Europe's largest oil company by market capitalization said its current cost of supply (CCS) net income - an industry measure of profit - rose 11 percent to $7.66 billion.

Shell's London-listed A shares were up 2.9 percent at 0746 GMT on Thursday, against a 1.6 percent rise in a European oil and gas sector index .SXEP.

Citigroup analysts said market forecasts for Shell's future earnings would likely rise on the back of the results.

Shell raised its target for assets sales in 2012 to $4 billion from $2-3 billion, echoing an industry trend of companies trying to churn their portfolios more regularly.

By jettisoning mature assets earlier in their life cycle, companies hope to focus reserves on higher growth activities.

Nonetheless, some analysts believe Shell will struggle to make the returns it made on historic projects, in the future.

Production was up 1.4 percent in the first quarter compared to the same period a year earlier at 3.55 million barrels of oil equivalent per day, as production at new facilities such as Pearl in Qatar, which converts natural gas into liquid motor fuels.

Brent crude prices averaged $118.60 per barrel last quarter, up from $105.43 a year before. U.S. natural gas prices have fallen to near 10-year lows after an explosion of shale gas production sent supplies to near all time highs.

However, this was offset by strong prices in Asia for liquefied natural gas, due to Japan's shut down of nuclear power plants in the wake of the Fukushima disaster.

Shell's refining division produced a weaker underlying result despite some improvement in industry refining margins.

Chief executive Peter Voser said he expected weakness in the division to continue, and for low U.S. natural gas prices to continue to eat into profit.

"In downstream and North American natural gas we see continued challenges for our industry," he said.

Excluding one-offs, the result rose 16 percent to $7.27 billion, compared with a forecast for $6.70 billion in a company poll of analysts.

U.S. rival ConocoPhillips reported a 1 percent drop in underlying earnings last week, due in part to weak U.S. natural gas prices.

CCS earnings strip out unrealized gains or losses related to changes in the value of inventories, and as such are comparable with net income under U.S. accounting rules.

(Reporting by Tom Bergin; Editing by Hans-Juergen Peters and Dan Lalor)

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