Norway's $1trn wealth fund eyes sale of $40bn oil and gas shares

18 November, 2017, 02:05 | Author: Chad Mckenzie
  • $1tn Norwegian oil fund plans to ditch oil and gas stocks

Oil and gas equities now account for around 6% of the Government Pension Fund Global's benchmark index, or just more than 300 billion Norwegian kroner ($36.49 billion).

McKibben compared the bank's recommendation to "the moment when the Rockefellers divested the world's oldest oil fortune" in 2014, when the heirs to Standard Oil said that if founder John D. Rockefeller were alive in the 21st century, "he would be moving out of fossil fuels and investing in clean, renewable energy".

While the fund's latest proposal was based on concern about overexposure to oil, the fund has been steadily pulling out of mining companies and power producers that derive large portions of income from thermal coal.

Nonetheless, shares in major oil firms such as Shell, BP and Exxon Mobil all traded lower after the announcement.

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"The risk for the oil sector is how many investment funds will downsize their exposure to extractive industries", said Jason Kenney, oil analyst at bank Santander.

The pension fund's managers said they remain anxious about the impact of falling oil prices on overall government revenue.

Oil and gas equities now account for around 6% of the GPFG's benchmark index or just over NOK 300bn (€31bn).

Norway's trillion-dollar sovereign wealth fund is proposing to drop oil and gas companies from its benchmark index.

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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. Oil and gas equities now account for around 6 percent of the GPFG's benchmark index or just over NOK 300 billion.

The Norwegian fund has already divested from coal for both environmental and financial reasons. If the relationship between long-term returns in the broad equity market and oil and gas stocks persists, neither the expected return nor the market risk in the fund will be affected appreciably by whether or not the fund is invested in oil and gas stocks. (TSX:SU) stock in 2016, equating to just under one per cent of the company's shares. The objective of the divestment movement was to make fossil fuels so toxic in the minds of the public that it forces governments to change policies to force a transition towards cleaner energy. Moreover, the Norwegian government owns a substantial portion of Statoil, making the country even more dependent on oil and gas revenues.

While oil and gas prices generally rise and fall with the broad equity market-usually during periods of stability- the bank indicated there have been periods where oil and gas prices move contrary to the broad market as well.

The fund could still invest in the sector if other parts of the fund's mandate are fulfilled by having some investments in some of the companies, Matsen said.

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