Vallourec sees oil, gas activity remaining weak in 2021

Oil and gas drilling activity is expected to stay subdued in 2021, Vallourec, one of the leading seamless steel pipe producers said Feb. 17, however the company expects to see an increased contribution from iron ore mining this year.

“Although Vallourec’s revenue in 2020 was strongly impacted by the considerable drop of its activity due to Covid pandemic impact on oil demand and E&P activity worldwide, the group has demonstrated its capacity to adapt, achieving an almost stable EBITDA margin year-on-year..,” Edouard Guinotte, chairman of the management board, said in the company’s fourth quarter and full year of 2020 earnings release.

“Looking ahead, we expect oil and gas activity to globally remain subdued in 2021. While drilling should gradually restart in North America, and continue growing off-shore Brazil, EA-MEA should face difficult market conditions with no recovery visible before 2022. Our Industry markets are expected to slowly restart in 2021, and Vallourec’s iron ore mine activity should bring an increased contribution. In this context, we will continue deploying our cost savings and cash management initiatives along the year.”

For the full year 2020, Vallourec’s EBITDA reached Eur258 million versus Eur347 million in 2019.

In North America, the oil country tubular goods market has started a gradual recovery which is expected to continue during the year and be accompanied by a positive price trend, although the start of the year will be impacted by the strong increase of raw material cost, the company said. .

In EA-MEA, in addition to overall activity still significantly impacted and prices remaining under pressure, the sharp decline in deliveries of high-alloy products is expected to negatively impact revenue and margin, Vallourec said.

However, in Brazil, oil and gas deliveries are expected to increase compared with 2020, with domestic iron ore production targeted to be stable compared to the prior year. Prices of iron ore delivered to Vallourec customers are expected to surpass 2020 levels, although gradually decreasing along the year, it said.

Vallourec’s 2020 full-year revenue declined by 22% to Eur3.24 billion compared with 2019, with a 30% decline in volumes as a result of lower oil and gas activity, the company said. Q4 2020 revenue amounted to Eur830 million, down 17% compared with Q4 2019. The volume effect was -22%, price/mix effect +17% and currency conversion effect -13%.

Oil & Gas, Petrochemicals revenue, which count for 68% of the annual consolidated revenue of the company, reached Eur2 billion in 2020, a (Eur745) million decrease, or down 27% year on year (-22% at constant exchange rates), reflecting lower revenue in North America and in EA-MEA.

Vallourec said Feb. 3 it reached a major step in its financial restructuring, with an agreement in principle with its main creditors to help the company rebalance its capital structure by reducing its debt.

— Annalisa Villa