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INDUSTRY body Oil & Gas UK has blamed dwindling North Sea production on an unstable tax regime, as exploration fell to levels last seen in the 1960s.

In its annual activity survey, the group reported the amount of rigs exploring the North Sea had halved to only 15 last year, and that UK production had declined by a record 18%. The drop was roughly three times larger than it had been in previous years, despite oil prices climbing to a buoyant US$111/bbl.

Oil & Gas UK attributed much of the shortfall to “a large number of unplanned stoppages,” but CEO Malcolm Webb says that “instability” in the government’s tax plans is driving the decline.

“The UK competes in a global oil and gas industry – even for the largest companies, the UK represents 10% or less of global production,” he explains. “Appropriate measures on decommissioning and field allowances will reduce fiscal uncertainty, and help to ensure that UK investment is globally competitive.”

The group claimed to be “shocked” when Chancellor George Osborne announced plans to levy a windfall tax on producers, though this was later softened with tax breaks for marginal fields.

Despite the drop in both exploration and production, 2011 actually saw a £2.5b (US$4b) increase in overall capital investment, bringing it up to £8.5b. More than half of this was tied up in the BP-operated Clair Ridge project alone. Webb, however, claims that “it would be a mistake to take the current major project activity as a sign of long-term confidence across the industry,” as most of the investments were planned before last year’s tax hike was announced.

“Although headline investment has tripled over the last decade, the amount of oil and gas recovered per pound invested has fallen by two thirds over the same period,” Webb says. “This effectively leaves us fighting hard to stand still.”

The UK has reserves of roughly 24b boe, of which Oil & Gas UK estimates 10b is likely to be extracted under current conditions. The country is the world’s 19^th largest oil producer.