Exxon Mobil, Royal Dutch Shell Plc and other big oil groups reported higher profits on Thursday thanks to high crude prices and showed the only way to combat falling output was by reinvesting the cash in acquisitions and new ventures.
Investors have become increasingly worried in recent years about Western oil companies' inability to match natural field decline with new finds, in part because they are shut out of investing in the richest fields by countries such as Saudi Arabia and Russia.
Exxon, whose net income jumped 41 percent to $10.68 billion, said oil and gas production rose 10 percent in the quarter compared to the same period in 2010 -- entirely thanks to its purchase of XTO Corp for $30 billion last year.
On the other hand, Shell, which reported a 77 percent rise in net profit to $8.00 billion, saw production fall because it sold fields, while underlying output rose 2 percent.
While Exxon has bought growth via XTO, Shell is seeking to boost output by investing tens of billions of dollars in complex projects, mainly focused on converting natural gas reserves into liquefied natural gas or motor fuel.
It's the end of low cost oil and gas. I think we are going into a world where finding the oil and gas is going to be more complex. It needs more money, needs more investment, said Shell chief executive Peter Voser.
In the first half of the year, Shell started up three new projects, a Canadian oil sands venture and two gas plants in Qatar, in which it had invested $30 billion.
Tony Shepard, oil analyst at brokerage Charles Stanley, said these projects had above-average production lives, and could support a dividend increase next year.
Highlighting the challenge the industry faces in bringing new barrels on line, Norwegian oil company Statoil and Spain's Repsol said output fell.
Statoil's production fell 14 percent in the quarter to 1.69 million boepd, as it suffered from weak gas demand and delays to drilling in the Gulf of Mexico due to the slow start in issuing permits after the end of a drilling moratorium announced in the wake of the BP oil spill.
Statoil also cut its output forecasts for the full year, adding to investors' long-held fears about it being able to realize its growth ambitions.
Repsol said production fell 13 percent to 296,000 boepd following outages due to violence in Libya and delayed Gulf drilling. However, the company has made big finds in Brazil which could drive production higher in the medium term.
The companies also warned on rising costs. Statoil said its per barrel production costs rose 15 percent. Shell did not give a figure but the company's Chief Financial Officer, Simon Henry, said industry inflation was returning after a period where oil companies managed to squeeze suppliers.
SERVICES FIRMS BOOSTED
European oil services firms Technip and PGS delivered sturdy earnings growth and upbeat guidance on Thursday as the high oil prices stimulated energy companies' spending on the hunt for new reserves.
The search for oil and gas riches in offshore Brazil and Australia and the Gulf of Mexico fueled profit growth at Norwegian seismic explorer PGS and French contractor Technip.
Technip's recurring operating profit rose 9.4 percent to 175.6 million euros in the second quarter, while PGS posted a quarterly operating income that was up eightfold to $49 million, both beating analysts' forecasts.
Technip raised its full-year profit margin goal to 16.5-17 percent, from above 15 percent, in its subsea business, which supplies underwater pipelines to the offshore industry. It also nudged up its margin goal for onshore and offshore business, which include oil rigs and refineries, to 6.5-7.0 percent.
Looking forward, we see opportunities to expand in nearly all our markets, Chairman Thierry Pilenko said. A high and fairly stable oil price combined with an increasing demand for gas is driving upstream investments, while strategic and regional imperatives are supporting downstream spending.
CEO Jon Erik Reinhardsen said PGS was well on its way to achieving its target of full-year earnings before interest, tax, depreciation and amortization (EBITDA) of $500 million.
Shell's London-listed A shares were down 0.3 percent by 1408 GMT, broadly in line with the STOXX Europe 600 Oil and Gas index. Shares in Statoil were up 0.6 percent while Repsol, whose profits exceeded forecasts, were up 1.85 percent. Technip shares rose 2.4 percent and PGS shares rose 0.5 percent.
Shares in Exxon fell 1.8 percent to $81.78 on the New York Stock Exchange.
(Additional reporting by Victoria Klesty in Oslo and Jonathan Gleave in Madrid. Editing by Sophie Walker)