The decision by Norway’s $1trn sovereign wealth fund to sell its positions in pure play oil and gas companies has caused shockwaves across the natural resources sector.

The plan, subject to parliamentary approval, is to sell off interests in businesses which only undertake exploration and production of oil and gas, rather than integrated operators like BP (BP.), Royal Dutch Shell (RDSB) and their US counterpart ExxonMobil which are also active in areas like refining and marketing. They also have some investments in alternative energy and a greater capacity to switch more heavily to renewables in the future.

The news hit several UK mid cap names including Cairn Energy (CNE) and Tullow Oil (TLW) as they are currently held by the Norwegian fund and now look likely to be divested.

But it also sends a message to their larger peers about the need to potentially transition from fossil fuels in the future or to go ‘Beyond Petroleum’ to quote the widely mocked publicity campaign from BP in the early noughties.

It is notable that the reasoning for exiting exploration and production is not necessarily environmental but to protect the fund from lower oil prices in the longer-term as use of fossil fuels declines.

DISCLAIMER: Government Pension Fund Norway holds a stake in AJ Bell which owns and publishes Shares. The author Tom Sieber owns shares in AJ Bell.

A greener future for BP and Shell?

Given their toxic reputation among environmental campaigners it may surprise you to learn that BP and Shell could be included in a list of the largest global investors in renewables in the eighties, nineties and the very beginning of this century. While these investments subsequently fell away, they have come back in recent years.

According to climate-focused researcher CDP and Bloomberg New Energy Finance, BP allocated 2.3% of its total capital expenditure to so-called ‘low-carbon’ investments between 2010 and the third quarter of 2018. While modest this compares with just 0.2% for ExxonMobil and 0.03% for ConocoPhillips. Shell recently outlined an ambition to double expenditure on green energy to $4bn a year from 2020 onwards.

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