The UK’s Shell and Norway’s Equinor are to combine their UK offshore oil and gas assets in a joint venture, in the latest ownership shake-up in the rapidly maturing UK North Sea.
The two companies said the 50-50 joint venture would be the largest independent producer in the basin and would allow “continued economic recovery” of the “vital UK resource” of North Sea oil and gas, where production was “naturally declining”.
The venture, which will be based in Aberdeen, will take over Equinor’s stakes in three North Sea fields and Shell’s stakes in nine. Shell currently produces about 100,000 barrels of oil equivalent per day from the assets, while Equinor produces about 38,000.
However, Equinor’s assets in the venture include the vast new Rosebank field west of Shetland — by far the largest new field under development in the North Sea.
Major oil and gas companies have gradually wound down their exposure to the North Sea as reservoirs in the once-important area have become less productive and the effort required to eke out the remaining reserves has increased. Many have sold operations to new, independent operators such as the UK’s Ithaca Energy.
“The new company will be more agile, focused, cost-competitive and strategically well positioned to maximise the value of its combined portfolios on the UK continental shelf,” said Equinor and Shell in a joint statement.
The companies added that a “range” of exploration licences would be part of the joint venture, although it is unclear how far oil and gas producers will be willing to develop future production in the basin, given increasing government restrictions on new drilling.
Both Shell and Equinor are awaiting the outcome of a court case that will decide whether development should be halted at Rosebank and Shell’s Jackdaw field because of the government’s failure when awarding the licences to consider the full climate change impact of the developments.
There has also been controversy about how far the UK government’s tax treatment of North Sea assets will allow continued production to be economic.
Equinor will retain its interest in fields that straddle the border with the Norwegian North Sea and a series of offshore wind farms. Shell will retain two onshore terminals and a series of floating wind farm developments.
Shell’s integrated gas and upstream director, Zoë Yujnovich, said domestically produced oil and gas were expected to have a “significant” role to play in the future of the UK’s energy system.
“To achieve this in an already mature basin, we are combining forces with Equinor, a partner of many years,” she said. “The new venture will help play a critical role in a balanced energy transition providing the heat for millions of UK homes, the power for industry and the secure supply of fuels people rely on.”
One investment banker who specialises in the North Sea said there would also be tax advantage from offsetting the tax losses from developing Rosebank against Shell’s assets.
“Two significant companies are changing their strategy,” he said. “They both see the tax regime as uncompetitive and want to cut costs and run off the assets.”
Shell’s shares opened in London down 0.84 per cent at £25.09. Equinor’s shares opened up 0.66 per cent in Oslo, at NKr268.75.
