THE latest state of the North Sea Economic report from Oil & Gas UK contains lots for watchers of a key sector to be pleased about.

The industry body notes firms have started to generate billions of pounds of cash in the North Sea after three grim years following the increase in the crude price seen in the last 18 months.

Read more: North Sea oil and gas industry to generate £10bn surplus this year

This is starting to translate into an increase in investment, with six major projects worth £2.5 billion approved in the year to date.

Production remains on the upward path it has been on since 2014 with giant new fields off Shetland having a big impact.

As costs have been reduced significantly since 2014, the outlook for oil and gas firms’ profits and for tax revenues is better than for years.

But there are real grounds for concern.

Exploration levels remain at record lows reflecting continued risk aversion on the part of firms.

The Oil & Gas UK report notes the bulk of cash being generated in the North Sea comes from a relatively small number of companies, meaning giants.

Majors are focused on boosting payouts to shareholders and cutting debt leaving only the choicest North Sea exploration and development projects in the running for funding.

Many firms in the supply chain still face huge pressure following cost-cutting moves by operators in recent years.

Some small exploration firms are trying to punch above their weight and generating interest among bigger fish. However, it could be years before any finds they make create much work for services firms.