Shell will pay 17 million pounds ($31 million) to Britain's Financial Services Authority (FSA) for breaching market-abuse provisions and listing rules, and a civil penalty of $120 million to the Securities & Exchange Commission (SEC) for violation of U.S. laws and SEC rules.

The FSA said it was the largest fine imposed in its history. A spokeswoman for the regulator declined further comment on the situation.

The Anglo-Dutch firm said net profit adjusted for the current cost of supply was $3.768 billion in the second quarter, up 16 percent from a year earlier, but below forecasts. The company said production was lower and would fall further.

Shell joined rivals such as BP (BP.L: Quote, Profile, Research) in benefiting from record oil prices, which have surged amid political tension in the Middle East and a crisis at major Russian oil company YUKOS (YUKO.RTS: Quote, Profile, Research) .

Analysts polled by Reuters had forecast profits between $3.8-$4.3 billion, with an average forecast of $4.05 billion.

Shell's shares recovered from earlier losses to trade up 2 percent in both Amsterdam and London as investors said the benign environment of soaring oil prices meant that Shell would continue to attract investors.

"The SEC fine is not huge. It should bring a closure to the issue and we can move on from here," said Rathbones fund manager Julian Chillingworth, whose portfolio includes Shell shares.

Shell shares have underperformed global leader Exxon (XOM.N: Quote, Profile, Research) and fierce British rival BP (BP.L: Quote, Profile, Research) this year, making the stock cheaper than those two companies.

"Investors will look at the valuation and realise that now could be a good time to add Shell shares to their holdings," Chillingworth added.

INTERNAL REFORMS

Shell's January reserves scandal stunned financial markets.

Chairman Philip Watts, oil and gas chief Walter van de Vijver and Chief Financial Officer Judy Boynton lost their jobs over the scandal, and it sparked probes by regulators and the threat of litigation. It also cost Shell its cherished "AAA" top-grade credit rating.

Shell, which has a Dutch and British dual-company structure, is undergoing an internal review to improve corporate governance and said it would publish results of this in November. Many investors want the company to have a single, unified board.

The company added it was considering selling its Basell joint venture with German chemicals firm BASF (BASF.DE: Quote, Profile, Research) , but said it was too early to comment on how much money this might raise.

Shell said the final impact of the reserves scandal on the group remained difficult to assess.

However, fund managers said the benign environment of high oil prices more than offset Shell's cloud of potential lawsuits.

"The litigation issues remain in the background, but the high oil prices more than offset them in the context of Shell," said ISIS Asset Management fund manager Michael Gifford, although he said that he still preferred BP.

London hedge fund manager Crispin Odey said oil commodities could be a better investment than oil stocks, however, as many oil majors were increasingly doing business in developing nations where state-run firms often get the bulk of profits.

"Anyone who's got more oil in the developed world rather than the developing world is in a better position," said Odey. (Additional reporting by Friedel Rother in London and Theo Kolker, Melanie Cheary and Karl Hanuska in Amsterdam)