ExxonMobil (NYSE:XOM), the world's largest publicly traded oil company, reported first-quarter earnings on Thursday. Net income came in at $9.5 billion, or $2.12 per share, up slightly from $9.45 billion, or $2 per share, in the year-ago period.  

Lower crude oil prices, which averaged $112.60 per barrel in the first quarter, about 5% lower than the same period last year, contributed to the company's flat profits. Exxon's chemicals and refining businesses had strong showings, however.

Relatively low natural gas prices in the U.S. drove profitability at its chemicals business, which reported a whopping 62% increase in profits compared with the same quarter a year ago. Similarly, profits at Exxon's U.S. refineries surged 72% from the year-earlier period to $1.04 billion, thanks to relatively cheap crude oil and natural gas feedstocks.  

Production declines a source of concern
But the more important revelation from the company's earnings report was the marked decline in oil and gas production, as well as the disparity between production and capital expenditures. Total oil and natural gas production fell by 3.5% from the year-ago quarter to 4.395 million barrels of oil equivalent per day, while Exxon's exploration and production unit's profit declined 10% to $7 billion.

Production declines come amid record capital spending, suggesting that more and more investment is needed to maintain current production levels. Last month, Exxon said it will raise capital spending to roughly $190 billion over the next five years, a level that's unprecedented even for the world's largest public oil company. Yet the company expects production declines to continue through the end of the year.

Through its unparalleled financial resources, Exxon has attempted to boost reserves and production by purchasing assets in various unconventional oil plays. Recent examples include its $1.6 billion purchase of Bakken shale assets from Denbury Resources (NYSE:DNR) in September, which increased the company's Bakken acreage by 50%, and its involvement with the Kearl oil sands project in Canada via its Canadian affiliate Imperial Oil.  

But despite the company's best efforts, results have proved largely disappointing.

A major challenge for the oil and gas industry
Exxon isn't alone in this regard. In recent years, most of the world's oil majors have seen declining or flat production growth, despite spending more and more money on boosting reserves and production. The main reason behind these diminishing returns is that new acquisitions haven't led to strong enough production growth to offset declining output from maturing fields.

For instance, ConocoPhillips (NYSE:COP), another massive U.S. oil company, saw production rise by just 1.2% in the first quarter. And for the full year 2013, Conoco's total production is expected to decline slightly to an average of between 1.485 million and 1.52 million barrels of oil equivalent per day, down from last year's average of 1.527 barrels of oil equivalent per day.

Similarly, French oil giant Total (NYSE:TOT) reported a 2% decline in production for the first quarter, which, along with falling crude prices, led to a 7% drop in its first-quarter profits compared with the same quarter a year ago.  

Going forward, I expect the trend of stagnant or declining production to continue for the foreseeable future. In my opinion, the reasons are structural: The marginal barrel of oil has become much more costly to extract, and the industry will continue to have to spend more and more money to yield additional oil output.

Fool contributor Arjun Sreekumar has no position in any stocks mentioned. The Motley Fool recommends Total and owns shares of Denbury Resources. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.