Drilling has already declined this year in response to the market malaise, but spending is widely expected to be up because of commitments entered into last year when oil prices were relatively high and rig hire rates at their peak.

Longer term, leading oil companies attending the 13th biennial Offshore Northern Seas conference restated a commitment to actively explore for oil in ever deeper waters in all corners of the globe.

As for next year, some companies, especially those with heavy exposure to the Norwegian continental shelf, have said they expected spending cuts of up to 50 per cent.

"While drilling costs have risen this year, poor macro-economic trends and falling oil prices have restricted cash for exploration," said Stuart Cochrane of Aberdeen based oil consultantsPetrodata.But some oil companies, including Mobil and Phillips, said they had no plans to revise down their spending levels, despite the sharp drop in oil prices over the past year.

Norway's Saga Petroleum said this week that it would cut capital expenditure next year by up to 50 per cent as a result of a 30 per cent drop in company revenues so far this year.

Compatriots Statoil and Norsk Hydro are believed by observers to be planning similar cutbacks, while Elf Norway's managing director, Jerome Contamine, expected cuts by Elf to be in line with those of the industry as a whole.

He expected that to be 20-25 per cent, but this year's outlay to be up on 1997.

Contamine said $18 a barrel Brent crude oil prices this time last year, compared to the $12 of the past few months, meant oil companies were not unduly concerned about shelling out high rates for drilling rigs, many of which were contracted for use this year, so pushing up spending levels.

"Rig activity is definitely down this year, but spendingis probably higher because of the commitments entered into last year," Cochrane said.

Most companies said they had experienced no discernable fall in rig activity this year.

However, Britain's Premier Oil said it had deferred some seismic activities that had been scheduled for this year, while Lasmo has deferred one well so far this year and reduced its exposure to a drilling operation in the Falkland islands.

According to US-based consultancy Arthur Andersen, the number of exploration and appraisal wells spudded in North West European waters up until August 18 this year has declined to 76 from 131 for the same period last year.

Andersen's North Sea expert Robyn Fowler said other factors, like uncertainty over Britain's plans to raise taxes on North Sea oil revenues, were likely to have played a part in the decline.

Elf's Contamine said Norway's decision in April of this year to freeze 12 North Sea exploration projects had also had an impact on budget projections.

A number of US-based companiesattending the conference said they had no plans to cut exploration spending next year.

"Our strategy is for growth and we'll pursue that," commented Phillips senior project manager David Smith, stressing that no cuts were expected in the company's global programme.

Royal Dutch/Shell managing director Phil Watts said Shell's own upstream spending had risen in 1998, although the 1999 position was yet unclear.

Mobil said it had not revised down its 1998 exploration and production spending from a $3.9 billion plan announced early this year, and said it had no plans to reduce expenditure next year.

"We haven't reduced any expenditures for planning purposes for next year, however we continue to say that our budgets are constantly under review," a Mobil spokesman said.

An Amoco Norway spokesman said his company did not expect to alter its drilling programme on the Norwegian continental shelf. "We've had a tough enough time getting hold of rigs for our 15th licensing round exploration activities," he said.