Tenaris SA

MIL:TEN

Earnings Call Transcript 2022-Q2

[Operator]

Good day, and thank you for standing by. Welcome to the Second Quarter 2022 Tenaris Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to Giovanni Sardagna, Head of Investor Relations. Please go ahead.

[Giovanni Sardagna, executive]

Thank you, Carmen, and welcome to Tenaris 2022 Second 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 this call.

With me on the call today are Paolo Rocca, our Chairman and CEO; Alicia Mondolo, our Chief Financial Officer; Guillermo Vogel, Vice Chairman and member of our Board of Directors; German Cura, Vice Chairman and member of our Board of Directors; Gabriel Podskubka, President of our Eastern Hemisphere Operations; and Luca Zanotti, President of our U.S. operations.

I would like to start by mentioning that we will host an investor presentation in New York at the New York Stock Exchange on September 30, and we hope to see many of you there.

Before passing over the call to Paolo for his opening remarks, I would like to briefly comment our quarterly results. Our sales in the second quarter of 2022 reached $2.8 billion, up 83% compared to those of the previous year and 18% sequentially, mainly led by further pricing gains in North America, a recovery of volumes in the Middle East and higher sales in South America.

Average selling prices in our tubes operating segment increased 36% compared to the corresponding quarter of 2021 and 10% sequentially. Our EBITDA was up 28% sequentially to $806 million, while our EBITDA margin was up at around 29% as higher prices more than offset increases in energy and raw material costs. Our quarterly net income of $637 million benefited again from a strong contribution from our investment in Ternium.

Cash generated by operating activities during the quarter was $428 million. Our free cash flow for the quarter was $353 million after capital expenditure of $74 million, while our net cash position at the end of the quarter increased to $635 million after a dividend payment of $331 million in May.

Now I will ask Paolo to say a few words before we open the call to questions.

[Paolo Rocca, executive]

Thank you, Giovanni, and good morning to all of you.

Tenaris is reporting these second quarter results at a favorable moment for our industry. Energy security has come to the forefront of public concern, in a world where Russian aggression has led to dramatic reduction in flows of natural gas to Europe and the current and possible sanctions are creating uncertainty about the availability of Russian oil export.

High energy price and slowing economic growth are starting to have an effect on demand, but a low level of investment in the oil and gas sector over recent year and the longer-term challenge of the energy transition are dampening the near-term supply response.

Drilling activity continues to increase in North America, the Middle East and other parts of the world as a leading oil and gas producer act to increase supply to head off potential shortages and alleviate unprecedented LNG prices. Following the market collapse induced by the pandemic, we have ramped up our industrial and supply chain operations around the world. We are now operating at high capacity and high level of capacity utilization in many of our product lines.

Since the end of 2020, we have increased our workforce from 19,000 to 24,000 employees, as we increased production volumes in our global industrial system by 75%. We prepare to increase production still further in the months ahead.

These efforts are reflected in our results. In the second quarter, we recorded an EBITDA of $800 million; a level not seen since 2009 on sales of $2.8 billion. Our net income from continuing operations of $634 million or 23% of net sales is at a record level.

North America has been at the center of this performance and of our effort to increase production. Our production of rolled and welded pipes in the United States has increased 5x since the end of 2020. As we ramp up our production facilities, including our modern U.S. Bay City mill faster than any of our competitors.

Despite the role we have taken in leading the domestic production response to the increase in U.S. drilling activity, the United States Department of Commerce, in response to a petition from our competitors, decided to impose preliminary antidumping duties on our OCTG product imported from Mexico and Argentina in May. We will now have to wait until November for a final determination of the case.

In this context, in which our customers continue to increase their drilling activity and look to us to meet the tubular requirement, we are hiring employees to ramp up our U.S. welded production now that the HRC prices have fallen and the spread between pipe and household coil cost makes the production of welded pipes viable. We now have 3,500 employees in our U.S. operation.

We continue to invest in strengthening our U.S. production system. In this line, we announced an agreement to acquire Benteler seamless pipe mill in Shreveport, Louisiana. The agreement remains subject to the antitrust clearance from the U.S. authorities.

This quarter marked a recovery in our sales to the Middle East. This is a region which will be critical to meet the world energy requirement over the next year, and one where we have been strengthening our position in the key markets of Saudi Arabia, the Emirates and Qatar and in Kuwait.

In the Emirates, our Rig Direct service is fully operational now that ADNOC previous talk has been used up and is being reinforced with digital process integration. In Saudi Arabia, demand is increasing as we start to implement our recent 10-year agreement with Aramco.

Qatar Gas has granted us a 5-year extension to our agreement to supply OCTG from their -- for their northfield expansion, for which we will also deliver the pipes for the line to connect the field to the upcoming LNG trains. In Kuwait, we have started to make shipments under the 3-year supply agreement for KOC deep drilling operations, the gas drilling operation.

We are now delivering pipes to the 2 most important deepwater project worldwide. In Brazil, Petrobras has entrusted us with a contract to supply the seamless and welded casing for their Buzios Pre Salt deepwater development. We will supply more than 100,000 tons of highly differentiated products and services over the next 3 years.

In Guyana, our 10-year contract with ExxonMobil to supply their deepwater exploration and development operation, is now fully operational. In both projects, we are supplying our connection with Dopeless technology and our robust BlueDock connector.

In Argentina, we received the advance payment related to the contract to provide 180,000 tons of pipes for the pipeline, which is required to deliver gas from the Vaca Muerta shale development to meet the domestic demand requirement and provide potential opportunity for us. This award highlights our global capability in meeting fast-track project requirement. We are already gearing up to produce the pipes at our Siat and Confab mills. The pipeline is the largest of several pipelines that are required to enable investment to increase production in the world-class Vaca Muerta shale formation.

We are operating in an uncertain world, where the relative prices of commodities can turn in an instant, and political and economic stability seems a distant dream. Tenaris, with its global production and supply chain capabilities and its vast experience of operating in complex environment, provide a stable reference in the oil and gas industry, prepared to respond rapidly with safe and reliable solutions in a fast-changing landscape.

We can now attend any questions you may have on this.

[Operator]

[Operator Instructions] We have a question from the line of Marc Bianchi with Cowen.

[Marc Bianchi, analyst]

Very strong results and the outlook is strong. I was hopeful if we could just talk through free cash flow for the back half. You said positive, but I'm just curious, as we think about the bridge from EBITDA to free cash flow, I'm wondering what the working capital outlook is? And just any other items we should be thinking about?

[Paolo Rocca, executive]

Well, thank you, Marc. As you see, results are very strong. And in this quarter, we had a positive cash flow. As I mentioned, in the next semester, we will have a different situation in the third quarter that will be -- let's say, the increase in sales will be limited and in the fourth quarter that we expect to be stronger.

So we expect our working capital to build up to some extent in the third quarter because we have to attend several pipeline projects in which we have a long, let's say, supply chain from the purchasing of the steel to the production of the pipe, the quoting and the delivery. So we will have the main for working capital in the third quarter. And then the situation will change in the fourth quarter.

In terms of days, as we saw -- we have said in the last conference, we are gradually -- by the end of the year, we will be reducing the overall days of sales in our working capital. In terms of -- as far as the capital expenditures are concerned, as we say, over all of this year, we will be basically investing in the range of $0.43 and $14 million.

The CapEx of Tenaris may be higher in 2023 when we will have to strengthen some part of our industrial system. But in the coming 6 months, we will be investing in the [ oil ] field in Argentina. This will be probably the largest CapEx outcome for the next 6 months.

[Marc Bianchi, analyst]

Okay. So a lot of moving pieces in all of that, but it would seem that the free cash flow run rate in the back half is quite strong, perhaps in the ballpark of $2 billion and your dividend is a full year dividend on a run rate basis of just under $500 million.

So ample free cash flow above the dividend, how are you thinking about incremental return of capital to shareholders? I mean the stock price has not gotten much credit for the strong results that you've had. I'm curious how you think about a buyback or other types of returns?

[Paolo Rocca, executive]

Well, as I was mentioning before, even with this slight increase in -- or increase in our working capital in the 2Q, our free cash flow will be positive in the third quarter and the fourth quarter. As far as dividend is concerned, we will be consistent with the policy we are following in the past year. And this is our expectation and our guidance.

[Operator]

Our next question comes from Connor Lynagh with Morgan Stanley.

[Connor Lynagh, analyst]

I was wondering if you could speak about the Industrial Logic [indiscernible] . Does this provide any new offerings? Is this replacing products that you're potentially importing less of as a result of the trade case? Or is it just a good opportunity you saw out there?

[Paolo Rocca, executive]

Well, thank you, Connor. I think we need to continue to expand our industrial base in the United States, adding a facility for adding value to our product and also increasing our production capability.

As we mentioned in the prepared remarks, we expanded very significantly our production in the United States. We expect that the demand in the United States will continue to grow. And we think that it would be important to expand our industrial base, not only in terms of pure volume, but also in terms of product. And in this sense, the acquisition of the Benteler asset in Shreveport will help us complementing our overall system -- production system in the United States.

[Connor Lynagh, analyst]

Okay. Got it. And just in terms of sort of following on Marc's question on capital allocation. Are there other small deals, I don't know if you call this small or not, but you take my point, non-transformative but mini-sized deals that you could consider doing with all of this cash you're generating, whether it be in the U.S. or abroad?

[Paolo Rocca, executive]

No. As you know, we are always -- first of all, we have investment underway in Italy, for instance, in expanding our heat treatment capability for bars and pipes in the Middle East for serving ADNOC in the different facilities in strengthening the industrial capabilities, especially in value-added, in heat treatment and threading and [indiscernible] production.

So we have a continuous flows of investment in this that we consider our bottleneck. This is also, let's say, true for the United States, where we identify bottleneck that needs investment that are not large-sized investment but, let's say, necessary for this. This is the, let's say, our operational investment -- capital investment that we have in front of us.

Then there are special projects like the wind farm in Argentina. This clearly $200 million is a more relevant investment. Next year, we will focus on some of the bottleneck, on top of normal investment to, let's say, substitute equipment for obsolescence.

And then there is also an investment that we are realizing in our IT area for automation and for improvement in our system. The business model of Tenaris is based on a very direct relation with clients. And so our information technology sector is very important in supporting digital integration with the client, automation and digital development in our supply chain.

[Operator]

Our next question comes from David Anderson with Barclays.

[John Anderson, analyst]

In the release today, you highlighted the Middle East is starting to grow more meaningfully. But I noticed you didn't mention Saudi, which is obviously an enormous driver over there. We're hearing from the service companies about rigs and contracts being mobilized, but we haven't really seen a true inflection yet.

I was wondering, from your vantage point, can you kind of tell us how you see overall activity levels in the Middle East and the second half of this year versus the first half? And also, how is that translating to pipe orders? I can't imagine there's too much inventory in the ground still over there.

[Paolo Rocca, executive]

Thank you, David. I will ask Gabriel Podskubka to pick up this question on Saudi.

[Gabriel Podskubka, executive]

Yes. Thank you, Paolo. Thank you, David. Indeed, the drilling in the Middle East is on a solid recovery path. As you know, the core OPEC countries have been increasing production in line with their increasing quotas. But if you look at the rig count, they are still operating at their well below pre-pandemic levels. So we expect ramp-up of activity of the main countries, clearly, Saudi being one of the leading factors in this increase.

We are perceiving in interaction with the customers that this demand for our products will continue to increase. As a matter of fact, in this quarter, we got sizable call-offs from Saudi Aramco for our 10-year agreement related to premium products and also sizable call-offs for our 5-year agreement for welded products in Saudi. So there is no question about it. Saudi is ramping up, and we are seeing that in our order backlog. This will be seen clearly in deliveries during the first half of 2023.

Qatar is another area that is growing as well. And as Paolo anticipated, we are in the process of extending our 5-year agreement to support their OCTG needs for their LNG expansion plan. There is a momentum also in UAE in ADNOC. There is momentum in KOC. So we expect all the core countries in the Middle East to contribute in the growth in the second half and even in 2023.

We believe that the second quarter there was a noticeable increase as the first step of our growing trajectory for our business in the region. We are going to have a slight reduction in the third quarter due to some [indiscernible] shipments, but another important step in the fourth quarter. Overall, an important increase second half versus first half and further growth expected in the first half of 2023. So hopefully, this gives you some color on the region, David.

[John Anderson, analyst]

Another theme, which you've touched on a couple of times, is offshore. It's been a big theme we've been hearing about this quarter. I know you mentioned a couple of the big deepwater projects you're on. I was wondering, beyond that, what are you seeing? Are there changes you see in the offshore market? Are there any particular markets in particular that look like they're starting to change?

We're seeing rigs are starting to be contracted. Obviously, there's been a lot of talk about that. I'm just wondering if you're starting to see customers already order pipe for these drilling campaigns. It looks like they're going to start next year?

[Paolo Rocca, executive]

Well, for sure, there is active recovery of activity in deep offshore. On one side, we see the activity in Guyana, Exxon -- these are areas in which we are very much present with long-term contract for exploration development.

Then Petrobras in Brazil is also -- is having substantial program, in which, as we mentioned, we also are very present with complex product and advanced technology, some of which is proprietary, including Dopeless and digital integration with our customer.

For the Eastern Hemisphere offshore, I will ask Gabriel to comment on the major areas in which we can expect activity to pick up.

[Gabriel Podskubka, executive]

Very good. Thank you, Paolo. Yes, David, also offshore is on a strong recovery path in the Eastern hemisphere. The area that we perceive as the most promising and with more activity is Sub-Saharan Africa.

In the recent months, we have secured 2 important agreements, 1 with Eni and 1 with Chevron, for their drilling needs in offshore Angola. Angola seems to be the country that is more active and faster in the recovery. These are important projects, about 40, 50 wells to be drilled in the next 3, 4 years. This is a complex mix of products as well, requiring service capabilities. We're also going to expand our service capabilities in the country in Angola.

But this is not the only country. This is also complemented by deepwater activity in Ivory Coast that is coming along for 2023, more expected activity in Congo and some revival again in Nigeria. So overall, Sub-Saharan Africa is an area that starts to be having a level of dynamism that we have not seen in the last at least 6, 7 years.

We also expect these Mediterranean and Black Sea to be areas of where there's going to be a promising activity. Large projects are being studied, not sanctioned yet, but this might bring some potential upside in the offshore for 2023. And Southeast Asia is also having some areas of pockets of high-end activity that is interesting for us in Papua New Guinea, Australia and Indonesia.

So overall, a positive trend, and we expect a positive cycle of FIDs would impact in 2023 and onwards.

[Operator]

Our next question comes from Alessandro Pozzi with Mediobanca.

[Alessandro Pozzi, analyst]

Just wanted to go back to the guidance on volumes. You mentioned Q3 is not going to be a big growth and we're going to see a jump in Q4. Just wondering if you can potentially quantify whether we are talking about maybe a flat growth in Q3 and then a double-digit growth in Q4? Any color around that trajectory would be very much appreciated.

The second question is about prices of raw materials. So HFC scrap, they're all coming down. And I was wondering when do you think -- and there's two parts. So first of all, when do you think those could be reflected in the P&L? I guess, maybe some point in '23, maybe I don't know whether it is the first half or the second half?

And then also there is a wider question on HRC coming down and welding becoming more let's say, competitive. And I was wondering whether that is going to create more competition, they eventually could potentially put some pressure on the Pipe Logix in the U.S.

[Paolo Rocca, executive]

Thank you, Alessandro. Well, on the first question, we estimate that overall sales in the second semester of 2022 will be higher than the first semester in the range of high teens. It will be something in that range overall, but distributed differently.

We have a stronger fourth quarter and a more, let's say, limited increase -- small increase in the third quarter due to the stoppages, we have 3 stoppages in our mill. In Europe, 2 mills are stopping for maintenance, and 1 mill based in the United States. And also seasonally the activity will be slightly lower in the third Q compared to the fourth. But semester against semester, the increase will be in the high teens in terms of sales.

Now on the second point, you are right, the price of scrap and price of commodity is going down. To some extent, we didn't expect such a trend maybe 3 months ago. We were expecting that the price of commodity will be more stable taking into consideration the overall geopolitical situation.

But the sense of a possible slowdown of the economic activity in Europe and in the States and also some issue on COVID in China has driven down the price of commodities. And you are right, this will be -- will have an effect on our profit and loss, but this will be -- will start to have an effect in the fourth quarter of this year, I mean, because of the IFRS accounting for this and the price of our stock.

Now you should consider also that the cost of energy in Europe is going up and went skyrocketing to very, very high level for gas and for power. And also this effect will be reflected in our cost overall starting basically in the fourth quarter of the year.

So this will be how the change in prices of metallics and energy will get into part of our account. Obviously, we are acting to try to minimize the impact of the energy cost, also trying to reposition as we can production within our global system.

And also the government in Europe and in Italy, in particular, is introducing, I think, just in these days, initiative that will reduce or limit the additional cost. But clearly, this is something highly uncertain considering the situation in Europe.

On the third question, which is the -- HRC is -- clearly, the HRC price is going down faster. Again, driven by the sense that the economy is slowing down, especially in the United States and in Europe, but overall around the entire world.

Now this is making welded pipes production and the welded pipe product more competitive. No doubt, especially in the United States, we are ramping up our activity and our welded pipe facility to take advantage of this trend. But we have to take into consideration that also our competitor are doing the same. The limiting factor today is the ability of execution in this ramp-up.

It depends on hiring, organizing and starting the facility. I think we have some leeway in doing this, and we are proceeding. But also you have to keep in mind that not only the welding capability is limiting the production capability, there are value-added components like heat treatment and threading that are important. And bottleneck in this moment, United States, is also a bottleneck in capacity in treated. So we may expect the welded to be focused on the non-treated segment more than the entire range of products. And as you know, Tenaris is very strong in the most sophisticated products in the key treated products that are needed for the more demanding part of the column in the shales.

So these are the elements that you should keep in mind to understand the impact that could have enhanced or increased competition on the welded product in the future.

[Alessandro Pozzi, analyst]

Yes, that was very helpful. And just a follow-up on the energy cost. What would be the impact on the higher energy costs in terms of EBITDA?

[Paolo Rocca, executive]

Well, I think it's -- the energy cost is moving wildly in the last 1 month. It went up suddenly, then went down from 220 -- in megawatt equivalent for gas, down again to 180, now 190. So I think it's difficult to have an estimate of the overall impact that this could have. Remember, this is affecting basically exclusively our European operation and particularly our steelmaking operation.

But if we have some flexibility in how we organize production and how we, let's say, allocate production among the different facilities, and also the initiative by the Italian government, which will be basically a reduction of 25% in the cost of energy that was in place until the 30th of June, in my understanding, will be approved and extended starting from 1st of July. So this will also be a factor reducing the impact on our cost.

[Operator]

[Operator Instructions] We have a question from Frank McGann with Bank of America.

[Frank McGann, analyst]

Yes. Questions on the competitive environment, I guess, in a couple of regions. Just a follow-up first on the U.S. You mentioned that competitors are responding to add to welded capacity. I was just wondering how significant you see that in terms of volumes coming into the market over the next 6 to 12 months?

Secondly, on Brazil, you -- it sounds like you've got a major contract for casing for Buzios. And I was just wondering do you expect to get additional volumes in Brazil? This seems to be, in a way, let's say, groundbreaking maybe that's too strong, but a move that it was stronger than I had expected anyways. And then thirdly, in Colombia, which you mentioned in the release had been quite strong in the quarter and has been strong over the last couple of years. Are there any signs that companies are beginning to slow down as a result of the change in government and uncertainty relative to energy policy?

[Paolo Rocca, executive]

Yes, thank you, Frank. On the first point, the competitive environment in U.S. This is basically will be determined, one by the dynamic of the rig count in the future; two, by the level of import to the country; and three, by the ramp-up of the welded operator within the limit that I mentioned.

I will ask to -- Luca to give -- to respond on how we see the dynamic of these 3 factors that are so essential for the competitive environment.

[Luca Zanotti, executive]

Thank you, Paolo. Hi, Frank. Let's go step-by-step. First, on the imports.

When you look at the imports and you look to the traditional import sources, you see that they have already ramped up. We might see something more coming in. But with COVID cast through another quarter, we don't see an explosion of it, at least, at this stage.

Second, domestic production. Domestic production, we are ramping up. Usually, our competitors started the ramp up well after we started. So there, as Paolo was mentioning before, we are at an advantage. And of course, now that the HRC has come down and this production is now finally viable, they will bring it. But they're going to be facing the bottlenecks that we are all facing. So this is not something that's going to help overnight.

Now the third dimension was the activity, the rig activity. Rig activity is going up. Now you see the industry has been bringing in on an average of 5 rigs per week since now. Now when you start looking at our customers or talking to the riggers, so the drillers, you don't see this going ahead with the space through the rest of the year, but still, we believe that the activity is going to be growing.

Now when you put all the 3 elements together, you end up with the inventories. And this is very important, because the inventory today on the ground, according to our calculation, is still below 4 months, which is extremely low.

So when you put everything together, we believe -- we don't believe that Pipe Logix is going to be affected in the short term by the 3 elements that I was describing before. I don't know if this answers your questions or if you have any follow-up?

[Paolo Rocca, executive]

Thank you, Luca. I think this was the main point. Let me just add on the question of the level of activity. Frankly, I think that the concern for energy security, the need to control or, to some extent, increase level of production and the price of oil are all factors that should drive the level of activity in the United States or for support and sustain the level of activity in the United States. So I think this is the key element.

To some extent, energy may be decoupling from the overall level of activity. This is what is happening today, but I think there are sound reasons for this to continue for a while. Economic activity may drive down the HRC and the level of activity. But energy, in this sense, may become decoupled on this.

The second point is Brazil. You're right, in Brazil, we've been successful in establishing our product line for welded and seamless connector with very interesting features, robust product that are used in the deep offshore and seamless pipe. They are a very complex product, and we are now in the range -- we have a market share that is in the range of 50%. I think we will accompany the development of Petrobras and the company -- the traditional oil company operating in Brazil. And we will see, let's say, how this will evolve over time.

The last point on Colombia. I think it's too early to understand fully the -- let's say, which will be the energy policy of the new administration and the room and the confidence, the trust that it will inspire into the operator in general. We expect the level of operation to increase and our sales to increase slightly over in the third and in the fourth quarter. In that region, Guyana will be the more dynamic area. There will be also some activity in Ecuador that is important for us. But for Colombia, a medium-term view will depend from the policy that -- and the trust that will be established in the policy of the new administration.

[Operator]

We have a question from the line of Carsten Riek with Credit Suisse.

[Carsten Riek, analyst]

One question only left because all the other questions have been answered. It's on the Benteler Steel & Tube plant acquisition in Shreveport. I'm just curious because Benteler actually set up the plant with a different intention, also putting an electric arc furnace, but it never got to that stage. So there are quite a few state-of-the-art processing lines, but no electric arc furnace.

Is that your intention that you could actually put some money into play, put an electric arc furnace in there and finish the work Benteler never did? Or how do you want to supply the site with billets, et cetera, et cetera?

[Paolo Rocca, executive]

Thank you, Carsten. It's a good question because Benteler, as you say, is a very recently built facility with very sophisticated technology. It's a good mill capable of producing high-quality product.

Today it's operating below the capacity of the mill. The overall capacity will be in the range of 400,000 tons of pipes. And as you are saying, there is also, let's say, room for adding steel shop in the same facility, in the same -- let's say in the same area, and this has been tied that is part of the commitment that Benteler was having and is creating employment in the region. It was part also of the negotiation that Benteler originally did with the Louisiana authority.

For sure, this has value. The permits existing may allow us, if we decide to go on, to speed up very much the establishment of steel capacity in the United States, which is, by the way, something that we have in our agenda because we have -- we are producing now substantial volume of seamless and welded pipe also, but seamless particularly in our client.

And the only facility that we have for producing steel is in Koppel in the North. So we are considering that this could be an interesting aspect of the site of Benteler. Still, we are now submitting our bid to the antitrust. We are waiting for the response from antitrust, and we will see. We expect that this will be, by the way, very welcomed by the Louisiana authority because it will create employment activity, also in an area that we know quite well because our company, that is Ternium in which we have a minority participation as a plant in Shreveport. So we have a good knowledge -- also indirectly good knowledge of the area and on the potential for a future expansion in the region.

[Carsten Riek, analyst]

Okay. Perfect. So it has optionality, and that is what you bought in as well?

[Paolo Rocca, executive]

Yes, it is so.

[Operator]

Our next question comes from Stephen Gengaro with Stifel.

[Stephen Gengaro, analyst]

Just a question for me. When I look at the EBITDA margin performance, which is clearly very healthy, I got to go back to 2013, '14 to see those levels of margins. And I was just curious, just from a big picture, when you think about the business, when you think about the changes in the organization since then, how do you think about the sustainability of the current EBITDA margin profile and even the potential to see it move a bit higher from here?

[Paolo Rocca, executive]

Well, thank you, Stephen. This, I think -- we comment on this is true that the EBITDA is at a record level compared to many, many years ago. The net income is an absolute record level also now. So we are progressing.

Now this has been driven by the increase in the level of rigs, by the strengthening of the global positioning of Tenaris because today Tenaris is really, if you think, the only truly global player capable of reacting to the need of the industry in a very uncertain and volatile environment. So this has been a very strong factor for us.

We have mill in many countries around the world, finishing mill from Africa, to Middle East, to Kazakhstan, to different regions in which we are able accompany -- now this is a value. The brand of Tenaris is gaining value worldwide and is pursuing a strategy that no other competitor are really able to pursue.

So in this environment, the strength of our operation in the states -- in the United States, in Canada, Canada also is a very important region for us in which we have a facility for seamless and now again for welded.

So in Latin America, in Europe, between Romania and Italy, but also finishing facility in Africa, in Middle East, in which we have plant in Saudi Arabia, and we can provide the different countries in the region. This is contributing to the results that you see here is an efficient system. And when the demand gets up, like it's happening today in the United States, we are clearly following and increasing our absolute EBITDA and our ratio. This is the situation today.

Now it's a long-term positioning that is giving results now. But in my view, we'll continue to give results in the future and especially if the geopolitical situation, the need of energy security in the different regions continue to be a serious concern.

When you look at the price of energy in Europe, you will realize that the energy sector in this moment worldwide is exposed to wild volatility, and investment in this sector should recover to level with the level of 4, 5 years ago. Otherwise, there will be a shortage of conventional gas, oil and product that could be -- will require a higher level of activity.

So I'm confident that gradually the investment in the exploration and development of the oil and gas will go back, maybe not to the level of the peak in the past, but will go back to level higher of the level over the last 3 years. In this environment, I think Tenaris is extraordinary positioned for expanding its operation, capturing high [indiscernible] -- for the reason that was mentioned in the different region.

[Stephen Gengaro, analyst]

Great. And just as a follow-up, we've heard from some other oil service companies about customers' concerns about supply availability in 2023, and it's leading to early discussions, earlier contracts, earlier locking up of capacity for next year. Are you seeing that in any of your markets?

[Paolo Rocca, executive]

Well, we perceive attention in the market, but we have been able to comply with the increasing demand of our client. We, as we said, increased fivefold production in the States, and we are continuing -- we will continue to expand in welded and possibly also to the extent possible in seamless capacity worldwide.

There is tension. We are acting and we will definitely -- while in 2000 -- in the coming, in 2023, we will have to invest also to solve some of the bottleneck into this. As a whole, we are in a position to serve our clients. There is a tension. This is reflected in a high level of price. We will be investing to assure that our client will -- may count on us on availability of product everywhere in the world.

[Operator]

Our next question comes from Luigi De Bellis with Equita.

[Luigi De Bellis, analyst]

I have 3 questions. The first one is on the antidumping case. Can you give us your feeling expectation about the final determination in November? Do you expect a revision of the duties?

Second question on Argentina. How do you see the market developing in second half and the first half of 2023 based on your backlog? And the last question is a follow-up on prices. So hot-rolled coil price has continued to decline. You mentioned in pipe supply, a low level of inventories. But what is the outlook on OCTG prices looking forward? Do you expect this dynamic on hot-roll coils will impact Pipe Logix' pricing? And if yes, when?

[Paolo Rocca, executive]

Thank you, Luigi. On the first one, we are really convinced that there is no ground for proving injury in our antidumping -- in this antidumping case. I mean if you look at the results of all of the companies operating in this sector, you don't see injury anyway.

I mean, on the contrary, the price level went up. We know this because we are the largest domestic manufacturer of pipe. So we are the one that really should have been most affected by this. And in fact, we are also having good results in the environment in the United States with production in the United States. So we think that there is really no ground for this, and we are very confident.

Now on the second point of Argentina. The approval of the pipeline from Neuquén to Salliquelo is one place, let's say, in the region of Buenos Aires is the first step, but it's a long pipeline and is a very important for structural movement.

It should be followed by a second major pipeline. And the new Minister of Economy yesterday announced that they are actively looking for building the case for price of investment. In this, Argentina, clearly is affected by high volatility and stability, but energy development of Vaca Muerta [indiscernible] is something that is shared by every parties and -- every party and every component of the Argentinian political environment.

So this development will open the door for other pipelines that are connecting to this line and allowing development of oil, development for export and for domestic market, especially for export. And of gas, Argentina in winter is importing gas at prices that are unsustainable. Because the price of LNG worldwide is high and will be high in the next winter.

So everybody from every side of the political spectrum understand the relevance of investment in the energy sector. Pipeline will drive -- other pipelines will drive -- drilling in Vaca Muerta and development of resources and maybe also development in the downstream area that are adding value on this, and that increasing export of the country. So I'm very confident that whatever happens, the development of resources is going to come.

On the issue of prices and hot rolled coils, I will ask Luca to give us a view on where we see Pipe Logix, the price and moving, okay, in the future.

[Luca Zanotti, executive]

Yes. Thank you, Paolo. Hi, Luigi. Now I believe that you bring about very good questions. But to answer to this, I would need to get back to the supply-demand balance that somewhat I already talked before.

And when you look at the possibility of imports coming up much stronger than what they are today and the speed that the domestic industry will need to pick up production, given the fact that we don't see activity stalling. We see activity keep on increasing through the end of the year, I believe that we are well positioned to see Pipe Logix that it will sustain the levels that they have reached.

Now at a certain point in time, obviously, there's going to be a different balance, but in the short term, we don't see the HRC as a single factor to be enough to bring these price trends in another direction.

[Paolo Rocca, executive]

Well, thank you, Luca. As I stressed before, request of energy security is becoming more and more important in the agenda of everybody, even of the American administration.

The crisis of energy in Europe is a clear warning that there is no conflict between energy transition progressing and the need to invest in conventional oil and gas for supporting this transition.

So frankly, if I should say, I really believe there is decoupling between the dynamic of the economy and what should be done in the energy sector, not only in 2022 but for the coming quarters. I'm positive on this.

[Operator]

And that's all the time we have for Q&A. I will pass the call back to Giovanni Sardagna for final remarks.

[Giovanni Sardagna, executive]

Thank you all for joining us for our conference call, and we hope to see you all in New York at the end of September. Thanks.

[Operator]

And with that, we conclude today's conference call. Thank you for participating, and you may now disconnect.