Royal Dutch Shell has smashed the record for profits by a UK company with a $25.4 billion (£13.2 billion) haul for 2006.

It means that the world's second-biggest oil and gas company is making more than £1.5 million an hour.

Jeroen van der Veer, the chief executive, said that the Anglo-Dutch group had benefited from high energy prices and a better exploration strategy.

"In 2006, we saw good operational and financial performance," he said. "Our exploration strategy is paying off."

Shell's fourth-quarter profits came in at $6 billion, an 11 per cent jump on 2005 and far better than expected in the City.

The annual profits are 12 per cent higher than Shell's previous record of $22.7 billion.

Shell B shares raced 2.4 per cent, up 42p to 1748p, with investors promised a "step up" in dividend payments this year.

But Mr van der Veer gave warning that Shell may achieve only "modest" production growth to the end of the decade, given security concerns in Nigeria and its recent sale of a stake in the vast Sakhalin-2 offshore gas project to its Russian rival Gazprom.

Shell expects to pump 3.3 million to 3.5 million barrels of oil and gas a day out of the ground this year.

At best, that's almost flat on the 3.47 million output achieved in 2006 and the group may miss its target of four million by 2009.

Peter Hitchens, an analyst at Teather and Greenwood, said: "The profit numbers have come in at the top end of expectations but the production forecast is disappointing."

Shell has struggled to shrug off the reserves fiasco of three years ago, when the former chief executive Sir Philip Watts stepped down after admitting the group had overstated the extent of proven oil and gas discoveries on its books.

Today's figures showed that last year Shell's reserve replacement ratio was 150 per cent, including oil sands projects - meaning it more than covered production with new projects.

Shareholders will pocket a $0.36 a share dividend for the first quarter of 2007, as the group pays out in dollars for the first time. This is a 14 per cent increase in dollar terms but just 6.5 per cent in euros, the former currency.

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