Tenaris - Earnings Call - Q2 2025
July 31, 2025
Transcript
Operator (participant)
Good day, and thank you for standing by. Welcome to the Second Quarter 2025 Tenaris S.A. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Giovanni Sardagna, Investor Relations Officer. Please go ahead.
Giovanni Sardagna (Director of Investor Relations)
Thank you, Gigi, and welcome to Tenaris 2025 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; Carlos Gómez Álzaga, our newly appointed Chief Financial Officer; Gabriel Podskubka, our Chief Operating Officer; and Guillermo Moreno, President of our U.S Operations. Before passing over the call to Paolo for his opening remarks, I would like to briefly comment on our quarterly results. Our second quarter sales reached $3.1 billion, down 7% year-on-year but up 6% sequentially, mainly reflecting an increase in North American OCTG prices and stable volumes.
Average selling prices in our tubes operating segment decreased 2% compared to the corresponding quarter of last year but increased 6% sequentially. Our EBITDA for the quarter was up 5% sequentially to $733 million, with our EBITDA margin for the quarter close to 24%. Our margins remain in line with those of the previous quarter. Our cost of sales also rose 5%, mainly reflecting product mix differences and higher tariff payments. With operating cash flow of $673 million and capital expenditure of $135 million, our free cash flow for the quarter was $538 million. After a dividend payment of $600 million in May and share buybacks of $237 million, our net cash position amounted to $3.7 billion at the end of the quarter. Now, I will ask Paolo to say a few words before we open the call to questions.
Paolo Rocca (Chairman and CEO)
Thank you, Giovanni, and good morning to all of you. Our results in the second quarter point to the solid industrial and commercial position that Tenaris has built, serving its wide range of customers around the world and the competitive differentiation we have established in key markets. Even as drilling activity in several areas of the world has slowed, our sales rose sequentially together with our EBITDA and net income. Our free cash flow amounted to a solid $538 million, while our shareholder distributions between dividend payments and share buybacks amounted to $837 million during the quarter. There is an increase in the U.S. Section 232 tariff on the import of all steel product from 25% to 50%, and the ongoing tariff negotiations have increased market uncertainty.
As countries negotiate the so-called reciprocal tariff, no country, apart from the U.K, has so far been able to negotiate how the Section 232 tariff will be applied. We expect that the current broad-based approach will eventually be modified towards a more specific product-based approach, which takes into account market factors and considers differential tariffs and quotas for some countries. The Section 232 tariff and the ongoing negotiations will change the competitive environment, favoring more utilization of available domestic capacity and fewer imports. Over time, there will be an impact on prices once excess inventories are drawn down and imports are reduced from the high levels we have seen in the first half of the year. Tenaris, with its strong U.S.
domestic production base, including the world's most efficient seamless pipe mill at Bay City and its Coppel steel facility, supported by its global industrial system, remains well-placed to continue serving its U.S. customers with its highly differentiated Rig Direct service. Our sales this quarter included the successful delivery of pipes and coatings to a wide number of complex line pipe projects around the world. These include Equinor Raia project in Brazil, ConocoPhillips Willow project in Alaska, Shell's Bonga project in Nigeria, TotalEnergies Ndungu project in Angola, and Chevron Leviathan project in the Mediterranean. Looking forward, we will have lower delivery to offshore line pipe projects until a new wave of projects progresses to the development phase in 2026. One such project will be the Grand Morgan project in Suriname.
In addition to our line pipe and coating award, we have received the award for the supply of casing and tubing for the project. Key to this achievement was our offer of service, which we will carry out from a base we are now setting up in Suriname. In the fast-growing frontier development of the Guyana-Suriname basin, we have set up local service bases to support the operation of ExxonMobil, TotalEnergies, and other customers in the region. Another major developing region where we have been able to make a difference is the Vaca Muerta shale play in Argentina. Here, as well as casing and tubing, we also supply fracking and coiled tubing services, and are instrumental in developing the pipeline infrastructure that will enable the oil and gas to reach global markets.
During this third quarter, we will complete most of the deliveries for the Vaca Muerta Sur pipeline that will build crude export capacity to a new deep-water port in Puerto Rosales. Early next year, we should also deliver the pipes for the Duplicar Norte pipeline that will connect the northern development in Vaca Muerta to the main crude export pipelines. In Mexico, Pemex has successfully issued a $12 billion financing facility this week. This is an important step that should allow Pemex to increase its current low level of operation and pay down some of its supplier debt. We look forward to supplying a higher level of operation under our current contract. With oil prices around $65 a barrel and drilling activity in the United States and Canada slowing, our sales in these countries remain relatively resilient due to our solid customer portfolio.
They're focused on improving operational efficiency, which extended the lateral length for which they appreciate our seamless product and Rig Direct service. We are ready now to take any question you may have.
Operator (participant)
Thank you. As a reminder to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Arun Jayaram from JPMorgan Chase & Co
Arun Jayaram (Research Analyst)
Yeah, Paolo, good morning. I was wondering if you could comment on your thoughts and outlook for the second half of 2025. Just given some of the things you cited, tariff impacts, some activity perhaps going down a little bit in the U.S., but give us a sense of how you think about volume trends and margin trends for the second half.
Paolo Rocca (Chairman and CEO)
Thank you, Arun. I think there are many moving parts that are affecting, let's say, the second half. We have visibility on the third quarter, but obviously less visibility on the fourth. What we can say for the third quarter, we expect lower sales on our part due to different factors. Basically, we will have lower invoicing in our fracking operation. We have a kind of black space for three months due to the programming of the company for their operation of fracking in Vaca Muerta. This is something that will, to some extent, reduce slightly our invoicing. We also, after an important wave of delivering of our line pipe, will have somewhat lower shipment of line pipe during the quarter.
Operation in North America will be reflecting some increase in price, which we expect, but also some containment of the activity and the rigs because, let's say, the price of oil is today what it is. Even if I compare with our vision three months ago, three months ago, we were more concerned about the impact of a potential recession and lower price of oil. Today, looking at the forecast for the economy worldwide and the perception of the market, we would expect the price of oil to stay around $65. In this environment, there shouldn't be a strong reduction in the rig count. We do not expect this. In North America, more flexion in Canada because of seasonal reasons, and in the U.S., in our world, will be compensated by some more activity in Mexico.
Overall, we expect lower sales, especially in the third quarter, in the range of the high single digit for our invoicing. In the fourth quarter, it is more difficult to predict to understand which will be the dynamic of prices. You know there are tariffs that have been raised on the 4th of June, 42, 32, up to 50% almost for every country, excluding the U.K. The negotiations that are underway today are mostly focusing on the reciprocal tariff, but are not touching on the Section 232. If this situation is not addressed with a more specific product by product or quota for a specific sector in the coming months, inevitably, prices internally, domestic prices in the United States, will reflect this, and this will impact our sales. Today, it's difficult to forecast which will be the impact on the fourth quarter.
Also, in the third quarter, our slight reduction in sales will take into consideration some repair and maintenance that we usually perform during August. This is our outcome as far as, let's say, overall top line is concerned.
Arun Jayaram (Research Analyst)
Okay. That's helpful. It kind of sounds like your commentary is pretty similar, maybe different moving pieces with what you outlined last quarter in terms of the outlook. Paolo, I was wondering if you could highlight your project pipeline as you think about 2026 relative to 2025. You highlighted Suriname as a new opportunity for Tenaris. How does the major or large project pipeline look in 2026, thinking about places like the Vaca Muerta?
Paolo Rocca (Chairman and CEO)
On this, I would like to have Gabriel give you a view of how we see, let's say, our load into 2026 and what we can do compared to 2025. Gabriel.
Gabriel Podskubka (COO)
Yeah. Thank you, Paolo. Good morning, Arun. To give you an overall perspective of the offshore market, which is an important driver for the pipeline business and also for the OCTG business. In this segment, I would say that the market dynamic is overall positive. We don't see an immediate effect of the deteriorated market environment in drilling activity. As a matter of fact, the deep-water drilling rigs are quite resilient at very good historical levels. We are working with our customers on many new projects. Some of them are being delayed in the FIDs, but we are confident that in the next few months, they will be sanctioned. Overall, the context, I would say, is positive. Within this context, we have been building and continue to build an important backlog in this strategic segment.
Paolo, you commented on Suriname, where we just got awarded a drilling campaign for OCTG to cover the needs of casing and tubing for these 36 wells that TotalEnergies will develop in this initial phase of deep-water development. The customer has standardized on dope-less technologies, and we are getting ready building our service base in-country. This is in addition to the award of pipeline and coating that we commented in our prior call. We are building an important backlog. Also, this quarter, we booked deep-water pipeline in Brazil for Petrobras Búzios 11 project. We also have been awarded OCTG needs of Chevron for their deep-water campaign in Agbami in Nigeria. Overall, I would say that we are building an important backlog into 2026. As Paolo mentioned, we had a high concentration of pipelines in the first half of 2025.
Our pipeline offshore deliveries in the second half will be slightly lower, but we believe with great confidence that 2026 will have an important contribution overall on the offshore segment.
Paolo Rocca (Chairman and CEO)
Thank you, Gabriel. Just to add that our position in this segment, after the acquisition of Shawcor, considering the different plants that can operate in wells and seamless in different parts of the world, plus the global deployment of Shawcor and coating, is a formidable structure for addressing and assuring short lead time, competitive offer, quality to our client. I mean, this is—the acquisition of Shawcor really gave us—has put us on a different perspective for serving our client. I think we are capturing the benefits of this.
Operator (participant)
Thank you. One moment for our next question. Our next question comes from the line of Alessandro Pozzi from Mediobanca.
Alessandro Pozzi (Senior Equity Analyst)
Good afternoon. Thank you for taking the questions. The first one is, again, on the outlook for the second half of 2025. You indicated where sales are going to go. Maybe if you can add some additional color on margins in Q3 and in Q4, because I think that Q3 maybe you can still benefit a little bit from the lagged effect with the pipe logics, but then you will feel the full impact of tariffs as well. I believe it should be around $140 million per quarter. I'm not sure if you have some remedies in place to reduce the amount of impact from tariffs and/or whether the higher prices will be able to offset this. If we look at the pipe logics that was out yesterday, it was just a small increase month to month. I don't know, maybe we will see stronger prices going forward.
Your thoughts on margins will be very appreciated. The second question is on South America. I believe sales were down in Q2. Can you give us maybe the outlook for sales in Argentina and explain why maybe the refund overall in Argentina is still rather flat despite all the investments in Vaca Muerta? Thank you.
Paolo Rocca (Chairman and CEO)
Thank you, Alessandro. Now, on the first point. First of all, you are right that the 50% tariff of the Section 232 is affecting us on a dimension that is close to what we are seeing. Remember, last time we were saying with 25%, around $70 million per quarter. Today, with the increase of the tariff to 50%, this number could become higher in the range of $140 million, $150 million for a quarter. Now, let me add two considerations. First of all, we don't know where the negotiation with Mexico, Canada, Argentina will end up, and if there will be some consideration, like in the case of the UK, for changing or adapting or modifying by product or by country, some of the consideration regarding the tariff of the 232.
We do not know, but we think there would be a possibility because in the end, the relation within the USMCA and the relation with Argentina may justify specific negotiations that include some aspect related to the 232, automotive, steel, and not only on the reciprocal. This is the first consideration that may change this. Second consideration, we can react in terms of allocation, organization of our production flows. This tariff is getting in our cost of sale gradually because of the inventory. Some of these tariffs are affecting our steel bar coming into the U.S. There is a take time to flow through our inventory to get into our cost of sale.
You should also consider that the figure we're mentioning are not getting straight into the next quarter, but only gradually into this, and also that we have, let's say, alternative or we can to some extent limit part of the impact of this. Then we go to the impact in prices. You're right. Yesterday, the Pipe Logix comes out with a very modest increase, but this is the result also of the very high level of import that were unleashed by the elimination of quota when the first round of 232 were introduced with 25%, but no quota. There has been import in the United States from different sources well above the level of quota that has been a resulting increase in inventory. These inventories are waiting on prices today and will do so for a while, but not forever.
I think that after the increase in 232 on the 4th of June to 50%, some of this import gradually will be reduced. Today, there are many products on the sea, on the vessels coming into the U.S. The decision has to be taken that will affect September, October, and the coming months, and will be taken with a different scenario and different consideration, taking into consideration the higher level of tariff. Prices, in my view, will go up. They will do so gradually, but to some extent, inevitably, over time. It's difficult to predict if this will happen exactly and when, but prices will need to go up more than what has been done up to now. This will also contribute to our margin.
Having said this, what we can see is the margin for the next quarter, and we expect margin slightly below the margin of this quarter, but always in the range between 20% and 25%. Remember, this is where we were guiding last quarter. We will remain within this space between 20% and 25%, but lower than this quarter, slightly lower than this in the fourth quarter. For the reason that I mentioned, I think it's more difficult to have an estimate, a reasonable estimate of what will happen. Most will depend on the decision that the importer may take and the reflection on price. In my view, having duty for steel and pipe and bars going up 50% will have an impact on the price of pipe, logically, even in an environment in which the rig count is not very aggressively increasing.
Even if it stays or it goes down slowly as we anticipated, there should be impact on prices. This would be the logical to happen.
Alessandro Pozzi (Senior Equity Analyst)
Thank you. On South America?
Paolo Rocca (Chairman and CEO)
Second question, if it is okay for you with the first one. On South America. You're right that there has been a containment, I would say, of oil. One is the situation in which the rig count has gone down slightly. It has been Argentina, as you say. The point in Argentina is that the southern part of the country, there has been a reduction in divestiture from YPF and other companies of their operation in the southern part of the country, and this turned out into a reduction of the number of rigs operating on one side. On the other side, there is a company still having a cautious approach in organizing their investment in Vaca Muerta. The access to finance has limitations. Some operation has been important.
For instance, it has been possible to finance the pipeline in Vaca Muerta South for bringing oil to the coast, and this is an important program involving financing for around $2 billion. Also, there has been other financing operation for local companies. Still, the country risk is above 700 points. It's not exactly easy for local players to finance all the operation in line with the more optimistic expectation that we may have, maybe six months ago. Today, nothing changed in the positive view of the development of Vaca Muerta for gas and for oil, but the pace of operation, development, and growth is slower than we expected.
Also, price of oil, there was a moment in which companies were more afraid of a price of oil between $55, $60, and this would have clearly had a negative impact, especially in companies like the local company in Argentina that are depending very much on their cash flow to be eligible for financing. I think that this situation is improving. Still, the country risk is important. On the other side, the valuation of the local currency in the last months is devaluated by around 10%. It is reducing costs, so it's also acting in a positive way in the project, in the profitability of the project, and from the cost side of the operation. I'm confident that Vaca Muerta will continue to expand, increasing demand, drilling over time.
In this semester and in these months, what we are seeing is a reduction of rigs because of the south and a very slow movement in increasing rigs and fracking. This is part of the problem of the issue of the white space in our fracking operation until September.
Alessandro Pozzi (Senior Equity Analyst)
Thank you very much. I appreciate the color. Thank you.
Operator (participant)
Thank you. One moment for our next question. Our next question comes from the line of Sebastian Erskine fromRothschild & co Redburn
Sebastian Erskine (Stock Analyst)
Yeah. Hi. Good morning, Paolo and team. I'd like to start on the commentary around imports. Obviously, it has remained at an elevated level in the first half of the year. It's stepped down in the second half. How much share gain can we expect by tariffs and equivalent domestic producers for imports as a percentage of the mix? I'm thinking about that in terms of offsetting weaker volumes in the back half of the year, particularly in U.S. land where the rig count remains under pressure.
Paolo Rocca (Chairman and CEO)
Overall, import represents a large share of demand in the U.S. in the range of 40%. If you imagine a 50% tariff on 40% of the supply in a very large market, even in an environment in which the rig count should stay or go slightly down, we basically expect this. It will also depend on the price of oil, obviously, affecting the cash flow. Even in an environment of relatively slowdown on rig, the impact on import of the tariff, there will be an impact on the prices. There will be some substitution. In terms of capacity, I think the domestic industry has the ability to increase production, but the level of utilization is pretty high today in the different players in the seamless arena.
Probably, there is room for increasing utilization in the welded supply of OCTG, but welded supply is limited to a segment of the market and not to the entire market. These are the reasons why I think over time the price level in the U.S. should go up.
Sebastian Erskine (Stock Analyst)
Really appreciate the color, Paolo. My second question on distribution. Obviously, announcing the $1.2 billion authorization. It looks like you're kind of front-loading the first tranche of $600 million. It looks like you've completed nearly two-thirds of this. Would you be open to bringing forward the second tranche of repurchases, just given the cadence you've already achieved?
Paolo Rocca (Chairman and CEO)
As you know, the board approved two tranches of share buyback, and the second tranche will be considered in the board meeting on the 29th of October. This has been approved. This is what we expect. This will be reconsidered again and very likely launched after the board on the 29th of October.
Sebastian Erskine (Stock Analyst)
Thank you very much, Paolo. I'll hand it back now. Thank you.
Operator (participant)
Thank you. One moment for our next question. Our next question comes from the line of Marc Gregory Bianchi from TD Cowen.
Marc Bianchi (Equity Research Analyst)
Hi. Thank you. The first one is real quick. I just wanted to clarify, Paolo, on the third-quarter outlook, the high single-digit decline was a comment on sales or a comment on volume?
Paolo Rocca (Chairman and CEO)
It was a comment on sales.
Marc Bianchi (Equity Research Analyst)
Okay. Thank you very much. The other question relates to supply chain. You talked about if there's potentially exceptions for USMCA and you could divert some of your steel supply from Mexico. Should we think about that as potentially removing the entire $140 million tariff headwind, or what's the opportunity there?
Paolo Rocca (Chairman and CEO)
No, no. I mean, we can, first of all, expand as much as we can local production of steel. The Coppel operation, by the way, we had one accident in Coppel one month and a half ago. We solved it, but this, to some extent, reduced our availability of steel for a while. Now we will pick up again. We will take advantage of this capacity as much as we can. This is one component that contributes to the reduction of the tariff we pay on the bars and semis that we need to bring into the states to feed into our rolling mill in Bay City, in Ambridge. This is an action that will depend basically on our ability to operate at maximum capacity, the Coppel facility.
We are also planning for the investment needed to strengthen this capability, but the investment will take a little more time to get in. Second action is to see if we can cover with welded product some of the demand. This also may contribute to compensate, even if this may have a higher cost for us, but could be a way of reducing, let's leave it, the level of tariff that we may be paying on this. Still, this action will not change substantially the reality that we are today, that is to pay high tariff from Canada, Mexico, Argentina, and Europe. I think that over time, the negotiation with Mexico, Canada, Argentina, and Europe may also, like in the case of the UK, address some specific product or some specific semi, like the case of the bar, that are not really produced in the states.
If something is not really produced in the states, I think it could be possible that the negotiation may modify or reduce this impact. These are the points that could help or be having an impact on the level of tariff that we are paying every quarter.
Marc Bianchi (Equity Research Analyst)
Got it. Thank you very much for that. The other question I had related to mix. You mentioned some of the pipeline work coming off and some open space in the fracking business. I would think that those are lower margin parts of your business compared to OCTG. Can you just sort of talk about maybe how much of an impact that's having on third quarter or second half and how we should think about those coming back into the revenue profile eventually?
Paolo Rocca (Chairman and CEO)
Yeah. I will ask Gabriel because there are very different products here, with very high margin and very much more competitive margin.
Gabriel Podskubka (COO)
In general, you mentioned the fracking business is a profitable margin. That has an impact. In the third quarter until we pick up that business in the fourth quarter. Regarding the pipelines, the offshore pipelines that we were mentioning, either welded or seamless, with an important coating component, they also have important margins. Typically higher than the average of Tenaris. While the onshore pipelines, the ones that Paolo commented on in Vaca Muerta, those that are kicking in in the third, fourth quarter and beginning of 2026, those have welded onshore pipelines with margins that are lower than the average of Tenaris.
We have moving parts, the ones that are with lower shipments in the second half, out of those have higher margins that will pick up in 2026 again.
Marc Bianchi (Equity Research Analyst)
Yeah, thank you very much.
Gabriel Podskubka (COO)
Thank you.
Operator (participant)
Thank you. One moment for our next question. Our next question comes from the line of J. David Anderson from Barclays Bank PLC.
J. David Anderson (Managing Director and Senior Equity Research Analyst)
Hi. Good morning, Paolo. I have a question on the Middle East. It's probably directed toward Gabriel. I was curious how you see Middle East overall trending into 2026. Saudi's been slowing activity all year. Therefore, it may not pick up again until the end of next year. If I'm not mistaken, I think on the prior calls, you said Saudi's been reducing its inventory pipe most of the year. I'm curious about how you see specifically how the Saudi market—when do you start seeing the Saudi market start to improve from a pipe standpoint, from a pipe ordering standpoint next year? How do you see overall Middle East volumes trending 2026 versus 2025? Thank you.
Paolo Rocca (Chairman and CEO)
Thank you, David. I will pass to Gabriel.
J. David Anderson (Managing Director and Senior Equity Research Analyst)
Thank you.
Gabriel Podskubka (COO)
Thank you. Good morning, David. Yeah, indeed, as you know, in Saudi, we have been seeing austerity measures for a number of months already, in line with a lower price environment. As we know, rig count in the kingdom has been going down, concentrated mainly in the oil, not only, but also we are seeing some gas rigs being dropped. The level of activity today is about 15% lower than it was a year ago. This is what we are seeing. I would say the inventory level situation is pretty much in line with consumption. We are not having an overhang situation in Saudi anymore. The local supplier network, plus Aramco inventories, I think, are pretty lean and in line with demand. Going forward, we would expect our shipment and sales in line with the variation of consumption.
To compensate this lower activity in oil in the kingdom, we have an important pipeline business. I think we mentioned the CCS pipeline award last quarter. This will contribute and offset part of the OCTG. This is regarding Saudi. The rest of the MENA region and the key markets, drilling activity is quite resilient. We see the Emirates pushing forward with the expansion of oil and gas, with a marginal decrease of some rigs in their unconventional plan, but very marginal. They are still operating today at 120 rigs, which is a historical high level for ADNOC. Kuwait and Iraq are also pressing forward in their activity levels, and we see pretty much Qatar on track with their expansion of the LNG project.
Overall, I would say for the second half of this year and into 2026, I would say that our shipments in the Middle East will remain fairly stable and solid.
J. David Anderson (Managing Director and Senior Equity Research Analyst)
Great. Thank you. Thank you very much. My second question is around Mexico. Paolo, you were talking about some of the challenges that Pemex is facing now with some potentially helping to fix their debt situation. There does seem to be some positive on the horizon. Pemex's CapEx budget's down 50% this year. Activity is plummeting. I presume you probably supply most of the pipe there from your facility in Veracruz. I'm curious how much of a drag it's been this year, which hasn't really shown up in the numbers. Secondarily, what kind of opportunity is next year? How do you sort of see those? I know it's really hard to tell considering Pemex doesn't have a ton of visibility, but how do you see this trend going into next year? Overall, I know you were talking about line pipe. I'm talking more OCTG and the like.
Paolo Rocca (Chairman and CEO)
I think that the fact that Pemex has been supported in getting this financing open, this financial operation, and issuing debt for $12 billion with a guarantee from the state, from the government, has been oversubscribed. They had the possibility to collect even more than this at a very competitive rate because in the end, Mexico has a relatively low debt-to-GDP ratio. It's a very important sign that the Mexican government is willing to address the situation of Pemex, not only in reducing the financial load on the supplier, but also in giving the financial means to pick up back operation. We see this in the number of rigs that are starting to operate. Rigs today are in the range of 24 rigs, and we were having 19, but even less than 19 in one month rigs in the recent past.
This, in my view, is a sign that the Mexican government is back in supporting Pemex for the relevance of Pemex in the overall economy, for gas production, for oil production, and for the level of activity. This is, more than anything, a very important sign. Will this be followed by a continuing support within the plan of restructuring of Pemex? They also changed the management of Pemex, and this is also a sign that they are addressing this. We know that in the second half of 2025, the Pemex increase in volume is the fact that will maintain overall sales into North America for us more or less stable, compensating for some reduction for the season in Canada and some constraint in some reduction in the U.S. For sure, we anticipate in this a positive trend.
Now, when we look at one year from now, I think it's more difficult to have a forecast because in the end, Mexico today has to deal with the new negotiation of the USMCA, the tariff, and we have to redefine some of the strategy even in the energy sector. I'm very confident that in the end, it will make sense. There are resources available for it, and if the price of oil is where it is, in the range of $65, it makes a lot of sense to develop reserves that are very profitable, have very low cost of extraction, and will make a lot of sense to maintain this trend of support.
J. David Anderson (Managing Director and Senior Equity Research Analyst)
Appreciate your comments. Thank you, Paolo.
Operator (participant)
Thank you. As a reminder to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Our next question comes from the line of Derek John Podhaizer from Piper Sandler & Co.
Derek John Podhaizer (Director and Senior Research Analyst)
Hey, good morning. Just a question in US land. We've seen strength in the gas markets, primarily private-driven across the Northeast, Haynesville, the Eagle Ford gas window. Just curious your level of exposure to this tailwind in the U.S. I mean, I've always viewed you as primarily attached to the larger customers utilizing Rig Direct. Maybe help us think through about your exposure to the privates in these particular gas basins.
Paolo Rocca (Chairman and CEO)
Thank you, Derek. I will ask Guillermo to give us an overview of our exposure to this. Guillermo, it's up to you.
Guillermo Moreno (President of US Operations)
Yeah. Thanks, Paolo. Good morning, Derek. Our exposure to gas in the U.S. has been mainly in Haynesville and more than in Appalachia. We are seeing an upside. We are seeing a growth of activity in Appalachia, as you said, mainly from private operators. There are a couple of them that are driving the growth that has been traditional clients. We are seeing an increase of our sales for gas in Haynesville and also our market share. We stay optimistic about further growth in the future with this of our sales and, again, our position in the region where we are very competitive because we have Bay City very close to that play.
Paolo Rocca (Chairman and CEO)
Yeah. I also think that in all the discussion and negotiation that the American administration is establishing, there are components about purchasing of LNG and helping growing the LNG in the United States. One way or the other, even if a fraction of this will be realized in the coming year, this means demand for gas. Gas is important. Gas is demanding seamless pipe, with, in some cases, more complex product. The price of gas today, in the end, you have supported by the associated gas and specific development for gas. Is relatively solid in this moment. All these negotiations should, to some extent, promote or stimulate investment in energy. We have to be very focused on this because it would be logical to have an increase in the activity in gas in the US and lower 48.
Derek John Podhaizer (Director and Senior Research Analyst)
Got it. That's helpful. I appreciate the comments. Second question, just maybe some color around how much pipe's on the ground now in the U.S., just thinking about the distributors as well. Just trying to work through the timing as far as working that down from an activity standpoint, which will also further support pricing just outside of the increased tariff cost. Maybe just hear some color around the pipe on the ground and working through that from an activity lens.
Paolo Rocca (Chairman and CEO)
Yeah. I would say that here the problem is that not only the pipe on the ground, but also the pipe on the sea, the ones that are coming into the U.S. before realizing that the 50% tariffs were going to hit them at the custom. Guillermo, you have more. Can comment on this, no?
Guillermo Moreno (President of US Operations)
Yeah, for sure. As you said, Paolo, before, imports in the first half of 2025 increased a lot. If we see this in numbers, the imports of OCTG in the U.S., first half of 2025, was more than 70% higher than the second half of 2024. It was a very relevant increase that, coupled with some reduction in activity, determined that in these six months, the pipes on the ground increased in the equivalent of one month of overall consumption in the U.S. This is putting pressure on prices and not allowing so far Tenaris to increase as expected due to the tariff.
We think that within this quarter, we'll start to see a reduction and more impact on the fourth quarter because it's when we will see, as Paolo said, the shipments defined based on the 50% tariff and not in the 25% that, as we saw, were not enough to reduce the level of imports.
Derek John Podhaizer (Director and Senior Research Analyst)
Level of inventory in terms of months?
Guillermo Moreno (President of US Operations)
It went from six to seven months, more or less, from the fourth quarter of 2024 to the second quarter of 2025, one month of equivalent consumption.
Paolo Rocca (Chairman and CEO)
Thank you.
Derek John Podhaizer (Director and Senior Research Analyst)
Thank you.
Very helpful. I'll turn it back.
Operator (participant)
Thank you. One moment for our next question. Our next question comes from the line of Kevin Roger from Kepler Cheuvreux.
Kevin Roger (Head of Energy Equipment and Services)
Yes. Good afternoon. Thanks for taking the time. I have maybe two follow-ups, if I may. The first one is on Mexico. Can you provide us a bit of sensitivity on what kind of revenue you generated in Mexico, for example, back in 2023, and what you are currently generating right now, just to understand the potential magnitude of earnings that you can get in the country after the $12 billion new financing for Pemex? The second one on the tariff, if everything remains like it is right now, what is your available capacity in the U.S., and notably on the seamless side? What’s part of the volumes that you currently import from, I don't know, Mexico and Canada that you can relocate easily in the U.S. with available capacity, please?
Paolo Rocca (Chairman and CEO)
Thank you, Kevin. On the first one, in the past, the number of rigs operated by Pemex were in the range of 50, 45 rigs. Let's say you can imagine today we are at 24. This is just giving you a broad indication of which will be the size of the market. On top of this, there are private operators, Woodside is operating, and one of the increases that we will have in shipment to Mexico will be in the coming quarter, will be the Woodside project, which is a very relevant offshore project, very interesting one that we are supplying for Mexico. This is just giving you the size of the market, and this is the market mainly for OCTG, with some aspects in line pipe when the export lines are requiring long lines for this. This is, let's say, what would be possible.
We don't expect this to happen soon. We expect this to be a gradual process of increase and reorganization. Still, in my view, the direction in which this is moving is a direction of recovering level of activity. The other point is on capacity. Remember, our main import in the U.S. are bars, steel bars to feed, to complement our production in Coppel. The production of steel that we have in the U.S. is very relevant, but we need to complement this with semis round bar coming from outside. This is the most important component of our import in the U.S. on which we pay, and we will pay this 50%. We also complement some special product for the Gulf of Mexico that is not produced in the U.S., mainly coming from Europe.
These are products in which the client is prepared to pay straight on the tariff because there is basically no alternative, and they need to proceed with products that are not produced in the U.S. in this case. Something on material coming from Canada into the U.S. is going into the north, but is a very marginal part of the matrix.
Kevin Roger (Head of Energy Equipment and Services)
Okay. Thanks a lot. Have a good day.
Paolo Rocca (Chairman and CEO)
Thank you.
Alessandro Pozzi (Senior Equity Analyst)
Thank you. One moment for our next question. Our next question comes from the line of Christopher Kuplent from Bank of America.
Christopher Kuplent (Research Analyst)
Hi, there. Thank you for taking my questions. I've got two. Paolo, the evergreen question, I suppose, is could you give us an assessment of what you think the M&A environment looks like at this point in time? I mean, it's hard to come up with a forecast for Q, but you sound pretty bullish in terms of price evolution into 2026, at least in the U.S. Do you think that sort of lack of clarity is throwing up M&A opportunities that perhaps in the past, with a different U.S. administration, weren't thinkable? That would be my first question to you, Paolo.
Paolo Rocca (Chairman and CEO)
Thank you, Christopher. As you know, we are the largest player in the United States. We have a relevant participation in the market. It's not easy to identify a suitable target for this. I'm convinced that looking ahead, consolidation is important and also growth along our supply chain is also important. Anything that we can imagine here has a reasonably size that is not, let's say, very relevant. Imagine also when we move on the Shawcor operation, it's a very important operation from our point of view. In terms of size of the M&A, not, let's say, something that is transforming the company from the point of view of the size of the operation. We consider, we look, we study, and we monitor also the attitude of the new administration to see if there is a change in the approach to vertical or horizontal integration.
We will be very active on this if we perceive that there is room for us.
Christopher Kuplent (Research Analyst)
Thank you. That sounds like you're happy with the current run rate on the buyback program. To continue, my second question is more short-term. Maybe you can tell us a little bit about your expectations regarding the evolution of working capital. I suppose you've referenced the increase in inventories. How do you see your management of inventories considering you've got turnarounds coming up as well, probably well-timed?
Paolo Rocca (Chairman and CEO)
Yes. Thank you, Christopher, on this. I will ask Carlos to comment on working capital, what we expect from our working capital. For sure, this quarter and our cash flow has been pretty strong. Carlos.
Carlos Gómez Álzaga (CFO)
Hi, Christopher. During the first half of the year, we've been generating cash from our working capital, generated around $250 million. Much of that was coming from inventories and some from receivables. We expect during the next quarter to build up inventories. Part of that trend down in inventory was because we finished some big projects, so we ship all the materials that we have in stock. We expect to build some inventory during Q3 and then release some of it during Q4.
Christopher Kuplent (Research Analyst)
Very helpful. Thank you very much.
Carlos Gómez Álzaga (CFO)
Of course.
Alessandro Pozzi (Senior Equity Analyst)
Thank you. At this time, I would now like to turn the conference back over to Giovanni Sardagna for closing remarks.
Giovanni Sardagna (Director of Investor Relations)
Thank you, Gigi, and thank you all for joining us today.
Operator (participant)
This concludes today's conference call. Thank you for participating. You may now disconnect.