Dec. 11 (Bloomberg) -- Exxon Mobil Corp., the world’s largest company, may raise spending on oil exploration and refineries by $5 billion next year as rival energy producers reduce budgets to cope with falling prices and a recession-driven drop in demand.

The Irving, Texas-based company expects to spend as much as $30 billion in 2009 to lease drilling rigs and expand fuel plants, which would be a 20 percent increase from this year, Chief Executive Officer Rex Tillerson said today during a meeting with reporters in Chicago. The budget may decline by $1 billion or $2 billion from the estimate if falling prices for steel and other materials lower project costs, he said.

“We don’t see a need to make any cuts at this point,” Tillerson said. “We don’t pay attention to the day-to-day price of oil because it’s somewhat unimportant to us.”

It would be the fifth-straight year of rising capital spending for Exxon Mobil. A 20 percent increase would outpace the average rate of increase of the previous four years of 14 percent, according to data compiled by Bloomberg.

Exxon Mobil, which refines about 7 percent of the world’s oil into fuels such as gasoline and diesel, has ample cash and untapped credit lines to expand in any of its three main businesses, petroleum production, refining and chemicals, Tillerson said after giving a speech to the Executives’ Club of Chicago.

Rivals Cut Back

Rivals including Royal Dutch Shell Plc, StatoilHydro ASA, EnCana Corp. and Petro-Canada have announced planned spending cuts or postponement of projects after oil prices plunged from a record in July. Crude oil for January delivery settled at $47.98 a barrel today on the New York Mercantile Exchange, a drop of 67 percent from a record $147.27 on July 11.

“A lot of guys could spend the money but they’re not going to get credit for it” from investors, said Peter Ogden, an oil- industry analyst at National Bank Financial Inc. in Calgary. “Conserving cash on the balance sheet is worth more at this point for many companies, at least until credit markets firm up.”

Acquisitions

Tillerson said acquisitions are unattractive because prices demanded by sellers remain too high as a result of the rally in energy prices earlier this year. The last time the company made a major acquisition was 1999, when Exxon Corp. acquired Mobil Corp. for $87.7 billion.

“There’s still a lot of settling out on valuations that has to happen,” Tillerson said. “I’m not sure the valuations have all settled out yet.”

Worldwide demand for petroleum-based fuels probably will be little changed or slightly higher in 2009 after a small decrease this year, Tillerson said.

In North American and European markets, a surfeit of gasoline amid falling consumption next year means gasoline “is going to continue to be under a lot of pressure,” he said. “That could temper somewhat depending on the economy.”

Exxon Mobil is expected to report record net income for a third-straight year after crude soared to the record and natural gas climbed to the highest price since December 2005.

Shareholders haven’t seen the benefit, as concern that the global economic slump will reduce fuel demand pushed the stock down 15 percent this year, heading for the worst performance since 1981. Exxon Mobil fell 5 cents to $80.02 today in New York Stock Exchange composite trading.

Falling Production

Tillerson has also struggled to arrest declining output from the company’s oil and natural-gas wells. Third-quarter production was equivalent to 3.6 million barrels of crude a day, the lowest since the acquisition of Mobil. In October, David Rosenthal, an Exxon Mobil spokesman, said production will increase in 2009, in part because of a new liquefied-gas project in Qatar.

Since Tillerson became CEO in January 2006, the company’s cash reserves increased 15 percent to $36.7 billion as of Sept. 30, exceeding those of Microsoft Corp. and Warren Buffett’s Berkshire Hathaway Inc.

To contact the reporter on this story: Joe Carroll in Chicago at jcarroll8@bloomberg.net

Last Updated: December 11, 2008 16:50 EST