Ladies and gentlemen, thank you for standing by. And welcome to the Tenaris Second Quarter 2020 Earnings Conference Call. At this time, all participant lines are in a listen-only-mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Giovanni Sardagna, Investor Relations Officer. Thank you. Please go ahead, sir.

Thank you. And welcome to Tenaris 2020 second quarter conference call. Before we start, I would like to remind you that we will be discussing forward-looking information in this call. And that our actual results may vary from those expressed or implied during the call. With me on the call today are Paolo Rocca, our Chairman and CEO; Alicia Mondolo, our Chief Financial Officer; Guillermo Vogel, Vice Chairman and Member of our Board of Directors; German Cura, Vice Chairman and Member of our Board of Directors; Gabriel Podskubka, President of our Eastern Hemisphere Operations; and Luca Zanotti, President of our US Operations. Before passing over the call to Paolo for his opening remarks, I would like to briefly comment our quarterly results. Our sales for the second quarter were down 30% sequentially to $1.2 billion as a consequence of the rapid decline of the economic activity and the collapse of global oil demand, as a result of the measures taken to contain the spread of the COVID-19 pandemic around the world. Average selling prices in our Tubes operating segment increased 8% sequentially due to a particularly good mix of products sold during the quarter. Our EBITDA for the quarter, which includes $54 million of severance charges, was down 79% sequentially as it was affected by the low absorption of fixed and semi fixed cost and inefficiencies related to the steep decline in capacity utilization at our production facilities. Our EBITDA margin decreased to around 5%. Excluding severance charges, our EBITDA for the quarter would have been $113 million with a margin of 9%. During the quarter, our free cash flow remained strong at $402 million, with a further reduction in working capital of $446 million. Consequently, our net cash position at the end of the quarter improved to $670 million. Now I will ask Paolo to say a few words before we open the call to questions.

Thank you, Giovanni. And good morning to all of you. The impact of the COVID-19 pandemic and the diverse measures taken to contain it - continue to be felt around the world. While we may have seen the big impact on global economic activity and oil consumption during the second quarter, further recovery will be slow and this led to uncertainty. Many parts of the world have still to come out of the lock down, other are being hit by fresh outbreaks infection, and there is a constant risk of further waves of infection. While we are still far from finding a definitive solution, which would allow us to resume many activities that we took for granted prior to the pandemic onset. All aspects of our operation has been affected as we implemented action to secure the safety of our employees, complying with government-mandated restriction on activity, supported the medical response effort in our communities, accelerated digital integration and remote working protocols with our customers, adapt rapidly to an exceptionally low level of production and implement measures to reduce cost and working capital. I would like to give a special mention and thanks to all our employees who have responded and adapted to the challenges that we are facing with exemplary resolve and solidarity in these difficult times. Our second quarter results reflect the advances we have made in our plan to reduce structural cost and working capital and prepare ourself for the market we see ahead. As we prioritize cash flow over operating result, we have reduced our level of operation well below that of our sales to reduce inventories. And we are incurring a higher cost of operation from sub-absorption of fixed cost that we do so. In the coming months, we will continue to generate cash flow…

Thank you [Operator Instructions] And our first question comes from the line of Sean Meakim from JPMorgan. Your line is now open.

Thank you. Good morning.

Thank you.

So Paolo, just to start, the challenges in 3Q and the guide on margins make sense. But I am a little surprised that the optimism for 4Q that was in the press release. How much of that would you say is driven by seasonality helping activity versus the impact of achieving more of your cost reduction plans or other factors? Can you maybe just walk us through the thought process for the fourth quarter?

Thank you, Sean. Well, what we are saying in the outlook is that we will see that the third Q is really the bottom of this operation and we should start to pick up very slowly. But we anticipate some recovery in area like, for instance, Argentina. Argentina, we expect that after negotiation of the debt, something will start to move. Remember, we had 60 rigs at the beginning of the year. We went down to zero. Today, we are probably around 15 rigs operational. There will be some pickup in the activity also for assuring the supply of gas needed for the domestic market in the next winter in 2021. This is one area in which we expect some recovery. We may imagine that also gradually, there will be some level of activity in the United States that may be also coming from this. And on our - in the rest of our region, we expect there could be some slight recovery during the fourth quarter. That's the reasons that are supporting our statement in the outlook.

Got it. Thank you for that. And then - so considering the decline in activity that we've seen in the forward outlook for the next couple of years. Have you given more thought internally to taking out additional costs? Is that on the table for 2021? Just curious how you think about the efficacy of the cost out program so far and potential plans or thoughts around increasing or upsizing that amount of cost you could take out of the business?

Well, I think there is a high uncertainty in the evolution of the economy and the demand when the pandemic crisis will, to some extent, recede. So not easy to forecast the level of activity we may expect in 2021. Our cost containment is basically focused on reduction of our fixed cost that, as we anticipated, is underway. And we plan to complete this part of our reduction within in the coming two quarters before the end of the year. Then there is also the containment of the cost of the operation of the plant. Today, we have a suspension agreement in place, different instrument in different countries. We wish we are absorbing the cost of idle crews in different mills. This is a component of our cost that depending on our forecast maybe - may change. There are areas of further adjustment from this point of view, in the case that we perceive that the recovery will continue at a very slow pace.

Understood. That's very helpful. Thank you very much.

Thank you, Sean.

Thank you. Our next question comes from the line of Frank McGann from Bank of America. Your line is now open.

Thank you very much. I was just wondering, just following up a little bit on the last question. Just thinking long term, how do you see - when do you think you're going to get back to a kind of normal operations? And I assume that will be a few years out, but how do you see kind of a return to normal? And in that process, do you see industry consolidation continuing, and do you see opportunities for yourselves perhaps to pick up additional assets in that time frame?

Well, I think it's very speculative to try to understand or to predict what's happened in this recovery. But from my point of view, I think that in some region, we may be surprised by faster recovery. For instance, the case of China, China is recovering very fast. If you look at consumption, the economic activity, production and consumption of steel, we have been surprised in the last months by how fast this recovery is proceeding. And this is spreading to some of the Asian countries. So this will - is a factor that will be important in 2021. How fast will - this will continue. Then there is the European and US recovery. There is some kind of pent-up demand there after the pandemia. And in the case that a recovery speed up the demand for energy, like in China and other Asian countries may pick up faster. But this, as I was saying in the beginning, is just speculative. Our operation has been affected today by the reduction in the level of investment of the oil company, but this level of investment is probably be unsustainable if the world requires a steady supply of oil and gas in - at a slightly higher level of demand. Our operation has been affected by the reduction of the investment in North Americas, from Canada to US to Mexico and Latin America. If the price of oil went above $45 per barrel and the Brent, we will also see some higher activity in 2021. But it's very difficult today to anticipate this trend. We are still in the middle of the crisis. And sometimes in the middle of the crisis, you tend to see reality with a more pessimistic view, but something will change in my view.

Yes. Okay. Understandable. Just real quickly, do you expect to take further severance charges as you continue to downsize some of your operations in the third and fourth quarters?

Sorry, can you repeat because I didn't listen. If I - if we see, Frank?

Do you expect to see to take further severance charges as you continue to cut costs and just headcount in the third and fourth quarters?

Yes. We - I mean our adjustment plan started. We incur in severance in the range of $70 plus million, $75 million. We were expecting, anticipated a number in the range of $100 million, $120 million so the rest, around $50 million is something that we expect to incur in the second half of this year. Now the savings coming from this are - start to get into our results. And we will perceive these savings even more in the coming quarter.

Okay. Thank you very much.

Thank you. Our next question comes from the line of Igor Levi from BTIG. Your line is now open.

Good morning, guys. I'd like to ask a bit more details on what you're seeing in pricing. So far, the US is down about 25% from a year ago. In the last downturn, pricing fell as much as 40%. So do you expect - are you seeing a further decline? And also, what are you seeing internationally where pricing typically lags the US? And could that potentially be a headwind in the second half?

Thank you, Igor. Well, as you are saying, pricing, the prices went down during last year and continue to went down even last month. But I think there is not so much room for additional decline because of also the trend on the cost is turning, you look at the price of iron ore and scrap, the price is picking up. Something is happening here. I was mentioning before that China is increasing its production and consumption of steel. This is driving increase in the price of iron ore. Iron ore is close to record level. And so this is supporting also the level of prices in our market. For the first time, the price of hot rolled coils in China are higher than the price of hot rolled coil in the US. This is something that didn't happen in the past, is an indicator of the recovery in China, but it's also something that is having an impact on prices of all of the competitors - on the cost of all of the competitors. So in my view, there is not so much room for additional reduction in prices. It is true that in the State, there is an overhang of inventory and this is always something that could have some temporary impact. But structurally, I see that there is not so much room for additional reduction in pricing.

Great. Thank you. And then looking at your free cash flow, you've already generated $850 million in the first half, mainly from working capital. How much more working capital reduction do you think you guys could realize in the second half of this year? And what kind of net debt or net cash in your case levels are you targeting by the end of the year?

Basically, in line with what we said in the last quarter, we'll continue to generate free cash flow in the third and fourth Q. We confirm that we expect to arrive by the end of the year with a net cash position in the range of $1 billion. This is due also to our business model, the business model based on the Rig Direct allow us to reduce our inventory more or less in line with the level of activity. So we expect from inventories and receivable to be able to generate - to continue to generate free cash flow in the coming quarter.

Thank you. I'll turn it back.

Thank you. Our next question comes from the line of Alessandro Pozzi from Mediobanca. Your line is now open.

Thank you. I have two questions. So the first one is a bit more broader picture. So this is the third crisis in the last 10 years. And every time we had gloomy predictions on the oil price, and every time we've seen a bounce back to various degrees. I was wondering, how do you prepare the company for the next 10 years? And do you still - do you think you will continue to generate most of the revenues from OCTG in 10 years' time? Or do you think this is the right time to diversify the business?

Thank you, Alessandro. I think that we are getting through a crisis, difficult, obviously, to predict. In the meantime, we are in a long-term trend of concentration and redefinition of the competitive environment in the oil industry and also on the oil service company. We are an oil service company in this. I think that we are prepared to play the game in this segment and to prepare for a recovery. As I mentioned in the opening remarks, this level of investment could not support the demand of energy that the world inevitably will need when it will come out from the pandemic. So we need to be prepared to support a higher level of investment. Having said so, we are diversifying within our sector because in the end, Tenaris is also supplying other segment of the industry, like hydrogen or renewable, we are - we have an increasing business in that sector because in the end, also, for instance, hydrogen or CO2, CCS and capture and storage of CO2 are also requiring infrastructure. That is infrastructure in which we participate. This segment today is a few percentage points of our revenues, but is increasing fast. And it requires very special product and, it requires sophisticated product design for this, and we are very well prepared for this. So we think that we need to look at the long-term for Tenaris having in mind the competitive environment in the industry we serve, competitive environment in our sector and also the niche that are coming out from a different transformation of the energy industry, and this is what we are doing. At the same time, we need to understand how we can transform the way we operate, the digitalization of the supply chain is one point, but there is also a digital transformation of our industrial activity. And Tenaris has always been focused on local presence in different markets. And I think that this strategy is the one that we will continue to follow to be able to serve the industry and the place in which we operate in a world that may be a little less global and a little more local in some of the region. I think this fits with our strategy, and we will pursue this everywhere in the world.

Okay. That was very clear. Thank you. I have a follow-up on labor costs. I think that we've seen a big improvement in Q2. I was wondering how much of labor cost could be further reduced based on the actions that you've taken in the first half. How much labor costs will be reduced in the second half of the year?

Well, we will continue because in the second part of the year, you will have the, let's say, the savings coming from our restructuring program getting into our cost structure. And as I was saying also, we think we can reduce the inefficiency that is coming into our cost of sale because of the very low level of production by producing - stopping production and reducing inventory, we have a very low level of absorption. This gradually, when we will align again production with sales will also have an impact in reduction of our cost.

Okay. Thank you. Bye.

Thank you. Our next question comes from the line of Simon Toyne from Redburn. Your line is now open.

Hi, everyone. Thank you for taking the questions. Just a couple, really building on some of the early questions. So first of all, on the competitive environment. You're talking about low single-digit EBITDA margins in Q3, albeit with some recovery in Q4, you're kind of a leading producer in the industry. There must be a lot of pain across the broader supply base. I'm just interested in any sort of impressions you have of broader kind of developments in terms of capacity. And I guess, to the extent that any capacity is being forced out of this industry, is there any reason to assume it will permanently stay out even when prices recover? And I guess kind of related to that, just the US itself. I mean it's been a focus of your investment in recent years through Bay City, IPSCO. There is considerable debate on whether shale activity will be structurally lower going forward, I guess, for a given oil price. Just sort of interested in whether you agree with that? And what that kind of means for the footprint that you want to have in the US going forward? Thanks.

Thank you, Simon. Well, the - clearly, we didn't anticipate the pandemia and the impact on the oil demand worldwide and the collapse of investment in this. But still, in my view, in the US, we'll continue to have a long-term energy industry. There will be strong, assuring energy supply to the country, and in this sense, the structure of our business and how we are positioned in Bay City. And so I think will fit with the medium-term recovery that we expect. But it is true that in this moment, in the US, you have a large stock of wells that has been drilled, waiting for completion and stock of OCTG on the ground. Now completion will pick up faster. Drilling will take time to recover. Because at first, the industry will need to complete the well, then to start drilling and the inventory in OCTG will also affect the demand. But over time, the positioning that Tenaris had in the US, it is very strong. We will be able to produce our steel to have the most modern facility for pipe production between Bay City, Hickman and the other facility that we have. The structure and - of the network of service center is strongest in my view among our competitor. So I think we are well positioned for this. I don't know if on this point, Luca Zanotti, you want to add on how you see the competitive environment and the position of Tenaris for a recovery, how are we prepared for this?

Yes, Paolo. Good morning, Simon. Now here I believe that - I have few points to add maybe on top of what Paolo already said. You already touched on the oil supply or the energy supply as an issue of national security for the states. I believe that this is planted and it's going to stay. So in this perspective, the shales longer term will certainly have space. Now it's going to be speculative to say now what space is going to be, but if you read any available report, it's clear that the unconventional, the United States, they are going to take their space again. The industry in the states, the oil and gas industry, as already shown in the previous crisis, they were fast to adopt and they came out, and they come out strong. Now today, it is true, capital availability is lower. But we know because we talk with our customers and they are fighting. I mean they are not going to stay, sit and wait. So even this is encouraging for us. And as far as Tenaris specifically is concerned, I believe that, as Paolo mentioned already, in a world that is going to probably a little bit less global, shortening the supply chain is going to be key. And all the investments that we have done are exactly aiming at that point. So I believe that the shale will have their pace, and we are very well positioned with all the assets that we deployed being these mills or service centers to supply to the industry.

Thank you, Luca.

Okay. Great. I mean, maybe if I could just follow that. So on Rig Direct, I mean, you talk about the world becoming less global. I guess, the benefits to the customer of Rig Direct or even more or sort of heightened during a market downturn and there's an increased focus on costs and cash flow. I don't know if you could comment on the sort of pace of rollout of Rig Direct or whether you're seeing kind of an acceleration in the pace at which you're growing that as a share of your business during this downturn? And what your expectations are, please?

Well, when I am saying the world that is a little less global. I think that every country has an issue with energy security, for sure, in the United States. This gets in favor and you'll see this from many, many aspects concerning trade and concerning oil. I mean, the positioning of the countries on the global arena. I think that energy continue to be a strategic component of the position of every country. We feel that we need to be present at the local level in all of the regions. This is valid for the large countries like US, but it's also valid for our position, for instance, in China or in Middle East, which is very important, but also for countries like Kazakhstan or Nigeria or Angola or the country in which we perceive activity will be there. We - our strategy is to get straight to the client and manage the entire supply chain, build the client loyalty on the quality, on the service, on the integration of the supply chain, on minimizing the cost for the entire - for the industry and the total cost of the operation based on better planning and reduction of inefficiency in the chain. We feel that in the long run, we will be successful to the extent to which we can contribute to the overall reduction of the cost of the activity worldwide. Could it be offshore, could it be shales, could be locally in the countries that has potential for this. I think that this is a very relevant component of the strategy of Tenaris. And the crisis, to some extent, is validating this. This is the tool that we have today to allow us to stay close to a client. To be, to some extent, less affected by variation of stock that could come from the intermediation distribution.

Okay. Thanks very much. I'll turn it over.

Rig Direct is, in this moment, it's very high in country like Canada, in which we are above 90%. And Luca, you can confirm in the - let's say, the data of percentage of the Rig Direct in West, for instance.

Yes, Paolo. Yes, sorry, Paolo, I didn't want to interrupt you. In the States, yeah. In the States, this quarter, we reached the highest percentage in our sales of Rig Direct with a percentage, which is north of 85%. And just to complement on what Paolo was saying, let's remember that the first phase of the Rig Direct development took place exactly in a crisis. Because I believe that the industry is realizing that keeping the supply chain short is key to efficiency for us, for the players and for the E&Ps as well.

Thank you. [Operator Instructions] Our next question comes from the line of Luigi De Bellis from SIM Equita. Your line is now open.

Yes, good afternoon. Four questions for me. The first one is on the average selling price. Could you elaborate about the mix in the coming quarters after the positive trend in second quarter? And where do you see average selling pricing entering in 2021? The second question on the cost savings, how much has been achieved in first half? And how much remains for 2020? The third question on the outlook. Could you give us an indication of volume pickup and profitability expected in Q4 compared to Q3? And the last question on the Mexico, could you give us more details on the trend of registering than expected in the coming quarters in Mexico? Thank you.

Thank you, Luigi. On the first one, the average price, we expect that if we consider mix of product, mix of countries because this is a complex and the impact that we may have from a decline, the last reduction in the Pipe Logix, now that has also an influence. We may have, in the third Q, a decline, a reduction in our realized price. And this, let's say, you can consider that there will be a reduction in this for this third quarter and extending into the fourth quarter. As far as the cost saving, I would say that we are probably realizing something in the range of 25%, 20% to 25% of our cost savings realized up to now in this quarter, we will continue to have the rest in the coming two quarters. As far as the EBITDA or the margin expected, we mentioned this in the opening remark. Today, we are anticipating that we should be able - let's say, the EBITDA should stay in the lower single digit in the next quarter, which will be the bottom in our view for our result as far as we can say. And as far as the Mexican evolution, let me - in terms of, let's say, sales, we had a reasonable quarter in the second Q because of different product line for OCTG. This will be reduced in the next quarter, will be lower in the next quarter. But as far as the perspective of Mexico, I would ask Guillermo to give a quick view of what we can - in our view, what we can expect, let's say, from the Mexican part.

Yes, Paolo. Thank you. Luigi, how are you? Good morning, everybody.

Thanks.

As you know, what we are seeing in Mexico is that when the pandemic hit, it hit Pemex, obviously. It hit Pemex in terms of not only in the price of oil, but also in terms of the demand in Mexico. So they announced a plan in order to face this situation, which included several factors like production and taxes that the government is asking Pemex to pay. And they also announced a reduction in the CapEx of around 15% for E&P. And we saw a reduction already in the second quarter versus the first quarter, which was around the middle 20s, 20%, middle 20%. And we still are expecting a further reduction in the third quarter, probably another 10% reduction or so, and then leveling off in the fourth quarter. And we expect - the President also announced that he wants to maintain the plan to increase production from the actual levels of around 1.6 and 0.5 million barrels per day to 2.2 million barrels per day in 2024. So we expect next year to start to increase the activity of payments, but also this will be strengthened in moving forward by the coming in of the different projects that were granted under the Ronda's [ph] during the previous administration, which are going to be respected and they're moving forward. So we saw a third quarter a little bit below the second quarter in permits, leveling off. And then what we're seeing is coming back to a stronger activity starting the first quarter of next year.

Thank you very much.

Thank you, Guillermo and thank you, Luigi. I think we covered the four points that you made, no?

Yes. Thank you.

Yes. Maybe Luigi, just to clarify, when I was referring to cost, I am referring to the structural cost to a fixed cost now because the cost of sales is also influenced by the sub-absorption due to the lower level of production. This is something different.

Thank you. Our next question comes from the line of Amy Wong from UBS. Your line is now open.

Hi, good afternoon. Just a couple of questions from me, please. The first one relates to your Middle East and Africa sales, which are very resilient during the quarter. Just some color on how long that order book stretches out for would be very, very helpful. And the second question relates to - I think you covered it a little bit on your Rig Direct response in the US take up very high. But I'd love to just get a sense of - an update on how IPSCO is integrating within your North America operations? And what's the client response so far? Are any - are your clients smoothly transitioning on to the Tenaris platform? Just any color around that would be very helpful as well. Thank you.

Yes. Thank you, Amy. Well, on the Middle East, you're right. We had a very good quarter. The second quarter is a good quarter. But I would ask Gabriel to give you an overview on the Middle Eastern perspective.

Thank you, Paolo. Good morning, Amy. Indeed, we had a resilient quarter in the Middle East. This is where the - we see some strength in the order book with a good perspective for the next few months. Clearly, this is an area where the lifting costs are lower and the NOCs are financially strong to sustain the operations. So we see that the NOCs in UAE, Saudi Arabia, Kuwait, Qatar, the core of the GCC have adjusted the drilling activity in the range of 10% to 20%, and they have made decisions to delay projects related with high CapEx and new infrastructure. So we expect in the next quarter, solid sales, given the important long-term positions we hold in these countries and the positive success rate we had on the limited tendering that has come to market this year. Outside the Middle East, the situation is a bit more complex. There is, as you know, an aggressive stance of IOCs to reduce CapEx. So this will translate into slowdown of drilling and purchasing activities. This is - you mentioned about Africa, this is one of the areas that is going to be mostly impacted. We have a very good and strong first half even with pipeline sales, in West Africa, that this will not repeat in the remainder of the year. We also had strong Caspian sales in the first semester. This will also slow down. So the resilience outside the Middle East is much less. In Asia Pacific, just to complete all the regions will follow a milder slowdown as our premium sales related to gas applications in China will be less affected.

Thank you, Gabriel. Now on the Rig Direct integration of IPSCO. At this point in time, we are no longer considering IPSCO as a separate entity. We are, let's say, moving in a very integrated way and the crisis has acted in this section. But Luca, maybe you can comment on how we are managing the integration and at which point are we.

Thank you, Paolo. Good morning, Amy. Now operations wise, we are fully integrated in the plants where we're doing this relevant, being threading facility or, for example, we are investing, as you said before, in Koppel. But just to give a flavor, today, we are able to thread all former IPSCO property technology in our plant. So as you correctly said, we are fully integrated. And as a consequence, we tend to see ourselves to a new customer base. Now with this crisis, of course, it's very difficult to assess where we stand in tests because let's remember that the demand dropped. What we see very interesting is that our connections are especially developed for the share applications. The new ones are being very, very successful. And this is one of the drivers that will help us moving forward in the, let's say, short term period.

Thank you, Luca. By the way, we had some clients that we are getting thanks to the value of the torque as FW joined that we get from IPSCO. So we - integration is, I think, is working at every level, but in a situation in which really the market is at a very bare minimum of operation.

That's very helpful color. Thank you very much.

Thank you. Our next question comes from the line of Blake Gendron from Wolfe Research. Your line is now open.

Hey. Thanks for getting me on here and taking the questions. Just wanted to follow-up on your comments about the cost absorption and cost of goods sold specifically. You do break out cost of goods sold by line item. I'm just wondering if you can give us a feel for what percentage of cost of goods sold is fixed versus variable currently post some of your structural changes to the cost structure, what it was like before the pandemic? And where do you think it goes to in a more normalized environment, i.e., how would volume have to recover before you added back additional fixed costs? Thanks.

Yes, thank you, Blake. I was mentioning the absorption. Alicia, you can give a broad view because this is changing, obviously depending quarter-for-quarter. In broad term, which is, I mean, referring with your [ph] reviews for this.

Yes. If you see this in some stable situation, if you are looking for our cost of sales, we can say that we have - 35% of this are fixed and 65% of this - of the sale costs will be variable. But if we see our fixed cost at this moment, we can consider that the percentage of fixed cost is around 70% and 30% variable. But this is without taking into account our saving cost plan. So if we are looking for the lost cost, as I said that, but we are in place with our restructuring prime cost.

Because you know this - we are acting on this that we - it's not exactly fixed because we have suspension plan, we have - different tools in the different region could be utilized to reduce the cost of, let's say, idle labor differently. But I think this is giving you a reference.

No. That's very helpful. Thank you. And one more follow-up, if I could. We talk a lot about unconventional gas in the Middle East, gas development broadly for domestic consumption in different parts of the world. Enriching on the OCTG front, but I'm wondering if there's an infrastructure opportunity over the longer term. And then if you look offshore Mediterranean, it looks like assets may change hands here in the near-term and potentially down the road some development plans offshore for gas. How do you view the line pipe market today? And what do you think are going to be the opportunities for large infrastructure projects moving forward?

Well, maybe I will ask Gabriel to respond to - gas is essential for our market in the Middle East, in China and Eastern Mediterranean and everywhere. But in my view, there will be some delay in many of the large projects. I do not see many large infrastructural projects for gas. They will come to a final investment decision very soon. But Gabriel, you may expand on - basically on the Western on the Eastern Hemisphere?

Thank you, Paolo. Yes, indeed, there is a promising future for gas. We see gas increasing its share in the energy metrics, driven by domestic gas consumption increase of demand. This is very noticeable in many of the countries in the Middle East that we are talking about. And many of our sales are related to domestic gas developments. We see that in China and in other areas of the world. And then the export of gas, the LNG is expected to continue to grow. As Paolo said, given the current environment, we don't expect large infrastructure projects of FIDs, like, for example, the one that we're expecting in Mozambique or in Papua New Guinea to happen in the short term, but they are a midterm project that at some point in time will come on stream. And gas developments typically require more complex connections, more complex grades. So in the mid-term - in the long-term, when this gets developed, this will be - continue to be a positive trend within the energy metrics in the next few years.

Thank you, Gabriel. Because - just to add, we have, for instance, in Latin America, important project in infrastructure for gas in Brazil, Argentina, Mexico also. But I do not think that we will see any time soon final investment decision. This is a difficult moment for all of the economies in the region.

Understood. Thank you for the detail.

Thank you. Our next question comes from the line of Alejandro Demichelis from Nau Securities. Your line is now open.

Yeah, good morning, Paolo, gentlemen. A couple of questions. The first one is just to follow-up on the IPSCO situation. Because I think in your report, it says that IPSCO has had a minor contribution to Tenaris' margins. So I'm trying to understand that although you have integrated IPSCO, that that's not a loss-making operation, that, that has still some kind of level of a positive margin, even if it is small. That's the first question. And then the second question is on your master distribution agreement with TMK. I understand that there has been some renegotiation on the penalties. But could you please give us some indication of how you see those penalties kind of evolving if you don't reach the minimum levels?

Thank you, Alejandro. On the two points, as I mentioned before, today would be difficult for us to isolate the contribution of IPSCO because we are really managing at this point in time, everything as a single unit, especially in the crisis. I mean, this is a situation in which the reduction in our sales has been so sudden and so deep that everything is managed at this point in a combined way. And the room also for the TMK import agreement for a distribution agreement is also reduced by this. That's the reason why it is being negotiated. But maybe Luca could add some color on this that I'm saying. Luca?

Yes, Paolo. No, not much because I believe that you've been pretty complete. But in general terms, we are treating any IPSCO customer that we inherited with the acquisition as a Tenaris customer. So in this respect, it's really not possible for us to isolate. And in terms of the master distribution agreement, of course, the master distribution agreement foresees the purchase of a certain number that given the circumstances has been renegotiated and is made fit to the current market conditions.

So just to confirm, we should not expect a penalty coming from that master distribution agreement?

No.

No, we do not expect this because we just adjusted considering the reduction in the market, it is logical from both parties because also as US are very - are looking very carefully at the import level into the United States in a moment that is such a difficult moment for the domestic producer. So this has been - I mean adjustment of a contract to a change of circumstances, that is very clear and very sudden.

Okay, that's fantastic. Thank you very much.

Thank you. At this time, I am showing no further questions. I would like to turn the call back over to Giovanni Sardagna for closing remarks.

Well, just to thank you for joining us in our quarterly call, and we hope to see you soon. Thanks.

Ladies and gentlemen, this concludes today's conference call...

Thank you, everybody.

Thank you. Ladies and gentlemen, this concludes today's conference call. Thanks for participating. You may now disconnect.