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By Shrikesh Laxmidas and Andrei Khalip
LISBON, March 15 (Reuters) - Galp Energia trimmed its earnings growth forecast and cut its five-year spending target on Tuesday citing low oil prices but the Portuguese oil company said it would keep its production targets unchanged.
Galp will also abandon its policy of increasing dividend payouts by 20 percent a year from 2017, when it will fix a flat payout of 0.5 euros a share, it said in a capital markets day presentation.
Galp shares fell 1.7 percent to 10.57 euros after the company announced its outlook, before paring losses to trade one percent lower.
The company said it expects to break even in terms of free cash flow during 2018 and then turn positive, which would make it more flexible about dividends.
The dividend policy in force until 2016 "will get us to a dividend of 0.50 euros per share ...and we are assuming that the dividend will be kept flat at that level after 2016," CEO Carlos Gomes da Silva said in a webcast meeting with investors.
"Having said this and going forward, on an annual basis we will be proposing a dividend taking into consideration Galp's financial situation and evaluating opportunities to re-deploy our capital. I will also highlight that after becoming free cash flow positive we will have additional flexibility," he said.
A year ago, Galp expected oil to hit a low of $60 per barrel whereas it currently trades below $40.
That fall has forced many energy companies to rein in spending plans, including the shelving of projects.
Galp, which last year delayed some projects, said efficiency gains would help it reduce spending.
Exploration and production will take up 85 percent of all investment, with Brazil's share expected to decline as the giant Lula/Iracema field increases production towards full capacity. It expects investment in Mozambique to rise from 2017.
Galp, which is still largely a refiner, has stakes in large oil fields off Brazil's coast and has been raising its oil and gas production.
It said it expects working interest production to grow at a rate of 25-30 percent per year until 2020, the same as under its previous plan until 2019.
Galp estimated annual average capital expenditure until 2020 at 1 billion to 1.2 billion euros, down from 1.2 billion to 1.4 billion euros under its previous plan for 2015-2019. Last year, Galp reduced its investment plan by a fifth.
It still expects to invest between 1.1 billion and 1.3 billion euros this year after spending 1.24 billion last year. (Additional reporting by Karolin Schaps in London; editing by Jason Neely)