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The world's largest publicly traded oil company, is struggling to find more oil.

In its closely-watched annual financial report released Tuesday, the company said that for every 100 barrels it has pumped out of the earth over the past decade, it has replaced only 95.

Bloomberg News

Exxon now has more natural gas in reserve for future production than oil.

It's a conundrum shared by most of the other large Western oil-producing companies, which are finding most accessible oil fields were tapped long ago, while promising new regions are proving technologically and politically challenging.

Exxon said in the report that it is compensating for the shortfall in oil by stocking up on natural gas, mostly through its acquisition of XTO Energy Inc. last year.

But the shift toward gas is troubling some investors, because gas sells for less than the equivalent amount of oil. Many observers feel the move toward gas—a trend across the oil industry—is dictated more by shrinking access to oil fields than by a strong desire to emphasize gas production.

"The good old days are gone and not to be repeated," says Fadel Gheit, an analyst with Oppenheimer and Co. Bringing additional reserves from gas "is not going to give you the same punch" that oil would, he said.

Finding the equivalent, in either oil or natural gas, of a barrel in the earth for every one the company produces—a 100% reserve replacement rate—has become extraordinarily tough. Exxon boasted this was the 17th consecutive year of hitting this mark, but analysts agree that without the XTO deal, Exxon would have fallen far short this year.

Investors look at these reserve figures as an important gauge of future profitability and business strength.

Company spokesman Alan Jeffers says the company's "focus is on resources and projects that add shareholder value." That can be accomplished by finding oil, he says, but value can also be delivered through a corporate acquisition.

Exxon has become the largest U.S. company by market capitalization with a business model that stresses size and integration of assets. It has traditionally found crude oil, refined it into gasoline and other fuels and then sold these products.

But the stock market has recently favored oil companies, such as ConocoPhillips, that are shedding assets to get smaller. Smaller oil and gas finds can have a material impact on slimmed down companies.

The shift toward gas—and troubles with finding oil—has emerged as a theme for the giant Western oil companies. Royal Dutch Shell PLC's chief executive said last month the European company will produce more gas than oil next year for the first time in its 104-year history.

In the past few years, new technologies have unlocked vast resources of natural gas, depressing prices in North America and raising the possibility of falling prices in other regions also. Meanwhile, growing demand from emerging economies has sent crude-oil prices up strongly since prices cratered in 2008 during the worst of the recession. Natural gas prices closed today at $3.98 per million British thermal units, down 25% from a year ago, whereas a barrel of West Texas crude is up about 9.5% over that time, closing at $84.32 in trading on the NYMEX Tuesday.

Big oil companies are having trouble cashing in on the strong prices for crude oil. They have limited ability to drill in many oil-prone regions, such as Russia and part of the Middle East, due to politics. And even in promising Iraq, where many Western companies have won contracts, much infrastructure must be rebuilt. Exxon and others have also flocked to the oil-rich sands of Northern Alberta, Canada, but digging out the oil across vast swathes of forest comes at relatively high cost and generates concerns about the environmental impact.

One place where Western oil companies have found open doors is in deepwater exploration, because state-backed oil companies in Russia, China and the Middle East have little experience drilling these tricky wells. This has given Western companies access to new opportunities, such as Exxon's recent deal with Russian oil giant OAO Rosneft to explore the Black Sea.

The hunt for oil explains why these companies are so keen to restart work in the Gulf of Mexico, after a halt imposed by the Obama administration following the Deepwater Horizon accident. Some companies also are seeking permission to drill exploratory wells above the Arctic Circle. The Arctic remains one of the few unexplored regions of the world and the region above Alaska and western Canada is believed to be oil rich.

But deepwater projects take a long time to turn from a prospect that a geologist has identified into a producing asset. Chevron Corp.'s chief executive said last week that he expects to add new barrels of oil to its reserves from "several major deepwater projects" in future years. In 2010, he warned that Chevron added only one new barrel for every four it produced.

Given the difficulties these companies are facing, some investors have begun to wonder if Exxon bought XTO last year to "mask the extent of their replacement problem," said R. Blair Thomas, chief executive of EIG Global Energy Partners, an energy asset -management firm.

The market didn't like Exxon's announcement, sending the bellwether stock down 2.5% to $82.82 in afternoon trading Tuesday on the New York Stock Exchange.