Markets

Norway's oil fund wants to divest from ... oil

Norway's oil fund wants to divest from ... oil

Europe's oil and gas index hit its lowest level since mid-October on Thursday after Reuters reported that Norway's trillion-dollar sovereign wealth fund had proposed to drop oil and gas companies from its benchmark index.

"That would mean all companies that the FTSE has classified with the sector, should be removed from our reference index".

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 aim is primarily to reduce the fund's exposure to oil price fluctuations.

Currently, oil and gas equities make up some 6 percent of the fund's benchmark index, or US$35 billion (300 billion Norwegian crowns).




If Norway does choose to remove its eggs from the oil and gas basket, other mega-funds could follow suit as oil and gas revenues grow increasingly unreliable and as analysts consider the idea that oil's future will someday come to an end, regardless of how distant. Shell was the fund's best-performing stock for the quarter, of which the fund owns more that $5 billion in shares. The fund owns large stakes in most of the world's major oil companies, including a 0.92% stake in Chevron Corp., a 0.82% stake in Exxon Mobil Corp., 1.65% in BP PLC and 2.23% in Royal Dutch Shell PLC as of the end of 2016.

Deputy Governor Egil Matsen said: "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".

In a letter to the government, the bank said that if the world's largest sovereign wealth fund - commonly referred to as the "oil fund" - were to divest its oil and gas shares, Norway would be less vulnerable to a lasting decline in oil prices. The finance ministry said it would study the plan and decide at the earliest in "autumn 2018". In periods of stable oil prices, the returns on oil and gas stocks have largely moved in tandem with the broad equity market.

The Government Pension Fund of Norway, which recently surpassed one trillion dollars in value, is the world's largest sovereign wealth fund.

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, he said.


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