According to its 2016 Activity Survey, this year the upstream industry is expected to approve less than £1bn to spend on new projects, compared to a typical £8bn per year in the last five years, which Oil & Gas UK, the representative body for the offshore oil and gas industry,  says is sparking fears for its long-term future.

If the oil price remains at around $30 for the rest of 2016, nearly half (43%) of all UK Continental Shelf (UKCS) oil fields are likely to be operating at a loss, deterring further exploration and capital investment, and making additional cost improvement imperative, according to the report.

Total capital expenditure fell from £14.8bn in 2014 to £11.6bn last year and is expected to fall further this year to around £9bn.

 The trade body is calling on the government for urgent reforms of the special taxes paid by the industry to attract investment back into the basin and minimise loss of capacity during the downturn.

Deirdre Michie, Oil & Gas UK’s chief executive, said: ‘The industry currently pays special taxes at a headline rate of 50% (67.5% for fields paying Petroleum Revenue Tax).  A significant permanent reduction in those rates is now urgently needed.

‘The basin has to compete fiercely in the global market to attract price-constrained capital to the UK.  A coherent approach by the industry, regulator and government will be critical to boost the industry’s competitiveness and its investors’ confidence.’

Michie is calling for the government to take action to transform the UKCS into ‘a highly competitive, low tax, high activity province’.

Oil & Gas UK also wants to see the special taxes permanently removed from all discoveries made over the next five years, in a bid to help unlock the late-life asset market and encourage exploration. The trade body says improving the effectiveness of the Investment Allowance would stimulate activity in the short term and attract fresh investment.

Michie said: ‘The UKCS still holds up to 20bn barrel of oil equivalent (boe) which can continue to provide a secure supply of energy for the country, support hundreds of thousands of jobs, generate several billion pounds in corporate and payroll taxes from the supply chain and stimulate countless technological innovations.’

A  Scottish government spokesman said: ‘The Scottish government will continue to do all that we can to support the sector. It is clear, however, that the UK government must take urgent action to substantially reduce the headline rate of tax at the March Budget and incentivise exploration. The fiscal regime must not be a barrier to investment and activity in the North Sea.’

At the beginning of the year David Cameron announced a £20m funding package specifically to help the North Sea oil and gas sector, to be used for further exploration, innovation, and skills development. This followed news that the UK and Scottish governments had agreed a £250m ‘City Deal’ for Aberdeen, with   the Scottish government promising £254m for key infrastructure projects in the area.