Shell, Norway’s Equinor to merge offshore assets for creating UK’s largest oil & gas firm in joint venture | Mint

British energy giant Shell and Norway’s Equinor announced plans Thursday to merge their UK offshore oil and gas assets to create a new jointly owned company. Based in Aberdeen, Scotland, the joint venture “will be the UK North Sea’s biggest independent producer”, the energy sector heavyweights said in a statement.

The deal reflects the declining status of the country’s offshore oil and gas industry, which first got going in the 1960s and peaked more than 20 years ago. As production from existing fields dwindles and the average size of new discoveries shrinks, the global majors have shifted their focus to more attractive investment opportunities elsewhere.

The new company “will be set up to sustain domestic oil and gas production and security of energy supply in the UK”, the statement said. Equinor and Shell will each hold a 50 per cent stake in the new company. Shell employs around 1,000 people in oil and gas positions in Britain compared to 300 for Equinor.

“Domestically produced oil and gas is expected to have a significant role to play in the future of the UK’s energy system,” said Zoe Yujnovich, Shell’s integrated gas and upstream director. “To achieve this in an already mature basin, we are combining forces with Equinor, a partner of many year,” Yujnovich said.

The venture is expected to produce more than 140,000 barrels of oil equivalent per day in 2025. The introduction of a windfall tax in 2022, which was subsequently toughened by the country’s new Labour government this year, has also prompted outcry from the industry saying that it would lead to lower investment.

The venture is expected to produce more than 140,000 barrels of oil equivalent per day in 2025. “With the once-prolific basin now maturing and production naturally declining, the combination of portfolios and expertise will allow continued economic recovery of this vital UK resource,” the statement said.

“The new company will invest to provide a long-term future for the individual oil and gas fields and platforms, helping extend the life of this crucial sector for the benefit of the UK.” The companies expect the merger to be completed by the end of 2025, pending approval by regulators.

The trend in the North Sea in recent years has been for new entrants — often backed by private equity — to buy up aging assets from larger companies and combine them into so-called independent producers, such as Harbour Energy Plc. This business model has become more challenging since the Labour and previous Conservative government raised taxes on oil and gas companies to boost revenue.

Under the deal, Equinor will retain ownership of three oil and gas cross-border assets between Norway and Britain, along with its offshore UK wind farms.

The Norwegian group will also keep its hydrogen, carbon capture and storage, power generation, battery storage and gas storage assets.

Shell will maintain ownership of its Fife liquefied natural gas plant and St Fergus gas terminal in Scotland as well as floating wind projects off Scotland.

“This transaction strengthens Equinor’s near-term cash flow,” said Philippe Mathieu, an executive vice president at the Norwegian company.

“By combining Equinor’s and Shell’s long-standing expertise and competitive assets, this new entity will play a crucial role in securing the UK’s energy supply,” he said.

Shell and Equinor’s new company will be more focused and cost-competitive, making it better able to maximize the value of North Sea resources, said Equinor’s Executive Vice President for Exploration and Production International Philippe Mathieu.

“There is a very strong industrial logic to this,” Mathieu said in an interview, adding that through the deal Equinor fulfills its goal of reducing its 80% holding in the Rosebank oil field. The new entity will have the expertise needed to “generate returns from mature fields,” he said.