duo

Investors taking a long-term view will favor Devon Energy based on industry body estimates. 

Devon Energy is better placed to deal with a falling North American demand environment

Lee Samaha: The two stocks have much in common. They offer heavy exposure to fossil fuels and pay hefty dividends. However, the difference between them makes me think Devon Energy is the better long-term stock for investors. 

Kinder Morgan is an energy infrastructure company owning 83,000 miles of pipelines and 140 terminals alongside natural gas storage facility. In a nutshell, it’s a play on the demand for natural gas transportation in and through North America.

Meanwhile, Devon Energy is an oil and gas exploration and production company focused on the U.S. with significant assets in the Delaware Basin. Like so many other companies in the energy sector, it’s a play on management’s ability to develop reserves, generate cost-effective production, and benefit from rising oil and gas prices. 

In my view, there’s one key difference between them that makes Devon the better buy.

Borrowing from the International Energy Agency’s outlook, it’s clear that both oil and gas demand in North America is expected to decline significantly between 2030-2050. However, global demand ex-North America will rise slightly. 

Given Kinder Morgan’s reliance on demand volume in North America, it raises questions about its long-term growth potential. Falling demand for oil (and gas) in North America would not be good news for Devon Energy either. However, Devon can potentially export its oil production to international markets. As such, I think it’s better placed than Kinder Morgan. 

Data source: World Energy Outlook 2022. mb/d=million barrels per day, bcme=billion cubic meters of natural gas equivalent.