The Norwegian government said on Friday its $1 trillion asset manager- the world's biggest sovereign fund - will sell its stake in oil and gas explorers and producers but will continue to invest in energy companies that have refineries and are engaged in distribution and retail sales of oil and gas products. But by investing in stocks related to the exploration and production of oil and gas, the government fears the economy may be too vulnerable to shocks to the oil price. They argued that Norway can absorb lower oil prices as it doesn't rely on oil and gas revenues on an ongoing basis.
The fund, called the Government Pension Fund Global, was created with revenue from the country's oil and gas operations and is invested in securities and real estate outside of Norway with the intention of providing for an aging population and for when oil revenues begin to decline.
The fund is looking to sell some US$7.5 billion in shares in 134 energy companies over time, including 26 Canadian names.
But the divestment will focus on companies which trade exclusively in exploration and production like Marathon and Chesapeake Energy rather than the integrated oil giants.
"To exclude all oil companies would limit the fund's opportunities", Finance Minister Siv Jensen said. "It's not a debate about climate, it's about financial risk".
However the finance ministry said the divestment does not reflect any specific view on oil price, future profitability or sustainability of the sector. It said it will also ask Norges Bank to review the wealth fund's exposure to wider climate risks, "with a view to strengthening efforts in relation to those individual companies accounting for the largest contributions to the climate risk associated with the fund".
Exiting from this "would in reality have constricted the fund's chance to take part in this type of investments", she said.
The government recommendation must still be approved by the country's parliament before going ahead. These include Cairn Energy Plc, Anadarko Petroleum Corp., Chesapeake Energy Corp., Cnooc Ltd. and Tullow Oil Plc.
Energy stocks represented 5.9 percent of the fund's equity investments at the end of 2018 and were worth about $37 billion, fund data showed.
Although it was under some pressure to sell its holdings in the oil and gas sector for environmental reasons, Norway's Central Bank has made it clear that it is selling some of its $37bn of energy shares for more boring reasons, it doesn't like having all its eggs in one basket. When the fund first stated its intention to divest 18 months ago, the announcement jolted oil and gas markets around the world.