Europe’s oil majors build independent producers to fund the next wave of oil and gas

Europe’s largest oil and gas companies are reorganising part of their production portfolios through jointly owned but independently managed businesses, creating a new tier of producers with their own management teams, financing structures and investment plans.

Industry analysts have begun referring to these companies as “SmashCos” because they are formed by combining — or “smashing together” — portfolios previously controlled by different groups.

The structure differs from the joint ventures that have long been used to finance individual oilfields, pipelines or liquefied natural gas facilities. The new companies operate multiple assets, employ their own personnel, raise debt and make investment decisions across an entire regional portfolio.

Examples include Vår Energi in Norway, NEO NEXT+ and Adura in the British North Sea, Azule Energy in Angola and Searah in Indonesia and Malaysia.

The model allows the parent companies to continue participating in oil and gas production without owning and financing every asset directly. It is becoming part of the sector’s response to three competing demands: replacing declining reserves, maintaining shareholder distributions and limiting the capital committed to long-term hydrocarbon projects.

This is not a conventional asset sale. The oil majors retain shares in the new producers and therefore continue to receive part of their profits and dividends. They can also preserve economic exposure to reserves and future production while sharing investment requirements with another company.

The accounting treatment is part of the attraction. Many of these businesses are recorded under the equity method, meaning the parent generally reports the value of its investment and its share of the venture’s profit rather than consolidating every item of revenue, expenditure, debt and assets.

Debt raised directly by the joint venture consequently does not appear line by line as borrowing on the parent company’s consolidated balance sheet. The economic exposure does not disappear, particularly when shareholders provide guarantees, funding commitments or support for future projects, but the structure can reduce the capital pressure visible at group level.

This approach has been developed most systematically by Eni, which describes it as a satellite strategy. The Italian group creates businesses around selected portfolios, brings in industrial or financial partners and, in some cases, lists or partially sells the resulting company.

One of its main vehicles is Vår Energi, created from the combination of Eni’s Norwegian activities with assets held by investment company HitecVision. The producer was subsequently listed in Oslo, although Eni retained control.

Vår Energi agreed in July to combine with Danish producer BlueNord in a transaction expected to create Europe’s largest independent oil and gas producer by output. The combined business is projected to produce approximately 450,000 barrels of oil equivalent per day in 2026.

BlueNord shareholders are expected to own about 9.05% of the enlarged company, while Eni’s participation will decline but remain a controlling stake of approximately 57.3%.

The operation expands Vår Energi beyond Norway and into the Danish continental shelf, adding gas assets, infrastructure access and production with limited near-term investment requirements. It also gives Eni exposure to a larger regional producer without fully consolidating its borrowing.

The same pattern is reshaping the British North Sea.

NEO NEXT+ was formed in March 2026 by merging TotalEnergies’ British exploration and production business with NEO NEXT Energy, itself created from the combination of Repsol’s UK operations and assets controlled by HitecVision.

TotalEnergies owns 47.5% of the resulting company, HitecVision holds 28.875% and Repsol controls the remaining 23.625%. NEO NEXT+ expects production of more than 250,000 barrels of oil equivalent per day in 2026, making it the largest independent producer on the UK continental shelf.

The transaction combines producing fields, development projects, technical teams and decommissioning obligations within one company. TotalEnergies retained responsibility for up to approximately €2 billion of liabilities associated with dismantling the assets it contributed, illustrating that creating a separate producer does not automatically remove all obligations from its shareholders.

Shell and Equinor have adopted a similar structure through Adura, their equally owned British joint venture.

The company began operating in December 2025 after receiving the assets contributed by both groups. Adura employs around 1,200 people and expects to produce more than 140,000 barrels of oil equivalent per day in 2026.

Shell and Equinor retained several activities outside the transaction, including selected terminals, cross-border fields, offshore wind projects, hydrogen, carbon capture and storage assets. The separation allowed them to combine overlapping North Sea operations while keeping other businesses under direct control.

The model is also expanding outside Europe.

In June, Eni and Malaysia’s state-owned PETRONAS established Searah, a 50-50 company that combines 19 gas production and development assets in Indonesia and Malaysia.

Searah started with production exceeding 300,000 barrels of oil equivalent per day and aims to surpass 500,000 within three years. It has secured a revolving credit facility of approximately €5.2 billion and plans to invest more than €17 billion over five years.

The company is expected to develop more than three billion barrels of oil equivalent in discovered resources while financing part of that programme independently of its two shareholders.

Searah follows Azule Energy, the equally owned company established by Eni and BP in 2022 to combine their Angolan operations. At launch, Azule held interests in 16 licences, participated in Angola LNG and controlled approximately two billion barrels of oil equivalent in net resources.

BP has also formed Arcius Energy with XRG, the international investment arm of the Abu Dhabi National Oil Company. BP owns 51% of the Egyptian gas platform, while XRG holds 49%.

These structures are becoming material to the investment programmes of their parent companies. Estimates from Wood Mackenzie indicate that joint ventures will account for 28% of BP’s oil and gas expenditure in 2026 and 31% of Eni’s.

The percentages show that the model is moving from portfolio management to a central role in financing production growth.

For mature regions such as the North Sea, consolidation can also reduce operating costs. Combining neighbouring fields allows companies to share vessels, helicopters, maintenance, technical teams and processing infrastructure. A larger portfolio can spread decommissioning expenses across more production and provide additional options for extending the life of platforms and pipelines.

Tax considerations are also relevant. Companies with accumulated losses or investment allowances can combine them with producing assets, subject to national rules. This has become particularly important in the United Kingdom, where oil and gas profits can face an effective tax rate of up to 78% under the current windfall levy and corporation tax system.

The result may improve the economics of individual fields, but it can also reduce near-term tax receipts if the combined company uses deductions and historical losses more efficiently than the previous owners.

The strategy has another consequence for the energy transition. Moving production into an independently financed company does not remove the associated emissions or demand risk. It changes the ownership and accounting structure through which those risks reach the parent group.

Oil majors can continue receiving earnings from hydrocarbons while directing more of their own balance sheets towards dividends, debt reduction, liquefied natural gas, trading or lower-carbon businesses. Investors, however, must examine the debt, investment requirements and decommissioning obligations of the ventures to understand the parent company’s full economic exposure.

Governance can also become more difficult. Joint owners may disagree over production targets, acquisitions, dividends, new developments or the timing of asset closures. An independent management team can accelerate decisions, but it also reduces the direct control exercised by each shareholder.

The model has so far gained more traction among European companies than in the United States. American producers have generally preferred full mergers and acquisitions, supported by higher equity valuations, larger domestic portfolios and capital markets that have remained more receptive to oil and gas consolidation.

European groups operate across a wider range of jurisdictions and face greater pressure to balance hydrocarbon investment with transition commitments. Creating regional producers offers an alternative to choosing between full ownership and a complete exit.

Further combinations are therefore likely, particularly where international companies can partner with national oil groups in Africa, Latin America, the Middle East and Asia.

The emergence of these independent producers does not signal that Europe’s oil majors are abandoning oil and gas. It shows that they are changing how future production is owned, financed and reported.

For shareholders, the central question is whether these companies create real operating efficiencies or simply move debt and investment needs into less visible structures. For the oil majors, their appeal is more direct: they provide scale, access to reserves and potential dividends while sharing the cost of keeping production growing.