With world energy needs expected to rise drastically by the year 2050, there will be an increased need for all kinds of energy sources, especially oil. While integrated oil majors are popular ways to invest in this trend, I prefer to keep my money away from the refining and marketing side of the business. And that is because these types of businesses have lower and less predictable profits, along with other dynamics beyond "the need for oil." 

However, exploration and production companies come in all different shapes and sizes, so how do you choose one? There are the huge players like ConocoPhillips (NYSE:COP), mid-sized companies like Murphy Oil (NYSE:MUR), and smaller companies such as Newfield Exploration (NYSE:NFX). Let's take a look at each, and see if one has any distinct advantage over the others.

The big ones
There are a few large standalone E&P companies, with ConocoPhillips the largest after it spun off its refining and marketing businesses. Conoco has ambitious plans, with expected capital expenditures of $15 billion per year (the highest of any E&P company), and a reserve replacement target of more than 100%. The company met this goal with room to spare last year, with reserve replacement at 142% of production in 2012. Conoco also aims to return 20% to 25% of cash flow to shareholders as dividends and to maintain a debt-to-capital ratio of less than 30%.

Conoco is expected to report earnings of $5.87 per share this year, which is projected to increase to $6.34 in 2014, for about 8% annual earnings growth. The company also pays one of the best dividends in the sector, at 3.75% annually, which has been increased every single year for the past decade.

For all of this income and stability, Conoco seems relatively inexpensive at just 12.6 times 2013's earnings. However, smaller, less-stable companies can sometimes provide a better value, so let's see if we can find one.

In the middle
There is no shortage of mid-size E&P companies, which I'll define as those with a market capitalization of between $5 billion and $15 billion. Of these, one excellent example is Murphy Oil, which has E&P operations all over the world. Just like Conoco, Murphy recently spun off its refining and marketing operations, and the company has equally ambitious growth goals.

Murphy has set a target production rate of 300,000 boe/d (barrels of oil equivalent per day) by 2015, a lofty goal considering it has issued guidance for this year of 203,000 boe/d. 

Murphy Oil pays a decent, but not spectacular yield of 2.05%, which has been consistently increased. The company is expected to grow its earnings by an impressive 16% next year, but as is often the case with smaller companies, there is a lot of uncertainty. For instance, 2014 projections from 13 major analysts range from $4.74 per share to $7.90 -- a huge difference.  

Fortunately, investors are compensated for this increased risk. Murphy trades at a P/E of 10.9 times this year's earnings, which looks even better given the company's debt-to-capital ratio of just 20.1% -- Conoco is currently around 32%. 

The little guys: a better value?
So, if there are cheaper companies in the mid-range, maybe there are even better bargains to be had in the smallest E&P companies. There are a range in this category, and investors need to be particularly careful to separate the speculative plays from those that are solid businesses.

One good example of the latter is Newfield Exploration, which operates in the U.S., Malaysia, and China. For comparison's sake, consider that Newfield's production is about 130,000 boe/d, and the company has enough proved reserves for about 12 years at its current production rates. 

From an investment standpoint, Newfield is still an up-and-comer, and the company has grown much more aggressively than Conoco and Murphy over the past several years. It has some of the financial characteristics of a young and growing company, such as no dividends and higher debt, but this is offset by the company's excellent revenue growth of about 150% over the past decade. 

Newfield trades at a seemingly high multiple of 15.6 times anticipated earnings of $1.89 per share, but when you consider that this number is expected to swell by 45% to $2.75 by 2015, it doesn't seem so expensive.

Summary
As you can see, there are many paths to choose from when investing in oil exploration and production. The right path depends on such factors as your risk tolerance, income requirements, and growth expectations, but any of these three would make an excellent choice for a Foolish investor.

Matthew Frankel has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.