March 5 (Bloomberg) -- Exxon Mobil Corp., which recorded the biggest profit for a U.S. company last year, will raise 2008 capital spending to more than $25 billion to cope with escalating costs for drilling rigs and engineers.

The Irving, Texas-based company will increase spending on exploration, refineries and chemical plants by more than 20 percent from $20.85 billion in 2007, according to a presentation Chief Executive Officer Rex Tillerson provided for analysts today in New York.

Exxon Mobil expects to spend $125 billion during the next 5 years on pipes, vessels, exploration leases and other items, a 25 percent increase from Tillerson's March 2007 forecast. With crude around $100 a barrel, competition to find untapped reserves has caused a worldwide shortage of rigs and crews.

``With energy prices where they are, there's plenty of incentive to spend money to make money,'' said Barry James, who manages $2 billion, including Exxon Mobil shares, as president of James Investment Research in Xenia, Ohio. ``I'm glad to see them putting the money into growing the company instead of passing it all back in stock buybacks and dividends.''

The company's plan to spend at least $68 million a day this year on new wells and refinery expansions is a record for the industry. Royal Dutch Shell Plc, the world's second-largest oil company behind Exxon, expects to devote $24 billion to $25 billion to new projects this year.

London-based BP Plc plans to spend $22 billion, while Chevron Corp. of San Ramon, California, and Houston's ConocoPhillips pegged their 2008 budgets at $22.9 billion and $15.3 billion, respectively.

Output, Reserves

Tillerson, 55, is coming off a year in which oil output fell 2.4 percent and the company failed to replace 24 percent of the petroleum pumped from wells, the worst performance in 3 years. Exxon Mobil is resisting Russia's attempt to control gas from a $17 billion offshore project and is engaged in a $12 billion dispute with Venezuela over government seizure of an oil field.

The Organization of Petroleum Exporting Countries today voiced support for member Venezuela and condemned the use of ``ex parte pre-judgement measures,'' according to a statement issued by the cartel. Exxon operates wells and holds exploration leases in five OPEC nations.

Tillerson said he may consider a swap of Venezuela's 50 percent stake in an Exxon-operated refinery in Chalmette, Louisiana, to settle the dispute. Chalmette is the fifth-largest of Exxon's 11 North American refineries.

`Every Last Cent'

The world's five biggest oil companies netted almost $340 million a day combined last year. Record oil profits amid an economic slowdown may revive U.S. Congressional efforts to strip the industry of some of its earning power, said Douglas Ober, who manages the $850 million Petroleum & Resources Corp. fund in Baltimore.

U.S. Representative Edward Markey, a Massachusetts Democrat, last month accused oil companies of ``turning the American consumer upside down at the pump, shaking out every last cent.''

The company's cost to produce a barrel of oil increased by 18 percent last year after a 13 percent rise in 2006, according to a Feb. 28 public filing. Exxon Mobil spent $7.14 to pump each barrel from the ground in 2007, up from $6.04 a year earlier.

Spending this year on exploration, production platforms and other so-called upstream operations will rise by about 21 percent to $19 billion, Tillerson said. The company will start 19 projects by the end of 2010 that will add the equivalent of 725,000 barrels of oil, enough to supply 10 percent of the refineries along the U.S. Gulf Coast.

Share Performance

Tillerson has increased capital spending by 18 percent since succeeding Lee Raymond as chief executive in January 2006, lagging the 75 percent increase in expenditures on share buybacks during the same period.

Exxon Mobil fell 7.6 percent this year, the second-worst performance in the Standard & Poor's index of major U.S. oil companies, on concern that slowing economic growth will reduce energy demand. Houston-based Marathon Oil Corp. had the worst performance with a 12 percent decline.

Exxon Mobil, which pumps more oil than every member of OPEC except Saudi Arabia and Iran, is finding it harder to discover new fields. Last year, 46 percent of the exploratory wells the company drilled failed to locate commercial quantities of oil or gas, up from a 36 percent failure rate in 2006, the U.S. Securities and Exchange Commission filing showed.

LNG

Exxon Mobil plans to double production of liquefied natural gas, or LNG, during the next three years by building new plants and commissioning tankers to haul the fuel, Tillerson said. LNG is gas that has been cooled to shrink it for shipment from gas- rich nations such as Qatar and Indonesia to European, Asian and North American markets.

The return on the company's worldwide oil and natural-gas operations fell to 42 percent in 2007 from 45 percent a year earlier as costs increased faster than energy prices. For the company as a whole, return on capital employed was little changed last year at 32 percent.

Exxon Mobil rose 50 cents to $87.19 in composite trading on the New York Stock Exchange.

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

Last Updated: March 5, 2008 16:04 EST