March 11 (Bloomberg) -- Chevron Corp., the second-largest U.S. oil company, raised its cost targets for seven projects by $3.8 billion and indefinitely delayed two others amid record prices for energy services and equipment.

The increases bring estimated costs for the projects to $23 billion, up 20 percent from previous projections, Chief Executive Officer David O'Reilly told analysts today in New York. The company dropped target dates for beginning output at liquefied-natural-gas projects in Australia and Nigeria.

Chevron is spending $50 million a day this year to expand refineries and find new oil fields after the San Ramon, California-based company's reserves fell to the lowest in at least nine years in 2007. The producer is drilling exploration wells from the Arctic to Australia and is testing new technology to extract more fuel from each barrel of oil.

``There's no question rates and costs have gone up considerably,'' said Reed Wood, a partner at Grant Thornton LLP in Houston who advises exploration and oilfield-services companies. ``Everything drilling-related is up, but rates for offshore rigs have increased the most.''

Competition for rigs and drilling crews has intensified as record crude prices above $100 a barrel stoke exploration spending. Chevron and other energy companies have struggled to replace output with new discoveries, partly on provisions in production-sharing contracts giving host nations such as Angola and Indonesia bigger stakes in oil fields when prices rise.

$380,000 a Day

O'Reilly attributed the escalation in project budgets to ``rising costs for skilled personnel, materials and services.'' The company said it expects its average deepwater rig rent this year to jump 36 percent to $380,000 a day.

The cost increases announced today include a 34 percent jump in the estimate for Chevron's Tahiti oil project in the Gulf of Mexico to $4.7 billion.

Chevron said it plans to boost oil and gas reserves by the equivalent of 500,000 barrels of crude, or 4.6 percent, to 11.3 billion barrels by the end of 2010. The company had reserves equivalent to almost 10.8 billion barrels of crude as of Dec. 31, down from 11.6 billion barrels a year earlier.

Chevron rose $3.43, or 4.1 percent, to $88.16 in New York Stock Exchange composite trading as the Standard & Poor's 500 had its biggest gain since October 2002. All but one of the 30 largest U.S. energy stocks by dollar value of shares traded rose. Before today, Chevron had dropped 9.2 percent this year.

Australia, Nigeria

The company indefinitely postponed its Gorgon gas project off Australia and the Olokola gas development in Nigeria. Gorgon, which has been dogged by regulatory delays and spiraling costs, will be 87 percent larger than originally planned, with daily output equivalent to 440,000 barrels of crude, Chevron said today.

Chevron, operator and 50 percent owner of Gorgon, said engineering designs for three processing units will be finished in 2009. Formal investment decisions will follow in 2010 or later from Chevron and partners including Royal Dutch Shell Plc and Exxon Mobil Corp., George Kirkland, who oversees Chevron's oil and gas operations, said today.

``This is going to be the biggest investment Chevron has ever made,'' Kirkland said. ``We did not expect it to take us four-plus years to get environmental permits.''

Gorgon's gas reserves eventually will require two more liquefaction units, known as trains, to fully develop, Kirkland said. ``That gas is not going to be produced until we have the infrastructure,'' he said.

Project Delays

Four other projects, including oil and gas fields in Azerbaijan and Nigeria, will start at least one year later than planned.

Chevron decided against adding a crude-processing unit at its Pascagoula, Mississippi, refinery because of rising costs, Mike Wirth, who oversees the company's refining business, said in the company's presentation to analysts.

The company expects to lower crude costs at its refineries by $1 a barrel by adding units that process cheaper, lower-grade oil with high levels of sulfur and mercury, Wirth said.

Chevron has adopted practices from the nuclear industry to improve safety and performance after breakdowns and fires led to almost $900,000 a day in losses at the company's U.S. refineries during the last six months of 2007, Wirth said.

O'Reilly, a Dublin-born chemical engineer, said the company is focused on expanding existing refineries rather than building costlier new plants.

Refinery Projects

``We're not looking at green-field opportunities,'' O'Reilly told the analysts today. ``Those are out of reach.''

Chevron last month cut its 2008 oil and gas production estimate by 150,000 barrels a day to 2.65 million barrels, citing the postponed projects. Oil and gas sales accounted for 99 percent of the company's fourth-quarter net income after chemicals earnings dropped and the company's U.S. refineries lost money.

Output will average the equivalent of 2.74 million barrels of oil a day through 2010, Chevron said.

The TenghizChevroil LLP project in Kazakhstan accounted for 23 percent of Chevron's worldwide reserves, the largest contributor to the company's resource base. No other project accounted for more than 5 percent, according to a public filing. Chevron operates the Tenghiz field and owns a 50 percent interest.

Irving, Texas-based Exxon Mobil Corp. is the world's biggest oil company.

To contact the reporters on this story: Joe Carroll in Chicago at jcarroll8@bloomberg.net; Dan Lonkevich in New York at dlonkevich@bloomberg.net.

Last Updated: March 11, 2008 16:16 EDT