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Drilling to pick up as gas prices rise: USS

Keywords: Tags  U.S. Steel, John Surma, quarterly results, OCTG, oil country tubular goods, tubulars, line pipe, Lorain plant Thorsten Schier

NEW YORK — U.S. Steel Corp. expects domestic drilling activity to pick up as natural gas prices, buoyed by a drawdown of stocks due to a longer than expected winter in some parts of the country, have risen to more than $4 per million British thermal units (mmBtu).

"Given these conditions, we would expect drilling activity to increase," chairman and chief executive officer John P. Surma said April 30 during the steelmaker’s quarterly earnings call.

As a result, Pittsburgh-based U.S. Steel’s second-quarter tubular shipments are expected to rise vs. the first quarter, although average realized prices are projected to fall slightly as welded product shipments rise, he said.

The company saw steady demand for tubulars during the first quarter, even as average rig counts fell, as "the drilling efficiency of rigs has continued to improve," Surma said.

Imports of tubulars remained at "historically high levels during the first two months of the year," with oil country tubular goods (OCTG) and line pipe imports averaging a nearly 50-percent and more than 60-percent share of their respective markets, according to Surma.

Imports from South Korea, the largest shipper of both products to the domestic market, "reached record-high levels in January and are currently running well ahead of last year," he said.

There has been much speculation about a possible trade case against Korean producers of welded OCTG. U.S. Steel has indicated it would be willing to file a petition if it has a strong case (, Oct. 31).

The steelmaker’s tubular segment earned $64 million during the quarter, double the $32 million logged in the fourth quarter but 50.4 percent below the year-earlier $129 million.

The better quarter-on-quarter results reflected efficiency improvements and lower substrate costs, the company said in its quarterly earnings results, with the gains in efficiency coming particularly at its welded mills.

"We’ve had some pretty aggressive cost reductions, particularly on our welded mills, where we’re really in a bit of a fight there," Surma said.

U.S. Steel is planning to upgrade its No. 4 hot mill at its tubular facility in Lorain, Ohio (, May 1), which will allow it to expand into larger sizes and meet increased demand.

"We believe this project will allow for increased utilization of what is already a highly productive asset, as 5.5-inch OCTG casing is in high demand for shale play drilling and is in alignment with our strategic objective to increase our premium tubular product capabilities," Surma said.

The move will also allow the company to load its tubular finishing facility in Fairfield, Ala., with "larger-diameter pipe to serve growing demand in regions such as the deepwater Gulf of Mexico," as well as "more fully utilize the new heat-treat facility (and) finishing facilities we’ve put in our No. 6 line in Lorain," he said.

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