Letter to Shareholders

Dmitry A. Pumpyanskiy, Chairman of the Board

Dmitry A. Pumpyanskiy
Chairman of the Board
of Directors

Alexander G. Shiryaev, President and CEO

Alexander G. Shiryaev
President and CEO

Dear Shareholders,

In 2011, TMK continued both to grow and to deliver a better financial performance: revenues increased by 21%, EBITDA by 11% and net profit by 270%.

TMK is once again ranked first globally by volume of pipe products shipped. We have greatly expanded our product mix and geography of sales — delivering pipe to more than 80 countries — and increased the share of high-tech oil and gas pipes in the total volume of pipe shipped.

The share of OCTG and line pipe thus increased from 56% to 59% and shipments of TMK’s family of Premium Connections and ULTRATM Premium Connections increased by 18.9% over 2010. Exceptionally strong results were demonstrated by our European division which increased the share of highmargin orders for industrial heat-treated alloy pipe in its portfolio. Together with other factors, this contributed to a record growth of annual revenue and EBITDA among the Company’s divisions by 46% and 121%, respectively. We also took positive steps to optimize the company’s debt portfolio with a decrease in both the level and the cost of servicing the debt. The debt structure also improved, with the share of short-term loans falling to 14.7%, which allows us to comfortably carry out further refinancing in 2012. The current level of debt does not hamper the company’s growth. Having completed most of TMK’s strategic investment program, we do not expect capital expenditures to increase significantly in the near future.

By making increased business profitability a strategic priority, we are focusing strongly on the expansion of the Premium segment of our business. This will also enable us to meet the increasingly stringent demands of customers around the world as they explore and develop under more complex hydrocarbon extraction conditions. We are continually working closely with our customers to better understand their needs; in particular, we have developed four new gastight Premium Connections. TMK PF connections for casing and tubing, as well as ULTRA-QXTM connections have been certified according to the leading international ISO 13679:2002 CAL IV standard. We made our first deliveries of 13Cr steel casing and tubing with Premium Connections to Gazprom and Rosneft, and we shipped gas-tight, coldresistant tubing with Premium Connections to Gazprom. In the U.S., our ULTRA Premium Connections are designed for a large part of the market for tubular products used in the extraction of shale gas. We have plans to increase our market presence in the Canadian oil sands and we have also begun supplying pipe to offshore projects in the Gulf of Mexico, Latin America, Southeast Asia and Russia.

In parallel with the development of an international network of licensees to thread our Premium Connections, we are also building our oil and gas services business to better meet the needs of customers. TMK technicians assist with the running of pipe in customers’ oil and gas wells, train customers to handle Premium products and provide instruction to the service departments of oil and gas companies.

Despite these achievements, we do not intend to rest on our laurels, for there are still many challenges that lie ahead. These include further expanding the company’s position on the global Premium products market, developing innovative products, improving operational efficiency, accelerating the return on investments, strengthening quality control and safety, and further developing research activities.

The launch of the new R&D Center in Houston, Texas (USA) in the summer of 2012 will have a positive effect on TMK’s position in the global high-tech steel pipe market. At this center, we will be able to develop, test and certify new products, which will accelerate the journey from product creation to market delivery. In 2011, RosNITI, our Russian research institute, was active in the development of high-tech Premium products and the institute has plans for some 180 projects in 2012. In order to improve manufacturing processes and to reduce costs we have successfully implemented a system of continuous improvement that is based on the internationally recognized Lean Six Sigma methodology.

In 2011, the company continued its capital expenditure program. The main targets were an FQM continuous pipe-rolling mill at Seversky Tube Works (Russia) and a steelmaking unit with electric arc furnace at TAGMET (Russia). In 2011, other implemented capital projects included a shop to produce vacuum insulated tubing (VIT) at the Sinarsky Pipe Plant (Russia), a coating line and a pipe packaging and labeling unit at TAGMET, a line for the manufacture of casing with Premium Connections at the Orsk Machine Building Plant (Russia), and a second line to produce ULTRA Premium Connections at TMK IPSCO’s facility in Brookfield, Ohio (USA). In 2012, we will continue work on two major projects at TAGMET and Seversky Tube Works. Investments will also be focused on expanding heat treatment and threading capacities at TMK IPSCO facilities in the U.S.

An important priority of our strategic capital program is the gradual decommissioning of outdated equipment and the transition to the best available technology. Thus in 2011, our efforts were focused on improving the environmental safety of manufacturing processes, reducing the consumption of natural resources and minimizing waste products. Moreover, the use of innovative TMK products for hydrocarbon extraction can significantly improve efficiency and environmental safety. The use of ULTRA Premium Connections has contributed to a fundamental change in the U.S. energy mix in favor of natural gas — a cleaner energy source. In Russia, the use of TMK-manufactured vacuum insulated tubing (VIT) in fields in the permafrost zone avoids thawing and ground collapse around wells, as well as reducing materials consumption per well.

As before, in 2011 we attached great importance to our human resources and social policies. We actively carried out re-training and staff development at all levels and we continued to implement corporate programs related to pensions and medical care.

In developing our business, we remain guided by principles of informational and financial transparency and we continue to adhere to advanced standards of corporate governance as reflected in the constructive interaction between TMK’s management and the Board of Directors and its committees.

Today, TMK’s multinational team is striving to strengthen the Company’s position as one of the world’s largest producers of steel pipe for the oil and gas industry and we have set for ourselves the challenges of becoming a global leader in terms of financial performance, as well as improving operational efficiency and product quality.

All this will serve as a solid foundation for further growth in shareholder value at TMK and the company’s sustainable development as an integral part of the global oil and gas industry.

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