4.7.North American Market

According to Baker Hughes, the average rig count in the US dropped almost twofold year-on-year to 976 in 2015 from 1,862 in 2014. This drop was due to the continuing declines in oil prices, which led to weaker drilling activity and lower capex of regional oil & gas companies, and, accordingly, to a lower demand for OCTG and growing inventories.

US gas and oil rig count
US rigs by drilling method

Despite the plummeting rig count, pipe consumption per rig grew from 3,507 tonnes per rig in 2014 to 3,889 tonnes per rig in 2015. This can be explained mainly by a growing share in horizontal and directional drilling which demonstrate higher pipe consumption. Year-on-year, the combined horizontal and directional rig count grew from 80% of total rigs in 2014 to 86% in 2015. A considerable slowdown in US exploration and production drilling and the resulting decrease in the average number of rigs in the US led to a weaker demand for OCTG.

As a result of low oil prices, most oil & gas companies had to cut down their hydrocarbon exploration and production costs. Product requirements also underwent substantial change. Specifically, a number of producers re-focused towards casing and tubing pipes with thinner walls, smaller diameter, simpler finish coating and lower grade threaded connections. The weak demand and the adverse pricing environment drove down OCTG consumption in the US by 41%.

Performance of TMK’s American division has declined, as OCTG consumption in the US market slumped on the back of lower drilling volumes, high inventories and stiffer price competition from imports. Despite a significant increase in horizontal and vertical drilling activity in the United States, which requires more advanced technological solutions, sales of tubular products with premium connections by our American facilities dropped to 167 thousand tonnes in 2015.

In the context of a challenging market environment, the American division implemented a number of measures to cut costs and optimise headcount. As a result, 2015 saw the division’s headcount decrease by 30% year-on-year.

The reporting year also saw the Camanche and Catoosa plants temporarily suspend production, while some plants reduced the number of shifts to one.

US OCTG consumption,
thousand tonnes
Premium connections pipe sales
by the American division,
thousand tonnes

Source: TMK estimate

In the challenging environment of weak demand for tubular products in the US, TMK IPSCO decided to focus on higher value added products, particularly seamless OCTG with TMK UP premium threaded connections at the most efficient assets of the American division. ТМК IPSCO continues its consistent efforts to transform its research centre into a key income generator in the future.

In 2014, ТМК IPSCO completed the design and development of five new TMK UP premium connections. They were tested and introduced in 2015. These connections include improvements to legacy connections as well as the design of new connections.

In the reporting year, the Research & Development Centre of the American division developed a new system for multiple sleeve ball-activated hydrofracturing of formations.

The Company also successfully developed several proprietary steel grades for OCTG, as well as various corrosion-resistant grades for OCTG and line pipe. In 2015, TMK’s American division won the sixth annual Award for Steel Excellence as the Tube and Pipe Producer of the Year 2014. The award is given by American Metal Market (AMM), a leading US news and analytics publication.