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Mon 7 Sep 2009 10:19 PM

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Pipe maker Tenaris says oil firms restart projects

UPDATE 2: Companies now see relationship between oil prices and costs as acceptable.

World oil companies are restarting procurement projects as they see the relation between oil prices and costs as acceptable, Tenaris SA, pipe maker for the energy sector, said on Monday, betting on sales picking up next year.The economic downturn and falling oil prices have forced energy companies to postpone or scrap some development projects.

But with oil prices expected to stabilise at between $60 and $70 per barrel, activity in the sector has started picking up, Tenaris Chairman and CEO Paolo Rocca told investors and analysts in a presentation held in London.

"Our perception is that ... oil companies are now starting again (with procurement projects)... in 2010 we will see more projects," Rocca said.

Tenaris is the world's top producer of seamless steel pipes for the energy industry and its fortunes are closely linked to global energy exploration and oil prices, which have plunged from sky-high levels near $150 a barrel in mid-2008.

National oil companies in the Middle East, including Saudi Arabian state oil company Aramco, and in North Africa, have been more active in resuming projects than independent groups, Tenaris Commercial Director Alejandro Lammertyn said at the same presentation.

Net profit at Tenaris dropped 67 percent in the second quarter and the company expects lower sales and operating income in the second half of the year than in the first.

A glimmer of hope may come next year from the key US market, where inventories of steel pipes used by oil industry are expected to come off from the current high levels, Rocca said.

"Unit margin will probably get lower, but at the same time, in 2010, we expect (sales) volumes to increase and it will be reflected in our results," Rocca said.

Next year earnings before tax, depreciation and amortisation (EBITDA) should improve from this year depending on the pace of recovery in the US markets and elsewhere, he said without giving more precise forecasts.

Tenaris estimated that US inventories of OCTG (oil country tubular goods, which include welded and stainless steel pipes) which stood at a 12-month level of about 3 million tonnes in the first half of 2009, should see a reduction by 450,000-500,000 tonnes a quarter if the oil sector picks up.

However, the steel pipe market for the energy sector would not return to the peak levels seen in 2008 for a long time, Rocca said, adding that competition with Chinese products was particularly felt in the lower-end segment. Tenaris had a strong cash flow which has helped it to turn cash positive at present after a net debt of $122 million in the second quarter. (Reuters)

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