Devon's Double-Digit Dash

Last quarter, when exploration-and-production specialist Devon (NYSE: DVN) didn't decline, investors celebrated. They must be throwing a full-blown fiesta this time around. And they have shale acreage to thank for it.

In impressive fashion, Devon churned out even better growth in its latest quarter than Apache (NYSE: APA), which is three-quarters Devon's size. Production growth from continuing operations rose 16% over last year and 5% sequentially. Pre-tax earnings from continuing operations rose 33%, while operating cash flow popped by a full 41%.

With a current market capitalization near $35 billion, Devon's no small-fry. And its success further reinforces the growth gap between the large independents and integrated majors such as Imperial Oil (AMEX: IMO) and supermajors such as ExxonMobil (NYSE: XOM). Just how is the former group coming up with gonzo growth while the latter desperately fend off field declines?

While the deepwater exploration of huge offshore prospects tends to hog the headlines, the real growth story today is about onshore unconventional gas production. Devon jumped into this realm with both feet -- first with its purchase of Mitchell Energy in 2001, and then with its Chief Holdings buy last year. The company now sits on the largest-acreage position in the boomin' Barnett Shale. Output there was up a whopping 37% this quarter.

So why aren't the supermajors swooping in on the Barnett, or other promising shale plays? The simple answer is that the present gas flows there are hardly enough to move the needle. Devon is flowing about 800 million cubic feet of gas per day out of the Barnett. That's less than 5% of the output from a supermajor such as Royal Dutch Shell (NYSE: RDS-A) (NYSE: RDS-B) or BP (NYSE: BP). The big boys must keenly feel left out of the party, and my guess is that they'll crash it once the flows have ramped up further.

For now, Devon is master of its domain. I expect continued success out of its onshore position, and I imagine it will do well in its higher-risk endeavors in the deepwater.

Related Foolishness:

• Devon Doesn't Decline
• Apache: Jump On It?
• Anadarko Lights It Up

When the market unfairly beats down quality stocks, Inside Value swoops in. Check out the newsletter service free for 30 days.

Fool contributor Toby Shute doesn't often jump in with both feet, nor does he own shares in any company mentioned. The Motley Fool has a disclosure policy.