(Adds chairman comment, Petrobras background, share price)
By Andrew Callus
PARIS, June 10 Steel pipes maker Vallourec
warned on Tuesday that core profit would drop 10
percent this year as customers - mainly Brazilian state oil
company Petrobras - run down inventories to save
Petrobras alone will account for some 60 million euros ($82
million) of the slide in earnings before interest, tax,
depreciation and amortisation (EBITDA), which Chairman Philippe
Crouzet told reporters would amount to between 80 and 90
million. EBITDA was 920 million euros last year.
Crouzet said it would take Petrobras until about the end of
the year to run its pipe inventories down to nothing.
He said Petrobras was still committed to all high-value
deepwater oil projects and that the impact of the inventory
run-down would be a "one-off" for Vallourec.
The French company said that throughout Europe, Asia the
Middle East and Africa, the level of orders had also fallen as
other exploration and production companies adjusted their
inventories and delayed some tenders for premium products.
"This will impact deliveries through the end of the year and
in the first half of 2015," Vallourec said.
To mitigate the impact of both factors, Vallourec said in a
statement it would cut capital spending for this year by some
100 million euros from an initially planned 500 million.
"The group is facing a more challenging environment mainly
due to temporary adjustments by selected large customers, and
has taken immediate measures to adjust to this new situation,"
Crouzet said in a statement.
"Management remains convinced of the long-term
attractiveness of the global oil and gas end markets the group
Vallourec depends on Brazil for about 25 percent of its
sales, on Brazilian oil and gas for about 12.5 percent, and on
Petrobras itself for between 5 and 10 percent.
Petrobras is undertaking a $221 billion five-year oil and
gas capital investment programme but is struggling with high
debts from the spending and a lack of cash flow as it waits for
new production to come on stream.
Also weighing on its finances are the costs of state-imposed
fuel price controls under the government of President Dilma
Rousseff - a former Petrobras chairwoman - and a weakened real
About a month ago, Petrobras pledged to keep investment at
the same levels through 2014 and 2015 but to seek cost savings
at the same time.
"Recently they added to that this plan concerning their
stocks," said Crouzet. "They appear to intend to function with
Vallourec shares closed down 1.6 percent at 39.445 euros
ahead of the announcement on Tuesday.
($1 = 0.7345 Euros)
(Editing by James Regan)