A cautious rise in capital spending budgeted by energy firms for next year will do little to revitalise sluggish oil production growth that has prevented companies meeting output targets, oil analysts said.

Energy companies plan to raise exploration and production spending by only around four percent in 2004, slowing from a rise of 9-10 per cent this year, according to recent reports by banks Lehman Brothers and Citigroup.
It is a modest increase given oil’s four-year price boom, as companies target their money on projects that will give them good returns rather chase production growth by lavishing investment on ageing higher-cost basins.
“Increases in capital spending are not really coming through in production,” said Rory Stewart of Simmons and Co bank in Aberdeen. “If you look at the last four years, growth has not been that great outside the former Soviet Union.”
Low-cost new oil supply is increasingly elusive as traditional hunting grounds like the North Sea and United States tip into decline, while Middle East giants such as Saudi Arabia, Kuwait and Iraq prove slow to open up to foreign investment.
The energy giants that have emerged from a wave of mergers over the last five years must now focus on frontier areas such as Russia and west Africa where Big Oil wants to find the big fields that bolster profits.
‘‘Major companies are increasingly going to provinces where they can find larger reservoirs,” said Jim Crandell, analyst with Lehman Brothers, which sees capital spending growth of four percent next year.
The new breed of mega-projects in far flung regions force companies to pay up to ensure their pioneering investments pay off. “These can involve deeper and more complex wells, as well as more political risk,” said Crandell.
Royal Dutch/Shell raised its E+P spending forecast for this year by $2 billion to $11 billion, as it spent more than expected on two giant projects in remote regions: Sakhalin in the Russian Far East and Kashagan in landlocked Kazakhstan.
The multi-billion dollar investments are no guarantee that projects will not suffer delays. BG Group  in December  cut its 2004 output forecast for its Kazakh project, Karachaganak, by 80,000 bpd because of unforeseen hitches.
All the world’s top three energy firms ExxonMobil BP and Royal Dutch/Shell struggle to offer oil and gas output growth of three per cent a year.