UPDATE 1-Statoil abandons production target to focus on cash

(Adds detail, CEO quote)

OSLO, Feb 7 (Reuters) - Oil and gas major Statoil abandoned its 2020 production target and cut its investment plans, focusing instead on generating cash and improving shareholder returns, it said on Friday.

The state-controlled Norwegian firm said it will spend $5 billion less in 2014-2016 than earlier planned, targeting post-dividend positive organic free cash from 2016 and a 3 percent annual production growth between 2013 and 2016.

"Stricter project prioritisation and a comprehensive efficiency program will improve cash flow and profitability," Chief Executive Helge Lund said. "Our strong balance sheet enables prioritisation of capital distribution to shareholders."

Statoil said it plans to introduce a quarterly dividend payment from this year and promised to use share buy-backs more actively in the future.

With the spending reduction, the firm said it expects to boost production to 2.5 million barrels of oil equivalent (boe) 3-4 years after the previous 2020 estimate.

With the investment cut, Statoil follows the industry trend of reining in spending and saving cash for dividends after a decade-long boom.

Global oil investments are expected to rise by 4-6 percent this year - less than in previous years - with the biggest offshore players, like Shell, Chevron and Statoil, expected to tighten their belts the most.

In the fourth quarter, Statoil's net operating profit fell 4 percent to 43.9 billion crowns ($7.09 billion), just short of expectation for 44.3 billion crowns while its equity production was 1.945 million boe per day, 20,000 boe short of forecasts. ($1 = 6.1948 Norwegian krones)

(Reporting by Balazs Koranyi; Editing by John Stonestreet)