Horizontal well is an important method for the effective development of the low permeability reservoir. The research of the water producing has important guiding significance to the successful application of this technology. Based on the analysis on the defects of handling the fractures by conventional numerical simulation method, a new method is established to handle fractures for the numerical simulation of horizontal well. The influence of angles between the wellbore and the fracture, fracture parameters including fracture number, single-wing length and conductivity on the production and water ratio was researched. The results of numerical simulation indicate that fracture number has the most significant influence on recovery which is followed by single-wing length and conductivity with respect to the fracture parameters. The present method was applied to the test area of horizontal well. The production performance of the horizontal well groups was simulated by means of the established method. It is shownd that the main cause for the high water cut is the connecting of the partial hydraulic fractures between the horizontal well and the injection well. Thus the new readjustment plan which recommends shut in partial horizontal wells or producing new fractures after plugging the existing hydraulic fractures was presented. The plan was applied to the production field and favorable response was achieved.