By Ernest Scheyder
Jan 30 (Reuters) - Exxon Mobil Corp, the world'slargest publicly traded oil company by market value, postedlower-than-expected quarterly profit on Thursday as it failed tooffset declining production but spent heavily to find freshreserves.
The problem of declining production at legacy oil andnatural gas wells has become endemic for multinational energygroups, which have tried to offset the trend by launchingmassive and risky exploration projects.
Exxon's oil and natural gas production dropped 1.8 percentin the fourth quarter from year-ago levels, with natural gasproduction falling around the world and oil output slipping inhalf the regions where the company operates.
The results reflected a "mediocre quarter" for Exxon,especially in international production, Edward Jones analystBrian Youngberg said.
"They've lost momentum already, reverting back to decliningproduction and stagnant earnings," Youngberg said.
Exxon rival Royal Dutch Shell Plc said on Thursdaythe fourth quarter was its least profitable in five years as itsown production slipped.
To assuage Wall Street, Chief Executive Officer RexTillerson promised in a statement that the company will ramp upexploration projects over the next two years to find newerreserves.
Exxon spent $42.5 billion in 2013 on exploration and othercapital projects, a staggering sum that led Tillerson to admitlast year: "I never would have dreamed we'd be spending at thislevel."
Exxon's liquefied natural gas operation in Papua New Guineashould make its first deliveries by September, while expansionsat the Kearl oil sands development in Canada and the Upper Zakumoil project in Abu Dhabi are underway, executives said on aconference call with investors.
The company also is expanding in U.S. shale formations,adding rigs in the Permian formation in Texas and running allrigs available in the Bakken formation in North Dakota and theWoodford Ardmore shale in Oklahoma.
These and other projects should help Exxon reach its goal ofboosting annual oil and natural gas production 2 percent to 3percent by 2017.
(BREAKINGVIEWS - Exxon outlays should pump up 2014 afterdown year: )
Investors said they supported the new exploration if ithelps increase total production.
"If it's done in the context of normal exploration, or achange in the makeup of demand, that's probably a positive,"said Oliver Pursche of Gary Goldberg Financial Services, whomanages Exxon shares for clients. "If it's as a result ofexisting wells are drying up, that's a negative."
For the fourth quarter, Exxon posted net income of $8.35billion, or $1.91 per share, compared with $9.95 billion, or$2.20 per share, in the year-ago period.
Analysts expected earnings of $1.92 per share, according toThomson Reuters I/B/E/S.
Earnings fell in all of the company's units, includingrefining, where weaker margins eroded profit.
Refiners make more money when the price difference betweenvarious types of crude oil is wide. When the gap narrows in theprice difference between West Texas Intermediate crudeoil and Light Louisiana Sweet crude oil, as it has inrecent months, costs tend to rise.
The company's chemical unit profit dropped slightly due inpart to higher supply costs, especially for high-end specialtymaterials.
Separately, Exxon said it supports U.S. exports of crudeoil, a potentially divisive issue in the country.
"We oppose any barriers or restrictions to free trade,"David Rosenthal, Exxon vice president of investor relations,told investors on the call.
Shares of Exxon fell 0.8 percent to $94.32 in afternoontrading.
