Recasts with detail on results throughout, adds results graphic

By Shadia Nasralla and Stephanie Kelly

LONDON, May 7 (Reuters) - Shell's SHEL.L 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, leading the company to raise the dividend by 5%.

At the same time, it slowed its quarterly share buyback programme to $3 billion from $3.5 billion to help divert cash to its balance sheet after its debt increased in the supply turmoil linked to the U.S.-Israeli war on Iran.

The oil major's shares were down 1.9% in early trading, underperforming a broader index of European energy companies that fell 1.1% .SXEP but in line with dropping benchmark oil prices LCOc1.

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

Shell's oil and gas output fell 4% compared with the previous quarter.

Damage from the war on Iran that began at the end of February has included the Qatari Pearl gas plant, where repairs might take about a year.

Shell's gearing, or debt to equity ratio including leases, rose to 23.2% from 20.7% at end-2025. Shell had flagged higher debt due to managing war-related price and supply disruptions and volatility, having previously said it was very comfortable with the ratio at 20%.

Its cash flow from operating activities at $6.1 billion was hit by large swings in inventory values, pushing 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.