As trite as it sounds, Exxon Mobil (NYSE:XOM) is what it is – a huge international oil, gas, refining, and chemical monolith that effectively refines crude oil and natural gas into shareholder capital. The process isn't always pretty (as witnessed by the recent pipeline spill in Arkansas) and it's getting harder to squeeze out the same level of profitability as before, but Exxon is still among the best-run oil and gas majors in the market. A little undervalued today, Exxon could offer some upside to investors who want a relatively lower-risk way to play energy.

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Q1 Results Don't Impress Where They Need To
Although Exxon Mobil reported better than expected results for the first quarter, how they got to those numbers makes a difference. With lower core upstream profitability, I don't expect that Exxon's results will get all that much applause.

Oil and gas production declined by almost 4% relative to the year-ago quarter, but rose 2% from the fourth quarter. This was result was slightly ahead of target, as better performance in crude (down 1%) offset intentional declines in natural gas (down 6%). Realizations (the price that Exxon gets for its oil and gas) fell 1% from last year and improved 4% sequentially, coming in slightly better than analysts expected.

All told, though, upstream earnings (earnings from pumping oil and gas) fell 10% from last year. Downstream earnings did better (down 3%) and chemicals earnings were up 62%. Exxon also did better with its corporate overhead expenses, but that's a lower-quality beat for these major oil companies.

SEE: Oil And Gas Industry Primer

Is Profitability A Problem?
Exxon's upstream earnings number missed the average estimate by 4%. For Exxon, that's a sizable miss and it goes to the heart of one of the biggest challenges for companies like Exxon, BP (NYSE:BP), Chevron (NYSE:CVX), and ConocoPhillips (NYSE:COP). On a per-barrel basis, Exxon's profits declined by about a buck (or 5%) to $17.80. While companies like Schlumberger (NYSE:SLB) and Halliburton (NYSE:HAL) have developed a lot of tools and technology to improve oil and gas discovery and production, they come at a price and it's getting more and more expensive to access oil and gas.

Exxon certainly has the advantages of scale and diversification, and arguably considerably more leeway than more focused E&P companies. The fact remains, though, that returns are on the decline across the industry and investors are going to increasingly have to analyze the cost-benefit trade-off of increased production with per-barrel profitability.

SEE: What Determines Oil Prices?

Playing The Long Game
One of the key things to remember with Exxon Mobil is that they do not manage the company according to what they see out of the windows in their office today. Instead, this is a company that thinks, plans, and acts in terms of decades.

To that end, it seems reasonable to expect a gradual increase in production (on the order of 2% to 3%) through the next five years as several large global projects come on line. At the same time, expect the company to act on a more short-term basis when necessary. If gas prices aren't attractive in the U.S., they won't produce as much, and that's not a luxury that companies like Ultra Petroleum (NYSE:UPL) can enjoy to the same extent.

The Bottom Line
I don't see Exxon looking to do a major deal in the near term, so most of the focus on the company will remain on the profitability and cash generation. Exxon's total return isn't bad, but investors may still want to shop around a bid and consider names like Chevron, BP, and Total (NYSE:TOT). As it stands today, Exxon still enjoys a premium valuation and I don't expect that to vanish, even if I think it means that BP and Chevron are more interesting names today. With a fair value above $90, Exxon still looks like a reasonable buy candidate, but investors need to realize that this is not the best vehicle to play quick turns in the energy markets.

At the time of writing, Stephen D. Simpson did not own any shares in any company mentioned in this article.