PAO TMK, one of the world’s leading producers of tubular products for the oil and gas industry, presented its new ten-year strategy to 2027 and an update on performance at its 5th annual Capital Markets Day in London.
The new strategy will reinforce TMK’s position as a leading supplier to the global OCTG market, the dominant supplier to the Russian oil and gas market, a TOP 3 OCTG producer in the U.S. and number 2 globally by financial performance.
A key focus of the strategy is enhancing TMK’s global leadership in key product segments. TMK’s Russian division targets growth in high tech product sales to contribute 50% of the division’s revenue by 2022 and aims to remain the largest producer of premium connections on the Russian market. In addition, the division targets a contribution of $100 million to annual revenue from new innovative products. TMK intends to expand its presence in the Russian and U.S. OCTG and line pipe markets through leveraging the existing or newly commissioned capacities, or possible alliances.
In addition, the company will enhance its vertical integration, which will further reduce costs and improve margins, whilst also allowing it to further develop and enhance its range of products and services. This will include the development of comprehensive engineering solutions for customers with cutting-edge digital technology, which utilize TMK’s high tech products.
The group will work to expand its commercial footprint by leveraging its global scale through improved coordination between divisions and taking full advantage of TMK’s e-commerce platform, TMK eTrade, launched in 2017 as Russia’s first tubular goods online shop. Innovation and digitalization will be a key focus of the strategy for the next ten years, with the company planning to adopt advanced digital technologies to improve product quality and cut costs.
TMK continues to form strategic partnerships with major global oil and gas companies, such as Rosneft and Gazprom, and global customers to collaborate on the development of breakthrough technology and services. The company plans to complete its R&D cluster by opening a state-of-the-art new research and development center in Moscow, Skolkovo in 2018.
TMK’s longer-term geographic expansion will be achieved through deepening partnerships with key customers to jointly enter into new oil and gas regions. The company will also participate in the consolidation of the global pipe industry.
To strengthen its financial position, TMK plans to further reduce its leverage, with a target Net debt/EBITDA ratio of 3.0x at FY 2019, and 2.5x at FY 2021.
TMK dominates the Russian pipe market focusing on pipes for oil and gas industry. Current OCTG market trends are favorable for TMK. Drilling activity is growing to support stable oil production at well above 10.5 million barrels per day. Enhanced oil recovery activities at brownfields drive the share of horizontal and directional drilling which has already reached 40%, while new projects drive pipe volumes in both conventional and unconventional drilling. This is creating long-term demand for TMK’s high-end oil and field services, with the company’s share of the Russian seamless OCTG market and premium connections currently at around 64% and 81% in January-September 2017 respectively. TMK plans to develop and supply innovative premium products and specifically intends to increase its shipments of seamless OCTG, as well as pipes with TMK UP premium connection.
TMK’s American division, TMK IPSCO, continues to perform strongly and capitalize on the recovery in the U. S. E&P market, demonstrating consistent sales growth and strengthening EBITDA and EBITDA margin.
In North America, the average annual rig count is projected to increase by 70% YoY in 2017E, with footage drilled per rig having achieved a CAGR of 11% over the past six years, according to Spears & Associates. In October the share of horizontal and directional drilling reached 93%, having almost doubled over the last ten years. Oil and gas demand, as well as export are growing, whereas price remains robust for over a year with exploration and production players’ costs adjusted to it. OCTG demand is projected to grow at a CAGR of 6% YoY in 2017E – 2022E.
In this environment, TMK IPSCO has been enjoying its position in TOP 3 of OCTG suppliers with a share of 15% at the market and has continued to grow its market share, with new customers since January 2017 representing 19% of the division’s current OCTG customer base, seeing sustained further upside opportunity. Meanwhile, the division remains focused on further strengthening its margins by delivering increasing cost efficiencies and in 2017 has achieved a 100% YoY increase in production.
European market demonstrates healthy growth and remains an important geography for the company. TMK continues to maintain a strong presence with a market share of around 10% in seamless industrial pipe in 2017. TMK is aiming to strengthen its position here through offering unique and innovative products in the industrial segment through the introduction of a world-class heat treatment facility at TMK Artrom, which will reposition it as a high-end high-margin producer.
In the MENA market, TMK has increased its share of high value-added products in the sales portfolio to 50% for the last three years. TMK GIPI, the region’s leading ERW plant, sees significant opportunity to strengthen domestic and international sales as a strategic supplier to PDO, the largest E&P company in Oman. (MetalInfo/Ukrainian metal)