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On July 2, 2013, Barclays published a report titled, “A Pressure Pumping Recovery: The Biggest Surprise for 2013?” emphasizing the firm’s optimistic outlook on the improvement of the pressure pumping market despite the slower than expected growth in rig count.

James West, an analyst at Barclays Capital says spot commodity pricing has stabilized, and in some select cases actually moved up; the largest pressure pumpers are almost fully utilized; there is little to no pressure pumping supply coming into the North American market for the foreseeable future; and demand continues to rise.

Barclays believes this might be the biggest surprise of 2013 for North American oil services and drilling.070313BarlcyasRig

West says he believes the market is tightening and industry utilization for pressure pumping is approaching positive levels evidenced by two comments from two of the largest pumpers – Baker Hughes (ticker: BHI) and Halliburton (ticker: HAL). BHI believes industry utilization is near 75% while HAL believes industry utilization was closing in on 80%. West predicts that industry utilization above 80% will drive pricing up in the near-term. West went on to say HAL and BHI are expressing pressure pumping utilization rates around 90% and 75%, respectively.

The report recommends investors should shift their attention from well and rig count to well count, which has increased roughly 10% in Q1 and footage drilled, which also increased more than 10% in Q1.

“These metrics more closely approximate the demand for frac stages, which drive revenue for the pressure pumpers,” West said. “The number of active drilling rigs is a long-standing proxy for activity levels; however, for a number of products and service lines offered in onshore basins, particularly in the unconventional shales that now dominate the U.S. market, the active rig count is a misleading indicator,” West said.

For those that won’t look past traditional indicators such as rig count, Barclays believes gains in the rig count will accelerate in the second half of 2013 as North American operators spend at higher rates than previously expected. Additionally, sustained high commodity prices could lead to more upward revisions of E&P drilling budgets.070313BarclaysBudets

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Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable. This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note. This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results. EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services. In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies. As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note. EnerCom, or its principals or employees, may have an economic interest in any of the companies covered in this report or on Oil & Gas 360®. As a result, readers of EnerCom’s reports or Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.