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PROPRIETARY & CONFIDENTIAL Global Synergies. PROPRIETARY & CONFIDENTIAL Investment Highlights  Leading producer of value-added steel pipes for the oil.

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Presentation on theme: "PROPRIETARY & CONFIDENTIAL Global Synergies. PROPRIETARY & CONFIDENTIAL Investment Highlights  Leading producer of value-added steel pipes for the oil."— Presentation transcript:


2 PROPRIETARY & CONFIDENTIAL Investment Highlights  Leading producer of value-added steel pipes for the oil & gas industry  12% global seamless OCTG(1), 60% Russian seamless OCTG and 17% of the U.S. OCTG market in 1H 2010 Global market leader Growth potential and deleveraging Vertically integrated low cost producer Strategic supplier to the oil & gas sector Favourable industry dynamics  Strong steel pipe industry fundamentals driven by robust demand for oil & gas  Consolidated industry with significant barriers to entry  Demand for seamless OCTG expected to experience significant growth  Approximately 75% of 1H 2010 shipments went to the oil & gas sector in 1H 2010  Strategic partnerships with oil & gas majors  Ongoing cooperation with multinational oil & gas companies  Structural cost advantages over major international competitors  Fully vertically integrated seamless pipe production (upstream and downstream operations)  Strategic Investment Programme (2004-14) aimed at 48% capacity increase  Ability to efficiently integrate acquired businesses and realise synergies  Commitment to maintain and improve credit ratings Revenue, US$ mln EBITDA, US$ mln Key performance figures 3,402 200620072008 2009 5,690 4,179 3,461 800 920 1,047328 Notes: (1) OCTG - Oil Country Tubular Goods 1 1H 2010 2,566 415

3 Production & Services Marketing subsidiaries & representative offices Seversky Volzhsky Tagmet Cologne Astana Dubai Ashgabat Kaztrubprom Moscow RosNITI Sinarsky Artrom Resita Beijing Singapore Houston Chicago Lecco Zurich Camanche Baku Ambridge Baytown Blytheville Odessa Wilder Geneva Koppel Catoosa R&D Brookfield Cape Town Global Operational and Sales Footprint Capacity (tonnes)North America EuropeRussia and CIS Steelmaking 450,000 2,450,000 Seamless pipes 300,000200,0002,420,000 Welded pipes1,150,0002,200,000 Heat Treat 441,0001,500,000 Threading 741,000*1,560,000 Calgary Source: TMK accounts Steel tubular industry leader TMK’s strategic positioning made it the steel tubular industry leader, with nearly 4 million tonnes sold in 2010. 2 Note: *Does not include ULTRA Premium connections of 520,000 joints

4 PROPRIETARY & CONFIDENTIAL 3 Global Leader in Cost Efficiency Russia is one of the lowest cost regions for steel production Source: TMK data (1H’10 - 2009 estimates) * Cash cost per tonne is calculated as (cost of sales minus depreciation) divided by sales volumes 1H’10 Cash Cost per tonne (US$) Gas price, US$/’000 m 3  88 in Russia  400 in Europe Low gas prices Labor cost, US$/’month  768 TMK  750 Russia  4,200 U.S.  5,900 Germany Favorable unit labor cost Scrap purchase price, US$/’tonne  350 TMK  410 Shredded FOB Rotterdam  545 DRI Low raw materials costs Electricity prices, US$/MWh  80 Russia  100 China  90 U.S.  100 Germany Low regulated energy prices 3

5 PROPRIETARY & CONFIDENTIAL Segmenting the Global Pipe Market Consolidated industry with significant barriers to entry TMK Shipments by Industry (2009) Source: Company data and estimates, industry sources, WSA, World steel in figures World Tube Market Segmentation (2009) Seamles s World Steel Industry Market Concentration (2009)World Seamless OCTG Market Concentration (2009) POSCO 2.5% Others 82.5% Arcelor Mittal 6% Baosteel 3.2% Hebei Iron & Steel 3.3% Wuhan Iron & Steel 2.5% Others 24% TMK (13%) OCTG 7% Line Pipe 3% Industrial 18% LD Welded 17% Welded Line Pipe 4% Welded OCTG 2% Industrial Welded 49% Oil & Gas 67% Other 12% Construction and Public Utilities 16% Machine Building 5% Top 6 76% 4 Highly Consolidated Pipe Industry TMK’s product mix is geared to meet the needs of the energy industry

6 PROPRIETARY & CONFIDENTIAL Western Siberia Conventional Regions Unconventional Regions Caspian Eastern Siberia Volga Sakhalin Arctic offshore Timan Pechora Production data, million tonnes2007200820092010F2011F2012F Western Siberia 337.7 333.6 330.7 325.6 319.1 312.7 Volga-Urals 105.1 106.7 107.7 105.0 102.4 Timan-Pechora & Kaliningrad 28.0 29.1 29.0 Far East 15.0 13.8 16.0 17.0 19.0 22.0 Eastern Siberia 0.5 6.0 17.5 25.5 31.5 North Caucas & Precaspian 5.0 4.8 5.7 6.6 7.3 Total oil production 491.3 488.5 494.2 502.5 504.2 504.8 The increasing complexity of oil and gas production in Russia is expected to increase demand for higher value-added products Russian Drilling - Moving East for Growth 5 Source: TMK estimates, VTB Capital Meters drilled

7 PROPRIETARY & CONFIDENTIAL Nord Stream South Stream Altai Project ESPO -2 Western Siberia Oil Pipelines Gas Pipelines Caspian Barents Sea Ukhta Yamal Europe Murmansk – Volkhov Sakhalin – Khabarovsk – Vladivostok Eastern Siberia Vyborg BTS-2 Shtokman Timan Pechora TBP Yamal Large-diameter pipe demand to remain robust as regions of production continue to move further away from consumption centres Russian LD Demand Drivers TMK 9M’10 Gazp Sakhalin-Khabarovsk- Vladivostok79,138LSAW GazpMaintenance74,434SSAW TranESPO-257,555LSAW GazpPochinki-Gryazovets55,386SSAW TranBTS-240,484LSAW TranPurpe-Samotlor22,917LSAW GazpBovanenkovo-Ukhta15,151 (+47,000)LSAW Gazp/TranMaintenance17,153LSAW GazpNordStream4,394LSAW GazpNordStream2,552SSAW GazpUrengoy3,270SSAW Gazp Sakhalin-Khabarovsk- Vladivostok689SSAW Estimated Russian LD Demand 2011- 2015 GazpMaintenance2,400 GazpGazprom Misc. Projects1,700 GazpYakutiya-Vladivostok1,500 GazpAltai1,500 GazpBovanenkovo-Ukhta-21,100 GazpUkhta-Torjok-2800 GazpMurmansk-Volkhov600 TranTengiz-Novorossisk580 GazpShtokman550 GazpSouthStream500 TranTransneft500 GazpLukoil (subsea)300 GazpBlueStream250 TranKharyiaga-Indiga224 TranSyzran-Novorossisk190 TranZapolarye-Purpe150 TranTrans Balkan Pipeline95 GazpLukoil (land)50 Pochinki – Gryazovets Purpe - Samotlor Tengiz Novorossisk Urengoy Yakutsk Syzran Kharyiga Indiga Beregovaya Blue Stream Bovanenkovo TonnesType K Tonnes 6 Source: TMK estimates, Gazprom

8 TMK IPSCO – US Market Penetration 7 Baytown, TX Ambridge, PA Wilder, KY Houston, TX Koppel, PA Geneva, NE Catoosa, OK Blytheville, AR Odessa, TX Camanche, IA Marcellus Haynesville Barnett Major Gas Shale Plays Steel Welded Seamless Finishing Fayetteville Source: TMK, as of September 2010, Energy Information Administration Barnett- Woodford New Albany Antrim Eagle Ford Woodford Gammon Hilliard-Baxter- Mancos Brookfield, OH Major Oil Shale Plays Bakken Niobrara

9 PROPRIETARY & CONFIDENTIAL 88 Source: TMK & industry estimates, Baker Hughes (months) (active rigs) US Drilling – Stronger than Ever Oil drilling and liquids rich gas plays have kept activity levels on the rise Vertical - 32% Horizontal - 55% Directional - 13% Gas Oil Drilling activity brought months of OCTG supply back to normal. Premium tubular content increasing with unconventional drilling activity.

10 PROPRIETARY & CONFIDENTIAL 9 Source: EIA Short Term Energy Outlook November 2101, Reuters News Service, CME Group, Credit Suisse The industry has traditionally viewed $5 to $6 as the economic drilling price of gas, but a recent study estimates surprisingly low break-even costs for the major shales. Lower Break-even Costs Encouraging Drilling Lower break-even costs will allow the higher rig count to continue despite lower natural gas price forecasts. 9

11 PROPRIETARY & CONFIDENTIAL Shopping Spree Major Gas Shale Plays Source: Price Water House Coopers, Wood Mackenzie, Reuters News Services 10 Major Oil Shale Plays Chevron Corp., agrees to buy Atlas Energy Inc. for $3.2 billion, giving it access to the Marcellus. Q4 2009, ExxonMobil’s $41 billion acquisition of XTO Energy. Reliance Industries commits $2.8 billion gains to access the Marcellus shale in Pennsylvania with Atlas Energy, and the Eagle Ford shale in Texas with Pioneer Natural Resources. STATOIL of Norway agreed to pay $843 million to set up Eagle Ford JV with Talisman Energy Inc. Royal Dutch Shell offers $4.7 billion for Marcellus shale gas specialists, East Resources, Inc. CNOOC offers $1.08 billion for a one-third stake in Chesapeake Energy Corp.’s Eagle Ford project. Over $60 billion in shale M&A activity over the last twelve months Marcellus Haynesville Barnett Fayetteville Barnett- Woodford New Albany Antrim Eagle Ford Woodford Gammon Hilliard- Baxter- Mancos Bakken

12 PROPRIETARY & CONFIDENTIAL 11 Growth and Added Value Production Seamless Threading Heat Treating ’10/’05, % 49%49% 166% 110% Premium Connections - Longitudinal large diameter Steelmaking Target/’10, % Target capacity * - 43% 21% 9% 23% - 10% 3,670k tonnes 2,300k tonnes 1,880k tonnes 450k tonnes 650k tonnes 3,700k tonnes * : TMK estimates 3,035k tonnes 2,103k tonnes 1,530k tonnes 330k tonnes 2010 650k tonnes 3,350k tonnes 2,040k tonnes 790k tonnes 730k tonnes 2005 2,350k tonnes - - 37%

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