Oil Exploration Drops To Lowest Level For 64 Years

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Written By Mohsen Salami

Oil and gas contractors kicking their heels waiting for the market to pick up may have more time on their hands.

Spending on new oil and gas projects has slumped to $450 billion – down from $780 billion just two years ago and the lowest investment level in 64 years.

International industry watchdog the International Energy Agency argues no revival of the market is in sight.

The agency’s first annual state of the energy industry report World Energy Investment 2016 explains the market is realigning towards low-carbon energy, but governments and business need to plough more cash into clean technology to meet climate warming targets.

“We see a broad shift of spending toward cleaner energy, often as a result of government policies,” said IEA executive director Fatih Birol.

Job cuts

“Our report clearly shows that such government measures can work, and are key to a successful energy transition. But while some progress has been achieved, investors need clarity and certainty from policy makers. Governments must not only maintain but heighten their commitment to achieve energy security and climate goals.”

The report confirms fossil fuels still dominate the energy market, but although oil maintained market share, investment dropped.

Gas has seen a slowdown in demand and investment as the call for electricity was sluggish and gas-fired generation plants went offline.

The industry has seen thousands of job cuts in recent months as a huge oil surplus is stockpiled and the agency report does not bode well for contractors hoping the market will pick up.

Another worry is the closure or merger of exploration companies as employers look to cut costs or struggle to keep a business open.

Pension problems

One of the hidden financial problems of the industry shake up is what happens to workplace pensions. British firms can go into ‘protection’ under the Pension Protection Fund.

This is estimated to cost average retirement savers around £45,000 in lost pension benefits.

An option for expat oil and gas contractors is to transfer their workplace scheme into a Qualifying Recognised Overseas Pension Scheme (QROPS).

QROPS offer tax and investment advantages while taking retirement savings away from the risk of protection.

These advantages include enhanced tax-free lump sums of up to 30% compared with 25% offered by an onshore scheme.