Royal Dutch Shell said it planned even deeper cuts to its oil refining and retail operations after downstream weakness caused a 75 per cent fall in fourth-quarter profits to $1.18 billion US.

Chief executive Peter Voser pledged $1 billion US in cost cuts and 1,000 job reductions in 2010 -- mainly to come from the downstream unit -- and upped his target for refinery divestments.

Europe's second-largest oil company by market value added it would continue to shift the focus of its downstream business to Asia, where rising fuel demand could ensure better profits.

Shell also affi rmed its targets to increase oil and gas production, the main driver for oil companies' earnings, by two to three per cent over 2009-12, but analysts said investors' near-term focus would stay on the downstream.

"The strong growth story remains overshadowed by Shell's refining exposure," said Alexandre Weinberg, oil analyst at Petercam.

Shell's London-listed A shares closed down 2.1 per cent, in line with the DJ Stoxx European oil and gas sector index.

Excess refining capacity, due to lower fuel demand caused by the global recession, and new refinery startups in the Middle East and Asia, has hit crude processing margins and profits at all the oil majors.

The largest western oil company by market value, ExxonMobil Corp., had a 23 per cent drop in fourth-quarter net income while the second-largest U.S. oil company, Chevron, had a 37 per cent drop.

However, Shell's especially large refinery portfolio and the poor quality of some of its assets has seen it hit worse than its rivals.

Voser said a turnaround he launched last year was yielding dividends with $2 billion in cost savings in 2009, exploration success and the startup of new projects.

After seven years of falling output, Voser predicts stable production of oil and gas in 2010 and a rise thereafter. Some analysts believe Voser's actions will lead to stronger profit growth than its rivals in coming years.

"The stage should be set for Shell to begin a period of stronger relative performance based on delivery of restructuring benefits," said Mark Bloomfield, oil analyst at Citigroup.

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