The two have signed a letter of understanding to merge their petrochemicals and polyolefins (the raw material used for plastics and packaging) businesses, effective from next year.
Both will have an equal stake in the largest polyolefins producer in Europe and the fifth-biggest worldwide.
The deal is one of the most significant for years in Europe's petrochemicals industry and could serve as a catalyst for similar moves by others. Severe overcapacity and weak demand have prompted most petrochemicals groups into merger talks with counterparts. Statoil and Neste are among the few to reach agreement.
Other companies in talks include Shell with Montecatini of Italy and British Petroleum with Enichem, also of Italy.
The new group will have annual turnover of dollars 2.5bn, annual production capacity of 1.5 million tonnes of polyethylene and 650,000 tonnes of polypropylene, and a workforce of 6,000. There will be production facilities in Belgium, Finland, France, Germany, Norway, Portugal, Sweden and the US.
Statoil and Neste said the terms of the merger would be finalised over the next few months and would involve the exchange of some Norwegian oil and gas field interests. Neste will receive a 'substantial' cash payment from Statoil as it is contributing more assets.