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Vallourec ramps mills despite rig slump

Keywords: Tags  Vallourec, Vallourec & Sumitomo Tubos do Brasil, capacity, OCTG, Brazil, seamless, premium connections, rig count drilling

CHICAGO — Vallourec SA continues to ramp up its new mills in the United States and Brazil, despite a decline in the U.S. rig count.

The Boulogne-Billancourt, France-based steel tube and pipe producer plans to ramp up its new small-diameter rolling mill in Ohio to roughly 50 percent of capacity in the first semester of 2013, and its Vallourec & Sumitomo Tubos do Brasil Ltda. (VSB) integrated mill in Brazil to approximately 40 percent of capacity, Didier Hornet, managing director of the company’s oil country tubular goods (OCTG) division, said during an earnings conference call with analysts.

Start-up costs at the new mills are expected to decline as production increases, with the Ohio mill expected to reach a breakeven point in the first half of 2013 and VSB in the second half of the year, Vallourec executives said.

Vallourec executives remain optimistic about the U.S. oil and gas sector despite a declining rig count, in part because individual rigs have become more efficient and are drilling more wells per rig. In 2011, for example, the average rig was consuming roughly 240 tons per month, a number expected to move up to 244 in 2012 and jump to 250 to 257 tons in 2013, they said.

The company’s facilities in the Americas are allowing it to expand sales into markets that have been logistically difficult to serve from its operations in Europe, Vallourec executives added. And if demand were to slow down significantly in the Americas, Vallourec would reduce exports from Europe rather than scale back the ramp-up of its facilities in the Americas, they said.

The company said that it was also able to keep plants in the United States running at capacity in the third quarter partly because it was able to shift with their customers to more oil-centered plays such as the Permian Basin and Bakken and Eagle Ford shales. While it conceded that "limited price concessions" were made in the third and fourth quarters, it argued that those concessions had been made up for by lower scrap prices and an improved sales mix.

The U.S. rig count could improve with the increase in gas prices that is expected to happen in 2014, or perhaps as early as 2013, Vallourec executives said. But they also warned that it is too early to put too much stock in such predictions, noting that a recovery in oil prices might come sooner than an improvement on the natural gas front.

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