The Oil & Gas UK (OGUK) 2016 Activity Survey paints a sorry picture for the region.

The new survey reveals that while the industry’s drive to improve efficiency, reduce operating costs and increase production has had marked success, exploration remains at an all-time low with no sign of improving.

There are currently no exploration or appraisal wells ongoing on the U.K. Continental Shelf (UKCS).

OGUK said most concerning is the collapse of investment in new projects. This year the upstream industry is expected to approve less than £1 billion (US$1.3 billion) to spend on new projects, compared to a typical £8 billion (US$11 billion) per year in the last five years—sparking fears for the long-term future of the industry.

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.

OGUK said on the plus side, sectorwide action has pushed unit operating costs down by one-third from an average of $29.30/boe in 2014 to $20.95/boe in 2015, aided by a 10% rise in oil and gas production—the first in 15 years. Costs are expected to fall by a further 20% this year to about $17/boe, representing a 42% improvement in just two years.

However, pressures on the sector have grown as prices have continued to fall; the oil price has fallen by 70% since summer 2014 and the average daily gas price by 20% last year. Despite the rise in production to an average of 1.64 MMboe/d in 2015, revenues fell by 30% to £18.1 billion (US$25.1 billion).

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

Previously sanctioned capital investment that was being spent over a period of several years is tailing off. Looking ahead, with depressed production revenues leaving very little to re-invest, less than £1 billion of fresh capital in new projects is expected to be sanctioned this year, compared with an average of £8 billion per year over the last five years.

Total capex fell from £14.8 billion (US$ 20.5 billion) in 2014 to £11.6 billion (US$16.1 billion) last year and is expected to fall further this year to about £9 billion (US$12.5 billion).

The pace of decommissioning is accelerating. Over the last year, the number of fields expected to cease production between 2015 and 2020 has risen by one-fifth to more than 100. Reserves reported by companies for potential future development have fallen from 10 Bboe to 8.8 Bboe, as projects are deemed uncommercial in the current environment.

OGUK CEO Deirdre Michie called for tax cuts to help boost the sector.

Michie 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, a move which would be consistent with HM Treasury’s ‘Driving Investment’ plan for fiscal reform. This should be combined with additional measures to help unlock the late-life asset market and encourage exploration by permanently removing the special taxes from all discoveries made over the next five years. Finally, improving the effectiveness of the Investment Allowance would stimulate activity in the short term and attract fresh investment.”

Offshore