Output fell for a fifth straight year after Shell ceded a stake in Russia's Sakhalin-2 venture and militant attacks in Nigeria kept fields offline. Chief Executive Officer Jeroen Van der Veer said state-run oil companies are demanding better terms when negotiating energy ventures and this trend will continue. Profit from refining fell 40 percent in the period and margins will stay weak in 2008, he said.

``I'm modestly disappointed,'' Jason Kenney, an analyst at ING Wholesale Banking in Edinburgh with a ``hold'' rating on the stock, said in an interview. ``The risk is to the downside with Nigeria. You've got a lot of unknowns on the horizon and refining margins are going to be quite low this year.''

A fire at Shell's 155,000 barrel-a-day Athabasca oil-sands mine in Alberta and repairs at the 458,000 barrel-a-day Pulau Bukom refinery in Singapore crimped output during the quarter.

``I expect this year an environment of weaker margins and we have to deal with a relatively weak dollar,'' Van der Veer told a press conference.

Shell said that net capital spending will rise to between $24 billion and $25 billion this year, reflecting higher industry costs.

Van der Veer said today that the company had 11 ``material discoveries'' last year, adding about 1 billion barrels of oil and gas resources. Some of these resources will have to be verified before they can be booked as reserves.

In a letter to employees dated Jan. 22, Shell's CEO said global demand for energy will outstrip supply within seven years because of ``population growth and economic development. After 2015 supplies of easy-to-access oil and gas will no longer keep up with demand.''

``It's very hard for Shell to keep coming up with new reserves, new big oil fields that can actually make a difference,'' Andy Brough, who helps oversee $6.5 billion in assets as executive director at Schroder Investment Management Ltd. in London, said in a Bloomberg Television interview