Following a healthy second quarter, the outlook for Tenaris SA in the second half and into 2020 is more uncertain as the need for global investment in oil and gas production and development is muddied by geopolitics, company executives said.
The Luxembourg-based steel pipes manufacturer on July 31 reported a second-quarter net income of $240 million, up 44% from $166 million a year ago, and net sales of $1.92 billion, up 7% from $1.79 billion in the same period in 2018.
CEO Paolo Rocca said second-quarter sales increased as Petróleos Mexicanos SA de CV advanced its drilling plans. The sales to Pemex helped offset the negative impact of lower North American sales due in large part to the Canadian seasonal downturn, the CEO said during an Aug. 1 earnings call.
In the U.S. in the first half, market demand for pipes declined with the rig count, which cut into pricing leverage, a trend that could continue into the second half if the rig count continues to fall, Rocca said.
But U.S. drilling activity and pricing leverage are expected to improve as Tenaris increasingly focuses its business on oil and gas majors.
The oil majors are become increasingly involved, leading consolidation initiatives, increasing investments and accounting for larger shares of the drilling activity, Rocca said. About 17% of Tenaris' current U.S. business is from its Rig Direct offering, which provides customers services to support well design, construction, completion and workover operations.
Demand for services from the "relatively more stable" majors allows Tenaris to compound pricing with the level of services, Rocca said. While pricing power will remain limited in the second half, in 2020 some recovery in the rig count could change the pricing dynamic, he said.
Activity and pricing could also improve after three years of inadequate investment in oil exploration and development globally. Rocca said the need to increase investment in all regions, including offshore, will be driven by demand.
The International Energy Agency forecast that global crude oil demand will grow by 1.2 million barrels per day in 2019 before rising another 1.4 million bbl/d in 2020.
However, geopolitics can muddy the medium- and longer-term outlook for demand, the CEO said, as the 2020 U.S. elections and global trade conflicts cast a shadow on worldwide oil and gas activity.