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Oil & Gas firms on tenterhooks as world’s largest sovereign wealth fund to decide whether to dump sector

The Government Pension Fund of Norway will decide on Friday whether to offload its US$37bn stake in the industry

Offshore oil rig
Big UK oilers in the fund's portfolio include BP and Shell

Investors in oil & gas companies will be on the edge of their seats on Friday as the world’s largest sovereign wealth fund, the Government Pension Fund of Norway (GPFN), decides whether to divest from the sector.

The US$1tn fund has around US$37bn tied up in oil & gas investments, with UK companies ranging from blue-chips to small-caps in the firing line if it decides to dump its holdings.

Some of the big UK-listed oilers that could be headed for the bin are BP PLC (LON:BP.) and Royal Dutch Shell PLC (LON:RDSA) as the investment fund holds stakes in each of around 2.3% and 2.5% respectively.

GPFN’s stake in Shell is also the largest investment it has across its oil & gas portfolio, worth around US$6bn alone.

A little lower down, FTSE 250 constituent Premier Oil PLC (LON:PMO), in which the fund holds a 1.8% stake, and FTSE Small Cap firms like Nostrum Oil & Gas PLC (LON:NOG), in which it has a 1.9% holding, could also be hit by a decision to offload shares.

Even some AIM-listed minnows, such as IGas Energy Plc (LON:IGAS) and President Energy PLC (LON:PPC), won’t escape the sell-off.

It isn’t just explorers and producers facing the fallout either as the fund has also taken stakes in groups like oil rig builder Lamprell PLC (LON:LAM) and oilfield maintenance firm John Wood Group PLC (LON:WG.).

How could the markets react?

Given that the three FTSE 100 companies in the fund - Shell, BP, and Wood Group - collectively make up nearly 16% of the blue-chip index’s weighting (i.e. the proportion their shares take up in the index), a divestment decision could have implications for its direction.

However, Russ Mould, investment director at AJ Bell, said that while some market makers would mark down the stocks in a “knee-jerk reaction”, it’s unlikely the Norwegians would start dumping their holdings straight away.

He added: “It would a brave thing to put a deadline on [the sale of the holdings], because it would mean every trader would have a big target to move the price against them”.

Instead, Mould says that while the divestment would sharpen the debate around the future of oil and hydrocarbons, the companies themselves would not be in major trouble.

“I can see some pressure on oil stocks but [the major oil companies] have substantial residual value and the dividend is still sufficiently appealing that somebody might see this as an opportunity”.

The potential sale of the holdings doesn’t mean Norway is totally exiting the sector either, with analytics firm GlobalData expecting the country to spend around US$21.2bn on new builds in the North Sea between 2019 and 2025, more than any other country.

Soorya Tejomoortula, an oil & gas analyst at GlobalData, added that the investments would help Norway “lead crude production in the North Sea” as it would be contributing “more than 70% of crude and condensate production from major planned and announced projects in 2025”.

Not exactly the behaviour of a country giving up on oil.

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