Exxon Mobil Corp (XOM.N), the world's largest publicly traded oil company by market value, posted lower-than-expected quarterly profit on Thursday as it failed to offset declining production but spent heavily to find fresh reserves.
The problem of declining production at legacy oil and natural gas wells has become endemic for multinational energy groups, which have tried to offset the trend by launching massive and risky exploration projects.
Exxon's oil and natural gas production dropped 1.8 percent in the fourth quarter from year-ago levels, with natural gas production falling around the world and oil output slipping in half the regions where the company operates.
The results reflected a "mediocre quarter" for Exxon, especially in international production, Edward Jones analyst Brian Youngberg said.
"They've lost momentum already, reverting back to declining production and stagnant earnings," Youngberg said.
Exxon rival Royal Dutch Shell Plc (RDSa.L) said on Thursday the fourth quarter was its least profitable in five years as its own production slipped.
To assuage Wall Street, Chief Executive Officer Rex Tillerson promised in a statement that the company will ramp up exploration projects over the next two years to find newer reserves.
Exxon spent $42.5 billion in 2013 on exploration and other capital projects, a staggering sum that led Tillerson to admit last year: "I never would have dreamed we'd be spending at this level.
Exxon's liquefied natural gas operation in Papua New Guinea should make its first deliveries by September, while expansions at the Kearl oil sands development in Canada and the Upper Zakum oil project in Abu Dhabi are underway, executives said on a conference call with investors.
The company also is expanding in U.S. shale formations, adding rigs in the Permian formation in Texas and running all rigs available in the Bakken formation in North Dakota and the Woodford Ardmore shale in Oklahoma.
These and other projects should help Exxon reach its goal of boosting annual oil and natural gas production 2 percent to 3 percent by 2017.
Investors said they supported the new exploration if it helps increase total production.
"If it's done in the context of normal exploration, or a change in the makeup of demand, that's probably a positive," said Oliver Pursche of Gary Goldberg Financial Services, who manages Exxon shares for clients. "If it's as a result of existing wells are drying up, that's a negative."
For the fourth quarter, Exxon posted net income of $8.35 billion, or $1.91 per share, compared with $9.95 billion, or $2.20 per share, in the year-ago period.
Analysts expected earnings of $1.92 per share, according to Thomson Reuters I/B/E/S.
Earnings fell in all of the company's units, including refining, where weaker margins eroded profit.
Refiners make more money when the price difference between various types of crude oil is wide. When the gap narrows in the price difference between West Texas Intermediate crude oil and Light Louisiana Sweet crude oil, as it has in recent months, costs tend to rise.
The company's chemical unit profit dropped slightly due in part to higher supply costs, especially for high-end specialty materials.
Separately, Exxon said it supports U.S. exports of crude oil, a potentially divisive issue in the country.
"We oppose any barriers or restrictions to free trade," David Rosenthal, Exxon vice president of investor relations, told investors on the call.
Shares of Exxon fell 0.8 percent to $94.32 in afternoon trading.
(Reporting by Ernest Scheyder in New York; Additional reporting by Anna Driver in Houston; Editing by Jeffrey Benkoe)