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Different horses for the oil sands course

Norway pulls funding from Canada’s heavy, sulphurous crude as Saudi Arabia expands its footprint

Recent decisions about investing in major Canadian oil sands companies by the sovereign wealth funds (SWFs) of Norway and Saudi Arabia, two important oil producers in their own right, have been a study in contrast.

In mid-May, Norway’s oil fund announced it had formally excluded investment in four Canadian oil companiesCanadian Natural Resources (CNRL), Cenovus Energy, Imperial Oil and Suncor Energyfrom its $1tn portfolio, the largest SWF in the world, on environmental grounds. Four days later, it was reported that Saudi Arabia’s $320bn Public Investment Fund (PIF) had built significant stakes in CNRL and Suncor during the recent oil market rout, apparently for more commercial reasons.

Norges Bank, Norway’s central bank and manager of the oil fund, says the decision to blacklist the four Canadian oil sands producers was for “acts or omissions that on an aggregate company level lead to unacceptable greenhouse gas (GHG) emissions”.

Although excessive emission of GHGs was added as a criterion for investment exclusion four years ago—joining the production of nuclear arms, land mines and tobacco—this is the first time the fund has applied the restriction.

PIF is the eighth-largest shareholder in CNRL and the fourteenth-largest in Suncor

Differing rationales

While Norway has been divesting its stakes in the four Canadian companies, Saudi Arabia’s PIF has amassed shares in CNRL and Suncor, giving it 2.6pc and 2.0pc stakes in the companies, respectively. PIF is now the eighth-largest shareholder in CNRL and the fourteenth-largest in Suncor.

The rationale for PIF’s purchases appears to be from the Warren Buffet manual—buying stocks when they are cheap because of their long-term potential to recover. At their mid-March nadir, CNRL’s share price was down by 77pc from its 52-week high and Suncor’s by 69pccompared with a 38pc decline for Canada’s benchmark S&P/TSX Composite Indexbefore rebounding significantly in recent weeks.

Both companies are judged to have strong management teams. And, at the same time, CNRL and Suncor are the most likely oil sands companies to survive—if not exactly prosper—in a post-pandemic world, given the low production costs of the former and the integrated model of the latter.

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