Devon, XTO profits down but exceed Street view

By Anna Driver

HOUSTON (Reuters) - Devon Energy Corp (DVN.N: 行情) and XTO Energy Inc (XTO.N: 行情) reported lower quarterly earnings on Wednesday as crude oil and natural gas prices fell from a year ago, but higher output and cost-cutting helped the U.S. independents top Wall Street expectations.

Devon and XTO shares rose 1.9 percent and 1.3 percent, respectively, in afternoon trading on the New York Stock Exchange.

The global economic slowdown has reduced demand for natural gas and crude oil. As a result, inventories swelled in the third quarter and prices tumbled, cutting into profits at energy companies.

Natural gas prices fell 62 percent from a year ago in the third quarter, while the average price of crude oil was just over half of that of a year earlier.

Devon said it expects the North American gas market to recover and plans to increase its drilling activity in 2010 after a slowdown this year.

"As we look ahead, we do see improving economics in the North American natural gas business," Larry Nichols, Devon's chief executive, told investors on a conference call.

Higher commodity prices, proceeds from a planned sale of the company's stake in four deepwater Gulf of Mexico properties and lower costs will support a busier drilling program in 2010, Nichols said.

COSTS DOWN

To help offset the decline in oil and gas prices, both companies worked to hold down costs. XTO said its total production expense declined 5 percent, while Devon said lease operating expenses fell 15 percent in the quarter.

Devon and XTO reported higher oil and gas output. XTO's output jumped a hefty 23 percent, while Devon reported a 6 percent increase.

Devon, the third-largest U.S. independent oil and gas company by market value, reported a quarterly profit of $499 million, or $1.12 per share, compared with $2.6 billion, or $5.88 per share, a year earlier.

Excluding one-time items, Devon earned $491 million, or $1.10 per share, above the 90 cents that analysts had expected, according to Thomson Reuters I/B/E/S.

Energy research firm Tudor, Pickering, Holt & Co characterized Devon's results as strong and said the company's stock -- which has underperformed peers 34 percent year-to-date -- would get a boost from the results.

The company's revenue from oil, gas and natural gas liquids sales fell 54 percent to $1.7 billion, while XTO saw its revenue rise 8 percent to a record $2.29 billion.

XTO's profit fell 4 percent in the quarter to $500 million, or 86 cents a share, from $521 million, or 94 cents a share, a year earlier. Excluding a loss on the value of trading positions, XTO earned 88 cents per share, topping the 84 cents that analysts had forecast.

XTO also said it now expects 2009 production to rise 23 percent compared with an earlier forecast for an increase of 20 percent. The Fort Worth, Texas, company also said it also expects double-digit production growth in 2010.

In Europe, France's Total (TOTF.PA: 行情) and Norwegian rival Statoil (STL.OL: 行情) added to the downbeat tone from the oil industry, promising to tackle a tough environment with cost-cuts as they announced big drops in third-quarter profit.

Devon shares rose 1.9 percent to $67.71, while XTO shares climbed 1.3 percent to $42.80.

(Reporting by Anna Driver in Houston; Editing by Dave Zimmerman and Steve Orlofsky)