Brent crude averaged $US38.04 in 2004, and the marker was $40.27 overnight having risen by 17c.

An unnamed operator told supply chain companies at the East of England Energy Group conference that the Southern North Sea had plenty of life left in it, despite overall declining production.

With this in mind, the operator said that the gas industry, which launched 51 years ago off the Norfolk Coast, faced an urgent need to reset the cost base which had inflated to ridiculous levels over the past several years.

“We need to unwind the inflation of the last seven years and get back to the costs of 2004/5,” he said.

“The oil and gas industry has seen inflation completely detached from the rest of UK industrial base.

“This has touched all parts of the chain from operator to supplier – it is a problem across the entire industry that we need to try to address.

“In the next 10, 15, 20 years there needs to be innovation, clever thinking and a lot of thought for recovery.”

He said that with well costs twice as high as would be predicted from the UK base inflation, investment could not be justified at current cost levels.

EEEG CEO Simon Gray said industry needs to get back to drilling wells at £3-7 million a pop, while Faroe Petroleum managing director Graham Stewart added that the government could also do more to help industry.

He said Norway's fiscal incentives for exploration introduced in 2005 put the UK in the shade.

“We stopped drilling wells in the UK in recent times because they are generally too expensive and prospects are too high risk,” Stewart said.

“Fiscal incentives for exploration in UK would be welcome and would likely lead to more wells being drilled here.

“The UK and Norway have been and still are expensive. However, Norway is, on a post-tax basis (assisted by fiscal measures), significantly less expensive in cash terms.

“Instead of perhaps £50 million to drill a well in Norway prior to the oil price crash, it will today cost around £17-18 million to drill the same well after the crash, and after tax relief provided in Norway, it would cost Faroe £2 million in cash terms.

“That same well in the UK, where there is tax incentive, and even with today's lower rig rates, would still cost us £17-18 million."

He said companies would invest in the UK if there were tax incentives.

This month UK Chancellor George Osborne cut the supplementary charge by half to 10% and scrapped the petroleum revenue tax of 35% to support the industry, but Stewart’s remarks suggest more needs to be done to entice exploration drilling.

Stewart said Faroe was drilling three wells in Norway this year – and making healthy profits at $35/bbl, but industry still needed to reduce costs and increase productivity.

He said industry would also do well to follow the example of Italian oiler Eni and Petrofac, which worked with Faroe on a joint logistics model sharing helicopters, that saved them all “serious money”

On the bright side, Gray said operators collaborating was a huge step forward, with 50-70% of platforms in the Southern North Sea operating at a loss.