Jordan Blum, editorial director, Hart Energy: We are here at CERAWeek 2025. I'm joined by Luca Zanotti, the U.S. president for Tenaris. Thank you so much for joining us. We really appreciate it. Obviously right now, tariffs are a big discussion topic that's an impact to you and Tenaris. I wanted to get your take on just kind of how you see things playing out with OCTG (oil country tubular goods) products, other products and how things are going.

Luca Zanotti, U.S. president, Tenaris: Thank you for having me. Now talking about tariffs, we can spend the whole morning, so I want to try to say a brief explanation and then go into how this affects the market. So there are three different tariffs we're talking about. One is connected with the border [and] fentanyl emergency that was supposed to be implemented at the beginning of February and was concerning Canada and Mexico. Then it was postponed and then it was postponed again. Now where are we with this one? Today, there's a number of products that have been excluded, which are the automotive and all the other products that respect the rule of origin, which is pretty complex to define under the USMCA scope. Now this has been postponed up until April 2, [that is when] we [will] see how this is going to play out. Then there is a second layer which is related to Section 232. This is specifically for steel and aluminum.

This is supposed to come into [effect] March 12th. There are negotiations with different countries, but we don't know how this negotiation will end up. So we don't know what is going to be the setup, but if nothing changes all steel products and the derivatives, and this is the difference from the Section 232 1.0 that was imposed in 2018 will pay 25%. Then there is a third layer, which is called the reciprocal tax, that is bound to come into force April 2, in which we don't know the details, but basically [it’s] aimed at mirroring the tariffs that other countries are imposing to U.S. export products. Now, how this will end up, I believe that it is too early to say. We need to understand how, when the dust is settled, how work [will] remain in place, what is not remaining in place, the kind of negotiations that the USTR (U.S. Trade Representatives) and the Department of Commerce are carrying out with different countries. So it is too early to say specifically what is going to happen. But if it remains the way it is, certainly we're going to have pressure on costs.

Now, when it comes to Tenaris, and you can call us strategic or lucky, but we always thought that we had to be very strong and present and vertically integrated in the countries in which we operate. If you look at Tenaris in general, we developed our industrial footprint around markets that consume OCTG. So we are very strong in the United States. We invested $11 billion to create this position. But also in the other markets we are present in Mexico, we are present in Argentina, we are present in Europe, we are present in the Middle East. So wherever there is all oil extraction, we have a manufacturing footprint. So in this respect, Tenaris, as long as the set of rules is clear, is prepared to play any game that needs to be played. Obviously, these kinds of measures, and we can go around the way you wish, but they're going to bring cost up.

Having said, so, if we could plan for the long period, for example in the United States, we have plenty of capacity that comes back. Tenaris itself, we have a facility that is totally idle in a Kentucky. So I believe that an inflationary cost, if we had the possibility of planning in the future, can be significantly reduced by bringing back capacity that is available in the United States and has been idle or shut down in some cases due to unfair competition from mainly China and the China satellites. So I will say that this is the brief explanation.

JB: So we'll see. Apart from just the actual tariffs, how difficult is it just planning when the dates keep moving, what is exempted keeps changing, just dealing with that uncertainty?

LZ: Well, uncertainty certainly is not something that the businesses, our business, or anybody’s business likes. I believe that this administration is trying to put in place a number of measures and they are correctly, in my opinion, assessing what are, let's say, the results or the expected results of the measures that they're putting together. I believe that over time, and I don't believe that it's going to take too long, we're going to get to understand what is the final setup. And from there we can start planning. Obviously, it will be good that whatever is decided is decided through an act of Congress, which will give businesses the possibility of planning a little bit longer. In our case, but in general, we're talking about investments that have payback in the range of 10 [years] to 20 years. So it is difficult to start investing based on something that you don't know if it's going to be around the next four years.

But in any case, Tenaris has invested a lot in the United States. We are actually the company that has the largest installed capacity in the United States. We have either capacity that we could bring back if, for example, all the unfair trade that comes from the satellites, I’m talking about Korea, Taiwan and Thailand. I don't know if you know what has been discovered by [U.S. Customs and Border Protection] on Thailand. Thailand [was] bluntly bringing Chinese pipe into Thailand, transshipping the oil to the United States. And this is a fraud, which is worth, according to our calculation, in the range of $300 million. So serious money. But again, if we were sure that we could have a level playing field, there is capacity in the United States that can be brought back there is capacity that can be added on our side too.

JB: Very good. So anytime there's tariffs, you're disrupting global trade to some extent. I'm just curious what ripple effects you're looking out for. What concerns could affect other parts of the business? How trade flows, et cetera?

LZ: When we talk about OCTG, the Lower 48, from Mexico to Alaska, is well covered by domestic producers. I don't believe that that we're going to have any disruption. Actually, I'm pretty sure that we won't have any disruption in terms of product supplied to our customer and to the domestic players. There is enough capacity and all the products can be manufactured in the United States. When you move to the Gulf of Mexico, [there are] very specific products for very specific and sophisticated projects and Alaska, likewise. Well then there is nobody that is producing these products in the United States. So here I believe that we should work jointly with our customers and the administration to explain that an exception is needed for this kind of products because given the fact that they're not producing in the United States, imposing tariffs will be unnecessary hurdle for our customers, which will increase their cost and is not making any benefit to any domestic industry because there is no domestic industry for these products.

JB: So offshore is the bigger concern right now.

LZ: And Alaska

JB: In terms of the onshore products, and obviously you'll have a lot of the domestic production here, is there anything you want to highlight in terms of the advantages Tenaris has in terms of getting things out to the top basins?

LZ: The first advantage is that we have a large manufacturing capacity in the United States, the largest. Obviously, we still have some pieces of the supply chain that are not fully integrated. For example, we produce steel in Pennsylvania, but that steel is not enough for all of the pipes that we need to produce in the United States. So we are bringing in, depending on the economic situation, from other mills in our network: European, South America, Mexico, it depends. But in terms of capacity installed, we have plenty of capacity. And so our customer can [be] rest assured that they're going to have the products. Obviously we're going to have a cost pressure. And the second [advantage] is linked to the way we go to market, which is, as you know, we talked already about this link to our concept of Rig Direct.

Rig Direct was established in 2015, 2016, and the whole idea was to manage the entire supply chain from scrap to the well. And this is revolutionary in terms of capital allocation. Instead of allocating capital in building huge inventories throughout the whole supply chain, we allocated capital to plants that can switch over very fast and can be synchronized with the drilling schedule of our customers. So our customer today, they don't order pipes. They have a long-term commitment with us, they give us their drilling schedule and we make sure that they have their products at the rig, at the well site, when it's needed. So this is the advantage. Now this also comes with another very important advantage, which is the direct relationship that we have with the customers. And this is proven to be very useful because in the end, the people that know how to run our pipes are the people in the field. So for example, we had a big customer that once came to us and said, ‘Hey guys, I mean I'm worried about all the people that are traveling to the well site and the people that are around the pipe on the well site. Can you do something to eliminate this?’

So we started working and there was the idea of RunReady. RunReady is providing pipes that don't need anything but being picked up at the V-door and being run. So that was an idea that came from a customer. It was related not to cost or efficiency, it was related to safety. And now we implemented this innovation in 60% of our customers, and this [number] is growing. Another idea comes from on the product side that operators are getting way more efficient by drilling longer laterals. To drill longer laterals, you need many things including specific connections that would allow you to rotate and to push to get to total depths. So we had another customer that said, ‘Hey, can you do this?’ And we developed a connection specific for the Lower 48 that today is the most sold connection in our portfolio.

So this is another big advantage. Bear in mind that when we talk about production casing, which is the most sophisticated part of onshore well, 100% of what we sell is no longer API. It is all proprietary connections, proprietary technologies and 60% is [High-oxidation resistance Thor]. And this is a great contributor to the possibility of extending the ladders. And the third point comes on the hands of services. When you start working with the end user, you realize the problems that they have? So in this case, the problem was, and again, it was another input for another customer, that they couldn't sometimes get to TD (total depth.) So they ask, ‘Hey, you know the features of your connection, the features of your pipe or your steel grades? If I can give you the exact trajectory of the well, can you come up with something that can help us to avoid problems?’

That doesn't happen often, but when it happens, they are really pain in the neck. And so we came up with a service, which is a remote control center that we have here in our building in Houston, in which we are online monitoring the running operations. And so based on what we understand, we can provide our customer advice on what to do when they encounter problems or actually what to do before we forecast that they're going to be encountering a problem. I don't want to get too techy, but for example, one of the problems that they had was that sometimes the casing was buckling. And so buckling was difficult to push. And so we say, ‘okay guys, if you start rotating before you buckle, you're going to avoid buckling and you can get to TD (total depth) and this is what we're trying to do. Now we have more than 60 rigs connected with this remote 24/7. So the initial idea of changing the supply chain, going directive with the customers, which was based on efficiency. Now it's turning out to be going much more into innovation, new products, et cetera.

JB: Very good. You touched on the increased efficiency, obviously in that vein. I was curious just your thoughts on the lower activity levels in the Lower 48. All the consolidation that's happening, there's fewer customers and of course lower oil prices right now and just how that's affecting things in the bottom line.

LZ: Frankly, I believe that looking at activity today based on the number of rigs running is no longer [an] accurate estimation. I mean, we have a customer that in five years, [from] 2019 to 2024, decreased drilling days in the Permian from 24 to 13. And while they were doing this, they increased their lateral length from less than 10,000 ft to 12,500 ft. So the same rig today is basically drilling at the pace which is 60 to 70% higher than what they were doing five years ago.

So even if the number of rigs is lower, when we see the tubular markets, we see a decrease, but it's not as low as you can think looking at the number of rigs. Now M&A, obviously this wave of consolidation that has happened, which by the way [has] helped Tenaris a lot because again, you can think that we are strategic or lucky or a combination of the two, which is maybe always the case, but we were positioned with all the big operators that were on, let's say the buying side of the transaction. And we have been very successful, thanks to our customer to roll over our contracts to the entity that have been acquired. This is another element that needs to be taken in consideration when talking about activity. Usually as we've seen, one plus one in this case is never two, it’s something less. But the efficiencies they gain in terms of risk, by combining the best practice of this company are further increasing their efficiency. It is amazing when you see, for example, when Diamondback [bought] Endeavor and they have the smart people working together. I mean that was a step forward that was really unthinkable. And I'm saying just this one because it's the last one, but these can apply to many other M&A that we have gone through.

JB: Very good. I guess we'll see what happens next. Well thank you so much for joining us here at CERAWeek. I really appreciate it. To read and watch more, please visit online at hartenergy.com.

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