After several months of debate in March, the Norwegian government proposed that a state fund of $ 1 trillion – the world's largest sovereign wealth fund – be released from oil and gas exploration companies.
A fund measure that has accumulated a lot of wealth on the basis of Norwegian oil and gas revenues comes at a time when investors are increasingly pressuring large oil companies to seriously begin to take climate change and prepare their business portfolios for the world's demand for oil at any time comes.
Norway motivates its decision on financial grounds to reduce the exposure to oil price risks. More importantly, the fund will not repel any of the major oil companies.
While the decision to postpone oil stocks initially sent shocks to markets, the list of 134 companies proposed for exclusion only includes companies designated by the FTSE Russell index as part of the research and production subsector. The list is significant for US shale companies, Canadian oil producers with large petroleum sourcing activities and oil exploration companies in Africa.
This list could be famous for what Norwegian financial experts consider possible repayments in US slates, Canadian oil sands and oil and gas exploration in emerging, sometimes undemocratic and non-transparent economies, claims.
The list includes Anadarko Petroleum, Apache Corp, Chesapeake Energy, Concho Resources, Continental Resources, Devon Energy, Diamondback Energy, EOG Resources, Marathon Oil Corp, Murphy Oil, Occidental Petroleum, Pioneer Natural Resources – to name only some of the US oil drillers slate. Related: Does Beijing lose its shooting in the South China Sea?
The US-based Shale Companies Association, while record-breaking oil production, especially in Perm, is weakly no longer a precious Wall Street, as both shareholders and banks have become increasingly impatient because of the lack of promised profits and yields for fats. Many companies promise expenditure discipline, but many have increased debt to deepen, and many are struggling to become or remain a positive cash flow.
In the Canadian oil patch, increased production in the past year has stretched to the limit, Canadian oil prices have fallen, while Alberta, which produces oil, has demanded a reduction in production in the province in order to raise the price of domestic crude oil.
The Norwegian list of Canadian companies, whose share will gradually recover, includes Cenovus Energy, Encana Corp, Seven Generations Energy, and Canadian Natural Resources, but do not include Suncor Energy or Husky Energy.
The third largest group of companies dealing with E & P on the Norwegian list are companies from India (including Indian Oil Corp), Russia (including Novatek and Bashneft), or listed companies in the United Kingdom and have large assets and business in Africa, such as Tullow Oil.
The full list of the strong 134 companies suggests that Norwegian financial experts who managed the fund in such a way that its market value exceeded 1 trillion USD in less than three decades since it was created does not expect future high returns from shale operations , petroleum sands or remote research. Related: U.S., Canadian relay drop as oil for oil
Nevertheless, the fund does not sell its share in major integrated oil companies, and the share of companies in the divestment list is only part of the ownership of oil and gas.
At the end of 2018, the Norwegian Fund held shares in E & P – according to the FTSE Russell Class for such – with approximately $ 7.8 billion (66 billion Norwegian kroner). This corresponds to a 1.2% share of the equity fund.
By comparison, by the end of 2018, the total capital share of the fund in oil and gas companies was $ 37 billion, dispersed in investments in 341 companies, including just under 1 percent of all Exxon and Chevron, 2.45 percent in Shell , 2 percent in Total, 2.31 percent in BP and 1.59 percent in Eni. The share in Shell alone was $ 5.9 billion.
The largest global sovereign wealth fund will not lay off these shares.
Norway has spurred a decision to dismantle oil reserves for exploration by reducing financial exposure to volatile oil prices. The proposed sale is aimed at "reducing the vulnerability of our common assets to a sustained reduction in oil prices" and "reducing the overall oil price risk in the Norwegian economy", as oil and gas are one of the pillars of the economy and the fund are dedicated to the distribution of oil to the future generations of the country.
"A number of integrated oil and gas companies already have important activities in the field of renewable energy in absolute terms, both the expert group and Norges advise that integrated companies can have substantially larger operations with renewable energy sources than renewable energy companies," they said. from the Ministry of Finance. report to Parliament.
"In addition, companies that do not have renewable energy as the main company are expected to account for about 90 percent of the renewable energy infrastructure on the list by 2030," says the report.
This could also be the message of Big OIL – to invest more in renewable energy sources in order to increase the risk of oil demand whenever it comes to staying adequate according to what investors want.
Author Tsvetana Paraskova for Oilprice.com
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