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A Shell petrol station is seen in London January 31, 2013.

LUKE MACGREGOR/Reuters

Judging by pump prices, Canadian drivers might think oil companies were rolling in profits that only move higher. Lately, though, the big players in the global oil industry are finding that earning a buck isn't as easy as it used to be.

Royal Dutch Shell PLC, for instance, just announced that fourth quarter earnings would fall woefully short of expectations. The Anglo-Dutch energy giant warned its quarterly profits will be down 70 per cent from a year earlier. Full-year earnings, meanwhile, are expected to be a little more than half of what they were the previous year.

The news hasn't been much cheerier for Shell's fellow Big Oil stalwarts. Exxon Mobil Corp., the world's largest publicly traded oil company, saw profits fall by more than 50 per cent in the second quarter to their lowest level in more than three years. Chevron Corp. and Total SA, likewise, are warning the market to expect lower earnings when fourth quarter results are released.

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What makes such poor performance especially disconcerting to investors is that it's taking place within the context of historically high oil prices. The price of Brent crude has been trading in the triple digit range for three years running, while WTI hasn't been far off. But even with the aid of high oil prices, the super-majors haven't offered investors any returns to write home about. Since 2009, the share prices of the world's top five publicly traded oil and gas companies have posted less than a fifth of the gains of the Dow Jones Industrial Average.

The reason for such stagnant market performance comes down to the cost of both discovering new oil reserves and getting it out of the ground. According to the International Energy Agency's 2013 World Energy Outlook, global exploration spending has increased by 180 per cent since 2000, while global oil supplies have risen by only 14 per cent. That's a pretty low batting average.

Shell's quest for new reserves has seen it pump billions into money-devouring plays such as its Athabasca Oil Sands Project in northern Alberta and the Kashagan oilfield, a deeply troubled project in Kazakhstan. It has even tried deep water drilling in the high Arctic. That attempt ended when the stormy waters of the Chukchi Sea crippled its Kulluk drilling platform, forcing the company to pull up stakes.

Investors can't simply count on ever rising oil prices to justify Shell's lavish spending on quixotic drilling adventures around the world. Prices are no longer soaring ahead like they were prior to the last recession, when heady global economic growth was pushing energy prices to record highs.

Costs, however, are another matter. As exploration spending spirals higher, investors are seeing more reasons to lighten up on oil stocks. Wherever oil producers go in the world these days, they're running into costs that are reaching all-time highs. Shell's costs to find and develop oil fields, for instance, have tripled since 2003. What's worse, when the company does notch a significant discovery, such as Kashagan, production seems to be delayed, whether due to the tricky nature of the geology, politics, or both.

Shell ramped up capital spending last year by 50 per cent to a staggering $44-billion. Oil analysts are basically unanimous now in saying the company needs to rein in spending if it hopes to provide better returns to shareholders.

Big Oil is discovering that blindly chasing production growth through developing ever more costly reserves isn't contributing to the bottom line. Maybe that's a message Canada's oil sands producers need to be listening to as well.

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Jeff Rubin is a former chief economist of CIBC World Markets and the author of the award-winning Why Your World Is About To Get A Whole Lot Smaller as well as The End of Growth.

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