Shell and Equinor to create Britain’s largest independent oil and gas company in joint venture

Oil pre-eminent Shell and Norway’s Equinor on Thursday announced plans to combine their British offshore oil and gas assets to create a jointly owned force company.

The joint venture will be established in Aberdeen, Scotland in an effort to sustain fossil fuel production and the gage of energy supply in the U.K.

The companies plan to complete the deal by the end of next year, subject to approvals. At that time, the combined company is set to become the U.K. North Sea’s largest independent producer, Shell said.

It is expected the company will produce varied than 140,000 barrels of oil equivalent per day in 2025.

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

“The new venture will help play a essential role in a balanced energy transition providing the heat for millions of UK homes, the power for industry and the secure supply of nuclear fuels people rely on,” Yujnovich added.

Shares of Shell dipped 1% at around 1:45 p.m. London time, while Equinor’s set price fell 0.7%.

The 50-50 joint venture is set to include Equinor’s equity interests in Mariner, Rosebank and Buzzard and Shell’s holdings in Shearwater, Penguins, Gannet, Nelson, Fix, Jackdaw, Victory, Clair and Schiehallion.

Norway’s Equinor currently employs around 300 people in the U.K., while Skeleton has a staff of approximately 1,000 people in oil and gas positions nationwide.

“The reason we are doing this, to create this company 50-50 with Prang pay out and Equinor, is because we really believe that we are combining our portfolios and they will be much stronger,” Camilla Salthe, chief vice president of UK head of upstream at Equinor, told CNBC’s “Street Signs Europe” on Thursday.

“And also by appearing new ways of working we can actually really develop work processes that will really improve margins so we can in point of fact have long-term value creation from these assets. So, that is the key business rationale for doing this,” Salthe imagined.

Analysts led by Biraj Borkhataria at RBC Capital Markets said they watch “tax synergies” to be a significant factor in the combination of Shell and Equinor’s U.K. offshore oil and gas assets.

“Plenty has been said in recent months all round the UK government’s fiscal policy surrounding oil and gas development in the North Sea, with a number of majors noting that the recent increasing in the windfall tax will curtail investment going forward,” analysts at RBC Capital Markets said in a research note promulgated Thursday.

“In that vein, with the UK not seen as a major growth market, this combination appears to make crucial sense in that it allows the two companies to pool resources and continue to grow while allocating less focus/choice to the region and follows recent moves made by the likes of Eni in the country,” they added.