The $850bn Norwegian oil fund has drawn up contingency plans to protect its assets from extreme political events such as a military invasion or coup. This comes at a time when the stability of several international sovereign wealth funds is in question.

A spokesperson for Norges Bank Investment Management, which oversees the world’s largest sovereign wealth fund, told FTfm that the oil fund has “drawn up contingency plans for various scenarios that represent a threat to the fund’s holdings”.

He declined to comment on the details of the plans. It is understood the Norwegian oil fund is helping other state-run entities draw up protective policies to safeguard their assets in the event of extreme political upheaval.
Sovereign funds are moving to protect their assets following the outbreak of civil war in Libya that has raised questions over who is the rightful guardian of the country’s $66bn sovereign wealth fund.

The Libyan conflict, which began with an uprising against Muammer Gaddafi’s regime in 2011, has resulted in two rival groups, one in the Libyan capital of Tripoli and the other in Malta, claiming responsibility for running the Libyan Investment Authority.

A sovereign wealth fund expert, speaking on condition of anonymity, said: “There needs to be a contingency plan. All sovereign wealth funds are thinking about this.”

Angela Cummine, postdoctoral fellow in the department of politics at the University of Oxford, added: “Preparing for a coup or regime change and [potentially] losing capacity to manage the assets [of a sovereign wealth fund] is really important given what has gone on in Libya over the past five years.

“There is a strong case for offshore financial arrangements for sovereign wealth funds in unstable states. [These funds should] have a very good working relationship with financial capitals like New York, Switzerland and London and diversify their physical holdings.”

She added that smaller funds that have been set up in Africa recently are under intense political pressure.

Zimbabwe established a sovereign wealth fund in 2014, but the country is facing “huge liquidity challenges in the domestic market”, according to Ms Cummine.

“There are remote chances of cronyism and civil war,” she said. Mozambique and Tanzania, which are in the process of setting up sovereign funds, and Angola, which established its $5bn fund in 2012, also face significant political headwinds, she added.

Several sovereign funds, particularly those situated in less stable regions, have chosen to hold their physical gold assets outside their home countries in order to mitigate political risks, according to Michael Maduell, president of the Sovereign Wealth Fund Institute, a US-based consultancy.

“It is a really rare scenario, but if your government gets overthrown or there is a revolution, [the safety of the sovereign wealth fund] is a big concern. [The sovereign wealth fund can] become stuck,” he said. “Any gold held in vaults could be physically taken [by a hostile force] and assets can be appropriated.”

Adrian Orr, chief executive of the $20bn New Zealand sovereign wealth fund, said its financial assets are protected as they are held by a custodian, Northern Trust. But he agreed there are greater risks for the fund’s physical assets, “which is why diversification and various risk-mitigation strategies matter”.

Norway’s central bank, which is responsible for the country’s sovereign wealth fund, set up offices in London during the second world war when the country was occupied by German forces, according to Martin Skancke, who used to run the fund.

Mr Skancke, who now runs an asset management consultancy, said: “This made sure that the legal government of Norway in London had access to international financial markets. A lot of this has to do with making sure you have right of title to those assets to enable you to access [the fund], even if you have to leave your normal place of operation.

“Governments should have these plans in place. If there is a national emergency, the government should be able to access those assets.”

(ft)

BP Plc sold its Norwegian oil fields, some more than 40 years old, to a company controlled by billionaire Kjell Inge Roekkein a 10.8 billion kroner (US$1.3bil) stock deal.

The new business, called Aker BP ASA, will be the seventh- largest producer in Norway, with daily oil and natural gas output of about 122,000 barrels of oil equivalent, according to statements from the companies yesterday.

Aker ASA, the Norwegian billionaire’s holding company, will have 40% of the venture and BP will retain 30%.

The deal, which came after BP considered selling the whole of its Norwegian business, shows how the world’s largest oil companies are using new structures to adapt to lower oil prices.

Major producers are seeking to sharpen their portfolios, cut spending and reduce debt by offloading decades-old fields, but the biggest industry downturn in a decade means there are fewer buyers.

“This is a great example of how we need to continue to adapt in this new world and not be stuck in our traditional ways of doing business,” Bernard Looney (pic), BP’s chief executive officer for upstream, said on a conference call.

“The direct impact on BP will be less cost in the immediate term, less capital, reduced headcount and over time a growing production profile compared with what we have with our own assets.”

About half the new company’s production will come from BP and the rest from Roekke’s oil company Det Norske Oljeselskap ASA. The 30% of the venture not owned by Aker or BP will be held by Det Norske’s other shareholders.

Det Norske will issue 135.1 million shares at 80 kroner apiece for all of BP’s stocks, a tax loss carry forward and a net cash position, according to the statement.

Akerwill buy 33.8 million of these shares from BP at the same price to achieve the agreed on ownership structure.

Det Norske shares surged as much as 16%, the biggest gain in four years to a record high, and were up 7.1% at 90.85 kroner as of 10.42am in Oslo.

BP will receive US$140 million in cash following the deal, according to the statement. The company plans to sell US$3bil to US$5bil of assets this year.

“Whilst the deal is small from BP’s point of view, we’d view both the receipt of cash and the continued interest through a 30% stake in the new entity positively,” Exane BNP Paribas wrote in a note to clients.

Aker BP plans to increase oil and gas production to more than 250,000 barrels of oil equivalent a day by 2023, according to the statement.

The company holds a stake in the giant Johan Sverdrup field, Norway’s biggest discovery in decades.

The deal will become the second major acquisition for Det Norske after it bought Marathon Oil Corp’s Norwegian oil fields in 2014.

BP’s Valhall field in the Norwegian North Sea started production in 1982 and the Ula asset began four years later.

The British company started the Skarv field in the Norwegian Sea in 2013, which took the company’s output in Norway last year to 62,100 barrels a day. – (Bloomberg)