Big Oil's Big Problem: Increasingly Expensive Production Costs

The world’s major oil companies all suffer from some version of the same problem: They’re spending more money to produce less oil.

Published: 01-Feb-2014

Some of the world’s largest oil companies are reporting pretty ugly earnings. Profits at Exxon Mobil (XOM), the biggest U.S. oil company, are down 27 percent off its worst fourth-quarter earnings in four years. Royal Dutch Shell (RDS.B), Europe’s biggest oil major, saw its profits tumble 48 percent.

Chevron (CVX) reports on Friday, but given some of the issues it has faced maintaining production levels, there’s not a lot of optimism out there. ConocoPhillips (COP)reported a 74 percent jump in fourth-quarter net income, mostly from all the “non-core”assets it has unloaded recently. Production from continued operations is well below where it was a year ago.

In a way, the world’s major oil companies all suffer from some version of the same problem: They’re spending more money to produce less oil. The world’s cheap, easy-to-find reserves are basically gone; the low-hanging fruit was picked decades ago. Not only is the new stuff harder to find, but the older stuff is running out faster and faster.

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