Equinor and Shell Join Forces to Form UK’s Biggest Independent Oil and Gas Producer

Equinor and Shell have announced plans to merge their UK offshore oil and gas assets, forming what they claim will be the largest independent producer in the UK North Sea. This move reflects the shifting dynamics of the region’s oil and gas industry, which has gradually declined since its peak two decades ago.

The UK North Sea’s offshore sector, which dates back to the 1960s, faces dwindling production from aging fields and more minor discoveries from new exploration. This has prompted global energy majors to pivot toward more lucrative investments elsewhere. The introduction of a windfall tax in 2022, further strengthened by the Labour government, has added financial strain to the sector, leading to concerns about reduced investment.

Despite these challenges, the newly formed company aims to extend production timelines and mitigate the region’s decline. Shell Upstream Director Zoe Yujnovich emphasized the venture’s ability to “raise debt” and make strategic capital decisions. However, no specific spending plans or timelines for a public listing have been disclosed.

According to Yujnovich, the merger will bring together the two firms’ 1,300 UK-based employees and sustain current staffing levels. The combined operation is expected to pump nearly 140,000 barrels of oil equivalent per day, consolidating its position as a dominant player in the North Sea.

“With the UK not seen as a major growth market, 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 and capital to the region,” RBC analyst Biraj Borkhataria said in a note. 

In recent years, private equity-backed firms have acquired aging North Sea assets from larger companies, forming independent producers like Harbour Energy Plc. However, stricter tax regimes and increased regulatory pressures have made this model more difficult to sustain.

Equinor Executive Vice President Philippe Mathieu highlighted the benefits of the new venture’s streamlined structure and cost competitiveness, positioning it to maximize the remaining value of the North Sea’s resources.

“There is a very strong industrial logic to this,” Mathieu said in an interview, adding that through the deal, Equinor fulfils its goal of reducing its 80% holding in the Rosebank oil field. The new entity will have the expertise needed to “generate returns from mature fields,” he said.