Vallourec reports earnings loss in first quarter 2016

Staff report

YOUNGSTOWN

France-based Vallourec reported adjusted first-quarter earnings in the negative Tuesday.

The company that operates Vallourec Star on Martin Luther King Jr. Boulevard saw a loss of $82.7 million in the first quarter, compared with a gain of $60.9 million reported in the first quarter of 2015.

Revenues for the first quarter of 2016 were $771.4 million, a 36.2 percent drop from the first quarter of 2015 revenues of $1.2 billion.

“As expected, the first quarter of 2016 was marked by a decrease in volumes,” said Philippe Crouzet, chairman of the management board. “This new record-low level illustrates the extent of the crisis the oil and gas markets are going through.”

Vallourec operates in 20 countries, supplying the energy markets and industrial industries with tubular solutions.

The company has seen a consistent impact on its earnings from the downturn in the energy industry. The price of oil has dropped from more than $100 a barrel reported in June 2014 to $43.65 for a barrel for West Texas Intermediate oil, a benchmark for pricing in the industry, as of May 3, 2016; and $45.22 for a barrel of Brent oil, another benchmark, according to Bloomberg.

The cost of oil dropped because of an oversupply in the market. OPEC did not yield to cartel members who wanted more profits and market share. OPEC’s leader, Saudi Arabia, typically would have cut production to prevent a price collapse, but didn’t.

Locally, Vallourec Star, a $1.1 billion plant that opened in 2013, produces small-diameter pipe for the oil and gas market. Hit by the dramatic dip in energy prices, Vallourec Star has had several workforce reductions since 2015. The company cut about 80 jobs in August and about 100 more a few months later.

Vallourec’s revenues in just oil, gas and petrochemicals were $539 million, down 34.8 percent from the first quarter of 2015. The power-generation industry saw a 40.6 percent drop in revenue, and other markets had a 38.4 percent drop in revenue.

Vallourec has total long-term confirmed credit lines of $2.6 billion and benefits from a three-year extension of a short-term credit line for $80 million on its U.S. subsidiary Vallourec Star; and new credit of $517 million maturing in 2020, the company said.

Second-quarter 2016 revenues and results are expected to be better than in the first quarter as a consequence of the concentration of orders to be delivered.

Specifically, in the U.S., operators are expected to continue cutting costs and reducing activity this year, which translates to a low demand for tubes.

“Our market environment will be difficult in 2016,” Crouzet said in a statement. “However, the long-term prospects of our industry remain positive, and we are activating every possible flexibility and transformation lever.”