Royal Dutch Shell Plc posted a 75 percent 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 percent of Shell's refining portfolio, one of the largest in the industry, and slashing costs.
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 percent at 1,740 pence at 0933 GMT (4:33 a.m. EST), lagging a 0.7 percent 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.
WEAK GAS PRICES
Shell's results compare with a 23 percent drop in fourth-quarter net income at the largest western oil company by market value, Exxon Mobil, and a 37 percent drop at the second-largest U.S. oil company, Chevron.
However, UK rival BP managed to report a 33 percent 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 percent 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 percent.
However, the biggest hit in this unit came from gas prices, which fell 23 percent in the U.S. and 34 percent elsewhere.
Gas accounts for around 47 percent of Shell's production, compared with around 36 percent at larger rival BP Plc.
(Editing by Victoria Bryan, Mike Nesbit)