Editor's note: This breaking news article has been updated with analyst commentary. 

The U.K. subsidiaries of Equinor and Shell are combining their offshore oil and gas assets to form a new company that would be the country’s largest North Sea producer, Shell said Dec. 5.

The joint venture will produce more than 140,000 boe/d in 2025, Shell said. Subsidiary Equinor UK Ltd. currently averages 38,000 boe/d and Shell U.K. Ltd. 100,000 boe/d, Shell said.

Financial details about the transaction weren’t disclosed. The deal, expected to close by the end of 2025, will form a new, independent producer owned 50-50 by Equinor and Shell.

“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 U.K. resource,” Shell said in a press release. “The new company will be more agile, focused, cost-competitive and strategically well positioned to maximize the value of its combined portfolios on the UK Continental Shelf.”

The JV will harvest value as assets naturally decline while accomplishing Equinor’s goal of farming down its Rosebank Field project and move the risk to the partnership, TD Cowen analyst Jason Gabelman said in a Dec. 5 research report.

Equinor has an 80% interest in the 77,000-boe/d Rosebank project, which comes with 350 MMboe of reserves. Production is expected in first-quarter 2027, he said.

Equinor had assumed it would “spend $1.2B on the project from 2025-27 after already accounting for a 50% farmdown. This deal will move that $1.2B spend into the JV and accomplish its farmdown goal while also warehousing risk to further project delays in the JV,” Gabelman said.

The JV expects to distribute cash from its first year; distributions should grow once Rosebank is online, Gabelman said. “The structure should increase combined portfolio FCF [free cash flow] with accelerated NOL [net operating lose] use. We est. ~$1B increase to EQNR valuation.”

Pondering whether the JV vehicle could ultimately become a standalone publicly traded vehicle as the single-largest UK E&P, “with a FCF/yield focus (latter remains a key investor demand across our coverage), we highlight that its single-digit RLI [reserve life index] could limit the market appeal longer term.”

The new company, based in Aberdeen, will invest in individual oil and gas fields and platforms to help extend the life of the sector. The JV will include Equinor’s equity interests in Mariner, Rosebank and Buzzard; and Shell’s equity interests in Shearwater, Penguins, Gannet, Nelson, Pierce, Jackdaw, Victory, Clair and Schiehallion. A range of exploration licenses will also be part of the transaction.

“Equinor has been a reliable energy partner to the U.K. for over 40 years, providing oil and gas, developing the offshore wind industry and advancing decarbonisation,” said Philippe Mathieu, Equinor’s executive vice president for exploration and production international. “This transaction strengthens Equinor’s near-term cash flow, and 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.”

Zoë Yujnovich, Shell’s integrated gas and upstream director, said domestically produced oil and gas is expected to have a significant role to play in the future of the U.K.’s energy system.

“To achieve this in an already mature basin, we are combining forces with Equinor, a partner of many years,” Yujnovich said. “The new venture will help play a critical role in a balanced energy transition providing the heat for millions of U.K. homes, the power for industry and the secure supply of fuels people rely on.”

Equinor will retain ownership of its cross-border assets, Utgard, Barnacle and Statfjord, and offshore wind portfolio including Sheringham Shoal, Dudgeon, Hywind Scotland and Dogger Bank. It will also retain the hydrogen, carbon capture and storage, power generation, battery storage and gas storage assets.

Shell U.K. will retain ownership of its interests in the Fife NGL plant, St Fergus Gas Terminal and floating wind projects under development—MarramWind and CampionWind. Shell UK will also remain Technical Developer of Acorn, Scotland’s largest carbon capture and storage project.

Equinor employs around 300 people in oil and gas roles in the U.K. Shell employs approximately 1,000 people in similar oil and gas positions across the country.

Comments