Norway sovereign wealth fund to dump oil and gas

Norway’s $1 trillion wealth fund turns its back on oil and gas

The advice follows a report from Norway's central bank in 2017 that dropping oil and gas investment would be a good economic move.

Companies involved in downstream operations, such as distribution and refining, and, more importantly, integrated companies which do both down- and upstream - such as giants ExxonMobil, Shell, BP and Total - will not be affected. So reinvesting those proceeds in other sectors is considered a way to keep the money safe should oil and gas prices fall.

In fact, the $1 trillion fund has been built up over the past two decades from oil and gas revenue and Norway also uses large chunks of income from its offshore fields each year to pay for its lavish welfare state.

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Integrated stocks, like Royal Dutch Shell (RDS.A), will not be sold.

The stocks to be sold are from a group of 134 companies labeled exploration and production firms by the London-based index provider FTSE Russell, a list that includes U.S. oil producer Occidental Petroleum and shale driller Pioneer Natural Resources.

Tom Sanzillo, director of finance for the Institute for Energy Economics and Financial Analysis (IEEFA) and former first deputy comptroller for New York State, said oil and gas equities "no longer possess the blue chip status of bygone eras". "However, it does send a clear signal that companies betting on the expansion of their oil and gas businesses present an unacceptable risk, not only to the climate but also to investors".

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"It would be sad if the pension fund would not be able to invest in those companies in the future", Jensen said in an interview.

"The most important thing we can do to prepare for a possible drop in the oil price is to conduct an economic policy that facilitates transformation in all parts of the economy and lowers the significance of such shocks", Jensen said. "These are the companies making the big investments now in renewables and so on".

Norway's finance ministry today appeared to partly endorse this analysis, arguing that removing oil and gas stocks from the wealth fund would reduce the country's "aggregate concentration risk". It now owns around $37bn of shares in oil companies such as BP, Shell and Total. This suggests the companies most affected by the decision would be pure-play producers rather than Big Oil majors but even the latter's stocks are bound to be hurt by the decision.

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The Fund that is the world's biggest sovereign wealth fund with more than €900 billion in assets will now get rid of stakes in more than 160 companies from all over the world.

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