Higher crude and chemical prices have helped Royal Dutch/Shell report a 28 per cent rise in profits, with the oil giant noting "encouraging" results in a drilling drive launch to increase a weak level of reserves.

Shell’s profits, on a current cost of supply basis, reached $5.54 billion (£2.91 billion) for the first three months of the year despite a dip in oil production. The figure beat City forecasts, even once $220 million gains from asset sales were excluded.

Oil output slipped by 8 per cent to 3.84 million barrels of oil a day, a decline reflecting in part asset sales. However, with the price of oil up 44 per cent in a year, Shell’s exploration and production division reported a 9 per cent rise to $2.95 billion in earnings.

Profits at the chemicals division more than doubled to $449 million, reflecting improved plant performances and a rise in margins.

At the oil products division, profits surged by 59 per cent to $1.88 billion as the price of refined goods, including petrol, soared. While the rise prompted a fall in earnings from Shell petrol stations, particularly in America, the decline failed completely to offset the improved refinery performance.

"The first quarter was an excellent start to the year with strong financial performance across all of our businesses," Jeroen van der Veer, the Shell chief executive, said.

He added that the a drive to bolster the company’s reserves portfolio "continues at a good pace", after the company last year revealed that it had overstated its stocks by more than 20 per cent. The admission prompted the ousting of the group’s chairman and exploration boss and a corporate governance inquiry which is bringing sweeping structural changes.

"Exploration drilling results in the quarter are encouraging and we have added additional attractive exploration acreage," Mr van der Veer said.

Shell’s investment in exploration and production soared by 22 per cent to $2.1 billion as the group snapped up interests in Canada, Algeria and Kazakhstan. Successful wells were drilled in Nigeria, America, Oman and the North Sea.

However, in comments to journalists, Mr van der Veer played down hopes of significant short-term progress towards a target of replacing 100 per cent of oil produced by new reserves by 2008.

"We’re reasonably confident of our target,” he said, adding: "We will have to face the fact that in the early years, we will have a relatively low reserve replacement ratio."

The report was welcomed by analysts. Margarita Shevtsova at Bank Oyens & van Eeghen said: “The results are much better than expected, and we consider them as positive."

Shell shares stood 0.5p higher at 468.5p in afternoon trade.

• ExxonMobil, the US-based oil giant, has reported a 36 per cent rise to $7.40 billion (£3.88 billion) in net profits, excluding one-off charges, for the first three months of the year.

  Lee Raymond, the company's chairman, said that the rise reflected "continued strength in crude and natural gas prices", which drove earnings at the company's exploration and production division $1 billion higher to a record $5.05 billion.

  However, the results disappointed Wall Street. Shares in ExxonMobil, the world's largest listed oil company, fell by 1.5 per cent in early New York trade.

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