New leader in the North Sea: Equinor and Shell join forces

Two major energy companies, Equinor ASA and Shell Plc, have announced the merger of their oil and gas activities in the UK North Sea. The partnership will create a new company that will become the largest independent producer in the area. The move comes at a time when the UK upstream industry is facing declining production and increasing regulatory and tax pressures.

The North Sea, historically a key area for the UK oil and gas industry, experienced its peak in the 1990s. Since then, however, production has declined, with recent discoveries being smaller and shorter-lived. The combination of Equinor $EQNR and Shell $SHEL is designed to extend the life of existing fields and optimise investment in a region that is no longer a priority for global energy giants.

One of the reasons for the outflow of investment is the introduction of an emergency windfall profits tax in 2022, which was tightened this year by the new Labour government. The move has led to sharp criticism from the industry, which has warned of a drop in investment and a negative impact on jobs. But the new company will offer flexibility in capital expenditure decisions and the ability to better fund its projects, according to Zoe Yujnovich, Shell's director of mining.

Together, Equinor and Shell employ about 1,300 people in Britain and produce nearly 140,000 barrels of oil a day. These jobs should be maintained within the new company. The combined resources and expertise should also ensure that existing fields are used more efficiently and adapt to a challenging regulatory environment.

Analysts view the move as strategically sensible. With the tax burden rising and the attractiveness of the UK market declining, the new company has a better chance of competing with independent producers who have been buying aging assets from larger firms in recent years. The combination of forces should bring higher returns even from less promising fields such as Rosebank, where Equinor plans to reduce its stake, according to Philippe Mathieu, Equinor's vice-president.

However, regulatory approval is needed to complete the deal, which was backed by advisers Houlihan Lokey and Jefferies. The process is expected to close by the end of 2025.

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