Norway’s wealth fund deals blow to oil juniors

Principally, the proposal has been made to reduce the aggregate oil price risk to the Norwegian economy, which as western Europe’s largest petroleum producer is heavily dependent on revenues from the oil and gas industry. “Revenues from the shelf basically follow profitability in upstream operations,” the government said in a press release. “Therefore, this is about spreading risk.”

Finance minister Siv Jensen added that the change was being made purely on financial grounds, and was designed to reduce Norway’s vulnerability to a permanent oil price decline. “It is more accurate to sell companies that explore and produce oil and gas, rather than selling a broadly diversified energy sector,” he said.

The divestment plan will therefore exclude integrated energy giants such as BP (BP.) and Royal Dutch Shell (RDSB), which Norway expects to be involved in the transition away from carbon-intensive energy sources.

“Everything indicates that almost the entire growth in listed infrastructure for renewable energy over the next 10 years will be driven by companies that do not have renewable energy as their main activity,” added Mr Jensen. “It is a growth the fund should be able to take part in.”

Oilfield services and pipeline stocks will also be excluded from the divestment plans, but that still leaves many upstream companies open to selling pressure in the coming year. Excluding the state-owned Equinor, the fund’s disclosures currently list $37bn-worth of investments in 341 oil and gas equities, including UK-listed upstream stocks such as Cairn Energy (CNE), Nostrum Oil & Gas (NOG), Premier Oil (PMO) and Tullow Oil (TLW). In the past year, the fund appears to have sold out of EnQuest (ENQ), whose shares sank this week on a spat over the carrying value of its key Kraken asset in the North Sea.

Environmental campaigners seized on the announcement as a major win for the global divestment movement. “This is a huge boost for the global divestment movement – and an even bigger blow to the fossil fuel industry,” said Adam McGibbon of Global Witness, a natural resources-focused NGO. “When the world's biggest sovereign wealth fund signals it's getting out of companies dedicated to oil and gas extraction, it's a death knell for fossil fuels.

“The fact that this decision was based solely on financial considerations, not even taking into account the fossil fuel industry's disastrous environmental record, means that investors in every corner of the world will sit up and take notice."

Others were more sceptical of the move, pointing to Norway’s continued fiscal reliance on and investment in the industry. Writing in the Financial Times, economics commentator Martin Sanbdu said the decision failed to “set a useful precedent for environmentalists who wish to rally investors behind a broader divestment campaign as a way to reduce hydrocarbon extraction globally”.

The chief executive of one of the companies in the fund’s crosshairs also appeared unfazed by the change. “I don’t think it leads to a specific concern regarding Norway and its future attitude towards oil and gas,” Cairn Energy’s Simon Thomson told us. Cairn has a 20 per cent working interest in the Nova field, which was approved for development by Norwegian operator Wintershall last autumn.