Devon Drops Plan to Form Gas Partnership

By DAN LONKEVICH

Devon Energy Corp. said Wednesday that third-quarter profit rose 4.3 percent on increased output. The company also announced it has abandoned plans to create a master limited partnership for its domestic gas-gathering and processing assets.

Net income rose to $735 million, or $1.63 a share after payment of preferred dividends, from $705 million, or $1.57, a year earlier, Oklahoma City-based Devon said in a statement. Sales rose 11 percent to $2.76 billion.

CEO Larry Nichols is selling international assets with lower growth prospects, including those in Egypt and West Africa, to focus on operations in the Gulf of Mexico and Barnett Shale region of North Texas with better prospects. The company — the nation’s largest independent oil and natural gas producer — said it decided not to proceed with the partnership because of “changing financial market conditions.”

The planned partnership would have had a minority stake in processing operations in Oklahoma, Texas, Wyoming and Montana.

Benefits from exiting Egypt and West Africa increased third- quarter profit by $25 million, Devon said. Excluding that and other one-time items, profit was $1.55 a share, exceeding by 15 cents the average of 23 analyst estimates compiled by Bloomberg.

“The earnings look pretty healthy,” said Michael Henzi, an analyst at Stern Agee & Leach Inc. in Boston who rates Devon shares a “hold” and owns none. “It was higher production and higher oil prices.”

Shares of Devon have gained about 35 percent this year.

Third-quarter output of oil and gas rose 9.7 percent to 56.8 million barrels of oil equivalent, Devon said. The company said its oil sold for an average of $67.41 a barrel, 5.7 percent more than a year earlier. Its gas fetched $5.31 per thousand cubic feet, a drop of 5.7 percent.

Devon raised its 2007 production forecast to 223 million barrels of oil equivalent, from 219 million to 221 million barrels. The company also reiterated its 2008 output forecast at 240 million to 247 million barrels.

Devon said it completed the sale of its Egyptian assets to Dana Petroleum PLC, a Scotland-based oil and gas explorer, in October for $341 million. The unit produced about 12,300 barrels of oil a day last year.

Devon expects to complete the sale of operations in West Africa in the first half of 2008, Nichols said on a call with analysts and investors.

The company said Sept. 12 that it planned to sell some oil- sands properties in northern Alberta that might fetch as much as $846 million.

Originally published by DAN LONKEVICH Bloomberg News.

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