LONDON - Royal Dutch Shell Plc affirmed its medium term production growth plans and said its dividend would rise over 1 percent this year as it unveiled flat oil and gas reserves at the end of 2008 compared with 2007.

The world's second-largest non-government controlled oil company by market value said on Tuesday it could generate 2-3 percent annual production growth from early in the next decade.

Shell, whose output has been falling for six years, previously said it had long-term growth potential of 2-3 percent.

Shell's London-listed A shares fell 2.9 percent to 1,593 pence at 0937 GMT, underperforming a 1.5 percent fall in the DJ Stoxx European oil and gas sector index .SXEP.

In recent weeks, British oil major BP Plc and Italian rival Eni have both scaled back production growth targets and analysts at Morgan Stanley said last week there was a risk Shell could do the same.

The Anglo-Dutch oil major performed better at adding new reserves in 2008 than some analysts expected, with a reserves replacement rate of 98 percent, as measured under Securities and Exchange Commission rules, the spokesman said.

This meant Shell matched almost all its production with new finds in the year, although its performance lagged some rivals including BP.

As investors fret that a $100/barrel drop in crude prices since last July will force oil majors to scale back their generous dividends, Shell said it would raise its dividend payout in 2009 to around $10 billion from $9.8 billion last year.

The company did not commit to continuing its share buyback programme, on which it spend over $3 billion in 2008.

We don't have a crystal ball on oil prices, so we are planning on the basis that the downturn could last more than a year, Chief Executive Jeroen van der Veer said in a statement.

RESERVES FLAT, PROJECTS DELAYED

The Anglo-Dutch oil major performed better at adding new reserves in 2008 than some analysts expected, with a reserves replacement rate of 98 percent, as measured under Securities and Exchange Commission (SEC) rules, the spokesman said.

This meant Shell matched almost all its production with new finds in the year, although its performance lagged some rivals including BP.

As investors fret the drop in crude prices will force oil majors to scale back their generous dividends, Shell said it would raise its payout bill in 2009 to around $10 billion from $9.8 billion last year.

The company does not plan to make share buybacks, on which it spent over $3 billion in 2008.

After selling a number of refineries and fuel retail operations in Europe and Africa in recent years, Shell said it could sell further refining assets in Germany and New Zealand representing 200,000 barrels per day capacity.

Shell is under investigation by the SEC, the U.S. financial regulator, and the U.S. Department of Justice (DoJ) for violations of the U.S. Foreign Corrupt Practices Act, Shell said in its annual report.

Chief Financial Officer Peter Voser, who will replace van der Veer as CEO in July, said this was an extension of a previously disclosed probe.

The case involves Shell's use of a Swiss-based freight forwarding firm called Panalpina, which has said it is helping the DoJ in relation to suspected bribery in Nigeria, Kazakhstan and Saudi Arabia.

In last year's annual report, Shell only said it had been contacted by U.S. authorities in relation to the case.

Shell has delayed startup of key projects, including the expansion of the Motiva Port Arthur refinery, the Perdido platform in the Gulf of Mexico and the Forcados Yokri and Bonga NW projects in Nigeria, according to slides posted on the company's website.

(Editing by Jon Loades-Carter and David Holmes)