Vallourec makes progress - signs new contract with Abu Dhabi National Oil Company - $900m over 5yrs

All,

Yesterday evening Vallourec announced a new 5yr Contract with ADNOC. This is positive news for the name especially in current oil price environment. This contract will be supplied out of European, Brazilian and Chinese mills..Our model already includes an uptick in Middle East demand. However, the large size of this contract should materially contribute to Vallourec’s chances of achieving the associated higher capacity levels and margins.

This is the largest contract Vallourec has signed and although no volume details have been released it confirms our model of growth in the Middle East segment of the business. We have modelled a $500m increase in Middle East revenue from H2 2020 onwards, with this contract representing 40% of that increase.

Our focus of analysis remains on any news flow from Petrobras and the overall Brazilian market. This is the main driver of growth in the 2020 and beyond period and Vallourec’s EBITDA growth is reliant on high level of CAPEX from Petrobras in the coming years.

We will be sitting down to discuss our strategy on this name in due course.

Tomas