Government spending on new oil and gas projects offshore Norway is seen falling in 2009 after costly efforts to stabilize ailing financial institutions, the head of the Nordic country’s “oil fund” said Thursday.

The chief manager of Norway’s oil-rich sovereign wealth fund — which owns 1.25 percent of all European equity — said the Norwegian government’s efforts to stimulate the economy by re-capitalizing ailing financial institutions means less money for the government’s engagement in oil and gas.

“When the government spending on new projects falls, there’s more overall for the fund — more out, less cash flow internally in the fund, that’s how it is,” said Ingve Syngstad, head of Norges Bank Investment Management, or NBIM.

The share of oil stocks in the Fund’s portfolio is benchmarked at just 10 percent, although chaos in financial markets has barely slowed plans to grow Norway’s global shareholding.

The question of curbed oil and gas investments due to skyrocketing costs, falling oil prices and credit fears has loomed large in Norway of late. Helge Lund, chief exec of state energy champion StatoilHydro, said this week that a “cost tsunami” threatened oil and gas projects, while the country’s Oil and Energy Minister told Scandoil.com recently he had not heard of project cancellations.

Shrinking oil revenues would mean less to invest in stocks, now 50 percent of the fund. His portfolio has grown its exposure to stocks by “from five to seven stocks per barrel” produced off Norway since 1978.

The fund, which tends to minimize its holdings in listed companies to six percent, takes a long-term approach to investing. Under new rules sought, it is understood the fund could soon have a mandate to own up to 15 percent in companies worldwide.

“The current market stress doesn’t really affect us,” said Syngstad, who manages four percent of the government’s oil revenue interest, or about 400-billion-kroner ($56.31 billion) in new earnings per month.

“Petroleum revenues are not revenues, but wealth,” is the pension fund’s philosophy, adding, “It’s more of an endowment than a spend fund.” Syngstad said the alternative to diversifying his portfolio in volatile stock markets was to “not take the oil out of the ground”.

The money he manages, called the “oil fund” by ordinary Norwegians, has stakes in 7,000 companies worldwide, and the list is set to grow. Nevertheless, the fund strikes from its books companies found to be employing child labour, producing weapons of lasting civilian destruction and otherwise destroying the environment beyond repair.

For “the transparent”: The fund is sitting on $20 billion earmarked for real estate investments outside of Norway in 2009, although much could yet be diverted under a fund’s flexible indexing regime.

“It was a challenge to be this fund’s manager in January 2007, and it will be a challenge to be a fund manager in January 2008,” Syngstad mused.

ws@scandoil.com