OIL and gas firms must increase investment in the North Sea urgently if the area is to remain internationally competitive EY has warned after research by the accountancy firm highlighted the pressure on the UK supply chain.

A study by EY found the total sales of UK oilfield services firms fell by 15.5 per cent to £30.2 billion in 2016 from £35.7bn in the preceding year as firms slashed investment in the North Sea amid the crude price plunge.

Revenues totalled £40.9 bn in 2014, during which the oil price tumbled as supplies exceeded demand.

EY expects figures for 2017 to show a fall.

Noting the effect of the partial recovery in the crude price since late 2016, the firm said the outlook for 2018 appeared more positive.

But EY’s head of oil and gas tax, Derek Leith, warned: “There were only two new field approvals in 2016, compared to ten in 2013 and more investment is needed urgently in order to maximise economic recovery and keep the United Kingdom Continental Shelf internationally competitive.”

Mr Leith said supply chain firms had to make an active commitment to a sustainable future for the oilfield services industry. Noting moves to increase efficiency, he added that cost cutting and headcount reduction could not continue indefinitely.

“A shift towards greater innovation in systems, processes and technologies could help drive operational costs down further while also enabling the sector to respond to an increase in activity which appears to be on the horizon,” added Mr Leith.