Norway's oil fund ditches oil holdings

Jonathan Boyd
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Norway's oil fund ditches oil holdings

Norway's Ministry of Finance has proposed excluding holdings of oil exploration and production companies from the portfolio of the country's €902bn sovereign wealth fund - the Government Pension Fund Global, also known as the oil fund because of the source of its inflows.

Siv Jensen, minister of Finance (pictured), said: The objective is to reduce the vulnerability of our common wealth to a permanent oil price decline. Hence, it is more accurate to sell companies which explore and produce oil and gas, rather than selling a broadly diversified energy sector."

In a statement on the change, the Ministry said: "Companies classified as exploration and production companies by the index provider FTSE Russell will be excluded from the GPFG's benchmark index and investment universe. The proposal will serve to reduce the aggregate concentration risk associated with this type of activities in the Norwegian economy."

"Like the advice from Norges Bank, this assessment does not reflect any specific view on the oil price, future profitability or sustainability of the petroleum sector. This assessment is thus independent of the government's current petroleum policy, which remains unchanged."

The Ministry sets the investment objectives of the fund, which are executed by Norges Bank Investment Management. The source of its investments is money derived from royalties, taxes and other charges levied on the oil and gas industry operating in Norway. The fund does not invest in Norway itself - there is another, far smaller sovereign wealth fund that invests locally - which means the decision to adjust exposure to oil E&P does not signal any change to government policy regarding the domestic oil industry.

"Exploration and production companies will be phased out from the fund gradually over time, and plans will be prepared in consultation with Norges Bank, after the Storting's deliberation of the white paper, published today," the Ministry statement continued.

"A permanent reduction in the oil price will have long-term implications for public finances. An exclusion of energy stocks in the GPFG will serve to further reduce the oil price risk, but the effect appears to be limited. We have high capacity to take on such risk, and the oil price risk has been significantly reduced over time, because a large portion of the oil and gas resources has been extracted from the Norwegian continental shelf and converted into a broadly diversified financial wealth abroad."

"The energy sector is a broad sector, and comprises integrated companies with businesses throughout the value chain as well as pure play renewable energy companies."

Jensen added: "It is anticipated that almost all of the growth in listed renewable energy over the next decade will be driven by companies that do not have renewable energy as their main business. The fund should be able to participate in this growth."

The statement continued: "Climate risk is an important financial risk factor for the GPFG, and will over time have an impact on several of the companies in which the GPFG is invested. The Ministry of Finance will ask Norges Bank to review its efforts relating to climate risk in the GPFG, with a view of strengthening efforts in relation to those individual companies accounting for the largest contributions to the climate risk associated with the fund."

The Norwegian government does not plan to reduce its stake in Equinor - formerly Statoil - the Norwegian oil company.

 

Jonathan Boyd
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Jonathan Boyd

Editorial Director of Open Door Media Publishing Ltd, and Editor of InvestmentEurope.