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Major oil firms like Exxon Mobil Corp. (XOM - Analyst Report), Chevron Corp. (CVX - Analyst Report), TOTAL SA (TOT - Analyst Report), BP plc (BP - Analyst Report) and Royal Dutch Shell plc (RDS.A - Analyst Report) – collectively known as ‘Big Oil’ – continue to struggle to grow production despite spending billions in capital expenditures. Even as crude flirts with $100 a barrel price tag, output at the world's largest oil companies remain flat or declining.

Last year, the Irving, Texas-based oil and natural gas powerhouse Exxon Mobil’s production averaged 4,175 thousand oil-equivalent barrels per day (MBOE/d), down 1.5% from 2012, while another domestic behemoth Chevron’s total volume of crude oil and natural gas decreased by 0.5% from the year-earlier level to 2,597 MBOE/d.

European biggies Royal Dutch Shell and BP also reported falling production numbers. The Hague, Netherlands-based Shell’s upstream volumes in 2013 averaged 3,199 MBOE/d, 1.9% below the year before. Continental rival BP suffered output shrinkage in 2013 as well, with volumes falling 2.7% to 2,256 MBOE/d.

France-based TOTAL was the only company to buck the southward trend, as hydrocarbon production during 2013 averaged 2,299 MBOE/d, essentially flat with 2012 levels.

But overall, most ‘Big Oil’ is suffering from marginal or falling returns even as crude prices stay strong, reflecting their struggle to replace reserves, as access to new energy resources becomes more difficult. As it is, given their large base, achieving growth in oil and natural gas production has been a challenge for these companies over the last many years.

If that was not enough, Big Oil has been left bleeding by skyrocketing capital expenses.

Both Exxon Mobil and Chevron have pegged their 2014 capital budgets at around $40 billion. Shell plans to spend $37 billion this year, while BP and TOTAL will be shelling out roughly $25 billion each.

Therefore, one can conclude that the big energy companies’ huge exploration and drilling expenditure has failed to augment output. With fewer oil and gas to sell, the firms are not being able to generate enough cash from operations to take care of their rising spending and shareholder payouts. This has forced most of them to take more debt in the face of slipping cash balance.

Though the situation is no cause for alarm, it does raise some questions regarding the companies’ ability to finance shareholder returns. Notwithstanding the fact that almost all components of Big Oil hiked their dividends recently, there is no doubt that their balance sheets are under pressure from spiraling capital spending and shareholder distributions.

Therefore, it is of paramount importance that the likes of Exxon Mobil, Chevron, TOTAL, Shell and BP reign in their spending in the coming years. There are already indications that drilling expenditures have peaked, with huge budgetary jumps likely to be a thing of the past.

Big Oil investors will also be closely tracking their production curves, which despite being on a freefall now, is likely to increase over the next few years as new projects come online.

Till then, these companies – all carrying Zacks Rank #3 (Hold) – may be considered as top defensive plays. Their diversified portfolio of assets, both in terms of businesses as well as geographic locations, helps them produce stable results throughout the commodity price cycle.

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