Shell profits soar to £11.5bn

(BEN STANSALL/AFP/Getty Images)

The Anglo-Dutch firm outshone its troubled rival BP as it revealed a near-doubling in annual profits.

Higher oil prices and a boost to production levels meant the Anglo-Dutch firm increased earnings in the final three months of the year by almost 400% to 5.7 billion US dollars (£3.5 billion)

The figures come two days after BP revealed its first annual loss in nearly two decades of 4.9 billion US dollars (£3 billion) after counting the cost of the Deepwater Horizon explosion.

Despite the jump in headline profits, Shell's trading performance for the fourth quarter was well below forecasts in the City, causing its shares to open more than 3% lower.

Stripping out one-off items, fourth quarter earnings of 4.1 billion US dollars (£2.5 billion) contrasted with the market's anticipated result of around 4.7 billion US dollars (£2.9 billion).

Analysts said the company's downstream division, which covers the refining of crude oil and the sale of products, produced a weaker-than-expected recovery from the poor performance the previous year.

Shell said refining margins remained weak and its marketing business suffered as a result of pressure caused by rising oil prices.

The company has responded to the difficult conditions in downstream through a restructuring and by refocusing its efforts on emerging growth markets.

In contrast to BP, which stopped paying dividends in the wake of the Gulf of Mexico disaster, Shell said it declared dividends of 10.2 billion US dollars (£6.3 billion) in 2010.

The payout underlines the sudden switch in momentum between the firm and its rival, triggered by the Gulf catastrophe.

The jump in Shell's profits reflected asset disposals and its strong upstream performance due to higher oil prices and a 5% rise in production to just under 3.5 million barrels of oil equivalent in the fourth quarter.

Chief executive Peter Voser said: "We are making good progress against our targets, and there is more to come from Shell."

Shell sold non-core assets for seven billion US dollars (£4.3 billion) in 2010, helping inflate today's bottom-line profits, while proceeds are expected to reach some five billion US dollars (£3.1 billion) this year.

At the same time, it made acquisitions during last year worth seven billion US dollars (£4.3 billion) as it targets new areas of development, and invested a further three billion US dollars (£1.85 billion) in exploration activities.

Richard Hunter, head of equities at Hargreaves Lansdown stockbrokers, said higher oil prices were providing a tailwind but that output prospects were also stronger.

He added: "Apart from reversing a previously downward move in production, Shell's prospects are beginning to look brighter as the benefits of a large investment programme begin to filter through."

Pressures remain on certain gas prices and refining margins, while the Gulf of Mexico oil spill continues to cast a shadow over the sector and future drilling prospects, Mr Hunter added.