Production records were also smashed, increasing 7% to 61.6MMboe at the upper end of guidance, thanks to LNG sales of 2.8 million tonnes, boosted 89% as the Gladstone LNG plant ramped up and PNG LNG and Darwin LNG performed strongly.

 

LNG sales generated $US887 million ($A1.17 million) for the year, while total production at GLNG was 4.6MMtpa, well below the nameplate capacity of 7.8MMtpa. 

 

However, December quarter production was 15MMboe, up just 1% on the same period in 2015, with the heavy lifting being undertaken by increased quarterly sales, up 27% to 21.9MMboe, with prices up 19% to $753 million for the quarter as the oil price recovery stabilised and increased GLNG cargoes arrived at their destinations.

 

Upstream costs were $8.50/boe, down 18% as Gallagher cracked the whip on costs, while leaning in to a major reorganisation of the company, splitting out non-core assets, mainly in Asia, into a new business unit.

 

Almost 600 workers at Santos lost their jobs last year, helping slash overall spending by 51% to just $625 million, below Santos' target.

 

At December 31, debts had been reduced over the year from $4.7 billion to $3.5 billion, compared to its $A8.34 billion market capitalisation.

 

Gallagher said the Santos team could be proud of what it had achieved during 2016, turning around the company in a tough market.

 

"We restructured the business, removed substantial costs and generated free cash flow for the first time in many years," he said this morning.

 

"Our production cost per barrel has reduced, and we are free cash flow positive below $38 per barrel, down from $47/bbl at the start of 2016."

 

He reiterated his plans for 2017, with a focus on its five core, long-life natural gas assets - Cooper Basin, GLNG, PNG, northern Australia and WA gas - but production for 2017 is expected to be up to 14MMboe lower.

 

The company expects 2017 sales to be between 73-80MMboe, from slightly weaker production of 55-60MMboe.

 

Capital expenditure is expected to increase to between $700-750 million.

 

Hedging is locked in between $40-62.85 Brent on zero-cost three-way collars for 10.95MMbbl.

 

In terms of production, Cooper Basin gas output was down from 16 petajoules to 14.7PJ and most other assets were flat or ahead of the December 2015 quarter, although Darwin LNG dropped from 4.9PJ to 3.5PJ due to lower Bayu-Undan production and a maintenance shutdown.

 

Cooper Basin oil increased from 671MMbbl to 724MMbbl, although overall oil production for the year was increased to 8.2MMboe.

 

RBC Capital Markets analyst Ben Wilson said this morning that the performance was "strong", but expected a bigger impact from the GLNG shutdown and believed GLNG Train 2 was progressing more quickly than anticipated.

 

"We had forecast that most of the reduced GLNG LNG output would be catered for by a reduction of GLNG indigenous gas supply, but in fact indigenous supply remained high, so we therefore assume that third-party contracts were scaled back for the period," he said.

 

Wilson said he remained cautious on Santos despite the improved balance sheet position following last year's "surprise equity raising". 

 

"We noted at Santos's recent investor day an incongruity between the improving cost base of the company's operations, the improving commodity price complex, and the muted production outlook (for GLNG particularly). 

 

"The surprise equity raising threw up further questions, which we think warrants caution."

 

It has a sector perform recommendation on Santos.

 

Santos expects to close a further raising, a widely-advertised share purchase plan, on January 31.

 

The company's shares were off slightly at $4.08 this morning.