UPDATE 3-Devon sees no output growth; reconsiders MLP for midstream assets

Wed Feb 20, 2013 2:42pm EST

* Oil output in Permian Basin up 31 pct in Q4

* Reports Q4 loss on asset impairment charges

* Adjusted profit beats analysts' estimates

* Sees 2013 E&P capex down 25 percent

* Shares fall 5 pct

Feb 20 (Reuters) - Devon Energy Corp said it expects output to stay flat this year as it spends less on exploration and production, and is relooking at the prospect of forming a master limited partnership for its pipelines and processing assets.

The oil and gas producer had first considered forming a publicly-traded MLP in 2007 for its gas pipeline and processing operations in Texas, Oklahoma, Wyoming and Montana, but had called off the plan due to market conditions.

MLPs have found favor with owners of cash-generating pipeline and other energy infrastructure in recent years because they pay virtually no corporate taxes.

"We will leave no stone unturned in looking for true value-creation opportunities. One potential opportunity that appears to have promise is the creation of a midstream master limited partnership," Devon Chief Executive John Richels said on a conference call with analysts.

Shares of the company were down nearly 5 percent in afternoon trading after the company provided a dismal outlook for 2013.

North American energy companies are focusing on drilling for more valuable oil as gas prices remain weak due to heavy supplies, forcing Devon, Encana Corp and EOG Resources Inc to write down the value of their properties.

Devon intends to spend $4.9 billion to $5.3 billion on exploration and production this year as it looks to cut down gas drilling.

Total capital budget, including spending on pipelines and processing facilities, will be $6.4 billion to $7 billion, Devon said.

Larger rival Anadarko Petroleum Corp expects capital spending to change little at $7.2 billion to $7.6 billion in 2013, with production growing 5 percent.

"We will aggressively invest in oil-driven projects while letting gas volumes decline," Devon's Richels said. "We simply refuse to compromise value by funding projects with low rates of return ..."

Oklahoma City-based Devon's oil output rose about 20 percent last year, helping production reach 250 million barrels of oil equivalent (boe) - its highest annual production ever despite a marginal fall in natural gas output.

In the course of shifting towards oil, Devon expects its total production to dip to 670,000 boe per day in the current quarter ending March 31, from 678,000 boe per day reported in the fourth quarter.

WRITEDOWNS HURT

Devon took an impairment charge of $896 million in the fourth quarter, resulting in a net loss of $357 million, or 89 cents per share. The company had recorded an impairment charge of $1.1 billion in the third quarter.

Excluding the charge and some other items, Devon earned 78 cents per share in the September-December quarter.

Analysts on average expected earnings of 75 cents, according to Thomson Reuters I/B/E/S.

Devon's revenue fell marginally to $2.6 billion, still above analysts' estimates of $2.4 billion.

Natural gas prices averaged $3.54 per million British thermal unit in the fourth quarter, well below the $14 high set in 2005.

Devon drills for oil, gas and natural gas liquids on land from the Canadian Arctic to the Gulf Coast of the United States.

Devon's shares fell 5 percent to a two-week low of $57.70 on the New York Stock Exchange. Shares of Anadarko were down 3 percent at $81.74.

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