NORTH Sea oil and gas industry leaders have warned drilling must increase urgently if the potential of the area is not to be wasted as they highlighted continued tough conditions facing firms.

Oil & Gas UK said the North Sea could enjoy another generation of productive life if firms rise to the challenge but noted output will slump in coming years unless more fields are developed.

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The body reckons oil and gas firms will have to invest £200 billion to achieve its Vision 2035 plan to maximise the recovery of the North Sea’s reserves.

It reckons investment on that scale could generate significant benefit for firms across the supply chain while also helping ensure the security of energy supply in the UK.

However, the latest Business Outlook report from the body underlines the scale of the challenge facing the UK North Sea as the area emerges from the deep downturn triggered by the crude price plunge from 2014.

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Oil & Gas UK said production in the UK North Sea is set to fall by at least five per cent a year through the first half of the 2020s based on current trends as mature fields run dry.

The key priority is for firms to step up the effort to find new fields and to ensure the many undeveloped discoveries in the area are brought into production, after slashing exploration and development spending amid the downturn.

While there have been signs that interest in exploration is growing, any increase would be from an unsustainably low level.

“Drilling activity – key to progressing resources to production – remains at a record-low rate,” lamented Oil & Gas UK.

The report notes that the partial recovery in the crude price since late 2016 has encouraged firms to increase activity in the North Sea.

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Thirteen field developments were approved in 2018; more than the preceding three years combined.

But the rise in activity in recent months has not been big enough to make much impact on the long-term challenge or to relieve the pressure on the North Sea supply chain.

Spending on new developments and on running existing facilities is expected to total up to £13bn this year, compared with £26.3bn in 2014.

Oil & Gas UK chief executive Deirdre Michie said the report showed the industry has been improving its performance and is well positioned to deliver attractive returns on investment.

She added: “Challenges remain across parts of the supply chain, with revenues and margins still under pressure and cash flow stretched. If capabilities and resources are to stay anchored here in the UK, there must be a competitive proposition for supply chain companies to invest in too.”

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The report’s author Ross Dornan said the renewed fall in the crude price since October has led oil and gas firms to increase their focus on costs and efficiency in the North Sea. It has also spooked investors, making it harder for the area to attract investment amid competition from other areas.

Mr Dornan said job numbers are not expected to return to the highs seen before the downturn but the industry will remain a significant employer.

Oil & Gas UK expects up to 15 exploration wells to be drilled this year compared to eight in 2018 and 14 in 2017.

It said wells drilled last year discovered up to 485 million barrels oil equivalent. Notable successes include the Glendronach gas find made by Total West of Shetland in September, which was the biggest since the Culzean discovery in 2008.