ConocoPhillips (COP.N: Quote, Profile, Research), the third-largest U.S. oil company, said on Wednesday it expects to increase its capital spending in 2008 as costs to drill for oil and gas rise sharply.
Chief Executive Jim Mulva said he believes capital spending will probably be in the range of $14 billion to $15 billion in 2008, up from $13.5 billion projected for 2007.
"We have got some pretty significant opportunities that we are going to be adding to the program, and we also see quite a bit of cost pressures on existing commitments," Mulva said on a company conference call.
According to a Cambridge Energy Research Associates study released in February, oil and gas production costs have risen 67 percent since 2000 on high demand for steel, drilling rigs and other materials used in production.
"Everything is costing us more than we thought it was going to cost," Mulva said.
ConocoPhillips posted much higher-than-expected earnings on Wednesday as profits from its oil refineries rose 38 percent.
Excluding a $4.5 billion charge related to Venezuela's move to take over ConocoPhillips operations in the country, it posted earnings of $2.90 a share. The result was well ahead of Wall Street's average expectation of $2.68 a share, according to Reuters Estimates.
The company recently announced a $15 billion share repurchase plan that runs through the end of 2008, nearly quadrupling its previous program.U.S. oil companies have been buying back huge amounts of stock to pass on the windfall from soaring oil and natural gas prices to investors.
Mulva said one reason the company stepped up its share buybacks is because he believes acquisitions are currently very expensive and difficult to complete for political reasons.
"It is also a direct communication ... when we buy back this amount of shares, that we don't contemplate doing large M&A deals," Mulva said.
He said the company plans to complete the full buyback over the term regardless of changes to energy prices, even if the company needs to tap debt markets.
"We do recognize that the marketplace may or may not be at $70 oil," Mulva said."We have a very strong financial position that we can fund this share repurchase program and our capital program. If debt goes up a little bit, we still have a very strong financial structure," he said.