You've watched the early stages of a topsy-turvy earnings season, and if you're an energy aficionado, you're perhaps confused about investing in the bigger oil companies. After all, the operating numbers for ConocoPhillips (NYS: COP) and ExxonMobil (NYS: XOM) were hardly impressive. So, is it time to sit on the sidelines in this sector?

ConocoPhillips leads off
Let's begin by taking a gander at how the companies fared in the second quarter of the year. As I said last quarter -- and it's still the case -- ConocoPhillips figuratively remains under construction. Indeed, having jettisoned its downstream operations to form the new Phillips 66 (NYS: PSX) , and with "for sale" signs still overhanging a host of its upstream assets, year-on-year comparisons become virtually meaningless, as do analysts' forecasts.

On that basis, I'll note only that the company's revenues declined 14% from a year ago, but beat the Wall Streeters' expectations by an absurd 67%. That being the case, the apropos question for analysts is simply: Why bother?


Nevertheless, now that it's gone from being an integrated company to new status as the king of the independents, one key to judging the company is to examine its primary operating venues. In the U.S., it's noteworthy that Conoco's work in the fertile Eagle Ford and Bakken plays has upped the company's production by 50,000 barrels of oil equivalent (BOE) per day from a year ago. At the same time, it's involved in pilot programs in such other liquids-rich plays as the Niobrara, Avalon, Wolfcamp, and Duvenay.

Additionally:

  • In Canada, it's added 20,000 BOE per day of production through increased activity in a pair of oil sands venues.
  • In Asia Pacific, it has a 37.5% interest in the Australia Pacific LNG project and is also at work in several oil and gas plays offshore Australia and Malaysia.
  • In the Gulf of Mexico, it's participating in three deepwater wells, and it acquired several blocks in the June lease sale, bringing its total number of blocks in the Gulf above 340.

Followed by ExxonMobil
ExxonMobil had what appeared at first glance to be a lights-out quarter. That is, until you subtract $7.5 billion in asset sales from the company's $15.9 billion in net income. The result was adjusted income of $8.4 billion, which represented a 22% year-over-year drop. On a per-share basis after special items, the company earned $1.80, down 17.4% from a year ago and short of the consensus expectation.

The largest of the asset sales -- worth $5.3 billion -- involved a restructuring of the company's downstream and chemical operation in Japan. In the process, TonenGeneral Sekiyu K.K acquired ExxonMobil shares in an affiliate there. One result was a reduction in Exxon's ownership in the operation from 50% to 22%.

As with other operators, the biggest of the international producers was hit by a decline in crude and natural gas prices. Those declines were exacerbated by a 5.6% slide in the company's production, versus the second quarter of 2011.

Exxon's worldwide spread
It's not surprising that ExxonMobil plies its trade around the globe. In the past quarter, progress was made on three locally constructed offshore platforms in Nigeria, on a satellite project in Angola, and on a gravity-based structure offshore Russia's Sakhalin Island.

Further, the company is progressing on an LNG project in Papua New Guinea. And in concert with Norway's Statoil (NYS: STO) , it has drilled a pair of successful exploration wells in Tasmania, both of which have indicated the presence of multiple trillion cubic feet of recoverable gas. It has begun two new wells in the Gulf of Mexico's Hadrian North area. And like ConocoPhillips, it's also active in such unconventional U.S. liquids plays as the Bakken and the Woodford Ardmore, along with the Neuquen Basin of Argentina.

As the quarter came to an end, Exxon took additional steps toward the cementing of its strategic cooperation agreement with Russia's Rosneft. Last month, the two companies signed a pact to jointly develop tight oil reserves in Western Siberia and to establish an Arctic Research Center for offshore development.

Middle East tinderbox
As my colleague Aimee Duffy told you on Thursday, both ExxonMobil and Chevron (NYS: CVX) are involved in an Iraq imbroglio, with the Iraqi central government on one side and the Kurdistan Regional Government on the other. Exxon, in particular, has been working in Iraq, as have numerous other big companies, revitalizing tired and neglected, but massive, wells.

But while the Kurds in the North are willing to provide the companies with more lucrative production-sharing agreements, the Iraqis stop at providing them with service contracts. Prime Minister Nuri al-Maliki and his minions are currently doing everything within their obviously limited power to thwart the relationships between the companies and the Kurdistan Regional Government.

At the same time, Iraq has been plagued of late by deadly terroristic activity, most likely emanating from Syria or Iran. Beyond that, events in Syria have once again turned the oil-rich Middle East into a geopolitical tinderbox.

The Foolish bottom line
Despite their soft quarterly results, and given the combination of their global activity and growing geopolitical tensions -- disagreement over Syria is testing the relationship between Russia and the U.S. -- I'd urge Fools with a thirst for energy to monitor the larger oil companies. You can take a giant step in that direction by simply adding both ExxonMobil and ConocoPhillips to My Watchlist.   

The article It's Not the Time to Avoid Big Oil originally appeared on Fool.com.

Fool contributor David Lee Smith doesn't own shares in any of the companies mentioned in this article. The Motley Fool owns shares of ExxonMobil. Motley Fool newsletter services have recommended buying shares of Statoil A and Chevron. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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