Devon Energy Corporation (NYSE: DVN), is among the largest U.S.-based independent natural gas and oil producers. Based in Oklahoma City, Oklahoma, the company's operations are focused on North American onshore exploration and production. Devon is one of North America’s larger processors of natural gas liquids and owns natural gas pipelines and treatment facilities in many of the company’s producing areas.
The company is ranked among Fortune's 500 largest corporations in America, and is also included on the publication's 100 Best Companies to Work For and Most Admired Companies lists. Devon is also included in the S&P 500 Index and trades on the New York Stock Exchange under the ticker symbol DVN.
Devon was founded in Oklahoma City in 1971 by John W. Nichols and his son J. Larry Nichols. The elder Nichols was raised in Ardmore, Oklahoma, and graduated from the University of Oklahoma with a degree in accounting in 1936. He then became a certified public accountant in Oklahoma City, where he learned the oil business by auditing the books of area oil companies. He became so knowledgeable about how the tax laws impacted the oil industry that in 1950 he was credited with creating the first public oil and gas drilling fund to be registered with the Securities and Exchange Commission. His partner was Oklahoma oilman F.G. "Blackie" Blackwood. Over the next two decades their company, Blackwood & Nichols Co., grew into one of the area's leading oil and gas companies. In 1969 he and his son incorporated Devon Energy Corporation in Oklahoma, but the company dates its history to 1971 when Larry Nichols was able to actively participate in the privately held business--after taking an unusual sidetrack for an oilman. Nichols earned a geology degree from Princeton University, followed by a law degree from the University of Michigan, and then moved to Washington in 1968 to spend a year clerking for Justice Tom Clark and Chief Justice of the Supreme Court, Earl Warren. Nichols then spent another three years in Washington working for assistant U.S. Attorney General William Rehnquist, who would also later become chief justice. Urged by his father, Larry Nichols then returned to Oklahoma City to help run Devon. A director and vice-president from the outset, he became executive vice-president and general counsel in 1973, president of the company in 1976, and chief executive officer in 1980. His father retained the chairmanship, and although he supposedly retired from the day-to-day running of the business during the 1980s, he remained actively involved in the business. It was not until 2000, when he was 85 years old, that he relinquished the chairmanship to his son.
In a 2003 Oil & Gas Journal profile Larry Nichols recalled the early days at Devon: "We started this company with my father, myself, an accountant, and a couple of clerical staff." Over the years, Devon would grow through acquisitions, essentially completing a significant purchase each year, then parlaying its size to go after even larger targets. Because the major oil companies were looking overseas for exploration opportunities during the 1970s, Devon focused on already producing North American properties, hoping to emerge as one of the dominant players among the 400 publicly traded independents working the same field. The company looked to apply modern technology to already exploited properties that could be bought at reasonable prices. The focus was on natural gas, which at the time was a surplus commodity, but the Nicholses believed that the industry would soon experience a change in the cycle and natural gas would emerge as a scarce commodity and rise in price. Because the same situation prevailed in Canada, Devon soon set its sight north of the border as well. In general, it was a conservatively run organization, but a key to the company's success over the years had been its willingness to buck traditional thinking. An example of this tendency to go against the grain came in 1981 when Devon acquired its first interest in the San Juan Basin of New Mexico, an area that within a few years became one of the top natural gas providers in the lower 48 states. For funding, Devon in the first decade of operation relied on innovative partnerships it created for European investors.
The Nicholses preferred to acquire properties when most of the competition was not in the market. In June 1982, Devon acquired the U.S. oil and gas interests from the Canadian firm of Cominco for $31 million, but it was at this point that the Nicholses and their management team became aware of a sea change: Contraction in the industry was resulting in a lot of attractive properties going on the market but too much cash was chasing them. Adhering to its conservative approach, Devon had targeted properties that could realize a 20 to 25 percent rate of return. Now, prices were such that returns would average less than 15 percent. In order to participate and maintain its pattern of growth, management felt that it had to change strategy.
After being on the sidelines for more than a year, in January 1984 Devon decided to create a master limited partnership in order to attract investors and return to pursuing acquisitions. Units in an MLP were registered and traded like stock, thus offering liquidity to investors, who were generally trapped in other forms of oil and gas partnerships. Investors were to receive quarterly cash distributions based on net cash flow, as opposed to dividends. In addition to tapping new sources of funding, Devon, acting as general partner, would also be able to use the units to acquire properties. In short, an MLP could combine the favorable tax benefits of limited partnerships with the liquidity and operating ability of a corporation. Devon spent 18 months studying MLPs already in operation, then in July 1985 launched Devon Resource Investors, trading on the Devon name while offering investors the benefits of an MLP. The company rolled in some $42 million in property, with an 85 to 15 percent mix of gas to oil. 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 mid-1980s, 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 1986 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. Thus, in April 1988 Devon Energy merged with Devon Resource, along with a privately held fund, Devon-Smedvig 1973 Oil & Gas Program Ltd., to form a larger, publicly traded version of Devon Energy. When energy stocks tanked in mid-1988, 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 1989, Devon returned to profitability. Its annual revenues at this stage totaled less than $30 million, but the company was poised for an impressive run during the 1990s, when it aggressively acquired producing properties.
A comprehensive benefit package serves to attract new hires and retain existing employees. Many companies offer medical, dental, vision and disability plans as a standard package. Examples of other benefits include such programs as tuition assistance, vacation and sick leave, health club memberships and free meals.
The company is ranked among Fortune's 500 largest corporations in America, and is also included on the publication's 100 Best Companies to Work For and Most Admired Companies lists. Devon is also included in the S&P 500 Index and trades on the New York Stock Exchange under the ticker symbol DVN.
Devon was founded in Oklahoma City in 1971 by John W. Nichols and his son J. Larry Nichols. The elder Nichols was raised in Ardmore, Oklahoma, and graduated from the University of Oklahoma with a degree in accounting in 1936. He then became a certified public accountant in Oklahoma City, where he learned the oil business by auditing the books of area oil companies. He became so knowledgeable about how the tax laws impacted the oil industry that in 1950 he was credited with creating the first public oil and gas drilling fund to be registered with the Securities and Exchange Commission. His partner was Oklahoma oilman F.G. "Blackie" Blackwood. Over the next two decades their company, Blackwood & Nichols Co., grew into one of the area's leading oil and gas companies. In 1969 he and his son incorporated Devon Energy Corporation in Oklahoma, but the company dates its history to 1971 when Larry Nichols was able to actively participate in the privately held business--after taking an unusual sidetrack for an oilman. Nichols earned a geology degree from Princeton University, followed by a law degree from the University of Michigan, and then moved to Washington in 1968 to spend a year clerking for Justice Tom Clark and Chief Justice of the Supreme Court, Earl Warren. Nichols then spent another three years in Washington working for assistant U.S. Attorney General William Rehnquist, who would also later become chief justice. Urged by his father, Larry Nichols then returned to Oklahoma City to help run Devon. A director and vice-president from the outset, he became executive vice-president and general counsel in 1973, president of the company in 1976, and chief executive officer in 1980. His father retained the chairmanship, and although he supposedly retired from the day-to-day running of the business during the 1980s, he remained actively involved in the business. It was not until 2000, when he was 85 years old, that he relinquished the chairmanship to his son.
In a 2003 Oil & Gas Journal profile Larry Nichols recalled the early days at Devon: "We started this company with my father, myself, an accountant, and a couple of clerical staff." Over the years, Devon would grow through acquisitions, essentially completing a significant purchase each year, then parlaying its size to go after even larger targets. Because the major oil companies were looking overseas for exploration opportunities during the 1970s, Devon focused on already producing North American properties, hoping to emerge as one of the dominant players among the 400 publicly traded independents working the same field. The company looked to apply modern technology to already exploited properties that could be bought at reasonable prices. The focus was on natural gas, which at the time was a surplus commodity, but the Nicholses believed that the industry would soon experience a change in the cycle and natural gas would emerge as a scarce commodity and rise in price. Because the same situation prevailed in Canada, Devon soon set its sight north of the border as well. In general, it was a conservatively run organization, but a key to the company's success over the years had been its willingness to buck traditional thinking. An example of this tendency to go against the grain came in 1981 when Devon acquired its first interest in the San Juan Basin of New Mexico, an area that within a few years became one of the top natural gas providers in the lower 48 states. For funding, Devon in the first decade of operation relied on innovative partnerships it created for European investors.
The Nicholses preferred to acquire properties when most of the competition was not in the market. In June 1982, Devon acquired the U.S. oil and gas interests from the Canadian firm of Cominco for $31 million, but it was at this point that the Nicholses and their management team became aware of a sea change: Contraction in the industry was resulting in a lot of attractive properties going on the market but too much cash was chasing them. Adhering to its conservative approach, Devon had targeted properties that could realize a 20 to 25 percent rate of return. Now, prices were such that returns would average less than 15 percent. In order to participate and maintain its pattern of growth, management felt that it had to change strategy.
After being on the sidelines for more than a year, in January 1984 Devon decided to create a master limited partnership in order to attract investors and return to pursuing acquisitions. Units in an MLP were registered and traded like stock, thus offering liquidity to investors, who were generally trapped in other forms of oil and gas partnerships. Investors were to receive quarterly cash distributions based on net cash flow, as opposed to dividends. In addition to tapping new sources of funding, Devon, acting as general partner, would also be able to use the units to acquire properties. In short, an MLP could combine the favorable tax benefits of limited partnerships with the liquidity and operating ability of a corporation. Devon spent 18 months studying MLPs already in operation, then in July 1985 launched Devon Resource Investors, trading on the Devon name while offering investors the benefits of an MLP. The company rolled in some $42 million in property, with an 85 to 15 percent mix of gas to oil. 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 mid-1980s, 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 1986 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. Thus, in April 1988 Devon Energy merged with Devon Resource, along with a privately held fund, Devon-Smedvig 1973 Oil & Gas Program Ltd., to form a larger, publicly traded version of Devon Energy. When energy stocks tanked in mid-1988, 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 1989, Devon returned to profitability. Its annual revenues at this stage totaled less than $30 million, but the company was poised for an impressive run during the 1990s, when it aggressively acquired producing properties.
A comprehensive benefit package serves to attract new hires and retain existing employees. Many companies offer medical, dental, vision and disability plans as a standard package. Examples of other benefits include such programs as tuition assistance, vacation and sick leave, health club memberships and free meals.
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