Tenaris Aktie

Good day, and thank you for standing by. Welcome to the First Quarter Tenaris S.A. Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to the Investor Relations Officer, Giovanni Sardagna. Please go ahead.

Thank you, Carmen, and welcome to Tenaris 2026 First Quarter Conference Call. Before we start, I would like to remind you that we will be discussing forward-looking information during the call and that our actual results may vary from those expressed or implied in this call. With me on the call today are Gabriel Podskubka, our newly appointed Chief Executive Officer; Carlos Alzaga, our Chief Financial Officer; and Guillermo Moreno, President of our U.S. Operations. Before passing over the call to Gabriel for his opening remarks, I would like to briefly comment our quarterly results.

Our first quarter sales reached $3.1 billion, up 6% year-on-year and 4% sequentially despite the disruption in the Middle East caused by the conflict and the closure of the Strait of Hormuz. Our sales benefited from seasonally higher activity in Canada, a limited recovery of activity in Mexico, higher offshore sales in Brazil, some stock building in North Africa and an advance of shipment in Saudi Arabia.

Average selling prices in our Tubes operating segment increased 5% compared to the corresponding quarter of 2025 and 1% sequentially. Our quarterly EBITDA rose 3% sequentially to $735 million, while our net income increased 22% to $564 million due to better results below the operating line. Our EBITDA margin remained at 24% as higher costs for maintenance shutdowns were offset by lower tariff costs.

With operating cash flow of $618 million and capital expenditure of $114 million, our free cash flow for the quarter was $503 million. Following share buybacks of $90 million during the quarter, our net cash position at the end of the quarter increased to $3.8 billion. Now I will ask Gabriel to say a few words before we open the call to questions.

Thank you, Giovanni, and I would like to extend a warm welcome to all of you. Before we go to our results, I would like to express that I'm deeply honored by the trust that Paolo Rocca and the Tenaris Board of Directors have placed in me and with it, the enormous responsibility of leading this company in the next phase of growth. At the same time, I'm very pleased that we will be able to count on the continued support and leadership of Paolo as Chairman of the Board.

When I joined the company as a graduate engineer in 1995, I never imagined how Tenaris would grow so quickly and come to play the leading role in serving the world's energy industry that it does today. During all these years, Paolo has been the architect of the growth and the transformation of Tenaris and a constant presence and inspiration to all of us. The journey has been truly extraordinary, and it has been a privilege to experience it from the inside and to have had so many opportunities for professional growth. I look forward to building on his remarkable achievements.

Now let's move on to our first quarter results and the Panorama that we have ahead. This quarter, reminding us that the geopolitical risk and uncertainty is ever present in the oil and gas industry. As is well known, the conflict in the Middle East has led to the closure of Hormuz through which 20% of the world's oil and LNG normally passes. During this time, our first priority has been the safety of our 1,000 employees in the region. I would like to give a special thanks to them for their unwavering commitment to serving our customers through this turbulent period.

In Saudi Arabia and the UAE, our customers have continued their operations, and we continue to support them. However, customers in Kuwait, Qatar and Iraq have had to shut in most of their operations. We expect our sales in the region to be affected in the second quarter in around $140 million. We are also seeing higher logistic costs as we seek alternative routes to the region and also from the global increase in fuel prices.

Amidst the regional turmoil, we continue to differentiate our service in the region. ADNOC Offshore recognized our reliable service and HSE performance with the Supplier of the Year award. In Kuwait, we have been awarded a 5-year contract for the supply of casing products and accessories to be used in the development of a complex new field. As an immediate consequence of the supply disruption in the Middle East, oil and gas companies and consuming countries are looking at diversifying supply.

Investments in short-cycle shale plays in the Americas are likely to benefit and some rig direct customers in the United States and Argentina are already confirming that they are adding rigs. The fleet of high-spec rigs operating in Vaca Muerta is expected to increase by 15% by the year-end as new rigs and hydraulic fracturing sets are brought into the country.

Tenaris will start to operate its third set of hydraulic fracturing equipment towards the end of the year. We are preparing for an increase of activity in the United States in the second half of the year, while in Canada, industry and government are working to increase LNG and pipeline takeaway capacity, which will allow activity growth in the years ahead. We are also strengthening our rig direct service through the integration of [Indiscernible], hardware and software for torque monitoring operations. We recently acquired this specialized technology and know-how that now forms part of our well integrity service and will add further value to our customers.

The outlook for deepwater drilling, offshore pipeline construction and further exploration activity in the next 3 years is promising. There is a significant number of deepwater projects in Africa, Asia and the Mediterranean, which are nearing final investment decisions, while in the United States, Brazil and the Guyana-Suriname Basin, developments are also moving forward.

Operators are looking to shorten time from discovery to first production, and Tenaris is supporting them by fast tracking the integrated supply of OCTG, line pipe, coating and accessories. As we look into the eventual reopening of the Strait of Hormuz, Tenaris, with its extensive presence, flexible supply options around the world. Its differentiated service and technology for shale and deepwater operations and the strength of its financial position is well placed to serve our customers as they respond to the need to replenish oil and gas inventories and increase drilling activity. I would now open the floor for questions.

[Operator Instructions] It comes from Sebastian Erskine with Rothschild & Company.

Gabriel best wishes to you on the new chapter here as CEO. My first question is on the 2Q kind of guide, you indicated EUR 440 million impact from kind of lower revenue and then the higher kind of cost impact. Could you maybe mention and give a sense of what that looks like in terms of absolute EBITDA impact from the higher costs? I presume if I assume decrementals sort of 50% and then obviously, the logistics cost in absolute terms. But any color on what that might look like to EBITDA? And then should we expect you to operate at sort of lower end of that 20% to 25% sort of medium-term target?

Very good. Thank you, Sebastian, for the question and for the kind remarks. Regarding the second quarter, as I was anticipating, due to the situation in the Middle East, we expect in the second quarter, lower revenues, probably mid- to high single digits is the range that we would like to guide today. There's still uncertainty. And this is mainly driven by the Middle East conflict. This $140 million that we had earmarked for invoicing in the second quarter. $40 million of that was anticipated in the first quarter and the balance due to the difficulties to get into the region are probably going to go into the third quarter delay. This is on the revenue side. Then you're talking about EBITDA margin.

There, we expect the EBITDA margin to contract a couple of points. This is going to be 1/3 related to the logistic costs that I will comment in a minute and 2/3 related to the lower absorption of fixed cost -- semi-fixed cost related to the lower volumes that we expect this quarter. Logistics is an important component. We expect about $32 million of higher logistic costs in the second quarter due to the conflict. And here, we need to separate 2 effects. One, the difficulty in arriving to our customers through the Strait of hormuz. We have additional cost on vessels that are waiting for berth in ports that are either in [Indiscernible] in the outer part of hormuz on the Emirates or Oman as well, some ports in Oman that we are using on even Jeddah in the Red Sea to access to Saudi.

So waiting times unloading and a second leg and inland transportation that is additional to the cost that we would normally have if the straight would be open. This accounts to around $8 million of estimate additional cost in the quarter. In addition to that, related to the price of oil, fuel prices are going up all over the world. This creates an additional cost of logistics, mainly in trucking, to some extent also in maritime freight and also railroads.

This is around, in our estimate, $24 million of higher freight costs related to the increase in fuel in the different parts of the world, clearly, a higher impact in North America, given the amount of intensity and service that we have, especially in U.S. and Canada. So these effects are temporary in this quarter, contracting the EBITDA margin.

That's very helpful. And my second question is on the North American business, obviously, performing very well now at a high commodity price environment, likely to see a ramp-up in spending at some point from E&Ps. But if I look at the business, do you expect the growth predominantly to be led by pricing? And we're seeing, obviously, Pipe Logix is now beginning to step up or by volumes? Is there really that much more kind of share gain to take given your position already? So I'm just thinking about that. Is it pricing led or volume-led in North America going forward?

Yes, Sebastien, on this point, I think the short answer is both volume and pricing, but I will let Guillermo give you a bit on color about what we expect on North America on the second half of the year, where we are seeing activity increase and possible price increases, and this will be -- is part of the improved outlook towards the second half of the year for Tenaris.

Thank you, Gabriel, and good afternoon Sebastian. As you said, we are expecting upside in both in terms of activity and sales and in prices moving forward. By talking with our clients, we are starting them to say that they will be adding rigs, particularly led by the small private operators, but also some medium and large-sized independents are planning to add rigs.

Putting all together, our expectation is that activity by the end of the year in terms of rig count will increase around 50 rigs, in other words, around 10% of activity. And we expect that we will grow with our clients in line with this. In terms of prices, Pipe Logix has increased 4% in the last 2 months. And we expect this trend to continue in the following months. So mainly pushed by the increase of raw material and logistic costs, but also because of the expectation of increase of demand.

Our next question, one moment please, comes from Marc Bianchi with TD Cowen.

Giovanni, I didn't hear you introduce Paolo, but I'm sure he's listening. I want to congratulate him on everything that the company has accomplished under his leadership. And Gabriel, welcome into the role.

Thank you very much, Mark, for your comment. And probably later today or tomorrow, I talk to Paolo and pass along the message if he's not listening, probably, but anyway.

Yes. Great. Well, I guess maybe continuing the conversation of how the business is progressing here. So second quarter, you've outlined pretty clearly, but the comment in the press release was that second half recovers, assuming the straight opens shortly. But can you talk about how quickly that happens? Is the expectation that maybe third quarter can back to be where first quarter was? And maybe unpack that a little bit for us, if you could.

Sure. Indeed, we are seeing volumes recovering in the third and fourth quarter. At this point, I would say, probably towards a higher fourth quarter than the third. But it's reasonable to assume that we will get very close to the first quarter levels during the second half. This is our best estimation today. And then we have, as [Indiscernible] anticipated, the trajectory on price increases that will offset the cost increases that we're having because besides the logistics that we talk about, that is an impact starting in the second quarter.

We have had higher raw materials on the metallic side, scrap, ferroalloys, hot-rolled coils, the full impact on these cost increases over the last few months, we will start to see, to a large extent, the full impact on that on the third quarter. So the pricing trajectory with a better North America, with a better offshore as well in the second half will support together with the volume, an increase on the pricing, returning to EBITDA margin levels close to the first quarter.

And just specifically related to that, does the Pipe Logix price need to improve beyond what we've seen so far to get to that? Or is it just what we've seen through April that gets you to where you just talked about by 4Q? Or do we need additional Pipe Logix improvement?

I think we need some more steam on the Pipe Logix, but I will let Guillermo comment on which are our basic premises that are really conservative on the Pipe Logix increase. Yes, we need some additional increases, but our expectation is that Pipe Logix will increase at least to allow us to offset those cost increases.

Yes. Okay. Very good. And then the other question I had was just on -- back on the Middle East and the opportunity for perhaps some more pipeline work to try to reduce the risk of all of the volume going through the Strait. There's been talk of expanding the East-West pipeline within Saudi Arabia. So I'm curious what your opportunity is for that or any other similar type of investments in the region?

Yes. In that regard, indeed, the East West pipeline in Saudi Arabia and the pipeline going to Fujairah and the Emirates have been redundancy contingency until now, but now are strategically important. So I think it's rational to assume that this is a study that might be continued and expanded. There is no clear indication announcement that these projects are going ahead, but it's very rational to assume that they will add a lot of value. From that point of view, we see how and if this will occur, probably for this type of pipelines, you are talking about a year, 2 year under a fast track scenario.

So this is not something that can be produced and built over a few months. In any case, we have a large diameter facility in Jubail, GPC in Saudi Arabia. So we will be ideally positioned if this project goes ahead. We have a capacity of around 450,000 tons in our facility in Saudi. And this -- depending on the diameter wall thickness and the trajectory of this pipeline, these pipelines could demand hundreds of thousands of tons to be built.

So I think we will see how this develops. -- over time, but we are ideally positioned to capture that from the pipeline point of view. And if there's a pipeline capacity, there's going to be drilling behind. So both in Saudi Arabia and UAE, we also have a distinctive OCTG position, so we will also benefit from that down the line. So too early to tell, but important upside opportunity for Tenaris if this develops.

Our next question comes from Matt Smith with Bank of America.

Congrats from myself as well, Gabriel and best wishes to Paolo too. For the first question, could I focus on tariffs? And the first part of that would be to ask what the current run rate you're seeing for Section 232 costs within your financials at the moment post the mitigation efforts that you've been carrying out and whether -- how you expect that cost line to evolve in the coming quarters? And then perhaps, would you mind if I add on to that, are you able to add any comments on Canadian antidumping headlines that we've seen in recent weeks?

Thank you, Matt, for the congrats. Regarding your first point on tariffs, we have arrived to a level of tariffs impacting our first quarter results of $110 million, $120 million. And we believe that we arrive at that steady state, and we will take this towards the same level towards the end of the year. So this is what we expect. We know that there is a USMCA that's starting to be discussed, but this will take probably all the second semester. So no variations, I think that we have in our forecast in the short term for further mitigation.

But as you said, this number used to be much higher than that in the range of $140 million, $150 million, I believe, at the peak, and we are maximizing steel production and pipe manufacturing in the U.S. to mitigate these tariff numbers. Regarding your second point of antidumping against Mexico in Canada, this is something that, yes, was announced early last month.

Let me tell you first that in Canada, like in many important bases in the world, we have a strategy of mainly domestic manufacturing and sourcing. So today, in Canada, 80% of our sales of OCTG come from domestic manufacturing. But still, we import from our different mills around the world to complement this local manufacturing. The impact of this antidumping, I believe, is quite limited going forward.

We expect 7% of our supply in Canada to be sourced from Tamsa going forward, in line with the pricing indication of this result. And this is particular products, specialized products, but that, by the way, are not manufactured by the local petitioners of the case. So we believe we have ability to continue to serving our customers in Canada with mainly domestic base, which has been all along our strategy. So this is something that we are factoring in our supply. It had an impact on the first quarter, which was $14 million, and this is something that we expect not to have later on throughout the year.

Perfect. And then perhaps could I switch turn for the second question towards the buyback. I think last quarter, I asked Paolo, whether the philosophy had changed at all, how you view the buyback. Could I ask you the same question in this volatile environment? Does your philosophy in terms of how you implement that, how you size that? Does that change at all? And should we look to the AGM next week to hear news on it, please?

Yes, yes. Thank you. On that point, as you know, this is a decision that is to be taken by the shareholder meeting first and then by the Board. So next week, we will see on May 12, the company shareholder meeting will consider among other topics, the renewal of the authorization of a repurchase of shares. Afterwards, it will be up to the Board to decide on that. So I cannot offer more color on that at this point.

And our next question comes from Paul Redman with BNP Paribas.

Gabriel, congratulations on the new role. I just wanted to ask, you've been COO for a number of years. I wanted to ask where you see the greatest opportunities for Tenaris as you step into the role? And then secondly, just on the Middle East, can you provide a bit more detail by country in terms of where you're seeing the greatest issues around logistics, costs, delivery to customer? Just a bit more detail than Middle East in general.

Yes. Thank you very much for the congrats again. Maybe I start from the second part related to the logistic costs into the Middle East. Clearly, Saudi and UAE due to this pipeline capacity that we talked before, they have continued their drilling operations, okay? It has been remarkable that the majority of the rigs have been operating under the challenging conditions that we had in the month of March and April. So it has been very important for us to serve them every day with our local manufacturing, our local service centers and bringing material into these 2 countries to replenish our inventories and support them, and we had 0 rig stoppages. So we have been able to serve them under this condition as in normal times.

So this is an important part of the effort. But again, going through logistics outside through almost with longer transit times and higher costs. When you go to the upper part of the Gulf, it's much more difficult to reach, much more costly to reach. And in Qatar, which is mainly producing LNG for export. And in Kuwait and in Iraq, the capabilities of export alternative routes is much limited. So drilling activity there has reduced much more.

So there was less of a need for the customers to receive new material, and there was more of a difficulty for us to reach those locations upper part of the Gulf, okay? So this is -- we will see how this unfolds in the next few weeks, in the next few months. Our base scenario continues to be that is a resolution that will come in the short term, and we hope for that. But this is what we see today. So the majority of the big delays have been in the northern part of the Gulf, while Saudi and UAE, we are finding alternative routes because the material is really needed, the rigs are working. Regarding the first question, maybe you remind me again on the first point.

It was just as you step into the CEO role, where do you see...

Yes. Well, I think there are a lot of opportunities for growth in Tenaris. This situation in the Middle East creates and strengthens the importance of energy security. diversification of supply. So I believe that as we were saying in the opening remarks, we're going to see actions by customers increasing drilling in different parts of the world. Guillermo mentioned about the U.S., but I think this creates and strengthen conditions for growth in Canada. Certainly, Venezuela was starting, but makes Venezuela even more interesting into the future.

We have Vaca Muerta, which is our world-class play that is also strengthened by the outlook on this situation. And the offshore, which has and will continue to have steam, we are seeing FIDs being even anticipated due to these conditions. So we believe that we are already entering an expansion cycle in the offshore in the deepwater. And this is something that we will carry into the balance of '26, '27 and '28. We are seeing projects that are already with FID and schedules even with 2-, 3-year visibility. So I believe that in these different areas and parts of the world, has a lot of opportunity to increase its business.

Our next question comes from Jamie Franklin with Jefferies.

Congratulations, Gabriel, and best wishes to Paolo. So firstly, I just wanted to ask on the international business. So last quarter, you spoke to generally seeing some stability in pricing with balanced demand and supply. Can you just give us a sense of recent price moves in the different regions given the current geopolitical situation and a kind of best estimate as to how you see that evolving as we move forward through the year?

And then secondly, you already partially touched on this, but could you give us an update on how your offshore backlog is shaping up? You previously talked to an expectation of 1H '26 revenues offshore being higher than 2H '25 and that 2H '26 would likely be at least as positive as the first half. So just wondering if you can give us a sense of how things have evolved since your last set of results.

Yes. Jamie, thank you for the congrats. On the second point, in the offshore, I confirmed what we said in the previous call. We are even seeing anticipation on some of the backlog of first half into the second half of '26. So where I'm sitting today, we are seeing an increase in revenue for the offshore in the second half of '26 versus what we are having in the first half of '26 in the range of 10%, okay? So this backlog for offshore is very important and continues to build up and even anticipate a bit.

So I'm ready to be a bit even more optimistic than I was in the previous call. Regarding pricing in the international markets, probably we need to divide Europe from the international markets. In Europe, as you know, CBAM has started in the beginning of this year. And the new safeguard in Europe will be implemented July 1. This is a safeguard that is much more stringent than the previous one. The quotas are going to be reduced by half of what they were.

And volumes in excess of the quota that today are paying a tariff of 25% to get it into Europe, this will go to 50%. So this will protect and strengthen steelmaking and steel pipe making in Europe, which I think is positive for Tenaris as we supply our European customer mainly with European production. So we see a trend in pricing that had already started that we are seeing in the second quarter of this year and probably continuing moving upwards in Europe.

Then when we go to the international pricing, as I was saying in the last quarter, there's certain stability between supply and demand. With the situation of the war in the Middle East, there is a pressure on costs, okay? So -- and we believe that this pressure of cost will be translated into the international pricing. The majority of our work in the international markets are contracts that have formulas in place from the different components. There's typically a legacy on 2 to 3 quarters for this to be seen in the invoicing of pricing. So I would believe that in our pricing, pricing in international business will go accompany offsetting the increase in cost over time.

Our next question comes from Arun Jayaram with JPMorgan Securities.

Gabriel and Paul, congratulations on your new roles. Great to see, Gabriel. Tenaris mentioned an increased focus on security and the diversification of supply in your release. One of the things that in an era of more energy security, there's been thoughts that key players in the Middle East, the NOCs may be focused on having more redundancy in terms of evacuation options by pipelines, so they're less reliant on the Strait of hormuz.

So I was wondering if you could talk about how Tenaris could be levered to this dynamic. I know there's been news about a Gulf Super Express pipeline that would take flows to the Red Sea and Mediterranean. But I just wanted to talk about -- see if you could elaborate on this dynamic.

Yes. Thank you, Arun, for the best wishes. And yes, let me tell you, I think a similar question came up earlier in the call, but still, I would tell you that this possibility or potential of additional pipeline capacity in Saudi and UAE is something that would look very rational today and a big business opportunity. I was saying before that this will probably take a year or 2 under a fast track scenario to be built. But it's something that we cannot take out of the equation. On the contrary, no announcements, media reports.

So this is something that we don't have anything to comment yet. But if that opportunity would materialize, Tenaris with its GPC large diameter facility in Jubail, we would be able to take an important part of this pipeline capacity going forward. This facility where we just last year expanded into the second line, and we have an ability even to debottleneck with limited investment to take this capacity even higher. So these pipelines would entail hundreds of thousands of tons of demand of tubulars.

So one way or the other, I believe that Tenaris will be well positioned to capitalize on that and all the drilling of OCTG that we come behind to make this pipeline capacity full. So we'll see a bit early to tell, but certainly a potential maybe eventually into a 2027 type of scenario.

Great. And I did join the call because I had another call, so I apologize on the question. And then my follow-up here is I did -- you hear your comments on outlook. I know the stock is maybe reacting to the near-term impacts in 2Q relative to some of the Middle East impacts. But I just want to see if you could maybe clarify your comments on the second half.

What we heard is your expectations that second half EBITDA could be close to 1Q, which is in that $735 range, which would be a little bit above the Street. So just wondering if you could comment on that outlook.

Yes. I would say that this would be a good estimate, give and take, it's a bit early. There is a lot of uncertainty. The Street is not open yet. So to be precise in the third and fourth quarter, to be honest, is kind of challenging. But from where we see and based on this assumption of a relatively short-term resolution of the conflict and the positive dynamics on volume in the offshore in North America and pricing trajectory, I think this is where we are seeing our results heading into the second half.

Our next question -- it comes from Guillaume Delaby with Bernstein.

For the new role. One question. Globally, when I look at the structure of the industry in terms of competition, the past 4 or 5 years have seen that probably reduced competition for companies like yours. My question is, given the strengthening outlook for the next 3 to 5 years, is it reasonable to expect that at some stage, of course, it is much too early to worry about, but at some stage, you may face increasing competition by the end of the decade. For example, in North America with the recent combination of U.S. Steel and Nippon Steel. So maybe I would like to have your view on the competitive landscape, very, very strong today, likely to remain, but how do you see it evolving over the next 3 to 5 years?

Thank you, Guillaume, for the congrats on the new role. Look, I think your question is very important. I would say that it's difficult for me at this position to illustrate in the next 5 years, the competitive landscape will improve or deteriorate. I would say that we are competing every day. Tenaris is built on being the best and bringing the best value proposition to our customers in different parts of the world. We are catering those segment customers, countries where we can find differentiation where we can be different.

We can be a partner of choice, differentiating on technology, service, local capacity. So these are the -- some of the values that we bring, and we are building on these capabilities over time. So I believe that there is a common threat for our industry, there has been steel pipe manufacturing from China. This has been what we consider in general, the majority of the international markets unfairly traded imports.

So this is a threat that we had that we confronted with the technology, with services and in certain areas of the world, also with antidumping and protective measures according to what the different parts of the world where we operate, consider that these were unfairly traded imports. Difficult to see how this will progress into the future. So we have been and will continue to be in a competitive world. We don't take our customer trust. We don't take our differentiated EBITDA margins for granted, and we work every day to remain competitive and to become the best option. So difficult to project this into the future, but this is what we are all focusing every day. We'll see.

Thank you very much for this answer. What I like is the humility. So I think it has been probably the main characteristic of Tenaris over the past few years. So very happy that it continues.

Thank you, Guillaume. And there is clearly a message of continuity in Tenaris and with my new appointment and the support of Paolo. I have been -- he has been planning this transition for the last 3 years as I have the role of COO. We travel together, we work together. And when I say on a daily basis, it's not a metaphor. It was on a daily basis. So I think the part of the message of the new role today is the continuity of the support on Paolo and the 25,000 employees that make Tenaris. And that lies -- that probably is one of the secrets of the strength of this company.

And we have a question from Paul Redman with BNP Paribas.

I want to touch on Venezuela. There has been a production increase over the past few months. I wanted to ask how involved you are in terms of sales in that market. And when you think about Venezuela, where do you think production could go to and the opportunity that makes for Tenaris?

Thank you, Paul. On Venezuela, we continue to have a favorable look and outlook. After the legal framework that we had in the previous quarter, there have been licenses granted to some of the companies. Some of the companies of the majors that are starting to operate have made some announcement of additional areas. So we see things progressing in the right direction, obviously, from a small size. Tenaris has never left Venezuela. We have always remained closed and waiting for this opportunity to return. We are mobilizing more resources, and we have plenty of Venezuelan colleagues in different parts of the world. So we are stepping up our presence in the country from the commercial, the technical and the service side. We will start rig direct services in Venezuela in the Orinoco area starting in July.

We are certainly a first mover, and we are the frontrunner as Venezuela recovers. Today, the business is important. I gave a figure of around $50 million for this 2026 in the last call, I think we are going to be in that range still. And we see rigs going up from the different operators that are early positioning in Venezuela. So it will be -- this will be a country that for us will increase substantially from this level into 2027. So we're quite positive about the opportunity in Venezuela. The range of production increase varies and it's still a bit uncertain. But with the outlook that we described before of the need of diversifying supply of oil, I think Venezuela becomes even more attractive and important to the global matrix than it was before the conflict. So we see that this is going to increase and Ten will be an important part of that.

Thank you, ladies and gentlemen. This concludes our Q&A session, and I will turn the call back to Giovanni Sardagna for closing comments.

Thank you, Carmen, and well, thank you, all of you for joining us during the call. Thanks.

And this concludes our conference. Thank you for participating, and you may now disconnect.

Good day, and thank you for standing by. Welcome to the Fourth Quarter Tenaris S.A. Earnings Conference Call.

[Operator Instructions]

Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Giovanni Sardagna, Investor Relations Officer. Please go ahead.

Thank you, Gigi, and welcome to Tenaris 2025 Fourth Quarter and Annual Results Conference Call. Before we start, I would like to remind you that we will be discussing forward-looking information during the call and that our actual results may vary from those expressed or implied during the call.

With me on the call today are Paolo Rocca, our Chairman and CEO; Carlos Gomez Alzaga, our Chief Financial Officer; Gabriel Podskubka, our Chief Operating Officer; and Guillermo Moreno, President of our U.S. Operations. Before passing over the call to Paolo for his opening remarks, I would like to briefly comment our quarterly results.

During the fourth quarter of 2025, sales reached $3 billion, up 5% compared with those of the corresponding quarter of the previous year and 1% sequentially as our sales to Rig Direct customers in the United States and Canada continue to show resilience and in Argentina, we resumed our fracking and coiled tubing services. Our EBITDA for the quarter was down 5% sequentially to $717 million or 24% of sales. These results include the full impact of the 50% Section 232 tariffs in the U.S. Average selling prices in our Tube operating segment decreased by 1% compared to the corresponding quarter of last year and were flat sequentially.

During the quarter, cash flow from operations was $787 million. Our net cash position at the end of the quarter decreased to $3.3 billion, following the payment of an interim dividend of $300 million in November last year, $ 537 million spent on share buybacks and capital expenditure of $123 million during the quarter. The Board of Directors have decided to propose for the approval of the general -- Annual General Shareholders' Meeting to be held at the beginning of May, the payment of an annual dividend of $0.89 per share or $1.78 per ADR, which includes the interim dividend of $0.29 per share or $0.58 per ADR that we paid at the end of November of last year.

If approved, a dividend of $0.60 per share or $1.20 per ADR will be paid on May 20, up 7% compared to the dividend per share of the corresponding period of the previous year. Thanks to the benefit of our buyback program.

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

Thank you, Giovanni, and good morning to all of you. 2025 was a year in which Tenaris demonstrated the resilience of its operation in the face of a disruptive geopolitical environment and lower activity in key markets. Thanks to our extensive geographical presence, the depth of the service we offer to our customers and the commitment of our employees, we were able to respond rapidly to the various situations we faced. Our results remained remarkably stable through the year, which we completed with an EBITDA of $2.9 billion and a net income of $2 billion on net sales of $12 billion.

Free cash flow amounted to $2 billion, all of which was distributed to shareholders through dividend and share buybacks. We are proposing a further increase of the annual dividend per share of 7% over that for the previous year. At the same time, we maintained a net cash position of $3.3 billion. In the U.S. and Canada, the U.S. was marked by further oil and gas industry consolidation and productivity improvement, a lower rig count and the extension of Section 232 tariff to the import of all steel products, including the steel bars we require for our seamless pipe operation Bay City, and the subsequent increase to 50%.

In this environment, Tenaris raised the performance of its U.S. production and supply chain system with its Koppel, steel shop, main pipe production plants at Bay City, at Hickman and Enbridge and various pipe processing facilities acting in concert to achieve a record level of production and supply, 90% of our U.S.A. In both the U.S. and Canada, we strengthened our market position and extended the differentiation we offer under our Rig Direct service model.

As customers targeted operational efficiency, we continue to develop and roll out our run-ready and well-integrated services that support them by increasing safety and reliability at the well site. Major oil and gas companies are seeking new production reserves to meet a more resilient long-term demand outlook and they're looking beyond the shales with their fast-to-decline curves, to deepwater development and exploration in frontier region.

Tenaris with its capacity to develop product for complex operation and to support fast track development with service and the supply of advanced coated line pipe solution at scale is working with most of these companies as they develop such projects. As new offshore projects are sanctioned around the world, we see many opportunities to renew our order backlog, while we execute on existing commitments.

Currently, we are delivering casing for Shell's Sparta 20K project in the U.S. deepwater extending our services for ExxonMobil's operation in Guyana and preparing a service base for TotalEnergies, GranMorgu development in Suriname while planning the production of seamless and welded line pipe and coating for the third phase of TPAO Sakarya gas development in the Black Sea. In Latin America, the Mexican government is taking steps to address the financial difficulties Pemex, which took a toll on oil and gathering activity in the country last year.

While in Argentina, domestic companies have been able to raise more than $4 billion in financing to develop infrastructure and expand production operation in the Vaca Muerta fields. We supplied the Vaca Muerta Sur pipeline and are currently supplying the Duplicar North pipeline. We are also investing to expand our new fracking and coiled tubing service business and expect to put a third set of equipment to work before the end of the year.

In Venezuela, following the intervention of the U.S. government, we are resuming our service to Chevron operation and building up our service capability in the country to support an increase in drilling activity. In the Middle East, we continue to consolidate our presence with the award of a long-term agreement for the supply of OCTG to the Northwest field development in Qatar, while in the Emirates, we enhanced our Rig Direct service to ADNOC, delivering a record amount of OCTG.

Saudi Arabia, also conventional drilling activity was reduced during the year. We completed an expansion at our local large diameter facility, from which we are supplying line pipe for the development of gas infrastructure. In addition to the OCTG, we supply for Aramco drilling operation. Our global integrated industrial and supply chain operations have been key to our ability to respond effectively to the different events we faced during the year. We continue to invest and enhance the efficiency and digital integration of these operations as well as reducing their environmental impact.

We made further progress towards our midterm target of reducing the carbon emission intensity of our operations as we brought our second wind farm in Argentina into operation. The 2 wind farms now supply essentially all of the energy requirement for our electric steel shop and operation in Canada. As an industrial company, our commitment to the safety of our employees and to the environment sustainability in our communities is absolute.

Also, our indicator have improved this year. We continue to reinforce our preventive action and monitor our performance in this aspect. Tenaris, with its presence across the world, competitive differentiation in product service, the quality and compliance of its operation and the financial strength to support its strategy remains well placed to confront an unpredictable and volatile future. I would like to thank all our employees and the communities which sustain our operation for their constant commitment and engagement that have made possible our results and achievement this year. I would also like to thank our customers and our suppliers for their ongoing trust and support.

Thank you very much, and we are open to any questions you may have.

[Operator Instructions] Our first question comes from the line of Marc Bianchi from TD Cowen.

I wanted to start by asking about the outlook here in first quarter and maybe you could talk about, to the extent you're comfortable how things progress beyond first quarter. When you talked about being close to current levels in fourth quarter, is that -- should we interpret that as meaning flat? And are there any nuances with volume and price that we should be thinking about as we build that out? And then any comments sort of beyond first quarter would be great.

Well, thank you, Marc. Well, within our visibility today and considering many parts moving in the energy market and also in the general geopolitical environment, I think it will not be easy to have a medium-term forecast. Now what we see is a relative stability of our performance and our position in the market during the first quarter and it is not so easy.

We do not see today a point that should disrupt our operation even in the second quarter. But for the time being, as we say, we feel comfortable in forecasting the first quarter in which the level of margin and in general, the results we can get are more or less in line with the 4Q. But it's difficult to have a more long-term forecast considering the volatility of the environment in which we are moving.

Yes. That makes sense. And then the other one maybe somewhat related, the margin resilience in the fourth quarter was quite good. And I'm curious how much of that benefited from some of the actions that you're taking? I think you mentioned Koppel in the press release to try to offset some of the tariff headwind that you've experienced. I think previously, we talked about that being something like $140 million a quarter of tariff costs that you're having to deal with. So I'm curious how much progress did you make on that in 4Q? And what is the opportunity going forward?

Well, we are, let's say, continuously operating in the efficiency of our operation, including our capacity to produce more steel in the U.S. So we expect for the first quarter of next year, that a lower level of tariff we get into our IFRS because in the end, we are operating on this even in the past few months. And we think that what is getting into our results in the first Q will be relatively slightly lower of what we have in the fourth Q.

But on the other side, the indicator of prices in North America, I mean, in spite of the impact on the hot-rolled coils and other products of the steel industry are moving relatively slow in the pipe business and especially in a welded pipe. So considering the impact of slightly lower tariff and where we are in terms of Pipe Logix and so I think what is moving around in the world, I think that this is the component that justify our vision of a relatively stable top line and margin data for the first quarter.

Our next question comes from the line of Matt Smith from Bank of America.

My first question was around the international business and on pricing. Just whether you have seen any signs at all of pricing pressure given how some of the international benchmarks have traded down, I guess, since summer 2025? Any color you could give on different regions could be useful.

Thank you, Matt. I would say that, as you know, our business globally is composed of many different niche, high-demanding product, different region, different level of service. So I would say, to some extent that the price impact is more easy to understand and project in North America than internationally. But by the way, I will ask Gabriel to give you a vision of what we see in front of us on the ground.

Yes. Thank you, Paolo. Good morning, Matt. On the pricing on the international markets, we see, in general, some stability, a balanced demand and supply, especially on the premium products, where we are mainly focused. So premium is our service, high technical qualified pipelines. This demand is quite strong, driven by offshore, by Middle East, in gas and our service development. So we see the demand on these segments quite stable. We have, in many cases, long-term agreements that have some formulas related to raw materials.

So I would say that the majority of our backlog and our business in international market are driven by stability in the pricing. It is true that there are some spot tendering where we're seeing a slight deterioration in the environment, especially when we are talking about lower end applications, but this is not the most important part of our business, and this is something that we monitor. So I would say, given all the moving pieces and the increasing component of our offshore during 2026 in our international mix, I would say that the pricing in the international markets are quite stable for Tenaris.

Thank you, Gabriel. Let me just add one point on which maybe -- that is the European. In Europe, maybe it's early to perceive the impact, but the CBAM and the safeguard that is supposed to raise the quota -- to raise the tariff to 50% and reduce the quota by almost 50% may have a favorable impact on relatively important segment of our international business that is all supported by the industrial power gen activity into Europe.

To some extent, I think in the view of the overall say, future of our operation, maybe not immediately, but we should be able to maybe improve our situation and pricing in Europe. And also this reflects with the present exchange rate gets into our -- to our top line relatively well.

I wanted to ask a second question around the buyback, if I could. So I appreciate the current tranche of $600 million is still ongoing, and we'll have to sort of await the next announcement later in the year. So I just wanted to ask, check whether your philosophy around the buyback has changed at all since last year? Or should we very much expect this to continue to be a material component of shareholder returns in the near future?

Yes, thank you. As you are saying, the General Assembly and the Board decided for a program of share buyback of $1.2 billion from May 2025 until May in 2026 divided in 2 tranches. The second tranche has been approved again in October. Now the decision obviously is to the assembly and the Board for the decision on this ground. But let's say, the factors that were relevant for the decision on the shareholder didn't change so much. So we will see if in the assembly in May and the Board after this should decide on this, when the second tranche of $600 million will be closed. They will consider the different factor, the level of cash availability in the company, the perspective of this. And on this basis, they will consider a possibility to continue the program of share buyback.

Our next question comes from the line of Arun Jayaram from JPMorgan.

I was wondering if we could talk about your expectations around potentially getting to an inflection point in the Pipe Logix pricing indices, just given your thoughts on import trends and where -- when and where could do you expect us to see that pricing inflection point? Because it continues to trend down, call it, in low percentage points at this point, looking at the most recent pricing data?

Yes. Thank you, Arun. Well, the factors that are, let's say, having an impact on the Pipe Logix are different. But you should also consider that there is a Pipe Logix for seamless and the Pipe Logix for welded. What we see is that, to some extent, the Pipe Logix for welded is having a drag down on the overall impact, something that maybe we were not estimating -- fully estimating before. Why?

When we saw the hot-rolled coil index going up as it is going up today, we were considering that this should have driven an increase in the welded pipe. But the import of welded pipe coming in based on the Chinese or Southeast Asia or other sources flat product is, let's say, containing movement in the Pipe Logix for welded. And this is, to some extent, having also an impact on the Pipe Logix for seamless product.

Now the hot-rolled coil went up so much. There is clearing the way for some import in the welded product and putting under stress the producer of welding product based on hot-rolled coils coming from the U.S. In my view, this is kind of temporary because antidumping action against importation or import of welded will contribute to the gradual alignment of the Pipe Logix to the higher level of the hot-rolled. But this is not something that we can anticipate immediately for the first quarter. But over time, should be acting, should be a factor.

Great. And my follow-up, Paolo, I was wondering if you could just provide us your thoughts on how Argentina could play out in 2026 versus 2025? I know that you're adding a third frac fleet in Argentina, but give us a sense of how you see things progressing in the ground because we have seen some IOCs adding rigs in that market.

Well, let me tell you that as I was saying in the previous conference, after the election in Argentina in November, the confidence on the investment community is increasing in Argentina. And even the oil and gas companies have been able to finance more than $4 billion, collect financing from different tools that will be used to, let's say, promote and carry on investment planned during 2026.

This process has been relatively gradual, but I think that over the second part of '26 and also following the biggest investment in the infrastructure, we will see this collection of financial capability will transform into a higher level of drilling in the country. This has been slower than probably we were expecting 1 year ago because opportunity are there, but also the level of country risk stayed a little higher after the election than we maybe were estimating. And this is maybe slowing down or at least is making more gradual -- the pickup has increased.

Also some of these resources has been used for consolidation in the industry, especially by local player. And after this consolidation, the investment will go in operation in the development. First, some of the acquisition has been completed and gradually in this field, drilling will increase. I would expect in the second half of 2026, we will see something moving in this sense. I remember, part of the drilling containment has been coming by the reduction of the operation in the south part of the country. Now this is obvious. There has been a closure of operation in the South. So the key and the core of it -- of everything will be Vaca Muerta.

Our next question comes from the line of Sebastian Erskine from Rothschild & Co Redburn.

I'd like to just start on the margin trajectory for Tenaris in 2026. And I think, Paolo, you mentioned earlier about the impact of kind of hot-rolled coil on ERW margins. I mean, looking at that, I think in the U.S., those have compressed about sort of $350 a ton since August. So I guess that would equate to something like a sort of $35 million, $40 million quarterly cost headwind, but that will take a while to show up. So when does that flow through into COGS? Or is it something we shouldn't really be thinking about as a meaningful impact? Any color there would be helpful.

And then I guess on top of that and more positively, when we look into the second half of the year, you've obviously got a lot of offshore work to materialize. So you mentioned Sakarya, Suriname and presumably, obviously, that's higher margin. So can we expect you to operate at the top end of your kind of 20% to 25% EBITDA margin guidance? Is that realistic going forward through the rest of the year and a kind of second half weighting?

Maybe, Gabriel, you can give an overview on part of the question. And then eventually, we will ask Guillermo on the other pathway.

Sure, Paolo. Good morning, Sebastian. Going to the part of your question related to offshore and how they will play out during 2026. I would say that the market in the offshore is quite operating at high levels. We have a strong backlog that we need to execute. As Paolo commented in the opening remarks, we are getting ready to deliver this impeccable execution. These are complex projects that require local deployment.

You mentioned the Suriname project. We are building the new service base in Suriname. The new -- the first shipments will arrive in June. So we are ready to deploy the OCTG and the Rig Direct services there into the second half of the year. We are also, for example, producing today thermal insulation coating in Nigeria to support the Shell Bonga North deepwater development. So these are important part of our focus and attention is on delivering this high backlog of orders. And we expect revenues in the offshore in the first half of 2026 to be higher than the second half of 2025.

When we talk about the second half, it's true we have an important backlog of Sakarya and other projects. Some of these awards -- additional awards require FIDs. We see some of the FIDs being announced towards the end of this year or even in 2027. So this will depend. So we don't have fully confirmed the backlog of second half of 2026. But we are confident that it will be at least as positive as the first half of 2026. So overall, I would say, the offshore contribution will be important for Tenaris.

And if you look at the industry projections, the level of FIDs of deepwater that we are seeing for 2027 are pretty strong, higher than the average of '25 and '26. And we are engaging with our customers early on in those projects much earlier than the FID. So we believe that we're in an offshore cycle that is going to be sustained for a multiyear period.

Yes. This is very important. When we look at the estimate of the investment in deep offshore for '27 and '28, the number apparently of estimation are showing level of investment in the range of $120 billion in '28 that are almost 3x some of the low-end years in the past 2, 3 years. So long term, look promising for this. Now Guillermo, maybe you can add on the U.S. operation best vision.

Yes. Thank you, Paolo, and good morning, Sebastian. Well, regarding your question about the trajectory of margins in the U.S. and particularly for our ERW pipes, clearly, the recent increase of prices of the hot-rolled coil and still the reduction of prices for the same products is putting a lot of pressure on our margins. And that is going -- that are going to be reflected mainly in the second quarter.

For the following quarters, with all the volatility that we are seeing, it's more difficult to forecast, as Paolo explained before, but -- and will depend mainly on the ability of the Pipe Logix to recover that we think that eventually will based on the push of the cost hot-rolled coil and scrap and also because of the expectation that the imports will continue to go down in the future.

Our next question comes from the line of Stephen Gengaro from Stifel.

So 2 things from me really. One is, can you talk a little bit about your expectations in 2026 for any material changes in working capital as we sort of try to think about free cash flow generation? And then maybe aligned with that, what level of cash do you feel like you need on the balance sheet to run the business? Like what level is excess versus what's sort of normal necessary operational cash?

Thank you, Stephen. Well, in general, remember, it's not only a question of the capital we need to run the business, but we also need to have always in mind the capital we need to have available for any expansion or opportunity that may come in front of us. This is an important consideration for the Board, for everybody when we consider the financial strategy in the flows to the shareholder. But as far as the working capital is concerned, I would ask Carlos an overall view because there are some areas like the receivable from some of the clients that is improving. And so you can give us a view of how you see this.

Sure. Thanks, Paolo. For the 2026, we expect to be quite neutral in working capital, but we will have some swings over the year. Especially in the first quarter, we're expecting an increase in working capital, mainly driven by our accounts receivable. As you saw during the fourth quarter, we have a big reduction in receivables, mainly driven by collections in some -- big collections from Pemex.

I think with Pemex, we have arrived to a level that from now on will maintain or increase a little bit. So we won't be seeing a working capital reduction coming from there. And then we are seeing also some terms, we negotiate some terms with customers in the U.S. that might impact a little bit our working capital needs. And also, we are seeing some slight increase in sales for the first quarter that will also imply an increase in account receivables.

In terms of inventory, maybe for managing our -- in our balance sheet, the service component of the company is very visible. We have the fixed capital that is slightly higher than our working capital because in the end, we have a lot of inventory to support our service strategy and our Rig Direct strategy. You think, Gabriel, we can imagine some reduction of this streamlining inventory or basically you imagine a stable situation here.

In general, Paolo, we are always looking for opportunities to improve. This is the case in all our Rig Direct programs, we are managing and balancing the ability to supply and have the right stock at the right moment and have efficient working capital. So this is a constant work. We have done an improvement during the year that we will continue this year on the work in process material. So this is something related to our industrial efficiency where we have been improving, and we have more room to improve.

And then there is a part of steel as we have this important LSAW pipelines that we need to buy the steel in anticipation. So typically, there is a longer lead time on these large pipelines that are also reflected throughout the year. But this is an area of attention, and we always think there is room for improvement.

It is important for projects like Sakarya.

For example.

Long term, long period of time.

Yes.

And also our operation may demand working capital for serving ADNOC with a long operation and stock demand.

We are serving every month 550 rigs worldwide. So this requires to have the raw material close to this rig.

Serving 550 rigs every day imply to keep all the inventory even in a remote region or at least like in the Gulf. But still, we're working every day to understand how we can optimize this by the way.

No, that's very helpful.

Our next question comes from the line of Alessandro Pozzi from Mediobanca.

The first one is really going back to the Q2 guidance. You mentioned a bit of an impact from higher raw material costs. I was wondering if you could perhaps quantify or give a sense of what that could be in Q2? And also, as we look throughout the year, I was wondering if there is any quarter where we could see an impact from mix, for example, more line pipe versus seamless and having an idea of the cadence of line pipe volumes, I think it could be quite interesting? And also on maintenance, whether you have any big maintenance quarters?

And second question on Argentina. Can you comment on the level of competition you've seen there? We've seen an Indian company getting a contract for a pipeline. And I was wondering your thoughts about the competition there as volumes, as you pointed out, are going up possibly from second half?

Thank you, Alessandro. Well, on the first point, there is, let's say, the impact of the row. When we look at the medium term in terms of this, we always keep -- follow basically 4 points: the Pipe Logix for seamless, the Pipe Logix for welded, the cost of hot-rolled coil and the cost of scrap. So on these 4 variables that are moving are acting on our, let's say, the indicator in the formula of our contract many times and also the costs that are underlying.

Up till now, I mean, what we see is an increase in the hot-rolled coils that is not followed by the Pipe Logix in welded because there is import from companies that could stay below the line of price, even paying 50%. This is hitting our -- to some extent, in our margin, but we think that this will be a reaction by the Pipe Logix some antidumping action to contain import. And I will ask Guillermo, if you see this happening in medium term, I mean, when we can recover the increased cost of the hot-rolled coils in our top line.

Yes. I think that following what I said before, I mean, remember, there is always a lag between the Pipe Logix and how they reflect in our prices. So normally, we have 1 quarter delay. And while the impact of hot-rolled coils, it comes sooner than that. Our expectation would be that we should start to see some reduction in Q3, but particularly in Q4.

Thank you, Guillermo. Now on the line pipe seamless after the acquisition of Shawcor, the line pipe for us is very relevant, and we are I think very competitive. But maybe, Gabriel, you see some changes in the balance between 2.

Yes, Paolo. Alessandro, regarding your question about the cadence of the pipeline projects, I would say that it's quite stable during the 4 quarters of this year. This is the visibility that we have today and pretty much in line in volumes on what we had on 2025, where we had important projects like Sakarya -- I mean, like [indiscernible] in 2025 in Brazil.

This year, we are concluding some pipelines in Argentina in the first quarter and second quarter. Then we will have Sakarya in the third and fourth quarter. We have, I would say, a relatively stable plan of pipelines in Saudi Arabia as well. And then the deepwater pipelines that we have in different parts of the world. So I would say, there is not a significant imbalance in our shipments of line pipe.

Thank you, Gabriel. On the last point on the tender in Argentina. Well, this was a tender for a large project for producing LNG in Argentina. The project is carried on by a private company that, let's say, include different shareholders, but it's a private company. They made a tender, a very open tender to everybody. And basically, we lose the tender because they were higher than the lowest bidder. The bidder, as you were saying, was an Indian company. Things like this happens, obviously.

Now what we are doing, we are analyzing the offer to see if this is an offer that is following the trade practice or is exposed to potentially an antidumping case raised by us. For the time being, we didn't take the decision here. We are just studying the condition, the condition of the local market for the Indian company, the condition of the pricing of this because we think this is important.

We also remember that Argentina had signed an agreement with the United States in which both parties are committing themselves to address the unfair trade practices in both countries. It is logical for U.S. to advance or introduce close of this in the relation with different region, different areas. And this is part of the agreement, the reciprocal trader investment agreement between Argentina. So we think there should be a good environment to analyze the specific situation of this offer and this tender.

All right. I don't know if I can squeeze in a last one on Venezuela. In your opening remarks, you mentioned that Chevron is ramping up drilling activities. Could you quantify the Venezuela opportunities short term, longer term for Tenaris?

Yes. On this, Gabriel, you follow closely this.

Yes, Alessandro on Venezuela, clearly, the situation is evolving. It's a dynamic environment. But clearly, there are signs that things are going to move positively with the hydrocarbons law and the recent of licenses, I think there are clear signs that some resumption of activity will occur. Today, Tenaris is in a unique position. We are fully serving the Chevron, the only major that is operating in Venezuela. They have a plan to accelerate rigs and demand for 2-wheelers, and we are ramping up for that.

This is today something limited, but we expect to expand into 2026. So we are also following the licenses of the other majors that might be coming back to Venezuela soon. So this is, I would say, still in the $50 million for 2026, but with a clear perspective of a higher potential into 2027 and when maybe more clear plans about the other majors are materialized. But overall, a big upside potential in the midterm, depending on how things evolve.

Remember, Chevron will not be alone. There will be other company moving. I think our position in Venezuela is unique. Remember, in Venezuela, we're operating the only seamless pipe plant until the plant was expropriated in 2008 by the government by [indiscernible] and at that time, we were the company serving the oil industry in Venezuela. So we also have human resources or people that are familiar with the operation in Venezuela, the service, the complexity on this, the product demand and so even if a lot of time passed, but we still, I think we have a very competitive and differentiated position.

Right. Sorry, did you say $15 million EBITDA, 1-5?

$50 million of revenue, 5-0.

Our next question comes from the line of Luigi De Bellis from Equita SIM.

Just one for me. On the Middle East and Mexico, could you share your view on the evolution for the coming quarter for both Middle East and Mexico?

Thank you, Luigi. Well, starting, let's say, from Mexico. Mexico, there has been a number of positive events in supporting Pemex. The government capitalized Pemex with a program of $20 billion that is important. And now Pemex is also issuing bonds and getting access into the market for important sum like $1.7 billion. I mean, relevant access with government guarantee. Now what we do not see yet is the definition of the plans that the Pemex will execute during 2026. We do not have clear indication of this.

And the private company are moving slowly. And some of the group is moving. Obviously, Woodside in the Trion is moving on. But some of, let's say, the contract that may have enabled private company to come and develop the resources. In my view, this is moving relatively slowly today. Maybe by the end -- the middle of 2026, we will have a better understanding of how they will organize, let's say, the development of the clearly huge resources that Mexico has. Now the question on Middle East, medium-term vision, I think, Gabriel, you also may comment on this.

Yes, sure. Luigi, for the question on Middle East, I would say, there's not much change on what we have been reporting in the last couple of quarters. Activity remains high. All the main key countries are investing. We have a strong position there with our long-term agreements in Saudi, UAE, Qatar and part of the market in Iraq as well. So I would expect our revenues and shipment in the next 2 quarters, first and second quarter of '26 to be pretty much in line with the last 2 quarters of 2025.

The only noticeable news is a probable uptick of drilling activity in Saudi. This is still to be confirmed, but probably during the second quarter of '26, maybe later in the year, we will see a comeback of rigs in Saudi, which reduce rigs during 2025. So we'll monitor that, and there could be a potential upside, but for the second half of this year on the [indiscernible] side.

Our next question comes from the line of Marco Cristofori from Intesa.

My question which relate on shale oil, shale industry in the U.S. Let's say that since the end of 2023, we have seen declining rig count, but a growing crude output. So -- and also breakeven are going strongly down according to oil [measure]. So do you think that this trend could allow a further increase of your volumes in the U.S.? And secondly, there are several insights that the shale in the U.S. could reach a plateau in the second half of 2027. So how do you see the evolution of the shale industry in the U.S.?

Yes. Thank you, Marco. I would ask to Guillermo to give his view on the evolution of this. In the question of plateau, frankly, I wouldn't -- I don't think we are able to predict the plateau. It will depend on the overall price of oil around. And there are many issues that are unpredictable concerning the major production region and so on and so forth. So in U.S. the plateau has been forecasted in the past at a lower level, and it is continuous surprising us with higher. And so I wouldn't bet on where this number will be in '27. Guillermo, on the question of the productivity.

Yes. I mean, as you said, I mean, the operators in the U.S. have been increasing their efficiency and productivity big time in the last 2 years. So with a much less number of rigs, they are not only producing more, but they are drilling almost the same amount of wells, and they are even going longer. So we are seeing much less rigs, but more production and slightly reduction in the consumption of OCTG compared to what we used -- I mean, so there is no such correlation that we used to have with the rig count.

Now looking forward, we still see kind of a stable market for 2026 compared to 2025. We may see some reduction of activity, slight reduction in oil offset by an increase of activity in gas. And as Paolo said, difficult to predict about production. Everybody is talking about plateauing, but at the same time, we see them becoming more creative and producing more oil from each well with the new technologies in terms of fracking, but also in terms of the level of chemicals they use. So we need to see as to where the innovation of the industry can go.

But clearly, if we are not at the peak, we are not far from it with this level of activity and rig count. The other variable that we need to take into account is that during the last 2 years, there has been a reduction of drilled by uncomplete wells. So some of the increase of the activity was also coming from wells that were previously drilled but not completed. The level of inventories of those wells has gone -- has come to kind of a bottom. So we don't expect much more of this in the coming quarters.

Our next question comes from the line of Kevin Roger from Kepler Cheuvreux.

I just have one question to follow on the U.S. and all those stories on the tariff implemented by the Trump administration and notably on the recent news flow that the Trump administration could reduce the tariff on steel and aluminum. I was wondering if you comment a bit more on what should be the implication on your side from a potential reduction on the tariff if, for example, we come back to a 50% steel tariff to 25% or something like that. Just to understand the potential impact on the U.S. OCTG market if we move in that direction, please?

Thank you, Kelly. Well, we don't know which is -- I mean, we only have an article on the newspaper. We do not have a written definition. If I should say, the issue may come from the impact of the U.S. economy of the extension of the 232 to the derivative of steel. There are in many products, derivative of steel, which means that they contain steel, there are basically affect price level in the states, but are not having a beneficial impact of industry in the states that is not producing this.

Now this universe of derivative increased so much that I think the comment of Trump maybe are just indicating a willingness to reshape what is considered derivative and what is not. Remember, there has been stages of expansion of the definition of derivative 1, 2. And before going to the third, he is considering what would it be, let's say, not creating undue distress in the pricing system. So this is what I understood. We will reconsider the derivative more than reconsidering the level of 50 for 25 because this is a key component of the 232. I don't see this to change.

Our next question comes from the line of Jamie Franklin from Jefferies.

So firstly, and apologies if I missed the answer to this one, but I just wanted to focus on your other business segment. Obviously, a big revenue and margin recovery in 1Q, driven by your fracking and coiled tubing services in Argentina. Can you just talk about how you expect that to trend through 2026 and whether we can expect a similar contribution in the first and second quarter and beyond that?

And then the second question, just if you could give us an update on your CapEx expectations for 2026 and kind of an outline of where you expect to be spending?

Thank you, Jamie. On the oil and gas, I was saying, during the second part of 2026, we are considering that the activity of oil and gas fracking should go up. The drilling activity will also pick up later on. There will be more need to frac. We are just bringing in one additional set of fracking because we are anticipating some increase by the end of the year. And this should drive to some increase on our activity in the second half of '23. This is basically the position on this.

The other point, CapEx, I mean, the CapEx will be more or less in line with what we have been spending in 2025. Looking at the forecast, we see even something lower. But I imagine that during the year, new need may come out. Usually, there is something that is coming out from specific intervention. So there will be something lower when we look at this from a planning point of view today. But maybe in the end, we will be close to the level of today.

Thank you. At this time, I'm showing no further questions. I would now like to turn the conference back over to Giovanni Sardagna for closing remarks.

Well, thank you, Gigi, and thank you all for joining us today. Bye.

This concludes today's conference call. Thank you for participating. You may now disconnect.

Good day, and thank you for standing by. Welcome to the third quarter Tenaris S.A. Earnings Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Giovanni Sardagna, Investor Relations Officer. Please go ahead.

Thank you, Gigi, and welcome to Tenaris 2025 Third Quarter Conference Call. Before we start, I would like to remind you that we will be discussing forward-looking information during the call and that our actual results may vary from those expressed or implied during the call.

With me on the call today are Paolo Rocca, our Chairman and CEO; Carlos Gomez Alzaga, our Chief Financial Officer; Gabriel Podskubka, our Chief Operating Officer; and Guillermo Moreno, President of our U.S. operations.

Before passing over the call to Paolo for his opening remarks, I would like to briefly comment our quarterly results. Our third quarter sales reached $3 billion, up 2% year-on-year, but down 3% sequentially, mainly reflecting lower sales to the North Sea and lower shipments for offshore line pipe projects in the Middle East, partially offset by a resilient level of sales to our rig direct customers in the U.S. and Canada.

Average selling prices in our Tubes operating segment decreased 1% compared to the corresponding quarter of last year and 1% sequentially. Our EBITDA for the quarter was up 3% sequentially to $753 million with our EBITDA margin for the quarter at 25%.

Our EBITDA for the quarter included $34 million gain recorded for the return of U.S. antidumping deposits paid on OCTG imports from Argentina for which the duty rate has been revised downward. Without this one-off gain, our EBITDA would have been $719 million or 24% of sales.

With operating cash flow of $318 million and capital expenditure of $185 million, our free cash flow for the quarter was $133 million. After share buybacks for $351 million, our net cash position declined to $3.5 billion at the end of the quarter.

Our Board of Directors approved the payment of an interim dividend of $0.29 per share or $0.58 per ADR to be paid on the 26th of November. The interim dividend per share is up 7% compared to the interim dividend per share we paid last year. Now I will ask Paolo to say a few words before we open the call.

Thank you, Giovanni, and good morning to all of you. Our results in third quarter once again highlight the unique industrial and commercial position. We have built around the world with competitive differentiation in key markets as well as an efficient industrial performance. In the United States and Canada, where overall drill reactivity has slowed, we maintain our level of sales thanks to the relative strength of our customer portfolio that due to the efficient operation, could maintain the level of activity even as oil price soften.

They have chosen to work with us for the long term and appreciate the reliable quality and performance of our product and the benefit that our differential Rig Direct services providing maintaining the efficiency of their operations.

Considering the high level of tariff rate and trade restrictions, we have been increasing production in the United States and Canada to ensure a reliable supply of high-quality products to our customers. Our mill in Bay City, in Hickman and so [ summary ] operated at record level of production and high levels of operational efficiency through the quarter.

Around 90% of our U.S. sales of OCTG are produced in the United States, with the remaining 10% being mainly imported for special application that nobody produced in the United States. In a dynamic and changing world, one of the key strength of Tenaris is our uniquely flexible global industrial system, where we can produce locally in many regions of the world, maintaining the same high level of quality through our fully integrated quality and HSE management system.

Two weeks ago, I was in a summary to celebrate 25 years of operations in Canada. Our employees and the local major and the NPE. This win, which is the core of our industrial presence in Canada was idle when we arrived in 2000. Today, following many years of investment, it is a leading supplier of seamless and welded part with accessories and coatings for the Canadian oil and gas industry.

Now the industry is expanding through the development of the [ Montney ] shale and export to LNG to Asia, extend the scope of our Rig Direct service in the region. We opened a new service yard in British Columbia, while the mill in so summary is further ramping up production to supply this operation. Offshore projects, especially complex deepwater development, which can provide significant new sources of oil and gas to meet the world's growing demand for energy, continue to move forward.

Last quarter, we mentioned the contribution we will be making to the Grand [ Mogo ] development [indiscernible]. Now we are also gearing up for the supply of coated seamless risers and flow lines and well deadline export line and ceasing for [ TPLO ] [indiscernible] deepwater development in the Black Sea. With this project, we are building a strong offshore order backlog for deliveries from the middle of next year as we look forward to the confirmation of other major offshore process FID.

In Argentina, the results of the Congressional midterm election are improving the condition for the financing of the development of the [ Vaca Muerta ] shale play. Additional rigs are being put into operation local companies are raising fresh dollar financing for their operations. While NII has confirmed is interesting in participating in the development of new LNG export facility.

Tenaris has also increased its energy production in Argentina. In September, we started operation at a new 95-megawatt wind farm, which in addition to our previously installed 100-megawatt wind farm is now powering our stop and pipe facility in campaign. In October, the 2 wind farms plus a small complement from our thermal electric plant provided all the power we require for our operation in [ Campana], with no power purchased from the local network.

The new wind farm is a further step to our goal of reducing carbon emission and improving the sustainability of our operations. Around the world, demand for electric energy is accelerating our production line for boiler and heat exchanger pipes in Europe is operating at full capacity.

As China continues to increase its overwhelming level of steel exports. Europe is also taking action to contain steel import with the strengthening of its steel safeguard measure which should benefit our operations in the region. In this volatile environment, Tenaris continue to demonstrate the resilience of its operation and financial performance, which is allowing us to distribute a cash return of around 11% to shareholders for the ACV.

We can now take any questions you may have.

[Operator Instructions]. Our first question comes from the line of Arun Jayaram from JPMorgan Securities, LLC.

Arun Jayaram from JPMorgan. Paolo, I was wondering if you could maybe elaborate a little bit more on the implications to [ Tenaris ] from the Argentinian elections. and perhaps narrowing in and the fact that you did mention in third quarter, you saw lower activity levels, some softness in frac and coiled tubing services. What is your outlook for the fourth quarter in 2026 in Argentina, particularly as you deploy an incremental new build frac fleet?

Well, thank you, Arun. Well, I would say that the agile in the Argentina election is marking an important turning point. The expectation of the market where for a substantial let's say, for a balanced results, but the real results has been a clear victory of the party or the [ President Mila ] with more than 40%. This has changed the -- let's say, the perception by the investor about the future sustainability and the ability to continue the transformation plan in Argentina by the present administration, even if this was a midterm election still is changing the proportion and the presence in the Congress, in the chamber.

So it will allow and give more leeway for the administration for pushing ahead with this transformation plan. This has been combined with a very strong support from the American administration and a substantial financial support by the American administration. This has changed the perception and the view of the financial community. There has been a very important increase in the level of stock exchange in the range of 30%. There has been a substantial reduction in the country risk, almost 400 basis points down, which was not expected or anticipated by the market.

This is important because it has changed also the willingness of financial operators to support initiative and business in Argentina. The oil company, in particular, will have enhanced access foreign financing for their development project. just in this week. Yesterday, there has been a first issuance of bonds, Tecpetrol with EUR 750 million. In this week, also YPF will do something similar.

So the access to finance by the oil company, in our view, will be stimulating the level of investment in the moment or at least in the last 6 months, the constraint on the finance operation has been a factor in the decision-making for new investment and for big project that could be developed in the coming 2, 3, 4 years.

So we expect that gradually, there will be increase in the investment in development of the asset in camera and also a stimulus to long-term project. One example could be the NEI project for LNG. If you refer to the first quarter, I would anticipate some increase in the number of rigs operating in the country. And gradually, we will see possibly something more during 2026 and 2027 when more substantial program will proceed. So we are positive on Argentina, and the election has been a turning point, in my view, in stimulating the level of activity in the energy sector and not only in the energy sector.

Great. That's super helpful. Paolo, I was wondering if you can maybe provide your thoughts on how margins could trend in the fourth quarter. As you know, in the U.S., the last couple of pipe logic index readings have been fractionally down 1.3%. The prior month, 0.5% this during October thoughts around margins in the fourth quarter because I do think the guidance implies relatively flat sales on a sequential basis.

Well, you are right, in describing the evolution of 1 index -- relevant index, that is pipe logic. As we mentioned in the last conference call, in a market that is in which the important material represent share in the range of 40%. When -- like what has been done in June this year was raising the level of tariffs to 50%, sooner or later, as we anticipated in last conference call, we'll have some impact on the price.

The point is that the accumulation of stocks before the set of the tariff in the market and a slight decline in the number of rigs are keeping pressure on prices. But as I say in the last quarter, I think that gradually sooner or later, we will see, let's say, the impact of this situation and the level of price will start to recover.

On this more specifically level of stock, I would ask Guillermo to have his point of view from inside concerning, let's say, the potential evolution of this in the future.

Thank you, Paolo and Arun. Yes, I mean during the first 3 -- so far this year, we have seen a high level of imports very high during the first semester, we started to see some decrease in the third quarter. But still, we have not seen the full impact of the 50% tariff in those imports. So we are expecting further reductions during the current quarter, and particularly in the first semester that should allow the market to be much more balanced today, the level of inventories on the ground at around 7 months, so above normal levels. And as soon as this happens, prices will have some more power to increase.

Our next question comes from the line of Matt Smith from Bank of America.

I wanted to start off with a very strong sales print in the quarter, some surprises on the mix as well, especially welded sales up in the quarter. You also referenced a bit of a pull forward in Middle East orders. So just hoping you could reflect on those trends within the quarter and how you expect those mix effects to potentially change or not to change as we head into the fourth quarter, please?

Thank you, Matt. As you see, the -- we think we had a good level of sales and we also expect for the next quarter to have a level of sales close or in line with the third quarter. Now there has been strong sales of [indiscernible] mainly due to 2 factors.

One is OCTG, oil country tube goods in the United States. Areas in which also to respond to the pressure of tariff we are substituting some of the intermediate and surface casing with welded product instead of seamless product. This had an impactment impact. The other point is the delivery of the big pipeline, the terms as it's called, there is the big oil pipeline there is enhancing the evacuation of [ Vaca Muerta ] in the first stage, the 350,000 barrel a day and subsequent 550. So it's very big pipeline. We are finishing the delivery of the [ pie ] for it just in the third quarter.

This has been one of the reasons. Looking ahead is likely that in the fourth quarter, this ratio get back to the previous levels. I mean we do not have similar strong delivery for the pipeline. While in the case of OCTG, we will continue to maintain the share of well. So you can expect that this could be slightly lower.

Okay. Perfect. Then I wanted to change tack on to shareholder distributions, if I could, a 7% increase in the interim DPS level today. I mean, given the extent of the cash power, you still sat on the strong performance you reported and the recent sort of announcement was referenced to the controlling shareholder family.

I just wondered how sustainable the market should view the current buyback level by which I'm really referring to the $1.2 billion announcement made last year. I mean that looks like something that's very affordable for 2026 too from my perspective. I know you still have the $600 million to complete first of that original announcement, but I was hoping you could already talk to next year's decision and your early thought process there, please?

Well, what we have in front of us, we will execute the second tranche of the buyback. And as you saw, we -- the Board approved a level of dividend more or less in line in absolute term with the previous year but higher per share due to the buyback impact. This is what we have in front of us. And then it will be up to the Board to decide what to do once we completed this second buyback.

As we mentioned in the opening remarks, by the way, the 11% return for shareholder is, let's say, good showing a good performance of the company. I mean, in this moment, Tenaris has shown resilience in a very volatile environment and delivering to the shareholder, I mean, a very substantial return in our view.

Our next question comes from the line of Marc Bianchi from TD Cowen.

The press release commented on some additional tariff cost headwind in 4Q related to this, I guess, second to 30% to 25%. We previously talked about that, I think, being the 25% being equivalent to about $70 million of quarterly EBITDA or quarterly cost. Is that the right way to think about the progression from 3Q to 4Q on an EBITDA basis? It sounds like maybe there could be some offsets. You mentioned the mix of more OCTG that should be a favorable benefit to margins. Maybe you could help us understand a little bit better the EBITDA progression from 3Q to 4Q.

Thank you, Marc. Well, in the next few will see, as I mentioned, maybe some lower volume but potential sales in line or close to what we have seen in the third -- but we expect the EBITDA to be lower in the range of single digit because of the impact of the tariff in our cost of sales. We are paying tariff on the bars of steel that we are bring into the states for supporting our rolling mill. We pay the 50% tariff on this.

But this tariff is getting in our inventory and is released gradually while we proceeded in the cost of goods sold. So in the third quarter, we pay a higher number, a higher amount compared to what is included in our cost of sales. But in the fourth quarter, we expect an additional, let's say, that this tariff included in our inventory will get into our cost of sales. So we will have higher cost of sale for this region.

We expect this in the range of $40 million that will, let's say, affect our EBITDA in absolute terms. Then there are other factors that could contribute to this, but this is our estimate today. In terms of the margin, as we anticipated, also in the last conference we continue to expect margin in the range between [ 20 and 25], not far slightly lower than the one we had in the third quarter.

Okay. That's very helpful. And just to clarify on the starting point for the EBITDA comment, was that the $753 million that included the $34 million gain? Or are you excluding that when you talk about being down single digits?

No, no. I'm talking about the adjusted EBITDA because I'm considering without, let's say, the recovery weather on the antidumping. We think that considering this, there is a normal -- in the coming quarter, we will have a lower EBITDA for the reason that I mentioned.

Very clear. The other question I had was on the -- I think last quarter, we talked about some pipe that had been shipped from Asia before the second round of [ 232 ] and that was still in transit and that needed to get landed and integrated into the market before things stabilized, I guess. I mean, I understand that you mentioned the inventory on the ground is still a bit of a problem, but how do we see this type and transit issue playing out?

Giovanni, maybe you can say if this is how this situation evolves?

Yes. Yes. This is correct, Marc. I mean the impact of the additional 25% that were implemented in June, we said that we were going to start the full effect of this during the fourth quarter of the year. And this is what we expect. Now due to the shutdown of the government of the -- in the U.S. We don't have import statistics, but our understanding is that they are going down, and we will see further reductions in the following quarters.

Our next question comes from the line of Alessandro Pozzi from Mediobanca.

First one is on the outlook. You provided a description of what you think is going to happen any chance you can venture a little bit further out in Q1 and see what could be the main moving parts as we go into 2026. And also while we are on the topic maybe any color on the level of tender that you expect Middle East and the deep water for 2026.

And the second question is on Q3, strong sales, especially in North America, it feels like you are gaining some market share. But if you can maybe elaborate a bit more on the reason for the increase in sales in Q3 despite lower rig count in the U.S., of course, all U.S. would be appreciated.

Thank you, Alessandro. Just on the first point, which is the forecast. Let me -- I mean, will be very relevant what's happened with the tariff because just to summarize. Today, we are paying every quarter an amount in the range of $150 million this tariff. And as I say before, in the third quarter, only a part, a substantial part of this enter into our cost of sales.

But looking ahead in the coming quarter, we will have increasing cost getting into our cost of sales. But on the other side, we are doing taking action to reduce the tariff by increasing production into the states for steel, for pipe. We expect production in our copper plant steel plant to increase from now on, continuously and contribute to a reduction in our import of this. And also, we are expanding our production in pipe.

So also the sum of the import that is complementing our sale will be reduced. So we have our own plan for reducing this. But there is also the negotiation underway. All the country from which we are shipping steel into the States, Argentina, Mexico, Europe, from Italy and Romania have a negotiating table with the United States and there could be some reduction or negotiation that may affect the 232 for still in this case, for still semi-labor product, not for finished product probably.

So this is not predictable today. But I expect that over time, with Argentina due to the extraordinary relation special relation that has been established between treat Trump, presemilate and the administration, there's going to be a discussion on this. With Europe also maybe there could be an agreement in line with the U.K. agreement and with Mexico also, there could be negotiating citing table.

So this will be relevant and will affect our performance also in the coming quarter in the medium term. Probably, we won't see any change here in the fourth quarter apart from what I mentioned. But looking in 2026, we need to consider also a potential change in the level of tariff for our steel bars on top of what we can do ourselves. As far as the Middle East and the situation in this, I will ask Gabriel to comment on this.

Thank you, Paolo. Alessandro, the Middle East business, I would say, is overall stable at good levels. If we break down the important components Saudi, as you know, has been decreasing activity in the first half of the year, but we see this drop in rates stabilize. We believe that Saudi as bottom in its drilling activity. And even there are some early indications that there might be a rebound of rigs into 2026, but this is something too early for us to factor in our forecast.

Another component of our business in Saudi is our pipeline business. And last month, in September, we started deliveries of the large pipeline. So this is something that we accompany us well into 2026. So line pipe offsetting some of the lower OCTG in Saudi. When we look outside Saudi, the key producers in the [ GCC], UAE, Kuwait, Iraq, they're all pressing ahead, increasing capacity and offsetting depletion in line with the core of increasing crude production.

So we see those plans steadily going ahead. Qatar, which is more of an LNG story, we see Qatargas preparing for the new campaign of the North Field West, 50 wells that would probably supply towards the end of '26 and '27. So overall, a lot of moving pieces, but I would say, the Middle East, stable and resilient into next year.

There was also a comment on offshore, Alessandro. We commented that the shipment for offshore in the second half was a bit lower in the first half, where we had a lot of offshore pipelines in Brazil, in South [ Subsaharan ] Africa that were not repeating in the second half. But as Paolo mentioned in the opening remarks, we are building a strong backlog into 2026. The [ Scaria ] Phase 3 is a good example. And we are seeing some other projects moving ahead with likely FID in the first part of the year. So overall, we are pretty much positive and constructive on the contribution of offshore into 2026.

Thank you, Gabriel. On the last point, that is the market share, I think we are gaining some market share. But let me tell you I think the reality is that our clients are gaining market share for different reasons into the space of North America. I will let Guillermo to comment on this, even if this is in your view to [indiscernible].

Yes, I think that it is sustainable. Our clients are mainly the large operators that have shown much more resilience and the smallest one, and we expect this to continue. Now regarding the correlation of demand of OCTG with rig count there, we need to be very careful because as we have explained in other conference calls. Most of the tractors, particular hours are increasing productivity and efficiency. And therefore, the impact on the demand of CTG is on the downward trend is lower than if you just take into account the rig count. So you need to take both into account. But indeed, our market shares have slightly increased due to the resilience of our grid.

Yes. I would add just one comment. The large operator are more resilient in front of a perception of a reduction of the price of oil. They have more productive play. They operate in more productive play. They have better efficiencies. So the operator we are serving tends to be more stable and resilient even when the perception of price of oil over time may be subdued consider, let's say, maybe months ago.

Okay. And sorry, on the -- you mentioned intensity. Can you give us maybe an update on where we are in terms of intensity now versus the, let's say, a year ago? And how much improvement there was?

Yes. You mean OCTG consumption?

Yes.

I would say that it's around 2% to 3% higher. So if you see a record you need to consider that half of this has been compensated by an increase of productivity, right? [indiscernible] takes them to drill a well, but also because they are extending the lateral [indiscernible].

Our next question comes from the line of Sebastian Erskine from Rothschild & Company Redburn.

The first one, just on Mexico. So you secured some work from [ Woodside ] for the [ Trion ] project. And I think recent news flow more broadly has been positive for Mexico as kind of [ PNX's ] strategic plan is being flushed out and the mixed contracts are being signed. In your view, how much of a factor is Mexico going to be on a volume perspective in 2026 versus this year? What was the potential upside from that region?

Sorry for the region were -- we were mentioning which reasons can you repeat?

Yes, sure. Just in Mexico -- just obviously ...

First of all, on the question of [ Trian ] and other private company that are, let's say, operating. What we see is that this is starting to moving on in different direction, also some of the contract -- new contract that [ Pemex ] is giving for drilling are moving on.

The first one has been assigned this will imply additional drilling in Mexico. This is one point, including the project like [ Tryon ] and outside that are going on. Second point is the financial situation of [ PEMEX]. After the refinancing operation for $12 billion is more -- I mean, is recovering ability to consider, let's say, payment to the supplier during the third Q, we didn't receive, but now we are receiving payment, and we expect during the fourth quarter to receive a substantial payment on our receivable you'll notice the receivable has been going up.

One of the reasons has been the delay in payments, but we expect this to improve and we expect the, let's say, the recovery in the financial reason of [ Pemex ] to have an impact some moment. In our -- for the visibility that we have in the coming quarter, we do not see a major change. But we consider the refinancing signal that over time, during 2026, there will be additional activity by the private company and maybe hopefully by [indiscernible] also.

Really appreciate that. And just a quick one on kind of unit raw material costs. It looks like you benefited from some kind of meaningful deflation in the third quarter, particularly in hot rolled coil. Can you give an update what you're expecting on the input cost into the fourth quarter and for the moving parts kind of ex tariffs?

We do not expect a major change because the situation of high inventory, there basically containing the impact of tariff is also something that is to some extent, affecting the hot rolled coil. I mean the price of other coil is higher, but it's not care as much as one could have expected for the size of the increase in the import of this. I think that maybe, Carlos, you're looking at our -- the impact of oral coils on our cost of sales, you can add something.

I don't see major change in small increase for next quarter, then flat and going down. The effect that we're going to see in our costs next quarter is the effect of tariffs, as you mentioned already. The impact of tariffs in our cost of goods sold will increase during this quarter to achieve almost the full effect of the tariffs.

Our next question comes from the line of David Anderson from Barclays.

Just want to get back to the Middle East, if we could, please. Specifically on the emerging unconventional resource plays in Saudi and UAE. So [ Aramco ] just signed contracts in the third phase of [ Japara ] is now planning to drill something in the order of 400 or 500 wells next year. And the UAE, [ ADNOC ] has recently talked about 300 wells annually [indiscernible] 2027.

Presumably, all that's going to be seamless as it is in the U.S. I was wondering if you could talk about this opportunity for Tenaris. I mean if we just kind of run the rough numbers here, this seems like a pretty substantial uptick if we kind of use the same numbers that we see in the U.S. shale and applied over there. Can you just talk about how important this is for your Middle East business over the next couple of years, please?

Thank you, David. And Gabriel?

Yes, David, indeed, we are excited about the unconventional opportunity in the Middle East. As you mentioned, this is something that is not new. [indiscernible] Jaora has been there and increasing rigs steadily over the last 3 years since the development started. And this is an area that we are participating. As of today, we have an important share in the seamless and conventional space in Saudi and that also demand pipelines for connectivity and transportation of gas in the Kingdom.

So this is exciting and is the part that has been more resilient the decrease of rigs for Saudi that I was referring before. Clearly, the gas development in Saudi is the most resilient that they are targeting to replace oil for internal consumption. Going to UAE. There is also an opportunity of unconventional is a bit smaller, but the [ nano ] is accelerating in their own operations and with partners they are bringing and they have some partnerships of some concessions. And there, we are also leading in terms of market share and position all the unconventional plays. So within the broad scope of supply that we have with [ ADNOC ] unconventional is an area that we are participating and leading. So it's [indiscernible] that we expect growth as well going forward.

And just a quick follow-up. Where do you source that pipe? I don't think you manufacture any seamless in the Middle East? I know you've got a well good facility, I think you have a JV with [ Aramco ] in Saudi, but I don't think you have any seamless production over there. Where do you source that from a project like this? That's a lot of [ pipe ]?

Yes. For the -- in Saudi Arabia for pipelines, we saw domestically for our SAW large landmine. When you go to the OCTG side, there is a mix string of welded and seamless. The welded we produce ERW welded for surface casing, domestically sort on coils of Saudi and our production of pipes in the kingdom.

And for the similar component, we source linen from the local mills in Saudi and then we finish to our connection. When we go to UAE, all our material is brought from our main mills in Argentina and Mexico and to a large extent, also feed it in our finishing facility that we have in [ Abu Dhabi]. So it's a mix of combination of pits with a heavy component of domestic [indiscernible].

Our next question comes from the line of Kevin Roger from Kepler Cheuvreux.

Yes. two, if I may. The first one is on the profitability of the business based on the region, the different region. And I was wondering if you can give a bit of color on where do you stand U.S. versus international right now in terms of profitability? Is there any big difference or the things that are normalizing close to the same level? That would be the first question, please.

And the second one is related on the working capital and maybe you have, in a way, given the answer with [ PEMEX], but just trying to understand the [ 300 million ] negative movement in working cap in Q3 when you say that it's an increase in receivables. Is it something in where a one-off that you expect to recover in Q4? Or there is something else beyond this movement, please?

Thank you, Kevin. Well, on the first line, Tenaris is selling in the different region, a very diversified portfolio product. So it's pretty difficult to say profitability for the market. For instance, when we're talking about offshore, depending if it is in Africa, in the Gulf or in the Southeast Asia or in the Mediterranean.

We have a range of products, including line pipe with quoting that following an acquisition of [indiscernible] some cases represent an invoicing even superior or higher than the invoicing on pipes. So it's difficult to do differentiation region. We have differentiation due by product. Some of the most competitive products are the onshore welded line pipe. There are examples in Argentina or in Saudi Arabia.

These are, let's say, the tail of our profitability, while the most profitable area could be the line time coated with insulation for complex offshore product. In the U.S., there is an average, but still in the U.S., there are also there differentiation between production casing and suffer caring or tubing.

So I wouldn't say there is a regionally driven profitability impact, I would say, is more delivered by the mix of different projects and sales. When you talk about working capital, we are seeing the increase in the working capital, this is driven by the delay in payment of [ PEMEX], and this is something that we expect we will be going in the opposite direction in the fourth quarter.

The other component of the increase in stock is due to the incorporation of tariffs into our stock will probably stay at the same level. So the inventory has a higher cost inventory or bars because of the impact of the tariffs. As we mentioned, the tariff had an impact in the third quarter in the range of $80 million and will increase something in the range of $40 million, incorporating in our inventory in the fourth -- this is the reason for some lower EBITDA.

It is also something that will remain relatively high. Then that is all what we can do in speeding up the receivable of some other areas like Middle East that maybe may contribute to improvement of the, let's say, to reduction of the need of working capital during the fourth Q. In this sense -- has been a kind of trade, I would say, in terms of absorption .

Our next question comes from the line of Paul Redman from BNP Paribas.

I had a quick question on inventory levels in the U.S. and where you expect imports to fade quicker. Would that be more on the seamless or the welded from and where are inventories fire on heater product?

And then secondly, for our press release earlier this month, earlier this month, I think it was talking about some [indiscernible] now being included in the buyback process. I just wanted to confirm whether there's any change here or anything else we should know about on that change in positioning

Sorry, can you repeat the second question? Just to be sure I understand you well.

Yes, your largest shareholder is now wanting to be included in the buyback process. I believe this is a change from its previous positioning. I just want to understand whether you're aware of any change in positioning here?

Yes. Okay. Understood. Now the first one is on inventory. Here, Guillermo, if you can.

If you can -- yes, when we look at the imports it's more on welded pipe on [indiscernible]. And regarding the increase of inventories on the ground that we have seen lately has also been higher on the ERW than in [ internal]. Looking forward, the expectation is that both GRW and [ SEAMLESS ] inventories on the ground will go down.

On the second one, the controlling shareholder has informed that it may start selling share but will not go below a certain threshold. And then we'll see this in the public information because -- the shareholder is also by the tool is indicating when the movements are above the 1%. This is what we can see we can say about this.

Our next question comes from the line of Rodrigo Almeida from Santander.

So just a couple of questions here from my side. The first one, I'm not sure if we talked about this during the call, but regarding Argentina, right, we are a food services business in Argentina. If you could give us an update on hurricanes evolving there? Are we talking a little bit about the Argentina macro environment, but how could this business say, health results maybe over the next few quarters. I think this will be [indiscernible] for you.

And then I have another question here. When you look into South America, we saw a nice contracts recently signed with Petrobras, which I suppose could somewhat offset they project that just ended. So if you could give us some color on how we pick about the South American operations going forward.

Thank you, Rodrigo. Well, about Argentina, as I comment, I think, the oil company, including YPF and all the other will have more access to financing and willingness of. The investor of support this has been clearly reacting to the results of the election in a very positive way.

What does this mean for us? Well, it means additional rigs there are coming into operation gradually because this, you cannot bring it. The number of rigs idle in the country is almost 0 now. So will increase only slightly. But there will be action to bring into the country additional rigs for operations during 2026.

It means that fracking operation will increase, and this is important for our division that is doing fracking in Argentina. We can expect increase in invoicing by fracking operations and all by our sales of pipe and services over time will not be immediate, but will have an impact in the coming quarter. So more sales.

Now in the line pipe, the project of LNG, the Cs project promoted by Pan America and together with partners like Pan so is going on and will -- in the present situation, we will see the tender and the FID has been done in June and we expect in 2026 that the process of construction of time plan will start and also the assignment of the contract for the pipes. This kind of movement are important from our point of view and we enhance the market for us. In the [ kero ] Petrobras, I will ask Gabriel comment on the contract.

Yes. Thank you, Paolo. Rodrigo, in terms of drilling activity in Brazil, we see steadily increasing by Petrobras and the other majors that are made in the deepwater play in Brazil. And there are many moving parts of the supply of Tenaris, both in OCTG and Line Pipe.

In [ CTG], we have a long-term agreement with Petrobras and the other majors for the large OD connectors, which we produce locally in our facility in fab. We are also suppliers in certain fields of the similar casing as well with Petrobras. And we also have an important contract for completions of 13 and CRA given the -- our service conditions of completions in Petrobras.

So we believe that this, together with the pipeline, the seamless pipeline bookings that are also carrying insulation call. I will mention, I believe in the last few calls, [ Buzios 9 and Buses 11]. The contribution of these different segments will contribute to offset the conclusion of the big [ Ria SAW ] that we had and we enjoyed until the first half of this year. So a lot of moving parts and it's very interesting, the breadth of the portfolio and the position that has in Brazil.

Thank you. At this time, I would now like to turn the conference back over to Giovanni Sardagna for closing remarks.

Thank you, Gigi, and thank you all for joining us, and I hope to see you soon around and thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.

Good day, and thank you for standing by. Welcome to the Second Quarter 2025 Tenaris S.A. Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Giovanni Sardagna, Investor Relations Officer. Please go ahead.

Thank you, Gigi, and welcome to Tenaris 2025 Second Quarter Conference Call. Before we start, I would like to remind you that we will be discussing forward-looking information during the call and that our actual results may vary from those expressed or implied during this call. With me on the call today are Paolo Rocca, our Chairman and CEO; Carlos Gomez Alzaga, our newly appointed Chief Financial Officer; Gabriel Podskubka, our Chief Operating Officer; and Guillermo Moreno, President of our U.S. Operations.

Before passing over the call to Paolo for his opening remarks, I would like to briefly comment our quarterly results. Our second quarter sales reached $3.1 billion, down 7% year-on-year, but up 6% sequentially, mainly reflecting an increase in North American OCTG prices and stable volumes.

Average selling prices in our Tubes operating segment decreased 2% compared to the corresponding quarter of last year, but increased 6% sequentially. Our EBITDA for the quarter was up 5% sequentially to $733 million, with our EBITDA margin for the quarter close to 24%. Our margins remain in line with those of the previous quarter. Our cost of sales also rose 5%, mainly reflecting product mix differences and higher tariff payments.

With operating cash flow of $673 million and capital expenditure of $135 million, our free cash flow for the quarter was $538 million. After a dividend payment of $600 million in May and share buybacks of $237 million, our net cash position amounted to $3.7 billion at the end of the quarter.

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

Thank you, Giovanni, and good morning to all of you. Our results in the second quarter pointed to the solid industrial and commercial position that Tenaris has built, serving its wide range of customers around the world and the competitive differentiation we have established in key markets. Even as drilling activity in several areas of the world has slowed, our sales rose sequentially together with our EBITDA and net income.

Our free cash flow amounted to a solid $538 million, while our shareholder distributions between dividend payments and share buybacks amounted to $837 million during the quarter.

There is an increase in the U.S. Section 232 tariff on the import of all steel product from 50% -- from 25% to 50% and the ongoing tariff negotiations has increased market uncertainty. As countries negotiate the so-called reciprocal tariff, no country apart from the U.K. has so far been able to negotiate how the Section 232 tariff will be applied. We expect that the current broad-based approach will eventually be modified towards a more specific product-based approach, which takes into account market factor and consider differential tariff and quotas for some countries.

The Section 232 tariff and the ongoing negotiations will change the competitive environment, favoring more utilization of available domestic capacity and fewer imports. Over time, there will impact on prices once excess inventories are drawn down and imports are reduced from the high levels we have seen in the first half of the year.

Tenaris, with its strong U.S. domestic production base, including the world's most efficient seamless pipe mill at Bay City, and its copper steel production facility, supported by its global industrial system remains well placed to continue serving its U.S. customer with its highly differentiated rig direct service.

Our sales this quarter included the successful delivery of pipes and coatings to a wide number of complex line pipe projects around the world. These include Equinor Raia project in Brazil, ConocoPhillips Willow project in Alaska, Shell's Bonga project in Nigeria, Azule Nengo project in Angola and Chevron Leviathan project in the Mediterranean. Looking forward, we will have a lower delivery to offshore line pipe projects until a new wave of projects progress to the development phase in 2026. One such project will be the GranMorgu project in Suriname.

In addition to our line pipe and coating award, we have received the award for the supply of casing and tubing for the project. Key to this achievement was our offer of service, which we will carry out from a base we are now setting up in Suriname. In the fast-growing frontier development of the Guyana-Suriname Basin, we have set up local service basis to support the operation of ExxonMobil of TotalEnergies and other customers in the region.

Another major developing region where we have been able to make a difference is the Vaca Muerta shale play in Argentina. Here as well as casing and tubing, we also supply fracking and coil tubing services and are instrumental in developing the pipeline infrastructure that will enable the oil and gas to reach global market.

During this third quarter, we will complete most of the deliveries for the Vaca Muerta Sur pipeline that will build a crude export capacity to a new deepwater port in Puerto Rosales. Early next year, we should also deliver the pipes for the Duplicar North pipeline that will connect the Northern development in Vaca Muerta to the main crude export pipelines.

In Mexico, Pemex has successfully issued a $12 billion financing facility this week. This is an important step that should allow Pemex to increase its current low level of operation and pay down some of its supplier debt. We look forward to supplying a higher level of operation under our current contract.

With oil prices around $65 a barrel and drilling activity in the United States and Canada is lowering, our sales in these countries remain relatively resilient due to our solid customer portfolio. They're focused on improving operational efficiency, which extended the lateral length for which they appreciate our seamless product and Rig Direct service.

We are ready now to take any questions you may have.

[Operator Instructions] Our first question comes from the line of Arun Jayaram from JPMorgan Securities LLC.

Yes, Paolo, I was wondering if you could comment on your thoughts and outlook for the second half of 2025, just given some of the things you cited, tariff impacts, some activity perhaps going down a little bit in the U.S. but give us a sense of how you think about volume trends and margin trends for the second half?

Well, thank you. I think is -- I mean, there are many moving parts in -- that are affecting, let's say, the second half. We have visibility on the third quarter, but obviously less visibility on the fourth. What we can say for the third quarter, we expect lower sales on our part due to different factors.

Basically, we will have lower invoicing in our fracking operation. We have a kind of black space for 3 months due to the programming of the company for their operation of fracking in Vaca Muerta. This is something that will, to some extent, reduce slightly our invoicing.

We also, after an important wave of delivering of our line pipe, we will have somewhat lower shipment of line pipe during the quarter. Operation in North America will be reflecting some increase in price, which we expect, but also some containment of the activity in the rigs because, let's say, price of oil is today what it is. Even if I compare with our vision 3 months ago, 3 months ago, we were more concerned about the impact of a potential recession and lower price of oil.

Today, looking at the forecast for the economy worldwide and the perception of the market, we would expect the price of oil to stay around $65. In this environment, there shouldn't be a strong reduction in the rig count. So we do not expect this.

In North America, more fracking in Canada because of seasonal reason. And in the U.S., in our view, will be compensated by some more activity in Mexico. So overall, we expect lower sales, especially in the third quarter in the range of the high single digit for our invoicing.

In the fourth quarter, it is more difficult to predict to understand which will be the dynamic of prices. There are tariff that has been raised on the 4th of June for 2 3 2 up to 50%, almost for every country, excluding U.K. And the negotiations that are underway today are mostly focusing on the reciprocal tariff, but I'm not touching on the 232.

If this situation is not addressed with a more specific product by product or quota for specific sector in the coming months, inevitably, prices in turn, domestic price in the United States will reflect this. And this will impact in our sales. But today, it's difficult to forecast which will be the impact on the fourth quarter.

Also in the third quarter, our slight reduction in sales will take into consideration some repair and maintenance that we usually perform during August. This is our outcome as far as, let's say, overall top line is concerned.

Okay. That's helpful. It kind of sounds like your commentary is pretty similar, maybe different moving pieces with what you outlined last quarter in terms of the outlook. Paolo, I was wondering if you could highlight about your project pipeline as you think about 2026 relative to 2025. You highlighted Suriname as a new opportunity for Tenaris. But how does the major or large project pipeline look in 2026, thinking about places like the Vaca Muerta?

On this, I would like to have Gabriel to give you a view of how we see, let's say, our road into '26 and what we can do compared to '25. Gabriel?

Yes. Thanks, Paolo. To give you an overall perspective of the offshore market, which is an important driver for the pipeline business and also for the OCTG business in this segment, I would say that the market dynamic is overall positive. We don't see an immediate effect of the deteriorated market environment in drilling activity. As a matter of fact, the deepwater drilling rigs are quite resilient at very good historical levels.

And we are working with our customers on many new projects. Some of them are being delayed in the FIDs, but we are confident that in the next few months, they will be sanctioned. So overall, the context, I would say, is positive.

Within this context, we have been building and continue to build an important backlog in this strategic segment, Paolo, and you commented on Suriname, where we just got awarded drilling campaign for OCTG to cover the needs of casing and tubing for these 36 wells that Total will develop in this initial phase of deepwater development.

Customer has standardized on Dopeless technologies, and we are getting ready building our service base in country. This is in addition to the award of pipeline and coated that we commented in our prior call. So we are building an important backlog.

Also this quarter, we booked deepwater pipeline in Brazil for Petrobras Buzios 11 project. And we also have been awarded OCDG needs of Chevron for their deepwater campaign in Agbami in Nigeria. So overall, I would say that we are building an important backlog into 2026. As Paolo mentioned, we had a high concentration of pipelines in the first half of 2025. So our pipeline offshore deliveries in the second half will be slightly lower, but we believe with great confidence that 2023 will be -- we will have an important contribution overall on the offshore segment.

Thank you, Gabriel. Just to add that our position in this segment after the acquisition of Shawcor, considering the different plant that can operate in welded and seamless in different parts of the world, plus the global deployment of Shawcor and coating, a formidable structure for addressing and assuring short lead time, competitive offer quality to our clients. I mean this is the acquisition of Shawcor really gave us has put us on a different perspective for serving our clients. And I think we are capturing the benefit of this.

Our next question comes from the line of Alessandro Pozzi from Mediobanca.

The first one is, again, on the outlook for the second half of 2025. You indicated where sales are going to go. Maybe if you can add some additional color on margins in Q3 and in Q4?

Because I think in Q3, maybe you can still benefit a little bit from the lagged effect with the Pipe Logix, but then you will feel the full impact of tariffs as well. And I believe it should be around $140 million per quarter. I'm not sure if you have some remedies in place to reduce the amount of impact from tariffs and/or whether the higher prices will be able to offset this? Because if we look at the Pipe Logix that was out yesterday, it was just a small increase month-on-month. And I mean maybe we will see stronger prices going forward. But your thoughts on margins would be very appreciated.

And the second question is on South America. I believe sales were down in Q2. Can you give us maybe the outlook for sales in Argentina and explain why maybe the rig count overall in Argentina is still rather flat despite all the investments in Vaca Muerta?

Thank you, Alessandro. Now on the first point, first of all, you are right that the 50% tariff of the Section 232 is affecting us on a dimension that is close to what we are saying. Remember, last time, we were saying with 25%, around $70 million per quarter. Today, with increase of the tariff to 50%, this number could become higher in the range of the $140 million, $150 million for a quarter.

Now let me add 2 considerations. First of all, we don't know where the negotiation with Mexico, Canada, Argentina will end up and if there will be some consideration like in the case of U.K. for changing or adapting or modifying by product or by country, some of the consideration regarding the tariff of the 232. We do not know, but we think there would maybe a possibility because in the end, the relation within the USMCA and the relation in Argentina may justify specific negotiation that include some aspect related to the 232 automotive steel and not only on the reciprocal.

This is the first consideration that may change this. Second consideration, well, we can react in terms of allocation, organization of our production flows. And this tariff are getting in our cost of sale gradually because of the inventory some of these tariffs are affecting our steel bar coming into the U.S. There is -- it takes time to flow through our inventory to get into our cost of sales. So you should also consider that the figure we are mentioning are not getting straight into the next quarter, but only gradually into this.

And also that we have, let's say, alternative or we can, to some extent, limit part of the impact of this. And then we go to the impact in prices. You are right. Yesterday, the Pipe Logix comes out with a very modest increase. But this is a result also of the very high level of import that were unleashed by the elimination of quota when the first round of 232 were introduced with 25%, but no quota. There has been import in the United States from different sources, well above the level of quota. There has been a resulting increase in inventory.

The inventory are waiting on prices today and will do so for a while, but not forever. I think that after the increase in 232 on the 4th of June to 50%, some of this import gradually will be reduced. Today, there are many products on the sea, on the vessel coming into the U.S. But then the decision has to be taken that will affect September, October and the coming months will be taken with a different scenario and different consideration, taking into consideration the higher level of tariff.

So prices, in my view, will go up or will do so gradually, but to some extent, inevitably over time. Difficult to predict if this will happen and exactly when, but prices will go -- will need to go up more than what has been done up to now. And this will also contribute to our margin. Having said this, what we can see is the margin for the next quarter, and we expect margin slightly below the margin of this quarter, but always in the range between 20% and 25%. Remember, this is let's say, where we were guiding last quarter, we will remain within this space between 20% and 25%, but lower than this quarter, slightly lower than this.

In the fourth quarter, for the reasons that I mentioned, I think it's more difficult to have an estimate, a reasonable estimate of what will happen. Most will depend from the decision that the importer may take and the reflection on price. In my view, having duty for steel and pipe and bars going up 50% will have an impact on the price of Pipe Logix, even in an environment in which the rig count is not very aggressively increasing, even if it stay or it goes down slowly as we anticipated, there should be impact on prices. This is -- would be the -- would be logical to happen.

And on South America?

Second question, if it is okay for you with the first one. On South America, South America, you're right that there has been a containment, I would say, of the oil. One the situation in which the rig count has been -- went down slightly has been Argentina, as you say. The point in Argentina is that the southern part of the country, there has been a reduction, a divestiture from YPF and other companies of their operation in the southern part of the country. And this turned out into a reduction of the number of rigs operating on one side.

On the other side, there is the company still having a cautious approach in organizing their investment in Vaca Muerta. The access to finance has limitation. Some operation has been important. For instance, it has been possible to finance the pipeline in Vaca Muerta South for bringing oil to the coast. And this is an important program with involving financing for around $2 billion.

Also, there has been other financing operation for local company. But still, the country risk is above 700 points. It's not exactly easy for local player to finance all the operation in line with the more optimistic expectation that we may have maybe 6 months ago. Today, nothing changed in the positive view of the development of Vaca Muerta for gas and for oil. But the pace of operation, development and growth is slower than we expect.

Also, price of oil, there was a moment in which company were more afraid of a price of oil between $60 -- $55, $60. And this would have clearly had a negative impact, especially in company like the local company in Argentina that are depending very much on their cash flow to be eligible for financing. I think that this is -- the situation is improving. Still, the country risk is important.

On the other side, the devaluation of the local currency in the last month has devaluated by around 10% is reducing cost. So it's also acting in a positive way to -- in the project -- in the profitability of the project and from the cost side of the operation. So I'm confident that Vaca Muerta will continue to expand, increasing demand drilling over time. But in this semester and in this month, what we are seeing is a reduction of rigs because of the South and a very slow movement in increasing rigs and fracking. This is part of the problem of the issue of the white space in our fracking operation until September.

Our next question comes from the line of Sebastian Erskine from Rothschild & Co Redburn.

I'd like to start on the commentary around imports. Obviously, has remained an elevated level in the first half of the year, should step down in the second half. But kind of how much share gain can we expect by Tenaris and equivalent domestic producers for imports as a percentage of the mix? And I'm thinking about that in terms of kind of offsetting weaker volumes in the back half of the year, particularly in U.S. land where the rig count remains under pressure.

Well, overall, import represent a large share of demand in the U.S. in the range of 40%. So let's say, if you imagine 50% on 40% of the supply in a very large market, even in an environment in which the rig count should stay or go slightly down, we basically expect this. It will also depend from the price of oil. Obviously, it's affecting the cash flow.

But even in an environment of relatively slowdown on rig, the impact on import of the tariff, there will be impact on the prices. There will be some substitution. Now in terms of capacity, I think the domestic industry has the ability to increase the production, but the level of utilization still is pretty high today in the different player on this in the seamless arena. And probably there is room for increasing utilization in the welded supply of OCDG. But with the supply is limited to a segment of the market and not to the entire market. These are the reasons why I think over time, the price level in the U.S. should go up.

Really appreciate the color, Paolo. And then my second question on distributions. Obviously, announcing the $1.2 billion authorization. It looks like you're kind of front-loading the first tranche of $600 million. It looks like you completed nearly 2/3 of this. Would you be open to bringing forward the second tranche of repurchases, just given the cadence you've already achieved?

Well, as you know, the Board approved 2 tranches of share buyback. And the second tranche will be considered in the Board meeting on the 29th of October. But this has been approved, but anyway, this is what we expect. This will be considered again and very likely launch after the Board on the 29th October.

Our next question comes from the line of Marc Bianchi from TD Cowen.

The first one is real quick. I just wanted to clarify, Paolo, on the third quarter outlook, the high single-digit decline was a comment on sales or a comment on volume?

It was a comment on sales.

Okay. The other question relates to supply chain. You talked about if there's potentially exceptions for USMCA and you could divert some of your supply -- steel supply from Mexico. Should we think about that as potentially removing the entire $140 million tariff headwind? Or what's the opportunity there?

No, no. The -- I mean, we can, first of all, expand as much as we can local production of steel. So the copper operation, by the way, we had one accident in copper 1.5 months ago. We sold it, but we -- this, to some extent, reduced to some extent, our availability of steel for a while. Now we will pick up again. So we will take advantage of this capacity as much as we can.

This is one component that contribute to the reduction of the tariff we pay on the bars and semis that are -- that we need to bring into the states to feed into our rolling mill in Bay City, in Enbridge. This is an action that will depend basically on our ability to operate at maximum capacity at copper facility. And we are also planning for the investment needed to strengthen this capability, but the investment will take a little more time to get in.

Second action is to see if we can cover with welded product some of the demand. And this also may contribute to compensate even if this is -- may have a higher cost for us, but could be a way of reducing the level of tariff that we may be paying on this. Still, this action will not change substantially a reality that we are today, the reason to pay tariff -- high tariff from Canada, Mexico, Argentina and Europe.

I think that over time, the negotiation with Mexico, Canada, Argentina and Europe may also, like in the case of U.K., address some specific product or some specific semi like the [indiscernible] that are not really produced in the states. So if something is not really produced in the states, I think it could be possible that the negotiation may modify or reduce this impact. These are the points that could help or be having an impact on the level of tariff that we are paying every quarter.

Got it. Got it. The other question I had related to mix. You mentioned some of the pipeline work coming off and some open space in the frac business. And I would think that those are lower margin parts of your business compared to OCTG. Can you just sort of talk about maybe how much of an impact that's having on third quarter, second half and how we should think about those coming back into the revenue profile eventually?

Yes. Well, I will ask Gabriel because there are very different products here with very high margin and very much more competitive margin.

Yes. In general, you mentioned the fracking business is a profitable margin. So that has an impact in the third quarter until we pick up that business in the fourth quarter. Then regarding the pipelines, the offshore pipelines that we were mentioning, either welded or seamless with an important coating component, they are also having important margins. They are typically higher than the average of Tenaris, while the onshore pipelines, the one that Paolo commented on Vaca Muerta, those that are kicking in, in the third, fourth quarter and the beginning of 2026. Those have welded onshore pipelines have margins that are lower than the average of Tenaris. So we have moving parts. The ones that are with lower shipments in the second half are of those of higher margins that will pick up in 2026 again.

Our next question comes from the line of David Anderson from Barclays.

I have a question on the Middle East. So it's probably directed toward Gabriel. I just want to -- I was curious how you see Middle East overall trending into 2026. Saudi has been slowing activity all year before may not pick up again until the end of next year. If I'm not mistaken, I think on the prior call, you said Saudi has been reducing its inventory pipe most of the year. So I'm curious about how you see kind of specifically how the Saudi market, when do you start seeing the Saudi market start to improve from a pipe standpoint -- from a pipe ordering standpoint next year? And how do you see overall Middle East volumes trending '26 versus '25?

Thank you, David. And then I will pass to Gabriel...

David, indeed, as you know, in Saudi, we have been seeing austerity measures for the number of months already in line with a lower price environment as we know. So rig count in the Kingdom has been going down, concentrated mainly in the oil, not only, but also we are seeing some gas rates being dropped. The level of activity today is about 15% lower than it was a year from ago. So this is what we are seeing.

I would say the inventory level situation is pretty much in line with consumption. We are not having an overhang situation in Saudi anymore. The local supplier network plus Aramco inventories, I think, are pretty lean and in line with demand. So going forward, we would expect our shipment and sales in line with the variation of consumption.

To compensate this lower activity in oil in the Kingdom, we have an important pipeline business. I think we mentioned the CCS pipeline award last quarter. So this will contribute and offset part of the OCTG. This is regarding Saudi. The rest of the MENA region and the key markets, drilling activity is quite resilient. We see the Emirates pushing forward with the expansion of oil and gas with a marginal decrease of some rigs in their unconventional plan, but very marginal.

They are still operating today at 120 rigs, which is a historical high level for ADNOC. Kuwait and Iraq are also pressing forward in their activity levels. And we see pretty much Qatar on track with the expansion of the LNG project. So overall, I would say, for the second half of this year and into 2026, I would say that our shipments in the Middle East will remain fairly stable and solid.

My second question is around Mexico. Paolo, you were talking about some of the challenges that Pemex is facing and now with some potentially helping to fix their debt situation, there does seem to be some positive on the horizon. But Pemex's CapEx budget is down 50% this year. Activity is plummeting. I presume you probably supply most of the pipe there from your facility in Veracruz.

So I'm curious how much of a drag has been this year, which hasn't really shown up in the numbers. But -- and secondarily, what kind of the opportunity is next year. So how do you sort of see those. I know it's really hard to tell considering Pemex doesn't have a ton of visibility, but how do you see this trending going into next year? Overall, I know you're talking about line pipe. I'm talking more OCTG and the like.

Yes. Well, I think that the fact that Pemex has been supported in getting this financing -- this financial operation and issuing debt for $12 billion with a guarantee from state from the government, this has been oversubscribed. They had the possibility to collect even more than this at a very competitive rate because in the end, Mexico has a relatively low debt-to-GDP ratio. So it's a very important sign that the Mexican government is willing to address the situation of Pemex not only in reducing the financial load on the supplier, but also in giving the financial means to pick up back operation.

Now we see this in the number of rigs that are starting to operate, rig today are in the range of 24 rigs. And we were having 19, but even less than 19 in 1 month rigs in the recent past. So this, in my view, is a sign that the Mexican government are back in supporting Pemex for the relevance of Pemex in the overall economy for gas production, for oil production and for the level of activity.

So this is more than anything, is a very important sign. Will this be followed by a continuing support within the plan of restructuring of Pemex? Well, they also changed the management of Pemex, and this is also a sign that they are addressing this. We know that in the second half of 2025, the Pemex increase in volume is the fact that we will maintain overall sales into North America for us, more or less stable, compensating from some reduction for the season in Canada and some constraint in -- some reduction in the U.S.

So for sure, we anticipate in this a positive trend. Now when we look at 1 year from now, I think it's more difficult to have a forecast because in the end, Mexico today has to deal with the negotiation of -- the new negotiation of the USMCA, the tariff, and we have to redefine some of the strategy even in the energy sector.

But I'm very confident that in the end, it will make sense. There are resources available for it. And if the price of oil is where it is in the range of $65, it makes a lot of sense to develop very reserves that are very profitable, have very low cost of extraction and will make a lot of sense to maintain this trend of support.

Our next question comes from the line of Derek Podhaizer from Piper Sandler.

Just a question in U.S. land. So we've seen strength in the gas markets, primarily private driven across the Northeast, Haynesville, the Eagle Ford gas window. Just curious your level of exposure to this tailwind in the U.S. I mean, I've always viewed as primarily attached to the larger customers utilizing Rig Direct. But maybe help us think through about your exposure to the privates in these particular gas basins?

Thank you, Derek. I will ask Guillermo to give us an overview of our exposure to this. Guillermo...

Yes. Thanks, Paolo. Our exposure to gas, I mean, in Direct has been mainly in Haynesville and more than in Appalachia. So we are seeing an upside. We are seeing a growth of activity in Appalachia, as you said, mainly from private operators. And there are a couple of them that have driven the growth that has been traditional clients. So we are seeing an increase of our sales for gas in Haynesville and then also our market share. And we stay optimistic about further growth in the future and with this of our sales and again, our position in the region where we are very competitive because we have basically very close to that play.

I also think that the -- in all the discussion and negotiation that the American administration is establishing, there are a component about purchasing of LNG and developing, helping develop growing the LNG in the United States. One way or the other, even if a fraction of this will be realized in the coming year, this means demand for gas. So gas is important. Gas is demanding seamless pipe with, in some case, more complex product.

The price of gas today [indiscernible] supported by the associated gas and specific development for gas is relatively solid in this moment. And all the negotiation should, to some extent, promote or stimulate investment in energy. So we have to be very focused on this because it will be logical to have increase in the activity in gas in the U.S. [indiscernible].

Got it. That's helpful. I appreciate the comments. Second question, just maybe some color around how much pipe is on the ground now in the U.S., just thinking about the distributors as well. Just trying to work through the timing as far as working that down from an activity standpoint, which will also further support pricing just outside of the increased tariff costs. So maybe just some color around the pipe on the ground and working through that from an activity lens.

Yes, yes. I would say that here, the problem is that not only the pipe on the ground, but also the pipe on the sea, the ones that are coming into the U.S. before realizing that the 50% tariffs were going to hit them at the [indiscernible]. Guillermo, you have more -- you can comment on this.

Yes, for sure. And as you said, Paolo before, I mean, imports in the first half of 2025 increased a lot. If we see this in numbers, the imports of OCTG in the U.S. first half of 2025 was more than 70% higher than the second half of 2024. So it was a very relevant increase that coupled with some reduction in activity determined that in these 6 months, the pipes on the ground increased in equivalent of 1 month of overall consumption in the U.S.

So this is putting pressure on prices, not allowing so far Pipe Logix to increase as expected due to the tariff. And we think that within this quarter, we'll start to see a reduction and more impact on the fourth quarter because it's when we will see, as Pablo said, the shipments defined based on the 50% tariff and not in the '25 that as we saw were not enough to reduce the level of imports.

Level of inventory in terms of months.

So it went from 6 to 7 months, more or less from fourth quarter of 2024 to second quarter of 2025, 1 month of equivalent consumption.

Our next question comes from the line of Kevin Roger from Kepler Cheuvreux.

I have maybe 2 follow-ups, if I may. The first one is on Mexico. Can you provide us a bit of sensitivity on what kind of revenue you generated in Mexico, for example, back in 2023 and what you are currently generating right now, just to understand the potential magnitude of earnings that you can get in the country after the $12 billion new financing for Pemex?

And the second one on the tariff, if everything remains like it is right now, what is your available capacity in the U.S. and notably on the seamless side? What part of the volumes that you currently import from, I don't know, Mexico and Canada that you can relocate easily in the U.S. with available capacity, please?

Thank you, Kevin. Well, on the first one, in the past, the number of rigs operated by Pemex were in the range of 50, 45 rigs. So let's say, you can imagine today, we are at 24. So this is just giving you a broad indication on which will be the size of the market.

Now on top of this, there are private operators. Woodside is operating. And one of the increase that we will have in shipment to Mexico will be in the coming quarter, will be the Woodside project, which is a very relevant offshore project, very interesting one that we are supplying for Mexico.

So this is just giving you the size of the market, and this is the market for mainly OCTG with some aspects in line pipe when the export line are requiring long line for this. So this is, let's say, what would be possible. Now we don't expect this to happen soon. We expect this to be a gradual process of increased reorganization. But still, in my view, the direction in which this is moving is a direction of recovering level of activity.

The other point is on capacity. Remember, our main import in the states are bars -- steel bars to feed to complement our production in copper. The production of steel that we have in the States is very relevant, but we need to complement this with semis bar coming from outside. This is the most important component of our import in the states on which we pay and we will pay this 50%.

Then we also complement some special product for the Gulf of Mexico that is not produced in the States, mainly coming from Europe. But these are product in which the clients are prepared to pay straight on the tariff because there is basically no alternative and they need to proceed with products that are not produced to the states in this case. Something on material coming from Canada into the States is going into the North, but it is a very marginal part of the matrix.

Our next question comes from the line of Christopher Kuplent from Bank of America.

I've got 2. Paolo, the evergreen question, I suppose, is, could you give us an assessment of what you think the M&A environment looks like at this point in time? I mean it's hard to come up with a forecast for 4Q, but you sound pretty bullish in terms of price evolution into 2026, at least in the U.S. So do you think that sort of lack of clarity is throwing up M&A opportunities that perhaps in the past with a different U.S. administration weren't thinkable? So that would be my first question to you, Paolo.

Well, thank you, Christopher. This is -- as you know, we have -- we are the largest player in the United States. We have a relevant participation in the market. It's not easy to identify a suitable target for this. I'm convinced that looking ahead, consolidation is important and also growth along our supply chain is also important.

But anything that we can imagine here has a reasonably size that is not, let's say very relevant. Imagine also when we move on, on the Shawcor operation, it is a very important operation from our point of view. But in terms of size of the M&A, is not, let's say, something that is transforming the company from the point of view of the size of the operation.

So we consider, we look, we study, we monitor also the attitude of the new administration to see if there are a change in the approach to vertical or horizontal integration, and we will be very active on this if we perceive that there is room for us.

That sounds like you're happy with the current run rate on the buyback program to continue. My second question is more short term. Maybe you can tell us a little bit about your expectations regarding the evolution of net working capital. I suppose you've referenced the increase in inventories. How do you see your management of inventories considering you've got turnarounds coming up as well, probably well timed?

Yes. Thank you, Christopher, on this. I will ask Carlos to comment on working capital, what we expect from our working capital. For sure, this quarter, and our cash flow has been pretty strong, but Carlos...

Christopher, so during the first half of the year, we've been generating cash from our working capital, generated around $250 million. Much of that was coming from inventories and some from receivables. So we expect during the next quarter to build up inventories. Now part of that, let's say, trend down in inventory was because of -- we finished some big projects. So we ship all the material that we have in stock, and we expect to build some inventory during Q3 and then release some of it during Q4.

At this time, I would now like to turn the conference back over to Giovanni Sardagna for closing remarks.

Thank you, Gigi, and thank you all for joining us today.

This concludes today's conference call. Thank you for participating. You may now disconnect.