Energy companies Shell UK (GB:SHEL) and Equinor UK have agreed to join forces to merge their UK offshore assets to lead the country’s oil and gas industry. Both companies revealed plans to form a joint venture in Aberdeen, Scotland, to maintain and safeguard the U.K.’s energy production. Following the announcement, Shell shares declined by 1.38% in yesterday’s trading session.
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Shell supplies a wide range of energy products such as oil, liquefied petroleum gas (LPG), lubricants, etc. Meanwhile, Equinor UK is a subsidiary of Norway-based energy company Equinor ASA (EQNR).
Shell and Equinor Launch Joint Venture for UK North Sea
The joint venture will create the largest producer in the North Sea, with Shell and Equinor holding equal 50% stakes in the new entity. The new company is expected to produce over 140,000 barrels of oil equivalent per day (BOE/D) by 2025. Individually, Equinor currently produces around 38,000 barrels of oil equivalent daily in the UK, while Shell UK produces more than 100,000 barrels per day.
Moving ahead, the combined output is projected to increase to between 200,000 and 220,000 BOE/D over the next five years.
Speaking of the JV’s rationale, Equinor will contribute to significant tax savings, while Shell’s larger oil and gas production will provide the venture with higher cash flow, especially as it develops new fields like the massive Rosebank oil project.
RBC Analyst Shares Insights on Shell-Equinor JV
Analyst Biraj Borkhataria at RBC Capital Markets sees tax synergies as a major deal rationale after the merger of Shell and Equinor’s assets. He also noted that the move makes strategic sense since the UK is not seen as a major growth market in light of the recent hike in windfall tax. By merging, Shell and Equinor can pool their resources, enabling them to grow while shifting their capital away from the UK.
Is Shell Stock a Good Buy?
Overall, analysts hold a bullish stance on SHEL stock, as reflected in the Strong Buy rating on TipRanks. This is based on 10 Buy and three Hold recommendations. The Shell share price target of 3,106.23p implies a 24.42% increase on the current price level.
