The company was founded by J. Larry Nichols and John W. Nichols in and is headquartered in Oklahoma City, OK. Devon was founded in by John Nichols and his son, Larry. It became a public company in , and expanded greatly through mergers and acquisitions.
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In short, an MLP could combine the favorable tax benefits of limited partnerships with the liquidity and operating ability of a corporation.
Unlike most general partners of MLPs, Devon acquired a stake, buying a 38 percent interest, or a 25 percent share of the total assets. To assure investors that Devon had a long-term interest in Devon Resource, the company entered into an agreement not to sell its interest without the permission of its underwriter, Paine Webber.
The goal of the MLP was to make quarterly cash distributions equal to half of its net cash flow. Oil prices collapsed in the mids, which forced many independents out of business and adversely impacted the fortunes of Devon and its MLP.
Commodity prices dropped and the cost of managing the partnership rose. Moreover, changes in tax laws in also made the investment less attractive. As a result, Devon Resource posted a string of eight losing quarters, and management reassessed its strategy. Rather than return to the simplified structure of a private company, Devon Energy elected to go public, after concluding that bank funding was likely to dry up for independents for a number of reasons.
When energy stocks tanked in mid, Devon's shares lost over a third of their value within a matter of weeks, but as would be the case throughout its history, Devon was able to prosper by operating out of sequence with the rest of the industry.
Assets acquired years earlier in the San Juan Basin now became quite attractive, due to advances in technology that allowed exploiters to tap into gas trapped in coal seams previously ignored by drillers because of water problems.
Not only did Devon extract this gas, it received attractive federal tax credits to do so. In , Devon returned to profitability. Devon picked up some 2, properties and 5, producing oil and gas wells spread across 13 states, but situated mostly in Texas, Oklahoma, New Mexico, and Wyoming.
Furthermore, Devon added , to , net acres of undeveloped leases and 3, miles of seismic information related to both the producing and undeveloped sites. As would be the case with all of Devon's acquisitions, these properties complemented the company's current holdings, and in many cases set up the next acquisition.
At this stage, Devon did not carry much debt and as a result was able to prosper whether commodity prices were high or low. While low prices hurt highly leveraged competitors, Devon was able to hold back on drilling and take advantage of acquisition possibilities.
During periods of high prices, the company could realize greater revenues and have even more funds to earmark for new properties. In fiscal Devon posted record results in terms of production, revenues, profits, and shareholders' equity.
During several years of low energy prices in the s, Devon bought a large number of properties. Devon's total proved oil and gas reserves increased by 37 percent. Of particular importance was the Grayburg-Jackson Field located in southeast New Mexico, which fit nicely with Devon's other holdings in the area.
During the final weeks of , the company supplemented another core area of operation, Wyoming, where Devon had enjoyed success in drilling for coalbed methane. The pickups in New Mexico and Wyoming were not without risk, however. The deal boosted Devon's reserves by 46 percent, bolstered its Wyoming presence, and also added some interests in Canada. Devon's next big deal added to the company's Canadian holdings. Devon's penchant for completing ever larger acquisitions on an annual basis continued in , when Devon acquired PennzEnergy, the oil and gas business of Pennzoil Co.
Once again, Larry Nichols's ability to shun conventional thinking paid off. Nichols went the other way. He used profits from selling oil to pay down debt and prepare for the inevitable crash. That's when he started talking to Pennzoil about selling some assets.
With the dawn of the new century, Devon continued its pattern of growth through opportunistic acquisitions. Devon now became a top five independent. In particular, it greatly enhanced the company's presence in the important Fort Worth Basin. This acquisition elevated Devon to the top spot among U.
In addition, Devon became the largest independent deepwater Gulf of Mexico leaseholder with over deepwater blocks, and also held 29 million net undeveloped acres around the world.
For a company that for decades had been cautious about taking on debt, it was a significant departure.
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