With Little Moves and Big Results, Devon Energy Is Succeeding in ExxonMobil and Chevron's Shadow

Devon Energy (NYSE: DVN) recently completed the acquisition of assets in the Williston Basin (in the northern central U.S.) worth roughly $5 billion. That's a tiny deal relative to the roughly $53 billion Hess (NYSE: HES) acquisition that Chevron (NYSE: CVX) is attempting to complete. That size difference helps explain why Devon Energy's business has been growing solidly even though the company operates in the shadows of industry giants Chevron and ExxonMobil (NYSE: XOM).

Devon Energy vs. Exxon and Chevron

ExxonMobil is a gigantic energy company, sporting a massive $470 billion market cap. Chevron isn't far behind with a market cap of over $260 billion. Devon Energy has a relatively tiny market cap of about $21 billion. Size, however, isn't the only difference here.

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ExxonMobil and Chevron are integrated energy companies. That means that they operate across the broader energy landscape, from the upstream (oil and natural gas production) through the midstream (pipelines) and into the downstream (chemicals and refining). This diversification helps to soften the frequent and sometimes dramatic swings in the price of oil and natural gas. For example, when the upstream is suffering through low commodity prices, the downstream will benefit from low prices for key inputs. Pipelines, meanwhile, tend to produce reliable cash flows no matter what is happening with energy prices.

By comparison, Devon Energy is a pure-play upstream energy company. All it does is produce oil and natural gas, which means that its top and bottom lines will fluctuate along with commodity prices since there are no offsets to those fluctuations. Devon Energy is probably not an appropriate stock for conservative investors. Such investors should probably stick to integrated giants like ExxonMobil and Chevron. But that doesn't mean that it isn't an attractive energy stock for those looking to focus on upstream businesses. Devon Energy will likely see a much greater upside on the earnings and stock front when oil and natural gas prices rise (and a bigger downside when they fall, of course).

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Devon Energy is growing nicely thanks to its size

One of the key factors to monitor is Devon Energy's ability to grow its business. That's important for Chevron and ExxonMobil, too, but Devon has an edge over the giants. As noted above, the Hess acquisition that Chevron is working on is huge relative to the most recent deal that Devon completed. But Chevron's deals have to be big to have a material impact. ExxonMobil's roughly $5 billion purchase of Denbury Resources was about the same size as Devon's recent deal, but given the scale of Exxon, it just wasn't as important to the business.

To put some numbers on that, $5 billion is roughly 24% of Devon's market cap while that same figure is only about 1% of ExxonMobil's market cap. The deals aren't even in the same league when it comes to their impacts on the respective businesses. Tiny deals aren't a bad thing for ExxonMobil, but they aren't exactly needle-moving, either. It would take a lot of them to have the same impact on ExxonMobil that a single one would have on Devon Energy.

This is notable because it means Devon can benefit more from such acquisitions than its giant peers. Don't underestimate the importance of this fact, as it suggests that Chevron and ExxonMobil aren't likely to focus on such small acquisitions. That should leave plenty of opportunity for Devon Energy to act as an industry consolidator, even as giants like ExxonMobil and Chevron do the same on a larger scale.

As an example, in 2019, Devon operated in four energy basins. By 2023, it had operations in five basins, and the 2024 asset acquisition expanded its scale in the newly added basin. The recent expansions increased production and added land on which future wells can be drilled, in addition to diversifying Devon's business geographically.

Looking at the business a different way, in 2019, Devon's production totaled 119 million barrels of oil equivalent (119 MMBOE). By 2023 that had increased to 240 MMBOE. The late 2024 acquisition noted above should push it higher again, with an even greater impact in 2025 given a full year of ownership.

Being small is an asset for Devon Energy

Industry giants like ExxonMobil and Chevron are very attractive to investors. But there are other ways to invest in the energy sector, and Devon Energy offers something of a sharpshooter approach for those with a positive view of energy prices. Given its small size and regional focus, it can pick up smaller assets, likely at attractive prices, that giants like Exxon and Chevron wouldn't even bother with. That has helped to fuel Devon's business growth in the past, and it will likely continue to do so well into the future.

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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chevron. The Motley Fool has a disclosure policy.