Revenue from oil country tubular goods (OCTG)
has been down for some U.S. companies, although many producers
expect the situation to improve as high customer inventories
Operating earnings from tubular products at
Pittsburgh-based U.S. Steel Corp. fell 42.4 percent from $177
million in the same period last year.
"Despite the U.S. rig count at near-record
levels and good end-user demand, high inventory levels have
dampened demand from our oil country distributors," John P.
Surma, U.S. Steel's chairman, president and chief executive
officer, said during a conference on the company's
first-quarter results. "We have reduced our OCTG production and
shipments to ensure our operations maintain balance with our
Also notching declines was Dallas-based Lone
Star Technologies Inc., which reported $245.1 million in
revenue from oilfield products in the first quarter, down 14
percent from $285.1 million a year earlier. "While
first-quarter 2007 average natural gas spot prices improved
about 4 percent from the fourth quarter of 2006, distributors
remained cautious with their OCTG purchases and our OCTG
shipment volumes remained essentially unchanged," said Rhys J.
Best, Lone Star's chairman and chief executive officer.
First-quarter demand for small-diameter
energy tubular products was lower than a year earlier, David
Sutherland, president and chief executive officer of Ipsco
Inc., Lisle, Ill., commented on his company's performance.
However, "we expect shipments to improve as inventories at
service centers and distributors reach desired levels."
Sutherland also discussed the possibility of
filing a formal trade complaint against Chinese shipments of
tubular products. "And I don't think that's unique to Ipsco in
terms of the domestic tubular space, whether in energy or other
types of tubular products," he said.
John Tulloch, Ipsco's chief commercial
officer and executive vice president of steel, warned that U.S.
companies expanding into the U.S. spiral-welded tubular
products market might be building more capacity than the market
can support. "This is a very periodic market, and we happen to
be in an upbeat right now," he cautioned.
Executives at U.S. Steel, Ipsco and
Luxembourg-based Tenaris SA declined to comment further.
Likewise, Lone Star executives failed to respond to repeated
requests for comment.
In Canada, the outlook also was mixed.
A late freeze and early thaw made for a
sharply lower rig count because equipment couldn't operate on
the soft, unstable ground, said Butch Mandel, executive vice
president of Concord, Ontario,-based Welded Tube of Canada
Making matters worse, new federal tax laws in
Canada have made income trusts, which often are a chosen
vehicle for investing in oil and gas holdings, less desirable
for investors. "Much of the tax advantage was taken away,"
Chinese pipe imports also are a major
concern, he said. "Inventories have swelled as a result, and
North American producers are finding it harder and harder to
move their products."
What's more, partly because of the high cost
of oilfield services, many companies have chosen to redeploy to
oil sands in western Canada, Mandel said. The sands are more
like mining operations than drilling, and consequently require
less pipe and tube. "There's some reasonable discipline in
pricing, but there's no question that it's off," he said.
However, more rigs will be able to return to
work as the ground firms up again in late June and July, Mandel
said. "I think things will get better in the second half of the