* Norway to exclude E&P firms from fund's benchmark index
* Fund investments follow FTSE Russell classification
* FTSE Russell has updated list to include ConocoPhillips
* Graphic: http://tmsnrt.rs/2tskfub(Releads, adds reaction, details)
By Gwladys Fouche
OSLO, June 13 (Reuters) - Norway's wealth fund will have todivest its holdings in ConocoPhillips and Hessafter both U.S. oil companies were added to a list whicheffectively excludes them from the Nordic country's portfolio.
As part of Norway's efforts to shift its $1 trillion "rainyday" fund away from oil, the country's parliament on Wednesdayadopted a plan to drop all dedicated oil and gas explorers andproducers, as defined by stock market indices provider FTSERussell, from the fund's benchmark index.
ConocoPhillips and Hess were both added to the list of thoseclassified as "exploration and production" this month, FTSERussell said, with the change coming into effect on June 24after a regular review.
Further changes to the list are possible in the next fewweeks as FTSE Russell is making alternations to its so-calledIndustry Classification Benchmark (ICB) framework, with thosechanges expected to take effect on July 1.
Norway's wealth fund data shows it held a stake inConocoPhillips of 1%, worth $714 million, at end-2018, as wellas $64 million worth of corporate bonds issued by the oil major,which was not immediately available for comment.
Selling out of this would mark the first divestment from oneof the world's oil majors by the fund, which can still invest inthose that have refineries and other downstream activities,so-called integrated companies such as Royal Dutch Shelland ExxonMobil.
Norway has said the decision is to reduce the exposure ofthe country's wealth to the risk of a permanent drop in oilprices, but environmental campaigners have seized on it asexample of an investor turning away from the oil industry.
"This is of course great news for Norway since this meansanother big egg out of the Norwegian oil basket, but other oilcompanies should see the writing on the wall: transform or die."Martin Norman, Sustainable Finance Campaigner at Greenpeace inNorway, said of the move by Norwegian lawmakers.
'WEAK FUTURE OUTLOOK'
Norway pools its revenues from oil and gas production intothe sovereign wealth fund, which declined to say on Thursdaywhat its stakes in ConocoPhillips and Hess were now worth orwhether it had already sold them.
"We don't comment on single companies," said a spokesman forthe fund, which has previously said any divestments would takeplace gradually and over time. The finance ministry said thefund's exclusions would track FTSE Russell's classification.
The fund's stake in Hess, which was not immediatelyavailable for comment, was 0.85% and worth $102 million at theend of 2018, when it also held $40 million of its bonds.
Wednesday’s decision by Norway, which also included atightening of rules regarding the way the fund can invest incoal, is the biggest single divestment from fossil fuels ever atan estimated $14 billion, environmental campaigners said.
The next big one is a planned commitment by insurer Axa todivest 3.5 billion euros from coal and oil sands by 2020.
"It makes sense that the Norwegian Oil Fund divests from oilmajors like ConocoPhillips, which have become increasinglyspeculative with a weak future outlook," Kathy Hipple, afinancial analyst at the Institute for Energy Economics andFinancial Analysis, said.
"The poor risk-return profile of the oil and gas sector nolonger fits the fund's objectives."
Norway's central bank, which manages the fund, called in2017 for the removal of all oil and gas stocks from itsbenchmark index to reduce its exposure to the risk of apermanent drop in oil prices.
This proposal, which would have affected some 6% of thefund's holdings, worth around $37 billion, was rejected by theNorwegian finance ministry which instead put forward the planadopted this week by lawmakers and affects just 1.2% of thefund's overall equity holdings.
ConocoPhillips continues to produce oil from Norway'sEkofisk field, which Phillips Petroleum discovered in 1969 andwas the first oil discovery made off the Norwegian coast,kickstarting what has become the Nordic country's top industry.
Hess sold its own Norwegian offshore assets to Aker BPin 2017.
(Editing by Alexander Smith)
