The FTSE 100 heavyweight will spin off its exploration and production division, Petrofac Energy Developments and combine it with the UK Continental Shelf assets of Lundin in a new company called EnQuest.
This could have a market value of $1bn (£662m) in an initial public offering planned for later this year and would send it straight into the FTSE 250.
The new group, which would be one of the 10 biggest independent UK oil companies by market value, would also have a secondary listing in Sweden.
Petrofac today said its shareholders would own around 45 per cent of EnQuest with Lundin shareholders taking the remaining stake.
The oil group’s North Sea exploration activities are focussed on the Don field, which is located between Norway and the Shetland Isles.
It operates the west Don field and also owns a 60% interest in the southwest Don field, which together are capable of producing more than 40,000 barrels a day.
Lundin, which was formed in 2001 and has a market capitalisation of $2.4bn, controls the nearby Thistle, Heather and Broom fields. These see production of hitting 24,000 barrels of oil a day.
Petrofac hopes the new company will be able to maximise production in mature oil and gas fields as operators such as Shell and Eni scale back their operations.
Once the deal goes through, Amjad Bseisu will step down from his role as
chief executive of the Energy Developments business unit to take the reins at EnQuest.
Ayman Asfari, group chief executive of Petrofac said: “This Demerger provides shareholders with an opportunity to retain an investment in a separately listed entity and the ability to participate in its future growth prospects.
"This is the first time we have harvested value from our Energy Developments business, and we will continue to seek value creating opportunities in oil & gas upstream developments and energy infrastructure."
Asfari bought out the group in 2001 and listed the shares on the London Stock Exchnage in 2005 for £742m.