Shell and Equinor are teaming up under a new joint venture in the North Sea, in a move away from the mature basin.

The two companies announced on December 5 that they would create a 50:50 joint venture, as yet unnamed. The new unit should have more than 140,000 barrels of oil equivalent per day in 2025, they have predicted.

(Harbour Energy reported 142,000 boepd of production for the first nine months of this year. The company’s production has been declining and it is looking increasingly around the world for growth – and away from the UK.)

Furthermore, Equinor’s 80% stake in Rosebank could contribute another 56,000 bpd and Shell’s Jackdaw 40,000 bpd. Jackdaw may start producing in 2026 and Rosebank in 2026-27.

The two companies argued that combining their portfolios would provide a means to maintain economics in the mature basin.

“The new company will be more agile, focused, cost-competitive and strategically well positioned to maximise the value of its combined portfolios,” they said.

The deal should close by the end of 2025. Shell and Equinor have been mainstays of the North Sea for years but this move will put a layer of insulation between the main corporates and the local operations.

The new company will be self-funded, Equinor said. Its ownership stake will be equity accounted and it will not report any organic capital expenditures related to this investment. “This transaction enables Equinor to benefit from increased short-term production and cash flow. The more balanced ownership structure of the assets also contributes to reduced overall risk exposure.”

The two companies each bring assets. Equinor has equity interests in Mariner, Rosebank and Buzzard. Meanwhile, Shell has stakes in Shearwater, Penguins, Gannet, Nelson, Pierce, Jackdaw, Victory, Clair and Schiehallion. They will also both provide a number of exploration licences, although not any offshore wind assets and Shell will keep its two onshore terminals.

Moderating exposure

“Both [Equinor and Shell] are looking to minimise exposure to the UK, which has become increasingly unattractive given costs and the regulatory environment,” Morningstar equity director Allen Good told E-FWD.

“The deal likely helps them reduce some costs but also provides an option for eventual exit, listing or sale, given the combined portfolio is now of meaningful size, whereas previously, the two positions were relatively small. Meanwhile, future development will be shared and off the books for each company, given that the new venture is self-funded.”

Shell’s integrated gas and upstream director, Zoë Yujnovich, told reporters that there was no current plan to conduct an IPO. However, the structure of the unit does give it options – which might include a listing later on.

A number of companies have taken similar steps in mature basins. These include BP and Eni’s Azule Energy in Angola and Aker BP in the Norwegian North Sea.

The tie-up of Equinor and Shell’s UK assets “probably won’t be the last”, Good said.

He noted the move also fits with Shell’s strategy to focus on returns. The same can also be said for Equinor, which said in October that it may invest less in renewable energy over the next few years. It bought a 9.8% stake in Orsted this year, to bring it closer to its 2030 renewable capacity target. Such an acquisition is cheaper than building the assets itself.

The Shell-Equinor North Sea joint venture seems to recognise the value in discrete business units. Shell has signalled that it intends to focus on a reducing number of areas where it has advantages.

This week, the company said it would not initiate any new wind projects, extending CEO Wael Sawan’s focus on the bottom line – and scepticism about energy transition sectors.

Times change

In 2021, Shell defined nine core areas for continued involvement. At that point, the UK made the grade as one of the nine. But times have changed.

Hiving off the North Sea unit to a venture with Equinor represents both a strategic retreat and a potential opportunity. It signals the UK’s diminishing importance to global energy majors, but it also creates a more nimble entity better suited to the basin’s challenges.

The new venture’s focused approach, combined with its substantial production base and the backing of two industry giants, could prove more effective at maximising the North Sea’s remaining potential than its parent companies could achieve independently.

This restructuring may well serve as a blueprint for other mature basins. Energy majors are optimising portfolios and seeking big-ticket projects to “move the needle”. But this move creates space for new ways of thinking and financing.

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