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Royal Dutch Shell reported a 14 per cent increase in fourth quarter earning and said it was making progress towards recovery from a two-year downturn.

Earnings on a current cost of supply basis, the measure most closely watched by investors, were $1.8bn excluding exceptional items. This compared with $1.6bn in the same period last year but was well below analysts’ consensus forecast for $2.79bn.

Shell also booked a $763m of impairments, pushing down the the earnings measure to $1.03bn. The impairment stemmed in large part from “the impact of the weakening Australian dollar on a deferred tax position”.

The worse-than-expected results will disappoint investors who had hoped for a stronger show of momentum on the back of recent recovery in oil prices.

Ben van Beurden, chief executive, pointed to a fall in Shell’s net debt, which ended the year at $73bn, compared with $78bn three months earlier, as a sign the group was making progress. But this remained three times higher than at the end of 2015, highlighting the strain placed on Shell’s balance sheet by the $50bn takeover of BG Group last year as well as long-running weakness in oil prices.

Earnings from upstream production and exploration were $35m, a fraction of the $223m expected by analysts. Downstream earnings were $1.58bn, compared with a consensus forecast for $1.71bn.

Mr van Beurden said:

We are reshaping Shell and delivered a good cash flow performance this quarter with over $9 billion in cash flow from operations. Debt has been reduced and, for the second consecutive quarter, free cash flow more than covered our cash dividend.

Our strategy is starting to pay off and in 2017 we will be investing around $25 billion in high quality, resilient projects. I’m confident 2017 will be another year of progress for Shell to become a world-class investment.

Mr van Beurden said the $30bn divestment programme launched to reduce debts after the BG deal was gaining momentum, with $15bn of deals completed, agreed or in progress.

Earlier this week, Shell announced deals worth up to $4.7bn to sell upstream production and exploration assets in the North Sea and Thailand. This came days after the $820m divestment of petrochemicals assets in Saudi Arabia. Together, these deals have raised in the first month of the year ($5.5bn) as much as Shell generated from disposals in the whole of 2016.

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