Tenaris SA (NYSE:TS) Q2 2020 Earnings Conference Call - Final Transcript
Aug 06, 2020 • 10:00 am ET
complying with government-mandated restriction on activity, support the medical response effort in our communities, accelerated digital integration and remote working protocols with our customers, adapt rapidly to an exceptionally low level of production and implement measures to reduce cost and working capital.
I would like to give a special mention and thanks to all our employees who have responded and adapted to the challenges that we are facing with exemplary resolve and solidarity in these difficult times.
Our second quarter results reflect the advances we have made in our plan to reduce structural costs and working capital and prepare ourselves for the market we see ahead. As we prioritize cash flow over operating results, we have reduced our level of operation well below that of our sales to reduce inventories, and we are incurring a higher cost of operation from sub-absorption of fixed costs as we do so. In the coming months, we will continue to generate cash flow from reduction in working capital.
We are currently more than halfway through our plan to reduce our fixed cost structure by around $220 million by the year-end. And the savings are beginning to be reflected in these results. We're also applying suspensions and adjusting our workforce in accordance with the local realities of our operation around world while retaining the key people which we will require once the markets start to recover.
We significantly reduced our level of capital expenditure to $46 million during the quarter. We are maintaining investment in what we consider essential element for our long-term objective and particularly in environment and in safety. In safety, we have made good results in the last quarter, and we are proud of the continued improvement in our safety investment -- in our safety indicators so far this year and our effort to maintain a COVID-19 free working environment.
Our sales during the quarter were deeply affected by the rapid decline in drilling activity in the US and Canada, the impact of the pandemic and collapse in drilling activity in Argentina and Colombia as well as an ongoing slowdown in Mexico. With our Rig Direct model, our OCTG sales in these countries adjust almost immediately with changes in the drilling activity.
In the US, there are large inventories overhang, and wells drilled and awaiting completion and in oil [Indecipherable]. OCTG inventories have risen to around 15 months of consumption, and this is impacting the demand level and pricing. Our sales in the Middle East and offshore are showing more resilience. This was a particularly good quarter for us in the Caspian and the North Sea. In the North Sea, we completed deliveries for the remaining wells in Culzean, began deliveries to the Glengorm development and recently won an award to supply exploration well for the Neptune, a rig field in Norway. These are all very complex developments, and our success has been built on the outstanding performance of our product and the benefit of our Rig Direct service.
In the Gulf,