THE cost of developing North Sea fields will fall by around 20 per cent in coming months but probably not by enough to encourage firms to go ahead with many projects, experts have indicated.

Wood Mackenzie said the cost of developing and running North Sea fields will fall steadily this year as oil and gas firms respond to the plunge in oil prices, by scaling back investment.

This will encourage suppliers of support services to cut the prices they charge in order to retain market share.

Edinburgh-based Wood Mack said the resulting fall in the price of services such as drilling rigs will provide a much-needed correction to the cost base of the industry.

The oil and gas consultancy noted that costs spiralled amid a five year long boom in investment in the North Sea, before the crude price fell sharply from June last year amid plentiful supplies of oil and gas.

"Even before the oil price crash, developing and operating fields while making a profit was challenging and we expected some cost deflation in the sector as activity cooled," said Malcolm Dickson, principal North Sea analyst for Wood Mackenzie.

"The drop in the oil price has accelerated the need for lower costs, as companies adjust to protect their cash flows, and changes are now required to correct the industry's cost base."

Mr Dickson said he expected the cost of developing UK projects that are nearing a final investment decision at the end of the assessment process could fall by up to 18 per cent.

Exploration and production firms running projects that are already under development may be locked into contracts that were agreed before prices fell.

However, Mr Dickson noted: "Many of the UK's new projects are technically challenging, and standardised solutions are not an option, meaning there are few contractors capable of supporting them."

He added: "The remaining pre-FID projects are smaller ... and are generally operated by independent E&P companies - so economies of scale within the supply chain are harder to achieve."

The trade body Oil & Gas UK has said the industry needs to boost efficiency by about 40 per cent within five years to put the North Sea back on a healthy footing.

On Tuesday its chief executive Deirdre Michie noted oil and gas firms had shed around 5,000 UK jobs in recent months and warned further cuts were likely.

Wood Mack cautioned that the outlook for costs beyond 2016 is less clear and will depend largely on what happens to the oil price.

It assumes the price of Brent crude will recover to $85 per barrel from 2018 onwards.

Brent crude is trading at around $65/bbl, compared with $115/bbl in June last year.

Mr Dickson added: "Assuming the oil price rises as we think it will, the lower cost base achieved over this year and next can only be sustained through fundamental changes in practice and increased collaboration between the operators and the service sector."