ConocoPhillips on Thursday said it would reduce 2016 capital spending by 25% year/year, with most of its budget earmarked for the Permian Basin and the Eagle Ford and Bakken shales.

The Houston-based producer, the largest independent in the country, set capital expenditures (capex) at $7.7 billion for 2016, 25% less than it expects to spend this year and 55% lower than it spent in 2014. About $2.6 billion, or 34%, is allocated to the Lower 48, down 30% year/year.

Less spending in the United States primarily reflects improved efficiencies, a lower average rig count, declining infrastructure spending in the unconventionals, and deflation, exploration chief Matt Fox said during a conference call Thursday.

“We’re decreasing capex across every region,” he said. The Lower 48 operating plan is to be “ready to ramp up or down if the price outlook changes…The theme in the Lower 48 is to maintain our operating momentum but be prepared to use flexibility.”

Next year’s Lower 48 plan “will focus predominantly on the unconventionals, where the company plans to maintain current activity levels with 13 rigs across the Eagle Ford, Bakken and Permian, with ongoing flexibility to ramp up or down activity in these plays.”

The United States accounts for most of ConocoPhillips’ global production, and the Lower 48 has become its top priority in the onshore. Efficiency improvements should lead to a 25% reduction in drilling days per onshore well in 2016 versus 2014, Fox said.

But drilling efficiencies aside, it’s not been an easy year for any energy company, CEO Ryan Lance said during the conference call. ConocoPhillips usually issues a capex plan through a press release, but times have changed, he said. He admitted that the company has no clue as to when the market might recover.

“Prices eventually will move higher but we don’t know when,” Lance said. “We are entering 2016 in a tough market…We could spend more, but it would not make sense.” The plan is to keep the balance sheet strong with an “acceptable level of debt and some asset sales.”

Among other things, the deepwater Gulf of Mexico (GOM) and some of the natural gas assets aren’t competing for dollars in the near term and several assets are being marketed. To date this year, ConocoPhillips has sold about 9% of its North American production, 80% weighted to gas, with an estimated 170 million boe of reserves. The assets, if they had been kept, would have generated about $125 million in cash flow in 2016 at current strip prices, Lance said.

By the end of this year about $2.3 billion in divestments should be completed. Through the first nine months, $600 million worth of assets had been sold, with the remaining $1.7 billion representing transactions “with definitive agreements in place that are expected to close in the fourth quarter of 2015 or the first quarter of 2016.” Production from the assets being sold is estimated to account for more than 70,000 boe/d of 2015 output.

Laying off people also has not been an easy task, Lance said. ConocoPhillips laid off about 10% of its global workforce at the end of August (see Daily GPI,Sept. 2). The workforce now is about 15% lower, with most of the impact in North America and in particular, Houston.

Even with a smaller portfolio and less spending, global production in 2016 is forecast to increase by 1-3% year/year.

“We’re setting an operating plan for 2016 that recognizes the current environment, which remains challenging,” Lance said. “We are significantly reducing capital and operating costs, while maintaining our commitment to safety and asset integrity.” The plan “highlights the actions we accelerated over the past year to position our company for low and volatile prices.”

U.S. spending next year also is going to target exploration and appraisal activity in the GOM, base maintenance and a conventional drilling program. ConocoPhillips is exiting the GOM, but it still has to sell those assets and it has ongoing work with partners. About $800 million has been earmarked for various deepwater projects.

About 17% of 2016 capex, or $1.3 billion, is allocated to Alaska, a reduction of about 5% year/year. And 10%, or about $800 million, is to be spent in Canada, down 30% from 2015 levels.

ConocoPhillips began 2015 with an $11.5 billion capex plan, 40% lower than the $17.1 billion spent in 2014. Capex in October was reduced to $10.2 billion (see Daily GPI,Oct. 30). Efficiencies and lower oilfield service costs have helped bring down operating costs by about $3 billion to date, Fox said. For 2016, operating expenditures have been cut further to $7.7 billion, matching the capex budget.

By category, total capex for 2015 includes $1.2 billion (16%) for base maintenance/corporate expenditures; $3.0 billion (39%) for development drilling programs; $2.1 billion (27%) for major projects; and $1.4 billion (18%) for exploration/appraisal.

Full-year 2015 production guidance is unchanged at 1.585-1.595 million boe/d, excluding sales. Full-year 2015 production associated with the divestitures is 70,000 boe/d. Adjusted for the volumes sold, 2015 production guidance would be 1.515-1.525 million boe/d, the new baseline from which the company expects to grow 1-3% in 2016.

Production growth in 2016 primarily is expected from the startup of a liquefied natural gas export project in Australia, continued ramp-up of oilsands production in Canada and recent project start-ups in Alaska. Growth would be offset in part by a decline in the Lower 48 and Europe.

“Our 2016 operating plan achieves a balance between exercising flexibility to manage through the current oil and gas price downturn, and retaining optionality for medium- and long-term growth,” Lance said. “We have a unique combination of a resilient portfolio and financial flexibility to manage through the current price cycle, while preserving value and continuing to deliver on our commitments to shareholders.”

The dividend remains a priority.

“As we enter 2016, ConocoPhillips has greater capital flexibility, a more competitive cost structure, a streamlined portfolio and the ability to deliver profitable growth from a high-quality resource base. These advantages, coupled with our strong balance sheet, give us the ability to maintain a compelling dividend and close the gap on cash flow neutrality across a range of prices.”