WRAPUP 3-Devon, XTO profits down but exceed Street view

* Devon, XTO Q3 profits surpass Street view

* XTO output up 23 pct, Devon production up 6 pct

* Devon shares up 1.9 pct, XTO shares up 1.3 pct

* Devon sees recovery in North American natural gas

* Murphy Oil profit falls 68 pct (Adds Murphy Oil, updates share movement)

By Anna Driver

HOUSTON, Nov 4 (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.

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.

Murphy Oil Corp (MUR.N) said its quarterly profit fell 68 percent, hit by lower crude prices and as weak fuel demand in the global economic slowdown hurt its refining business.

Shares of Devon and XTO shares rose early in Wednesday trading but later fell back, in line with a broad pull-back in stocks after the Federal Reserve expressed concern about a muted economic recovery. [ID:nN04453484]

Devon's stock closed nearly 1 percent higher at $67.07 but XTO shares finished with a 0.4 percent loss at $42.07. Shares of Murphy Oil fell 2 percent in after-hours trade to $62.

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 [ID:nWEN6077].

"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