Royal Dutch Shell's (RDSB) fourth quarter capped a year of earnings and production growth, with adjusted fourth-quarter earnings of $4.1 billion that were 48% above year-ago earnings of $2.8 billion. This brought full-year adjusted 2010 earnings to $18.1 billion, up an impressive 56% from $11.6 billion earned a year ago. We're encouraged by progress with Shell's cost initiatives and long-term project pipeline, warranting no change in our fair value estimate.
Shell benefited from gains in both upstream and downstream businesses from new projects and cost improvements. Fourth-quarter upstream earnings of $5.1 billion were higher than year-ago earnings of $2.5 billion, even after excluding $1.7 billion of one-time gains in the 2010 fourth quarter. Production grew again by 5% from year-ago levels to 3,496 thousand barrels of oil equivalent per day for the 2010 fourth quarter as new field startups including the Gjoa field in Norway and a higher interest in Shell's Nigerian joint venture outpaced field declines. Shell's efforts to improve downstream operations netted lower operating expenses and higher refinery intake volumes and higher realised refining margins. This combined with higher oil products and chemicals sales volumes led a swing in fourth-quarter downstream earnings to $411 million from a loss of $1.8 billion a year ago and earnings of $325 million in the preceding third quarter. We look for more upstream growth ahead from new projects sanctioned in 2010 and production from acquired assets including the purchase of North American tight gas producer East Resources and Australian coal bed methane producer Arrow Energy in 2010. The firm sold $7 billion of assets in 2010 with another $5 billion of asset sales planned for 2011. We will monitor the firm's progress with asset sales and project and cost initiatives throughout the year.
Catharina Milostan is an equity analyst with Morningstar.