Shares in Woodside Petroleum have fallen by 4.6 per cent after Royal Dutch Shell completed a sell-down of more than 78 million shares in the oil and gas producer.

Shell sold 78.3 million shares to institutional investors for $US2.68 billion ($A2.90 billion), reducing its stake in Woodside from 23.1 per cent to 13.6 per cent.

It will sell a further 78.3 million shares back to Woodside, reducing its holding to 4.5 per cent.

Shares in Woodside dropped immediately when they resumed trading on Wednesday, and closed at $40.90, down 4.6 per cent, or $1.95.

They were the worst performing shares on the market, and their slump weighed on the wider market.

Institutional shareholders paid $41.45 per Woodside share as part of Shell’s sell-down.

Both parties believe the sell-down is in their best interests, with Woodside keen to remove the overhang that has capped its share price for years.