Centrica will combine its European oil and gas business with a Norwegian firm as it works to "limit" its participation in exploration and production (E&P).
The parent company of British Gas will own 69 per cent of a joint venture with Bayerngas Norge, while shareholders in the Oslo-based company, led by Germany's Stadtwerke Munchen (SWM), will own 31 per cent.
"As part of our strategy of 2015, we have been aiming to develop a more focused and stronger E&P business which will contribute to the resilience of the group while limiting Centrica's E&P participation," said Iain Conn, the boss of Centrica.
The business will have assets in the UK, Netherlands, Norway and Denmark and is expected to deliver up to £150m in cost savings. It will be managed independently, led by Chris Cox, the managing director of Centrica E&P.
The new business' combined production in 2017 is expected to be in the range of 50-55m barrels of oil equivalent from 27 producing fields, around 66 per cent of which are natural gas.
The deal comes as Centrica works to focus on its more profitable customer-facing businesses and follows the recently announced disposals of Centrica's oil and gas assets in Canada and Trinidad and Tobago.
This joint venture creates a larger, more sustainable and more capable European E&P business and brings together like-minded shareholders who have a shared strategic vision on the role of E&P.
As one of the largest independent E&P companies in northwest Europe, the new entity will have the possibility to participate in further consolidation and joint ventures, and creates future optionality for Centrica's shareholders.
The deal, subject to regulatory approval, is expected to close in the fourth quarter of this year.
Florian Bieberbach, chief executive of Stadtwerke Munchen, added:
"We are convinced that by combining our E&P activities we will create an even stronger and more sustainable business. With its similar background and strategy, Centrica is an ideal partner to develop and grow this joint venture together."