The amount of available equipment in Canada has increased substantially over the past year, as the industry continued to respond to an undersupplied pressure pumping market during 2012. Despite the steady Canadian pressure pumping activity anticipated in 2013, increased supply is expected to result in a year-over-year reduction in pricing. However, most of the price declines occurred in the second half of 2012 and we do not expect any significant additional pricing decreases in Canada during 2013. Despite the relatively flat demand and increased supply, we believe the Canadian market is currently balanced and will remain so throughout 2013. We do not expect a meaningful increase in Canadian horsepower supply in 2013 and believe that sustained demand levels will keep the market in balance. However, our Canadian operations are significantly dependant on the capital budgets of our customers and changes to commodity prices. We will continue to closely monitor the Canadian market and react appropriately should market conditions change.
We expect 2013 first quarter activity levels to increase relative to the fourth of 2012 as we enter the busy Canadian drilling season; however, we do not expect first quarter activity levels to be as strong as the first quarter of 2012. As a result, we expect first quarter operating margins will be higher sequentially due to increased activity but lower year-over-year due to the declines in pricing and activity levels.
U.S. pressure pumping demand will continue to be driven by commodity prices and the cash flows and capital budgets of our U.S. customers. Based on the current commodity price and capital spending environment in the U.S., we are not expecting a significant change in 2013 pressure pumping demand relative to demand levels seen in the second half of 2012.
The U.S. pressure pumping market is currently oversupplied and as a result, we are not anticipating a meaningful amount of new horsepower to enter the U.S. market in 2013. There is potential for modest declines in available U.S. horsepower to occur in 2013 if equipment is redeployed out of North America and into international markets, and if older U.S. equipment is permanently retired; however, we are not expecting a significant drop in U.S. pressure pumping supply in 2013.
Given our expectation of a relatively flat supply and demand environment during 2013, we believe the U.S. pressure pumping market will remain oversupplied throughout the upcoming year; however, we do not expect the supply/demand imbalance to grow throughout 2013. That being said, the U.S. pressure pumping market can change quickly and we will continue to monitor commodity prices and the spending of our customers and react appropriately as market conditions change.
U.S. pricing declined substantially during the first half of 2012 as the market became oversupplied, but remained relatively flat in the second half of the year. We expect pricing to remain stable in 2013 given the expectations of a steady supply and demand environment in the U.S.; however, pricing could soften slightly in some of the more active oil and liquids-rich gas plays if equipment continues to be redeployed into these areas. In addition, approximately 60% of our active U.S. fracturing equipment is currently under contracts that will be expiring in 2013. We will be working with new and existing customers to obtain work for these crews as contracts expire. We expect to realize moderate pricing declines in 2013 due to the contract expirations but expect 2013 utilization of our U.S. fracturing fleet to remain consistent with 2012.
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