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

The joint venture will be established in Aberdeen, Scotland in an effort to sustain fossil fuel production and the security 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 incorporated company is set to become the U.K. North Sea’s largest independent producer, Shell said.

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

Shares of Shell dipped 0.8% at around 8:40 a.m. London time, while Equinor’s stock price rose 0.3%.

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

“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,” Yujnovich added.

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

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

“This transaction strengthens Equinor’s near-term cash flow, and by combining Equinor’s and Shell’s long-standing expertise and competitive assets, this new entity will play a crucial role in securing the UK’s energy supply,” Philippe Mathieu, executive vice president for exploration and production international at Equinor, said in a statement.

Joint venture ‘appears to make strategic sense’
Analysts led by Biraj Borkhataria at RBC Capital Markets said they expect “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 about the UK government’s fiscal policy surrounding oil and gas development in the North Sea, with a number of majors noting that the recent increase in the windfall tax will curtail investment going forward,” analysts at RBC Capital Markets said in a research note published Thursday.

“In that vein, 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/capital to the region and follows recent moves made by the likes of Eni in the country,” they added.
