A sign hangs at an Exxon Station July 31, 2008 in Miami, Florida. 
A sign hangs at an Exxon Station July 31, 2008 in Miami, Florida.  - 
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Quarterly earnings for Exxon Mobil weren’t as good as Wall Street types had expected. Exxon’s oil production is down. The world's largest publically-traded oil company is struggling to tap new reserves to boost production -- a challenge facing all the big American oil companies.

Oil isn’t as accessible as it used to be.

“A lot of the low-hanging fruit with respect to oil production has long ago been picked,” says Morningstar equity analyst Allan Good.

Countries like China now have state-run companies to extract their own oil. So companies like Exxon have to search farther away, even if that means the ends of the earth.

Good says: “Whether it be in Argentina, or even west Siberia, there’s a lot of opportunity there.”

Opportunity, yes. But at a price.

For example, Exxon is exploring off-shore drilling in the Arctic Ocean.

“These are much higher costs than we’ve historically had,” Good says, 

New technology is helping -- kind of.

“Fracking has opened up new reserves to all the oil and gas industry,” says Scott Tinker, the state geologist for Texas. He researches oil and gas production for the University of Texas at Austin.

Hydraulic fracturing, or ‘fracking’ has a bad reputation with some environmentalists. And companies may have stayed clear of the practice to avoid negative p-r.

But if companies waited to invest in fracking, they’ve been penalized.

“It’s more expensive, typically, if you’re late to the game in a particular basin. The price has gone up,” says Tinker.

For big oil companies, fracking is actually the safe play.

Deep-water drilling is more risky.

“Off-shore wells cost tremendously more than an on-shore hydraulically fractured well. But they produce more,” says Tinker.

Despite all these challenges, Exxon has new projects that should come online in the next few years. And Exxon’s production is expected to increase going forward.

Analysts say the oil business will remain profitable.

Just less so.


Follow Jeff Tyler at @JeffMarketplace