ROYAL Dutch Shell reiterated its commitment to the North Sea after the oil and gas giant unveiled a 54% increase in annual profits helped by strong oil prices.

However, shares in the company fell after analysts expressed concern about the likely returns on the hefty investments proposed by Shell.

In an update on its progress against strategy Shell indicated the North Sea would remain an important part of the business for some time.

"Traditional developments in Shell's heartlands will see $6 billion (£3.8bn) of 2012 investment. This includes extending the life of Shell's mature heartland positions such as the UK North Sea," the company said.

The Anglo-Dutch company recently committed to a number of multibillion pound projects in the Atlantic Margin around Shetland, including the second phase development of the massive Clair field.

Shell's chief executive Peter Voser told reporters: "We have some large projects underway in Shell's traditional heartlands. These are plays like new oil in the Atlantic Margin. It's an important part of maintaining Shell's cash flows from these long life basins."

Mr Voser said Shell's North Sea investment would generate substantial tax revenues and create jobs.

In June he told The Herald Shell could invest in the North Sea for decades.

The remarks may allay fears that Shell will cool on the North Sea following the hike in taxes in the Budget in March last year.

However, Mr Voser said: "We do hope that we have enough investment incentives in the longer term in terms of tax structures in the UK so that we can keep the oil and gas industry alive here."

Companies have complained the tax hike makes marginal developments uneconomic.

Shell said it made good progress in 2011 with its focus on big long life projects.

The company brought the giant Pearl Gas to Liquids plant in Qatar onstream.

Full-year current cost of supply earnings surged to $28.6bn from $18.6bn in 2010.

Excluding one-offs, earnings increased 37% to $24.7bn.

The average price realised for oil increased by 39% in 2011 compared to 2010, while global average gas prices increased by 18%.

Full-year production fell to 3.215 million barrels oil equivalent daily in 2011, from 3.314 million in 2010 after disposals.

Shell expects to produce four million boed in 2017-18.

Excluding one-offs, fourth quarter CCS earnings increased 18% annually to $4.85bn, against an average forecast of $5.17bn in a Reuters poll of nine analysts.

Mr Voser highlighted a sharp fall in refining margins amid challenging economic conditions and falling gas prices in North America.

Shell has budgeted $30bn net capital investment this year.

Analysts at Investec said they feared the company was spending "more for less".

Shell's London-listed B shares closed down 28.5p at 2297.5p.

Shell declared a first quarter dividend of $0.43 per share, up 2% on the same period in 2011.