Shadia Nasralla

LONDON (Reuters) - Shell exceeded analyst expectations on Friday, reporting a first-quarter net profit fell 28% to $5.58 billion, while maintaining a steady pace of its stock buyback program despite falling oil prices and lower optimized margins.

This is in stark contrast to rival BP, which cuts its buybacks this year to strengthen its balance sheet and win investor confidence.

"At present, the main (opportunity) is the ability to buy back my stock," said Sinead Gorman, head of finance, on the phone.

Shell said it will recover its shares in the 14th quarter of the next three months, at least $3 billion in its 14th consecutive buyback program, worth $3.5 billion.

Its debt-to-equity ratio is 18.7%, below BP's 25.7%, and its shares have lost one-third in the past 12 months, while Shell has fallen 13%.

When asked about the possible acquisition of BP (BP has a market capitalization of less than half of Shell), CEO Wael Sawan told the Financial Times that he would rather buy back more Shell stock. A Shell spokesperson confirmed the comments.

Shell's adjusted earnings (its definition of net profit) hit $5.58 billion in the first quarter, higher than the average estimate of analyst polls provided by the company at $4.96 billion, but below $7.73 billion a year ago.

Stocks rose 2.2% in 1218, outperforming the broader energy company index, up 0.9%.

Its indicative optimized margin was $6.2 per barrel, up from $5.5 per barrel late last year, but it fell from $12 per barrel a year ago, reflecting a downturn across the industry.

The global benchmark Brent crude oil price averaged around $75 per barrel in the January-March quarter, compared with about $87 a year ago. Brent traded about $62 on Friday.

Shell's dividend is a dividend bonus point of $40 a barrel, and it has promised to continue buying back shares even as oil prices fall to $50 a barrel.

Shell said in a March strategy update that it will return more cash to shareholders based on higher expectations for LNG sales, and pruned its investments by 2028 and increased its prospects for reviewing its chemicals business.

When asked about closing or selling some of these assets, Gorman said the group had given itself a decade to end.

Shell reiterated on Friday that its annual investment budget has dropped by $20 billion this year.

Shell said its gasoline trading business was consistent with the previous quarter despite the expiration of the hedging contract.

This is in sharp contrast to BP, who said that the results of its gasoline trading business were weaker, but the results it encountered for the first time were not expected.