THE North Sea oil and gas industry may generate its first cash surplus since 2013 this year as confidence slowly returns but life will remain tough for firms across the supply chain, industry leaders have predicted.

Oil & Gas UK has welcomed signs that conditions may be beginning to stabilise in the North Sea following the deep downturn triggered by the crude priced plunge that started in 2014.

The trade body reckons the pace of job cutting should slow markedly as companies have made the changes needed to get them in shape for a low oil price environment. These have included thousands of lay offs.

However, further reductions in the workforce are likely this year when Oil & Gas UK expects total North Sea spending to fall by three per cent, £0.5 billion, to £17bn.

The expected drop in investment partly reflects the fact some big projects are expected to complete leaving staff and services companies to find fresh work.

Oil & Gas UK warns that there is little prospect of new projects being commissioned in time to provide the work companies that help develop fields are crying out for after three years of retrenchment.

The organisation said with exploration activity remaining at record lows the North Sea urgently needs fresh investment to help ensure the UK’s remaining 20 billion barrels oil and gas resources are recovered .

It wants the Chancellor to provide incentives to encourage spending in tomorrow’s Budget.

“The challenges for the basin ahead, particularly for companies in the supply chain, are still considerable,” said chief executive Deirdre Michie.

However, she said confidence is slowly returning to the basin, with signs of sentiment improving among the exploration and production firms which control oil and gas fields.

Oil & Gas UK reckons E&P companies may collectively see a return to positive cash-flow for the first time since 2013, provided costs are kept under control and commodity prices hold. Spending exceeded income in each of the past three years.

The forecasts reflects the fact spending on new fields will fall as projects are completed and the effect of the deep cost cutting completed in recent years. Some firms have also seen their revenues increase.

Oil & Gas UK said total output should rise to up to 1.8 million barrels oil equivalent daily in 2018, from around 1.73mboed in 2016. It increased by five per cent last year.

Economics director Mike Tholen noted firms are receiving much more for their production than they did this time last year, following cuts in production agreed by Opec exporting nations in November.

Brent crude traded at $55.80 per barrel yesterday, compared with less than $30/bbl in the first quarter of last year.

“Companies across the sector have made good inroads into managing their costs and are talking about beginning to invest again both in existing fields and new assets,” said Mr Tholen.

Recent deals involving firms buying North Sea assets from majors signalled long term interest in the area.

A return to a cash surplus may not do much for tax revenues given the scale of losses many firms have built up and the reliefs provided in recent years.