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PROPRIETARY & CONFIDENTIAL
Global Synergies
PROPRIETARY & CONFIDENTIAL
Investment Highlights
Global
market leader
 Leading producer of value-added steel pipes for the oil & gas industry
 12% global seamless OCTG(1), 60% Russian seamless OCTG and 17% of the U.S. OCTG market in 1H 2010
Favourable
industry dynamics
Strong steel pipe industry fundamentals driven by robust demand for oil & gas
Consolidated industry with significant barriers to entry
Demand for seamless OCTG expected to experience significant growth
Strategic supplier to
the oil & gas sector
Approximately 75% of 1H 2010 shipments went to the oil & gas sector in 1H 2010
Strategic partnerships with oil & gas majors
Ongoing cooperation with multinational oil & gas companies
Vertically integrated
low cost producer
Structural cost advantages over major international competitors
Fully vertically integrated seamless pipe production (upstream and downstream
operations)
Growth potential
and deleveraging
Strategic Investment Programme (2004-14) aimed at 48% capacity increase
Ability to efficiently integrate acquired businesses and realise synergies
Commitment to maintain and improve credit ratings
Key performance figures
Revenue, US$ mln
EBITDA, US$ mln
Notes: (1) OCTG - Oil Country Tubular Goods
2006
2007
2008
2009
1H 2010
3,402
4,179
5,690
3,461
2,566
800
920
1,047
328
415
1
Global Operational and Sales Footprint
TMK’s strategic positioning
made it the steel tubular
industry leader, with nearly 4
million tonnes sold in 2010.
Steel tubular industry leader
Sinarsky
Seversky
Moscow
Cologne
Calgary
Production & Services
Marketing subsidiaries &
representative offices
RosNITI
Zurich Resita
Camanche Chicago
Geneva Brookfield Ambridge
Koppel
Wilder
Catoosa
Blytheville
Houston
Odessa
Lecco
Volzhsky Kaztrubprom
Tagmet
Astana
Artrom
Baku
Ashgabat
Beijing
Dubai
Baytown
R&D
Capacity (tonnes)
North
America
Europe
Russia and
CIS
Steelmaking
450,000
450,000
2,450,000
Seamless pipes
300,000
200,000
2,420,000
Welded pipes
1,150,000
2,200,000
Heat Treat
441,000
1,500,000
Threading
741,000*
1,560,000
Note: *Does not include ULTRA Premium connections of 520,000 joints
Source: TMK accounts
Singapore
Cape Town
2
PROPRIETARY & CONFIDENTIAL
Global Leader in Cost Efficiency
Russia is one of the lowest cost regions for steel
production
Low raw materials costs
1H’10 Cash Cost per tonne (US$)
Scrap purchase price, US$/’tonne
 350 TMK
 410 Shredded FOB Rotterdam
 545 DRI
2,003
1,320
Favorable unit labor cost
1,274
Labor cost, US$/’month
993
 768 TMK
 750 Russia
 4,200 U.S.
 5,900 Germany
Vallourec
Tenaris
US Steel
Tubular
TMK
Low regulated energy prices
Low gas prices
Electricity prices, US$/MWh
Gas price, US$/’000 m3
 80 Russia
 88 in Russia
 100 China
 400 in Europe
 90 U.S.
 100 Germany
Source: TMK data (1H’10 - 2009 estimates)
* Cash cost per tonne is calculated as (cost of sales minus depreciation) divided by sales volumes
3
PROPRIETARY & CONFIDENTIAL
Segmenting the Global Pipe Market
Consolidated industry with significant barriers to entry
World Steel Industry Market Concentration (2009)
Arcelor
Mittal 6%
World Seamless OCTG Market Concentration (2009)
TMK
(13%)
Hebei Iron & Steel 3.3%
Baosteel 3.2%
POSCO 2.5%
Wuhan Iron & Steel 2.5%
Highly
Consolidated Pipe
Industry
Top 6
76%
Others 24%
Others
82.5%
World Tube Market Segmentation (2009)
TMK Shipments by Industry (2009)
LD Welded
17%
Machine
Other 12%
TMK’s product
mix is geared to
meet the needs
of the energy
industry
Building 5%
OCTG 7%
Line Pipe
3%
Industrial Welded
49%
Welded Welded
Line Pipe OCTG
4%
2%
Construction
Seamles
s
Industrial
18%
and Public
Utilities
16%
Oil & Gas
67%
4
Source: Company data and estimates, industry sources, WSA, World steel in figures
PROPRIETARY & CONFIDENTIAL
Russian Drilling - Moving East for Growth
The increasing complexity of oil and gas production
in Russia is expected to increase demand for higher
Meters drilled
value-added products
Arctic offshore
Timan
Pechora
Eastern Siberia
Western Siberia
Sakhalin
Volga
Caspian
Production data, million tonnes
Conventional Regions
Unconventional Regions
2007
2008
2009
2010F
2011F
2012F
Western Siberia
337.7
333.6
330.7
325.6
319.1
312.7
Volga-Urals
105.1
106.7
107.7
107.7
105.0
102.4
Timan-Pechora & Kaliningrad
28.0
29.1
29.0
29.0
29.0
29.0
Far East
15.0
13.8
16.0
17.0
19.0
22.0
Eastern Siberia
0.5
0.5
6.0
17.5
25.5
31.5
North Caucas & Precaspian
5.0
4.8
4.8
5.7
6.6
7.3
491.3
488.5
494.2
502.5
504.2
504.8
Total oil production
5
Source: TMK estimates, VTB Capital
PROPRIETARY & CONFIDENTIAL
Russian LD Demand Drivers
Shtokman
Barents
Sea Yamal
Indiga
Murmansk – Volkhov
Bovanenkovo
Europe Yamal
Kharyiga
Timan
Pechora
Ukhta
Urengoy
Purpe - Samotlor
Eastern Siberia
Western Siberia
Pochinki –
Altai Project
Gryazovets
Vyborg
Nord Stream
BTS-2
Large-diameter pipe demand
to remain robust as regions of
production continue to move
further away from
consumption centres
Yakutsk
ESPO -2
Oil Pipelines
Syzran
Tengiz
Gas Pipelines
Novorossisk
Beregovaya
TBP
South Stream
Sakhalin – Khabarovsk – Vladivostok
Caspian
Blue Stream
Gazp
Gazp
Tran
Gazp
Tran
Tran
Sakhalin-KhabarovskVladivostok
Maintenance
ESPO-2
Pochinki-Gryazovets
BTS-2
Purpe-Samotlor
Gazp
Gazp/Tran
Gazp
Gazp
Gazp
Tonnes
TMK
9M’10
Gazp
Type
79,138
74,434
57,555
55,386
40,484
22,917
LSAW
SSAW
LSAW
SSAW
LSAW
LSAW
Bovanenkovo-Ukhta
15,151 (+47,000)
LSAW
Maintenance
NordStream
NordStream
Urengoy
Sakhalin-KhabarovskVladivostok
17,153
4,394
2,552
3,270
LSAW
LSAW
SSAW
SSAW
689
SSAW
Source: TMK estimates, Gazprom
Gazp
Gazp
Gazp
Gazp
Gazp
Gazp
Gazp
Tran
Gazp
Gazp
Tran
Gazp
Gazp
Tran
Tran
Tran
Tran
Gazp
Maintenance
Gazprom Misc. Projects
Yakutiya-Vladivostok
Altai
Bovanenkovo-Ukhta-2
Ukhta-Torjok-2
Murmansk-Volkhov
Tengiz-Novorossisk
Shtokman
SouthStream
Transneft
Lukoil (subsea)
BlueStream
Kharyiaga-Indiga
Syzran-Novorossisk
Zapolarye-Purpe
Trans Balkan Pipeline
Lukoil (land)
K Tonnes
2,400
1,700
1,500
1,500
1,100
800
600
580
550
500
500
300
250
224
190
150
95
50
Estimated
Russian LD
Demand 20112015
6
TMK IPSCO – US Market Penetration
Camanche, IA
Brookfield, OH
Capacity (tonnes)
Product
ERW OCTG line pipe,
standard pipe
249,000
Threading
290,000
ULTRA™ Premium
connections
Second line (1H2011)
Capacity (tonnes)
ERW HSS
Marcellus
Hilliard-BaxterMancos
Capacity (tonnes)
91,000
118,000
New Albany
Niobrara
Ambridge, PA
Blytheville, AR
Product
Capacity (tonnes)
Product
73,000
435,000
240,000
Antrim
Catoosa, OK
Heat Treating
Threading
Heat Treating
Billets
240,000
Gammon
109,000
Product
Capacity (tonnes)
Product
Bakken
Geneva, NE
Product
Koppel, PA
Capacity (joints)
Product
ERW OCTG, line pipe,
standard pipe
Heat Treating
Threading
272,000
Seamless OCTG line pipe,
standard pipe
Woodford
91,000
181,000
Heat Treating
Fayetteville
BarnettWoodford
Odessa, TX
Capacity (tonnes)
296,000
73,000
Barnett
Haynesville
Capacity (joints)
Product
ULTRA™ Premium
connections
150,000
Eagle Ford
Baytown, TX
Houston, TX
Capacity (joints)
Product
ULTRA™ Premium
connections
130,000
Product
Heat Treating
Threading
Capacity (tonnes)
113,000
152,000
Wilder, KY
Product
ERW OCTG, standard
pipe
Capacity (tonnes)
517,000
Seamless
Welded
Finishing
Steel
Major Gas Shale Plays
Major Oil Shale Plays
Source: TMK, as of September 2010, Energy Information Administration
7
PROPRIETARY & CONFIDENTIAL
US Drilling – Stronger than Ever
(active rigs)
(months)
2500
2000
1500
1000
Months of Supply
500
US Rig Count
0
Drilling activity brought
months of OCTG supply
back to normal.
Ja
nM 08
ar
M - 08
ay
-0
Ju 8
l
S -08
ep
N 08
ov
Ja 0 8
nM 09
ar
M - 09
ay
-0
Ju 9
l
S -09
ep
N 09
ov
Ja 0 9
nM 10
ar
M 10
ay
-1
Ju 0
lS 10
ep
N 10
ov
-1
0
16
14
12
10
8
6
4
2
0
2 500
Oil drilling and liquids rich gas
plays have kept activity levels on
the rise
2 500
2 000
2 000
1 500
1 500
1 000
Gas
Premium tubular content
increasing with unconventional
drilling activity.
Vertical - 32%
1 000
Horizontal - 55%
500
500
Oil
0
Directional - 13%
Source: TMK & industry estimates, Baker Hughes
Ja
n0
Ju 3
n0
De 3
c0
M 3
ay
-0
No 4
v0
Ap 4
r- 0
O 5
ct
-0
M 5
ar
-0
Se 6
p0
Fe 6
b0
Au 7
g0
Ja 7
n08
Ju
l-0
De 8
c0
Ju 8
n0
No 9
v0
M 9
ay
-1
No 0
v10
Ja
n0
Ju 3
nDe 0 3
cM 03
ay
-0
No 4
vAp 0 4
r- 0
O 5
ct
-0
M 5
ar
Se 06
p0
Fe 6
bAu 07
g0
Ja 7
n0
Ju 8
l-0
De 8
c0
Ju 8
n0
No 9
vM 09
ay
-1
O 0
ct
-1
0
0
8
PROPRIETARY & CONFIDENTIAL
Lower Break-even Costs Encouraging Drilling
The industry has traditionally viewed $5 to $6 as the economic
drilling price of gas, but a recent study estimates surprisingly low
break-even costs for the major shales.
Henry Hub Natural Gas Price
dollars per million btu
8
Historical spot price
STEO price forecast
NYMEX futures price
6
4
2
0
Jan-09
May-09 Sep-09
Jan-10
May-10 Sep-10
Jan-11
May-11 Sep-11
Lower break-even costs will
allow the higher rig count to
continue despite lower
natural gas price forecasts.
Source: EIA Short Term Energy Outlook November 2101, Reuters News Service, CME
Group, Credit Suisse
9
PROPRIETARY & CONFIDENTIAL
Shopping Spree
Over $60 billion in shale M&A activity over the last
twelve months
Bakken
Major Gas Shale Plays
Major Oil Shale Plays
Gammon
Antrim
Marcellus
HilliardBaxterMancos
Q4 2009, ExxonMobil’s
$41 billion acquisition of
XTO Energy.
New Albany
Woodford
Fayetteville
Royal Dutch
Shell offers $4.7
billion for
Marcellus shale
gas specialists,
East Resources,
Inc.
Chevron Corp., agrees
to buy Atlas Energy
Inc. for $3.2 billion,
giving it access to the
Marcellus.
Barnett
Haynesville
BarnettWoodford
CNOOC offers $1.08 billion for a
one-third stake in Chesapeake
Energy Corp.’s Eagle Ford project.
Eagle Ford
STATOIL of Norway agreed to pay
$843 million to set up Eagle Ford
JV with Talisman Energy Inc.
Reliance Industries commits $2.8
billion gains to access the Marcellus
shale in Pennsylvania with Atlas
Energy, and the Eagle Ford shale in
Texas with Pioneer Natural Resources.
10
Source: Price Water House Coopers, Wood Mackenzie, Reuters News Services
PROPRIETARY & CONFIDENTIAL
Growth and Added Value Production
’10/’05, %
Target
capacity *
Target/’10, %
2005
2010
Seamless
2,040k tonnes
3,035k tonnes
49%
3,670k tonnes
21%
Threading
790k tonnes
2,103k tonnes
166%
2,300k tonnes
9%
Heat Treating
730k tonnes
1,530k tonnes
110%
1,880k tonnes
23%
Premium
Connections
-
330k tonnes
-
450k tonnes
37%
Longitudinal
large diameter
-
650k tonnes
-
650k tonnes
-
Steelmaking
* : TMK estimates
2,350k tonnes
3,350k tonnes
43%
3,700k tonnes
10%
11
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