THE North Sea oil and gas sector is in the best shape it has been in for years with production and drilling increasing as a multi-billion dollar boom in deals helps stoke activity in the area, experts have said.

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The latest state of the North Sea report from Oil & Gas UK paints a picture of an industry which has returned to growth after the slump triggered by the crude price plunge.

The number of jobs supported by the industry is expected to increase by 9,000 to 269,000 in coming months after deep cuts in recent years.

Oil and Gas UK says the industry can play a key part in encouraging the move to a low carbon economy while helping power growth in the UK.

However, the industry body's Economic Report highlights the big challenges facing firms in a sector which it has said could suffer a £500m annual cost hit in the event of a no-deal Brexit.

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Sections of the supply chain remain under intense pressure as firms that operate oil and gas fields look to cut costs.

“This sector has seen a remarkable turnaround from one of the harshest declines in memory,” said Oil & Gas UK chief executive Deirdre Michie. “However, significant parts of the supply chain remain in a fragile condition.”

While investment in new fields has been rising, billions of barrels could be left undeveloped in the UK North Sea unless the pace of development increases.

Oil & Gas UK noted that production is set to fall from 2021 as the impact of the downturn triggered by the crude price plunge from 2014 continues to be felt. Not enough developments were approved in the lean years to replace the output that will be lost as older fields run dry in coming years.

Exploration activity has started to recover after falling to a record low in recent years but remains well below the levels seen a decade ago.

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In the report, Oil & Gas UK underlines the economic value of the industry while insisting it can be part of the solution to the climate change problem rather than being seen simply as a cause of it.

The partial recovery in the crude price since late 2016 has supported a big improvement in the performance of an industry which shed thousands of jobs during the downturn and became a drain on the Treasury.

“The UK sector is more competitive than it has been for many years,” notes the report.

“Production of domestic oil and gas directly accounts for around 1.2 per cent of the UK’s GDP and will continue to contribute billions of pounds of taxes in the future as well as securing hundreds of thousands of jobs,” it adds.

The report says the sector can supply secure energy for the UK while contributing to climate change goals by cutting its own emissions and helping to deal with those produced by other industries. It can also promote the development of low-carbon power sources.

Oil & Gas UK market intelligence manager Ross Dornan highlighted the potential to use oil and gas infrastructure for carbon, capture, usage and storage schemes while noting no big projects have been developed so far.

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Oil & Gas UK expects the industry on the United Kingdom Continental Shelf to reduce its carbon emissions to zero by 2050, net of those absorbed.

The report says the appeal of the North Sea has increased following the deep cost-cutting completed in the area in recent years. It notes that asset sales worth $5.5 billion have been completed this year reflecting the enthusiasm of some new investors for the area.

Three new field developments have been approved.

Some 18 exploration and appraisal wells have been drilled, more than in the whole of 2018. The number of development wells drilled is set to top 100 for the first time since 2015.

But the report warns: “Increased investment in resource progression activity … will be crucial to unlock the full potential of the UKCS.”

Production has been increasing since 2014 following the completion of developments approved during the boom that ended that year.

The report says production will revert to managed decline after 2020, noting: “This will primarily be caused by a reduction in the number of new field start-ups expected in the early 2020s – the result of the low levels of new investment approvals during the downturn.”

Regarding Brexit, Oil and Gas UK said a no-deal scenario was not in the interests of the industry or wider economy but appeared to be becoming more likely.

The organisation is facilitating initiatives with member companies to mitigate potential impacts on operations. These cover areas such as aviation, the movement of goods across borders and employment issues.

Mr Dornan said he was not aware of any firms shelving investment in North Sea projects due to concerns about the Brexit process.

Separately Wood Mackenzie said: "UK exploration activity is back. Having languished in 2018 to its lowest level since the 1960s, companies have stepped back into the breach this year."

The oil and gas consultancy noted the 250 million barrel Glengorm discovery made by international giants CNOOC, Total and Edison east of Aberdeen in January was the biggest conventional find made in UK waters in the last 10 years.

Sector watchers at Rystad Energy predicted that a new wave of UK field development projects will be approved by oil and gas firms towards 2022. They said the 38 projects concerned could involve total investment of around $23bn and provide a welcome boost to firms in the supply chain after several tough years.