1
Company Presentation “Supplying the infrastructure for Russian oil & gas expansion”
2
Chelpipe today is the most modern Russian tube & pipe producer with a value-add OFS platform
Note: LDP = Large diameter pipe, defined as Ø of 508-1,420 mm with one or 2 welded seamsOCTG = Oil country tubular goods, wide variety of Ø seamless pipe
TPS divisionPipe division
OFS division
Pipeline bends and hubs
Electric submersible pumps (ESP) & motorsRange of OFS services
Pipeline construction
solutions
Oil & gas extraction/
delivery solutions platform
LDP
OCTG
3
Chelpipe benefits from integrated facilities that are strategically located in the industrial heartland of Russia
State-of-the-art new and
modernised production
facilities
Chelpipe production and distribution network
Source: Company data
OCTG & Industrial pipe manufacturing,
Pervouralsk
Electric submersible pumps and motors– ESP capacity: – ESM capacity:
DudinkaUsinsk
Nyagan
Kogalym
NizhnevartovskPervouralsk
Over 25,000 types of tube & pipe– Seamless capacity: – Welded capacity:
New Finishing Center New steel mini-mill
Pipeline bends– Hot bends capacity:
7,500 t
TPS manufacturing,Chelyabinsk
In-house scrap capacity up to 1.5 mil ton per year
Scrap collection & processing, Ural and Volga regions
Distribution network, 12 regions
OFS manufacturing,Almetyevsk
TPS: Production units
OFS: Drilling and geophysics
OFS: Service centers
Pipe: Production units
OFS: Production units
(ALNAS Service)
LDP & Industrial pipe manufacturing,
ChelyabinskNefteyugansk
Strezhevoy
Khanti-Mansiisk
Surgut
IzhevskAlmetyevsk
Burguslan
Fully owned warehouse and trading house network– 17 warehouses– 12 trading houses
Magnitogorsk
Moscow
Ukraine
Kazakhstan
Russia
St-Petersburg
Chelyabinsk Over 3,600 types of tube & pipe
– Welded capacity: – Seamless capacity:
New LDP shop– Capacity: 600 kt
6,900 units7,200 units
950 kt100 kt
1,000 kt 350 kt
4
Chelpipe — Russia’s most modern pipe mill and integrated tube & pipe service provider for the oil & gas industry
Strong future growth trajectory
6
Unique platform of pipe and OFS
products/services
7
Experienced management team
with modern business practices
8
Successfully completed transformational modernisation and acquisition strategy − state-of-the-art
asset base
1
Fast growing end-markets and attractive
industry position
2
Widest product platform with
unique capabilities
3
Blue-chip customer base with focus on
Russian oil & gas
4
Low cost position supported by strategic location
5
5
M&A growth strategy
Comprehensive investment program
Modernisation and formation of Chelpipe GroupIntegrated pipe mill with value-add OFS
offering
The Future…
Well-invested asset base as a result of a comprehensive investment program and a successful M&A strategy
2002
2002 to 2009 – modernisation
Reconstruction of existing shops
2009 – OCTG expansion
Commission new state-of-the-art
Finishing Center at PNTZ
2010 – LDP expansion
Commission new, state-of-the-art
0.6 mil ton LDP mill at Chelpipe
2010 – vertical integration
Commission new 1 mil ton state-of-
the-art EAF
Acquisition of PNTZ (2004 initial stake and 2006 remaining stake)
Acquisition of scrap supplier
Acquisition of ALNAS pumps and other OFS
service providers
2004 and 2006 – OCTG segment
entry
2008 to 2009 – vertical
integration
2008 – OFS segment entry
2010 – Bends platform
consolidation
Acquisition of TPS division1
2011 to 2012 – complete OFS modernisation and integration
Chelyabinsk Pipe Rolling Plant
Start transformation with $50 mil EBRD loan
Complete pipe, tube & OFS solutions provider
Vertically integrated, quality & cost leader
Reconstruction and expansion of ALNAS
facilities
Integration of OFS platform into group
2002
2011–2012
2004 2006 2008 20092010
1 Was acquired from an affiliate of Chelpipe and certain members of its Board of Directors and management were also members of Chelpipe’s management and Board of Directors before the acquisition
6
Most modern LDP shop in Russia with 18 key structural cost advantages designed into the 600 kt mill
Entry into new 1.42 m Ø one seam segment with up to 18 m length and 45 mm wall thickness
Strategic agreement with MMK – high-quality steel plate supplier Employees follow “white coat metallurgy” practices
LDP mill “Vysota 239”
ChelPipe has invested about $1.8 billion to create Russia’s most modern and integrated pipe and tube making complex
State-of-the-art pipe making in the 21st century
Own scrap network (+60 yards) with capacity up to 1 mil ton per year
Creates cost advantage vs. market purchases of ~$100 per tonMetal scrap yard
Own 1 mil ton electric arc furnace, casting high quality round billet for seamless pipe production
Significant expected cost advantage vs. market purchase of over $100 per ton
Running at world-standard labor efficiency with 318 employees1 mil ton EAF –Pervouralsk
Upgraded and expanded our OCTG product range
Full capabilities for quenching, tempering, threading, coupling production and sealing of joints
Capability to develop premium connections for growing Russian market
Finishing Center –Pervouralsk
Strong revenue growth through new capacity and products with higher unit prices
Significant cost reduction through backward integration for seamless pipe
Note: Capital expenditure calculated with average FX rate of 1$=28.66RUB (2007-2010); total figure includes remainder of 5 bil RUB contracted for 2011 (exchange rate used 1$=31.10RUB) 8
7
LDP “Vysota 239” shop – production of state-of-the-art LDP portfolio
New LDP “Vysota 239” shop in Chelyabinsk
“Vysota 239” benefits from 18
different cost advantages that ensure ability to
reduce mill costs over time
Most modern Russian LDP mill
State-of-the-art technical configuration and production facilities– Capacity: 600,000 ton per year– Employees: 1,000
Expands product offering platform for Russia’s oil & gas companies – One of two LDP producers in Russia with all three
technical capabilities Diameter up to 1,420 mm Length up to 18 m Wall thickness up to 45 mm
Launch: July 2010; full ramp-up: 2011 (coating line to be completed by 2012)
8
Finishing Center – high-margin, value-add product line expansion
New Finishing Center at PNTZ, Pervouralsk
Provides world class OCTG
product quality
Source: Company data1 Converted into $ at average exchange rate of 1$=30.05RUR in H1 2010
State-of-the-art technical configuration– Capacity: up to 115,000 ton per year (40,000 ton line
pipe for oilfield applications and 75,000 ton tubing and casing)
– Employees: 625
Modern, cost-efficient production facilities
Expands product range – including high-margin, value-add finishing, i.e. corrosion resistance, heat treating, enhanced threading capabilities, couplings– High margin products – ~ $1,1001 price per ton in H1
2010 Launch: May 2009; full ramp-up: during 2010
9
Low cost billet producer – minimal employee number compared to existing Russian steel mini-mills– Employees: 318
Vertical integration of billet production supported by in-house scrap supply capabilities
Substantial raw material cost savingsLaunch: October 2010; full ramp-up: 2011
Steel mini-mill with 1 mil tons annual capacity – vertical integration and production cost reduction
New steel mini-mill in Pervouralsk
State-of-the-art technical
configuration and production
facilities in line with international
safety and environmental
standards
10
We have the broadest product spectrum of all Russian mills with a range of unique capabilities
Russian market pipe demand breakdownChelpipe’s pipe end-market breakdown
SeamlessWelded
Pipe
dia
met
er
Large-Ø1,420 mm
Unique hair-thin
Ø~0.3 mm
One seam LDP up to 45 mm wall thickness, 18 m long
High pressure and corrosion resistant Inside and outside coated,
Wide Ø for oil & gas applications globally
Unique boiler pipe for power plants
Plane and spacecraft fuselage Unique helicopter blades Fluid tube for medical and
aerospace/defense applications
Strong base in oil & gasDiversified exposure across manufacturing sectors
Oil & gas56%
Equipmentmanufacturing
15%
Construction / maintenance
12%
Power 4%
Chemical andpetrochemical sector 2%
Other 11%
Chelpipeproduct range
90%
With new investments we can cover nearly all types of pipe demanded in Russia
Market share gains for Chelpipe in Russia
Chelpipe pipe product range
LDP24%
OCTG¹25%
Welded industrial34%
Seamless industrial7%
Range of construction and bearing products
Automotive Capital goods
Full product range for utilities
Other²10%
Source: Company data Source: Metal Bulletin Research, Russian Pipe Industry Development Fund¹ Includes 7% of seamless line pipe for OCTG applications and 18% OCTG (casing and tubing)² Includes drilling pipes, medium diameter welded pipes, cast iron pipes, cracking pipes
11
We serve a blue-chip Russian customer base with over 50% exposure to Russian oil & gas
National Russian oil and gas pipeline operators
Power and chemical industry
Nuclear
Aerospace
Automotive
Utilities
Industrial and energy customers
Range of unique special products
Full certifications for nuclear and power plant construction
Russian oil and gas companies
Long-standing relationship with Russian oil & gas sector
Participate in most major programs
All currently produced pipe and OFS products are industry accredited and approved by oil and gas companies
Over 50 year relationships
We enjoy a strong market reputation with 75% of pipelines constructed in the Soviet Union originating from our mills
Pipe customer breakdown by revenue
Source: Company data
Source: Company data
Transneft 17%
Rosneft 17%
Gazprom 15%Surgutneftegaz 8%Tatneft 4%
Lukoil 3%
Other 35%
12
Our TPS and OFS divisions provide extensive cross-selling opportunities in high-margin products
With our TPS division we intend
to leverage the strength of our
LDP products to generate
additional high margins
With our OFS division we
leverage our oil & gas pipe customer base and build on
our strong historic position
TPS Overview Strong potential growth factors
High value-add pipe bend produced in own shop
High-price pieces, each to unique specifications
Capacity of 7,500 ton of hot bends p.a.
Leverage knowledge of pipeline design to supply high margin pieces specific to each project
Significant growth prospects and strong position on new pipeline projects
Chelpipe has unique offering as only 3 close peers exist in Russia for hot bends and hubs
OFS Overview Strong potential growth factors
Historically largest Soviet ESP manufacturer
Strong brand reputation and service business with 6,000 wells under management
Strong capabilities to produce wide power range of ESPs (from 18m3 to over 500m³ daily output)
Intention to grow market share in Ni-resist cast iron pumps – Full new casting production line for Ni-resist cast
iron pumps already arrived at plant Improved product mix and Ni-resist segment
expansion with well known brand and only 2 main competitors
Sales to current customers using existing sales force
13
6 Russian oil & gas production and economic recovery fuel strong pipe demand
ChelPipe pipe sales volume (kt) Market CAGR 2009A – 2013E
9.6%1,2
5.3%1
12.8%1
8.1%1
LDPNew pipeline constructionRenewal of existing pipelinesFuture opportunities
OCTG:Oil productionCAPEX of oil majorsRussian drilling activity
Industrial seamless and industrial weldedMacroeconomic drivers: GDP, infrastructure construction, industrial productionPower generation capacity construction
530
908943
LDP OCTG1 Seamless industrial Welded industrial
Source: Company dataNote: Q3 2009 determined by subtracting H1 2009 from 9m 2009 and Q3 2010 determined by subtracting H1 2010 from 9m 20101 Tubing, casing and line pipe for OCTG applications2 Pipe volume is not accounting for intercompany pipe sales between ChTPZ and PNTZ; Consolidated figures are 1,839 kt in 2007, 1,473 kt in 2008, 527 kt in H1 2009, 819 kt in 9m 2009, 291 in Q3 2009, 1,113 kt in 2009, 708 kt in H1 2010, 1,065 kt in 9m 2010 and 357 kt in Q3 2010
Source: 1 Metal Bulletin Research2 CAGR 2010E-2013E – 9.6%, growth 2009A-2010E – 54.2%, CAGR 2009-2013E of 19.4%
843
631 601
717
54.2
%1,2
2007A 2008A 2009A H1 2010A
4,595
5,508
3,823 2,845 2,403
5,681 4,596 2,053
Pipe2
(kt)
Hot bends(kt)
ESP(units)
+19%
Q3 2010A
1,357
971
+23%
357
291
18
14
ChelPipe key financials, IFRS-consolidated ($mil)
2007A 2008A 2009A H1
2009A 9m
2009A
2009A2 H1
2010A 9m
2010A Q3
2010
Pipe volume (kt)1 1,851 1,475 1,131 530 821 1,131 717 1,074 357
Pipe volume % growth2 6.7% (20.3%) (23.3%) (53.2%) 55.0% 37.7% 19.2%5 49.8% - Avg. pipe selling price 1,441 1,668 1,180 1,169 1,233 1,180 1,501 1,551 1,651
Avg. pipe selling price % growth2 11.5% 15.7% (29.3%) (0.9%) 5.5% (4.3%) 30.1%5 3.3% -
Revenue 3,157 3,040 1,767 826 1,285 1,767 1,253 1,961 708
% growth2 40.9% (3.7%) (41.9%) (53.2%) 55.5% 37.5% 33.2%5 56.5% -
EBITDA reported3 457 (123) 153 51 136 153 305 440 135
% margin 14.5% (4.0%) 8.6% 6.2% 10.6% 8.6% 24.3% 22.4% 19.0% EBITDA adjusted4 476 301 265 128 223 265 256 414 159
% margin 15.1% 9.9% 15.0% 15.5% 17.3% 15.0% 20.4% 21.1% 22.4% EBIT adjusted4 421 220 191 94 170 191 213 349 136
% margin 13.3% 7.2% 10.8% 11.3% 13.2% 10.8% 17.0% 17.8% 19.3%
Capex 341 498 358 162 265 358 177 283 105
2007 – expansion year when Russian pipe industry reached peak production
Until mid-2008 ChelPipe on track
Growth resumed during 9m 2010
6 ChelPipe’s 9m 2010 results show strong improvement in performance
Source: IFRS accounts, Company dataNote: P&L items converted at average exchange rates of 1$=25.55RUB in 2007, 1$=24.87RUB in 2008, 1$=31.74RUB in 2009, 1$=33.27RUB in H1 2009, 1$=32.58RUB in 9m 2009, 1$=30.05RUB in H1 2010, 1$=30.18RUB in 9m 2010; Q3 2010 determined by subtracting H1 2010 from 9m 20101 Pipe volume is not accounting for intercompany pipe sales between ChTPZ and PNTZ; Consolidated figures are 1,839 kt in 2007, 1,473 kt in 2008, 527 kt in H1 2009, 819 kt in 9m 2009, 1,113 kt in 2009, 708 kt in H1 2010, 1,065 kt in 9m 2010 and 357 kt in Q3 20102 Growth in H1 2009 vs. FY 2009, 9m 2009 vs. H1 2009, FY 2009 vs. 9m 2009, 9m 2010 vs. H1 20103 EBITDA reported as defined by ChelPipe in IFRS accounts4 EBITDA calculation adjusted for impairment of assets, losses/gains on disposal of assets and subsidiaries, excess in share of net assets acquired in a subsidiary over purchase consideration, foreign exchange loss, share of profit of associates, other financial income/costs; Adjusted EBIT = Adjusted EBITDA – Depreciation & Amortisation
2007: Impairment of assets of $18 mil, loss on disposal of assets of $4 mil, excess in share of net assets acquired in a subsidiary over purchase consideration of $3 mil, foreign exchange gains of $0.5 mil, other fin. costs of $0.5 mil2008: Impairment of assets of $372 mil, loss on disposal of assets of $7 mil, gain on disposal of subsidiary of $3 mil, excess in share of net assets acquired in a subsidiary over purchase consideration $4 mil, foreign exchange loss of $62 mil, share
of profit of associates of $11 mil, other financial costs of $0.3 mil2009: Impairment of assets of $82 mil, loss on disposal of assets of $4 mil, gain on disposal of subsidiary of $3 mil, foreign exchange losses of $30 mil, share of profit of associates of $0.4 mil H1 2009: Impairment of assets of $64 mil, gain on disposal of assets of $0.1 mil, foreign exchange losses of $13 mil, share of losses of associates of $0.02 mil
9m 2009: Impairment of assets of $72 mil, gain on disposal of subsidiary of $3 mil, foreign exchange losses of $12 mil, share of losses of associates of $0.01 milH1 2010: Impairment of assets of $(6) mil, loss on disposal of assets of $1 mil, gain on disposal of subsidiary of $2 mil, foreign exchange gains of $48 mil, share of losses of associates of $3 mil
9m 2010: Impairment of assets of $(10) mil, loss on disposal of assets of $2 mil, gain on disposal of subsidiary of $2 mil, foreign exchange gains of $21 mil, share of losses of associates of $3 mil5 Growth in H1 2010 vs. H2 2009; H2 2009 determined by subtracting H1 2009 from FY 2009; Pipe volume for H2 2009 was 601kt, avg. pipe selling price $1,154 and revenue $940 mil
19
15
Integrated cross selling product platform with leading market share and global low cost position
TPSLDP OFS& +
Positioned for future outsourcing trend – global cost pressure will require Russian oil & gas companies to be more efficient and to seek outsourcing opportunities
Prepared for new oil & gas environment requiring higher product quality
Complete pipe, tube and OFS solutions provider with a 25% target share in Russian oil & gas markets
Vertically integrated, quality & cost leader
Complementary productplatforms
OFS provides additional product entry into the oil supply chain
Target
&OCTG