Shell PLC (SHEL.US) reported first-quarter profits that surpassed market expectations, driven by strong performance in its trading division. This was fueled by heightened oil and gas prices and increased market volatility linked to Middle Eastern conflicts. The company's adjusted net income for the first quarter of 2026 reached $6.92 billion, a significant increase from $5.58 billion in the same period last year and exceeding the analyst consensus estimate of $6.36 billion. Adjusted EBITDA also rose to $17.7 billion, up from $15.3 billion a year earlier. Despite these results, the company's U.S.-listed shares were down 1.95% in after-hours trading.
The substantial profit growth was primarily attributed to enhanced contributions from trading and optimization in the downstream and renewable energy sectors, higher realized oil and gas prices, improved refining margins, and lower operating costs. Since the escalation of conflict in the region in late February, Brent crude prices have surged over 50%, and increased market volatility has provided a significant tailwind for European energy majors with large trading operations like Shell.
However, despite the robust earnings, Shell reduced its quarterly share repurchase program to $3 billion from the previous $3.5 billion, signaling a more cautious approach to cash flow and debt management. The company's operating cash flow for the quarter was $6.1 billion, impacted by a net outflow of $11.2 billion in working capital related to inventory and receivables due to commodity price swings. Free cash flow declined to $2.9 billion from $5.3 billion a year ago. Concurrently, net debt increased to $52.6 billion, and the gearing ratio, which includes leases, rose to 23.2% from 20.7% at the end of 2025. Shell had previously indicated comfort with a gearing level around 20%; the recent increase is partly due to a sharp rise in ship leasing costs driven by the Middle Eastern conflict.
The conflict also had a tangible impact on Shell's physical assets and upstream production. Overall oil and gas output fell by 4% quarter-on-quarter, mainly due to operational disruptions in the Middle East resulting from the conflict, particularly damage to the Pearl gas facility in Qatar. Repairs for this facility are estimated to take approximately one year. LNG liquefaction volumes saw a marginal 1% increase, supported by higher output from a Canadian LNG project, which partially offset weather-related reductions in Australia.
Looking ahead to the second quarter, Shell anticipates integrated gas production to be between 580,000 and 640,000 barrels of oil equivalent per day, and upstream production between 1.62 million and 1.82 million barrels per day. The company noted that this guidance already incorporates the impacts of the Middle East conflict, including the situation in Qatar, as well as higher planned maintenance activities across its asset portfolio.
Shell was the last of the Western oil supermajors to report quarterly results. Earlier, European rivals BP and TotalEnergies also posted significant profit increases, bolstered by strong trading performance during the period of conflict. U.S. peers ExxonMobil and Chevron benefited from higher oil and gas prices but faced production disruptions, particularly ExxonMobil, and negative impacts from derivative positions. In summary, while geopolitical tensions have boosted energy trading profits, they have also introduced complexities for asset operations and financial health. Shell delivered better-than-expected earnings for the first quarter but now navigates challenges including cash flow pressure, rising debt, and the long-term repair of critical assets.