Royal Dutch Shell posted a 75 per cent fall in fourth-quarter profits to $1.18 billion, as the oil major was punished for falling output and its focus on the depressed refining and natural gas businesses.
Oil prices recovered in the quarter but gas prices were much lower than in the same period a year earlier, while refining margins collapsed to their lowest level in almost 15 years.
Europe's second largest oil company by market value said it made a $1.76 billion loss in its refining unit.
Chief executive Peter Voser said he plans to tackle the downstream weakness by selling or closing 15 per cent of Shell's refining portfolio, one of the largest in the industry, and slashing costs.
Mr Voser targets $1 billion of cost savings in 2010, focused on the downstream refining division. "These results confirmed the very negative trends affecting the downstream business," Colin Smith, oil analyst at ICAP, said.
Finnish refiner Neste Oil and Europe's largest independent refiner, Swiss-based Petroplus, reported losses on Thursday due to the weak crude processing environment.
Shell's London-listed "A" shares traded down 2.0 per cent at 1,740 pence at 9.33am, lagging a 0.7 per cent drop in the DJ Stoxx European oil and gas sector index.
Nonetheless, analysts at Evo Securities said in a research note that the group continues to make good progress on cost savings and the growth projects remain on track.
Shell's results compare with a 23 per cent drop in fourth-quarter net income at the largest western oil company by market value, Exxon Mobil, and a 37 per cent drop at the second-largest US oil company, Chevron.
However, UK rival BP managed to report a 33 per cent rise in profits in the quarter thanks to its low reliance on refining and natural gas.
Excluding one-off items, which amounted to a charge of $1.6 billion, Shell's result was $2.77 billion, short of an average forecast of $2.87 billion from a Reuters poll of 10 analysts.
A 2.4 per cent drop in oil and gas production in the quarter compared to the same period last year, to 3.3 million barrels of oil equivalent per day, weighed on upstream earnings. Full-year output was down 3 per cent.
However, the biggest hit in this unit came from gas prices, which fell 23 per cent in the U.S. and 34 percent elsewhere.
Gas accounts for around 47 per cent of Shell's production, compared with around 36 per cent at larger rival BP.
Reuters