Turkey’s Borusan Mannesmann Boru Sanayi & Ticaret AS plans to expand its U.S. energy pipe business with a production plant in the country as new technology propels a surge in U.S. oil and gas production.
Borusan will invest $150 million to build the plant, which will be active in 2014 and generate revenue of $500 million to $600 million a year, the Istanbul-based pipe maker said today. The company is in talks with the states of Oklahoma and Texas for the location of the plant, Borusan Holding Chief Executive Officer Agah Ugur said at a press conference in Istanbul.
The announcement comes as U.S. oil output expanded this year by 766,000 barrels a day to 6.41 million barrels on average, the highest level in 15 years, according to a Dec. 11 report from the Department of Energy. With shale technology making it easier and cheaper to extract oil from rock formations, the U.S. is on pace to surpass Saudi Arabia as the world’s largest oil producer by 2020, according to a report by the International Energy Agency on Nov. 12.
“We decided to make this investment to benefit from the expected growth in the U.S. upstream energy market,” Ugur said today. “The energy pipe market in the U.S. will grow to 8.3 million tons in 2015 from 6 million tons last year.”
Borusan shares climbed 3 percent to 27.60 liras at 12:00 p.m. in Istanbul, rising the most on a closing basis since August 28. The shares have gained 29 percent this year, trailing a 51 percent increase on the Istanbul Stock Exchange National 100.
Borusan will establish the U.S. production facility “to serve rising demand from shale gas and oil production,‘‘ it said in a statement to the Istanbul Stock Exchange today. Borusan will produce so-called tubular goods, or pipes used in drilling for and extracting oil and gas trapped in geological rock via a process called hydraulic fracturing, or ‘‘fracking,’’ Ugur said.
Borusan Mannesmann reported earnings before interest, taxes, depreciation and amortization of $65 million on revenue of $796 million last year, according to data compiled by Bloomberg. The new plant will double Ebitda as it produces 300,000 tons of pipes per year, Ugur said.
U.S. producers have deployed as many as 1,432 rigs this year, the most since records began in 1987, according to data compiled by Bloomberg.
Borusan Mannesmann already accounts for 3.6 percent of the U.S. pipe import market, and sales to the world’s biggest market will double with the new plant, Ugur said. Borusan’s current production capacity is 1 million tons of pipe a year, making it one of the world’s leading producers in the steel pipe industry, according to the company’s website.
The company will shrink its conventional pipe business as it focuses on specialized pipes for the vehicle and energy industries, Ugur said. The plant will create 350 jobs in the U.S. and the company will finance two-thirds of the investment with loans from U.S. export bank facilities, state incentives and loans from U.S. banks active in Turkey, he said.