Chevron Plans to Spend More on Exploration

Flush with profit, Chevron Corp. said Thursday that it would spend $14.8 billion, a 35% increase, on oil and natural gas exploration and capital projects next year.

The nation’s second-largest oil company also plans to invest in itself. The San Ramon, Calif.-based oil giant said it would repurchase $5 billion of its stock over the next three years.

“They have a mountain of cash, and this is as good a way to spend it as any other,” said Fadel Gheit, an industry analyst with Oppenheimer & Co. in New York.

Chevron Chief Executive Dave O’Reilly said in a statement that the size of the spending program “demonstrates our commitment to bring new energy supplies to market.” The bigger budget reflected a queue of projects, some from its August purchase of Unocal Corp., that are “entering their construction phase,” he said.

About $4.9 billion of the spending is earmarked for investment in the United States, where Chevron plans more development of deep-water reserves in the Gulf of Mexico and an increase in gasoline production. The investment, which represents a 29% increase from this year, includes research into the production of cleaner diesel fuels and the development of batteries for hybrid vehicles.

The refining capacity of U.S. oil companies became a hot- button issue this year, when hurricanes Katrina and Rita disrupted oil and gasoline production along the Gulf Coast and sent retail gasoline prices to record levels. In addition, energy companies were criticized for not devoting more of their profits to the search for new oil and natural gas fields.

Tight supplies continue to create a volatile market. Oil and natural gas futures prices jumped Thursday on fears that cold weather would squeeze natural gas inventories.

Natural gas for January delivery hit a fresh high of $14.994 per million British thermal units, up $1.294 on the New York Mercantile Exchange, topping the previous record close of $14.338 on Oct. 25. Light sweet crude for January delivery rose $1.45 to $60.66 a barrel, the highest price since Nov. 3.

The combination of lofty energy prices and large profits for oil producers has sparked congressional threats to increase oil company taxes.

In October, Chevron said its net income rose 12% to $3.6 billion, or $1.64 a share, in the third quarter from $3.2 billion, or $1.51, a year earlier. The gain would have been bigger if not for the $600 million in business Chevron lost to Katrina and Rita.

But Chevron’s profit was modest compared with those of its competitors. Exxon Mobil Corp. reported that its earnings soared 75% to $9.9 billion in the third quarter on $100.7 billion in sales. Royal Dutch Shell said its profit rose 68% to $9 billion on $76.4 billion in revenue.

Gheit said Chevron’s bump in capital spending was in part a nod “to the politicians.” But he said it also made good business sense considering the robust nature of the energy markets.

“It speaks to the industry’s fundamentals,” Gheit said. “Prices are not going to collapse in the next quarter or so, and that means there will be plenty of free cash flow to do all this.”

Gheit estimates that Chevron will earn about $17 billion next year, compared with about $15 billion this year.

Chevron shares rose 32 cents Thursday to $59.62.