NORTH Sea oil and gas production is set to increase this year for the first time since 1999, but experts have warned activity will fall unless costs are brought under control.

Oil & Gas UK said the industry would need to invest a trillion pounds to meet the ambitious target to recover another 20 billion barrels from the North Sea and warned the area could lose out to other regions that may offer better returns.

The industry body said while there may be as much as 24 billion barrels still to go for the United Kingdom Continental Shelf (UKCS), it is finding it increasingly difficult to compete for investment following a surge in costs.

The chief executive of Oil & Gas UK, Malcolm Webb, noted: "The magnitude of the task ahead means that over one trillion pounds of expenditure (in 2013 money) will be required if the recovery of above 20 billion barrels of oil equivalent is to be achieved. However, the UK has to compete for each and every pound of that investment. If the current trend of rising cost continues, the UKCS will cease to provide a healthy return on investment and we'll feel the brunt through falling levels of activity."

In the organisation's latest economic report, Mr Webb said every pound invested in the North Sea yields only about a fifth of the return achieved ten years ago.

Mr Webb also said there is an urgent need for substantially more exploration activity, noting only 15 wells were drilled in the North Sea in 2013. The report underlines the challenges facing the industry after the potential of the North Sea was hotly debated in the run up to the referendum on Scottish independence last month.

In August, Sir Ian Wood suggested there were only about 15 billion to 16.5 billion barrels of recoverable oil left. In February the oil services tycoon produced a report on the North Sea which called for much greater collaboration between oil and gas firms and government.

In September, the consultancy Wood Mackenzie estimated around 15.3 billion barrels of oil equivalent remain in the UK.

The consultancy said production is set to increase in the North Sea following years of heavy investment in areas like West of Shetland, but would fall again after 2018. This assumes gains from new fields are outweighed by the effect of production from older assets falling.

Oil & Gas UK's analysis shows much will depend on future trends in oil and gas prices.

If the Brent crude price stays around $100 per barrel firms could generate $2 trillion revenues from the sale of 20 billion barrels oil. That would be worth £1.23 trillion at current exchange rates.

Oil & Gas UK said government and industry needed to work together to address the challenges it identified.

Mr Webb said: "To support a lasting and sustainable future, today we're calling for greater collaboration - between governments, between government and industry and within industry itself to face and fight the challenges ahead.

"Full implementation of Sir Ian Wood's recommendations for regulatory reform, and far-sighted changes to the fiscal regime, are needed in the next 12 to 18 months... Alongside this, the industry must improve its efficiency and reduce its costs as a matter of utmost urgency."

Oil & Gas UK said North Sea production in the first half of 2014 has been encouraging. It noted that after several years of double digit decline, UK Government figures indicate a one per cent increase in production in 2014. The UKCS industry produced 524m barrels oil equivalent, 1.44 million boe daily, in 2013 following strong investment in recent years.

In September, Wood Mackenzie said production will dip below 1 million boed by 2023, less than a quarter of the 1999 peak.