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

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. [ID:nN04512870]

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. [ID:nN04506461].

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.

Murphy Oil's net profit in the third quarter was $188.9 million, or 98 cents per share, compared with $584.4 million, or $3.04 per share, in the year-ago quarter. [ID:nN0459885]

Analysts, on average, had expected the El Dorado, Arkansas company to report a profit of 99 cents per share.

In Europe, France's Total (TOTF.PA) and Norwegian rival Statoil (STL.OL) 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. [ID:nL489506]. (Reporting by Anna Driver in Houston; Editing by Dave Zimmerman, Steve Orlofsky, Tim Dobbyn)