BILLIONS of barrels of North Sea oil will never be extracted unless urgent action is taken to boost drilling and exploration, industry experts have warned.

Oil and Gas UK, in its annual economic report, said that the sector could have a future for decades to come but that current levels of production, coupled with a huge plunge in investment in new projects following the oil price crash, is "unsustainable".

It was found that firms operating in the North Sea are in line to lost a combined £2.7 billion this year, hampering their ability to invest in new reserves. This year is expected to see 30 per cent fewer wells drilled than last year, with total expenditure in the UK Continental Shelf dropping to £19 billion this year, compared to almost £27 billion two years ago.

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The body repeated its gloomy forecast for the jobs market and tax revenues, with 120,000 jobs likely to be lost in two years due to the price crash, and while the North Sea was previously lucrative for the Treasury, the industry will cost the taxpayer £1 billion in 2016/17 as tax rebates outweigh revenues.

However, in more positive news, Oil and Gas UK said the industry had dealt with the adversity inflicted by the oil price crash, which saw a sector used to prices per barrel in excess of $100 plummet to an average of just $41 over the first eight months of the year, extremely well.

Increased efficiency saw unit operating costs, the price of extracting oil and gas before other factors such as development expenses are taken into account, fall by 45 per cent to $16 per barrel.

The improvement was hailed as "significant" and a "bid deal" by Oil and Gas UK chief executive Deirdre Michie, and is a sign the North Sea is well placed to capitalise should the oil price recover. The lower costs have also allowed some fields to continue production which would have been unviable.

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There was also a rise in production in the North Sea in the first half of 2016, around 5.7 per cent higher than in the same period last year, as a result of the improved efficiency and as rewards of significant investment in the years before the oil price crash are realised. Previously, production rose 10.4 per cent in 2015, its first increase in 15 years.

However, Ms Michie admitted that that the industry "cannot expect a viable future if we fail to build on past investments." She added: "You need to explore, you need to develop. If you don't do that, by the end of this decade, production will really start to drop off. We need to address this sooner rather than later.

"The lack of new development projects must be urgently addressed if we are to avoid a repeat of the sharp production decline that dominated the early part of this decade. While costs have fallen significantly and the fiscal regime has been improved, many potential investors are unable to access the finance they require to develop assets. As an industry we are producing at four times the rate we are discovering new reserves – this is unsustainable."

The impact of Brexit has also added to uncertainty for firms, Oil and Gas UK warned, while concerns were raised of a loss of influence in Brussels. However, the fall in the value of the pound against the dollar has offered some short-term respite to some producers.

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Ms Michie added: "Now it is time for the UK and Scottish governments to reinforce their efforts to promote the UKCS, nationally and internationally, as an attractive investment with world leading capability from front end exploration to late life operations."

Andrew Dunlop, the UK Government minister said the oil and gas industry faced "significant challenges" as illustrated by the report. He added: "The UK Government is committed to supporting our oil and gas sector, and the jobs which depend on it. That’s why in the last two years we have put in place tax breaks worth £2.3 billion, strengthening the North Sea’s appeal to international investors as a global centre of excellence."

Paul Wheelhouse, the SNP minister for business, innovation and energy, said the Scottish Government is doing all it could to support the industry. He added: "With up to 20 billion barrels of oil still remaining, this shows the potential for the sector to thrive for many decades to come.

"However, measures are urgently needed to give operators the confidence to continue investing in the North Sea, and the UK Government must consider what further fiscal and non-fiscal measures could be implemented to support the sector."