and marketing businesses in Norway, Denmark, and the Czech Republic. That should enable the company to gradually improve the division's return on capital, which averaged 7% over the past 12 months. Shell believes that its downstream division has the potential to deliver 10%-12% return on capital and generate some $10 billion in annual cash flow.

Upstream Americas performance improving The second piece of encouraging news was that Shell's upstream Americas business -- its other main underperforming division -- finally swung to a profit of $550 million during the first quarter thanks primarily to higher natural gas prices in North America and the acquisition of South American liquefied natural gas assets from Repsol.

The division had been a consistent loss maker due to poor drilling results that resulted in substantial writedownsin the value of its shale assets. To improve the division's returns, Shell plans to reduce upstream Americas spending by 20% this year and has already announced the sales of various shale assets, including acreage in Texas' Eagle Ford and Kansas' Mississippi Lime play.

Going forward, Shell will continue to focus its upstream Americas efforts on its most promising opportunities, mainly in the Gulf of Mexico and West Texas' Permian Basin, which should help gradually improve the unit's returns.

Cash flow up sharplyLastly, and most important, Shell's cash flow is finally outpacing spending. First-quarter operating cash flow came in at $14 billion, up 21% year over year and the highest level in quite some time, compared to capital spending of $10.7 billion for the three-month period. This helped the company