Jan. 29 (Bloomberg) -- Royal Dutch Shell Plc, Europe’s largest oil company, posted its first quarterly loss in 10 years following a record plunge in oil prices, and warned that industry conditions “remain challenging.”

The fourth-quarter net loss was $2.81 billion, or $0.44 a share, compared with a profit of $8.47 billion, or $1.36, a year earlier, The Hague-based Shell said today in a statement. Revenue fell 24 percent to $81.07 billion.

Chief Executive Officer Jeroen Van der Veer boosted the dividend by 11 percent, and said Shell would continue with “competitive and progressive” payouts even as the global recession hurts demand. The company will maintain project investment in a range between $31 billion and $32 billion this year after cutting spending plans last year.

“We were slightly disappointed by the lower than expected exploration and production profitability,” Alexandre Weinberg, a Brussels-based analyst at Petercam SA, said. “This might lead us to foresee a lower free cash flow if hydrocarbon prices were to remain at their current levels.” Weinberg cut the stock to “add” from “buy”.

Excluding gains or losses from inventories and one-time items, earnings were $3.89 billion. The median estimate of 12 analysts surveyed by Bloomberg was for profit of $4.13 billion on this basis. Shell also had a currency loss of $351 million.

Shell’s Class A shares were little changed at 1,777 pence as of 9:07 a.m. in London. The stock lost 15 percent last year.

CCS Basis

Fourth-quarter profit on a current cost of supplies basis fell to $4.8 billion from $6.7 billion, while full-year profit on the same basis rose to $31.4 billion from $27.6 billion. Net profit fell 16 percent to $26.3 billion in 2008.

A record 56 percent slump in New York-traded crude futures during the quarter eroded the value of inventories and hit earnings from exploration and production.

Oil prices fell to a four-year low of $32.40 a barrel on the New York Mercantile Exchange on Dec. 19, after peaking at $147.27 on July 11. Crude oil for March delivery was down 1.6 percent at $41.50 as of 9:03 a.m. in London.

Earnings at Shell’s refining division fell to $582 million on a current cost of supplies basis, from $876 million a year earlier and from $2.3 billion in the third quarter. Profit from exploration & production dropped 24 percent to $3.71 billion.

Shell’s so-called organic spending will be higher than $30 billion invested in 2008. The oil major bought assets worth $9 billion last year and disposed of $7 billion, putting net capital investment at $32 billion, “lower than previously planned, as divestment proceeds for the year exceeded prior expectations.”

Capital Spending

The company had indicated in October it planned to spend as much as $36 billion on projects and acquisitions last year.

Peter Voser, Shell’s Swiss-born chief financial officer, will take over as chief executive officer in July, succeeding van der Veer, who will retire, Shell said in October. It’s the first time in Shell’s 102-year history that the top job has gone to a national from outside the U.K. or the Netherlands.

Production fell for a sixth consecutive year because of militant attacks in Nigeria, asset sales and a reduction in crude received under production-sharing contracts.

Shell’s annual average output slipped 2 percent to about 3.25 million barrels of oil equivalent a day, from 3.32 million barrels a year earlier, the company said. Fourth-quarter production was little changed at 3.42 million barrels equivalent a day compared with the year-earlier period.

Oil Sands

Shell plans to counter lost production in Nigeria and Russia by mining Canadian oil sands and developing a Qatari gas- to-liquids venture. The “unconventional” projects are designed to replace aging fields and reverse the decline in the company’s output of the past five years. Shell is examining new projects that have the potential to add about 6 billion of barrels of oil and gas resources, the company said in October.

Its losses in the Canadian oil sands operation were $30 million, Shell said.

The company aims for long-term production growth of 2 to 3 percent a year from 2010 and plans to add as much as 250,000 barrels of oil a day in new production by the end of this year. That’s part of the 1 million barrels a day of additional output it has so far committed in projects.

Delayed Decision

In October, it postponed an investment decision on the second-phase expansion of its Athabasca oil-sands project in Canada because of rising costs. Shell planned to spend as much as $36 billion in capital spending and acquisitions last year.

BP’s Global Indicator Margin, a broad measure of refining profitability, fell to $5.20 a barrel in the fourth quarter from $8.03 a barrel in the third quarter, according to BP’s Web site.

Of the 38 analysts tracked by Bloomberg who cover Shell, 26 recommend buying the stock and 8 say to hold it. Another four recommend selling the stock.

Shell will give a strategy update March 17. Exxon Mobil Corp, the world’s largest oil company, and Chevron Corp, are due to report earnings tomorrow. BP Plc, Europe’s second largest oil company, will report Feb. 3.

ConocoPhillips, the third-biggest U.S. oil producer, posted a $31.8 billion fourth-quarter net loss yesterday, its biggest on record, as the collapse in energy prices dragged down the value of acquired assets.

To contact the reporter on this story: Fred Pals in Amsterdam at fpals@bloomberg.net

Last Updated: January 29, 2009 04:42 EST