Norway wealth fund plans to drop oil and gas stocks

Bloomberg

Oil and gas equities now account for around 6 percent of the GPFG's benchmark index, or just over 300 billion kroner (36.6 billion US dollars), according to the bank.

The $1 trillion fund that Norway has amassed pumping oil and gas over the past two decades wants out of petroleum stocks.

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.

Matsen said "now is a good time" for the proposal because otherwise the new 70% threshold will result in the fund buying even more oil and gas shares because it tracks indexes that include such stocks. The fund's exposure to fossil fuel markets is now double that of a standard global fund, the Central Bank said.

Norway is a major oil producer, and it has plowed its energy earnings into the fund in order to fund pensions and other government expenses.

"This advice is based exclusively on financial arguments and analyses of the government's total oil and gas exposure and does not reflect any particular view of future movements in oil and gas prices or the profitability or sustainability of the oil and gas sector", said Deputy Governor Egil Matsen in a press release. In periods of stable oil prices, the returns on oil and gas stocks have largely moved in tandem with the broad equity market.

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The fund's managers recommended Thursday that oil and gas investments worth roughly $37 billion be sold in order to protect the country against a permanent drop in energy prices.

"But clearly the direction is that. if the ministry and the politicians think it is good advice and they say yes to it, clearly the investments in the oil and gas sector will decrease over time", he added. The fund was initially set up to invest the proceeds from Norway's oil reserves.

Nicolò Wojewoda of 350.org Europe was also hopeful about the implications of Norges Bank's decision, calling it "yet another nail in the coffin of the coal, oil, and gas industry". "We can do that better by not adding oil-price risk".

"Oil price exposure of the government's wealth position can be reduced by not having the fund invested in oil and gas stocks", said Matsen.

The decision now rests with the Norwegian Ministry of Finance. However, it made clear that its recommendation involved divesting from existing oil and gas shares as well as ruling out future investments.

And analysts warned that the central bank's proposal could have a knock-on effect on the sector.

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