Image courtesy of the U.S. Chamber of Commerce/Youtube.

ConocoPhillips slashed its 2016 capital budget by 25 percent on Thursday as oil producers brace for another turbulent year.

The company has a planned 2016 capital budget of $7.7 billion, a 55 percent reduction compared with 2014 and a 25 percent drop compared with expected 2015 capital spending.

ConocoPhillips said the budget cut is tied to “lower major project spending, deflation capture and efficiency improvements.”

The budget includes funding for base maintenance and corporate expenditures, development drilling programs, major projects and exploration and appraisal spending.

About $1.2 billion of the budget will be allocated to base maintenance and corporate expenditures, $3.0 billion to development drilling programs, $2.1 billion to major projects and $1.4 billion to exploration and appraisal.

The company has allocated $2.6 billion to the Lower 48, about 30 percent lower than expected 2015 spending.

ConocoPhillips said the Lower 48 budget dip primarily reflects “improved efficiencies, lower average rig count and lower infrastructure spending in the unconventionals, and deflation.”

The company’s 2016 capital spend will primarily focus on the unconventional plays where the company plans to maintain current activity levels with 13 rigs across the Eagle Ford, Bakken and Permian plays, with ongoing flexibility to ramp up or down activity in these areas.

The company’s Canadian operations will account for about $800 million, or 10 percent, of the planned spend.

The budget, about 30 percent less than expected 2015 spending, will focus on development drilling and appraisal in unconventional plays, the continued ramp up at Surmont 2 and two exploration wells in offshore Nova Scotia.

Spending in Alaska will account for about $1.3 billion, or 17 percent, of the 2016 capital budget, a 5 percent year-over-year drop.

The budget slide is tied to reduced major project spending in the region following the startup of CD5 and Drill Site 2S in 2015, ConocoPhillips said.

Capital spending in Alaska next year will mostly target development drilling, base maintenance and the progression of several major projects.

The company chopped its planned European spend down to $1.3 billion, a 15 percent year-over-year drop prompted by reduced conventional drilling and lower major project spending across the region.

ConocoPhillips’ capital budget for Europe will focus on major projects across the region, development drilling in the Greater Ekofisk Area and base maintenance.

The Asia Pacific and Middle East region was allocated $1.4 billion, or 18 percent, of the total budget, a roughly 30 percent dip from this year’s level.

The company said the budget cut is largely the result of reduced major project spending at the Australia Pacific LNG (APLNG) Project.

The 2016 capital budget includes $600 million of capital at APLNG to achieve the startup of Train 2 and complete deferred activity from 2015.

The remainder of the 2016 capital will primarily fund major projects in Malaysia and China, as well as development drilling around legacy assets.

About $300 million, or 4 percent, of the budget is allocated toward other 2016 activity, including corporate programs.

The company also announced it expects to close $2.3 billion of non-core asset sales this year.

Adjusted for divestments, the company’s 2015 production guidance would be 1,515 to 1,525 MBOED, excluding Libya.

ConocoPhillips added that it expects to grow production by about 1 to 3 percent in 2016.

“We’re setting an operating plan for 2016 that recognizes the current environment, which remains challenging. We are significantly reducing capital and operating costs, while maintaining our commitment to safety and asset integrity. We also retain the flexibility to adjust capital spending in response to market factors,” CEO and chairman Ryan Lance said.


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