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TMK Announces 4Q 2015 and FY 2015 Operational Results

The following contains forward looking statements concerning future events. These forward looking statements are based on current information and assumptions of TMK management concerning known and unknown risks and uncertainties.

TMK, one of the world’s leading producers of tubular products for the oil and gas industry, announces its operational results for the fourth quarter of 2015 and full year 2015.

4Q 2015 and FY 2015 Summary Results

(thousand tonnes)

4Q 2015 and FY 2015 Highlights

• In 2015, TMK shipped a total of 3,873 thousand tonnes of steel pipe, down 11.5% y-o-y. The decline was due to a significant drop in shipments in the American division, driven by a slowdown in drilling across the United States. In 4Q 2015, shipments were down 4.0% q-o-q to 938 thousand tonnes.
• In 2015, seamless pipe shipments fell by 5.0% y-o-y to 2,413 thousand tonnes. Shipments in 4Q 2015 increased by 4.6% q-o-q to 613 thousand tonnes.
• Welded pipe shipments in 2015 dropped by 20.5% y-o-y to 1,460 thousand tonnes due to lower shipments of welded OCTG in the American division, being hardly recouped by increased LDP shipments in the Russian division. In 4Q 2015, welded pipe shipments were down 16.8% q-o-q to 325 thousand tonnes.
• In 2015, OCTG pipe shipments dropped by 23.6% y-o-y to 1,480 thousand tonnes. The drop was due to a significantly lower demand for these products in the American market as well. In 4Q 2015, OCTG shipments were up 14.4% q-o-q, reaching 388 thousand tonnes, due to seasonal procurement of tubular products by Russian oil and gas companies.

• In 4Q 2015, shipments of TMK UP™ premium threaded connections amounted to 152 thousand joints, down 9.3% q-o-q. In 2015, shipments of TMK UP™ premium threaded connections totalled 684 thousand joints, a drop of 23.3% y-o-y. The decline resulted from suspension of many oil and gas production projects in the United States, due to the decline in global oil prices.

4Q 2015 and FY 2015 Results by Divisions

Russian division

4Q 2015 vs. 3Q 2015

In 4Q 2015, TMK’s Russian division saw a decline in shipments of tubular products, which fell 3.7% q-o-q to 793 thousand tonnes(1) due to welded industrial and line pipes shipments seasonal downturn.

Seamless pipe shipments were up 4.5% q-o-q, totalling 498 thousand tonnes.

OCTG shipments increased by 20.6% q-o-q to 304 thousand tonnes due to high drilling volumes in Russia and the start of procurement season for tubular products at oil and gas companies.

Welded pipe shipments were down 14.9% q-o-q to 295 thousand tonnes due to lower consumption of welded industrial and line pipe.

In 4Q 2015, large diameter pipe (LDP) shipments grew by 21.4% q-o-q to 158 thousand tonnes.

(1) This includes shipments from TMK’s Russian facilities, TMK-Kaztrubprom to the Russian, CIS and non-CIS markets (excluding North America).

FY 2015 vs. FY 2014

In 2015, TMK’s Russian division shipped a total of 3,137 thousand tonnes of steel pipe, up 5.1% y-o-y thanks to drilling growth and LDP high demand.

In the full year 2015, TMK increased its share in virtually every segment of the Russian pipe market except low-margin welded industrial and line pipes.

Shipments of seamless pipe in 2015 were up 3.7% to 1,892 thousand tonnes.

In 2015, OCTG shipments were up 2.8% y-o-y to 1,051 thousand tonnes, driven by the rise in drilling activity across Russia and import substitution initiatives vigorously pursued by TMK.

In 2015, the Russian division shipped 1,244 thousand tonnes of welded pipe, up 7.2% y-o-y. The growth is mainly driven by an increase in large diameter pipe shipments to support the implementation of the Power of Siberia, Southern Corridor, Bovanenkovo–Ukhta-2 and Ukhta–Torzhok-2 pipeline projects. In 2015, TMK’s Russian division shipped 632 thousand tonnes of LDP, up 37.0% y-o-y.

American division

4Q 2015 vs. 3Q 2015

According to Baker Hughes, in 4Q 2015, the active rig count in the USA totalled 698 rigs, a 14% drop q-o-q, as many oil and gas production projects were suspended due to the decline in global oil prices. Besides, the continued significant supply of imports to the American pipe market is putting further pressure on prices.

In 4Q 2015, the American division saw its shipments decline by 7.7% q-o-q to 107 thousand tonnes. Shipments of seamless pipe were up 6.9% q-o-q to 77 thousand tonnes. OCTG shipments were down by 3.2% q-o-q to 84 thousand tonnes. Welded pipe shipments totalled 30 thousand tonnes, down 31.8% q-o-q.

FY 2015 vs. FY 2014

In 2015, the division’s shipments declined 53.6% y-o-y to 575 thousand tonnes, due to a slump in drilling and a high proportion of pipe imports in the US market, coupled with a significant inventory build-up.

In 2015, seamless pipe shipments totalled 359 thousand tonnes, down 36.1% y-o-y. OCTG shipments dropped 53.1% y-o-y to 428 thousand tonnes.

Welded pipe shipments were 216 thousand tonnes, down 68.1% y-o-y.

European division

4Q 2015 vs. 3Q 2015

The European pipe market continued to be challenging in 4Q 2015 and throughout the year, with low consumption of tubular products and significant inventories. Growing competition from non-EU pipe producers (Ukraine, Belarus) put pressure on prices as well. Many European pipe producers faced production capacity under-utilisation, and had to resort to layoffs or suspend production.

Despite these contrarious conditions, TMK’s European division increased its shipments of tubular products in 4Q 2015 by 2.2% q-o-q to 39 thousand tonnes of seamless pipe.

FY 2015 vs. FY 2014

Despite the decline in pipe consumption in the European market in 2015 the European division increased its seamless pipe shipments by 4.3% to 161 thousand tonnes.

Premium Segment

In 2015, the demand for TMK UP™ premium threaded connections was shrinking, mainly due to the suspension of complex hydrocarbons production projects in the USA, where premium products were widely used. Low global oil prices also had an impact on investment programmes pursued by Russian oil and gas companies, with some of them opting for cheaper products under the circumstances.

In October 2015, TMK signed a partnership memorandum for tubular products with TMK’s premium threaded connections to be used by Sakhalin Energy at its Sakhalin-II project.

In December 2015, TMK supplied casing and fittings with threaded TMK UP™ PF ET connections featuring GreenWell lubricant-free coating to LUKOIL-Nizhnevolzhskneft, which develops the Korchagin oil and gas condensate field in the Caspian Sea. This is the first project to use TMK’s premium products with lubricant-free coating in an offshore well.

In 4Q 2015, shipments of premium threaded connections amounted to 152 thousand joints, down 9.3% q-o-q. In 2015, shipments of premium threaded connections totalled 684 thousand joints, a drop of 23.3% y-o-y.

2016 Outlook

According to TMK there will be no major changes in 2016 in the Russian market: oil and gas pipe consumption will remain at the 2015 level, while LDP will be in demand both to meet repair and maintenance needs and support trunk pipeline construction projects. The industrial pipe segment will most probably show further decline, although with a lower rate.

TMK will seek to maintain high shipment volumes in the best-selling segments of the pipe market, above all in OCTG.

In the United States, the demand for oil and gas pipe will remain weak due to low drilling volumes, large inventories, and continued low-priced imports. The American pipe market is not expected to recover before the end of 2016.

Pipe consumption in the European pipe market will also remain low in 1Q 2016. A gradual improvement is expected no earlier than 2H 2016.

In 2016 TMK intends to increase general shipments both in the Russian division and in the Group compared to 2015.