Shell’s first-quarter profit beat estimates and hit its highest in two years at US$6.9-billion on Thursday, boosted by gains linked to the Middle East war, prompting it to raise the dividend by 5 per cent.
At the same time, it cut its quarterly share buyback program to US$3-billion from US$3.5-billion to preserve cash for its balance sheet as a short-term liquidity squeeze after war-related energy supply disruption increased its debt.
“It really reflects that confidence we have in the long-term cash flows of the company,” Shell’s chief financial officer Sinead Gorman said on a call with reporters of the dividend hike, adding she still felt Shell shares were undervalued. She said she had reduced the buybacks to allocate cash to the balance sheet.
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Shell had previously exceeded its shareholder distribution target of 40 per cent to 50 per cent of operational cash flow, and Citi analyst Alastair Syme said the 8 per cent year-on-year cut in payouts from the dividend-buyback rebalancing should have come earlier.
Oil majors typically use buybacks as a flexible tool, while dividends are rarely cut. Shell cut its dividend for the first time since World War Two in 2020 during the COVID-19 pandemic.
Oil trading bonanza, echoing other European majors
Shell’s shares were down 2 per cent in early trading, broadly in line with peers, as benchmark global oil prices retreated from peaks above US$100 a barrel.
First-quarter adjusted earnings, Shell’s definition of net profit, rose to US$6.92-billion, beating an analyst consensus of US$6.36-billion and up from US$5.58-billion a year earlier.
Profits at its chemicals and products unit, which includes refining and oil trading, were US$1.93-billion, beating expectations of US$1.24-billion and rising from US$450-million last year.
This mirrors strong oil trading at European peers BP and TotalEnergies, which have benefited from price volatility more than their U.S. rivals.
Shell’s oil and gas output fell 4 per cent from the previous quarter, mainly due to outages in Qatar after damage to part of its Pearl gas-to-liquids plant in the conflict that began at the end of February. Repairs may take about a year.
For the second quarter, Shell expects integrated gas production to drop up to 36 per cent due to the conflict’s impact, including in Qatar. LNG liquefaction volumes are expected to fall by up to 14 per cent.
CFO happy with balance sheet despite debt
Shell’s gearing, or debt-to-equity ratio including leases, rose to 23.2 per cent from 20.7 per cent at the end of 2025, reflecting higher debt linked to price swings and supply disruptions.
Gorman said she was very happy with the balance sheet.
Cash flow from operating activities was US$6.1-billion, hit by large swings in inventory values that pushed working capital - a liquidity measure of current assets minus liabilities - to minus US$11.2-billion.
Shell expects working capital movements to reverse over time if oil and gas prices ease.