Dec. 7 (Bloomberg) -- Chevron Corp., the second-largest U.S. oil company, plans to raise capital spending by more than 20 percent next year to a record $19.6 billion as costs escalate and major projects move from the drawing board to construction.

The company will finish this year with spending of about $16 billion, San Ramon, California-based Chevron said today in a statement. As recently as March, Chevron said it would have spending of $14.8 billion this year and $16 billion in 2007.

U.S. oil companies, buoyed by unprecedented profits and record energy prices, are under pressure from lawmakers to boost spending to lift crude and natural-gas supplies. Chevron earmarked about 75 percent of its 2007 capital budget for exploration and production. Labor and equipment expenses are soaring as producers compete for drilling rigs and work crews.

``Oilfield-service costs have gone out of sight,'' said Fadel Gheit, an analyst at Oppenheimer & Co. in New York who has a ``neutral'' rating on Chevron and owns an undisclosed number of the company's shares. ``Any projects in the deepwater Gulf of Mexico are just incredibly more expensive.''

Rents for the most advanced deepwater drilling rigs have more than doubled in the past 18 months. To get the few rigs available, producers are signing contracts committing to pay more than $500,000 a day for multiple years to use rigs offered by such drillers as Transocean Inc. and GlobalSantaFe Corp.

ConocoPhillips Cuts Spending

ConocoPhillips, the third-largest U.S. oil company, plans to delay investment in some projects next year in response to soaring costs. The Houston-based company today said it plans to cut its capital budget by 25 percent in 2007 to $13.5 billion.

Spending this year by ConocoPhillips ballooned to about $18 billion as the company paid for an increased stake in OAO Lukoil, Russia's largest oil producer.

Chevron plans to spend $14.6 billion next year on exploration and production. Most of the rest is earmarked for upgrades to refineries and chemicals plants.

``It's more than I expected,'' said James Halloran, who helps manage $34 billion in assets at National City Private Client Group in Cleveland. ``It's not so much in capital expenditures for new sources of production as it is spending more money on long-range projects that are costing more.''

Shares of Chevron fell 24 cents to $73.32 in New York Stock Exchange composite trading. Before today, the stock had climbed 30 percent this year. ConocoPhillips gained 80 cents, or 1.2 percent, to $69.69.

Pressure From Congress

Chevron's 3.375 percent bonds maturing in February 2008 rose .13 cent on the dollar to 98.21 cents on the dollar, according to Trace, the bond price reporting service of the NASD. The yield fell to 4.96 percent from 5.07 percent.

Oil executives, including Chevron's David O'Reilly, have been called to appear before U.S. Senate panels twice in the past 13 months to discuss surging profits and exploratory spending. In May, the House Energy and Commerce Committee launched an investigation into how oil companies invest profits.

Democratic lawmakers last month said they will use their majorities in the House and Senate next year to repeal a 90- year-old tax break that benefits petroleum producers.

Chevron's spending increases stem largely from the fact that several major projects are entering capital-intensive phases, O'Reilly, the company's chief executive officer, said in the statement. O'Reilly, 59, is drilling wells and building gas plants in the Gulf of Mexico, Africa, Australia and Brazil after production declined in five of the past six years.

Expensive Projects

Chevron is counting on five major projects that will cost at least $27 billion to build to lift oil and gas production through the end of this decade. The costliest of the five, the $10.4 billion Gorgon liquefied-gas project off the coast of Australia, has been delayed because of environmental concerns.

One of the projects that has entered its most cost- intensive phase is the $3.6 billion deepwater Tahiti project, 140 miles (225 kilometers) off the Louisiana coast, Chevron spokesman Mickey Driver said. The company is spending about $1 million a day to rent and staff two rigs to drill wells that are expected to begin pumping oil in 2008.

Also today, Chevron announced its third $5 billion stock- buyback program since April 2004. The latest board authorization allows for the purchase of as much as $5 billion worth of shares within three years. The company said its last buyback was completed in 12 months.

Chevron's third-quarter profit jumped 40 percent to $5.02 billion, the biggest increase among the world's five largest oil companies, as crude prices surged to a record $78.40 a barrel in July.

Margins Crimped

Each $1 increase in the price of crude raises Chevron's pr- share earnings by 1.8 percent, according to William Featherston, an analyst at UBS Securities LLC.

Rising rig costs are crimping profit margins, said Richard Moroney, who helps manage $110 million in assets, including Chevron shares, at Horizon Investment Services LLC in Hammond, Indiana. ``But they're making so much money with high oil prices that they're going to just suck it up and keep on spending,'' he said.

ConocoPhillips said $11.5 billion, or about 85 percent of its capital budget, will go toward finding and producing oil and gas. About $1.2 billion will go to affiliates and a joint venture with Calgary-based EnCana Corp. that will develop and refine crude from Canada's oil-sands fields, the U.S. company said in a statement.

Exxon Mobil Corp., based in Irving, Texas, is the world's largest oil company.

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: December 7, 2006 16:06 EST