NORTH Sea oil and gas firms will increase spending on running their operations by two per cent in real terms next year as new fields came onstream, a study by the regulator has found.

However, the Oil and Gas Authority warned that spending is likely to fall by around 3% annually from 2021 as older fields reach the ends of their economic lives.

The findings of the study provide further evidence that the North Sea oil and gas industry is recovering from the deep downturn triggered by the crude price plunge that started in 2014.

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Oil and gas firms slashed discretionary spending in response.

The partial recovery in the crude price since late 2016 may have prompted some to loosen the purse strings.

The OGA found spending on operations increased by 6% annually, to £7.2bn, last year.

The increase also reflected the fact some firms started production from giant developments that had been approved before the crude price plunged.

In October BP started production from the giant Clair Ridge field West of Shetland. The $4.5bn project was approved in 2011.

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The OGA noted the rise in the crude price since 2016 does not appear to have been accompanied by inflationary pressure in the supply chain.

Oil and gas firms worked hard to reduce the cost of producing a barrel of output amid the downturn.

The OGA noted unit operating costs remained stable last year, with a marginal 2% rise to £11.6 per barrel of oil equivalent.

“Efficiency measures, put in place by operators during the last global oil price downturn, appear to have been sustained,” said Hedvig Ljungerud, OGA Director of Strategy, adding: “It’s vitally important that industry does not revert back to the inefficiencies or cost inflation we saw pre-downturn.”