Norway Considers Pulling Its $1 Trillion Wealth Fund Out of Oil Stocks -- 2nd Update

By Dominic Chopping Features Dow Jones Newswires

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.

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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, before recovering. Shares in Statoil fell by as much as 1%. The fund also owns large stakes in most of the world's oil majors, 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.

"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.

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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.

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.

Stock markets have set record after record in 2017, powered in large part by a revival in U.S. corporate earnings.

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 a new fossil-free fund. Several U.K. pension schemes have funds which don't invest in the sector. In 2014, Stanford University said it wouldn't invest in coal-mining companies, and amid pressure from environmental activists other U.S. endowment funds have debated whether they should pull out of fossil fuel investments.

Sarah Kent contributed to this article.

Write to Dominic Chopping at dominic.chopping@wsj.com

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, before recovering. Shares in Statoil fell by as much as 1%. The fund also owns large stakes in most of the world's oil majors, 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.

"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.

The Ministry of Finance said the government aims to make a decision in the fall of 2018.

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.

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.

Stock markets have set record after record in 2017, powered in large part by a revival in U.S. corporate earnings.

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 schemes have funds which don't invest in the sector. In 2014, Stanford University said it wouldn't invest in coal-mining companies, and amid 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 11:12 ET (16:12 GMT)