RPT-UPDATE 6-Shell eyes big growth, but at big cost

* Q4 results disappoint, anaemic dividend rise

* Higher investments seen but returns weaken

* Echoes industry-wide trend of waning ROACE

* Big loss on refining weighs on earnings

* London-listed B shares down 1.2 percent

By Tom Bergin

LONDON, Feb 2 (Reuters) - Ambitious new growth plans from Royal Dutch Shell on Thursday failed to impress investors and analysts who fretted that disappointing fourth-quarter and 2011 results pointed to ever reducing returns from the proposed new investments.

Europe's largest oil company by market capitalization said it was targeting a 50 percent rise in cashflow and a 25 percent rise in oil and gas production in coming years.

However, this expansion will require higher investment, which meant Shell was only able to offer a modest increase in its dividend.

Hague-based Shell's London-listed B shares traded down 1.2 percent at 1606 GMT, against a 0.2 percent rise in the STOXX Europe 600 Oil and Gas index.

Analysts at Investec said they were concerned about Shell's ever-rising investment expenditure, which they feared meant the company was spending "more for less."

"We expect to see material downgrades to the consensus FY2012/13 earnings numbers," they wrote in a research note.

Analysts at Citigroup said the company needed to convince investors it could invest money more profitably than rivals to justify the outperformance in its shares compared with rivals in the past 18 months.

"The new medium-term strategy unveiled today fails to offer that differentiated story," they said.

Shell's planned return to strong production growth follows a long fallow period. Apart from a 5 percent rise in 2010, the group's production has fallen every year since 2002.

"Oil & gas production should average some 4 million boe/d (barrels of oil equivalent per day) in 2017-18," the company said in a statement.

Production averaged 3.215 million boe/d in 2011, a 3 percent drop on 2010.

Capital investment expenditure will rise to $32-$33 billion this year from $31.5 billion last year, Shell said.

Analysts had previously predicted that capex would fall, as Shell completed big new projects such as the pearl gas-to-liquids plant in Qatar, which will push output higher.

INDUSTRY RETURNS ERODING

The high capital being invested is one reason why Shell's return on average capital employed (ROACE) failed to sparkle, at 15.9 percent, compared with levels above 20 percent a few years ago when oil prices were considerably lower.

Similarly, in spite of a record average Brent crude price of $111/barrel in 2011, the full year current cost of supply (CCS) net income of $28.6 billion still lagged Shell's earnings high of $31.4 billion in 2008 when Brent was under $100/barrel.

Chief Financial Officer Simon Henry said he expected the return on capital employed to rise in coming years and that all the projects Shell was invested in offered "robust" returns.

However, he did not commit to returning to the previous ROACE levels.

Rivals also appear to be struggling with the same problem. Chevron said its ROACE was 20 percent lower in 2011 than in 2008, while industry leader Exxon, failed to come close to its 2008 profit peak last year, even though it spent over $30 billion buying gas producer XTO in the intervening period.

Shell said its fourth quarter CCS net income was $6.46 billion, helped by one-off gains from the sale of assets.

Excluding one-offs, the result rose 18 percent to $4.85 billion, shy of an average forecast of $5.17 billion from a Reuters poll of nine analysts.

The miss was despite the fact analysts had recently cut back their forecasts in the light of weak trading statements from Shell's rivals.

A big loss in the refining unit weighed on earnings, echoing a trend across the industry.

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

The company also announced a weaker rise in its dividend than some analysts expected, adding just 1 cent to its first quarter dividend for 2012, to $0.43 per share.