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Norway’s $1 Trillion Wealth Fund: Oil Stocks Sale Will Take Years

The proposed sale of billions of dollars worth of oil and gas stocks held by Norway’s huge wealth fund will take years to be completed, if approved, chief executive Yngve Slyngstad said on Tuesday.

On November 16, the world’s largest sovereign wealth fund—Norway’s US$1-trillion Government Pension Fund Global—recommended the removal of oil and gas stocks to the tune of US$35 billion worth of shares from the fund’s equity benchmark index to make Norway’s wealth and economy less vulnerable to a permanent drop in oil and gas prices.

The fund’s proposal to Norway’s Finance Ministry sent shockwaves to oil stocks and raised questions as to how many other big investors might follow suit. The proposal of Government Pension Fund Global also raised questions about how Norway would keep oil companies investing in its fossil-fuel industry if it indeed dropped billions of dollars’ worth of oil stocks, including stakes worth a combined US$14 billion in Shell, Exxon, Chevron, BP, and Total.

Norway’s Finance Ministry said that the issues raised by Norges Bank in its recommendation to remove oil and gas stocks from its equity benchmark index are “complex and multifaceted.”

“The Government aims to conclude on this matter in the fall of 2018,” the finance ministry said.

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While the proposal will take almost a year to review, and the possible sale of oil stocks years to complete, the fund issued today a discussion note explaining at length its rationale to propose dropping oil and gas stocks from its equity benchmark index.

“The implication is that the inclusion of the sector in a diversified equity portfolio leads to long-lasting oil price exposure, and to the long-term risk of a permanent adverse change in the price of oil,” the fund said.

In presentation slides also published today, the fund says that “We can reduce the oil price sensitivity by not investing in Oil & Gas stocks without changing expected return.”

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By Tsvetana Paraskova for Oilprice.com

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