While overall oilfield activity moderated in the first quarter, a result of both normal seasonal patterns and a reduction in natural gas drilling and completion activity, Flotek's business continued to show solid signs of growth. While we are slightly less sanguine on growth in 2012 – a result of our view of commodity prices, especially natural gas – the Company remains optimistic it will see opportunities for growth for the balance of 2012.
Chemicals revenue for the three months ended March 31, 2012 totaled $47.7 million, an increase of $20.8 million, or 76.9%, compared to $26.9 million for the three months ended March 31, 2011 due to increased oil-directed and liquid-rich natural gas drilling activity driven by increased global crude oil prices and stabilized liquid-rich natural gas prices. Increased product sales volume of stimulation chemicals accounted for approximately $20.0 million of the period over period increase. Strategic adaptation of proprietary natural gas effective complex nano-fluids to oil effective Complex nano Fluid's® in conjunction with new and existing customer's increased demand, domestic and international market penetration and industry growth, particularly within the Bakken and Niobrara liquid rich shale plays were positive contributors to the increase. Further, cross-marketing sales efforts resulted in increased industry recognition of proven production efficiencies and environmental benefits derived from the use of new and existing products and increased demand for CnF® product in both domestic and international markets. Strategic sales marketing efforts initiated in the latter half of 2011 enhanced customer awareness and demand for a broader range of products and services available within the Company's overall products and services portfolio.
Chemicals gross margin for the first quarter of 2012 increased $9.6 million, or 85.1% and increased 1.9% as a percentage of revenue as compared to the first quarter of 2011. The period over period increase is primarily attributable to cost management initiatives and vendor pricing negotiations which resulted in raw material price reductions and purchasing efficiencies in 2012. Income from operations increased $8.6 million, or 100.9%, period over period due to increased product sales and service volumes and improved pricing."We are pleased with the performance of our Chemicals business, especially the improvement in margins related to both pricing strength and a reduction in input costs," added Chisholm. "As we pledged in 2011, we have worked diligently with our suppliers to rationalize our cost structure and appreciate the willingness of our supply partners to work with Flotek as we continue to grow key supplier relationships. While we are not anticipating meaningful near-term pricing increases we do expect both scale and cost controls to have a positive impact on margins for the balance of 2012."
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