OIL and gas companies will slash exploration budgets by 30 per cent in 2015 in response to the oil price fall but activity could increase next year as work gets cheaper, experts have predicted.

Wood Mackenzie says while exploration budgets are likely to be a prime target for cost-cutting in the oil and gas sector a fall in the price of services will allow firms to do more for less in future.

The oil and gas consultancy's prediction will be studied with interest in the UK, following a big fall in exploration activity in the North Sea in recent years.

With much of the area's remaining oil and gas though to be held in relatively small fields, companies may be reluctant to bear the costs of exploring in the UK North Sea. Norway provides generous tax breaks for exploration.

The fall in exploration costs could have most impact on the economics of projects in deep water areas.

Edinburgh-based Wood Mackenzie reckons cuts in exploration budgets will average 30 per cent in 2015 but the cost of exploration work will have fallen by 33 per cent by 2016.

It said this raises the prospect that some companies will be able to increase activity levels by 50 per cent in 2016 compared with 2014 without spending more.

Dr Andrew Latham, VP Exploration Research for Wood Mackenzie, said: "Even those with cuts of around the average 30 per cent may see their 2016 activity bounce back to 2014 levels."

Wood Mackenzie said drilling and seismic surveying contractors had some of the strongest service sector profit margins prior to the recent fall in the price of crude. This could allow them to cut prices while remaining profitable.