The world's largest sovereign wealth fund, Norway's US$1-trillion Government Pension Fund Global, recommended on Thursday the removal of oil and gas stocks-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.
"This advice is based exclusively on financial arguments and analyses of the government's total oil and gas exposure and does not reflect any particular view of future movements in oil and gas prices or the profitability or sustainability of the oil and gas sector," said Egil Matsen, Deputy Governor at Norges Bank, the manager of the fund that has accumulated its wealth from Norway's oil revenues over the past two decades.
Norges Bank has analyzed the performance of oil and gas stocks and has found that the "return on oil and gas stocks has been significantly lower than in the broad equity market in periods of falling oil prices."
"Therefore, it is the Bank's assessment that the government's wealth can be made less vulnerable to a permanent drop in oil prices if the GPFG is not invested in oil and gas stocks," Norges Bank said in a letter to Norway's Finance Ministry.
Currently, oil and gas equities make up some 6 percent of the fund's benchmark index, or US$35 billion (300 billion Norwegian crowns). The fund currently has 379 investments in oil and gas equities, including stakes in the top global firms. The fund holds 2.33 percent in Shell, and that stake's market value alone is US$5.36 billion. The interest in ExxonMobil is 0.82 percent worth US$3.066 billion, in Chevron it's 0.92 percent worth US$2.04 billion, in BP it's 1.65 percent worth US$2.028 billion, and in Total its stake is 1.62 percent worth US$2.02 billion.
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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."
Norges Bank's recommendation requires a thorough assessment, the ministry said, adding that it would notify Parliament about its review of the fund's proposal, and would submit a report in the spring of 2018.
"The Government aims to conclude on this matter in the fall of 2018," the finance ministry said.
If Norway does choose to remove its eggs from the oil and gas basket, other mega-funds could follow suit as oil and gas revenues grow increasingly unreliable and as analysts consider the idea that oil's future will someday come to an end, regardless of how distant.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. More