Chevron, the second-largest US oil company, said it will increase spending 20 per cent to $26 billion next year, with 85 per cent of the budget allocated to oil and gas exploration and production.

Rising demand for crude oil from emerging and developed countries and stable output from Opec are helping to reduce a surplus in global oil markets, factors that provide oil and gas companies with the confidence to raise spending.

"We are moving into a period of higher capital spending as we fund new legacy projects, including sizeable investment in our liquefied natural gas mega projects," George Kirkland, Chevron vice-chairman, said.

Last year, Chevron budgeted $21.6 billion for 2010.  Exploration spending in 2011 is estimated at $22.6 billion, while the San Ramon, California company's refining budget is seen at $2.9 billion, it said.

Expenditures of approximately $0.5 billion in 2011 are budgeted for technology, power generation and other corporate activities.

Major exploration and production projects include development of Chevron's Gorgon and Wheatstone natural gas resources and liquefied natural gas facilities in Western Australia.

Included in the next year's refining budget is spending on projects at its refineries in Mississippi and California.-Reuters