Boost in oil spending not seen as magic wand

By Deepa Babington

NEW YORK (Reuters) - Pressuring oil companies to invest more has become a popular refrain among activists and lawmakers seeking to ease the burden of rising energy prices.

But oil economists and regulators this week expressed doubt over the wisdom of throwing more money at the problem, warning it may only drive costs even higher, not relieve prices at the pump.

Oil prices soared to more than $75, a record, in April from a little over $20 a barrel in 2002 partly because the costs of drilling and finding oil have also surged in the same period, Deutsche Bank chief energy economist Adam Sieminski told the Reuters Global Energy Summit earlier this week.

Everyone rushing to raise spending would only further drive up costs, he said.

"The criticisms of the industry not spending fast enough, it's easy to say that from the outside," Sieminski said. "If the major companies threw more of their cash at drilling activity right now, all that would manage to do is push up drilling costs.

"That would probably have a worse long term impact in terms of driving the costs up for everyone than if the companies just continue on the path they're taking," he added.

Oil companies complain of spiraling labor costs and a severe shortage of skilled workers like petroleum engineers, compounded by higher costs for raw materials and drilling rigs.

Oil executives generally estimate industry costs are rising over 10 percent each year, and day rates for some drilling rigs have doubled or tripled in recent years.  Continued...