TMK and World Energy

PROPRIETARY & CONFIDENTIAL
TMK
AmCham 14th Annual Business and Investment Conference
September 16th, 2014
Disclaimer
No representation or warranty (express or implied) is made as to, and no reliance should be
placed on, the fairness, accuracy or completeness of the information contained herein and,
accordingly, none of the Company, or any of its shareholders or subsidiaries or any of such
person's officers or employees accepts any liability whatsoever arising directly or indirectly from
the use of this presentation.
This presentation contains certain forward-looking statements that involve known and unknown
risks, uncertainties and other factors which may cause the Company's actual results,
performance or achievements to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. OAO TMK does not
undertake any responsibility to update these forward-looking statements, whether as a result of
new information, future events or otherwise.
This presentation contains statistics and other data on OAO TMK’s industry, including market
share information, that have been derived from both third party sources and from internal
sources. Market statistics and industry data are subject to uncertainty and are not necessarily
reflective of market conditions. Market statistics and industry data that are derived from third
party sources have not been independently verified by OAO TMK. Market statistics and industry
data that have been derived in whole or in part from internal sources have not been verified by
third party sources and OAO TMK cannot guarantee that a third party would obtain or generate
the same results.
2
TMK– Global Supplier of Full Range of Pipes for Oil and Gas Industry
Capacity
(tons)
North
America
Europe
Russia
and CIS
Total
Steelmak ing
540,000
450,000
2,700,000
3,690,000
Seamless Pipes
350,000
220,000
2,412,000
2,982,000
1,040,000
2,423,000
3,463,000
Heat Treat
550,000
1,540,000
2,090,000
Threading
1,560,000*
1,560,000
3,120,000
Welded Pipes
Note: *Including ULTRA Premium connections of 250,000 tons and OFSi
capacity of 310,000 tonnes
Source: TMK data
3
TMK Group Highlights
Global
Market Leader
Leading
Position in
Russia and the
U.S.
Growth Potential
and Deleveraging
Key Performance
Figures
 One of the largest tubular capacities
 High exposure to the oil & gas industry: approximately 75% of 2012 shipments went to the oil & gas sector
 10% global seamless OCTG
 Russia: 52% seamless pipe market, 62% seamless OCTG market, 21% LD pipe market in 2012
 Strategic partnerships and long-term contracts with Russian and American oil & gas majors
 One of the leading suppliers to shale oil & gas in the U.S. (over 16% OCTG market)
 Strategic Investment Programme (2004-14) aimed at 48% capacity increase is nearly completed
 Ability to efficiently integrate acquired businesses and realise synergies
 The effect from the recent investment projects to be realized in 2012-2015, which will facilitate
deleveraging
2010
2011
2012
2013
1H 2014
Revenue, US$ mln
5,579
6,754
6,688
6,432
2,982
EBITDA, US$ mln
921
1,047
1,028
952
375
4
Leading Global Supplier of Pipes for Oil and Gas Industry

A world leading tube producer by sales volumes in 2013 and last 4 years
Sales Volumes (thousand tonnes)
3,962
1,843
4,186
4,237
4,287
1,844
1,743
1,866
Seamless pipes
Welded pipes
2,119
2,342
2,494
2,422
2010
2011
2012
2013
Source: TMK data


Local producer in countries which account for 86% of global drilling activity
High exposure to the oil and gas industry: approximately 76% of sales went to the oil and gas sector in
2013
2013 Global Drilling Activity by Geography
(Number of Wells Drilled)
Focus on Oil & Gas Industry
2013 Sales by Industry (%)
Far East Africa
2% Europe
4%
1%
Middle East
4%
South America
7%
US + Russia +
Middle East +
Canada: 86%
Russia
10%
Canada
12%
Other
(Machine
Building,
Constructing &
Public Utilities
etc.)
24%
US
60%
Oil & Gas
76%
Note: Excluding China and Central Asia. Onshore and offshore drilling
Source: Spears & Associates
Source: TMK data
5
Diversified Business Model
Diversified Product Portfolio and Customer Base
Sales Volumes by Product (2013)
Welded OCTG
11%
Seamless OCTG
32%
Welded LD
10%
Welded Line Pipe
11%
Welded Industrial
12%
Source: TMK data
Seamless
Industrial
12%
Seamless Line
Pipe
12%
Diversified Geographical Reach
TMK Revenues by Country (2013)
Cent.Asia & Asia & Far
Middle East &
East
Caspian
Gulf Region
3%
Region
1%
3%
Europe
7%
Americas
29%
Key Considerations
 High degree of diversification enabling earnings
resilience.
 Geographical diversification seeking to mitigate swings
in geographical demand (Russian division 57%
and American division 29% of 2013revenues).
 Diversified product portfolio, including full range of
seamless and welded pipes.
 Focus on higher value added products, including
seamless pipes and OCTG.
 Diversified customer base covering end users in oil and
gas and industrial sectors (top 5 customers represented
30% of sales volumes in 2013).
 Long-term relationships with Russian oil and gas majors
(Rosneft, Surgutneftgas, Lukoil, TNK-BP and Gazprom).
Russia
57%
Source: TMK data
6
TMK IPSCO Today (1/2)
14%
 16% share of the USA OCTG market.
 20% of the onshore premium connection market and
39% of the premium integral connection segment.
20%
 Half a billion USD has been invested in modernizing TMK IPSCO facilities:
heat treating capacity doubled and threading capacity almost tripled,
bringing more value-added to the company's products.
 In the last two years, the Headquarters was moved to
Houston, the world's oil and gas capital.
 World-class R&D Center was built.
 OFSi created to further develop oilfield services.
 OFS&T created to integrate TMK IPSCO field
services and fishing tools.
7
US Market Stabilising
 US demand has been difficult with drop in natural gas drilling activity and product mix deterioration
Premium Tubular Content Increasing With Unconventional
Drilling Activity
Increasing Long Laterals Drive Growth
US Oil and Gas Rigs by Type of Drilling
Footage drilled (Million Feet)
2,100
400
1,800
350
Gas
Oil
371
340
Vertical – 22%
US Rig Count
1,500
300
100
284
261
241
1,200
200
900
190
207
161
Horizontal – 67%
150
138
118
241
Sep-09
Source: Baker Hughes
Jun-10
Mar-11
Dec-11
Sep-12
May-13
Feb-14
251
185
50
Directional – 11%
121
118
100
300
105
217
182
118
600
0
Jan-09
331
306
250
386
64
77
94
95
119
119
79
0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: Spears & Associates
 Drop in overall rig count has been offset by drilling efficiencies resulting in more footage drilled
 Growing signs of recovery in natural gas market with anticipated LNG exports driving both pipeline
and further growth in natural gas drilling activity
8
Geopolitical / Economic Effects of the Shales (1/2)
•
The US overtook Russia in gas production in 2009 for the first time, and again
in 2011.
•
“No more oil onshore”? Russia leads the world in oil production with 11 million
bbls/day, Saudi Arabia is second with 10 million, and the USA is third with 8.0
million bbls/day. We will reach 10 million bbls/day before 2020.
•
The US is importing 60% of its daily consumption of 19 million bbls. By the end
of 2014, this will be 50%. Imports will go to zero by 2030.
•
The US is effectively exporting 3.6 million bbls/day in the form of oil and gas
products already…
•
…and, beginning in 2015, will export LNG. By 2020, this export will amount to
6-8 bcf/day (8-10% of all gas production), providing no new licenses are
granted; more if yes.
16
Geopolitical / Economic Effects of the Shales (2/2)
 Near term continued pricing and rig count softness BUT shift to unconventional drilling
drives demand for seamless and premium products.
 Long term positive fundamentals for country with abundant natural gas – drop in gas
prices led to increase in consumption:
 For feedstock in petrochemical plants, LNG processing and exports.
 For electricity. . . Coal-fired electricity has dropped from 52% to 37.6% since
2000.
 For transportation. . . California, New York, Utah, and Oklahoma are leading the
way in natural gas vehicle infrastructure.
 For LNG exports. . . 36 proposed LNG export projects total over 50% of 2011
U.S. dry gas production. Licenses for over 10 bcf/day already granted to seven
projects.
 Growing demand for natural gas should support and further increase consumption of
pipe and premium connections.
10
Fall and Rise of US Natural Gas Prices
Henry Hub Natural Gas Spot Price
Dollars per Million Btu
Source: EIA
• This rise is more than just
reinjection due to cold weather
• Natural gas spurring 83 major
industrial projects 2012-2019;
90-100 billion investment
required*
- 49 New Projects: 24
Petrochemical (incl. 10
crackers), 12 Steel, 8 Fertilizer,
2 Gas-to-liquids, 2 Paper and
pulp*;
- 25 Expansions: 15
Petrochemical, 8 Fertilizer, 2
Steel *;
- 9 Restarts: 4 Fertilizer, 5
Petrochemical*
• This demand-driven rise is the
ground-swell prior to the
tsunami of LNG Exports
*Source: Energy Ventures Analysis, Dec.
2013; NGSA
11
Application received by DOE/FE to Export Domestically Produced LNG
from the Lower 48 States (as of April 18, 2014)
All Changes since March 24, 2014 Update are in red.
Company
Sabine Pass Liquefaction, LLC
Freeport LNG Expansion, L.P. and FLNG
Liquefaction, LLC
Lake Charles Exports, LLC
Quantity
2.2 billion cubic feet per
day (Bcf/d)
1.4 Bcf/d
Cameron LNG, LLC
2.0 Bcf/d
0.03 Bcf/d: FTA
0.06 Bcf/d: non-FTA
1.0 Bcf/d: FTA
0.77 Bcf/d: non-FTA
1.2 Bcf/d: FTA
0.8 Bcf/d: non-FTA
1.7 Bcf/d
Freeport LNG Expansion, L.P. and FLNG
Liquefaction, LLC
Gulf Coast LNG Export, LLC
Gulf LNG Liquefaction Company, LLC
1.4 Bcf/d: FTA
0.4 Bcf/d: non-FTA
2.8 Bcf/d
1.5 Bcf/d
Carib Energy (USA) LLC
Dominion Cove Point LNG, LP
Jordan Cove Energy Project, L.P.
LNG Development Company, LLC (d/b/a
Oregon LNG)
SB Power Solutions Inc.
1.25 Bcf/d
Southern LNG Company, L.L.C.
Excelerate Liquefaction Solutions I, LLC
0.5 Bcf/d
1.38 Bcf/d
Golden Pass Products LLC
Cheniere Marketing, LLC
Main Pass Energy Hub, LLC
CE FLNG, LLC
Waller LNG Services, LLC
Source: USA Energy Department
0.07 Bcf/d
2.6 Bcf/d
2.1 Bcf/d
3.22 Bcf/d
1.07 Bcf/d
0.16 Bcf/d: FTA
0.19 Bcf/d: non-FTA
FTA Applications
(Docket Number)
Approved (10-85-LNG)
Non-FTA Applications
(Docket Number)
Approved (10-111-LNG)
Approved (10-160-LNG)
Approved (10-161-LNG)
Approved (11-59-LNG)
Approved (11-59-LNG)
Approved (11-71-LNG)
Under DOE Review (11-141-LNG)
Approved (11-115-LNG)
Approved (11-128-LNG)
Approved (11-127-LNG)
Approved (12-32-LNG)
Approved (11-145-LNG)
Approved (11-162-LNG)
Approved (12-06-LNG)
Approved (11-161-LNG)
Approved (12-05-LNG)
Approved (12-47-LNG)
Under DOE Review (12-05-LNG)
Under DOE Review (12-101-LNG)
Approved (12-48-LNG)
Under DOE Review (12-77-LNG)
Approved (12-50-LNG)
n/a
Approved (12-54-LNG)
Approved (12-61-LNG)
Under DOE Review (12-100-LNG)
Under DOE Review (12-146-LNG)
Approved (12-88 -LNG)
Approved (12-99-LNG)
Approved (12-114-LNG)
Approved (12-123-LNG)
Approved (12-152-LNG)
Under DOE Review (12-156-LNG)
Under DOE Review (12-97-LNG)
n/a
Under DOE Review (12-123-LNG)
Under DOE Review (13-153-LNG)
1
12
Application received by DOE/FE to Export Domestically Produced LNG
from the Lower 48 States (as of April 18, 2014)
All Changes since March 24, 2014 update are in red.
Company
Quantity
Pangea LNG (North America) Holdings, LLC
Magnolia LNG, LLC
Trunkline LNG Export, LLC
1.09 Bcf/d
0.54 Bcf/d
2.0 Bcf/d
FTA Applications
(Docket Number)
Approved (12-174-LNG)
Approved (12-183-LNG)
Approved (13-04-LNG)
Non-FTA Applications
(Docket Number)
Under DOE Review (12-184-LNG)
n/a
Under DOE Review (13-04-LNG)
Gasfin Development USA, LLC
Freeport-McMoRan Energy LLC
0.2 Bcf/d
3.22 Bcf/d
Approved (13-06-LNG)
Approved (13-26-LNG)
Under DOE Review (13-161-LNG)
Under DOE Review (13-26-LNG)
Sabine Pass Liquefaction, LLC
Sabine Pass Liquefaction, LLC
0.28 Bcf/d
0.24 Bcf/d
Approved (13-30-LNG)
Approved (13-42-LNG)
Under DOE Review (13-30-LNG)
Under DOE Review (13-42-LNG)
Venture Global LNG, LLC
Advanced Energy Solutions, L.L.C.
0.67 Bcf/d
0.02 Bcf/d
Approved (13-69-LNG)
Approved (13-104-LNG)
Under DOE Review (13-69-LNG)
n/a
Argent Marine Management, Inc.
Eos LNG LLC
0.003 Bcf/d
1.6 Bcf/d
Approved (13-105-LNG)
Approved (13-115-LNG)
n/a
Under DOE Review (13-116-LNG)
Barca LNG LLC
Sabine Pass Liquefaction, LLC
1.6 Bcf/d
0.86 Bcf/d
Approved (13-117-LNG)
Approved (13-121-LNG)
Under DOE Review (13-118-LNG)
Under DOE Review (13-121-LNG)
Approved (13-129-LNG)
Approved (13-131-LNG)
Under DOE Review (13-147-LNG)
Under DOE Review (13-132-LNG)
Approved (13-140-LNG)
Pending Approval (13-160-LNG)
n/a
Under DOE Review (13-160-LNG)
Pending Approval (14-19-LNG)
Pending Approval (14-54-LNG)
Under DOE Review (14-29-LNG)
n/a
Delfin LNG LLC
Magnolia LNG, LLC
Annova LNG LLC
Texas LNG LLC
Louisiana LNG Energy LLC
Clean Energy
1.8 Bcf/d
0.54 Bcf/d: FTA
1.08 Bcf/d: Non-FTA
0.94 Bcf/d
0.27 Bcf/d
0.28 Bcf/d
0.14 Bcf/d
Air Flow North America Corp.
Alturas LLC
0.001 Bcf/d
0.2 Bcf/d
Pending Approval (14-53-LNG)
Pending Approval (14-55-LNG)
n/a
n/a
Strom Inc.
Strom Inc.
0.02 Bcf/d
0.02 Bcf/d
Pending Approval (14-56-LNG)
n/a
n/a
Under DOE Review (14-57-LNG)
Strom Inc.
Total of all Applications Received
0.02 Bcf/d
Source: USA Energy Department
n/a
38.87 Bcf/d
Under DOE Review (14-58-LNG)
35.93 Bcf/d
2
13
Our New Approach Driving Growth
TMK strength lies in its diversity

Group has full range of products for conventional and unconventional markets

US wide presence- being close to the customer
TMK strength lies in its technology

Deliberate move from commodity product to technology led solutions

Fit for purpose applications

Creating long term customer partnerships benefiting from our technical and commercial knowhow
−
−
−
No inventory risk for the end user
Prices are negotiated based on transparent indexes
Joint Product Development program
Approach yielding results

Increasingly moving to long term contracts (1-3 years) with International Oil Companies. In January 2014, TMK
IPSCO was awarded two three-year contracts to provide both oil country tubular goods and line pipe to Shell for
onshore and offshore applications.
•
70% of OCTG output currently dedicated to program business with a target of 90% by 2015

We benefit from improved planning, procurement and production efficiencies that deliver higher margins

Introduction of new higher value, higher margin technology driven products – replacing lower margin more
basic products
As well as our unique products....
14
Increasing Complexity of Lateral Drilling Fuelling Demand
The “Octopus” Structure
•
The “Spider” Structure
1 pad, 50 wells – a whole lot of pipe
Taken from Brian Hicks article “The Strangest Looking Octopus
You’ll ever see” December 13th 2012 Energy and Capital
Taken from World Oil Vol. 235 No. 4 article “Technology
improvements slash drilling times in Horn River basin”
15
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