American oil companies—primed to reap the benefits of rising prices after years of wringing more from wells for less—are seeing profits erode in the face of rising costs.

Those operational challenges make balancing lofty growth objectives and demands for fiscal restraint increasingly difficult. If the companies continue to stumble, the result could be a higher cost of capital to finance the ongoing U.S. energy boom or a slower pace of growth.

Two-thirds of U.S. oil producers failed to live within their means in the second quarter, even as oil rose above $70 a barrel. Collectively, 50 major U.S. oil companies reported in their second-quarter results that they have spent $2 billion more than they took in, according to an analysis of free cash flow by FactSet.

As oil prices have risen, profits “have improved, but they’re not there yet in terms of making money,” said Todd Heltman, a senior energy analyst at investment firm Neuberger Berman Group LLC. “The realization is setting in that it’s going to take longer than investors thought for them to generate free cash flow and deliver more powerful earnings.”

Pioneer Natural Resources Co. , one of the biggest operators in the Permian Basin of West Texas and New Mexico, told investors a year ago it expected to largely make up for rising operating costs with “efficiency gains” such as producing more from each well. Last week , Pioneer reversed course and raised its annual spending forecast to $3.3 to $3.4 billion, from $2.9 billion, to produce roughly the same amount of oil.

“We’ve had a more significant increase in cost issue than we would have assumed,” Pioneer Chief Executive Tim Dove told investors. Some of the new spending will push up output next year, he said.

The drilling frenzy has increased demand for materials like sand and water that are used in hydraulic fracturing, driving up prices.

In recently reported second-quarter earnings, more than a dozen shale companies either lowered this year’s production targets, said they would have to spend more to extract roughly the same amount of oil and gas or missed analyst expectations for growth. To be sure, many continue to expect their production to increase compared to last year, but they are having to spend more to meet those goals.

Among them was Noble Energy Inc., which this month revised its annual capital spending plan to $3 billion, up from $2.7 to $2.9 billion, while saying it likely would hit the lower end of its targeted production range.

The company had incorporated some service cost increases into its initial spending budget, said Gary Willingham, executive vice president for operations. “But we also assumed that given our track record,” he said, “we’d be able to offset a large part of that with efficiencies.” That has proved more difficult than expected, he said.

The days of rapid efficiency improvements appear to be waning industry-wide. Producers during the downturn figured out how to produce more from each well for less money. Since 2016, however, the oil price at which operators can turn a profit drilling a new shale well has flatlined in some parts of the Permian and increased by an average of 17% in others, according to data from Rystad Energy.

“You can’t continue to get 50% better every year,” Randy Foutch, chief executive of Laredo Petroleum Inc., said in an interview. “We will get better, but I don’t expect it to be at that kind of rate.”

Laredo increased its yearly spending forecast by $45 million, or about 8%, while holding its oil output target steady, although it raised production goals for natural gas and natural gas liquids. The company said it was spending more now to produce more next year.

Some see the weak quarterly performance and operational challenges in the Permian, which now pumps more crude than Kuwait, as indicators that the pace of growth in U.S. oil production is about to slow down considerably.

U.S. oil production fell slightly in May, the latest month tracked by the U.S. Energy Information Administration, and has remained at just below 10.5 million barrels a day since March. Last week, the EIA cut its forecast for average daily crude output in 2018 by about 100,000 barrels. Federal forecasters expect the U.S. to produce an average of 11.7 million barrels a day in 2019.

Some see that forecast as too high and predict that U.S. oil growth will moderate due to service costs, slowed technological gains, pipeline constraints in the Permian basin and pressure on U.S. producers to keep spending in check and emphasize profits over growth.

A slowdown in Permian oil output could push crude prices above $100 a barrel before the end of the year as supply fails to meet rising demand, according to Leigh Goehring, managing partner of Goehring & Rozencwajg, a small investment firm focused on natural resources.

“Many companies have promised to live within cash flow and grow by 10% or 20%, and it’s looking more and more like some are going to have to choose between the two,” said Mr. Goehring. “If the Permian growth engine slows, there aren’t many other easy sources of global supply.”