AMSTERDAM, Netherlands--Royal Dutch Shell PLC, Europe's largest oil company, said Thursday it swung to a net loss of $2.81 billion in the fourth quarter, hurt by the sharp fall in oil prices and writedowns on inventory.

In the same period a year earlier, Shell had made a $8.47 billion net profit.

The company said fourth quarter sales fell 24% to $81.1 billion. Crude production was down less than one percent to 3.42 million barrels per day, but Shell's selling price fell 29% to $58.40 per barrel.

Chief executive Jeroen van der Veer called the results "satisfactory...given the pressure on demand for oil and gas due to a weaker global economy."

The company's refining division, where the inventory was written down, booked a heavy loss of $6.42 billion compared with a profit of $2.56 billion a year earlier.

The company said refining profits were down 34% on an operating basis, as both intakes volumes and sales volumes fell as a result of weaker demand.

Over the full year 2008, net profit fell 16% to $26.3 billion.

The company declared a dividend of $0.40 per share for the fourth quarter and said it intended to increase that to $0.42 in the first quarter of 2009.

"This is a signal of confidence in our future," Van der Veer said on a conference call.

He said he expects production to remain flat or fall slightly in 2009 before beginning to rise again in following years as large projects under development begin operations.

The company plans $31 billion in capital expenditures in 2009, compared with $32 billion in 2008, and no exceptional job cuts.

Analyst Alexandre Weinberg of Petercam Securities said the results were in line with expectations, with crude production slightly ahead of expectations.

However, he cut his recommendation from "Buy" to "Add" because shares have also outperformed other oil shares in recent months.

"The company has the strongest balance sheet among European majors and is very well positioned to weather these lower prices," Weinberg wrote in a note on the earnings.

Shares were up 0.3% to euro19.21 in Amsterdam.

Shell's fourth quarter earnings on a "current cost of supplies" basis -- which strips out the effect of the fall in oil prices on inventory -- would have been down 28% to $4.78 billion, the company said.

At Shell's exploration and production division, earnings fell 24% to $3.7 billion, in line with the fall in oil prices.

The company said it suffered from the impact of a stronger dollar against most major currencies, although the $6.42 billion loss in the refining operations weighed the most on earnings.

The refining figures "show just how poor the environment is, and we see a hard time ahead for all the integrated oils," said analyst Gordon Gray of Collins Stewart in a note on earnings.

"Shell remains confident of its 2-3% long term volume growth ambition, and we still believe it offers the best risk/reward profile" among major oil companies.

He also cited the company's strong balance sheet, but noted that Shell's net debt of $13.7 billion does not include $11.8 billion in obligations from pensions that are currently underfunded after last year's stock market crash.