The Biggest Oil Companies in the World are the Biggest Losers

Oil prices in the United States hover near $100 per barrel and overall domestic production of oil and natural gas is soaring. With all this in mind, you'd assume the environment would be ripe for Big Oil to produce gushing profits. However, over the last several quarters that's largely not been the case. ExxonMobil (XOM -2.74%), Chevron (CVX -0.05%), and Royal Dutch Shell (RDS.B) haven't capitalized on any of the several industry tailwinds that should seem to pave the way for solid growth.

Meanwhile, smaller competitors seem to be stealing Big Oil's thunder when it comes to the oil and gas revolution in the United States. While it may be customary to assume Big Oil as the primary profiteers from the domestic oil and gas boom, smaller companies are simply outperforming their bigger brethren.

Big Oil blues
There are three major onshore shale plays in the United States that are pumping out huge amounts of energy resources. According to the United States Energy Information Administration, each of the Permian Basin, Eagle Ford, and Bakken fields is at or near one million barrels per day of production. This has caused domestic energy production to reach levels not seen in decades. And yet, the earnings reports from Big Oil over the past year are singing a much different tune.

ExxonMobil's net profit dropped 27% last year. Chevron and Royal Dutch Shell saw their own profits fall 18% and 23%, respectively, in 2013. It's true that a substantial portion of the integrated super-majors' results were weighed down by poor downstream performance, specifically because of severe refining woes. However, it's worth noting that the group's upstream results, which include exploration and production activities, are suffering as well. This is what is even more disturbing, given the boom in domestic oil and gas production in the major shale plays across the United States.

ExxonMobil appears to be the only one of the three doing well in the U.S. Its U.S. upstream earnings grew profits by nearly 7% last quarter thanks to rising domestic production. Chevron and Royal Dutch Shell, however, experienced worsening conditions in their U.S. segments.

Chevron's U.S. upstream earnings collapsed by 41% in the fourth quarter, and management specifically cited lower production as a primary culprit. Chevron produced 650,000 barrels of oil equivalents per day in the fourth quarter, down 4% from the same quarter the year prior.

Royal Dutch Shell completely whiffed in the U.S. and North America. Its Americas segment posted a $1.4 billion net loss in the fourth quarter and a $3.7 billion net loss for all of 2013.

Too big to grow?
Big Oil has proven to be unable to seize upon projects in the United States that meaningfully move the needle. Their U.S. operations are flailing, and massive under-performance in other parts of the world are bringing down overall results.

By comparison, smaller, more nimble domestic competitors are firing on all cylinders. For example, Hess Corp. (HES 0.01%) grew its adjusted fourth-quarter upstream earnings by $5 million. Hess is strongly increasing production in the Bakken, one of its biggest areas of production, which will drive further production growth in the years ahead. The company expects 15% production growth in 2014, and 5%-8% compound average annual production growth through 2017. Moreover, Hess recently upped its peak production guidance from the Bakken play, to 150,000 barrels of oil equivalents per day in 2018 versus prior guidance of 120,000 barrels per day in 2016.

You'd think members of Big Oil such as ExxonMobil, Chevron, and Royal Dutch Shell would be the first ones to feast upon booming oil and gas production in the United States. With their massive size and scale, Big Oil should have the financial wherewithal to pounce on the most promising developments in the U.S. And yet, profit and production growth mostly eludes the largest energy companies in the world, and they're quickly losing ground to smaller industry players. As a result, pay particular attention to U.S. production when Big Oil updates investors in the months ahead.

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