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Norway plans to sell off wealth fund's upstream oil, gas stocks

Highlights

Move would not cover integrated majors

Fund holds total $37 billion in oil, gas stocks

Decision needs parliament approval

London — The Norwegian government announced Friday plans to gradually exit all the country's investments in upstream oil and gas producers held under its sovereign wealth fund as part of a strategy to cut its exposure to oil prices.

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In a much anticipated decision, the finance ministry said shareholdings in exploration and production companies will be phased out from the $1 trillion fund "gradually over time."

The move will only affect its holdings classified by index provider FTSE Russell as exploration and production companies, it said, meaning integrated oil majors will not be affected.

At the end of 2018, there were 134 companies classified as exploration and production companies in the fund with a total market value of about NOK70 billion ($7.95 billion), the ministry said.

The decision, which requires approval by Norway's parliament, does not affect shares in the State's Direct Financial Interest (SDFI), the holder of Norway's offshore oil and gas assets, or its 67% stake in Norway's oil major Equinor, the ministry said.

Norway's sovereign wealth fund, formally known as the Government Pension Fund Global, holds investments in more than 9,000 companies worldwide, of which some 340 are in the oil and gas industry, worth a total of $37 billion.

"The proposal will serve to reduce the aggregate concentration risk associated with this type of activities in the Norwegian economy," the ministry said in a statement.

"This assessment does not reflect any specific view on the oil price, future profitability or sustainability of the petroleum sector."

Under classifications used by FTSE Russell, the exploration and production sector includes companies "engaged in the exploration for and drilling, production, refining and supply of oil and gas products."

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Norges Bank, which runs Norway's sovereign wealth fund, first advised the government in late 2017 to drop oil and gas stocks from the fund to cut its exposure to the sector.

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As Europe's biggest oil and gas producer, the fund's rationale is that it is simply reducing its existing exposure to the sector given the considerable value already locked up in Norway's large offshore reserves of oil and gas.

Norway's SWF fund has been held aloft as a global benchmark for financial prudence and transparency that other SWFs aspire to copy, however, and a move to sell off its hydrocarbon holdings has fueled concern of Norway triggering a more widespread pullback in fossil fuel investments.

Indeed, Norway's fund has been instructed by parliament to help fight climate change. In 2017, it sold out of coal companies, a move which followed divesting from heavy polluters and companies involved in deforestation.

The ministry said Friday the decision to sell off upstream oil and gas stocks is independent of the government's current petroleum policy, which "remains unchanged."

"The oil industry will be an important and major industry in Norway for many years to come. The state's revenues from the continental shelf are, as a general rule, a consequence of the profitability of exploration and production activities," it said.

Norway's wealth fund hold stakes in all the major western oil companies, with the biggest, in terms of value, a 2.45% stake in Shell worth some $5.92 billion.

-- Robert Perkins, robert.perkins@spglobal.com

-- Edited by Alisdair Bowles, newsdesk@spglobal.com