Shell (SHEL.L) and Norway’s Equinor (EQNR.OL) will merge their British North Sea assets to form the ageing basin’s largest oil and gas company, the pair said on Thursday.

The 50-50 joint venture, to be based in Aberdeen, Scotland, will see the companies pool resources and spending, with cost cuts and an improved tax position boosting the profitability of the assets.

“The new company will…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 and Equinor said in a statement.

Combined output is expected to rise to between 200,000-220,000 barrels of oil equivalent per day (boed) in the next five years – from over 140,000 in 2025 – as new projects including the giant Rosebank oil development come on stream, Philippe Mathieu, Equinor’s head of international oil and gas production, told Reuters.

Shell was a North Sea pioneer, producing gas in the Leman field in 1968, three years before it discovered the Brent oilfield, which became one of the basin’s most important fields, eponymous with the global oil benchmark.

The new entity would be the British North Sea’s biggest independent producer, but there is no intention to conduct an initial public offering, Shell Upstream Director Zoe Yujnovich told reporters, adding that the JV will raise its own debt.

Oil companies have been steadily exiting Britain’s North Sea basin in recent decades with production declining from a peak of 4.4 million boed at the start of the millennium to around 1.3 million boed today.

The British government’s imposition of a windfall tax on North Sea producers following a surge in energy costs in 2022 has put further pressure on them to reduce investment and exit the basin.

Equinor, which currently produces some 38,000 boed per day in Britain, is developing the Rosebank oilfield, one of the last known major oil reservoirs in Britain, while Shell, with UK output of more than 100,000 boed, is developing the Jackdaw gas field.

Other oil groups have formed North Sea ventures in recent years, including Eni (ENI.MI) and Ithaca Energy (ITH.L) in Britain this year and the 2016 creation of Aker BP (AKRBP.OL) in Norway.

RBC Capital Markets said in a note that Thursday’s deal effectively reduces Equinor’s capital expenditure by $1.2 billion over 2025-2027, due to the way the new entity will be accounted for, while Shell would see a smaller capex reduction.

Equinor also brings around 6 billion pounds ($7.6 billion) of deferred tax losses to the JV, which it will be able to offset against future spending, RBC said.

“There’s a very strong industrial logic for doing this. We are adjusting to industrial reality of the mature UK shelf,” Equinor’s Mathieu said, confirming that the JV would benefit from tax losses.

The new company will include Equinor’s stakes in the Mariner, Rosebank and Buzzard fields, and Shell’s holdings in Shearwater, Penguins, Gannet, Nelson, Pierce, Jackdaw, Victory, Clair and Schiehallion, the Norwegian group said.

A range of exploration licences will also be part of the transaction.

Equinor will retain ownership of the Utgard, Barnacle and Statfjord cross-border assets between Norway and Britain, as well as its offshore wind portfolio including Sheringham Shoal, Dudgeon, Hywind Scotland and Dogger Bank, it said.

Equinor will also retain its hydrogen, carbon capture and storage, power generation, battery storage and gas storage assets.

Shell will keep its interests in the Fife NGL plant, St Fergus Gas Terminal and floating wind projects under development, MarramWind and CampionWind.