Shell (SHEL.US) exceeded expectations in the first quarter profit: surge in oil and gas prices boosted trading business, but buyback activities shrank.

The Iran war has boosted oil and gas prices and market volatility, lifting Shell's (SHEL.US) strong performance in the first quarter and exceeding market expectations. Adjusted net profit (company-defined net profit) for the first quarter of 2026 was $6.92 billion, significantly higher than the $5.58 billion in the same period last year, and also exceeded analysts' general expectations of $6.36 billion as per the company's survey. Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) rose from $15.3 billion in the same period last year to $17.7 billion. As of the time of writing, the stock fell by 1.95% in after-hours trading. The company stated that the significant profit growth was mainly due to enhanced contributions from downstream and renewable energy sector trading and optimization, higher oil and gas realization prices, improved refining margins, and decreased operating costs. Since the outbreak of the conflict in Iran at the end of February, Brent crude oil prices have risen by over 50%, intensifying market fluctuations and bringing significant benefits to European energy giants with large trading platforms. Share buyback reduced, gearing ratio rises to 23.2% Despite the impressive profit performance, Shell reduced its quarterly stock buyback from $3.5 billion to $3 billion, demonstrating the company's cautious approach in cash flow and debt management. Operating cash flow in the first quarter was $6.1 billion, dragged down by a net outflow of $11.2 billion in operating net working capital due to fluctuations in commodity prices. Free cash flow decreased from $5.3 billion in the same period last year to $2.9 billion. Meanwhile, the company's net debt increased to $52.6 billion, and the gearing ratio (including leases) rose from 20.7% at the end of 2025 to 23.2%. Shell had previously stated that it was "very comfortable" with a 20% gearing ratio level, and the increase in the current level is partly due to significantly higher vessel leasing costs driven by the Middle East conflict. Middle East war hampers production, Qatar gas plant repair to take a year The conflict has had a significant impact on Shell's physical assets and upstream production. The overall oil and gas production decreased by 4% quarter-on-quarter, mainly due to disruptions in the Middle East region caused by the US-Iran war, especially the damage to Qatar's Pearl gas plant. It was revealed that the repair work for the facility may take about a year. Liquefied natural gas (LNG) liquefaction volume increased by 1%, mainly due to increased production from Canadian LNG projects, partially offsetting the production decrease caused by weather factors in Australia. Looking ahead to the second quarter, Shell expects comprehensive natural gas production to be between 580,000 and 640,000 barrels of oil equivalent per day, with upstream production between 1.62 million and 1.82 million barrels of oil equivalent per day. The company stated that this guidance reflects the impact of the Middle East conflict (including Qatar) and a higher level of maintenance work within the full asset portfolio. Industry comparisons: European and American giants generally benefit, but with different impacts Shell is the final super-giant company to release quarterly results after Occidental Petroleum Corporation. Previously, European competitors BP p.l.c. Sponsored ADR and TotalEnergies also reported significant profit increases due to strong trading performance during the war. American peers Exxon Mobil Corporation and Chevron Corporation also benefited from the rising oil and gas prices, but suffered from production interruptions (especially Exxon Mobil Corporation) and negative impacts on derivative positions. Overall, while the conflict has boosted energy trading profits, it has also had complex effects on asset operations and financial conditions. Shell delivered better-than-expected profits in the first quarter, but also faces challenges of pressure on cash flow, rising debt, and long-term repairs for key assets.