Devon Energy (NYSE:DVN) was founded in the early 1970s, but it didn't become a darling of Wall Street until the shale revolution took hold in the mid-2000s. Thanks to new drilling technologies and productivity gains, Devon and its peers in the oil and natural gas production industry have drilled tens of thousands of operating wells to extract oil that was once thought impossible to recover in places like North Dakota, Texas, and Oklahoma. 

Despite its successes, the company has suffered amid the collapse in oil prices that began in 2014:

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Read on to learn about Devon Energy's history and how it plans to deal with a world of lower oil prices.

A history of focusing on growth

Devon Energy traces its roots all the way back to 1950. That year, co-founder John Nichols formed the first publicly traded oil and gas drilling fund. Years later, in 1971, what we know today as Devon Energy was founded by Nichols and his son Larry to purchase and exploit oil and gas leases.

Pumpfield jack on oilfields of Texas.

Image source: Getty Images.

The company's success led to its IPO in 1988. By 1999, it was able to enter the offshore-drilling game through the acquisition of PennzEnergy for $2.6 billion. The following year, Devon became the fifth-largest independent exploration and production (E&P) company by merging with Santa Fe Snyder.

As the shale revolution took hold in the late 2000s, Devon was ideally positioned to take advantage. To focus its drilling efforts in this new frontier, it announced a plan to sell its offshore and international assets in 2009. By 2011, it announced the completion of the huge divestiture program and exceeded its own expectations by selling the assets in question for approximately $8 billion after tax.

Key insights for investors

Investors should bear in mind one key event from the company's history: Devon's pivot to exclusively focusing on shale drilling. Its sale of unrelated assets was well timed, as it has survived the recent downturn thanks to its status as one of the lowest-cost shale producers.

Investors interested in Devon today should pay close attention to its STACK Play operations in Oklahoma. Devon moved all in on STACK -- which stands for the "Sooner Trend (oil field) Anadarko (basin) Canadian and Kingfisher (counties)" region -- acquiring 80,000 acres there in 2016 for a whopping $1.9 billion.  Its easy to see why: Last year, Devon announced an initial daily well yield of 2,100 barrels of oil equivalent (BOE) in a single drilled well in the STACK. This is noteworthy, as the average initial daily production for a new well in the Anadarko Basin (of which the STACK is a part) was below 400 BOE per day in 2016.  

Also of note are Devon's Canadian operations. There it produces oil from what has come to be known as the Canadian "tar sands" at a complex in Alberta. From these operations, Devon produced 134,000 barrels of oil equivalent per day in FY 2016 -- 22% of the company's total. 

More recently, Devon noted in its Q2 2017 earnings release that it is on track to increase its U.S. oil production by 18% to 23% by the end of 2017. This is a respectable increase from its initial 13% to 17% guidance. It also comes in spite of its announced plan to further reduce spending to between $1.9 billion and $2.2 billion for the year. Higher well productivity and companywide cost-cutting led to these stunning results, and also produced over $250 million in free cash flow for the quarter. These facts serve as a testament to management's long history of top-notch stewardship.

DVN Free Cash Flow (TTM) Chart

DVN Free Cash Flow (TTM) data by YCharts.

Strong results are also allowing Devon to cut its capital expenditure budget while still maintaining production goals. Fiscal 2016's capital budget was 65% lower than 2015's. Despite this handicap, it replaced approximately 175% of its reserves in the U.S. 

Should you own Devon?

Devon Energy continues to make good on its goal of becoming a premier shale E&P independent. The sale of its noncore assets six years ago could not have been better timed, as it freed up the capital necessary for the transition. For investors willing to accept the risk of oil price declines, Devon remains a solid choice. Its production costs remain near the bottom of the industry, with average production costs of $8.85 per BOE for the years 2014-2016.  A respectable figure in a world in which oil continues to hover around $50 per barrel.