Oil giant ConocoPhillips (NYSE: COP) recently reported third-quarter earnings of $1.5 billion, or approximately $1 per share, a decline of over 70% compared with the year-ago period in which Conoco earned $3.39 a share. No one should be surprised here when you compare oil prices today with those of a year ago.

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Still Cashing In
A year ago, oil prices averaged $120 a barrel. In this quarter, prices were nearly 50% less at around $68 a barrel. No matter how good you are at your business, when the market price of your principal product declines by 50%, your profits will go down. Conoco shares currently sell for $50, so if you annualize the Q3 figures to assume annual EPS of $4 a share, shares fetch just under 13-times earnings. Factor in the nearly 4% dividend yield, and Conoco has a relatively attractive valuation in today's market.

Remember, Conoco is a major player in the oil industry with assets all over the world. So the exposure to the long-term play on growth in emerging-market energy demand is a big plus. Of course, the price of oil will always be a key factor. Today at $80 per barrel, it has rallied by over 71% since March. Yet the comparable Dow Jones U.S. Integrated Oil and Gas Index is up 21% over the same period. OPEC has commented that the current price is just about as high as it wants oil to be right now, and if oil does stay around $75 a barrel, excellent profitability is achievable. (For related reading, check out Meet OPEC, Manager Of Oil Wealth.)

Solid Performance
While comparing numbers to last year make net income look weak, deeply entrenched oil companies like ConocoPhillips can do quite well at current oil prices. Today's price enables the majors to take on additional projects. Additionally, Conoco increased E&P production by 5% from 1.76 million to 1.86 million BOE per day. Most of this increase was due to projects in Asia and Russia. Conoco happens to also be one the largest oil refiners, and the refining business is currently in despair. Any improvement in refining margins benefits Conoco more significantly than competitors.

Last year was a blockbuster for oil companies that earned ungodly sums of money - figures we may not see again for quite some time. Nonetheless, their entrenched positions still enable them to deliver very respectable results. ExxonMobil (NYSE: XOM), Chevron (NYSE: CVX) and Royal Dutch Shell (NYSE: RDS.A) will all likely report significantly less earnings than last year. Over a period of several years, those profits translate into dividends, share buybacks and strategic expansions that all serve to increase the value of these businesses.

Control What You Can Control
Oil companies have no control over the price of oil. What they can control are finding costs and, to a certain extent, production and reserve replacement. The bigger players have the economies of scale necessary to operate more efficiently, which is a great advantage during tough times. (For related reading, check out A Guide To Investing In Oil Markets.)

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