Shell and Equinor combine North Sea oilfields

The consolidation of North Sea assets has continued, with two of the largest players merging their assets to create a 140,000 barrels of oil equivalent per day (boepd) operator. Shell (SHEL) and Equinor (NO:EQNR) have created a new joint venture which will “allow continued economic recovery of this vital UK resource”, Shell said. The deal follows Italian major Eni selling its UK holdings to Ithaca Energy (ITH) earlier this year. 

The joint venture brings together two major development projects in Rosebank (80 per cent Equinor) and Jackdaw (100 per cent Shell) which are currently the focus of a legal challenge after the government acknowledged their existing environmental permits would not conform to a new standard. A summer judgment set a new precedent that forces ministers to consider the end-use, or scope 3, emissions when considering a project’s environmental impact assessment. A judge will decide on the projects needing new permits in January after a four-day hearing. 

Shell brings the majority of the output to the joint venture, with its UK assets producing 100,000 boepd. Equinor has a production of 38,000 boepd in the North Sea. Output is expected to rise to 140,000 boepd next year. The Norwegian company is also the owner of significant wind power operations, but these are not part of the joint venture agreement.

RBC Capital Markets analyst Biraj Borkhataria said, while Shell’s contribution would be more production now, Equinor was bringing £6bn in tax losses and the Rosebank project. 

“This combination appears to make strategic sense in that it allows the two companies to pool resources and continue to grow while allocating less focus/capital to the region and follows recent moves made by the likes of Eni in the country,” he added. 

The North Sea is a mature basin, and so energy majors are more focused on regions where massive new oil and gas resources are still being uncovered, like Namibia and Guyana. Shell and BP (BP.) have also returned to deep water development in the Gulf of Mexico. 

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

The deal will take some time to get through the approvals process, with completion expected “by the end of 2025”.