What Does Shell & Equinor Deal Mean for Sustainability?

While the announcement of a joint venture between Shell UK and Equinor was a surprise, perhaps it should not be a shock.

With global energy resilience remaining uncertain and companies looking to sell up from the North Sea, there are clear positives to be had from combining forces, infrastructure and financial heft.

Shell UK and Norwegian firm Equinor have done just that by combining their UK offshore oil and gas assets and expertise to form a new company which will be the UK North Sea’s biggest independent producer.

Energy supply security is key

In its press release announcing the deal, Shell put energy supply security front and centre.

It said: “The incorporated joint venture (IJV) will be set up to sustain domestic oil and gas production and security of energy supply in the UK.

“The new company will invest to provide a long-term sustainable future for individual oil and gas fields and platforms, helping extend the life of this crucial sector for the benefit of the UK.”

Shell plc’s Integrated Gas and Upstream Director Zoë Yujnovich said: “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.”

Part of the background to this is that the UK remains vulnerable to geopolitical turmoil like the Russian invasion of Ukraine. It needs its own oil and gas supplies to provide greater energy security.

Oil and gas are not going away

Despite the urgent need to switch to renewable energy, the reality is that current global energy demand cannot be met without oil and gas.

Zoe said: “Domestically produced oil and gas is expected to have a significant role to play in the future of the UK’s energy system.”

The UK North Sea fields are in a mature phase, with the resources more difficult to extract – one of the reasons why firms are leaving the region.

Shell said: “With the once prolific basin now maturing and production naturally declining, the combination of portfolios and expertise will allow continued economic recovery of this vital UK resource.

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

What is the deal?

On deal completion, the new independent producer will be jointly owned by Equinor (50%) and Shell (50%). 

It will be based in Aberdeen, the heart of the nation’s energy sector, and will include:

• Equinor’s equity interests in Mariner, Rosebank and Buzzard
• Shell’s equity interests in Shearwater, Penguins, Gannet, Nelson, Pierce, Jackdaw, Victory, Clair and Schiehallion
• A range of exploration licences.

Equinor will retain ownership of its cross-border assets, Utgard, Barnacle and Statfjord and offshore wind portfolio including Sheringham Shoal, Dudgeon, Hywind Scotland and Dogger Bank.

It will also retain the hydrogen, carbon capture and storage, power generation, battery storage and gas storage assets. 

Shell UK will retain ownership of its interests in the Fife NGL plant, St Fergus Gas Terminal and floating wind projects under development - MarramWind and CampionWind.

Shell UK will also remain Technical Developer of Acorn, Scotland’s largest carbon capture and storage project.

The two companies said they are “proud to continue the development of the North Sea as investing partners rather than individual operators, opening a new chapter in which they will remain significant players in the UK energy sector”.

Equinor’s EVP for Exploration and Production International, Philippe Mathieu, said: “Equinor has been a reliable energy partner to the UK for over 40 years, providing oil and gas, developing the offshore wind industry and advancing decarbonisation.

“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.”

How will oil extraction levels change?

The easy answer is that the number of barrels of oil produced each day will not change – at least in 2025.

In the UK, Equinor currently produces 38,000 barrels of oil equivalent per day, while Shell UK produces over 100,000 barrels of oil equivalent per day.

The new IJV is expected to produce over 140,000 barrels of oil equivalent per day in 2025.

However, as the joint venture brings efficiencies, the expectation is for production to grow.

Anders Opedal, Equinor President and CEO, said: “The UK basin is maturing and production naturally declining, the combination of portfolios and expertise will allow continued economic recovery of this vital UK resource.

“The new company is well-positioned to make substantial investments over the coming years, reduce production decline on the UK Continental Shelf and support the UK economy.”

He added: “I understand that this message brings uncertainty to some of our employees. We are committed to work on the integration with care and in the best interests of our employees. We believe this is the best way to ensure long term sustainability of the business.”

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