Massive oil profits may not last

Although industry leader Exxon  has long shown extraordinary discipline in finding more oil year after year, rivals like Shell and Chevron  are lagging badly. Despite earning $14 billion last year, most of Chevron's production and reserve increases came from its acquisition of Unocal, not what oil insiders call 'the drill bit.' And while Royal Dutch Shell  earned more than $25 billion, its daily production fell from 3.7 million barrels a day in 2004 to 3.5 million last year. Even worse, the Anglo-Dutch giant replaced only 70% to 80% of the oil it pumped out of the ground, despite spending billions on new projects.

"This is the big story for these companies," says veteran industry consultant and occasional gadfly Matthew Simmons. "They're so big, they're having a very hard time growing. The only thing they really know how to do well is buy back stock." Simmons, it should be noted, is convinced the world is entering a period of tight oil supplies that will drive prices much, much higher. That's debatable -- but he's on to something here. Because if the oil giants can't find new fields, going forward they'll essentially be liquidating the source of future profits. Smaller, independent oil firms have had much more success in growing production, which leads Simmons to wonder if maybe the giants wouldn't be better off splitting themselves up. "I think one of these days, one of the Big Oil companies is going to break itself up like AT&T and the Baby Bells."

Oil analyst Neil McMahon of Sanford Bernstein agrees the production numbers are a challenge, although he's a bit more sanguine about the future of Big Oil than Simmons. "Still, at the end of the day, it's not great," he admits, adding that production schedules of big projects like BP's  Thunderhorse in the Gulf of Mexico and Chevron's Gorgon field off Australia have also been slipping.