London, May 2 (Bloomberg) -- Royal Dutch/Shell Group, Europe's largest oil company, said first-quarter net income more than doubled, capping a week of record oil-industry profit as the war in Iraq caused prices to jump.

Net income surged to $5.33 billion from $2.26 billion a year earlier, Shell said. The company expects refining margins to decline this quarter, while the chemicals industry is unlikely to recover without a turnaround in the economy.

Shell and rivals BP Plc and Exxon Mobil Corp. earned almost $16 billion last quarter as oil prices jumped to a 12-year high in February and refining margins widened on a drop in fuel inventories. Oil prices have since fallen by about a third, signaling earnings are poised to slide, analysts said.

``Earnings are going to go down from here,'' said Jon Rigby, an analyst at Commerzbank Securities in London who recommends investors buy Shell shares. ``What we're seeing in the second quarter is lower oil prices and a question mark with what's happening with refining margins.''

The shares of Shell Transport & Trading Co., which represents 40 percent of the group, were up 3p at 375.25p as of 1:30 p.m. on the London Stock Exchange. The stock rose as much as 2.9 percent earlier. ChevronTexaco Corp., the second-largest U.S. oil company, today reported a record net income of $1.9 billion for the period.

Shell Transport shares have declined 25 percent in the past year, more than the 13 percent drop at Exxon and less than a 32 percent loss at BP. Royal Dutch Petroleum Co. in Amsterdam, representing the rest of Shell, has declined 38 percent.

Even as cash piles in, stock buybacks are ``unlikely'' in the first half of the year, Shell spokesman James Herbert said, repeating an outlook Shell gave in February. Analysts had speculated that Shell may buy back stock sooner. The company had $4 billion in cash at the end of the quarter.

Buyback `Disappointment'

``The thing that might have disappointed slightly is they haven't recommitted to the share buyback yet,'' said Doug Leggate, an analyst at Citigroup Inc. with an ``outperform'' rating on Shell. ``They have room to do it later in the year.''

After adjusting for special items and changes in the value of inventories, profit increased 96 percent to a record $3.91 billion, beating analysts' average estimate of $3.67 billion in a Bloomberg survey. Sales surged 53 percent to $53.8 billion.

Shell Chairman Philip Watts in a statement said the result was ``strong and highly competitive.'' The previous record quarter for the measure of profit forecast by analysts was $3.86 billion in the first quarter of 2001.

The industry's surge in profit stems from finding and pumping oil and natural gas. Adjusted earnings from the unit, Shell's biggest, rose to $2.79 billion from $1.46 billion, helped by a 6 percent increase in oil and gas output.

Shell received 53 percent more for its oil than a year ago, while prices for natural gas increased 61 percent. Gas represents about 40 percent of Shell's production.

Output Target Kept

The increase was led by Shell's purchase of Enterprise Oil Plc in April 2002, offsetting disruptions in Venezuela and Nigeria. Shell expects to meet a target to produce 4.1 million barrels of oil and gas a day this year, up from 4 million in 2002, Herbert said.

Shell's return on capital, a measure of efficiency, rose to 18.3 percent from 15.2 percent. Returns last year slipped below the company's target of between 13 percent and 15 percent because of $16.3 billion in acquisitions.

In addition to Enterprise, Shell bought Texaco Inc.'s share of two U.S. refining ventures, motor oil maker Pennzoil-Quaker State Co. and RWE AG's stake in a German fuels venture, to bolster oil-production and refining.

Adjusted profit at the oil refining and marketing unit rose to $1.06 billion from $441 million, higher than some analysts expected. A drop in U.S. fuel inventories, in part because of a Venezuelan strike and a colder-than-normal winter in the U.S. and Europe boosted demand, widening margins.

Chemicals Loss

Shell's chemicals division posted a loss of $15 million, down from a profit of $75 million a year ago, because of a charge taken for restructuring. Gas and power earnings rose to $470 million from $216 million, reflecting higher prices for gas.

Companywide, net income was boosted by $1.3 billion because Shell sold a stake in German natural gas distributor Ruhrgas AG. Net income equaled 1.54 euros a share ($1.73) for Royal Dutch Petroleum Co and 13.8 pence a share (22 U.S. cents) for Shell Transport.

Last Updated: May 2, 2003 08:38 EDT