We are one of the world’s leading producers of steel pipes for the oil and gas industry, a global company with extensive network of production facilities, sales companies and representative offices.
The principal activities of our company are the production and distribution of seamless and welded pipes, including pipes with the entire range of premium connections backed by extensive technical support.
Our plants produce almost the entire range of existing pipes used in the oil-and-gas sector, the chemical and petrochemical industries, energy and machine-building, construction and municipal housing, shipbuilding, aviation and aerospace, and agriculture.
We created an up-to date technological complex based on advanced scientific research, manufacturing high-quality competitive products.
Our operations are geographically diversified with manufacturing facilities in Russia, the United States, Canada, Romania, Kazakhstan and the Sultanate of Oman. We operate R&D centers in Russia and the U.S. Our global market presence is supported by a wide distribution network. In 2013, we delivered 56% of our tubular products toour customers located in Russia and 27%in North America. We estimate our share on global market of seamless OCTG at 11%.
We are the largest exporter of pipes in Russia. Exports of pipes produced by our Russian plants accounted for16% of our total sales in 2013 as compared to 19% in2012.
In 2013, wesold 4,287 thous. tonnes of steel pipes. Seamless pipes comprised 56% of our sales volumes. Sales of seamless and welded OCTG reached 1,824 thous. tonnes, a 6% year-on-year increase, sales of LD pipe grew by 8% year-on-year to 442 thous. tonnes.
Our total consolidated revenue decreased by 4% to 6,432 mln USD as compared to 6,688 mln USD in 2012. Adjusted EBITDA1 declined to 952 mln USD as compared to 1,028 mln USD in 2012. Adjusted EBITDA margin stayed almost flat at 15%.
Market conditions for 2013
For the full year 2013, the Russian pipe market increased by 4% year-on-year largely due to higher consumption of pipes for oil and gas industry.
Throughout 2013, consumption of seamless OCTG pipe continued to grow supported by a high level of E&P activity by oil and gas majors and increasing share of unconventional drilling. Share of horizontal drilling amounted to 21% of total drilling for the full year 2013 compared to 14% for the full year 2012.
In 2013, LD pipe market in Russia slightly declined by 1% year-on-year.
For the full year 2013, seamless industrial pipe market declined by 3% year-on-year due to weaker consumption in the machinery industry, while welded industrial pipe market increased by 4% compared to the full year 2012.
In 2013, energy commodity prices increased compared to 2012, with natural gas prices improving year- over-year largely due to demand growth resulting from colder than average winter conditions. WTI crude oil prices increased by 4% year-on-year.
According to Baker Hughes, the average rig count dropped by 8% year-on-year from 1,919 in 2012 to 1,761 in 2013 due to continued reduction in natural gas drilling activity. Though the rig count declined, more pipe per rig was used as operators continued to drill more horizontal and directional wells, for which horizontal and directional rigs increased from 71% in 2012 to 75% of total rigs in 2013. Additionally, the decrease in rig count was partially offset by the growth in drilling efficiencies. The average number of wells per rig increased by 6.5% year-on-year in 2013.
According to Pipe Logix, in 2013, average OCTG welded prices decreased by 10% compared to the full year 2012, and seamless prices decreased by 9% year-on-year.
In 2013, the European market’s trend towards a decline in tubular product capacity continued. Additional challenges come from the stronger competition from cheaper imports made in Ukraine, China, India and other countries where the costs of raw materials and electric power as well as environmental charges are considerably below those in Europe. End-users continued to focus on spot orders anticipating more favorable payment terms. The shrinking number of active projects coupled with investor pessimism resulted in lower consumption of tubular goods.
In January, casing with ТМК PF premium connections was run in the onshore and offshore parts of the well at NOVATEK’s Yurkharovskoye field. TMK supplied the casing column and supervised its running in the well.
In March, we shipped the first pilot batch of vacuum insulated tubing (VIT) made of 13CrS steel (super- chrome steel) for Gazprom’s Bovanenkovo oil and gas condensate field on the Yamal peninsula.
In October, we shipped tubular products for the construction of deep water pipelines at the Lukoil’s Filanovsky oil and gas condensate field in the North Caspian Sea. In accordance with the requirements of the project, the production of pipes was conducted under the supervision of Russian Maritime Register of Shipping (RMRS) at all stages of production, from steelmaking and shipment of finished products.
In October, we completed our contracted shipments of LD pipe for the international pipeline Central Asia – China in the amount of more than 100 thous. tonnes of longitudinal LD pipe with external and inner coating.
In October, we implemented a new technology of lubricant-free coating for threaded connections – Green Well. Casing pipes with TMK PF premium connections and the innovative coating were used for assembling casing columns run into the wells at Rosneft’s Vankorskoye field.
In November, we united our two premium connections families TMK Premium and ULTRA under a single brand – TMK Ultra Premium (TMK UP). Bringing the two premium connections lines under the single brand will help expand bidding opportunities for our premium tubular products worldwide, unify its portfolio of global packaged product offering, and raise global awareness of our company’s premium solutions.
In January 2014, TMK IPSCO has been awarded two three-year contracts to provide both oil country tubular goods (OCTG) and line pipe to Shell for onshore and offshore applications. Five of TMK IPSCO’s plants are currently providing pipe to Shell under the contract, two Russian plants will provide line pipe under Shell’s specification.
In January, TMK IPSCO launched a new production facility for the production of pipes with a full range of premium connections ULTRA ™ in Edmonton, Canada. Besides customers will enjoy a number of related services, such as repair and accessories.
In June, TMK Oilfield Services division launched an inner coating line a one of its production facilities in Russia with an annual capacity of 32 thous. tonnes of pipe with a diameter of 73-168 mm.
In August, TMK launched its new state-of-the-art electric arc furnace at Tagmet. In November 2013, the company shut down its last open-hearth furnace.
In December, TMK -INOX launched new gas furnace with protective atmosphere on the basis of ultra- pure hydrogen. It allows to produce heat-treatment of pipes up to 30 metres long. The advantage of unique furnace is a new technology of heat-treatment in the protective atmosphere using ultra-pure hydrogen, which eliminates oxydation processes on the pipe surface from atmosphere.
Acquisitions and joint ventures
In April, we acquired a 100% stake in the pipe services and precision manufacturing assets. The facility is located on north-east of Houston and has the capacity to produce more than 700 thous. joints of threaded pipe and around 250 thous. couplings. In addition, the facility provides pipe inspection services and manufactures down-hole tools and accessories for a wide range of oil and gas applications.
In April, we signed an agreement with the Skolkovo Fund to open our research and development facility in the Skolkovo Innovation Centre. The Centre will focus on developing efficient technologies in the areas of oil and gas exploration and production, transportation of hydrocarbons, and on finding new solutions to improve energy efficiency in the iron and steel industry.
In June, we entered intoscientific and technical cooperation program with Gazprom for 2013-2015. Program provides the development of new casing andtubing products and line pipelines with improved characteristics, as well as providing technical support and supervision in application of the products.
In April 2013, we completed a placement of 500 mln USD Eurobonds maturing in 2020 with a coupon rate 6,75% p.a. and interests payable twice a year. Bonds are listed on the Irish Stock Exchange. Proceeds were used to refinance certain credit facilities.
In October, we paid off БО-01 series bonds in the amount of 5 bln RUB. Obligations were paid on its due date and in full amount.
In June, the annual shareholders’ meeting approved payment of a final dividend for 2012 in the amount of 788 mln RUB (24 mln USD at the exchange rate on the date of approval) or 0.84 (0.03 USD) per one ordinary share. Thus total dividends amount for 2012 including the interim dividends made up 2,194 bln RUB (69 mln USD).
In November, the extraordinary general shareholders’ meeting approved an interim dividend payment for the first six months of 2013 in the amount of 975 mln RUB (30 mln USD at the exchange rate on the date of approval) or 1.04 RUB (0,03 USD) per ordinary share (approximately 0.13 USD per GDR).
Our operating segments reflect TMK’s management structure and the way financial information is regularly reviewed. For management purposes, TMK is organised into business divisions based on geographical location and has three reporting segments:
- Russian division: manufacturing facilities located in the Russian Federation, Kazakhstan and the Sultanate of Oman, and oilfield service companies and trading companies in Russia, Kazakhstan, Switzerland, the United Arab Emirates and South Africa. The Russian division is engaged in the production and supply of seamless and welded pipe, premium products and theprovision of related services to oil and gas companies;
- American division: manufacturing facilities and trading companies located in the United States and Canada. The American division is engaged in the production and supply of seamless and welded pipe and premium products, including ULTRA™ connections and the provision of related services to oil and gas companies;
- European division: manufacturing facilities located in Romania and trading companies located in Italy and Germany. The European division is engaged in the production and supply of seamless pipeand steelbillets.
1 Adjusted EBITDA - See “Selected financial data”.