Royal Dutch Shell shares fell sharply in London after Europe's biggest oil company posted disappointing fourth quarter profits and issued a cautious outlook to investors.
Shell's shares fell more than 1.4 percent in early London dealing to trade at around 2,273.00 pence each.
Profits for the three months ending in December, excluding the changing values of inventories, came in at $5.6bn (£3.5bn; €4.1bn), the company said in a statement published on its website. That compares to $4.8bn in the previous year but was slightly shy of a Thomson Reuters forecast of $6.2bn.
Full-year earnings rose marginally to $25.1bn from $24.7bn.
"With the first year of our 2012-2015 growth targets completed, Shell is on track for plans we set out in early 2012, despite headwinds last year," said CEO Peter Voser.
"Shell is competitive and innovative. We are delivering a strategy that others can't easily repeat, with unique skills in technology and integration and a worldwide set of opportunities for new investment."
The group also revealed that its net capital spending will reach $33bn this year compared with $30bn in 2012.
However, the higher costs of getting oil and gas to production are already offsetting gains from rising output and Brent crude prices, which reached a record average of $111.68 a barrel last year.
At the same time, the average cost of New York-traded West Texas Intermediate contract fell to $94.15 a barrel from $95.11. U.S. natural gas prices declined to the lowest level since 1999.
Shell's profit for the unit that produces oil and gas slipped 14 percent in the fourth quarter from a year earlier, and the refining unit returned to profit after a loss a year ago.
In order to appease investors, Voser pledged a 4.7 percent increase to this year's dividend at $0.45 per share and $0.90 per ADS and the higher costs will translate into an increase in oil output.
Shell produced more gas than oil for the first time last year as the gap between prices for the two fuels widens. Brent crude prices were the highest ever on average last year at $111.68 a barrel. At the same time, the average cost of New York-traded West Texas Intermediate retreated to $94.15 a barrel from $95.11. U.S. natural gas prices declined to $2.83 per unit, the lowest since 1999.
Profit in the unit that produces oil and gas slipped 14 percent in the fourth quarter from a year earlier. The refining unit returned to profit after a loss a year ago.