Tenaris SA (TS) 2012 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth-quarter 2012 Tenaris earnings conference call.

My name is Carissa, and I will be operator for today.

At this time, all participants are in a listen-only mode.

Later we will conduct a question-and-answer session.

(Operator instructions).

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

I would now like to turn the conference over to Giovanni Sardagna, Director of Investor Relations.

Please proceed.

Thank you and welcome to Tenaris' 2012 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 during the call.

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, Managing Director of our North American operation; 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 on our quarterly results.

During the fourth quarter of 2012, sales reached almost $2.8 billion, flat versus the corresponding quarter of the previous year, but up 4% sequentially as the recovery in OCTG shipments to the Middle East and higher sales of line pipe in Brazil more than offset lower sales in the US.A..

Our EBITDA reached $733 million, which was 6% higher than the corresponding quarter of 2011 and 8% higher sequentially.

Our EBITDA margin of 27% was 1 percentage point higher sequentially, mainly due to better product mix and efficiency improvements.

Net income, however, was affected by an impairment provision taken for our investment in Usiminas in Brazil.

Average selling prices in our tubes operating segment were up 6% compared to the corresponding quarter of last year and 1% sequentially.

During the quarter, our sales of [IE and] seamless products were up 54% over total seamless volumes and are expected to improve farther during 2013.

During the quarter, our net debt increased slightly to end the year at $2.071 billion (sic - see press release) following investments of $202 million in capital expenditure and the payment of an interim dividend to shareholders of $154 million base in November.

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.

I consider that 2012 was an excellent year for Tenaris.

I will start from safety.

This year we implemented a new safety program in all of our operations around the world, with important results.

All our safety indicators improved.

And the injury frequency rate index for 2012 showed 20% fewer injuries than in 2011.

Just as importantly, this improvement could be seen across almost all our industrial facilities around the world.

Nevertheless, we still have a long way to go, and we will maintain our resolute focus on improving our safety performance at all levels.

Safety is an increasingly important elements of our competitive differentiation in the eyes of our customers and the communities in which we operate.

Second, our financial performance -- our EBITDA increased this year 20% to $2.9 billion.

The margin rose to an industry-leading 27%, driven by product development, by enhanced service to our clients, by lower raw material costs, and industrial efficiencies, including production through our new rolling mill in Tamsa.

Earnings per share rose 28%, and we are proposing to increase the annual dividend for the second consecutive year by 13%, with the final installment to be paid in May.

Our position in North America has strengthened substantially during the year.

Sales grew 23% versus 2011 and represented 49% of our total sales for the year.

Our leading position in deepwater Gulf of Mexico, in shale plays in the US, in [terminal development in cash, and hold in the Chugas], Mexico, has been the key drivers of this achievement.

The new mill in Bay City reflects our confidence in the future development of North America as a new challenging frontier for the entire energy industry.

Our sales of premium increased this year 27% year on year.

Within this, total sales by volume of our [Totalis] connection grew 75%.

We are continually expanding our portfolio of premium connections to satisfy the increasingly complex needs of a dynamic industry.

During 2012, we substantially increased our commitment to the development of the energy industry in Brazil.

We have renewed our long-term five-year agreement with Petrobras and are strengthening our competitive position with new product and reserves facilities and through integration with our main steel supplier, Usiminas.

In the Eastern Hemisphere, we have expanded our network of facilities, service yards, and the level and quality of technical service we provide to our customer.

And we are strengthening our presence in markets such as Saudi, Iraq, Nigeria, Angola, Indonesia, and Australia, where we are anticipating strong demand growth in the next years.

For 2013, we expect strong growth in demand for our premium OCTG product and deepwater line pipe in the Eastern Hemisphere, led by sour gas [raising] activity in the Middle East and deepwater drilling activity in sub-Saharan Africa, while in North America, after a year of strong growth, we expect a year of transition as infrastructure constraints are addressed.

Looking ahead, we see an industry which is changing rapidly in terms of regional growth, product and service requirement, and product development.

Our challenge is to prepare our industrial base, our human resources, our product development, and reserves and development center, service deployment and internal processes to meet the demands of this very dynamic environment.

In closing, I would like to thank Ricardo Soler for his contribution during the more than five years he served as CFO of Tenaris.

Ricardo has a long career of more than 40 years in Techint and 25 years in Tenaris.

Under his stewardship, the Company has constantly maintained a strong financial position through the financial and economic crises and in the following years of recovery and growth.

I look forward to welcoming Edgardo Carlos to the role of CFO in July.

Also, Edgardo has a long-term career in Techint and 12 years of experience in Tenaris.

Thank you.

And we can now open the call for any question you may have.

Bill Sanchez, Howard Weil.

Thank you.

Good morning.

I guess my question, my first question, would be, just if we kind of step back and look at the full-year guidance offered in the press release with regard to sales growth for the year being up moderately, can we help us translate that in terms of how we think about it from a revenue standpoint?

Because I'm assuming when you make that comment, you are talking about volume growth here, not necessarily revenue growth.

And when I look at the fourth-quarter trends, your price per ton was up about 2%.

Should we expect, just given the mix dynamics you continue to see with regard to seamless, that revenue is going to essentially outpace volume growth in 2013?

Well, thank you, Bill, for your question.

I think we have some good visibility, let's say in the first two quarters and less visibility for the second part of 2013.

We see the first quarter of 2013 more or less in line with where we are today, with -- we are being in the fourth quarter, and an improvement in the second quarter of 2013.

But looking, let's say, in the second part, in the second half, I think there will be factors coming into the game, especially in North America.

We will need to see the -- we expect an increase in the number of rigs, but this is not just something that we can take for granted.

It will depend for price, continuing strength of the price of oil, price of gas, [sanlico rates].

Also, it will be important to see the dynamics of the project in the Eastern Hemisphere.

What we see today, we expect important growth in the Eastern Hemisphere that compensates for some weakness in North America.

That's the summary.

We could expect a moderate growth, if I should say, for the entire 2013 compared to 2012.

Okay, and I guess just as a follow-up on the near-term outlook here with regard to seamless volumes for the first quarter of this year, clearly you saw the benefit in the fourth quarter from the higher mill uptime.

I know last year's first quarter, you had experienced some downtime -- I think it was essentially Company induced -- at Siderca and also at Romania.

Is that the plan again here in the first quarter?

Should we expect some downtime at the mills that would cause, perhaps, seamless volumes to be down first quarter versus fourth quarter?

We will have a slightly higher level of activity.

We will have the annual stoppage in the South Hemisphere.

This time it will affect Siderca.

The level of activity in January and February is likely lower in the Southern Hemisphere, so we will have some lower production and sale in seamless because of this.

But as a whole, I would expect a level, the same or higher level of seamless in the first quarter.

Great.

Just one more for me.

If we could talk just a little bit on the equity income line going forward, I know we had any impairment charge there.

We also saw a negative impact, I guess, on just the equity pickup line as a whole in terms of that being a loss.

That's typically a positive contributor for Tenaris.

Could you perhaps give us guidance?

Is there an ongoing headwind in Brazil that we should be thinking about that equity income line being punitive to your earnings during 2013?

Well, as you correctly stated, in this quarter we are registering the impairment coming from the reassessment of the perspective of the investment in Usiminas.

And this is directly resulting into an impairment charge of $74 million and indirectly into an additional $32 million impairment loss.

So this, you can say, is a once -- is an exceptional charge that is loaded on the fourth quarter.

Looking ahead, I would expect Brazil to improve and the situation to improve, because Brazil, really, during 2012, GDP growth has been 1%.

Steel demand has been severely constrained -- against our expectation.

We expected Brazil to maintain a higher level of growth.

And we found the country really in a very low motion with industrial sector, even, registering negative growth.

2013 should be different, and we see some signs that activity is rebounding.

The measures taken by the government are having an impact in the overall level of activity.

So Brazil will recover, as a whole, between the first half, within the first half of 2013.

We should have, let's say, more positive results for this line in our balance sheet and no repetition of the exceptional loss register for impairment.

Great.

I appreciate the time.

I will turn it back.

Thank you.

Frank McGann, Bank of America-Merrill Lynch.

I was just wondering if you could give a little bit more color, perhaps, on just the level of price competition that you are seeing in the US, particularly with regards to imports and that situation, particularly with the Korean imports.

And then in terms of costs overall, what you are thinking in terms of different cost components, labor as well as raw materials, and your ability to -- or the pricing discussions that you have and contract discussions that you have related to that.

Thank you, Frank.

We are saying there is, no doubt, pressure for increasing imports into the United States.

The share of imports has reached close to 55% of the overall market.

And some of the players, like Korea in welded pipe, have really been very, very aggressive in the recent months.

This is putting pressure on the lower -- the low end of the market.

But I will ask German to comment on this point, which is the competitive environment and how this is affecting our pricing in the US.

Well, good morning, Frank.

Very shortly we have seen the two effects, -- reduced activity despite efficiency gains, coupled with increasing [parts].

Now, this is reflected in the way Pipe Logix has evolved, particularly as of June last year.

And, well, as mentioned, Korea has played a very important factor.

So, you know, Korea has imported during 2012 something just short of 600,000 tons during the year.

Now, going forward, we see that -- well, imports are there, continue to be there.

Korea continues to affect the market.

We have seen, the last couple of months, limits of close to 100,000 tons.

And clearly it is our expectation that will recover.

We anticipate that 100, 120 rigs at the end of the year is not unthinkable.

So that, coupled with efficiency, would translate into a big -- a bigger operation, consumption operation.

But in short, the last part of 2012 was tight, the result of the two effects I mentioned.

We see some of that into the first semester of 2013.

And the expectation is that demand would probably allow us to see a space, a little bit less pressure space through the second half of 2013.

Yes.

Well, and as I said also in the past, remember our [exceeding two estates] are only partially affected by the pressure of the imports on the low end.

There are segments in the premium, and are very important for us in terms of margin, segments in the premium, in the shale, in the more demanding application, in which I think the pressure from imports is not -- really not a factor.

Demand will be more important, and it will depend, as German was saying, from the level of activity in the second part of the year.

The second part of your question, concerning the cost -- we see the increase in the iron ore.

But frankly, if I should look at the cost structure as a whole, I wouldn't expect major changes, because, in the end, the price of raw material is driven the level of activity in China.

The level of demand of steel in China, being 1% in 2012, is forecasted to be around 3% in 2013.

So these are numbers that do not imply, at least from all that we can see, a substantial pressure on iron ore and on the other raw materials.

So in this sense, also [strength] should not show very substantial changes.

We expect the level of costs to be more or less in line with what we have today.

And possibly, in the first quarter, we will have also, in our accounting, we will reflect some lower cost of iron ore that we had in the [force with opportunity on] the third and fourth quarter.

When I talk about LIBOR, it depends on the movement in the exchange rate.

We have cost pressure in Argentina, no doubt; less pressure in Mexico.

As a whole, considering the cost reduction plans that we have underway in the different plants, we are sustaining this.

I do not expect major effect coming from the cost on our system.

On the contrary, allocation of volume and increasing participation of the Mexican plant should gradually show efficiency in our system.

Okay, great.

Thank you very much.

Michael LaMotte, Guggenheim.

My first question has to do with the welded volumes and the reporting of blending your Brazilian line pipe volumes with your US pipe and the impact that has on overall reported volumes and expected realizations.

There's a big variance, obviously, in terms of the drivers of volumes of both segments, as well as the average pricing in both of those segments.

Can you give us a sense of what the mix looks like in welded pipe as it unfolds over the course of the next few quarters?

You are right that, let's say the welded pipe volume there is not homogeneous.

We have a very competitive -- we go from very competitive, low-margin sales into the US of heat-treated material to very higher-priced and high-margin products in the heat-treated premium-welded materials, for instance, for the five-year agreement, supplying the five-year agreement of Petrobras, the drilling in the offshore.

So this is, let's say, there is a big variety of products and difference in products.

What is changing over time?

While the share of the welded pipes in the United States and Colombia is relatively stable over time, and we do not expect major change in volume in the coming quarter, in the case of, let's say, the welded pipe or value-add there, we expect the first semester of 2013 to be a strong semester.

We had this batch of imported line pipe.

One is [altacaduna].

These are offshore line pipe that are very demanding and had a high level of value added.

In the first semester of 2013, we will be dispatching these products and other of value and casing and connector for Petrobras.

We do not envisage a project of the same size in the second semester.

We expect the activity of Petrobras to pick up again in 2014.

In the second half of 2013, we are seeing some constraint and delay in other major projects.

Okay.

So if I'm hearing you correctly -- and thank you for the clarification -- the strong first semester in Brazil, with greater uncertainty into the second semester and 2014, but if we get a recovery on the US side, the ability to offset that in terms of total volumes, could it -- is it possible that welded volumes could be relatively flat and stable in aggregate over the next four to six quarters?

I would say that the recovery in the US in the second part of the year, even if we had 100, 150 rigs, will not compensate for the slowdown in the Brazilian activity, I think, because volume will increase, but probably more margin-wise, some of these projects in Brazil are, let's say, complex and have a high value-add and higher margin.

But it will depend.

In the US, our ability to seek the dynamics of import, dynamics of rigs, in the third and fourth quarter of 2013 is limited.

It would be enough to constrain, re-constrain the importer to have effect on prices and, to some extent also, on volume.

Okay, Paulo, thank you.

And if you wouldn't mind just reminding us just your overall strategy for Brazil, you have taken -- correct me if I'm wrong, but it would appear a more vertically integrated approach to that market in terms of the investments in overall mill capacity.

Can you talk about how that is evolving and where you believe you are in terms of the strategic plan for Brazil?

Well, I think that we consider Brazil a key country within Latin America and for the energy development of the offshore.

So our strategy is to strengthen gradually our positioning in the casing and the downhole product and on the pipeline business that is required by this very complex development of Brazil.

To do this, we need to rely on full integration with the supplier and be able to guide also the R&D development of our supplier.

For instance, in the project that I was mentioning, the [Routa Deguna], we are using imported material for steel, just because some of these products are underdeveloped in Usiminas.

But for the second stage and for the future growth of the same complexity, we count on being able to develop a totally local supply.

So our product will be 100% domestic, and this will be important in fulfilling the requirement that the Brazilian government, Petrobras, is establishing for the supply of inputs for the development of the utility industry.

It is a long-term program.

Our contract with Petrobras is also five-year contract.

We have just signed a five-year contract for one -- for the range -- it will be a range of products that Petrobras need.

We are supplying also private, independent [trainer].

Our strategy is to proceed, strengthen our integration by enhanced cooperation with our supplier of raw material and combine, also, effort in the research and development in the new center we are opening during 2013 in the Isla da Fundao, the center close to Petrobras, in which Petrobras is inviting many companies supplying the oil system.

This research and development center will be very important for supporting our inroads into different areas of this business.

One final question on Brazil, if I may.

The shift to domestic -- meeting your contractual obligations with Petrobras with domestically produced product, does that reduce the cost of delivery as well?

Or is it simply about meeting local content requirements within Brazil?

No, no.

We are building together.

We count on being able to build a system that, by working together, will strengthen our competitiveness not only for Brazil, but also for export of specific range of product all around the world in a very competitive way.

So we are working in Brazil, for Brazil.

But we are working in Brazil also to supply specific niches that we consider profitable niches abroad.

Connector is one of these, and the alliance that we are building with Usiminas should support this.

That's great.

Thank you, Paulo.

Stephen Gengaro, Sterne, Agee.

Just wanted to follow up on one of the things in the press release, and I guess it combines a lot of what you're talking about.

But when you look at your expectations for EBITDA margins around current levels, are you talking about -- I assume you are talking about for all of 2013.

And as I think about that, what are the keys to really seeing maybe some more positive margin progression as you get through the year?

Is it pricing, you think, more likely?

Or is it more likely that you are increasingly more efficient at some of the facilities?

First of all, let's say the 27% EBITDA margin, I think, is a very strong margin within our industry.

Tenaris is clearly leader in this, and the efficiency in the investment and the differentiation of product built over the year are the foundation of this margin.

Now, if you are working continuously in how we can enhance this on both sides, on one side the differentiation in the product and in the market, and on the other side increasing efficiency on [the side of the] systems, the answer is clearly yes.

We are working on all of the rigs.

Now, I want to stress that part of our commitment, an important part, is to the service that comes together with the delivery of our product and the collaboration with the oil industry.

On this basis, we can create a high-value, differentiated product-service combination, and then industrial excellence will also increase the profitability on this.

We are continuously working on oil.

As I said also in the past, technical sales, the support of our clients, development of product, up until now has been the strongest driver of differentiation and profitability.

Industrial efficiency is also very important.

But the key for our business, considering the competitive environment in which there is excess capacity in different parts of the world, the key for profitability, in my view, is really the combination of product development, service, and regional deployment.

I don't know if this is covering your point.

That helps.

And maybe to even shed some more light on it, if you looked at -- just as an example, if you looked at your third quarter to your fourth quarter in 2012, and you had EBITDA margins which were -- there's a nice sort of step up, and then you look at where your volumes were better and where your volumes were worse, and obviously you had a very good quarter in the Middle East -- how do those different -- just sequentially 3Q to 4Q, which geographies were most positive for the improvement in margin, and which were maybe negative or flat, just to kind of give us a little more color on just in this instance what drove the margin growth and how that --

I can tell you in general terms.

In the fourth quarter of 2012, we started to see a strengthening of our East Hemisphere activity.

Now, very briefly, in 2013, Eastern Hemisphere will drive -- will have a strong positive growth, for sure and will compensate for the lower level of activity that we expect in North America.

If you look where we have our -- let's say the areas that are probably weakest today and, for the time being, will be so in 2013, well, for sure, North Africa is an area in which we -- this year, Nigeria, Libya, Egypt, Tunisia -- has been below what we would say would be a long-term expectation on our side.

And the other area is Venezuela.

Venezuela has been in trouble and will be in trouble in 2013.

These are the weak areas.

But I will ask to Alejandro Lammertyn to cover, let's say, [the finds] that are the strongest points in our regional deployment and will support 2013.

I would say, as Paulo mentioned, Middle East is an important factor of growth for 2013.

We have seen some positive impact in the last quarter of 2012, but still this was for delivery for Iraq.

The mix of products was not the same as we are looking at 2013, with where we will have fairly demanding projects coming from Aramco, where we see the activity growing, growing from 130 rigs at the beginning of 2012, 140 at the end of 2012, and we are expecting 170 rigs in 2013.

It is mainly driven by gas, deployment of gas.

This has been already tendered, and majority of the requirements, which have an important share in [an initial survey in] our pipeline.

Also, we see activities in the Emirates, where the delivery for the requirements of the artificial island for [Saso] are coming, and also the gas requirements of [Reg LSE] are coming into place in this, during 2013.

And we are also seeing stable activity in Iraq, compensating reduced activity in South Iraq with increased activity in Kurdistan, where we have the majority -- we have a good share.

Also we see, talking of the Eastern Hemisphere, we see an increased activity in sub-Saharan Africa, in the offshore, mainly in the shallow waters.

The activity is increasing in shale [number], which have a long-term contract.

And we are also very active in the deep offshore, where we are having an important participation in the pre-salt of Angola and where our presence will increase accordingly.

We are seeing four more rigs coming into play in 2013 in the sub-Saharan, where two will be for Angola, Mozambique.

Also, it's important where EMS has a strong participation and where we have the agreement with them.

(multiple speakers) for the rig.

Thank you.

And I will say that the quarter is, for sure, very important.

The [porter] increase in the Gulf of Mexico and in West Africa and in Southeast Asia not only drives down all product of high complexity and on which we have a very strong position with our premium joints and with raw material.

It will also drive complex, very complex line pipeline, riser, and all of the systems that participate in the subsea installation.

Tenaris is leader here, and the new plant in Nigeria for quoting -- supporting our activity in West Africa.

So we feel very comfortable that when the portal moves, it moves our downhole pipes, it moves also all the line pipes, seamless, complex products and coating.

This is a niche, but it is a niche of high value for us.

That's very good color.

Thank you.

Caio Carvalhal, JPMorgan.

I think parts of my question were already answered, but I always prefer to comment anyway.

We notice, of course, that year over year North American participation in the overall sales increased, but that was not what we saw on a Q-over-Q basis.

And I understand that that's not the expectation for next year.

So my understanding is that we should see 2013 much more like the first Q of 2012 rather than the full year of 2012.

However, we also noticed that in terms of -- that part of the profitability was maintained partially because of South America and the Middle East.

I think we heard a lot of Latin America so far, Brazil, as well as Colombia.

Could you talk a little bit on your perspective for Middle East?

I know it's of less relevance, but it seems to be increasing.

The level of -- the share of revenue we saw in the fourth Q from this geography should be sustainable over 2013, or were much more based on a one-off?

And if you could also discuss a little bit of the dynamics in terms of welded and seamless in that geography, that will be great as well.

And that's it.

Well, I think we -- Alejandro made a comment, a quite extensive comment on Middle East.

The drive for gas is moving all of Middle East, and we expect in 2013 a substantial increase of our sale of premium products in all of the region.

So this is, let's say will be a key driver of our sales in 2013, no doubt.

When I talk about South America, as I mentioned before, the missing point is Venezuela.

Venezuela at this moment has severe financial constraints, difficulties in moving material, so is not active in our shipment because of the financial constraint that Venezuela has.

But the rest of the region is moving.

Mexico is moving, is slowly expanding their operation.

Colombia should have in 2013, probably stronger than 2012, so we are optimistic on that.

And Argentina will depend on how fast the development of shale could be effectively undertaken.

Could be in the second part of 2013 we will start to see some increase.

But we do not have visibility at this moment on the quality, on the decision-making that may justify the important investment in this sector during 2013.

I think on welded and seamless, we mentioned before -- we comment on the relation between seamless and welded, the different position, the different situation we have in the United States and Colombia compared to what we have in Brazil.

Okay, thank you very much.

Igor Levi, Morgan Stanley.

Premium percentage has hovered around 55% for much of year.

And I think we are expecting it to start approaching 60% by year end.

Would you talk a little about where that came out in the fourth quarter, and how do you see the premium mix evolving in 2013 and beyond?

Ladies and gentlemen, please stand by.

Your conference will resume (technical difficulty) by.

Again, ladies and gentlemen, please stand by.

Your conference will resume.

Please stand by.

You may proceed.

Hi, this is Igor.

Welcome back!

Yes; sorry, we lost the line for a moment.

Can you -- the last question, if you can repeat or restate?

Of course.

So the premium percentage has been hovering around 55% for much of the year.

And we have been expecting this to approach around 60% by year end.

So I was wondering if you could talk a bit about where we came in at the fourth quarter for that, and how do you see your premium mix evolving in 2013 and beyond?

Yes, in our consideration, I would say in the fourth quarter we have been basically in line with the previous quarters during the year, around 54%, 55%.

These are, let's say, the differentiated, the high-end product.

Remember that this is not only premium, but also include the product in which we have a very strong differentiation on product in line pipe and in industrial goods and in power generation sales.

We expect this during 2013 gradually to increase.

In the end, probably we will be to a slightly higher level of what we had in the fourth quarter of 2012.

This is a trend that will go on, depending on how fast we develop product.

We evaluate our industrial structure to support fully the supply and the delivery of this high-end product.

Thank you.

And you have talked about offshore and shale being the fastest growth areas, with offshore, I think you mentioned, was expected to grow 50% in 2012 and shales or unconventional 15% to 20%.

Have you seen those type of growth rates over the course of the year in those particular areas?

And what do we expect for growth there in 2013?

Well, on this, I would ask German how we see the trend of increase in deposit and in shales, particularly in US as well as the international.

Now, starting with Gulf of Mexico, we, I think, have seen, particularly at the tail of 2012, levels which are pretty much close to what the pre-[Laconda] levels were.

We continue the trend to somehow reinforce itself over the course of 2013.

Year over year, we are expecting deepwater Gulf of Mexico to probably grow at a level of just short of 20%, 20% in generic terms.

Shale flow naturally are presenting the opposite picture.

Shale gas in particular is being grossly affected.

[Changeby and Marsados] went through a substantial reduction in 2012.

And it is our expectation that they will now remain so during 2013 as well.

This has been partially offset by shale oil, the Bakken in particular, portions of the Eagle Ford, some liquid shale, as we call it.

But overall, year over year, I think, net-that, when we look at shale and the shale space, I think we're going to see some [power] reduction.

Let me add one comment on (technical difficulty) constrained by infrastructure relation in Canada, in US and in Mexico.

So gradually, over -- or during 2013 and 2014, we expect that these trends, these infrastructural issues that are reducing the net price that the oil producer and gas producer are receiving, will increase this.

And we gradually stimulate increased activity in shale in oil and, later on, I think, also shale in gas.

We are very positive on this.

That's the reason why we changed.

We call this a challenging new frontier.

We think that US is in a period of, in the medium term, two, three, four year, will have extraordinary chances of expanding its energy base, industrial base, and use of gas for different purpose, including [etre].

But for a period, for a short time, medium term, we will also need to solve the chain of infrastructure problems that are constraining the movement of material and affecting the net price that the producers are getting.

Great.

And lastly, could you just touch on the trade case -- any potential to see anything in the first half of this year materialize?

I think that what we see in the market and in the import and the aggressiveness of standard importer, the terms, which are the problem of getting into the States, and the damage that this is causing to important sector of the industry, will justify a case in some moment during 2013.

But we will continuously look into this and also listen to the opinion and the position of all the rest of the industry that is to be affected even more than us, maybe.

Great, thank you.

I'll turn it over.

Amy Wong, UBS.

I have two questions, please.

The first one is, can you just provide a little bit more color in your North American comments how you would expect your Canadian volumes to evolve this year and what you are hearing from your customers in terms of activity in the oil sands?

Secondly, I have a housekeeping question on your working capital increase and particularly trade receivables for December shipments.

Could you comment why we saw this trend happen in the end of 2012 and whether or not those receivables have already been collected as of today as we speak?

Yes, thank you for the questions.

I think Canada is a very good example of an area in which the infrastructural constraints are limiting the potential of development of the industry.

But here, German, maybe you can comment on what we expect.

Basically, we are not positive on this year.

But, German, you may expand on this.

Yes.

I think Canada is perhaps the best example of how infrastructure limitations are affecting the oil development in Canada, particularly coming from the thermal space, which in absolute terms continues to remain a very important space for Tenaris, where we have developed over time a very important leadership role, which, as we have indicated in the past, marketshare on the premium connection side of it, which is north of 70%.

But volume-wise, we would expect in 2013 to probably be lower than what 2012 has been.

Now, on the gas side and the shale side, I think it's pretty much part of the rest of the gas North American dynamics.

So, in short, we know -- I said we are looking at Canada from a perspective that was expecting a bit less operating activity overall that will affect our overall volumes.

Yes.

Let me add it's very likely that in Canada, the most effective part will be the low-end part of our sale, while the S.A.GD program are going on, and probably on seamless, we may be able to have a volume similar or slightly below what we got in 2012.

Infrastructural constraints are very serious today in Canada.

Some of the producers here are getting $60 for a barrel of oil because of, obviously, of quality issue, but quality in terms of the [ADI] grade, but also because of the logistics of this.

During 2013 and 2014, this will be sold, and the potential of Canada is very, very huge.

Our position with the three plants, in Sault Ste.

Marie, in Calgary and in [Iscu], is unmatched by anyone.

We are very strong there, and should recover some, and we will be very well positioned in premium and in all the range of products.

Now, second question, on receivable -- this is, Ricardo, a question for you, why we have seen this increase in receivable and what is happening to this.

Yes.

Regarding what has happened to receivables in the last quarter, we have seen increasing working capital, mainly receivables.

This is partly related to the increase in sales in the last months of the quarter.

Looking forward, we expect to reduce the level of working capital during the next quarter.

And of course, we are going to reduce the level of outstanding days of collection.

And of course, we have already collected and we say that increase is (technical difficulty) the year.

In general, when the North American activity goes down a little and the economic activity is going up, our level of working capital is going to increase because, for different reasons -- the lead time, the timing and the receivable -- are moving slower in the East Hemisphere than in North America.

Great, thank you very much.

Julien Laurent, Natixis.

Two questions on my side.

First of all, on Brazil, could you quantify the size of this market for you?

Is it 10% of your sales?

And regarding your framework agreements with Petrobras, is it a normal commitment in terms of market share with Petrobras, or is there a commitment on volumes?

And the second question is on Venezuela.

Do you have any news about the arbitration?

You can understand well, I'm not sure -- maybe you can confirm.

Are you asking about the position, the relevance of our Brazilian sales for us?

Is this correct?

Do you have any -- I'm trying to quantify the size of this market for you.

Is it 10% of your sales, or could you quantify in term of volume?

And, given that you are selling premium connections there, it would make sense to quantify in terms of sales.

Is it (multiple speakers) in terms of your revenue?

Well, I would say Brazil is very -- I wouldn't give a precise figure, because it's really changing very much over time between the, let's say, depending of the size of the project that could be there.

But anyway, the overall size of this could be in the range of, let's say, close to $1 billion when there is a reasonable sales of line pipeline.

Sometimes -- and considering also the equipment sales, because we have a branch that is a public center that is an "other" in our classification, in our reporting, that is supplying equipment in which Petrobras is the main client.

For instance, this year will be a year of lower sales because of the delay in projects for Petrobras.

And this is also contributing to this.

So we can expect Brazil to be in this range, usually, between $800 million and $1 billion.

Over time, hopefully, in the medium brand, it could -- it will be higher.

No?

This was the first question.

The other question is concerning the arbitration.

I didn't understand to which arbitration you are referring to.

Yes, arbitration about the Venezuela and the nationalization of your plants there.

Yes, we have an arbitration going on, and we are pursuing this case.

But we are in the -- let's say this is a long process.

We are in the stage of appointing the arbiter.

This is not fast-moving arbitration.

There is time, so that it is possible Venezuela -- Venezuela is taking all the time in hand, you see.

So it's something that you will see over, let's say, years, period of years.

By the way, we have a very, very strong case.

So we are very confident in the end result of the arbitration for the expropriation of our share basically in Matesi and in the seamless pipe producing plant, Talta.

But it will not be something that we will see very soon.

Okay, clear.

Thank you.

And this concludes our question-and-answer session for today.

I will now turn the call over to Giovanni Sardagna for closing remarks.

Well, thank you all for taking part in the call, and we hope to hear from you very soon.

Thanks.

Thank you very much to everybody.

Thank you very much.

This concludes today's conference.

Thank you for your participation.

You may now disconnect.

Have a great day.