CONFIDENCE is slowly returning to the North Sea but more layoffs are likely in the area unless the slump in activity triggered by the crude price slump starts to reverse soon, experts have warned.

Oil & Gas UK said a flurry of deals in the North Sea this year had shown some investors have faith in the area.

But three years after the crude price slump triggered a downturn which it now reckons has led to 160,000 job losses across the wider industry, the trade body warned more tough times lie ahead.

It said the latest analysis showed the decline in jobs between 2015 and 2016 was sharper than previously thought.

In its latest review of the North Sea, the organisation noted drilling activity remained at record lows while new field approvals had fallen to the lowest levels seen in decades.

Decommissioning was the only activity that oil and gas firms increased spending on in the North Sea last year, although production reached a six year high.

Oil & Gas UK said conditions would only improve if the companies that operate oil and gas fields loosened the purse strings after making deep cuts in spending in response to the oil price fall.

“Although we are getting to a much better place, we still need further investment to generate new activity and sustain hundreds of thousands of UK jobs,” said chief executive Deirdre Michie.

She added: “We are hopeful the tide is turning and expect employment levels to stabilise if activity picks up.”

However, the report underlined the challenges the North Sea faces in winning investment at a time when the outlook for the crude price remains uncertain.Increases in production in US shale areas have weighed on the market in recent months.

“Although the UK represents a more attractive destination for investors than it did two years ago, there is now less capital available to compete for,” it noted.

Ms Michie said Oil & Gas UK’s latest Economic Report demonstrated that cost cutting was helping the UK sector with efforts to reinvent itself amid difficult market conditions. But there may still be a long way to go.

North Sea companies have cut productions costs by around a half since 2014, more than any comparable area.

“Nevertheless, the basin remains the most expensive to operate in,” the report cautioned.

The implications for jobs and the wider supply chain are alarming.

Oil & Gas UK said: “Some companies are still reducing headcount, particularly as supply chain companies continue to cope with low activity levels and a lack of future projects.”

While the pace of job cutting has slowed, the report made clear the scale of the retrenchment since 2014.

Oil & Gas UK estimates the industry supports 302,200 jobs across the supply chain, down a third from 460,000 in 2014. The number of jobs supported by the industry fell by 13,200 over the last year.

It had estimated previously that workforce numbers had fallen to 330,400 by last summer but has revised that figure to 315,400.

The report notes the value of tax cuts made in response to the crude price fall. “When comparing the fiscal attractiveness of oil and gas producing nations, the UK has moved from being below average in 2012 to being within the top quartile,” it says.

Oil & Gas UK reckons the Treasury could get £1billion tax revenues from the North Sea annually for the rest of the decade thanks to firms’ efforts to increase efficiency.

But the government could help unlock around £40 billion worth of potential development opportunities in companies’ plans with the right support and must provide clarity about Brexit.

Reforms to the tax treatment of decommissioning costs could encourage firms to sell assets to others that may invest more in them. Almost $6 billion worth of deals were agreed in the UK oil and gas sector in the first half.