Europe’s largest oil firm, Royal Dutch Shell (NYSE:RDS.A, RDS.B), like many of its integrated sisters, recently reported less-than-stellar earnings for the fourth quarter. The main culprit: dismal refining margins. Like many of its competitors, reduced global demand for refined distillates coupled with the decreasing spreads between WTI and Brent crude have caused havoc on Shell’s bottom line.

To that end, a variety of analysts and market pundits have begun downgrading Shell’s near-term prospects. For more patient investors, the recent stumble provides a great entry point to gain access to the firm’s rich project pipeline and strong dividend.

Lower Profits

Overall, Shell reported lower profits for the fourth quarter. Profits at the major energy firm dipped more than 4.3% to $6.5 billion as refining margins from processing oil into distillates weighed heavily on earnings. Shell’s downstream segment reported a loss for the quarter, similar to competitors like Chevron (NYSE:CVX). Earnings per share excluding one-time items (on a CCS basis) came in at $1.55, well below the S&P 500 Capital IQ consensus estimate of $1.84.

Lower prices for natural gas, along with mild European and North American winters, also weighed on the company’s bottom line. In addition, some supply disruptions — such as a small oil spill off the coast of Nigeria and resulting temporary closure of its Bonga deepwater field — played into the earnings miss.

As Shell’s shares slumped on the news, an array of analysts began downgrading the company’s prospects. Credit Suisse (NYSE:CS) was the latest, cutting shares down to neutral from overweight. Analysts at the investment bank were disappointed in the company’s free cash flow, as the company has increased capital expenditures. Other analysts also have expressed concerns about Shell’s rising CAPEX spending. Since CEO Peter Voser took over in 2009, Shell has undergone a massive spending spree on new oil and gas projects.

However, that CAPEX spending is exactly why investors should own Shell.

$30 Billion in Investment

As long-term energy demand from non-OECD nations continues to rise rapidly, Shell’s spending programs are exactly what investors should look for in the oil-and-gas space. Throughout 2012, Shell plans to invest more than $30 billion back into its operations, including increasing spending on exploration by 35% to $5 billion. More than 60% of the firm’s planned spending will be in North America and Australia.

Shell’s growth potential is being driven by more than 60 new projects spread among liquefied natural gas (LNG), deep water, tight gas and liquids-rich shale assets. These are exactly the kind of unconventional reserves and resources that will drive earnings and profits in the future. Voser expects that 2012’s project spending should result in a 25% increase in production, hitting 4 million barrels of oil equivalent per day by 2017.

The real key for investors is that these new projects and capital expenditures will result in major improvements to the oil giant’s cash flows. Shell predicts cash flows from operations will see an increase of 30% to 50% over the next four years. Those cash flows ultimately will head into back to investor’s pockets.

Shell returned more than $10.5 billion to investors by way of dividends in 2011, and more recently announced that it would hike its dividend by 2% next quarter, the first increase since 2009. RDS.A and RDS.B shares currently yield a hefty 4.6%. Voser commented during the earnings report that “Our improving financial position creates an opportunity to increase both our dividends and investment levels.” Long-term investors should be thrilled about the company’s new stance of strategic return to dividend and asset growth.

While some competitors like Exxon Mobil (NYSE:XOM) have reported slight gains in profits for the fourth quarter, investors shouldn’t be disheartened by Royal Dutch Shell’s rare miss. The recent analyst downgrades have pushed Shell shares into bargain territory. Add the company’s growing yield to its rising asset and reserve base, and Shell stock should produce great returns in the long run.

As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.