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When the biggest oil company on earth speaks, the entire world tends to listen. ExxonMobil (XOM -2.30%) is out with first-quarter results, and overall it's not pretty. After a disastrous performance last year in which its profits sunk 24%, ExxonMobil and its investors were eagerly hoping for any signs of a meaningful recovery they could get their hands on. Unfortunately, that didn't happen in the first quarter. Even with the benefit of extremely easy comparisons, ExxonMobil's profits still fell year over year.

The conditions that made 2013 such a difficult year, which included field declines and deteriorating refining margins, persisted in the first quarter. ExxonMobil needs these trends to reverse course, if any meaningful recovery is to materialize. Fortunately, a strong upstream portfolio could turn things around over the next year and beyond.

A tale of two businesses
In the integrated energy space, there is a striking disparity between the two sides of the business model. Upstream is faring much better than downstream, and that's especially true for ExxonMobil. On the upstream side, ExxonMobil's overall production fell by 5.6%, due mostly to falling production of natural gas.

Overall upstream segment earnings actually soared 45% to $1.2 billion, thanks to a planned mix effect. ExxonMobil has targeted higher margin liquids production over natural gas to boost upstream profits, and the strategy is working in the company's favor. Natural gas production fell 9% in the quarter, which ExxonMobil attributes to lower demand.

On the downstream side, profits continue to collapse. Segment earnings fell another $732 million in the quarter, or 47% on a percentage basis. Once again, weaker margins were the cause. This is a very disappointing performance not just in absolute terms, but also because the comparison period was a relatively easy one. Downstream profits sunk throughout 2013, so ExxonMobil had a very low hurdle to cross this time around.

Thankfully, it's not all bad news for ExxonMobil. Adjusted liquids production rose 3.3%, because ExxonMobil ramped up its massive Kearl project. Kearl is the light at the end of ExxonMobil's tunnel, and its strategy to focus on liquids production represents a major catalyst going forward.

ExxonMobil's future hopes hinge on new projects
Downstream profits continue to suffer from extremely weak refining margins, and that's not likely to reverse in the near term. The best hope for ExxonMobil to get production and profits going in the right direction continues to be its huge Kearl project, which in a sense represents the company's ace up its sleeve. Expansion of the Kearl project is progressing well, which you should be really excited about.

Kearl is located in the Canadian oil sands, which began production a little over one year ago. Initial production was pegged at 110,000 barrels per day. By next year, ExxonMobil hopes to double that. Assuming its forecast holds true, that would represent significant growth over the company's existing production. Since ExxonMobil produced just 315,000 barrels per day in its Canada and South America reporting segment in the first quarter, the Kearl project could add as much as 70% to that by next year. The project is truly immense in terms of lifespan and potential. ExxonMobil believes Kearl can produce for 40 years, and holds capacity of 4.6 billion barrels total.

Upstream holds the key to ExxonMobil's future
The bottom line for investors is that while the headline numbers from ExxonMobil's earnings report look dour, it's not all bad news. Unfortunately, spreads between Brent and West Texas Intermediate crude oil continue to narrow, which is causing major headaches for the downstream segment. There's little that can be done about that in the near-term, but it stands to reason that sooner or later, refining conditions will improve.

And, on the upstream side, investors have a reason for optimism in the form of the Kearl project. This is one of a record number of projects slated to ramp up this year and over the next few years. ExxonMobil expects to bring 10 major upstream projects on-line this year. These projects, along with Kearl, will drive significant production growth in the years ahead.