(FORTUNE Magazine) - Judging by the $23 billion it earned last year, these should be the best of times for Shell (Research), the Anglo-Dutch energy giant that ranks third among the top five Western oil companies. But Wall Street isn't celebrating. Instead, analysts are worried that buried beneath the record profit figures are worrying signs of a business in decline.

That's because Shell hasn't been able to find nearly as much oil and gas as it's now pumping out of the ground. In fact, it hasn't even come close--replacing only 60% to 70% of what it produced in 2005 and only 19% in 2004. Shell has had reserve problems for years--a controversy over improperly booked assets forced it to reduce estimated reserves by roughly 30% and led to the resignation of its CEO, Phil Watts, in 2004. But what's troubling now is that Shell is falling way behind rivals like Exxon (Research) and BP (Research) despite spending billions more each year on exploring and drilling new wells. Last year Exxon replaced 112% of production; BP came up with 95%. "I have never seen anything like this," says Fadel Gheit, a veteran energy analyst with Oppenheimer & Co. "Shell used to represent the gold standard in this industry, but lately they can't get their act together."

To be sure, Shell still has huge assets--nearly 12 billion barrels. But in the oil and gas industry, reserve replacement is the best guide to whether a company will be able to maintain--or grow--production in the future. So not replacing what you pump, says longtime industry observer Matthew Simmons, "is like eating your seed corn. If you're not finding new oil, you're just liquidating what you've got." Indeed, Shell's daily production figures have been weak lately, falling 6.7% in 2005, to 3.52 million barrels a day.

Privately, Shell execs say the company's decision to cut spending for exploration when oil prices bottomed out in the late 1990s is partly to blame for the anemic numbers now. Shell CEO Jeroen van der Veer insists that projects like those on Sakhalin Island off Siberia and in Nigeria and the Gulf of Mexico will enable the company to start catching up with peers in the years ahead. It won't be easy. "If you're not adding to reserves, you have a problem," says Sanford Bernstein analyst Oswald Clint. "Shell will have to run twice as hard just to stay in place."