Norway’s oil disposal drama descends into farce electricity in india


Roughly 16 months ago, Norway’s central bank advised ditching oil and gas stocks from the country’s trillion-dollar sovereign wealth fund, to mitigate the risk from “a permanent drop in oil gas x strips walmart and gas prices.” However, a plot-twist arrived last August, when a government commission recommended against such divestment. It reasoned selling wouldn’t reduce risk much; in fact, narrowing the fund’s diversification and shifting its composition so markedly away from the broader market’s could increase risk.

There is surely some financial model somewhere in Oslo proving mathematically the risk-weighted wisdom of this slight touch on the tiller. The stated rationale is that the disposals focus on exploration and production companies, which have the highest correlation to oil and gas prices. These firms are distinguished from integrated oil and gas companies gas after eating salad, which are, Norway reasons, less directly correlated with prices and include several companies investing in renewable energy. Selling those wouldn’t curb commodity exposure much and could actually lead to missing out on exposure to a growing sub-sector of energy hedging its oil-and-gas risk.

Neat, but gas house then you dig into it. For example, the single largest exploration and production stock held by the fund at the end of 2018 was ConocoPhillips. Yet this isn’t being sold, according to the list I obtained from the Ministry of Finance, because it is classified as an integrated oil company by FTSE Russell, the index benchmark used by the fund to segment its holdings. But Conoco spun off its refining electricity cost by state and marketing subsidiary Phillips66 as a separate company in 2012 for the express purpose of refocusing as an EP company.

There are other seeming anomalies in there. Phillips66 isn’t on the hit list, but rival refiners PBF Energy Inc. and HollyFrontier Corp. are. Maybe the fund has sold out of Phillips66 since year-end, which might explain it. In any case, these are all refiners, not upstream EP companies. Same goes gas in babies home remedies for Cheniere Energy Inc., which develops and operates terminals for importing and exporting liquefied natural gas but is also on the block.

Meanwhile, just the top two oil and gas holdings in the fund at year end – Royal Dutch Shell Plc and gas efficient cars BP Plc – are worth more than the fund’s entire holding in the 134 stocks due to be sold. Yes, Shell and BP, along with some other majors, are investing in renewable energy. But those efforts are dwarfed by their core oil and gas operations.

As if to counter that argument, Friday’s announcement observed that “companies that do not have renewable energy as their main business will account for about 90 percent of the growth in listed renewable energy infrastructure towards 2030.” That appears to be based on a McKinsey Co. study prepared for the Finance Ministry in December and is a valid line of reasoning. However, the same report’s list of examples of such “portfolio companies” (in footnotes on page 16) consists of the likes of Berkshire Hathaway Inc., E.ON SE, and Enel SpA – utilities or businesses with utility arms. It does note the move of “large listed gas yojana energy companies” into renewables, but also notes: