The Anglo-Dutch company said profit on a current cost of supplies basis fell 6% to $27bn (£17bn) last year.
Its fourth quarter earnings were up 13% on the same period in 2011 at $7.3bn (£4.6bn), but were significantly below analyst expectations.
The results come a day after the Office of Fair Trading cleared the company and its rivals of refusing to pass on lower oil prices to motorists as quickly as they could.
Poor performance at Shell's upstream business - which covers exploration and production - hit its total earnings, with profit in this division falling by 14% to $4.4bn (£2.8bn) in the fourth quarter.
In a statement, the company said: "Earnings were lower than in the fourth quarter 2011 mainly due to increased operating expenses, higher depreciation and higher exploration expenses."
But although production profits were down, production volumes increased by 3.3% to 3.41 million barrels of oil or natural gas equivalents per day.
Shell's chief executive Peter Voser said the economic outlook remained "uncertain", but insisted he saw a bright future for the oil and gas industry.
He said the dividend payment for 2013 would increase by 4.7% to $0.45 (£0.28) a share - the "largest in our sector".
Population increases and improving standards of living in developing companies helped push up energy demand across the world, the company said.
It expects to increase its total output to 4 million barrels of oil and gas equivalent per day by 2017-18.
"Shell's efforts to expand its pipeline of potential energy projects are paying off," Mr Voser added.
"Our drive to increase our options for future projects means that we are more constrained by limits on capital than by limits on opportunities."
The company revealed plans to invest aggressively over the next year, pledging to spend around $33bn (£20.9bn).
Some of this will go to countries including Nigeria - where farmers accused Shell of poisoning fish ponds and farmland with leaking pipelines.
On Wednesday the Dutch Hague Civil Court rejected most of the landmark case against the company.
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