World’s top sovereign wealth fund to dump oil and gas shares

Source: By Mark Lewis, Associated Press • Posted: Monday, March 11, 2019

Norway’s $1 trillion wealth fund, the biggest of its kind in the world, will begin dumping shares in oil and gas companies but stopped short of barring major producers like Exxon Mobil Corp. and Chevron Corp.

The move was hailed by environmental activists as a sign that the global economy is increasingly moving away from fossil fuels toward cleaner energy.

The financial impact, however, may be relatively limited. The move will focus on companies that trade solely in exploration and production rather than the integrated oil giants, which do everything from searching for fossil fuels to selling them to consumers.

The fund is looking to sell some $7.5 billion in shares in 134 energy companies over time.

The Norwegian government said its motivation was not climate activism but financial. The fund, somewhat ironically, derives its income from Norway’s booming oil and gas industry. So reinvesting those proceeds in other sectors is considered a way to keep the money safe should oil and gas prices fall.

“The objective is to reduce the aggregate oil price risk on the whole Norwegian economy,” Minister of Finance Siv Jensen told the Associated Press. “The Norwegian state is highly exposed to oil.”

Tax receipts from oil production have made Norway rich. They underpin generous welfare provisions. And a hefty proportion is siphoned off into the fund, which was conceived as a pension kitty for the country’s 5.3 million inhabitants.

In Stavanger, a city on the rainy west coast where many oil companies are based, the sight of $100,000 Teslas cruising along fjord-side roads are a marker of the town’s oil-sponsored private wealth.

Mark Campanale, executive director of the Carbon Tracker Initiative, a think tank on climate issues, says today’s decision is more significant than when the fund sold off its shares in coal companies.

“This shows that while the fund was initially built on revenue from oil and gas, the Ministry of Finance understands that the future belongs to those who transition away from fossil fuels,” he said. “Now is the time for smart investors around the world to follow their lead and make decisions driven by the reality of the energy transition.”

Jensen said she had instructed Norway’s central bank to monitor how the fund was exposed to companies that could contribute to climate change, which is now considered a major risk for financial returns. However, it was too early to say how that assessment might affect investment decisions.

Integrated oil giants were not banned from the fund’s investments in part because those companies are considered most likely to invest in green energy — a market the Norwegian government is keen to profit from.

“They take on much bigger investments than renewable companies do. It would be a mistake as I see it to cut off the fund’s possibility to invest in them,” Jensen said.

Major integrated oil companies will be breathing a sigh of relief, as the Norwegian fund owns large amounts of their shares. At the end of 2018, it owned shares in around 300 oil producers and service companies including almost $6 billion in Royal Dutch Shell PLC, or 2.5 percent of the company. It owns 2.3 percent of London-based BP PLC.

Rather, smaller companies like Marathon Oil Corp. and Chesapeake Energy Corp. will see their stock sold. Their shares were down 2.5 percent and 2 percent in premarket trading in the U.S.

The Norwegian fund has a stake in more than 9,000 companies worldwide, including the likes of Apple Inc., Nestle SA, Microsoft Corp. and Samsung. On average, the fund holds 1.4 percent of all of the world’s listed companies. About 70 percent of its holdings are in shares.