Norway Oil Fund Excludes Kosmos, Cairn

Norway’s central bank said June 28 it has excluded US firm Kosmos Energy and UK-based Cairn Energy from the companies in which the Norwegian Oil Fund may invest in, for “serious violations of fundamental ethical norms” – namely their retention of exploration rights offshore Western Sahara.

The Oil Fund’s current valuation is over $825bn, making it the third largest sovereign wealth fund after the US and Japanese national pension trusts, so no companies want to be excluded from it.

The central bank (Norges Bank) said its executive board decision to exclude the two companies was made on the basis of a recommendation on February 8 by Norway’s Council of Ethics. The bank said it was satisfied that the exclusion criteria had been met.

Western Sahara, a Spanish colony until 1975, has been occupied by Morocco since 1979. The Council of Ethics says that, under the UN Charter and UN Convention on the Law of the Sea, use of natural resources in non-self-governing territories may be acceptable if it takes place in accordance with the wishes and interests of the local people. In this instance, it said even exploration by the two firms was unjustified, as it was not satisfied this was taking place in accordance with the wishes and interests of the local people. It noted that the two companies themselves had confirmed that they have not had a dialogue with Polisario, which the UN recognises as the representative of the people in the area.

Kosmos has a 55% operating interest in the Cap Boujdour deepwater exploration area, covering 7.3mn gross acres, granted to it in 2011 by the Moroccan petroleum licensing agency ONHYM. Partners are Cairn 20% and ONHYM 25%.

If Kosmos and Cairn were to divest their rights, there is a precedent whereby they could be readmitted to the Oil Fund. US firm Kerr McGee was excluded from the Oil Fund in 2005 because of its involvement in Western Sahara but divested its interests there and was later readmitted.

Cairn's website says that the CB-1 well drilled in Cap Boujdour was a non-commercial discovery that was plugged and abandoned in Q12015. It said it is in talks with ONHYM for a continued presence in the offshore Boujdour Maritime contract area. That may well be because of gas and oil discoveries made this year further south, offshore Mauritania, that have whetted interest in offshore northwest Africa – despite low oil and gas prices.

Flag of Western Sahara, since 1979 occupied by Morocco

Earlier this year, Norges Bank excluded UK-based San Leon for ethical reasons, and placed Brazilian state-owned Petrobras on its watch list for potential exclusion over corruption. Many companies with large interests in coal production or coal-fired generation were excluded this April, including US, Chinese and Indian firms but also Greece’s state-run generator PPC and UK generator Drax Power, because of climate change.

Mark Smedley | www.naturalgasafrica.com | www.naturalgaseurope.com