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- Norway’s $1 trillion sovereign wealth fund is divesting from oil and gas explorers and producers to protect itself from oil price declines.
- The fund will no longer invest in 134 companies including Anadarko Petroleum and Chesapeake Energy.
In a bid to insulate Norway against future falls in the oil price, the nation’s $1 trillion sovereign wealth fund will no longer invest in oil and gas producers and explorers.
“Petroleum resources still account for a larger proportion of national wealth in Norway than in many other countries,” wrote Norway’s Ministry of Finance on Friday. “The value of these resources is uncertain and fluctuates in tandem with the oil price. This makes Norway vulnerable to a permanent decline in the oil price.”
The fund is the biggest of its kind in the world, holding more than 9,000 stocks across 73 countries. The fund will no longer invest in 134 companies, with Bloomberg saying it will divest $7.5 billion in stocks including Anadarko Petroleum, Chesapeake Energy and Tullow Oil. It will retain its stakes in Exxon, Shell, BP and other oil majors as they fall into a different category.
“The objective is to reduce the vulnerability of our common wealth to a permanent oil price decline,” said Norwegian Minister of Finance Siv Jensen in a press release. “This measure is about diversification,” the report adds.
Faced with rising opposition to oil and gas exploration, the Norwegian government is keen to “project an image as a responsible environmental steward while pumping oil and gas at a fast clip,” Bloomberg wrote.
(But in the paper, the Norwegian ministry said the decision “is exclusively based on financial arguments and does not reflect any specific view on oil price developments, or the future profitability or sustainability of the oil and gas sector.”)
The sovereign wealth fund will continue to invest in energy stocks after a panel of experts determined a complete withdrawal from the energy sector wasn’t warranted. They argued that Norway can absorb lower oil prices as it doesn’t rely on oil and gas revenues on an ongoing basis.
Their report also found that exiting the energy sector would “only make a limited contribution to further reduction of [the oil price] risk.”
Norway has already converted a large portion of its oil and gas resources into diversified wealth overseas, and most of its remaining resources will be extracted in the next decade, meaning its oil price risk is “historically low and declining”.
The Ministry of Finance also launched a public consultation that produced divergent views. While some experts thought “it would be a step in the right direction,” others argued it could “undermine the financial objective of the fund and encompass companies with major and expanding renewable energy operations.”
The fund won’t sell its shares in the State’s Direct Financial interest (SDFI), a portfolio of Norway’s exploration and production licenses. The government will also retain its majority stake in Equinor, a Norwegian multinational oil and wind energy company.
Still, other stocks could be on the chopping block soon. The Ministry of Finance will ask Norges Bank to review the fund’s climate risk, which could lead to it culling non eco-friendly companies.
Both WTI Crude and Brent Crude prices were down about 2% as of 13.10pm in London, although that may reflect the ongoing global selloff.