UPDATE 2-Chevron sets $32.7 bln 2012 budget, up by a sixth

Wed Dec 7, 2011 6:09pm EST

* Sees 2011 outlay at $28 bln, $2 bln more than expected

* Brings Chevron spending into line with Exxon

By Braden Reddall

Dec 7 (Reuters) - Chevron Corp , the second-largest U.S. oil company, is increasing its spending in 2012 by about a sixth as it invests heavily in deepwater developments and two massive Australian liquefied natural gas projects.

The $32.7 billion capital and exploratory budget compares with the $28 billion it expects to have spent this year, which is $2 billion more than the company originally planned.

"We are building new legacy positions with major investments in LNG projects and the deepwater Gulf of Mexico," Vice Chairman George Kirkland said in a statement. "Our global LNG investments are estimated to reach peak spending in 2012 and 2013."

The increase brings Chevron's spending closer to that of larger rival Exxon Mobil Corp , which expects its annual budget in the next several years to range from $33 billion to $37 billion.

Chevron's budget growth is similar to that of ConocoPhillips , which said on Friday its 2012 capital spending will grow 15 percent to $15.5 billion.

It also reflects a broader trend as producers respond to oil prices at $100 per barrel or more, and spend record sums in order, in many cases, simply to maintain production at current levels.

Chevron's worldwide oil and gas output has failed to grow in the past year, and Chief Executive John Watson reiterated that the big investments now would pay off in the years ahead. He repeated a prediction of 20 percent production growth to 3.3 million barrels per day (bpd) by 2017.

"This growth profile, along with our current financial strength, supports our priority of continuously growing our dividends," Watson said. The company announced a 3.8 percent rise in its quarterly dividend in October.

In Australia, the Gorgon LNG project is one-third complete and entering its third year of construction, on track for first production in 2014. The Wheatstone LNG development, located 60 miles (100 km) south, is entering its first year of construction, and expected to start producing in 2016.

Together they will add up to a net 350,000 bpd for Chevron, and sustain those levels for "many years," it said.

The company said 30 percent of the $28.5 billion budgeted for its upstream exploration and production arm in 2012 will support currently producing assets and mitigate natural field decline. About $3 billion will go toward exploration.

Chevron has also included the development of the Papa-Terra deepwater field in its plans, despite the political fallout of a leak at another deepwater project off Brazil last month.

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