(Corrects details of $500 mln charge in last paragraph)
* Shell 2016 profit down 37 pct on year
* Fourth quarter profit misses expectations
* Shell gearing down to 28 pct following divestments
* Cashflow up by 69 percent in fourth quarter
By Ron Bousso and Karolin Schaps
LONDON, Feb 2 (Reuters) - Shell made more moneythan Exxon Mobil in the second half of 2016, despite theAnglo-Dutch oil major's annual profit hitting its lowest levelin more than a decade as it grappled with a deep downturn.
Europe's largest oil and gas company showed stronger signsthat it was turning a corner following deep spending cuts,divestments and thousands of job losses last year, with cashflowincreasing by 69 percent in the fourth quarter.
With BG Group's operations fully integrated following its$54 billion acquisition a year ago, Shell said on Thursday itsfull year production rose by nearly a quarter from a yearearlier to 3.668 million barrels of oil equivalent.
"Our strategy is starting to pay off," Chief ExecutiveOfficer Ben van Beurden said in a statement.
Shares in Shell opened 1.6 percent higher, while with thebroader index opened 0.5 percent lower.
The group's cost of supplies excluding identified items, itspreferred way of measuring profit, was $1.8 billion in thefourth quarter, against analyst expectations of $2.8 billion.
Shell's full year profits were down 37 percent year-on-yearto $7.185 billion, but its fourth quarter earnings remainedahead of Exxon, which on Tuesday reported fourth-quarterearnings of $1.68 billion, down from $2.78 billion.
The company's 2016 capital spending total of $26.9 billionwas lower than expected and it stuck to plans to reduce itfurther in 2017 to around $25 billion. This is at the lower endof the $25-$30 billion range set to run until 2020.
"Shell was free cashflow positive by $1 billion in thequarter. This, combined with divestments of $2.7 billioncashed-in has driven net debt down faster than ourexpectations," said RBC analyst Biraj Borkhataria.
Shell's debt to equity ratio fell to 28 percent, down from ahigh of 29.2 percent in the third quarter due to the cost of itsBG acquisition.
Its net debt stood at $73.35 billion after Shell completedsales of stakes in refineries in Malaysia and Japan, fields inthe Gulf of Mexico and Canadian shale over the quarter.
Shell, which has set itself a has a $30 billion debtreduction target, announced two major divestments worth $4.7billion earlier this week, including the sale of a large part ofits North Sea portfolio to private-equity backed Chrysaor.Earlier this year, Shell sold a stake in a Saudi petrochemicalplant for $820 million.
Its reserve replacement ratio was 208 percent in 2016,meaning it more than doubled its reserves following the BG buy.That compares with a ratio of minus 20 percent in 2015.
Shell's profits were impacted by a $500 million chargerelated to deferred tax positions. (Editing by David Goodman and Alexander Smith)
