OSLO: Norway’s sovereign wealth fund, the world’s biggest thanks to petrodollars, will sell off stakes in oil and gas exploration and production companies to reduce its exposure to black gold, the government said on Friday.

While the decision is based solely on financial considerations and not on the environment, a divestment — even partial — by an investor worth more than $1 trillion was seen as a major blow to the fossil fuels industry and hailed by the environmental lobby.

The government of Norway, the biggest oil and gas producer in western Europe, said the divestment was specifically targetting exploration and production companies, “rather than selling a broadly diversified energy sector.”

“The objective is to reduce the vulnerability of our common wealth to a permanent oil price decline,” Finance Minister Siv Jensen said, stressing the move should not be interpreted as a lack of confidence in the future of the oil sector.

As the decision only concerns companies specialised in upstream operations, it could affect 134 groups like Chesapeake of the US, Canada’s Encana, China’s CNOOC, France’s Maurel and Britain’s Tullow, among others.

Companies involved in downstream operations, such as distribution and refining, and, more importantly, integrated companies which do both down- and upstream — such as giants ExxonMobil, Shell, BP and Total — will not be affected.

Friday’s proposal therefore concerns $7.5bn of the around $37bn the fund held in the oil and gas sector at the end of 2018.

The government’s proposal is expected to sail through parliament.

Sovereign funds are state-owned investors in various kinds of assets that aim to generate revenue for government programmes and pensions.

The Norwegian decision follows a headline-making 2017 recommendation by the Scandinavian country’s central bank, which manages the fund, aimed at limiting the state coffers’ exposure to a steep drop in oil prices, as in 2014.

Published in Dawn, March 9th, 2019