Devon Energy Corp. (DVN) will dial down drilling activity in 2009 and focus on long-term projects in anticipation of rebounding energy prices, its chairman and chief executive said Wednesday.

Until the natural gas market recovers, the Oklahoma City-based independent oil and gas company's 2009 production would remain in line with last year's levels, CEO Larry Nichols said.

"We see no reason to accelerate our natural gas production in this weak natural gas market," Nichols said during a conference call to discuss the company's fourth-quarter earnings.

Devon will continue to fund Jackfish 2, a Canadian oil sands project; develop its Gulf of Mexico assets; and evaluate its assets in the Haynesville Shale, a rapidly-developing natural gas field in Texas and Louisiana. The company will cut back on drilling in North Texas' Barnett Shale, in Wyoming and East Texas.

Devon Energy is the latest oil and natural gas producer to announce it was slashing spending forecasts, idling rigs and renegotiating service costs in the face of falling commodity prices. The move underscores how the energy industry is dealing with declines in demand for oil and natural gas amid the economic downturn.

Devon cut its 2009 exploration and production spending to $3.5 to $4.1 billion, less than half of what the company spent on exploration and development in 2008. Total 2009 capital expenditures will be between $4.6 billion and $5.4 billion.

In recent months, energy priceshave plummeted. Natural gas prices have fallen more than 65% since hitting a July 2 peak of $13.694 a million British thermal units and oil prices have fallen more than 70% since peaking above $145 a barrel last summer.

The steep decline in oil and gas prices has led a number of companies to write down assets to reflect those declines. Companies such as Chesapeake Energy Corp. (CHK) and ConocoPhillips (COP) have both announced write-downs. Devon and Anadarko Petroleum Corp. (APC) also said this week they were working to reduce the costs of oilfield services to make projects more profitable.

On Wednesday, Devon reported a $7.1 billion non-cash charge to reflect year-end energy prices. The write-down resulted in the company reporting a net loss in the fourth quarter of $6.8 billion. In the previous quarter, the company had reported record net earnings of $2.6 billion.

In an interview, Nichols said Devon will evaluate assets to position itselffor a price recovery. Devon doesn't plan to boost its production at current price levels but will take on about $1 billion in debt to fund long-term developments.

"We are trying to be realistic about the future," Nichols said. "We are in the business of making profits."

The additional spending will leave it with about $2.1 billion in credit by the end of the year.

Fadel Gheit, an analyst with Oppenheimer & Co. in New York, said Devon's strong balance sheet allows the company to outspend its cash flow in tighter credit markets.

"You don't cut capital spending to the bare bone and starve future growth," he said.

Nichols said he expectsnatural gas production to flatten in the second quarter and begin falling in the third quarter as industry-wide cutbacks in drilling activity take hold. Devon currently operates 68 rigs, down from a 2008 peak of 112. The company plans to operate 32 rigs by the end of the first quarter.

"Prices will stabilize fairly quickly towards the end of this year," he said.

-By Jason Womack, Dow Jones Newswires; 713-547-9201; jason.womack@dowjones.com