Shell and Equinor announce UK joint venture

European giants Equinor (OSLO: EQNR) and Shell (LON:SHEL) plan to combine their UK offshore oil and gas assets to create the UK's largest oil and gas operator.

Once the deal is completed, Equinor UK will control 50% of the new company and Shell UK will hold the remaining 50% stake.

As UK basins continue to mature, the companies say this portfolio combination will enable “the continued economic recovery of this important UK resource”.

The joint venture is expected to produce more than 140,000 barrels of oil per day next year.

Upon completion, the new company will be self-funded, with Equinor sharing. The Company's equity shares are accounted for as equity, and organic capital expenditures related to investments are not reported by the Company.

Philippe Mathieu, Senior Vice President, International Exploration and Production at Equinors, said: Equinor has been the UK's trusted energy partner for over 40 years, supplying oil and gas, developing the offshore wind industry and driving decarbonisation.

“This transaction will strengthen Equinors’ near-term cash flow and by combining the long-standing expertise and competitive assets of Equinors and Shells, this new entity will play a critical role in securing the UK’s energy supply.

© Simon Price Shell's Jackdaw project will connect to the Shearwater gas hub in the central North Sea.

The company will be established in Aberdeen and will acquire stakes in Equinor's Mariner, Rosebank and Buzzard fields and Shell's Shearwater, Penguins, Gannet, Nelson, Pierce, Jackdaw, Victory, Clair and Schiehallion.

Equinor confirmed that “various exploration licenses will also be part of the transaction.”

Zo Yujnovich, Director of Integrated Gas and Upstream at Shells, added: “Homegrown oil and gas is expected to play a key role in the future of the UK’s energy system.

“To achieve this in an already mature basin, we are joining forces with Equinor, our partner for many years.

“The new venture will help us play a vital role in a balanced energy transition that provides heat to millions of UK homes, powers industry and safely supplies the fuel people rely on.

The deal is expected to become economically effective early next year, and the companies estimate approvals will be completed by the end of 2025.

To this end, Houlihan Lokey advised Equinor and Jefferies advised Shell on the transaction.

UK operational complications

Equinor said the move “opens a new chapter” for the company’s operations in the UK and that joining the joint venture will ensure that both it and Shell will continue to be “significant players” in the UK North Sea.

Equinor claimed it would “benefit from increased near-term production and cash flow” as a result of the joint venture.

Earlier this year, Mathieu said changes to Britain's fiscal framework could affect up to $10 billion worth of investments in the country.

© Arne Reidar Mortense Equinor International Vice President Exploration and Production Courtesy of Philippe Francois Mathieu.

Britain's new government has come under fire from the country's energy sector for its approach to oil and gas.

Labor, which came to power earlier this year, raised the top tax rate on North Sea operators to 78% while abolishing investment incentives and the energy profits levy.

But the changes under Prime Minister Keir Starmer's first budget were not as bad as expected for oil and gas companies.

The government has decided to maintain capital allowances to help new oil and gas projects get off the ground.

Serica Energy, an opponent of the latest windfall tax, said production had not changed significantly under the Labor government.

David Whitehouse, CEO of joint venture Offshore Energies UK, said: This new company will play an important role in securing the UK’s domestic energy future.

The industry is transforming to remain globally competitive and the UK can make the most of the opportunities of the North Sea, world-class supply chains and a domestic energy future.

The North Sea is a national economic asset and the government says it will need oil and gas for decades to come as it transitions to net zero.

“As we expand our energy mix through offshore wind, hydrogen and carbon capture projects, it remains important to support businesses to invest in these with long-term, stable policies.

Equinor and Shell in court

Equinor and Shell are currently awaiting the outcome of a court hearing held in Edinburgh last month.

This case concerns downstream emissions, or scope 3 emissions, when the UK government took into account their impacts when granting consent for Equinor's Rosebank field and Shell's Jackdaw development.

Rosebank is Britain's largest greenfield oil field and Equinor has claimed withdrawing the license would delay work and lead to the loss of up to 4,000 jobs.

Rosebank is 80% owned by Equinor and the remainder by Ithaca Energy.

The 300 million barrel oil field, located 80 miles off Shetland, received approval from UK regulators last year for a final investment decision.

Equinor said Rosebank could produce until 2051, but its emissions would account for 1.6% of the total UK maritime sector due to the electrification process.

© Provided by Teekay Knarr FPSO to be used for production at the Rosebank project in west Shetland.

Although Rosebank is primarily an oil field, Ithaca said it would produce more than 21 million standard cubic feet of natural gas per day, equivalent to the daily use of the city of Aberdeen.

Shell began drilling at the Jackdaw project in September last year using the Valaris 122 jackup rig.

Jackdaw will connect to the Shearwater gas hub in the central North Sea.

Shell will spend $500 million in the UK to deliver the project, which is expected to start in 2025, records show.

In 2022, UK regulators gave Shell approval to develop the Jackdaw gas field.

The North Sea Transition Authority (NSTA) and the Offshore Petroleum Environment and Decommissioning Regulator (OPRED) both gave the green light to the project in June 2022.

I recommend it to you. The new Equinor partnership spells the end for Shell as a North Sea operator.

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