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Owning shares in integrated oil companies is much more than buying a barrel of oil, so the proposal of Norway’s US$-1-trillion wealth fund to ditch oil stocks because of increased risk to exposure to oil prices is a “bad argument”, Patrick Pouyanne, the chief executive of one of those integrated companies, Total, told Bloomberg in an interview on Friday.
In a shock announcement in November last year, Norway’s wealth fund recommended the removal of oil and gas stocks—more than 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.
Norway’s wealth fund has 379 investments in oil and gas equities, including stakes in the top global firms. The fund owns 1.62 percent of Total, worth more than US$2 billion.
As early as last November, when the industry and analysts were still digesting the prospect of the Norwegian fund possibly ditching oil stocks and potentially sending shockwaves to the share prices of oil firms and prompting other funds to follow suit, Total’s Pouyanne said that he was not worried about a possible exit of the fund, because this would happen gradually over time.
“I can tell you that, obviously, the managers of the fund who we know very well...are not going to sell in a manner that would lead to a stock-price collapse,” Pouyanne told shareholders at an annual gathering in November.
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Speaking to Bloomberg today, Total’s CEO said:
“When you buy a Total share, you don’t buy a barrel of oil.”
“You buy much less volatility,” Pouyanne added, arguing that Big Oil—integrated companies that are also active in refining, retail, and trading—are diversified to reduce the risk when oil prices tumble.
Pouyanne, however, did not suggest what the fund should do with the oil stocks. “They can do what they want,” he said. “They are free.”
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.