Tenaris SA (TS) 2011 Q4 法說會逐字稿

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

Earnings Conference Call.

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

(Operator instructions).

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 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 the 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; Ricardo Soler, our Chief Financial Officer; German Cura, the Managing Director of our North American operation; Alejandro Lammertyn, our Eastern Hemisphere Managing Director.

And joining us from Mexico City is Guillermo Vogel, Vice President of Finance and Member of our Board of Directors.

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

During fourth quarter 2011, sales increased to close to $2.8 billion, or 33%, compared to the fourth quarter of the previous year and 10% sequentially, reflecting higher sales in all of our operating segments.

Our EBITDA reached $710 million, which was 38% higher than the corresponding quarter of 2010 and 14% higher than the third quarter of 2011.

Our EBITDA margin, at 26%, was 1 percentage point higher sequentially, mainly due to higher efficiencies in fixed costs resulting from the increased shipments.

Average selling prices in our Tubes operating segment were up 11% compared to the corresponding quarter of last year and 1 percentage point sequentially.

During the quarter, our sales of high-end, seamless product remained stable, at 54% of our total seamless volume, but are expected to improve further during 2012.

Our net cash position increased by almost $50 million to $324 million at the end of the year following substantial investment in capital expenditure amounting to about $860 million and an increase in working capital of almost $650 million, reflecting an higher level of activity.

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

Thank you, Giovanni, and good morning to all of you.

2011 was a good year for Tenaris.

Let me start with a very important indicator, safety.

Our safety indicators showed an average 15% improvement compared to 2010.

We will continue to work to reduce accidents in our operations and are introducing a new safety-focused program in all of our plants and yards around the world.

I am optimistic that this new program will have an impact even during this current year and that our indicators will continue to improve.

Our operating and financial results also improved.

Net sales rose by 29% year on year to $10 billion with increases in each of our three Operating Segments.

EBITDA rose by 23% to $2.4 billion.

Our operating margins were marginally lower but ended the year on an improving trend reflecting product mix improvements and a more stable raw material environment.

Earnings per ADS rose 22% to $2.26, and we are proposing a 12% increase to the dividend for the year with the final installment to be paid in May.

We have increased our investment in the development of new products and in our network of technical sales specialists who support our customers with detailed knowledge of material selection and field applications.

Our customers increasingly appreciate the difference that we bring with our people and our technology.

Dopeless technology is gaining traction, with 6 million feet already installed worldwide, as customers take note of the various benefits it brings, particularly in offshore, in cold and environmentally sensitive operations.

Sales of Dopeless premium connections rose by 45% year on year and will continue to grow strongly.

For the Brazilian offshore market, we successfully developed a proprietary connector for our conductor casing.

We have introduced our Wedge Series 600 technology for a shale application, and we are working on developing the range for other complex applications.

We completed the investment in our new rolling mill in Veracruz where production has been increasing each month.

In the past two years, we have invested around $1.7 billion in this and other investments designed to increase our capacity to produce differentiated products, as well as to improve the cost competitiveness and environmental performance of our unique global industrial system.

We will continue to invest further to improve the industrial performance of our facilities and in the development of new products.

The market for premium OCTG products grew more than the overall market for OCTG in 2011.

We estimate that this trend will continue driven by strong growth in deepwater and unconventional drilling as well as in complex conventional gas drilling in areas like the Middle East.

We are well positioned to maintain, and even increase, our leading market share in this area.

In North America, we are closely following our customers as they switch drilling operations from gas shale plays like the Haynesville to liquid-rich and oil plays, such as Eagle Ford and resume drilling in the Gulf of Mexico.

In Canada, where we have a strong local presence, investment in thermal drilling projects is accelerating.

In Mexico, we have renewed our Just-in-time contract with PEMEX for a further five years.

In Colombia, the government has just imposed anti-dumping measures against the import of Chinese seamless OCTG products.

We are investing in our local industrial and service facilities to provide a full range of services for the Colombian oil industry.

In Brazil, sales increased 63% in 2011 and we have just won a substantial order for a 300-kilometer offshore line pipe.

Here, we are working on several fronts.

We are revamping our industrial facility; we are moving forward with the delisting of our subsidiary Confab; through our participation in Usiminas, we are getting many of the benefits of upstream integration from our welded facilities; we are designing an R&D center close to the Petrobras center in Ilha do Fundao, which will be focused on developing products for deepwater applications.

In the eastern hemisphere, our move to establish a regional headquarters closer to our customer is bringing results.

We are adding shifts at our Saudi premium threading facility to support the local demand for high value products.

Sales to oil and gas customers increased throughout the region in 2011 except in North Africa.

As we continue with our strategy of increasing local service and content, we are opening a new service base in Basra to support developments in Iraq where we are serving many of the operations that are moving forward.

For 2012, we see that energy customers will increase their investments in complex projects to meet growing global demand for energy.

This is a favorable environment for a company like Tenaris.

Our focus will continue to be on execution - in product development, in capital investments, in operational efficiency, in safety and environmental performance, in the delivery of products and services that meet the requirements of our customers.

This is our challenge.

Okay.

We can now open the call to questions.

(Operator instructions).

Ole Slorer, Morgan Stanley.

Congratulations with a good quarter.

It feels like, after a couple of years of slugging it out, that the conditions are changing from a headwind to tailwind.

Let's hope so.

This is what we think.

But, with that, I was a little surprised to see that you only realized a 1 percentage point revenue increase per ton.

You say that your premium component was stable at 54%.

So does that mean that there is no pricing to be had in this environment?

Well, I think we are increasing in our volume, and I think we are also improving in our mix.

But I would say that, today, pricing power is something that has to be evaluated differently in different nations.

For instance, one of the things that we have seen this year in the last quarters has been that, in the area of the more simple products, the less demanding products, the rate of increase, expansion of the market has been relatively low, and there has been intense competition from different sources in almost all of the markets.

So, in this area, we maintain our position, but I think we didn't see so much -- we didn't have pricing power.

Now, then there are other niche in more complex products, in which it depends.

In some of the demanding, premium for demanding application in which very few players are qualified, we have been able to recover margin.

And you see this in our numbers of this quarter.

And we will see this more in the course of 2012.

But, then, again, there are also applications that are semi premium, in which the competitive environment is not allowing strong pricing power to us.

So, in the end, what you see -- it's a combination of different niche.

In the course of 2012, we expect that we can move towards high end because the more demanding segments, like deepwater, for instance, in our view, will have very strong expansion and increase.

In the case of deepwater, we expect demand for premium in 2012 to be around 50% on top of the demand we have seen in 2011.

In the case of shales, something similarly happening, and the demand in the world, US and outside the US, for shales should be in 2012 between 15% and 20% above the demand that we've seen in 2011.

So, if this happens and if we continue to see these trends, pricing power in the more sophisticated products will allow us to raise margin, and this is what we expect to be in the future.

That's an interesting bit of color there.

So, if you talk about the high end for the US market, for example, which is not -- it's not a dominant part, but it's a significant part of the global market, talking to distributors six months ago, they said they could source premium products on a three-month horizon.

Today they're saying they can't source it for the first half of 2012.

Is this what you are seeing?

Is the market really becoming that tight?

Well, I will ask German on this -- on how tight we see the demand in the niche of -- more demanding niche here.

In the premium segments, yes.

I'd say the short answer, Ole, is no.

I would not agree with six months' backlog or six months' lead time in generic terms.

It is also true, though, that we have increased capacity in a substantive way.

Our McCarty premium lines are today producing record levels, even when we go back to many years.

So short answer is no.

I think it's not six months.

We're servicing our customers with substantially less time.

And I don't believe that this will drastically change going forward.

So, what is the inventory they're all down to now, German, in terms of months of consumption?

Have you tracked that for premium?

Well, overall, inventories in the States are at about -- just short of five months -- five months overall.

But it is also true that inventories are accounting for everything; by and large, standard API items.

This is a component of premium which is, relatively speaking, fairly low.

And just one final one.

Given that you're seeing maybe some pricing traction in the high end of the market but not so much in the low end and seeing Korean welded imports come into the US market again.

What are -- ?

Are you having any success with adding value to your welded product offering with the semi-premium connection that you talked about?

And are you able to hold prices as the raw material prices are coming down?

Are you able to widen the margin on your

We are.

We are gradually, in fact, deploying welded applications with our XP.

Having said that, however, and you said that, the Koreans continue to import at record levels.

We've seen in January something close to 80,000 to 85,000 tons of Korean imports.

This is, naturally, affecting the overall low-end environment and is somehow reflected in how Pipe Logix OCTG reports are evolving as well.

Okay.

Thank you very much.

Bill Sanchez, Howard Weil.

My first question is around the commentary in the press release as it relates just to near-term outlook for the first quarter.

I know, in that, you all stated we shouldn't really expect growth in the first quarter because sales will be affected, primarily, on the seasonal maintenance stoppages.

I was just curious if you could spend a little bit of time talking about where exactly those stoppages, you feel like, are occurring.

And, as I look back at the fourth quarter commentary, I know that there was not a similar expectation for the first quarter of 2011.

Is there something that's changed here in terms of the mills?

Or can you just spend a little bit of time talking about that?

Well, we mentioned this in the press release because we will have in January slightly longer stoppage in Siderca in Argentina and also in a relevant investment program in the rolling mill line of Silcotub in Romania.

So, usually, we have stoppages in the range of two weeks.

In this case, we had to intervene on the two, modified the lines for improved (technical difficulties) and allowing the mills to achieve consistently very demanding -- the production of very demanding products.

This is the reason, the stoppages are slightly longer.

This will have some impact in the volume of our dispatch during the first quarter, basically.

That's the reason why we mention it.

Still, it will not change the trend of the yield that we indicated in our press release.

Okay.

And is it fair to say that -- ?

You know that the better absorption in the fourth quarter due to higher efficiencies here and increasing shipments.

Should we expect, probably, I would imagine, at least, an equal amount of EBITDA margin degradation first quarter versus fourth quarter?

I know you were up almost 100 basis points third to fourth.

Can maybe Ricardo talk a little bit about EBITDA margins for the first quarter as

Well, we should be in the same range.

There will be no substantial -- no unreasonable, substantial variation.

And then, always, there could be one shipment that could shift from one quarter to other.

But I would expect small difference and not large difference.

Okay.

My second question would be around the North American market, German.

Could you just talk a little bit for us maybe, perhaps, size, specifically as we think about the US?

What percentage of sales right now of OCTG are gas-related, if you will?

And then talk about as we think about 2012 unfolding, given your commentary of oil rig count essentially offsetting dry gas losses?

When we think about the tonnage sold on a horizontal versus a vertical well, it's two to three times.

I mean, could we still have a scenario where a flattish rig count for you still means volume growth as we think about OCTG, just because of that higher mix of consumption on those oil/liquid-rich wells?

German, you can pick up this question.

No?

Sure.

Let me see if I could split the answer in three different points; first, exposure to dry gas.

This is very important for us.

We've been following this very closely.

A couple of weeks ago, February 10, we accounted, give or take, for about 390 of the existing rigs devoted to dry gas, out of which 115 are drilling for dry gas under the drill-or-lose condition.

And, on those space, we have not seen much of an adjustment, and we don't expect much going forward.

The balance, 273 rigs, we continue to see reductions.

We continue to see the switch.

Those account, give or take, about 14% or 15% of the market.

I won't give you the sales to that space in terms of tons for competitive reasons.

But, while looking at the rigs we're servicing, our exposure to that space is lower than that 14%.

It's a little closer to 8% or 9%.

Hopefully, that answers that part of the question.

Yes.

That's helpful.

Thank you.

I guess, my final question would just be around the SG&A as a percentage of revenues.

It was down sharply in fourth quarter.

Nice to see that progress made.

Any outlook in terms of where that percentage heads as we think about 2012?

Is there further improvements we can squeeze out over the course of this year?

Well I ask Ricardo Soler.

We are complying.

Remember we mentioned this -- that we were in the process of reducing the SG&A, and I think we comply with this in this quarter.

What can we expect also for the future, Ricardo?

Yes.

We are continue working the SG&A absolute number.

We have different programs going on.

And, of course, that performance expected for ourselves -- we are working in both parts of the equation, I would say.

So, for next year, we expect to have a range of around 17% or 17.5%, approximately.

If everything goes well, if we're on a yearly basis, we should be able to reduce 1 point more --

Than the previous year.

-- compared to the previous year.

German?

Bill, the question you ask that I'd like to complete in terms of consumption and potential sales of OCTG -- that's the second part of your question.

We're expecting our sales, particularly our welded sales, to grow during 2012, despite the fact that I think we all are planning on a horizon of stable rig count.

This is precisely consistent with the market demand in a mix which we believe today we're better prepared to serve than what we were three years ago.

Also, there are no companies that are so prepared to serve the different specific needs.

We expect Gulf of Mexico to pick up, as I mentioned.

Part of the increase in the deepwater will be in the US.

And we should be there with a high market share.

And then, also, some of the applications in shales should be looking for our Series 600 products.

And I think we could increase our sales even in an environment in which the overall number of rigs could be stable or contracting slightly for the gas right now.

Okay.

Great.

I'll turn it back.

Thank you for taking the time to answer my questions.

Michael LaMotte, Guggenheim.

German, my question is for you.

We've been doing some work on the EPA's concern about leakage in wells.

And it seems like tubular corrosion is something that they have identified.

I was wondering just with respect to the emphasis that you have on materials, thickness, consistency, etcetera, if that's something that you're seeing and, potentially, a driver of incremental market share for you over the next 12 to 24 months.

Well, we've seen some, Mike, of that, particularly at Eagle Ford.

We are, in fact, developing new chemistries for a substantial component of our welded production.

I wouldn't like to get into the specifics, but, with new chemistries and the new heat treatment line that we, in fact, incorporated and started up in Hickman, would in fact address some of the property uniformities which cause some of these problems.

But I must admit that we've seen some in pockets of Eagle Ford.

I wouldn't really generalize these as a widespread concern or issue.

Okay.

So, if I think about uptake, for example, of Series 600 and the success that that's had in horizontal applications, where would you put this sort of chemistry technology in (technical difficulties)?

It's still very early.

But uptake possibly second half of this year or early 2013?

Well, no.

Actually, it's happening pretty much as we speak, Mike.

We've been working with our steel suppliers for well over a year now.

And, for instance, our Conroe facility is fully serviced by these new chemistries, and a good component of, also, our shipment requirements are services with these new chemistry requirements.

This, of course, applies to alloy materials, particularly V110, to a lesser extent, L8.

Okay.

Great.

Thank you.

Stephen Gengaro, Sterne Agee.

Two things I wanted to ask about.

The first -- and, again, it pertains to what's going on in North America.

But how does the shift away from the Haynesville and some of the high pressures there impact your product mix in North America as far as welded versus seamless and how necessary some of the high-end connections are in some of the liquid-rich areas?

German, impact on our mix that we may see for the year?

Well, in fact, we've seen some reductions on the Haynesville, Stephen, primarily coming at this point from Chesapeake, like the rest of the market.

I must say, though, that this reduction in Haynesville has been compensated by almost an equal increase in Eagle Ford, even within the same Chesapeake.

Now, it is also true that, given the pressure environment in Haynesville, the premium connection that they're using is one different than the one they're using in Eagle Ford, and, therefore, we've seen a little bit of a product mix, quote-unquote, reduction, if you will.

But, overall, we compensate in the volume.

And, as I said, it is one premium connection -- that gas premium connection for one that is somehow required to meet a less demanding environment, like in Eagle Ford.

Okay.

That's helpful.

And, then, when you think about -- you made a comment earlier I wanted to clarify.

You said increase in deepwater demand.

Did you say 50%?

Yes.

This is what we expect in 2012 compared to 2011, but it's worldwide.

It's not only in --

Exactly right.

It is a component in Brazil, Gulf of Mexico, sub-Saharan Africa.

And the rest, let's say, is, overall, the rest of the world, including China.

Okay.

Great.

And, then, one final sort of basket, and that is -- can you give us guidance on where we should be modeling the tax rate and anything you could help us with on the financial expense line as we sort of look at 2012?

On the tax rate, we are improving.

The tax rate is slightly lower in this quarter and this year.

But I will ask Ricardo to comment if this is sustainable and where we are heading, let's say, in terms of tax rate.

In terms of tax rate, we foresee that, for next year -- or for this year, we are going to be in a tax rate around 28%.

Of course, it depends a lot in the mix of companies and some possibility to reduce taxes paying (inaudible) in Brazil.

But there are several issues.

Some countries are reducing their tax rate; for instance, Canada, 1 percentage point.

But, as a general, we can say that it will be around 28%.

Thank you.

And, then, anything on the financial expense line that can be helpful?

I know there's a lot that goes into that line, and it's hard to predict.

I was just curious if you had any sense for how we should think about it.

Well, you know, in our financial line, there is always variation due to the appreciation or depreciation of the currency, especially in Mexico or in Brazil or in Europe.

So it's difficult to predict.

Exactly what we can come from this is difficult to predict.

Yes, definitely, Paolo.

I would say that, looking ahead, if we don't have big swings in the exchange rate during the year, we'll be at a level more similar to this quarter than the previous one.

Okay.

That's very helpful.

Thanks for your answers.

Frank McGann, Bank of America.

Just quickly, in terms of capacity, I believe you mentioned in your commentary earlier about some issues with capacity increases, particularly in the United States.

And I know that -- I'm positive, in past conversations, you've made that comment as well.

I was just wondering if you could provide some color on what you're seeing right now and how that's affecting your ability to get prices in the US market.

Well, the question is, to some extent, related to the first question from Ole on the pricing power and the different (inaudible).

Today, capacity -- you have to define capacity with some more detailed view because the demand is segmented between different levels of demand -- or of complexity of products.

And this has an impact on capacity, for instance, in different value-added installations.

We are talking about heat treatment, but, for instance, not every treatment could satisfy the need of a demanding clients.

So heat treatment with equipped for the more demanding product.

We are talking about premium lines, we are talking about ultrasonic control or different kind of sizing or control on the end for line pipe and so.

So this is not capacity for rolling the pipes.

What we are talking about -- the factor that influences in the end the pricing power on this niche is the capacity in complex finishing in the plant.

And, from this point of view, we do not think that the landscape in our -- in the area in which we are, so in the area of demanding products for a large extent, the landscape is changing very fast.

There will be addition in capacity in North America, for instance.

Most of this capacity is going to low end market because it is not accompanied by the finishing for this.

And this is also true for Brazil.

So rolling capacity do not translate the necessary ability to satisfy demand of clients with complex applications and do not necessarily translate into pressure on prices for this.

In general, it's clear that, on the low end, US will be a tough environment in the low end because of imports.

Because of Korea, that is really getting to very high level of import into the country and for the additional capacity that is coming in.

But this do not means that we will lose our pricing power on different demanding applications.

Okay.

That's really interesting.

Can you follow-up really quickly in terms of Mexico and demand in Mexico -- what you see -- how you see 2012 versus 2011?

Yes.

We see Mexico to increase.

The demand is clearly increasing in 2012.

Chicontepec is increasing the level of rigs.

PEMEX is investing and start to explore also, let's say, a different way of developing some areas.

So there will be an increase in demand.

We could expect this to be in the range of 15% or something like this.

But most of the decision in the medium term will be -- will depend from the changing government and the election in Mexico.

We will have election this year.

So I do not imagine big projects or structural decisions taken by PEMEX now.

What is important is that we -- signing the new, five-year agreement, we really are positioning Tenaris in an extraordinary position for supplying any need that PEMEX may have do they decide to step up their investment.

I'm talking about offshore.

I'm talking about shales, Eagle Ford -- let's say Eagle Ford on this side or the other side of the border -- or in other areas.

On this, maybe Guillermo, if you think there is something we can add on this, please, step in.

No, Paolo.

I think what you said is what we are seeing.

Last year, we had an average of around 121 rigs in operation, and, for 2012, what we are seeing is that we are staying with 135 or 136 rigs that we closed the year.

That means that we are going to see -- if we compare year over year, we're going to see an increase of around 15%.

PEMEX continues to work on the deepwater.

I think, as you mentioned, we have six rigs, probably, at six wells for 2012.

And they are preparing the bids for the shales.

So 2012, I think, is going to be a year with an increase of 15% or 18% volume.

And then I think, 2013, we're going to see a little bit more activity coming on from the shale area and from the deepwater.

And that's more or less the view that we have at this point in time.

Okay.

Great.

Thank you very much.

Michael LaMotte, Guggenheim.

Just a couple of quick follow-ups for me.

German, again, back on the US side, the line pipe market, if I think about the legacy systems, and I don't think of Maverick as a particularly big player in line pipe, just from an OD standpoint, so can you address the growth opportunity in line pipe this year and where within the system those volumes are actually coming from?

Well, you're right about the fact, Mike, that line pipe within our industrial system in the States goes only up to 16 inches, and this is not -- you know, the size range we cover is not primarily aiming at the infrastructure that is being built or rebuilt or revamped, to some extent.

It is also true that, when you think about bringing big OD, 36 or so inches, we saw line pipe from overseas.

You will need to confront a fairly important competitive disadvantage in terms of the logistics cost.

Therefore, line pipe is an important segment from our perspective in terms of volume.

They're concentrating in the space lower than 16 inches.

This is going to continue to be so, but I don't believe that, in the short term, we'll be prepared to address this in a substantive way.

This is for the well, let's say.

So, now, if there is a growth of the offshore in Gulf of Mexico, then I think we will have some participation in the line, the project of seamless and complex line pipe in the Gulf.

We had in the past very good participation there, a very good share.

And we are very much specialized in this.

So, in the case that we see, let's say, the projects materialize, we will have opportunity.

Alejandro, something?

Yes.

As an example, we have just closed Lucius project with Anadarko.

We are supplying the most demanding risers for that project thanks to the expansion of wall thickness that we have done in Dalmine.

We were the only ones that could supply those materials.

Paolo, just to be clear, if I think about the 50% growth in volumes this year for deepwater and Gulf, I think of it as actually down hole and riser volumes.

Correct?

Line pipe is something that is still potentially on the common offshore market?

No.

When I was talking about the increase in the demand for deepwater, I was talking about the OCTG demand.

There is a related demand for line pipe; not necessarily it will be at the same time.

Some of the increase is due to exploration, and the development (inaudible) will come a little later.

But, in the end, there will be.

Okay.

That's helpful.

Thank you.

And the last one for me, German, back to North America -- Canada, can you talk about what's happening in both the OCTG and line pipe markets for the old Prudential system?

Well, generically, Mike, Canada has been a very good year for the industry, a very good year for us, even the local presence.

Canada has become a 75% oil space, which is also somehow unprecedented.

We have said in the past and we confirm it today that Tenaris has built a very important presence north of 70%, in the thermal space, which is somehow also premium rich, which we intend to keep going forward.

The projects are in place.

In the past, we have confronted substantial delays in terms of deployment, but we've seen substantial ramping up during this year and into next year as well.

Line pipe and, particularly, welded line pipe, again, is a space, naturally, a lot smaller.

It's one that we're servicing not only from the old Prudential mill but also from our Hickman plant.

It's an important space, an important segment, but about a third of what the OCTG market is about.

Okay.

That's good color.

Thank you.

And, then, in terms of the thermal, volumes probably 20% to 30% up this year?

Well, initial indication calls for probably about 20% or maybe even north of 20%.

We need to see.

We've seen promises in the past.

In the end, they delay.

But it's also true that, at this pricing level, thermal will go ahead.

And, therefore, we're expecting a good number of projects to finally deploy.

Okay.

Great.

Thanks so much.

(Inaudible).

With the price of gas which is very low and the price of oil which is at the top, I think the interest in the projects is there.

The point is if it's possible to push it through in terms of authorization, to permits.

And so this, I think, should be the limiting factor because thermal now is coming but is always coming.

It's not deploying at full speed because of different issues that are not only related with the prices but also with the ability to push it through for an environmental reason and technical solutions.

To some extent, the Keystone Pipeline, by definition, would ultimately also play a role.

So we'll see.

Yes.

Anyway, if thermal goes on, we are clearly -- we have a very high market share there.

We are -- we have a set of products that are very well fit for that application.

Great.

Thank you.

Amy Wong, UBS.

A quick question on, perhaps, your balance sheet and your capital structure.

During the quarter, you've pursued the Confab shares that you don't already own.

Can you comment on what you intend to do with your balance sheet and what your longer-term, ideal capital structure would be for the Company?

Thanks.

Well, let's comment first on the question of Confab.

We are in the process of launching our offer for delisting the company.

This time, I would think that's a conditional set to get the needed authorization and to have a successful offer with the premium that we offer there that, as you know, is in the range of 36%, 35%.

We do this because we really think that we need to strengthen and consolidate our position in Brazil and to have full control of the company.

As far as our balance sheet at Tenaris, we are following the same policy we've followed in the past.

As you noticed, we increased our dividends to $450 million.

We maintain a very solid, sound position because we think that, in the world as it is today, we have to look for possibility, opportunities that could come out.

It is in our interest to keep a very strong balance sheet.

Any comment, Ricardo, on some other specific answer for this?

No.

In relation to the borrowing or going to the market, probably -- well, with Confab, we went to the market, and we got $350 million debt, medium term.

Probably for the Confab, it depends our share of the market.

But probably we'll go also partially to the financial market.

But, by the end of the year, we understand that we are going to maintain our solid position and, basically, positive cash.

We will stay with, let's say, no leverage for the time being.

Looking in how -- opportunities that we have for the time being -- as you know, we invested substantially in our -- in the improvement of our facility, and we still have in front of us investment, as I mentioned, in debottlenecking different part of the system to accompany the change in the market.

Great.

Thank you very much.

Ole Slorer, Morgan Stanley.

Just a quick follow-up here, just on the premium component on the total.

You mentioned it was flat, at 54% sequentially.

Could you give us some kind of idea of where you expect to stand towards the end of this year?

Well, it will increase.

I mean, as I mentioned last -- in the last conference, this is -- to the extent to which we invest debottleneck, promote our products, and so this is increasing.

Now, I wouldn't set a clear, precise number of where we want to -- where we will be in terms of high end.

But what I can tell you is that this, in our view, will increase.

In the past two or three years, we shift from 45% at one time to 54%, and we will continue to proceed.

As a whole for the year, we have a number in the range of 52% for 2011.

This 2012 will be clearly higher because of investments in the debottlenecking in Mexico and promotion of our products and the shift in the market.

And, on the other part, on the 50% increase in deepwater OCTG, how do you define deepwater, because the rig count in deepwater this year is possibly off -- I don't know -- 10% or 15% or something like that.

So how do you square that with your 50% increase?

Well, we are saying more than 1,500 feet is, for us, considered deepwater and in the water depth.

We think that this segment of the market above 1,500 feet is something that should have a strong increase.

And is this because of restocking or because the underlying demand growth is not that high?

We consider that this should be the underlying demand and accompanied by some increase in working capital.

Okay.

Thank you very much.

Marcus Sequeira, Deutsche Bank.

I just wonder if you could have some comments on the potential for unconventional Argentina.

I know there's a lot of noise right there at this point.

But, if you could, comment on how this could change for you guys the development of the shale plays in Argentina.

And one question on Brazil.

Now, with the full control of Confab and, also, given the fact that you said that you have been investing in research and development with Petrobras, that would mean that you could increase or you could have a bit of capacity of high-end products in Brazil.

Sure.

On the first point, clearly, Argentina has large potential for shale, number one.

Number two, this potential still has not been evaluated or from a technological point of view, from a different point of view.

I mean, I don't think we know where they are, the sweet spots in the big formation like Vaca Muerta and where and how is the most efficient way of getting there and assuring low decline rate in the well, high liquid content, and so on.

So there is a lot of things to be understood there.

And this will take time because some of this analysis on permeability or formation and so on, in some cases, takes several months -- many, many months to complete.

So the oil companies also will have to do a lot of work to define how.

And then there is a third point that is how you create, let's say, the regulatory condition for making this feasible and attracting the important capital that will be needed for investment.

Then there is a fourth point.

For sure, Argentina needs to develop shales.

Today, Argentina is importing LNG.

In winter, we are talking about 30% of the demand of gas of the country supplied from different sources, among which Qatar and the others, at prices that are, as you can understand, very, very high and, for sure, would justify investment in shale.

So this is where we stand.

And I hope that, in the coming months, there will be progress on every of these aspects.

And so, by 2012 or 2013 and 2014, this issue will redevelop.

For the time being, however, even in the present condition, demand of OCTG for shales in Argentina is in the range of 15% of the demand of OCTG in all the countries.

So, for us, it is turning into a demand for pipes, even now, in the, let's call it, exploratory and defining stage of this process.

The second issue is Brazil.

Brazil, we are, for sure, moving into part of the high end.

The new connector that we developed for our conductor pipe, for instance, would be a high-end component.

Also, some of the line pipes that are very heavy, high-thickness line pipe, sour material would be considered high end in our -- from our point of view.

So, in both OCTG and in line pipe, we have a component of high end.

For the time being, this component is limited but will increase over time.

Perfect.

Thank you very much.

ladies and gentlemen, 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 to the call, and see you all during the next call.

Thank you.

Thank you very much to everybody.

Thank you very much.

Ladies and gentlemen, that concludes today's conference.

Thank you for your participation.

You may now disconnect.

Have a great day.