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America’s Oil Patch Loses Its Luster

The oil-field services sector is still humming along, but its clients are casting their gaze past America’s once-booming shale patch. U.S. benchmark natural-gas futures have been hovering just above $2 per million British thermal units recently, well below the $3.45 per million British thermal units that price producers say they need on average for drilling to be profitable, according to a first-quarter energy survey by the Kansas City Federal Reserve. Domestic oil-drilling activity has also been weak. The U.S. oil rig count has dropped almost every week since early February, according to Baker Hughes data. This might reflect caution and price sensitivity from private drillers, which had been quick to add rigs last year but were also quick to drop them when oil prices declined in parts of this year. After some steep cost inflation last year, break-even prices have risen for producers, according to Kansas City Fed survey results. Major international oil companies that previously held back on expensive, long-cycle offshore drilling projects have again embraced it after generating prodigious cash flows last year. Investors have become more receptive to such projects after Russia’s invasion of Ukraine highlighted the importance of energy security. Weakness in North American short-cycle activity notwithstanding, oil-field services firms’ unwavering pipeline of long-cycle contracts signal that the world’s producers, whether major European oil companies or national oil companies, are still in the fossil-fuel business for the long haul.



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