Departing Santos chairman Borda said the global $91 billion Shell/BG merger this month, and the multi-billion dollar acquisition of Apache’s Australian assets by the private equity funds of Macquarie Capital and Brookfield Asset Management, endorsed Santos’ strategic goals.

The Shell/BG deal validated Santos’ growth strategy in the LNG sector, driven by a long-term view of the role of LNG as a transitional fuel for advanced and emerging economies, and increased the company’s confidence that long-term revenue streams that will be realised from assets such as PNG LNG and Gladstone LNG.

He said the Apache transaction supported the position Santos has taken in Western Australia’s domestic energy sector where it holds 45% in two gas hubs supplying the West Australian market with Apache (55%).

“The valuation in both these transactions reflect long-term confidence in oil, LNG and gas prices,” Borda said.

Admitting that 2015 is a year of considerable volatility and uncertainty, Borda said Santos had moved to take appropriate measures last year to ensure Santos has a strong balance sheet and $2.6 billion in available liquidity to meet the company’s current operating and growth commitments.

Borda said the prices for oil and LNG were increasingly volatile, and that had driven down Santos’ share price, but he is confident the company will be generating free cash flow by early 2016, with the company’s projects viable at $US55 per barrel.

The company has slashed capital expenditure for 2015 by 44% – around $1.5 billion dollars, and production expenditure has been reduced 10%.

He also talked up Santos’ diverse portfolio, which he said was capable of providing healthy returns in a range of oil price scenarios, with production at its highest levels in five years.

Borda said the long-term history of the oil price shows not only considerable volatility, but the capacity of the oil price to recover after steep downward pressure.

Rapidly growing demand for energy across Asia should enable LNG prices to recover.

GLNG is expected to produce its first LNG around the end of the third quarter – a milestone that signals a change in the company that will ultimately bring its LNG exports to over three million tonnes of LNG per annum, up from just 300,000 tonnes in 2013.

“This will be the company’s most important milestone in realising the strategy we embarked on a decade ago,” Borda said.

Santos invested heavily in GLNG because while it has a significant onshore gas resources on the east coast of Australia, domestic gas demand was, and will remain, insufficient to justify development of the resources.

CEO David Knox said that if Santos had remained as heavily focused on the domestic market as it was just 10 years ago the Cooper Basin’s gas resources would not be commercially viable today.

“GLNG has facilitated the development of our coal seam gas fields in Queensland but it has also been an essential catalyst for the development of our wider east coast resources,” Knox said.

“It has exposed the Cooper Basin to new markets which has made continued development of the Cooper viable. This would not have been the case without GLNG.

“In fact, the Cooper’s new lease of life was very clearly evident in 2014 with increases in both oil and gas production.

“Higher gas prices lead to higher investment and ultimately production. And that is what is happening in the Cooper today.”

While Santos posted a net loss of $935 million for 2014 because of $1.6 billion in non-cash impairment charges, looking under the hood Knox said there was a sound operating and financial performance, and revenues up 12% from the previous year, surpassing $4 billion for the first time in the company’s history.

Underlying profit in 2014 was up 6% on the previous year, at more than $500,000 dollars.

LNG revenues more than doubled during 2014.

Knox said that with a widely forecast average oil price of $US60 per barrel Santos expects to be free cash flow positive in the fourth quarter.

“With GLNG also operational and shipping LNG cargoes we will be free cash flow positive – after capital expenditure – for the full year in 2016 using the same oil price assumptions,” he said.

“This is clearly a substantial improvement in the company’s cash flow outlook despite the lower oil price environment that we are currently working within.”

Despite some very promising results from the 12 unconventional wells that had been drilled to date, Knox also confirmed that Santos was scaling back its unconventional program in the short term, until prices recovered.