DEVON ENERGY CORP. (New York symbol DVN; www.dvn.com) is one of the largest U.S.-based oil and natural gas explorers and producers. Its production mix is 57% gas and 43% oil.

In 2011, Devon sold all of its international and Gulf of Mexico properties, which it saw as risky and expensive to develop. The company is now focused on its North American projects, which include conventional production, shale oil in Texas and oil sands in Alberta.

To further increase its North American output, Devon recently agreed to pay GeoSouthern Energy $6 billion for oil-producing assets and other properties in Texas’s Eagle Ford shale formation.

This purchase consists of 53,000 barrels of oil equivalent a day of production (including natural gas), and 82,000 acres of land with at least 1,200 undrilled locations. In all, the properties’ output is expected to reach as high as 140,000 barrels a day within five years.

Meanwhile, the company’s daily production averaged 690,800 barrels of oil equivalent in the three months ended September 30, 2013. That’s up 1.9% from 678,200 barrels a year earlier. Cash flow per share jumped 23.1%, to $3.89 from $3.16, on the increased production and higher oil and gas prices. Devon’s $0.22 dividend yields 1.5%.

Energy stocks: Production and rising oil and gas prices combine to push up cash flow

CIMAREX ENERGY (New York symbol XEC; www.cimarex.com) produces and explores for natural gas and oil. Gas makes up 48% of its output.

Cimarex’s properties are in the Mid-Continent region of the U.S., which includes Oklahoma, Kansas and Texas (47% of production); the Permian Basin of western Texas and southeastern New Mexico (49%); and the Texas Gulf Coast (4%).

In the three months ended September 30, 2013, Cimarex’s production averaged 716.8 million cubic feet of natural gas equivalent per day (including oil). That’s up 12.8% from 635.1 million cubic feet a year earlier.

Thanks to the higher production and increased oil and gas prices, Cimarex’s cash flow per share jumped 41.4%, to $4.27 from $3.02.

Cimarex’s total debt of $900 million is 10.3% of its market cap. The shares yield 0.6% on the $0.14 dividend.

In the latest edition of Stock Pickers Digest, we look at Devon Energy’s debt and the risk that comes with its big purchase of GeoSouthern. We also examine Cimarex’s cash flow forecast and whether its shares are likely to keep rising. We conclude with our clear buy-hold-sell advice on these two stocks.

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