Norway Considers Pulling Its $1 Trillion Wealth Fund Out of Oil Stocks -- 3rd Update
November 16 2017 - 12:16PM
Dow Jones News
By Dominic Chopping
Norway's sovereign-wealth fund said on Thursday it may stop
buying oil and gas stocks, a move that would deprive the energy
sector of investment from a $1 trillion asset manager.
The Norwegian central bank, which uses the fund to invest the
proceeds of the country's oil industry, said that investing money
back into the energy sector amplifies the government's exposure to
the price of crude, particularly given the country's majority stake
in Statoil ASA.
Oil and gas equities currently account for around 6% of the
Government Pension Fund Global's benchmark index, or just more than
300 billion Norwegian kroner ($36.49 billion).
The Stoxx Europe 600 Oil & Gas index drifted lower on the
news of the potential divestment. Shares in Statoil fell by as much
as 1%. 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. BP and Shell were down 0.68% and
2.16% respectively in late European trading.
"An orderly divestment process over a period of time won't
significantly impact share prices," said Jefferies analyst Jason
Gammel.
Norges Bank, the central bank, made the proposal to Norway's
Ministry of Finance on Thursday, saying that, given its size, the
fund accounts for an increasingly large share of the nation's
wealth and is an integral part of government fiscal policy. That
means that the vulnerability of government wealth to a permanent
drop in oil and gas prices would be reduced if the fund pulled out
of the stocks in that sector, Norges Bank said.
Two years of weaker oil prices has cut into the income of many
of the world's largest sovereign-wealth funds, which are in largely
resource-dependent countries like Saudi Arabia and Kuwait.
The Ministry of Finance said the government aims to make a
decision in the fall of 2018.
A bank official said that the advice doesn't reflect a view on
future oil and gas prices.
Norway's fund was established to harness the country's oil and
gas income while also giving the government room for maneuver in
fiscal policy should oil prices drop, the mainland economy contract
and as its oil eventually runs out.
In September, the fund value reached $1 trillion for the first
time after being boosted as the world's major currencies
strengthened against the U.S. dollar, combined with strong equity
markets.
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.
Other large investors have launched products that don't invest
in fossil fuels.
In April, Storebrand, Norway's largest private-pension fund,
said it had launched two new fossil-free funds. Several U.K.
pension plans have funds that don't invest in the sector. In 2014,
Stanford University said it wouldn't invest in coal-mining
companies, and under pressure from environmental activists other
U.S. endowment funds have debated whether they should pull out of
fossil fuel investments.
On Thursday, Storebrand said in a release that Norge Bank's move
should encourage other funds to pressure "oil and gas companies to
revisit their investment plans and operations in the transition to
a low carbon economy. "
Mr. Gammel, though, said he didn't expect to see a flight of
money from the sector.
Sarah Kent contributed to this article.
Write to Dominic Chopping at dominic.chopping@wsj.com
(END) Dow Jones Newswires
November 16, 2017 12:01 ET (17:01 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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