the results of the tender that we were mentioning in previous conference calls.

So we will see for a period of time this volume related to this tender that relates to higher activity of Saudi Arabia.

So we think that will be sustainable in time.

But the Middle East is not only Saudi Arabia; it's also the Emirates.

There, ADCO, (inaudible), and ZADCO are increasing activity, and we are taking an important share there and, also, sustained activity in Iraq, where we are having an important share.

Great.

Thanks, gentlemen.

Thank you for your time this morning.

Stephen Gengaro, Sterne Agee.

I guess two things.

First, can you give us your sense for just sort of, on the premium side, obviously, the supply/demand you see right now for seamless, either geographically or just a general, worldwide view and, then, how you see capacity additions impacting that over the next, say, year?

Well, clearly, premium demand is growing at a much higher pace than overall demand for OCTG worldwide.

This is something that is underway in the last few years and is something that we expect to continue in the next future.

Clearly, this is driven by the new horizon and nonconventional offshore shales and some of the development in mature fields with different technologies.

And all of this is driving the increase in premium.

On top of this, there is demand for higher -- for a more reliable operation in different environments that is also moving companies to shift into product that has higher resistance, higher torque, high-compression pressure resistance.

And this is the trend that is driving, basically, our operation.

In the US, it is very evident and on a large scale because of the shift to horizontal drilling.

And this is an area of the world in which this is happening on a large scale.

But we see -- we perceive this also in different areas, from Africa to Middle East to the Caspian Sea to the Northern Sea and to the Far East in areas like Australia.

The LNG demand increasing for different reasons also, for the higher demand and the additional push received from the scale-down of nuclear programs is also moving projects that are very intensive in premium in countries like Australia but also in areas like the Middle East or Africa.

So I would say it's a strong trend.

It's affecting different technology, different areas of the world.

You can find this in all of the different regions.

This is where I'm saying we are designing our investment program in the last three years, increasing our capacity in all of these regions, from Brazil, Australia, to Indonesia, to North America.

The question for us is also product development.

When I mentioned execution, it is not only execution of investment put into operation, getting fast to the level of performance that we need and quality and reliability but also development of product that could fit for the new generations of nonconventional that are coming because the technology is changing.

The frontier in this is moving.

And we have to be following this very closely.

This will be a challenge for Tenaris in the medium run.

And how do you think about that in terms of the demand drivers versus supply coming into the industry?

Does it worry you from a price and margin perspective, or do you not think there's a big enough supply growth to be a concern?

For sure, established players are also increasing their capacity.

But the move of new players into this arena really is very difficult.

For established player, an oil company, international oil company and national oil company, to shift to a supplier that has no track record, limited testing, limited design capability, limited technical sales support capability is a major challenge.

They are taking risk either in offshore or in the shales.

And, basically, we do not see this process of adding new suppliers going on very strong.

So we are confident that, if we follow or anticipate the capacity need of the industry, we should be able to maintain a leading position in this competitive environment without changes -- sudden changes or relevant changes in the midterm.

Great.

That's very helpful.

Thank you.

And just one quick follow-up on the SG&A side.

It dropped about 100 basis points as a percentage of revenue versus the second quarter.

Any guidance on how we should think about that line going forward?

Well, this also is a question, as I say, of execution.

We are in a process of cost reduction in some of the regions.

We are achieving results.

But I would ask to Ricardo, apart from this point that we got in this quarter, what we have in front of us and how you see the containment or reduction of SG&A going on.

This quarter, as Paolo said, we reduced 1 percentage point our SG&A.

But, also, an amount -- we could have some reduction in costs.

Going on for the year, we maintain our forecast of a couple of quarters ago of around 18.5%.

And, for next year, with all our estimate work that we're doing in order to reduce the fixed costs, we think that we could arrive to another 1 percentage point reduction for next year.

Great.

That's very helpful.

Thank you.

Julien Laurent, Natixis.

Just regarding the use of cash, you just canceled the offer on Confab minorities.

So what would be the purpose -- the use of your cash?

When do you think that you could decide about an investment in a new steel shop in Veracruz?

Well, in the case of Confab, you know we made an offer that we consider a very good offer.

The price premium for acquiring the preferred shares from the market had a premium of around 35%.

Then the meeting of the preferred shareholders come out with a request of an important increase in our valuation.

We decided that this was not the case, and that's the reason why we withdraw the offer.

For the future, we will see.

In this case, also the volume of cash that would have been used on this was important but was not really changing, let's say, so important from the point of view of Tenaris.

As far as the rest, let's say our net cash position is putting us in a very good condition for proceeding in our internal investment plan, considering options that we may have for repositioning Tenaris or for strengthening operations in some of the regions.

And so this is what we are doing.

We are looking and considering alternatives and opportunities that we may have for further growth.

Thank you.

One other question, if I may, regarding the outlook for Projects.

What sort of volumes can we expect for next year for the Project division?

Well, the Project division goes up and down because, sometimes, we have projects.

In this case, the volume of this quarter has been quite below the level of last quarter.

This will get up again.

There are important projects in Brazil.

It depends from the timing of Petrobras.

We know that this will come.

We are well positioned for getting the orders where needed.

But this is something that we will see during 2012.

Thank you.

Amy Wong, UBS.

I have a couple of questions.

The first one is your comment on expecting high activity in North America.

We've heard from some of the large international oil companies that they're starting to see pockets of weakness in certain basins in North America.

So could you perhaps just give a little bit more color of what you're seeing in North America and perhaps if there's a little bit of divergence between perhaps Canada and the US?

And my second question relates to the evolution -- how we should be thinking about average selling price over the next few quarters.

If you expect it to increase, how much of it is due to actual pricing increase in your product, and how much of it would be due to a mix effect in terms of just delivering more premium product?

Thanks.

Okay.

On the first question concerning North America and Canada, I'll ask German to comment.

Well, in generic terms, we tend to refer as North America with Mexico.

We talked, I think, about it reflecting a higher level of activity compared to two quarters ago going forward.

Canada has been particularly active when we look at the almost 550 rigs.

This is probably levels of activity that we saw back in 2008.

And I think, going forward into the new Canadian season, there's no structural reason to assume that that will change, given that Canada is today devoting about 7% of the activity efforts to oil.

So these are, I think, the two major components.

As far as the US, we tend to stay a little bit more cautious.

I think we have reached a level of more than 2,000 rigs.

The view we have is that, in some areas, we're going to probably see some gas rigs that are devoted to dry gas continue to probably come down and, in generic terms, offset by oil rigs that continue to increase or rigs devoted to wet gas.

So, overall, we, on average, see a slight increase but not much.

But, again, when you look at North America as a whole, as we reported, we today feel fairly strong about the sustainability of the level of (inaudible).

The second question on how we see the margin and prices going on, well, you have seen here that our margin increased in this quarter.

If there are no major economic and financial disruption, which is not something we can rule out, because, as you all know, this is a very volatile situation.

But if, let's say, emerging markets maintain a dynamic and energy prices stay where they are or go up and down slightly but not a dramatic change, I think that we will face a good demand, and we will have the chance to improve on the mix.

This will be the way our prices could go up our margins could go up.

But, in the end, there could be a little more seamless.

There could be a better margin in welded because of lower costs entering into our accounting of the hot-rolled coils that we are purchasing and we purchased this time at lower price, some increasing our high-end share on the total.

The Middle East is important.

If the demand is clearly there, some of the products are very demanding products, like the example we made in the case of the (inaudible) demand.

So these products have good margins.

And we should be able to continue in the cost containment in the different countries in which we operate.

All of these are contributing to strengthening of our margin, but it depends from us execution, and this is very important.

It's very important.

Compliance is very important.

Our clients today are demanding strict compliance in time and quality and safety in product development.

So our focus in this moment is on this.

I think that, if we comply with this, our margin should go up in this.

Great.

Thank you very much.

Paula Kovarsky, Itau.

Just three quick questions here.

The first one is a follow-up from one of the questions from other analysts.

You mentioned that the lowering of costs with feedstock would, particularly, benefit the welded margins.

Is it valid for the seamless as well?

That's question number one.

Question number two.

Related to the offer for Confab in Brazil, is it a done deal that the offer will be canceled?

Do you need any approval from the CVM to have it canceled?

Does that change your strategy towards Brazil in any way in terms of future investments?

Would you be thinking about future investments separately from Confab?

And then the third question is -- if this is canceled now, is there a chance Tenaris comes back with an offer any time in the future and if there is any condition that you guys have to follow?

And then the third question relates to Argentina and all the noise we've been hearing on the government chasing on the dollar flows and potential constraints on dividends and exports revenues.

If you could, just give us a bit of color on whether you see this as a big risk and if it affects Tenaris operations in the country by any means.

Well, on the first question, the lower level of costs in welded will improve our margin.

But, basically, it will help us to get back to a reasonable margin, because this quarter, for instance, margin in welded has been severely affected by the high cost of welded.

So, in the end, we will be going back to a more normal situation in our -- in the coming quarter.

I don't think it will affect to the same extent seamless because, in the end, in seamless, our line is more integrated, and the reduction in the price of [strip] is probably not so strong as the one we have seen in the case of hot-rolled coils.

Iron ore will help, especially for our Argentine operation.

But I wouldn't be so sure that prices in the medium term will remain at the present price.

I mean, there has been so over shooting, I think, due to the excess stock in Chinese ports in the price of iron ore.

As far as Brazil is concerned, this is not changing our strategy at all.

We are continuing with our investment in the research center in Brazil, in our investment in strengthening of our capability for premium and for high-end products in Brazil.

Our strategy will not change.

For instance, the investment in Confab for the installing a new press, a new machine that could fulfill the most demanding products for the offshore will absolutely go on.

In fact, we are signing the order for the machinery and so on.

So we go on with all of this.

We can also, if the conditions change or if there is a different point of view or we can have a different reception, we could also get back to our offer of acquiring shares of the -- let's say the nonvoting share of Confab in the future.

As far as Argentina is concerned, well, I think that, after the election, the government is redesigning -- reconsidering some of its plan, it's intervening in some of the variable.

Frankly, I don't think this should affect us so much.

We are a very large exporter.

We are contributing to the balance of payment in the current account of the country.

So I think there is interest on every party to maintain and support also our operation there.

So we do not anticipate major changes in the way we operate in Argentina.

Okay.

Thank you.

Christian Audi, Santander.

A few questions.

I'll take one at a time to make it easier.

The first one -- Paolo, you talked about the improvement in the US high-end segment.

Can you just clarify today, as you look at your sales mix in the US, more or less, what percentage relates to high-end versus low-end products?

And, also, for the US market as a whole, what would you say -- ?

What percentage of the US market would be classified as high-end versus low

Yes.

I will ask German to tell you what we can tell you.

Naturally, for competitive reasons, I don't think I'm going to be able to answer the specifics of your question.

But let me tell you a couple things which I think could serve us as a guidance.

Tenaris has about 35% of the US premium connection space market share.

This has been the case for the last many quarters and continues to be so.

It's a space, the premium connection space, that, as we have discussed, continues to grow, not only associated with the shales development that we talked about but also Gulf of Mexico.

Recognizing the Gulf of Mexico was initially planted by us as more of a transition year, we're starting to see operators on deepwater Gulf of Mexico already booking orders.

And we're talking about substantial quantities.

This is all, naturally, not only premium connections associated but higher-grade, high-end stuff.

So, bottom line, it's a very important space of Tenaris.

It continues to be so.

It's a growing space.

I hope that the 35% market share of premium connection helps you to at least guide where we stand.

No.

It does.

Thanks.

And the other -- the second question was -- as you look at your mix, which continues to improve and you mentioned it reached a level of 55% this quarter, which is an important improvement versus last quarter, is it realistic to think that, into the fourth quarter or first quarter of next year, this 55% number can grow even more?

I mean, that's already a high number.

Is it realistic to think that it can reach a 60% level over the next six months, or is that too aggressive a view?

Well, this should increase, and we are trying to do whatever we can to increase this component in our mix.

This will not be -- it will not be sudden changes.

It will change slowly.

And there could be ups and downs because, in the end, in a quarter, there could be major orders or important deliveries that sometimes are influencing the percentage-wise.

But, yes, it will increase.

It will do this slowly.

And it will depend also on our ability to execute on time the investment plan and the expansion of our premium capability in different parts of the world.

Okay.

And the very last question on the topic of Confab.

Paolo, in reading the recent press release that you sent out, the one aspect of it that isn't clear to me that I was looking for your help is I understand you made a request to withdraw the offer.

And I understand that there was a request by minorities for a second valuation.

Do you have to wait until the second valuation to officially withdraw the offer?

In other words, does the CVM have to approve your withdrawal, or, no, you don't need the CVM to approve it?

Can you just clarify?

It's unclear to me how to read that, please.

No.

We do not need to -- any authorization to withdraw.

The question is that, in Brazil, the process for presenting an offer is different from different other parts of the world.

You cannot present and discuss with the CVM a confidential offer, get it cleared, and then make an offer and stick to it.

When you present it to the CVM, you have to do it publicly.

Then there is this process of discussion also with shareholders.

I know the shareholders got into an assembly, and they got a second valuation but made very clear that they were willing to accept only a very substantially higher offer.

So, at this point, we see no merit in going on for a second valuation.

We decided we'd withdraw, which is perfectly -- something that is in our rights and needs no authorization because, in the end, there was no official offer as of now, just the presentation of our request.

I see.

So you don't need to wait for the second valuation to be done in order to officially withdraw the offer.

No.

There will be no second valuation because we withdraw the offer before launching the second valuation.

We decided to get back before this.

I understand.

Okay.

Very helpful.

Thank you very much.

I will now turn the call over to Mr.

Giovanni Sardagna for closing remarks.

Well, if there are no other questions, we would like to thank you for taking part call.

Thank you very much, and goodbye.

Ladies and gentlemen, that concludes today's presentation.

You may now disconnect.

Have a great day.