Devon Energy Corp (DVN)

First stock I ever bought. I bought DVN a couple of years ago after reading Steven Loeb's book on 200 dollar Oil. Best in breed Natural Gas is what he said.....

2 years later I'm up 72%. Yeah, that'll work for me....

DVN and Chesapeake are as good a plays as you can get when it comes to independent Nattie Gas.

Oil and natural gas exploration primarily in the gulf of Mexico. Prices going up and this is a well run small company. Expansion plans include building the largest building in OK city for it's new HQ.

Devon in Deep Water

We all understand what it means to be in hot water and many of us from first-hand experience. But what does it mean to be in deep water? Devon Energy Corporation (NYSE:DVN), one of the larger independent oil and gas producers headquartered in Oklahoma City, knows or should know very soon. Along with Chevron Corp. (NYSE:CVX) and Statoil ASA (NYSE:STO), they announced the discovery of the Jack oil field purportedly containing between 3 billion and 15 billion barrels or oil and natural gas.

However, to us Fools that is old news. But what is interesting is that now we have been informed that several leases on a portion of this 300 square mile oil field appear to be exempt from federal royalty payments. Apparently, to encourage oil exploration in the 1990s congress exempted oil from royalty payments extracted from new exploratory wells when oil reached a certain price trigger. The price trigger is well below the per barrel price seen today. But, it now appears that oil leases written in 1998-1999 contained the royalty exemption but did not include the price trigger to re-apply the royalty. Devon Energy may now be on top of the largest oil find since Alaska?s Prudhoe Bay and may well soon be in Deep Water.

So why should a Fool concern himself or herself with whether or not Devon?s tall, cold glass of iced Texas tea is running over. Well there are several reasons. Fellow Fool, Shannon Zimmerman, considers Devon Energy a defensive value stock best geared toward hedging against your more growth oriented portfolio. Normally, I would agree, but not anymore.

In their 2006 second quarter report, Devon reported a 7% percent increase in revenue over the comparable period in 2005. Not to shabby, but not a stock one would expect to shoot to the moon. Also revenue for the first half of ?06 increased 11% over the revenue of ?05. Not really that spectacular considering their average price of domestic crude in ?05 was $40.18 and so far in ?06 it has been $66.05. But what is interesting is that revenue continued to increase despite a 2 million barrel decrease in domestic production and a 5 million barrel decrease overall.

Now the point, it appears that with this new find Devon has found the production increase it has been hoping for. Further, if the federal government doesn?t renege on the wording of its leases it appears that there will be a large amount of royalty free oil to extract from the depths of the Gulf. Fool, Will Frankenhoff pulls back on our reins telling us that since this new well is so deep (28,175 feet) it could be at the very earliest 2010 before these new wells come online.

However, I contend that with oil prices remaining above $60.00 per barrel. Iran just yesterday stated that OPEC should not allow oil to drop below the $60.00 price point. Also, with the governments focus on reducing our dependency on foreign oil and this new development of royalty free black gold, Devon Energy and its partners will be willing to pay a little more now, in the way of decreasing the set-up time for wells in the Jack field, to get a lot more later. With future earnings on the mind, Devon will definitely be in deep water with its Texas Tea runeth over much sooner than we first believed.

Natural Gas price increasing steadily and as per longer term trend by Morningstar analysis in the range of 6-7$ per mcf, and long term benchmark oil prices around $50, this stock has only growth on the upside. Naturally, if the oil/gas price increases, the fair value will increase too. Though the dividend is scanty, the growth potential from all the acquisition is really attractive even for a value investor. While the P/E ratio for industry is approx 12, DVN has a p/e about 9.7 and Price/Book at 1.8, which for industry is 3.1. All shows that this stock is currently undervalued.
The risk side is oil and natural gas as commodity, which IMHO is not going to go down very much from where it is now. Another risk is the deep water exploration challenge for Devon, which should be a manageable risk with the improving exploration technologies in future. Even if those exploration are delayed, the profit potential is delayed, not eliminated.

Oil is a volatile market, but Devon is a great company, with smart management, and has a great track record with its exploration and extration technology. They should perform at the top of the energy production sector

way undervalued....valuation calc at smart money had the value 3x current price. Oil is not going below $60....despite running full out, the world demand is too high.

Devon is one of the five largest leaseholders of promising deep-water Gulf of Mexico properties where recent discoveries in deeper Lower Tertiary zones have generated excitement in the oil sector. Devon has a host of new projects slated to come online over the next few years, which should meaningfully boost production.

There are plenty of bright spots in 2008 Reserve replacement, which keeps the E&P engine from running out of gas, looks rock-solid at upwards of 150% of production. Also, Devon's per-barrel finding costs are actually guided downward in 2008. While I wouldn't claim that cost inflation has been whipped, Devon demonstrates that it's possible for independent E&Ps to keep costs in check in the year ahead.

I am not sure on the timing or catalyst that will send Oil and gas higher and higher. I do feel that it will happen because of limited supply, growing demand and political turmoil in many regions of production.

Great takeover candidate, it seems as if everyone has forgotten about the 25% stake they have claim to in the Gulf of Mexico (which may be the largest oil reserve ever found in the western hemisphere). CVX has the money, and may pay nicely

While oil will eventually be a thing of the past, Devon is in a position to gain in the near term. Oil and gas exploration, particularly ownership in several properties overseas. Decent cash on hand.

Oil is the best thing in my portfolio. Xom has made me more money more consistently than any other stocxk.I recently added Slb. It's making me money. I bet Apa and dvn will make money for the same reasons

Devon Energy Corporation ~ Another one of my favorite oil companies. They are getting ready to build a huge building to call their own "headquarters" in Oklahoma City....
They are another company that is spending a lot of important time and energy into exploration and research.
They have devoted a lot of time and money into Oklahoma State University. This is one of three oil companies that I see making a difference in our future.....

DVN is very active in the Gulf and has large reserves of oil and natural gas. Energy stocks are incredibly volatile at the moment, but DVN seems a safe long-term pick. Because of its large reserves, it is a prime takeover candidate from on of the energy huge-caps. My feeling is that there will be some consolidation in the energy sector for '07. DVN has remained fairly high despite the huge drop in oil and natural gas prices over the past month. A testament to the strenght of the company.

Natural gas and oil prices are beginning to go up , sooner than anticipated. Devon has good domestic reserves plus an excellent track record in the exploration arena. In addition the fundamentals are sound and the stock is undervalued.

Devon Energy formed with a merger of Devon and Ocean Energy in 2003, is one of the largest independent energy company, primarily engaged in the exploration and production of oil and gas. The company’s major operations of exploration are located in U.S and Canada with properties in Permian Basin, Mid-Continent, and the Rocky Mountains. Its product mix involves over 60% of the natural gas production, while the rest involves crude oil with estimated proven oil reserves of over 2 billion barrels.

Oil and gas prices effect immensely on the performance of players like Davon. A negative fluctuation in the prices can deeply hamper the results. The prices of crude oil continue to remain volatile. In 2006 crude prices hovered around the all time highs, though the above average winter temperatures in U.S., the biggest consumer of crude oil, led to prices falling to 20 month low levels. Looking ahead colder temperatures, announcement of further production cuts by Saudi Arabia and ongoing political concerns in Nigeria will continue to drive the prices to higher levels, benefiting companies like Davon.

Davon financials are looking strong, with revenues and net profit inching upwards, backed by increase in sales of oil and natural gas liquids and rise in marketing and midstream revenues. The trimming of portfolio by selling some potion of the proven oil and gas reserves, is also aiding to bring the debt quotient down. The future of Davon seems attractive as the company is one of the largest stake holders at promising Gulf of Mexico properties and has carried out the first successful production test at the location. Moreover, looking at the short term point of view, the steam-assisted gravity drilling project, Jackfish and projects in Brazil and Azerbaijan, with over 50,000 barrels of oil production per day, are expected to start rolling in second half of 2007, having a likely impact on company’s results. Further, considering the strong industry outlook and growing prices of oil and gas, investing in Devon could prove a right decision.

Down 13% yesterday on top of previous down days. The oil sector sell off is an opportunity to pick up an independent producer on the cheap.

Mine is strictly a "dart" throwing philosophy.

Natural gas is in surplus right now because of mild winter last year. Market is not seeing an upcoming shortage and dramatic increase in price of natural gas. DVN is a big gas producer. It will go up substantially when the shortages begin.

DVN is the largest producer in the Barnett, holding the key acreage in the Tier 1 area. I expect that they will soon announce they have or will enter the Haynesville. The key here is that companies like DVN are poised to become the next majors among US oil and gas companies. Companies like DVN are growing reserves in leaps and bounds, while the majors are struggling to maintain production levels. The majors just don't get it: Resource plays are different.