Adds graphics, adds peer comparisons in paragraphs 2, 4; updates share price, adds index comparison in 6; cost cuts in 10

By Shadia Nasralla and Stephanie Kelly

LONDON, Feb 5 (Reuters) - Shell SHEL.L missed fourth-quarter profit expectations on Thursday with an 11% drop to the lowest level since early 2021 amid weaker oil prices, but kept its bumper share buyback programme.

Shareholders of oil majors have become used to huge buybacks, but lower oil and gas prices ahead of an expected crude and liquefied natural gas glut have prompted speculation they might be reduced, especially at European firms.

Shell has bought back about a quarter of its stock in the last four years, or about $60 billion - including $14 billion in 2025, according to LSEG data. At a continued pace of $3.5 billion per quarter, plus dividends, it is currently above its target payout range.

U.S. rival Exxon XOM.N paid $17.2 billion in dividends and repurchased $20 billion worth of shares last year, planning to keep its buybacks at that level this year. Norway's Equinor, meanwhile, slashed its buyback programme by 70% on Wednesday.

CHEMICALS BUSINESS WEIGHS

Profits at Shell's integrated gas and marketing divisions missed expectations, while a loss in its chemicals and products unit - hit by weak oil trading and a broad chemicals market rout that Shell had flagged - was deeper than analysts expected.

The stock was down 1.9% in early trading, underperforming a 1.6% drop in the European energy index .SXEP.

Fourth-quarter net profit came in at $3.3 billion, below analysts' average estimate of $3.5 billion in a company-provided poll for adjusted earnings, Shell’s definition of net profit.

SHAREHOLDER PAYOUTS

The share buyback, together with $2.1 billion in dividends, lifted shareholder payouts over the last four quarters to 52% of operating cash flow, above Shell's 40% to 50% target range.

Asked about this, Chief Financial Officer Sinead Gorman told reporters that the rolling 12-month range was "sacrosanct".

Shell increased its quarterly dividend by 4% to $0.372 per share, as planned, and has achieved $5.1 billion in cost cuts out of a target of $5 billion to $7 billion by 2028 compared with 2022.

The world's largest liquefied natural gas trader reported fourth-quarter cash flow from operations of $9.44 billion, ahead of expectations for $7.87 billion but down from $13.16 billion a year earlier.

QUESTIONS ABOUT M&A

RBC analysts noted that Shell's reserve life had fallen to 7.8 years, from 8.9 years in 2024. "Given this is weaker than some peers, we anticipate this could fuel more questions around Shell's M&A reserve replacement strategy," they said.

Brent futures LCOc1 averaged around $63 per barrel in the quarter, down from about $74 a year earlier, according to LSEG data and Reuters calculations.

The benchmark Dutch front-month gas contract at the TTF hub TRNLTTFMc1 averaged about 30 euros per megawatt-hour in the quarter, down from around 43.3 euros a year earlier.