When chairman and chief executive J. Larry Nichols founded Devon Energy Corp. with his father, John, in 1988, there were some 400 publicly traded oil and gas companies. Today there are fewer than 200. "We knew of no other industry at that time with so many public companies and we thought, surely this will have to be consolidated. And at the end of the consolidation cycle, the few remaining companies would command a higher premium due to the scarcity factor," he told attendees at the annual John S. Herold Pacesetters Energy Conference in Connecticut this fall. "We had the direction right, but we had no idea it would go this far, and we never thought Devon would be this large." As the consolidation cycle nears its end, valuations have soared, he said. "We acquired Ocean Energy for a zero premium three years ago and now, nearer the end of the cycle, when there are fewer big companies to acquire, companies are going for a 50% premium." Devon has been criticized in the past for being acquisition-heavy and not growing organically, but Nichols said the company has been growing via both the checkbook and the drillbit. Only two major oil provinces with plentiful reserves are left to develop in North America, he added: the oil sands in Canada and the Lower Tertiary play unfolding in the deepwater Gulf of Mexico. Devon has a major presence in each and just announced, along with partner Chevron Corp., the Jack #2 well results, that indicate a new producing province with as much as 15 billion barrels of oil-the largest U.S. find in 40 years. For more on this, see the November issue of Oil and Gas Investor. For a subscription, call 713-260-6441.

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