2.Letter to

Dear Shareholders,
Dear Friends,

Dmitry Pumpyanskiy
Chairman of PAO TMK’s
Board of Directors
Dmitry Pumpyanskiy
Alexander Shiryaev
Alexander Shiryaev

Let me summarise TMK’s performance in 2015 and outline the key areas of development that TMK will focus on in 2016.

In 2015, TMK shipped a total of 3,873 thousand tonnes of steel pipe, for the seventh consecutive year, since 2009, maintaining its leadership as the world’s largest manufacturer of tubular products.

This achievement is particularly important given the challenging market conditions resulting from falling oil prices, which have had an adverse impact on business volumes of our American division. Despite the shrinking North American OCTG market, we have succeeded in maintaining our market share from 2014. Conditions in the European market have also been mixed; however, even in this challenging environment, TMK’s European division has shown strong performance.

Oil production in Russia has grown, placing the country at the top of the global league table of oil producers. With drilling volumes increased slightly over 2014, the Russian OCTG market has grown and TMK has successfully captured this opportunity to gain an additional market share in this segment. The implementation of trunk pipeline construction projects by Gazprom has driven the consumption of large-diameter pipe (LDP), with TMK increasing its LDP shipments by 36% and growing its market share in the segment to 18%.

Our Russian division has fully met its targets, with TMK growing its overall share of the Russian steel pipe market by 1%, to 25.2%.

TMK’s weaker financial performance in 2015 was mostly due to a falling demand in the North American pipe market and the weakening rouble. At the same time, the local currency depreciation, coupled with the strong performance shown by TMK’s facilities, reduced working capital, and overall capex reduction, helped bring TMK’s net debt down to approximately USD 2.5 billion, from USD 2.97 billion, ensuring continued deleveraging even in volatile markets.

The successful completion of TMK’s Strategic Investment Programme has significantly expanded our capabilities in manufacturing high-quality tubular products, giving TMK a clear edge in a new reality of record-low oil and commodity prices. Our ability to deliver packaged shipments of tubular products for use in oil and gas wells, our in-house R&D platform and testing facilities, and our wealth of knowledge and expertise make us well-positioned to reinforce TMK’s industry leadership in technology.

To feel confident in the current market landscape we need to focus most on continuous, well-targeted consumer work. We know what our customers need today and already have a clear understanding of their product requirements several years down the road.

Demand for our capabilities in the development and roll-out of innovative tubular products has proved particularly strong in the segments where import substitution initiatives are implemented in Russia. As many foreign suppliers have left the Russian market, it opened up some niches that had previously been inaccessible for us due to different reasons. Today, our Russian facilities pursue joint projects with Russian oil & gas majors to supply tubular products for fields in the Russian Arctic, fields with heavy oil or corrosive environments, etc. In 2015, we shipped large batches of innovative tubular products with TMK UP premium threaded connections to projects operated by Gazprom, Rosneft, Lukoil, and others. Our sales of premium tubular products with GreenWell dope-free coating have increased five-fold, with these products used for the first time in an offshore well. As part of Gazprom’s import substitution programme, we designed and supplied, specifically for its Astrakhanskoye field, H2S resistant pipes. Despite lower consumption of premium threaded connections in 2015, TMK’s share of the market for premium tubular products has grown to 75%, due to our active involvement in import substitution programmes.

During 15 years
the company that emerged as a result of a merger between two Russian plants has grown into a global pipe producer comprising over 30 facilities across different continents
TMK’s share of the market for premium tubular products, due to active involvement in import substitution programmes

A major milestone was the signing of a RUB 50 billion eight-year contract with Gazprom to supply “the next thing”, our new innovative tubular products. Memoranda were also signed to supply premium products to Rosneft’s offshore projects and pursue cooperative projects with Sakhalin Energy. As the fields oil & gas companies need to develop become increasingly challenging with every passing year, we are already fully aware of their future product requirements to support their production plans.

We have many areas to focus on in 2016. We continue LDP shipments for Gazprom’s trunk pipeline projects, and deliver large contracts for the supply of tubular products to support production, exploration and drilling programmes of oil majors. We need to further diversify our sales channels, streamline manufacturing processes, and cut production costs.

As we celebrate the Company’s 15th anniversary in 2016, we will use this milestone to take stock of our achievements, review our progress, and chart plans for the future. Looking back, our strong performance once again confirms the success of our strategy, which enabled the company that emerged as a result of a merger between two Russian plants to grow into a global pipe producer comprising over 30 facilities across different continents. We have gained a wealth of knowledge and expertise. We have a skilled workforce and a close-knit team. Over the past few years, we have made steps to grow TMK into a robust business resilient enough to face the challenging times we now live in. This allows us to look to the future with optimism and feel confident that we can drive TMK’s performance and success even further.

Dmitry Pumpyanskiy
Chairman of PAO TMK’s Board of Directors

Alexander Shiryaev