Tenaris SA Q4 FY2025 Earnings Call

Good day, and thank you for standing by. Welcome to the Fourth 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 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 on 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 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 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 in 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, 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 continued 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 regions. Tenaris, with its capacity to develop products for complex operations and to support fast track development with service and the supply of advanced coated line pipe solutions 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 of 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 operations 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 operations 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 saw a reduction in conventional drilling activity 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 operations. 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 two wind farms now supply essentially all of the energy requirements for our electric steel shop and operations in Canada. As an industrial company, our commitment to the safety of our employees and to environmental sustainability in our communities is absolute. Also, our indicators 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 achievements 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.

Our first question comes from 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, 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 fourth quarter. 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 the fourth quarter? 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 will get into our IFRS because in the end, we are operating on this even in the past few months. We think that what is getting into our results in the first quarter will be relatively slightly lower than what we had in the fourth quarter. But on the other side, the indicator of prices in North America, 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, especially in 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 this is the component that justifies 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 products, different region, different level of service. So I would say, to some extent that the price impact is easier 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, 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 in 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 the 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 is quite stable for Tenaris.

Thank you, Gabriel. I would like to mention one point regarding Europe. It may be too soon to see the impact, but the CBAM and the safeguard that is expected to increase the tariff to 50% and cut the quota by nearly 50% could positively affect a significant part of our international business, which is backed by industrial power generation in Europe. While it may not happen right away, I believe we should be able to enhance our situation and pricing in Europe in the long run. This is also reflected well in our top line due to the current exchange rate.

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 into two 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 factors, the level of cash availability in the company, and 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 discuss your expectations regarding the potential inflection point in the Pipe Logix pricing indices, considering your insights on import trends. When do you anticipate seeing this pricing inflection point? The prices continue to trend down, albeit in low percentage points, according to the latest pricing data.

Thank you, Arun. The factors affecting the Pipe Logix are varied. It's important to note that there are separate Pipe Logix figures for seamless and welded products. We have observed that the Pipe Logix for welded is exerting some downward pressure on the overall situation, which may not have been fully anticipated before. When we noticed the increase in the hot-rolled coil index, we expected it to lead to a rise in the welded pipe sector. However, the influx of welded pipe imports from China, Southeast Asia, and other sources is limiting the movement in the Pipe Logix for welded. This situation is also impacting the Pipe Logix for seamless products. The significant rise in the hot-rolled coil is creating opportunities for imports in the welded product market, adding stress to U.S. producers of welded products reliant on hot-rolled coils. I believe this effect is temporary, as antidumping measures against imported welded products should eventually help align the Pipe Logix with the higher hot-rolled price levels. Nonetheless, we do not expect to see immediate changes in the first quarter, but over time, it should become a relevant 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 on the ground because we have seen some IOCs adding rigs in that market.

As I mentioned in the previous conference, the confidence of the investment community in Argentina is rising after the election in November. Even oil and gas companies have managed to secure over $4 billion through various financing methods, which will support investments planned for 2026. This process has been gradual, but I anticipate that in the second half of 2026, along with significant infrastructure investments, we will see this financial capability translate into increased drilling activity in the country. The pace has been slower than we expected a year ago due to the prevailing country risk being slightly higher post-election than we estimated. This has made the uptick in activity more gradual. Additionally, some of these funds have been allocated for consolidation within the industry, particularly by local players. Once this consolidation is complete, investments will shift towards operational development. We expect that as acquisitions are finalized, drilling will gradually increase. I foresee some movements in this regard in the latter half of 2026. It's important to note that part of the slowdown in drilling has come from reduced operations in the southern region of the country, which has indeed faced closures. Therefore, the focal point of operations 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. Regarding your question about offshore and its performance in 2026, I can say that the offshore market is operating at high levels, and we have a substantial backlog to work through. As Paolo mentioned earlier, we are preparing for exceptional execution on these complex projects, which require local deployment. You referred to the Suriname project where we are establishing a new service base, with the first shipments expected in June. We are set to deploy OCTG and Rig Direct services there in the latter half of the year. Additionally, we are currently producing thermal insulation coating in Nigeria to support the Shell Bonga North deepwater development. These efforts are key to our focus on fulfilling this strong backlog of orders. We anticipate that offshore revenues in the first half of 2026 will surpass those in the second half of 2025. Concerning the second half, we have significant backlogs from projects like Sakarya, but some additional awards are contingent on final investment decisions (FIDs). We expect some of these FIDs to be announced by the end of this year or possibly in 2027, which creates a degree of uncertainty. Thus, we cannot fully confirm the backlog for the second half of 2026 but are optimistic that it will at least match the positive outlook of the first half. Overall, the offshore sector will contribute significantly to Tenaris. Industry projections indicate a strong level of deepwater FIDs for 2027, exceeding the averages of 2025 and 2026. We are proactively engaging with customers on these projects well before the FID stage, indicating that we are in a sustained offshore cycle that should last multiple years.

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 estimations are showing a level of investment in the range of $120 billion in '28 that are almost 3x some of the low-end years in the past two to three years. So long term, look promising for this. Now Guillermo, maybe you can add on the U.S. operation best vision.

Thank you, Paolo, and good morning, Sebastian. Regarding your question about the trajectory of margins in the U.S., especially for our ERW pipes, the recent increase in hot-rolled coil prices along with the decrease in prices for the same products is putting significant pressure on our margins. This will primarily be reflected in the second quarter. For future quarters, given the volatility we are experiencing, it becomes more challenging to forecast. As Paolo mentioned earlier, it will largely depend on the ability of Pipe Logix to recover, which we believe will happen based on the rising costs of hot-rolled coil and scrap, as well as the expectation that imports will continue to decline in the future.

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

So two 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 opportunities 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 are improving. And so you can give us a view of how you see this.

Sure. Thanks, Paolo. For 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 from some big collections from Pemex. I think with Pemex, we have arrived at 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 negotiated 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 accounts receivables.

In terms of inventory management on our balance sheet, the service component of the company is quite evident. Our fixed capital is slightly higher than our working capital because we maintain a significant inventory to support our service strategy and Rig Direct strategy. Gabriel, do you think we might see a reduction in this streamlined inventory, or do you envision 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, where we are managing and balancing the ability to supply and have the right stock at the right moment with efficient working capital. So this is constant work. We have done an improvement during the year and 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 these 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.

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

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

Serving 550 rigs every day implies keeping 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.

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 the second half?

Thank you, Alessandro. Regarding the first point, let's discuss the impact of the situation. In the medium term, we focus on four main factors: the Pipe Logix for seamless, the Pipe Logix for welded, the cost of hot-rolled coil, and the cost of scrap. These four variables significantly influence our contract indicators and the underlying costs. Currently, we observe an increase in hot-rolled coil prices that is not being matched by the Pipe Logix for welded, due to imports that remain competitively priced, even at a 50% premium. This situation is affecting our margins to some degree, but we believe it will prompt a response from the Pipe Logix, possibly through antidumping measures to limit imports. Guillermo, could you share your thoughts on whether we might see this happening in the medium term and when we could potentially recover the increased costs of hot-rolled coils in our revenue?

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 a one-quarter delay. 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 two.

Yes, Paolo. Alessandro, in response to your question about the timing of the pipeline projects, I would say that it remains quite stable throughout the four quarters of this year. This is the visibility we have at the moment and aligns closely with the volumes we projected for 2025, which included significant projects like Sakarya in Brazil. This year, we are completing several pipelines in Argentina in the first and second quarters. Then we expect to have Sakarya in the third and fourth quarters. Additionally, we have a relatively stable plan for pipelines in Saudi Arabia, along with deepwater pipelines in various locations around the world. Therefore, I would say there is no 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, includes different shareholders, but it's a private company. They made a tender, a very open tender to everybody. And basically, we lost the tender because they were higher than the lowest bidder. The bidder, as you were saying, was an Indian company. Things like this happen, 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 conditions of the local market for the Indian company, the conditions 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 the U.S. to advance or introduce the closure of this in the relations with different regions, different areas. 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 this closely.

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 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 Chevron, the only major that is operating in Venezuela. They have a plan to accelerate rigs and demand for two-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 at about $50 million for 2026, but with a clear perspective of a higher potential into 2027 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 companies 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. 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 of this, the product demand and so even if a lot of time has passed, we still 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. Starting with Mexico, there have been several positive developments supporting Pemex. The government has provided $20 billion in capital to Pemex, which is significant. Pemex is also issuing bonds and accessing the market with amounts like $1.7 billion, benefiting from a government guarantee. However, we still do not have clarity on the plans Pemex will follow in 2026. The private sector is progressing slowly, although some companies, such as Woodside in Trion, are making advancements. Yet, the contracts that would facilitate private company involvement in resource development are moving relatively slowly. By mid-2026, we may have a clearer picture of how the development of Mexico's vast resources will be organized. As for the Middle East, Gabriel, you might want to add your thoughts on this.

Yes, sure. Luigi, for the question on the 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 shipments in the next two quarters, first and second quarter of '26, to be pretty much in line with the last two 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 reduced 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 drilling side.

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

My question is about the shale oil and shale industry in the U.S. Since the end of 2023, we've seen a decline in rig counts but an increase in crude output. Additionally, breakeven costs have significantly decreased according to oil metrics. Do you think this trend could lead to an increase in your volumes in the U.S.? Also, there are indications that U.S. shale production may plateau in the second half of 2027. How do you view the future of the shale industry in the U.S.?

Thank you, Marco. I would like Guillermo to share his thoughts on this matter. Regarding the plateau, honestly, I don't think we can predict when that will happen. It will largely depend on the overall price of oil, and there are numerous unpredictable factors related to major production regions. In the past, forecasts for the U.S. plateau have been lower than what we are currently experiencing, which continues to surprise us with higher output. Therefore, I wouldn't make any assumptions about where this number will be in 2027. Guillermo, could you address the issue of productivity?

Yes, as mentioned, U.S. operators have significantly improved their efficiency and productivity over the past two years. Despite having fewer rigs, they are producing more and drilling nearly the same number of wells, often going deeper. We are observing a decrease in rig numbers but an increase in production, along with a slight drop in OCTG consumption compared to previous patterns that correlated with rig counts. Looking ahead, we anticipate a stable market for 2026 in relation to 2025, although there may be a slight dip in activity. While oil production might decrease slightly, gas activity is expected to rise. As noted, forecasting production is challenging. There's widespread discussion about reaching a plateau, but we also see operators becoming more innovative, producing more oil per well through new fracking technologies and chemical applications. We need to monitor the industry's innovative direction. If we're not at peak activity, we're likely very close with the current rig count. Another factor to consider is the reduction in drilled but uncompleted wells over the last two years, which contributed to the uptick in activity. The inventory of these wells is now at a low point, so we don't foresee much more increase from this source in the upcoming 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 could 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. We only have an article from the newspaper and no official definition. The issue may stem from the impact of the U.S. economy regarding the extension of tariffs on derivative steel products. Many products derived from steel, meaning they contain steel, are affecting price levels in the U.S., but they are not benefiting the domestic industry that does not produce these products. The number of derivative products has increased so much that I think Trump's comments might suggest a willingness to redefine what constitutes a derivative. There have been expansions in the definition of derivatives in stages, and before moving to a third stage, he seems to be considering how to avoid causing undue distress in the pricing system. That's my understanding. We will be reevaluating the derivatives instead of focusing solely on lowering the tariff from 50% to 25%, since the tariff structure is a key aspect of the current policy. I don't anticipate any changes in this regard.

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. This should drive an increase in 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 needs may come out. Usually, there is something that is coming out from specific interventions. 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.