$1tn Norwegian oil fund plans to ditch oil and gas stocks

by Ben Pena November 17, 2017, 0:23
$1tn Norwegian oil fund plans to ditch oil and gas stocks

Norway's trillion-dollar sovereign wealth fund is proposing to drop oil and gas companies from its benchmark index, which would mean cutting its investments in those companies, the deputy central bank chief supervising the fund told Reuters.

In a letter to the Ministry of Finance, Norges Bank said the recommendation will "make the government's wealth less vulnerable to a permanent drop in oil and gas prices".

It is among the largest investors in a wide range of oil companies, holding stakes at the end of 2016 of 2.3 per cent in Royal Dutch Shell, 1.7 per cent of BP, 0.9 per cent of Chevron and 0.8 per cent of Exxon Mobil.

The news of a possible divestment shook Europe's index of oil and gas shares.

Oil and gas are seen as increasingly risky investments as more countries turn to cleaner energy sources in order to meet requirements under the Paris climate agreement, which aims to keep global warming under two degrees Celsius above pre-industrial levels.

The advice from Norges Bank is based on assessments of the exposure to oil price risk in the wealth of the Norwegian government.

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"It clearly stands out, perhaps not surprisingly, but not obviously, that indeed there is a substantial difference.in return between the oil and gas sector and the broad stock market in periods when the oil price changes substantially", Matsen said.

The Norwegian central bank, which uses the fund to invest the proceeds of the country's oil industry, said that investing money back into the energy sector amplifies the government's exposure to the price of crude, particularly given the country's majority stake in Statoil ASA. In 2014, Stanford University said it wouldn't invest in coal-mining companies, and under pressure from environmental activists other US endowment funds have debated whether they should pull out of fossil fuel investments. It owns owns more than $660bn-worth of shares in over 9,000 companies globally, and reached the $1tn-mark in terms of assets under management in September.

Thursday's recommendation comes at a "good time because the stock portion will now be increased to 70% and that would also mean that we would buy more oil and gas stocks", Matsen said.

The wealth fund, which controls about 1.5 percent of global stocks, proposes dropping %37 billion of shares in worldwide giants such as BP, Exxon Mobil Corp., Royal Dutch Shell Plc. and other holdings.

Two years of weaker oil prices has cut into the income of numerous world's largest sovereign-wealth funds, which are in largely resource-dependent countries like Saudi Arabia and Kuwait. The sector accounts for 14 percent of Norway's gross domestic product (GDP).

At the earliest, the ministry's first opportunity could come in the spring, with a vote in parliament in June.


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