Devon, XTO profits down but exceed Street view

By Anna Driver

HOUSTON (Reuters) - Devon Energy Corp (DVN.N) and XTO Energy Inc (XTO.N) 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