Looking for black gold

SAN FRANCISCO – Chevron Corp. said Thursday that it will increase its capital spending by 35 percent next year, with most of the $14.8 billion budget earmarked for projects aimed at boosting the future supply of oil and gas – an effort that could help reverse recent trends that have driven up energy prices dramatically.

The San Ramon-based company made the 2006 spending commitment as it and other major oil companies try to fend off a political backlash against the industry’s booming profits.

Chevron and four other of the world’s largest oil companies earned a combined $32.8 billion during the three months ending in September – a period marked by $3-per-gallon gasoline after Hurricane Katrina hobbled refineries that produce the fuel.

Congress is now pressuring the oil industry to invest more of its profits in the quest to find more oil and natural gas while also expanding the capacity of the plants that refine gasoline. As a prod, two U.S. senators last month proposed a new 50 percent tax on the sale of oil above $40 per barrel – with an exemption for companies that showed they were reinvesting more of their profits.

Crude oil prices recently have been hovering around $60 per barrel, down from a peak of more than $70 per barrel.

Chevron Chairman David O’Reilly said the company’s capital spending budget for 2006 “demonstrates our commitment to bring new energy supplies to the market.” The company’s capital spending totaled $11 billion this year.

Some of next year’s increased spending simply reflects that Chevron will be significantly larger than it was for most of this year. Chevron expanded in August when it completed a $17.8 billion acquisition of Unocal Corp.

The oil industry’s investment in oil exploration and production lagged several years ago when energy supplies seemed abundant and prices were relatively low – a combination that provided little incentive to expand.

Even as oil prices have climbed in recent years, industry executives have been reluctant to ramp up spending, citing fears that energy demand would suddenly drop and create a market imbalance.

Industry critics contend the oil industry has made a concerted effort to tighten supplies to ensure its profits would soar.

Chevron is expected to earn about $14 billion this year, a modest improvement from last year when it posed net income of $13.3 billion – the highest since its inception in 1879.

The company would have made even more money this year if not for hurricanes Katrina and Rita, which knocked out much of its Gulf of Mexico production, including a Mississippi oil refinery that reopened last month.

Besides spending more on oil exploration and gasoline production, Chevron also is setting aside $5 billion to buy back some of its own stock during the next three years – a program designed to put more cash into investors’ pockets.