Tenaris SA Q3 FY2025 Earnings Call

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 on 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 to questions.

Thank you, Giovanni, and good morning to all of you. Our results in the 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 rig activity 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 prices 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 provide in maintaining the efficiency of their operations. Considering the high level of tariff rates 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, Hickman, and Sault Ste. Marie operated at record levels 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 applications that nobody produces in the United States. In a dynamic and changing world, one of the key strengths 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 Sault Ste. Marie to celebrate 25 years of operations in Canada with our employees and the local mayor and the MP. This mill, 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 pipes 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. To extend the scope of our Rig Direct service in the region, we opened a new service yard in British Columbia, while the mill in Sault Ste. Marie is further ramping up production to supply this operation. Offshore projects, especially complex deepwater developments, 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 GranMorgu development in Suriname. Now we are also gearing up for the supply of coated seamless risers and flow lines and welded line export pipe and casing for the TPAO Sakarya 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 FIDs. 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 NEI has confirmed its interest in participating in the development of a 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 steel shop and pipe facility in Campana. In October, the two 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 towards our goal of reducing carbon emissions 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 imports with the strengthening of its steel safeguard measures, which should benefit our operations in the region. In this volatile environment, Tenaris continues to demonstrate the resilience of its operations 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.

Our first question comes from Arun Jayaram from JPMorgan Securities, LLC.

Paolo, I was wondering if you could elaborate a little bit more on the implications for Tenaris from the Argentinian elections. And perhaps narrowing in on the fact that you did mention in the 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. I would say that the Argentina election is marking an important turning point. The expectation of the market was for a substantial balanced result, but the real results have been a clear victory of the party of President Milei with more than 40%. This has changed 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, it is changing the proportion and the presence in Congress, in the two chambers. So it will allow and give more leeway for the administration to push ahead with this transformation plan. This has been combined with a very strong support from the American administration and 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 initiatives and businesses in Argentina. The oil companies, in particular, will have enhanced access to foreign financing for their development projects. Just this week, yesterday, there has been the 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 last 6 months, the constraint on the finance operation has been a factor in the decision-making for new investment and for big projects that could be developed in the coming 2, 3, 4 years. So we expect that gradually there will be an increase in the investment in the development of the assets in Vaca Muerta and also a stimulus to long-term projects. 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 programs 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% 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 one relevant index, that is pipe logic. As we mentioned in the last conference call, in a market where the important material represents a 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 the last conference call, it will have some impact on the price. The point is that the accumulation of stocks before the setting 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 the impact of this situation and the level of prices will start to recover. On this more specifically level of stock, I would ask Guillermo to have his point of view from inside concerning the potential evolution of this in the future.

Thank you, Paolo and Arun. During the first part of this year, we experienced a high volume of imports, particularly in the first half. We noticed a decrease in the third quarter, but the full effect of the 50% tariff on those imports has not been realized yet. We anticipate further reductions during the current quarter, especially in the first half of 2026, which should help balance the market. Currently, inventory levels are around seven months, which is above normal. Once this situation changes, prices should have more opportunity to rise.

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, we think we had a good level of sales and we also expect for the next quarter to have a level of sales close to or in line with the third quarter. Now there have been strong sales of welded, mainly due to 2 factors. One is OCTG, oil country tubular 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 impact. The other point is the delivery of the big pipeline, VMOS as it's called, there is the big oil pipeline that is enhancing the evacuation of Vaca Muerta in the first stage, the 350,000 barrel a day and subsequently 550,000. So it's a very big pipeline. We are finishing the delivery of the pipe for it just in the third quarter. This has been one of the reasons. Looking ahead, it is likely that in the fourth quarter, this ratio will 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 weld. So you can expect that this could be slightly lower.

Okay. Perfect. Then I wanted to change tack onto 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 the 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?

We will proceed with the second tranche of the buyback. The Board has approved a dividend level that is roughly in line with last year in total but higher per share due to the impact of the buyback. After this second buyback is completed, it will be up to the Board to determine the next steps. As we noted earlier, the 11% return for shareholders reflects good company performance. Tenaris has demonstrated resilience in a volatile environment and has provided a substantial return to shareholders.

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% 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 quarter, we will see, as I mentioned, maybe some lower volume but potential sales in line or close to what we have seen in the 3Q but we expect the EBITDA to be lower in the range of single digits because of the impact of the tariff in our cost of sales. We are paying tariffs on the bars of steel that we are bringing into the states for supporting our rolling mill. We pay the 50% tariff on this. But this tariff is being incorporated into our inventory and is released gradually as we proceeded in the cost of goods sold. So in the third quarter, we pay a higher amount compared to what is included in our cost of sales. But in the fourth quarter, we expect an additional amount, 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 EBITDA without, let's say, the recovery we had on the antidumping. We think that considering this, there is a normalized EBITDA. In the coming quarters, we will have a lower EBITDA for the reason that I mentioned.

Very clear. My other question relates to the pipe that was shipped from Asia before the second round of 232; it was still in transit and needed to be landed and integrated into the market before things stabilized. I know you mentioned that the inventory on the ground remains an issue, but how do you see this situation with the pipe in transit developing?

Guillermo, can you share your thoughts on how this situation is developing?

Yes. Yes. This is correct, Marc, what you said. 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 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 in Q4, 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 deepwater 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. Regarding the forecast, it's important to note the impact of tariffs. Currently, we are incurring about $150 million in tariffs each quarter. In the third quarter, a significant portion of this amount affected our cost of sales. Looking ahead, we anticipate an increase in costs as they will be reflected in our cost of sales. However, we are taking steps to mitigate these tariffs by boosting production of steel for pipes domestically. We expect continuous increases in production at our copper and steel plants, which should help decrease our reliance on imports. Additionally, we are expanding our pipe production, which will further reduce the volume of imported materials needed for our sales. We have a proactive plan for this, and negotiations are also ongoing with countries that supply us with steel, including Argentina, Mexico, and Italy, with the potential for tariff reductions through these discussions. While it’s uncertain at this stage, I believe that our relationship with Argentina under President Milei could facilitate discussions on tariffs. There may also be opportunities for agreements with Europe similar to the one with the U.K., as well as negotiations with Mexico. These developments will significantly impact our performance in the upcoming quarters. Although we likely won’t see immediate changes by the fourth quarter beyond what I've mentioned, we will need to consider potential adjustments to tariffs for our steel bars by 2026. Now, regarding the situation in the Middle East, I will turn it over to Gabriel for further comments.

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 has bottomed 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 a bit too early for us to factor into our forecast. Another component of our business in Saudi is our pipeline business. And last month, in September, we started deliveries of the large CCS pipeline. So this is something that we will accompany well into 2026. So line pipe is 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 Sub-Saharan 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 Sakarya 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 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 in North America. I will let Guillermo to comment on this, even if this is in your view sustainable.

Yes, I think that it is sustainable. Our clients are mainly the large operators that have shown much more resilience than the smallest ones, 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, particularly hours are increasing productivity and efficiency. And therefore, the impact on the demand of OCTG 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 clients.

Yes. I would add just one comment. The large operators are more resilient in front of a perception of a reduction in the price of oil. They have more productive plays. They operate in more productive plays. They have better efficiencies. So the operators we are serving tend to be more stable and resilient even when the perception of price of oil over time may be subdued compared to a few months ago.

Okay. Can you provide an update on our intensity levels now compared to a year ago? How much improvement have we seen?

Yes. You mean OCTG consumption?

Yes.

I would say that it's around 2% to 3% higher. So if you see a rig count reduction of 5%, you need to consider that half of this has been compensated by an increase in productivity, right? The days that it takes them to drill a well, but also because they are extending the lateral length.

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 PEMEX' 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 you were mentioning which region, can you repeat?

Yes, sure. Just in Mexico.

First of all, regarding Trion and other private companies, we are observing a shift in direction, particularly with new contracts that PEMEX is awarding for drilling. The first contract has been assigned, which will lead to additional drilling activities in Mexico. This includes ongoing projects like Trion. Secondly, concerning PEMEX's financial situation, after the $12 billion refinancing operation, PEMEX is starting to recover its capacity to make payments to suppliers. In the third quarter, we did not receive payments, but currently, we are beginning to receive them, and we anticipate a significant payment on our receivables in the fourth quarter. Receivables have been increasing, partly due to payment delays, but we expect this to improve, and we believe that the recovery in PEMEX's financial situation will eventually have an impact. In our outlook for the upcoming quarter, we do not foresee major changes. However, we believe the refinancing indicates that over time, particularly in 2026, there will be increased activity from private companies and potentially from PEMEX as well.

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 on 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 is containing the impact of tariffs. It is also something that is to some extent affecting the hot rolled coil. I mean the price of hot rolled coil is higher, but it's not higher as much as one could have expected for the size of the increase in the import of this. I think that maybe, Carlos, looking at the impact of hot rolled coils on our cost of sales, you can add something. I don't see major change in...

No. There is a small increase for the 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 Jafurah 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 starting drilling in 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 apply 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. Gabriel, if you can comment.

Yes, David, indeed, we are excited about the unconventional opportunity in the Middle East. As you mentioned, this is something that is not new. Jafurah 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 in. 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 despite the decrease of rigs for Saudi that I was referring to before. Clearly, the gas development in Saudi is the most resilient and they are targeting to replace oil for internal consumption. Going to UAE, there is also an opportunity of unconventional that is a bit smaller, but ADNOC is accelerating in their own operations and with partners, they are bringing and they have some partnerships in 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 in and leading. So it's an area 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 welded 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 pipelines, we source domestically for our SAW large OD pipeline mill in Jubail. 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 source 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 credit in our finishing facility that we have in Abu Dhabi. So it's a mix of combination of pieces with a heavy component of domestic product.

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 are 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 EUR 300 million negative movement in working capital 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 different regions a very diversified portfolio of products. 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 Southeast Asia or in the Mediterranean, we have a range of products, including line pipe with coating that follows an acquisition of Shawcor. In some cases, represent an invoicing superior to the invoicing on pipes. So it's difficult to do differentiation region. We have differentiation due to product. Some of the most competitive products are the onshore welded line pipe. There are examples in Argentina or in Saudi Arabia. These are the tails of our profitability, while the most profitable area could be the line pipe coated with insulation for complex offshore products. In the U.S., there is an average, but still in the U.S., there are also differentiations between production casing and surface casing or tubing. So I wouldn't say that it is a regionally driven profitability. In fact, I would say it 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 payments 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, which 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 we can do in speeding up the receivable of some other areas like Middle East that may contribute to the improvement of the reduction of the need for working capital during the 4Q. In this sense, 3Q has been a kind of extraordinary, I would say, in terms of absorption.

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

I have a quick question regarding inventory levels in the U.S. and where you anticipate imports to decline more rapidly. Is that likely to be with seamless or welded products, and what are the inventory levels for heater products? Additionally, regarding our press release earlier this month, I noticed there was mention of certain assets now being part of the buyback process. Could you confirm if there have been any updates on this or any other relevant changes we should be aware of?

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.

Yes. When we look at the imports, it's more on welded pipes than seamless. And regarding the increase of inventories on the ground that we have seen lately has also been higher on the ERW than in seamless. Now, looking forward, the expectation is that both ERW and seamless inventories on the ground will go down.

Yes. On the second one, the controlling shareholder has informed that it may start selling shares 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 rule indicating when the movements are above the 1%. This is what 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 regarding the oilfield services business in Argentina. If you could give us an update on how things are evolving there? Are we talking a little bit about the Argentina macro environment, but how could this business, say, help results maybe over the next few quarters. I think this will be nice to hear from you. And then I have another question here. When you look into South America, we saw some nice contracts recently signed with Petrobras, which I suppose could somewhat offset the Raia 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. Regarding Argentina, I believe that oil companies, including YPF and others, will gain more access to financing, and investors' willingness to support this has positively responded to the election results. This indicates that additional rigs will gradually come into operation. The number of idle rigs in the country is nearly zero now, so the increase will be slight. However, there will be actions to bring more rigs into the country for operations in 2026. This means that fracking operations will increase, which is significant for our division engaged in fracking in Argentina. We can anticipate a rise in invoicing from fracking operations and our sales of pipe and services over time, which won’t be immediate but will impact the upcoming quarter. So, we expect more sales. In terms of the LNG project, the CS project led by Pan America, along with partners like YPF, is progressing. Given the current situation, we expect the tender process and the final investment decision were completed in June, with construction of pipelines starting in 2026 and contract assignments for the pipes. These developments are crucial for us and will enhance our market presence. Now, regarding Petrobras, I will ask Gabriel to provide comments on the contract.

Thank you, Paolo. Rodrigo, regarding drilling activity in Brazil, we are observing a steady increase from Petrobras and other major players, particularly in the deepwater sector. There are various aspects related to Tenaris's supply in both OCTG and line pipe. For OCTG, we have a long-term agreement with Petrobras and other majors for large OD connectors, which we manufacture locally. We also supply seamless casing in specific fields for Petrobras, and we have a significant contract for completions of 13 chrome and CRA, considering the service conditions for completions with Petrobras. We believe that these elements, along with the bookings for seamless pipelines that include insulation coating—specifically related to Búzios 9 and Búzios 11—will help offset the conclusion of the large Raia SAW pipeline that we benefited from until the first half of this year. There are many dynamic factors at play, and it's quite compelling to see the range of our portfolio and Tenaris's position in Brazil.

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.