Royal Dutch Shell posted stronger than expected first-quarter profit, thanks to higher oil prices and wider margins in its refining business, boosting hopes for a more generous dividend policy.

Europe's largest oil and gas company by market value said current cost of supply net income rose to $6.9 billion in the first three months of the year.

It said oil and gas production in the first quarter fell three per cent compared with the 2010 period, due to divestments.

Analysts said the ramp-up of new projects in the second half of the year and strong oil prices could allow Shell to boost its dividend as rivals struggle to keep theirs constant.

'Gearing remains low and, with the expected growth in cash generation in the second half of 2011, supports dividend growth in the first quarter of 2012,' Citigroup analyst Alastair Syme said.

The Hague-based Shell has invested heavily in big new projects such as Qatargas 4, which are beginning to come on stream.

Brent crude was 38 per cent higher in the first quarter compared to the 2010 period, while global refining benchmarks tripled.

Shell, the largest shipper of liquefied natural gas (LNG), also benefited from higher LNG prices following the Japanese earthquake, which was expected to lead to higher LNG demand in that country as nuclear power is scaled back.

The Anglo-Dutch company's result compared well with British rival BP, which posted a 2 per cent fall in replacement cost net profit, on the back of an 11 per cent fall in production after selling assets to pay for the Gulf of Mexico oil spill.

Investec analysts said they expected Shell to continue to outperform BP in 2011.

Italian rival Eni reported a 6 per cent rise in replacement cost profit, although the result was muted by the weak dollar and a fall in output due to the conflict in Libya.