(Bloomberg) — Equinor ASA and Shell Plc will combine their UK offshore oil and gas assets to form a new company, which they said will be the UK North Sea’s biggest independent producer.
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The deal reflects the declining status of the UK’s offshore oil and gas industry, which first got going in the 1960s and peaked about 20 years ago. As production from existing fields dwindles and the average size of new discoveries shrinks, the global majors have been shifting their focus to more attractive investment opportunities elsewhere.
The incorporated joint venture, jointly owned by Equinor and Shell, will be set up to “sustain domestic oil and gas production and security of energy supply in the UK,” the companies said on Thursday in a statement.
“When you bring enormous focus, particularly to the assets that are later in their life and maturity, we’re able to extract longer production time horizons and arrest the decline for a longer period of time than anticipated,” Shell Upstream Director Zoe Yujnovich told reporters in a call.
While Yujnovich did not specify capital expenditure plans, the “new venture will have the capability to raise debt and therefore to enable it to make its choices on how it would rank capital,” she said. There are no current plans for an initial public offering of the entity, she added.
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 producers and combine them into so-called independent producers, such as Harbour Energy Plc.
Shell and Equinor’s new company will be more focused and cost-competitive, making it better able to maximize the values of its remaining North Sea resources, according to the statement. The two companies currently employ about 1,300 people in upstream oil and gas roles in the UK and pump almost 140,000 barrels a of equivalent. Yujnovich indicated those jobs will remain in the joint venture, which will have robust job opportunities.
“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,” Equinor’s Executive Vice President for Exploration and Production International Philippe Mathieu said in the statement.
The transaction is subject to regulatory approval and is expected to close by the end of 2025.
The deal “makes industrial sense with Europe’s two leading energy companies joining forces,” Sparebank 1 Markets analyst Teodor Sveen Nilsen said in an investor note. “If we assume the exchange ratio is fair, we think tax synergies, potential supplier synergies justifies a positive reaction,” he said.
