Norwegian fund may exit O&G exploration firms

  • Corporate News
  • Wednesday, 13 Mar 2019

“Two more oil production wells are currently being drilled at St Joseph oil field, which will be followed by three new oil production wells and one water injection well in the SF30 oil field,” the oil and gas group said

PETALING JAYA: HIBISCUS PETROLEUM BHD and REACH ENERGY BHD will likely lose Norway’s sovereign wealth fund as a shareholder as the latter is considering an exit from its global investment in oil and gas (O&G) exploration and production (E&P) companies.

However, according to RHB Regional Research, there is no need to panic over the proposed divestment of the Government Pension Fund Global (GPFG) from E&P companies worldwide, as the move, if executed, is expected to be done in a gradual manner over time so as not to disrupt the market price of its holdings.

In general, the brokerage said the GPFG’s move is not expected to have a significant or disruptive impact on the affected companies.

“We believe the fund will execute its directive to divest from E&P companies gradually over time and in a prudent manner, so as not to disrupt the market price of each of its holdings,” the brokerage said in its recent report. 

The GPFG currently owns 2.02% and 1.56% stakes in Hibiscus and Reach, respectively. The value of the fund’s investment in both the E&P companies is currently estimated at US$7.93mil (RM32.4mil).

The world’s largest sovereign wealth fund with US$1 trillion (RM4.08 trillion) assets under its management is currently invested in 341 O&G companies around the world, with a total market value of US$37bil or 3.7% of the fund. 

Within Asean, the GPFG has a total investment of US$530mil in companies involved in the entire value chain of O&G. 

Most of these are upstream service providers/refineries and integrated O&G companies – all of which are not to be included in the proposed divestment. 

In Malaysia, the Norwegian fund has shareholdings in seven O&G companies, with a combined value of US$60.3bil. These include BUMI ARMADA BHD, Dialog Group Bhd, SAPURA ENERGY BHD, UZMA BHD and Velesto Energy Bhd.

Of its investments in Malaysia, only two – Hibiscus and Reach – are pure E&P companies.

RHB Regional Research estimates that the GPFG’s proposed divestment out of companies classified under E&P would result in the removal from about 134 companies, with a total value of US$8bil.Norway recently proposed to exclude E&P companies within the energy sector from the GPFG as part of a move to reduce its aggregate oil price risk in the Norwegian economy. 

It was noted that the phasing out of the E&P companies from the fund would be done gradually over time, and plans would be prepared in consultation with Norges Bank. 

“The fund had been built up over the past two decades on O&G revenues and it uses a large portion of income from the offshore fields to pay for its welfare state. The fund contends that it makes little sense for Norway to be doubly exposed to the oil markets,” RHB Regional Research wrote in its report. 

As western Europe’s largest O&G producer, Norway’s fortunes are already tied to petroleum – deriving almost 50% of its exports and more than 20% of the state’s revenue from the commodity, according to Bloomberg. 

While RHB Regional Research acknowledged sentiment towards the O&G sector had been negatively impacted by the Norwegian government’s announcement of its proposed divestment from E&P companies, the brokerage said it believes O&G would continue to dominate the global energy mix for the next few decades.

RHB Regional Research has maintained its “overweight” stance on the O&G sector.

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