Shell's profit beats expectations at $6.9 billion, raises dividend by 5%

* Shell cuts quarterly buybacks to $3 billion from $3.5 billion

* Middle East war cuts output ​by 4%

* Shares ⁠fall in early trade along with oil prices, peers

LONDON, ​May ‌7 (Reuters) - Shell's first-quarter profit beat estimates and hit its highest in two years at $6.9 billion on Thursday, boosted by gains linked to the Middle East war, ⁠prompting it to raise the dividend by 5%.

At the same time, ⁠it cut its quarterly share buyback programme to $3 billion ​from $3.5 billion to preserve cash for its balance sheet as a short-term liquidity squeeze after war-related energy supply disruptions increased its debt.

Chief Financial Officer Sinead Gorman said on a conference call that future buyback increases were on the table given Shell shares were still undervalued.

"It ​really reflects that ‌confidence we have in the long-term cash flows of the company," Gorman said of the dividend hike.

Shell had previously exceeded its shareholder distribution target of 40% to 50% of operational cash flow, and Citi analyst Alastair Syme said the 8% 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 3.2% at 1504 GMT, broadly in line with peers, as benchmark global oil prices retreated from peaks above $100 a barrel.

First-quarter adjusted earnings, Shell's definition ‌of net profit, rose to $6.92 billion, beating an analyst consensus of $6.36 billion and up from $5.58 billion a year earlier.

Profits at its chemicals and products unit, which includes refining and oil trading, were $1.93 billion, beating expectations of $1.24 billion and rising from $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% ‌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 around a year.

For the second quarter, Shell expects integrated gas production to drop ⁠up to 36% ⁠due to the conflict's impact, including in Qatar. LNG liquefaction volumes are expected to fall ‌by up to 14%.

CFO SAYS SHE IS HAPPY WITH BALANCE SHEET DESPITE DEBT

Shell's gearing, or debt-to-equity ratio including leases, rose to 23.2% from 20.7% 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 $6.1 billion, hit by large swings in inventory values that pushed working capital - a liquidity measure of current assets minus liabilities - to minus $11.2 billion.

Shell expects working capital movements to reverse over time if oil and gas prices ease.

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