THE outlook for investment in the North Sea is brighter than it has been for years and more than 50 per cent of firms expect to increase employee numbers according to a closely watched report.

The latest Business outlook report by Oil & Gas UK highlights a big improvement in conditions in the North Sea where recent crude price rises have boosted confidence.

The industry body said firms are also feeling the benefit of efforts to increase efficiency made amid the deep downturn that started in 2014, which have resulted in thousands of job losses.

“Our sector is leaner, more efficient and more optimistic than it has been in recent years and 2018 looks set to be a better year, “said chief executive Deirdre Michie.

She added: “More projects are taking place and investment is happening because of the sweeping changes made to adapt to the challenging business climate. This has helped make the United Kingdom Continental Shelf one of the most attractive mature basins in the world.”

Oil & Gas UK noted official estimates North Sea production taxes should generate an average £1 billion annually for the Government over the next five years.

The North Sea cost the Treasury £0.3bn in 2016-17, as many firms made losses on their output in the area following the slump in the oil price that started in June 2014.

The partial recovery in the crude price since late 2016 has left firms in a much stronger position than they were in the depths of the downturn.

Oil & Gas UK reckons North Sea firms generated £5.5bn cash in 2017, the highest figure since 2011.

However, the industry body said many areas of the supply chain are still struggling with the impact of the downturn and have yet to benefit from any upturn in activity.

It warned that billions of barrels could be at risk unless the slump in exploration activity in the North Sea seen in recent years is reversed. Drilling activity failed to pick up last year.

Production is set to fall again from the early 2020s following deep cuts in spending on new developments since 2014.

Coming weeks after Royal Dutch Shell announced plans to redevelop the giant Penguins field north of Scotland, the report provides further evidence oil and gas firms have rediscovered their appetite for investing in North Sea developments.

Oil & Gas UK said between 12 and 16 oil and gas developments could get the go-ahead this year – unlocking investment of around £5 billion.

This would be more than the total value of oil and gas field developments approved over the last three years combined, promising a boost for the hard-pressed supply chain.

Projects worth up to £25bn in total are at earlier stages in the assessment process.

Oil & Gas UK said: “The project landscape for 2018 is the healthiest the industry has seen since 2013.”

It reckons total spending may increase slightly this year as companies commit to new capital projects and return to deferred activities.

Total spending in the North Sea fell from £16.9bn in 2016 to £15.7bn last year. That was less than half the level recorded in 2013, amid the boom in investment which ended after growth in global supplies ran ahead of demand.

Oil and gas firms have cut the costs of production from $30 per barrel in 2014 to $15/bbl boosting profitability but putting pressure on the services sector.

Supply chain revenues are expected to be flat this year, after falling from £40.9bn in 2014 to £27.4bn in 2017.

The number of jobs supported by the industry fell by 15,000 last year to 300,000. A third of firms reduced headcount.

Oil & Gas UK said this year the outlook is far more positive with 56 per cent of firms expecting employee numbers to rise against 6% forecasting reductions.

However Total said yesterday it plans to shed around 250 jobs in Aberdeen following the acquisition of Maersk Oil.

There could be up to nine billion barrels yet to be found in the UK North Sea according to Oil & Gas UK. It thinks there is a major risk economic reserves will remain in the ground as capital is allocated elsewhere.

Production has increased by 16% since 2014, reversing a 14 year declining trend. The increase was driven by the start up of projects approved during the boom and by efforts to improve efficiency.

“The lack of new project approvals and the recent low level of development drilling … means it is likely that the UKCS will return to a position of production decline during the early 2020s,” said Oil & Gas UK.

Graham Hollis, senior partner for Deloitte in Aberdeen, said the increase in production forecast for 2018 and level of investment expected in the UKCS were encouraging.

He added: “Some fundamental challenges remain, particularly the need for new, successful, exploration and maximising the potential of existing fields.”