I have to say, oil and gas player Devon (NYSE:DVN) carries its weight well for a plus-size independent. Since last quarter, the company has tacked on another $5 billion or so in market cap, but it's still doing the double-digit dash.

Production was up 10% across the board, with crude oil carrying the somewhat slower-growing natural gas flows. The gas-bearing Barnett Shale region hurtled 32% higher, so you'll have to point that finger elsewhere if you're looking for a gas laggard. Though I hate to kick a country while it's down, Canadian decline rates certainly didn't help matters.

Devon pegged its operating cash flow at $1.8 billion before balance-sheet changes. Virtually all of this money was reinvested in the form of capital expenditures. A reader asked me why we bother investing in these firms if they don't generate free cash flow. The short answer: So long as an E&P company generates strong returns on that cash, it's creating value for shareholders. I could elaborate, but that's another article entirely.

Devon is virtually unhedged, so it took a hit from lower natural gas prices in the quarter. XTO Energy (NYSE:XTO) and Chesapeake Energy (NYSE:CHK) both pulled down near 40% higher prices for their onshore domestic gas. Compounding the broad weakness in natural gas was a particular pinch in the Rockies, which explains Devon's prices coming in more than a dollar below the national benchmark.

I'm not worried about Devon's spot market exposure. Nabors Industries (NYSE:NBR) recently pointed out that natural gas is selling at roughly half the price of oil on an energy-equivalent basis. Whenever gas perks up, Devon will look brilliant for being unhedged. Over the long term, hedging is arguably a wash, so it's probably best not to fixate too much on it.

If you are going to fixate on one aspect of an E&P business, make it the company's cost structure. Devon's per-barrel lifting costs are up 14% through the first three quarters of the year, which is running a hair ahead of production growth. That's not ideal, but it's also not enough to set off alarm bells, particularly given the industry's inflationary environment.

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