China National Offshore Oil Corporation (CNOOC) is ramping up its cost-cutting measures to cope with what is currently the worst downturn in the oil and gas industry in decades. China's third-largest oil and natural gas producer revealed plans to significantly reducing its production this year, while also greatly cutting its total spending budget to shore up its finances.

CNOOC chief executive, Xu Keqiang, mentioned in a teleconference this week that the company has been forced to implement such measures due to the current challenges facing the industry. The announcement came right after the oil giant reported better-than-expected earnings for 2019.

The executive did not reveal the exact scale of the production and expenditure cuts as the plan is still pending the approval of the company's board of directors. However, Xu did hint that most of the spending cuts will involve its high production-cost overseas projects.

CNOOC Chairman, Wang Dongjin, stated that there was no need for panic as the company is continued to implement appropriate measures to ensure its long-term sustainable development. These measures will include more stringent cost controls, better cash flow management, and more prudent investment decisions moving forward.

For its full-year earnings, CNOOC reported a net profit of 61 billion yuan, a 16 percent year-on-year increase compared to its 52.7 billion profits a year earlier. The figure was around 5.8 percent higher than the 57.7 billion yuan estimated by analysts. Total revenues last year increased by 2.4 percent to 233.1 billion yuan.

The company's average production cost last year was reduced for the sixth consecutive year to only $29.8 per barrels of oil equivalent (BOE). The company stated that it can further reduce the cost this year by dropping its oil fields' natural production decline rates. 

Dividends for 2019 were increased to HK$0.45 per share, a 40 percent increase compared to the payout in 2018. The company warned that if oil prices will remain at the same level for the long-term, it may be forced to reduce future payouts just like other companies.

Global oil prices have plummeted to new lows following the collapse of the pact between Saudi Arabia and Russia, two of the world's largest oil producers. The collapse of the pact to reduce production has resulted in both countries and other global producers to ramp up their output to increase their market shares.

The collapse has also been exacerbated by the disruption in global transportation due to the lockdowns imposed by governments in light of the ongoing coronavirus pandemic. The oil price war and the global pandemic have resulted in oil prices dropping by more than 50 percent to around $25 per barrel.