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Tenaris SA (NYSE:TS)

Q4 2010 Earnings Conference Call

February 24, 2011 10:00 am ET

Executives

Giovanni Sardagna – Investor Relations Director

Paolo Rocca – Chairman and Chief Executive Officer

Germán Curá – North American Area Manager

Alejandro Lammertyn – Eastern Hemisphere Area Manager

Ricardo Soler – Chief Financial Officer

Analysts

Ole Slorer – Morgan Stanley

Blake Hutchinson – Howard Weil

Stephen D Gengaro – Jefferies & Co

Daniel Boyd – Goldman Sachs

Amy Wong – UBS

Sergio Torres – JP Morgan

Marcus Sequeira – Deutsche Bank

Paula Kovarsky – Itaú Securities

Operator

Good day, ladies and gentlemen, and welcome to Tenaris Fourth Quarter 2010 Annual Result Earnings Conference Call. My name is Marcella and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today’s conference. (Operator Instructions) This conference is being recorded for reply purposes.

I would now like to turn the presentation over to your host for today, Mr. Giovanni Sardagna, Investor Relations Director. Please proceed, sir.

Giovanni Sardagna

Thank you, and welcome to Tenaris 2010 fourth quarter and annual results conference call. Before we start, I would like to remind you, as usual, that we will be discussing forward-looking information in the call and that our actual results may vary from those expressed or implied herein. Factors that could affect those results include those mentioned in the company’s 20-F and other documents filed with the SEC.

With me on the call today are Paolo Rocca, our Chairman and CEO, Guillermo Voguel, Vice President of Finance and member of our Board of Directors; Ricardo Soler, our Chief Finance Officer; Germán Curá, the Managing Director of our North American operation; and Alejandro Lammertyn, our Eastern Hemisphere Managing Director.

Before passing over the call to Paolo for his opening remarks, I would like to briefly comment our results. In 2010, our earning per share of $0.95 were 3% lower than those of the previous year. Our net sales decreased 5% to $7.7 billion compared to $8.1 billion recorded in 2009. Our EBITDA, which we measure before impairment charges contracted 13% and reached $2 billion for the year. EBITDA margin up 26% decreased 2 percentage points from last year.

During the fourth quarter of 2010, sales increased to $2 billion or 12% compared to the fourth quarter of the previous year and 2% sequentially. Our EBITDA reached $560 million, which was 12% higher than the corresponding quarter of 2009, but 3% lower than the third quarter of 2010.

Our EBITDA margin at 25% was flat compared to the one posted in the fourth quarter of 2009 and 1 percentage point lower sequentially, mainly due to a less favorable mix between seamless and welded tubes and higher SG&A expenses due to end-of-year charges and to the effect of foreign exchange currencies on fixed and semi-fixed expenses.

During the year, seamless sales volumes were 14% higher in those of the previous year, while welded volume sales excluding projects more than doubled mainly reflecting the strong recovery in drilling activity in the USA and Canada. Sequentially, however, seamless sales volumes decreased 4%, mainly due to lower OCTG shipments to Venezuela and line pipe products to Middle East and Africa.

Welded volume sales, always excluding projects, were sequentially 8% higher as we continue to benefit from the healthy operating environment in the main regions in which we operate. Average selling prices of our two division were down a 11%, compared to 2009 and flat sequentially. In 2010, results of our project operating segments were significantly lower than the one recorded in 2009. However during the fourth quarter, results finally started to recover.

During 2010, our net cash position declined by $400 million to about $280 million at the end of the year. Following substantial investment in capital expenditure amounted to around $850 million and an increase in working capital of $640 million reflecting a higher level of activity.

The Board of Directors has decided to propose for the approval of the Annual General Shareholders Meeting to be held at the beginning of June, the payment of an annual dividend of 30% per share, or $0.68 per ADR, which includes the interim dividend of $0.13 per share or $0.26 per ADR that we paid at the end of November.

Now, I will ask Paolo to say a few words before opening the call to questions.

Paolo Rocca

Well, thank you, Giovanni, and good morning to all of you. In 2010, we made good progress in positioning the company to meet the demand of the energy cycle now underway. We strengthened the capabilities and competitiveness of our global industrial system. Our new rolling mill in Veracruz will reach full production capacity in the second half of this year, once the heat treatment, threading, and inspection lines have started.

In Dalmine, we have extended the range of high-end products and improved productivity and environmental performance. In United States, we have invested in new tubing and heat treatment facilities. We are now manufacturing Dopeless connection in our main industrial plant. These and other investment will allow us to provide a more extensive range of specialized products and enhance our competitive performance in terms of cost, quality, health and safety and compliances.

In North America, demand is growing and we have consolidated a leading market position. Our alliance business model is gaining new customers and is being implemented in new areas. Our TenarisHydril range of premium connections is the market leader. We are focused on growing market segment, such as the shales and the Canadian thermal project, which require new products and services.

In the past two months, we have successfully run our new TenarisXP connection on seamless and welded pipe for separate customers in the shales and run Dopeless connection at the (inaudible). On the other hand, demand in Mexico has been affected by a reduction in drilling at the Chicontepec and at the Burgos development. In South America, OCTG demand recovered in 2010 in most markets, expect Venezuela, where nationalization and payment issue have affected activities.

In Colombia, Ecuador, and Peru we have enhanced our competitive position by establishing new service yards and extending our just-in-time service order, adding new customer and new services. In Brazil, offshore drilling activity continues to grow in 2010, but pipeline construction activities low down markedly.

We’re working closely with Petrobras and other market payers providing significant share of OCTG and line pipe requirement, both onshore and offshore. Our Confab Equipamentos business, which served the refinery and nuclear markets in Brazil is also growing.

In the Eastern Hemisphere, our regional headquarter in Dubai is fully operational and we’re starting to see the benefit of closer contact with customers. We have strengthened our local content and service capability throughout of the region. In Iraq, we were able to move quickly to establish a leading market position in the reactivation of the oil in that industry.

Exploration activity is increasing throughout the region. Complex project have been undertaken in areas like West Africa, the Poland shales, Russia, the Caspian, and Australasia, where our technology service and local presence allow us to provide depreciated solution to our customer.

The event now taking place in North Africa, however, will affect the demand in the first half of 2011 and could spread and have a wider impact on investment in the region. Our results for the year only partially reflect the progress made. Shipment in our Tubes operating segment rose 27% overall with higher increase for OCTG product and a lesser one for line pipe product. Sales and operating income declined, however as prices failed reflecting a post-crisis competitive environment with excess capacity, particularly for standard API product.

Global demand for oil and gas has recovered in 2010 and is expected to continue to grow, fueled by the economic development of Asian and other major non-OECD nations. A new exploration cycle is underway. Major operators are investing heavily in shales and other natural gas development worldwide with the conviction that natural gas will play an increasingly important role in the global energy metrics.

Demand from oil and gas industry for OCTG and other byproduct should continue to grow in 2011. And demand for premium products should increase more than that for standard API products as well. As well, complexity is increasing. Demand from other sectors should also increase.

Also our selling price are expected to rise. These increases are likely to be initially offset, as we say in the press release, by increases in raw material and other costs. Accordingly, we expect that our sales and operating income will increase in 2011 compared to 2010.

Thank you. We can open now for questions.

Question-and-Answer Session

Operator

(Operator Instructions) And your first question comes from the line of Ole Slorer with Morgan Stanley. Please proceed.

Ole Slorer – Morgan Stanley

Thank you very much. You have a little cost inflation for you now relative to your pricing cycle. So I wonder whether you could elaborate a little bit on how that plays out in the first quarter. Clearly, mix will also be, have a very big impact, but there's nothing that we can see how that moves from one quarter to the next. What should we expect for the quarter we are in at the moment?

Paolo Rocca

Thank you for your question. No doubt we are perceiving the cost inflation. And in fact, the recovery in the overall economy is driving an increase in some of the cost that are essential in our production. If you look at this from a longer perspective, for instance scrap compared to where it was in June 2009 increased by almost 100%, iron ore by 230% in the same period of time and also this is reflected in the hot roll coils increase.

This increase has been particularly strong in the last three months. Since November, we have seen hot rolled coils for instances going up substantially. Now compared to this, our prices are recovering, but are recovering a little slower compared to this. If you look at the Pipe Logix, Pipe Logix only recovers compared to 2009 by 7%. After a higher level in the middle of 2010, it went down and is now recovering for the first time. We expect this to continue, and these increasing prices should offset the increase we are seeing in cost.

We announced the price increase in North America of $300 for welded pipes to be applied from January, February and March. And I think that this recovery in price will allow us to offset the increasing cost. Also keep in mind that expecting the increasing cost, we increased our working capital, our inventories in the fourth quarter of 2010. So our inventories increased by around $200 million over this period of time.

We anticipated some of the procurement of some of the material. So, as a whole, considering the price increase and the anticipation of some of the procurement, as a whole, we expect to be able to offset the price increase. So this will be more solid over the course of this year, because demand is good. But we think that we can also, this could also be so in the first quarter.

Ole Slorer – Morgan Stanley

Okay. So just in terms of modeling the margins from the fourth to the first quarter, you will expect a flat margin and, of course, the rising sales that come with seasonality and the general recovery. Would that be a fair way of thinking about it?

Paolo Rocca

Yes. I think you’re guessing right, what we would expect in the transition from fourth quarter to the first quarter.

Ole Slorer – Morgan Stanley

On to the premium side, I mean last year was, of course, a year where the API and welded was driving the volume increase. You're now saying that 2011 as we look further into the year will be a year when premium will start again growing faster than the markets overall. And in listening to the conference call from one of your big competitors, it sounds as if the market must be at pretty high capacity utilization at the moment. Could you give some comments on where you think the markets for premium products stands right now, not only in the U.S. but globally, as we go into this drilling cycle?

Paolo Rocca

Well, you're right that, as a whole, the premium market improving at a stable pace in the range of 20% in 2010 against 2009, another 20% is what we expect in 2011 against 2010. Now the overall market increase a little more in 2010 as you correctly said. You can say around 30%, because of the increase, especially, in the welded side of this. But for instance, if you pick up the seamless part, premium increase more than seamless OCTG in general. This will also is something that we expect for 2011.

We expect seamless and OCTG in general to increase in the range of 10% and 11%, in this range. It will depend for many things. But, basically, this is a reference. And we expect premium to increase by 20%. The driver for this are several, offshore outside the Gulf of Mexico, shales not only in the States but also worldwide, turmoil in Canada, and some of the projects that show complexity in the Middle East that are also driving increase in premium. So this is a trend that we perceive should be, let’s say creating good condition for our differentiation effort during 2011.

Ole Slorer – Morgan Stanley

So how do you see the industry utilization and the competitive landscape change as this demand looks to continue for a few years now? How far away are we from where the industry or some of your competitors get closer to being fully utilized? What's your view on that? I mean it strikes me that the market is very finely balanced even ahead of this recovery?

Paolo Rocca

We recovered our utilization in seamless and welded. We have now close probably to 80% to 85% of where we were in October 2008. Now, we enter into 2011 with a new mill that is picking up speed. Finishing line and heat treatment will be completed from February, March, and June. This will also increase our capacity in premium couplings. I think that we are operating at high level of capacity, but we still have the capacity to satisfy the demand of an increasing market during 2011.

Ole Slorer – Morgan Stanley

And would you care to comment on how you see the industry as a whole, rather than just Tenaris?

Paolo Rocca

Well, I would say that in the API product in the low end line pipe product, there is still excess capacity around the world, because of Chinese producer overcapacity build in the last four or five years. But when you go to the more demanding products, I think there is not. At this point in time, I don’t see much capacity available in reasonable terms. Reasonable terms means that, let say in cost efficient terms, because some times some of the plants could operate, put additional shapes or work in (inaudible) then you are stretching from the cost side. So, in rational terms, I think that there is not so much capacity available in complex products.

Ole Slorer – Morgan Stanley

Thank you. Just one final one, Paolo. On the EXP, we've seen a huge interest by overseas capital coming into the U.S. for shale drilling. Does the EXP connection allow you to potentially market some of the welded products as premium?

Paolo Rocca

Well, EXP has been a very important interesting develop for us. I will ask Germán during this moment, very committed in promoting the use of this product in the shales in the United States for welded and seamless pipe to evaluate the perspective of this.

Germán Curá

I think short answer Ole, good morning by the way. Yes XP is being very well received both seamless and welded. We have run it already an Eagle four was for Marcello. At the present moment there is a major company testing it. So it opens up fairly important opportunity for us to engage the API component of the shale well into premium connection that meets the requirement I guess is not us if you like complex as the ones used in offshore Gulf of Mexico and so on.

Ole Slorer – Morgan Stanley

Okay. I will take that off-line. But, thank you very much.

Paolo Rocca

Thank you.

Operator

Your next question comes from the line of Steve Gengaro with Jefferies. Please proceed. Steve, your line is open. Your next question comes from the line of Blake Hutchinson with Howard Weil. Please proceed.

Blake Hutchinson – Howard Weil, Inc.

Hello, gentlemen.

Paolo Rocca

Good morning.

Ricardo Soler

Hello.

Blake Hutchinson – Howard Weil, Inc.

Just trying to gauge if you go back to last quarter and our seamless deliveries of 581,000 tons, I guess, at the time the outlook was for perhaps volumes to be slightly up. Is most of the effect between that explained a way by Venezuela, and what’s the status currently of shipments in the Venezuela, is this just something is moving into fourth quarter, from fourth quarter and the first quarter? And can we venture into gas at, here we are two-thirds of the way through the quarter, some approximation of where our first quarter seamless deliveries may be?

Paolo Rocca

Well, thank you Blake for the question. In fact, you are right. I mean part of the invoicing for the fourth quarter has been affected basically by some delays, Venezuela and also some line pipe product, you know, a line pipe product we have in many occasion a very long chain. We produce the pipe, then we have to quote, then we have to organize the shipping and the shipping and sometime these are big product that could be delayed and moved from one quarter to the other.

In the case of Venezuela, the question is different. The question of credit, we are supplying Venezuela according to their ability to fulfill their financial obligation and took over their bill. So we’re following closely our receivable and our payment and so on.

Last quarter was a quarter in which we were limiting some of our shipment because of credit issues. For the time being, this is continuing also in the first-quarter, but this is not stopping our shipments. We are limiting our shipment compared to what could be let’s say, what we, according to the tender that is we have one and the materials that we could really supply, but there is continued flow of payment, Venezuela need the material.

There are good working relations with PDVSA. We are giving service to them on different ground from the stocks to the running assistance, to develop of complex program. So we think that this is a continuing operation. At the pace, that is the pace at which PDVSA could effect payments.

Blake Hutchinson – Howard Weil, Inc.

Okay great. So I take that that continues to be a limiting factor in this quarter towards visibility getting back towards that 600,000 ton delivery range.

Paolo Rocca

Yes, this is in the case of Venezuela but anyway we expect in the first quarter higher volume of shipments end of the fourth quarter. Now this depends on fall of the rate of market and the client. In the case of Venezuela, I would say that our perspective is stable.

Blake Hutchinson – Howard Weil, Inc.

Okay. And then, you mentioned in your comments, obviously the kind of widely broadcast by Pemex shift from officially a shift from Burgos since you counterpart to the south and offshore, could you just talk a little bit about how this quantitatively and qualitatively affects the Tenaris franchise, need to shift either in kind of the volumes, demand in per well or the quality per well or however you’d like to kind of frame the shift in drilling activity in Mexico?

Paolo Rocca

Well, I wouldn’t say that Pemex is shifting from Chicontepec in Burgos to the south. Basically, Pemex is reducing its Tenaris program for development in Chicontepec in Burgos. This has been very strong reduction in the course of 2010 and so also our shipment in Mexico is being reduced quarter-by-quarter in the course of 2010.

As far as the perspective of this is concerned, maybe Germán Curá could give us a point of view on what we can expect. For sure the price of oil is strong and this is improving the cash flow Permax. So maybe we will see in the course of 2011 we may see a stronger, stronger investment in it but Germán but how we see this.

Germán Curá

Sure Paolo thank you, good morning everybody. To give you a little bit of color in terms of how we see Pemex, I will start by mentioning that Pemex is starting the year with a budget increase from I think 2011 versus 2010 of around 10%.

And, I think this should give Pemex a little more flexibility in terms of increasing the activity, but having said that, I would like to mention that we see two limiting factors moving ahead. One is the changing Pemex law, which actually change the procurement procedures in Pemex and this delaying to some extend the process.

And the other is the effectiveness in terms of being able to go ahead with the new way Pemex is working in terms of other contractors in (inaudible), which I think are coming on stream a little bit slower than expected. So, actually what we are perceiving is that the first half of this year we’re going to have a very similar level of activity then the second half of last year and second half of last year what’s affected by what Paolo was saying a strong reduction in Chicontepec and Burgos area.

So second half of last year we were working probably around 20% below the volumes that we were handling in the first half of the year. So what we are seeing now is first half of 2011 very similar to last second half and then we are seeing now that Pemex is going ahead with bidding process of new rigs. We see this coming on stream in the second quarter. So we are pursing and increasing the level of activity but for the second half of the year, so more or less this is a perspective that we have with Pemex right now.

Paolo Rocca

Thank you.

Blake Hutchinson – Howard Weil

Great. Thanks Germán, that’s helpful. I appreciate it. Now I'll turn it back.

Paolo Rocca

Thank you.

Operator

And your next question comes from the line of Steve Gengaro. Please proceed.

Stephen D Gengaro – Jefferies & Co

Good morning gentlemen, sorry I lost my connection here. Can you talk about the mix in the seamless side in the fourth quarter, the percentage of premium versus seamless, and give your comments how you see that evolving as we go forward.

Paolo Rocca

If I understand well, your question is how is the mix in the high-end and in the fourth-quarter? There has note been a big change. We were in the range in the fiscal year we were in the range of around 46% in high-end and in the fourth quarter also around 47% of high-end. This is the share in our overall sales.

We expect that during 2011 that this end should go up because we are also putting in line new heat treatment and new capacity and so we should be able I think with all the effort in proper development and our focus on complex product we should be able to increase it component of high end in the course of 2011.

Stephen D Gengaro – Jefferies & Co

So when you look at mix, you have more, it sounds like you expect more seamless growth than welded and maybe a little more premium seamless versus commodity. So you have two sort of positive factors on the margin front and maybe the negative of materials. Can you, we should expect kind of a ramp-up in margin in the second, third, and fourth quarters. Is that a fair way to think about that?

Paolo Rocca

Well, I think we would increase in welded and seamless alike because in the end, the U.S. market, that is important, U.S. and Canada market that are important for welded. We expect that they will continue to grow in the course of 2011.

So the share of welded that has been in 2010 in the range of 25%, should not change substantially because in the end we expect growth in US and Canada and this will drive growth in our welded market. We also will expect an increase in our project business.

Project business should have reached almost the bottom. In Brazil we were this year I mean 2010, very, very low compared to the past and we expect that this could increase substantially in 2011. So, this will contribute to let’s say for serving in the share of welded and seamless in our overall treatment.

Stephen D Gengaro – Jefferies & Co

Okay, that helps. Thank you.

Operator

And your next question comes from the line of Dan Boyd. Please proceed.

Daniel Boyd – Goldman Sachs

Hi, guys, thanks. Can you just maybe recap or refresh us on the expected ramp-up you expect in volumes out of the Veracruz facility and then, if Mexico is not strong at that time, what markets that that pipe would be ideal for?

Paolo Rocca

With respect to the gradual ramp up the mill should be fully operational by the fourth quarter of 2011 and you will have also the finishing facility, the inspection and heat treatment at full capacity basically by the first quarter of 2011.

The mill will be focused on the small diameter with respect to Mexico. Even if Chicontepec and Burgos are operating at lower level, still we will be very effective in serving this market and we have cost savings in serving all the need of the OCTG within Mexico.

Your second target, that is important in these markets for industrial product within Mexico. We will have now a plan that is very well positioned for line pipe, power gen and mechanical industrial pipes in small diameter in Mexico, something that we didn’t have before.

Third we had in Canada, a very good integration between the operation in Mexico and the operation of our seamless plant in Algoma, so we will be able to complete this. And also finally, I think that the international market for specialty product, for premium and for high demand (inaudible) product in that range could be another area in which the plant from Veracruz could operate.

Daniel Boyd – Goldman Sachs

Okay, just to be clear on that, so the U.S. market, would it be a target market for that smaller diameter pipe?

Paolo Rocca

We could complement our position, but this is also something that we could consider, but let’s say, this will be part of our strategy for North America operation. In North America, we are operating with all the range of product from welded to seamless, a small diameter to large diameter and premium from basically locally but also from different sources, from Canada, and (inaudible) from Mexico.

Daniel Boyd – Goldman Sachs

Okay. And then, on North America, just looking at your revenue and your Tubes business, North America was up just 1% sequentially. I would have thought that might be a little bit higher, given the volume growth that you saw on the welded side. Can you just help me understand why that maybe wasn't higher and then, also, I'm sorry if I missed this, but what utilization levels you're at in the US?

Paolo Rocca

Yes, I’ll ask Germán to comment on all of these North America dynamic, the three of the market in North America and what we expect for the future.

Germán Curá

Sure, thanks Paolo and good morning Dan. Few comments about North America overall, say in the U.S. as we anticipate in our prior conference call our volume were fairly well aligned to what they were in the third quarter despite the fact that we’ve seen that the operating demand came down by about 11% sequentially when you compare Q4 to Q3.

Reasons behind typical seasonal reduction are the inventory taxes and so going by our align model is that somehow allow us to isolate that effect fully from what we do in this stage.

Canada did very well, of course when we compare quarter-to-quarter we service Canada at the peak of the season in a year that proved to be probably a bit better than what you just anticipated at the beginning of the season. Mexico remain stable, I think (inaudible) comment clearly as to what may happen during Q4, Q3 and the expectations for the first half of 2011 as well.

Overall we’ve seen volume slightly up and of course with slight mix that was somehow much more formed by welded than knocked.

Daniel Boyd – Goldman Sachs

Okay. That's actually very helpful in understanding. And then, just a last one is, I think one of your competitors in the premium market internationally has been talking about trying to penetrate some national oil companies that they historically did not have a strong presence with. I was just wondering if you can comment if you actually saw that out of any of your competitors, what the dynamic looks like? I assume based on your earlier comments, though, that that market is tightening up anyway. So, potentially, we could have solved more competitive pressures in the second half of '10 from particular competitors but that could then loosen up going forward. What are your thoughts on that?

Paolo Rocca

Well, I don’t know about the, the policy of competitor but we are focusing our efforts on all the three segments, national oil company, international major oil company and independent oil company. If you look at the perspective of the growth in the operation and production expenditure of these, all these three groups are planning for important increase in the course of 2011.

Now, the independent has been very, very active during 2010 and will be active also during 2011. Probably the major has been lowering down a little their exploration and production expenditure in 2010. But they’re picking up, we see a new cycle also in investment they are, I think raising their investment in 2011.

So we basically try to focus on these three segment identifying the product in which there are more demanding product and more complex program to be solved from the point of view of reaching the hydrocarbon transporting and the carbon, so it's offshore, it’s deep well, high pressure, high temperature, high corrosion project in this. And we target product according to this, because in this area we can have our differentiation play in our favor. We know that also some of our competitors have technology in this area are following and competing with us in these. But maybe there are some example from the U.S. or international, maybe Germán a brief.

Germán Curá

Thank you, Paolo. On yield is detail of collar which deals precisely with the premium space. It is sure of growing in terms of volume but let’s also try to bring back the rational of new additional requirements to qualify. This is primarily the result of the Macondo problem and the need for the industry today, retest a good number of premium connection products and I said in many terms far more stringent operational capacities. Alejandro, maybe you want to add something on International space.

Alejandro Lammertyn

Yes, on international space we see as Paolo was mentioning growth in all sectors. If you look at the national companies clearly we foresee a bigger development in 2011 from Saudi Arabia and then from Kuwait. Saudi Arabia with projects important at [Hawiyah] where we had very much present and developing product for their needs.

In Southern Africa we see a combination of majors getting in and also important, independent like bank operating in Ghana where we are also taking an important ship. And then looking at new developments, new areas like Poland Shales where the major companies and some independents are looking to replicate what has been done in the U.S. in continental Europe.

So this as flashes of example of happening, we are also looking at clearly Southeast Asia. It’s an idea that is developing. There we also got a contract for Papua New Guinea. That is important for our establishment and basis in an area that we needed more development

Daniel Boyd – Goldman Sachs

That's very helpful. And maybe just one last follow up on the point on the international business. I assume with all the CapEx increases we’ve seen from a bunch of oil companies so for that, you visibility might be improving on what the first half of the year will look like in terms of seamless volumes? And I know you touched on this earlier that you expect them to go up but how does the visibility evoke and what magnitude of increase might we see?

Germán Curá

Well as I mentioned in the expecting it to those in love and 2011, as overall market. It increases by around 10% or CTG, and in premium by around 20%.

The exploration production investment should increase also by national oil company by around 10% to 13% for the major and for the national. We are representing all the national oil company. If you look at Statoil to Conoco, the Chinese, the Middle East, the Southeast Asia and the Latin America, in every company a participation and we have technical relation income tax. So one of the target of our marketing planning is to identify the area in which we could be more helpful.

In this environment, I think the market is increasing and also our sales will increase in first quarter.

Daniel Boyd – Goldman Sachs

So okay, thanks. Now I’ll turn it over.

Operator

And your next question comes from the line of Amy Wong with UBS. Please proceed.

Amy Wong – UBS

Hi, just about two quick questions from me. Good afternoon. You may have commented in your opening remarks about the unrest in North Africa possibly affecting business and I don’t know. I understand there’s still a lot of uncertainty there. But could you just give us a little bit of granularity of what percentage of your revenues are directly exposed to countries where we are now seeing unrest like including Libya?

And then, my second question is do you expect any significant start-up costs for your Veracruz plant? Thank you.

Paolo Rocca

Well, thank you. In the first question, the revenue from let’s say the North African region, from Algeria, Tunisia, Libya, and Egypt, are in the range of 2% to 3% of our sales. So this is noted let’s say something that’s disruption. And this is something we expect in the first quarter level of 2011. But this is not something that we will, let say be too significant for Tenaris.

I think also that will be for sure disruption, I mean in Libya and in our sales side, but some extent Egypt, we have our operation under ground around our people is operating now there in Libya. We relocated our people and we left our yard is Mizurata relapsed our that is our center of our operation there for the moment and attended and we will be helped. Things will evolve in that area.

But in Egypt, I don’t know if you want to add something, Alejandro, I think the disruption will not be so…

Alejandro Lammertyn

Yes, in Egypt we had some reduction in shipments minor. We see that Egypt also has a possibility of an upside because part of the dealing that was on the Libya may go to Egypt, they will need also to be met in the oil sector. But what we don’t know is what will happen after Libya, what could happen in the rest. Of course it is everyday is, it’s a new country with problems, so we have to look careful how we’ll evolve in the whole region, not only in North Africa.

Paolo Rocca

The second question, if I understand well, is about the South Africa. Of course we are in line with our expectation. I mean we did a program two years ago, an [affiliate] program between one, two week of delays in the different part of the way. So we are on time. In term of cost savings, when we say the line and I think in last call’s conference call, that we expect when the plant is fully operating overall.

Its saving in the range of 100 million considering that if we do not expand let’s say the parameter of our operation. We hope also that in fact, we could expand the perimeter of our operation, someone to some extent.

Amy Wong – UBS

Great. Thank you very much for that.

Operator

Your next visit comes from the line of Sergio Torres with JP Morgan. Please proceed.

Sergio Torres – JP Morgan

Good afternoon to everybody. Just a couple of questions on the performance of the South American market. In the press release, you mentioned Argentina and Colombia or registering good volume growth, and I was wondering, you if could elaborate on that a little bit. And in terms of Argentina, are you seeing exploration drilling more on the gas side tight gas or there is going to be a lot of talk about shale gas potential there as well. I am wondering if it is more gas related or also on the oil side.

And in Colombia, and I think if these have to do also with your project segment, I wonder if the tenders for the bicentennial pipeline project are already out and how you see competition to a place there and also for the fourth quarter I would have expected. Actually less volumes and what you had had in the project side because of the headlines that we saw about the expansion over the gas pipeline in Peru and I wonder if you could give us an update on that and whether you’re still going to see volume in Peru throughout 2011, or all of the growth comes from potentially Colombia? Thank you.

Paulo Rocca

Well, quick review about the Latin America. In Argentina, we are seeing in a good level and increasing level of drilling at some of the changes into reduce on the price of gas to gas plus is stimulating additional exploration development in gas. And in the case of shales we are assisting Apache and Repsol in the drilling on the shale sand area in Neuquen. This is a very promising prospective.

I don’t think today we can say and nobody could say, how in important or and the commercially accessible are the resources, but for sure there is a lot interest. And wells have been drilled by Apache by the absorbent of not only by them and we have already so as well in Poland, we are leveraging know how we got into United States, recently in Poland. We are serving the any Conoco Tenaris (inaudible) companies that are working on shales, this is the one of good thing of depending on United States.

If you look at Colombia, Colombia now rigs are operating at a record level. Colombia has rig and many companies are doing exploration in the [Llanos] and in the new leases that has been tendered there in different opportunities.

As far as the Bicentenario project, we compete but we were all surprised and we think that is very likely that will not be for us. On the contrary in Peru, we supply that the Camisea expansion project. This has been shipped during last quarter to some extend and even in the third quarter I think this is the situation.

As far as Brazil is concerned, well our focus today is on our strategy, we are investing in building a new research center in Rio de Janeiro, together with Petrobras. This is a very important investment for us because we would work there on premium, on complex welding condition, and in development offshore that could be then also leveraged in other regions.

And for the pipeline, I think we touched the bottom. Last quarter we are in the bottom level. We really reached a very, very low level. We invoiced almost of half of what were revising for this the previous year and we really should think that these should increase substantially in 2011 because of the expansion plan of Petrobras.

I think these are the main aspect of the affinity but also training in Ecuador and Peru after the renegotiation of the contract withdrawn. So we expect the phase. Apart from Mexico that we can see the North America, we can see a good level of activity and Venezuela, it will depend from the ability to pay on part of Petrovesa.

Now in the Pacific Coast of the Latin America, some of the material is very low and we have a plan for a well in Colombia, TuboCaribe. But this plant is very open competing with Chinese supplier on API and this is a factor from a competitive point of view.

Sergio Torres – JP Morgan

Well, thank you very much for your answer. Thank you.

Operator

Your next question comes from the line of Marcus Sequeira of Deutsche Bank.

Marcus Sequeira – Deutsche Bank

Hi, good afternoon. Just one quick question, I understood that the volume weakness in the quarter was due to some shipment delays. I just wonder if you could confirm that and if that’s really the case what can we expect, we could expect this to be resolved in the first-quarter of this year. Thank you.

Paolo Rocca

Well, I have told you, some of the delay that will continue to affect us in the next quarter but as a whole we’re expecting the next quarter higher-level of shipment in seamless sense. And this will include those, some of the recovery in the delay that we suffer in the fourth quarter.

Marcus Sequeira – Deutsche Bank

Okay, thank you.

Operator

And your final question comes from the line of Paula Kovarsky with Itaú. Please proceed

Paula Kovarsky – Itaú Securities

Hi, good afternoon. I actually have two questions. First question, back to this discussion about the behavior of the premium markets. It is quite clear the fact that the Chinese and eventually the Russians now have to be more concentrated in selling the ATI products into Asia and Europe is clearly forcing people like yourselves and your main competitors in the premiums be more focused in this market and eventually shift capacity is premium.

So, I'd like to follow up on two questions on that first thing would be is this a moving trend with at some point will cause even the premium market to face more competition and how long will it take for the likes of China and Russia to get closer to your premium markets and if you see this is a step in the mid-long-term. That's question number one and question number two is most specific for the quarter.

We seen a significant increase in SG&A in the fourth quarter, which is arguable seasonal, but also carriers the heat from FX into your numbers. So I just have to understand what’s the fact of the FX and how recurrent this would be going forward if we think about you know SG&A levels in 2011 as compared to 2010?

Paolo Rocca

Thank you, Paula. On the first question, you have rightly pointed out to the expect we really think that the, our industry, the oil industry tends to be risk about when it comes to the selection on material. And the events of this year Macondo is one of this, is only playing in the sense. In the sense that everybody here is playing on the safe side, when it comes from material, selection security and so. So these are on one side. On the other side, also compliance with environmental safety and different aspect of quality in the plant.

These are the area in which we differentiate ourselves and this is the area in which we work for many, many years. And I think we have a lead here that we can preserve it and hands over time, especially when premium is concerned. Because premium user goes in project that has high pressure, high temperature, or high risk as a whole. Think of the offshore, but think also of the shifts.

So in this sense, I think that there is a pressure to on part of our competitor, but I think that we are well positioned to continue to bring also to the market innovation service, industrial excellence, product development and this is our, let’s say, this is our playing field in the end. As far as the SG&A is correct that this quarter this has a higher impact but I will ask to Ricardo to make few comments if this is something that we stay there or we may reduce these say in the first quarter.

Ricardo Soler

Okay thank you, Paolo. Regarding SG&A in this quarter, we had the effect of some re-evaluations, some currencies the euro and the Brazilian real against the dollar. You compare average-to-average, quarter-to-quarter we would find that I mean these affected our SG&A especially later.

But going into, you compare the full year, you will see that this quarter was another rest of the year at 19.6% as a ratio regarding sales the same as the whole year. Coming to 2011, we think that we are going to reduce this ratio and we will be around 18%.

Paolo Rocca

Yeah. Thank you Ricardo but in whole you can say that considering the volume and the price cost and SG&A, we can say that the first half of 2011, we should be better than the second half of 2010 from all of this for the point of view of our results. Okay, I think we can close the call

Giovanni Sardagna

Close the call, yes.

Paolo Rocca

Thank you very much to everybody.

Operator

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect have a great day.

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