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For Sale: US$20b of unwanted big-oil shares seek new owner
[LONDON] Big Oil is under pressure, unloved and on sale.
Energy giants from Exxon Mobil Corp to Royal Dutch Shell Plc are struggling back to their feet after a three-year oil slump, while also fighting to prove they can survive for decades to come amid an accelerating shift to clean energy. So getting dumped by the world's biggest investment fund wouldn't be welcome news.
Norway's US$1 trillion sovereign wealth fund said on Thursday that it wants to sell about US$35 billion of shares in oil and gas companies to make the nation "less vulnerable" to a drop in crude prices. Global energy giants favored by long-term investors including Italy's Eni SpA, PetroChina Ltd and Russia's Gazprom PJSC account for more than US$20 billion of that total.
"This would be hugely impactful, depending on how they do it, especially when many people aren't comfortable with energy just yet anyway," said Elvis Pellumbi, London-based chief investment officer at CF Opportunity Fund. "They would also lose a lot of money doing it, unless spread over a number of years." Norges Bank Investment Management is among the top 10 shareholders in each of Europe's biggest oil companies. Its largest stake is 2.3 per cent of Shell, followed by 1.7 per cent of Eni. If the sale is approved by Norway's Finance Ministry, it could bring millions of shares to the market and test the appetite of other investors for companies that are striving to show they've seen off the worst of crude oil's slump.
"It's a big sale," but the market will be able to absorb it, said John Roe, head of multi-asset funds at Legal and General Investment Management. "There are reasonable fundamentals behind energy companies. Many are already focusing on how to cope with future changes in the energy mix, including reducing investment." Oil industry shares have gained in recent months, with the 88-member MSCI World Energy Sector Index adding more than 9 per cent from this year's trough in August. Oil prices have increased as OPEC production cuts help to shrink global inventories and demand strengthened. Major oil companies have also started to demonstrate they can live with prices at US$50 to US$60 a barrel by cutting spending.
Still, the index is the worst performing sector in the overall MSCI World Index. The industry's future is being questioned like never before as electric vehicles and the fight against climate change prompt some forecasters to predict that within a decade demand could peak for gasoline and diesel - the backbone of the industry in the past century.
"Norway has taken action to protect its sovereign wealth fund assets from the consequences of the coming peak in oil demand," said Catherine Howarth, Chief Executive of ShareAction, an activist group. "We would expect pension funds and other long term investors to follow suit." Oil and gas equities reacted negatively to the announcement. Shell's B shares led the declines, dropping 2.4 per cent, while Eni dropped 1 per cent and BP lost 0.8 per cent.
The Norwegian fund's decision to sell is "further reason to be cautious for oils relative to broader markets over coming one to three years," said Jason Kenney, an Edinburgh-based analyst at Banco Santander SA.
Some investors saw Norges Bank's proposal as a chance for profit.
The sell-off prompted by Thursday's announcement "is a great opportunity to buy Shell stocks again," said Danilo Onorino, fund manager at Dogma Capital SA in Lugano, Switzerland, who owns stock in several European oil majors. "This announcement is extremely bad for Norges. Not only will they be selling at minimal levels," but they will also give up very high dividend yields, he said.
Others saw a different opportunity.
"From a financial point of view this makes perfect sense" because Norway's economy already has considerable exposure to oil and gas, said Jan Erik Saugestad, Chief Executive Officer of Storebrand Asset Management, Norway's largest private pension fund with US$80 billion under management. "This also represents an opportunity for the oil fund to invest more in renewable industries and infrastructure."