LONDON (Reuters) - British oil and gas output will fall by about five percent this year after a lull in exploration, but the number of North Sea projects is picking up now, slowing the decline, the UK's upstream industry body said yesterday.

Oil & Gas UK Economics Director Michael Tholen said Britain's North Sea oil and gas output would slip to around 2.35 million barrels of oil equivalent per day (boepd) from 2.48 million in 2009 and 2.64 million in 2008.

But investment was increasing, to between £12.6 billion ($19.4 billion) and £14 billion this year from £12.3 billion in 2009, with £5 billion going on capital expenditure.

And the number of offshore oil and gas projects under consideration for development in the North Sea had risen sharply over the last year, pointing to "substantial potential of this mature province".

"Production has fallen, but the opportunities out there have increased," Tholen told Reuters in an interview. "We have some very big stuff out there — a whole raft of new opportunities for development of billions of barrels more."

UK oil and gas output peaked in 1999 at around 4.5 million boepd and has since declined steadily as many of the big fields have given up their easy hydrocarbons.

But Oil & Gas UK believes that Britain is still sitting on as much as 25 billion barrels of oil equivalent and says the North Sea should still be producing around 1.5 million boepd by 2020 as long as it continues to attract adequate investment.

Despite rising costs, use of much more elaborate technology and ever deeper wells, most existing UK oil and gas fields still only cost $12-$15 per barrel of oil equivalent to operate, about double their operating costs a decade ago.

With global oil prices averaging between $75 and $80 per barrel, most potential North Sea fields are comfortably profitable and the British government has recently extended tax breaks to oil and gas companies to encourage new exploration.

"(Capital expenditure) investment this year is pretty likely to be more than £5 billion, a level not seen since 2007," Tholen said. "If that level can be sustained over the next decade, the North Sea has a long and productive life ahead."

The UK's proven reserves of oil and gas in existing projects or in projects soon to get under way have fallen to around 5.25 billion barrels, down from more than 6 billion a year ago, but the volume of probable or possible reserves had increased.

An Oil & Gas UK survey of business plans developed over the last six months of 2009 had identified up to 11 billion barrels of oil equivalent in new and existing projects, a 15 percent increase from 2008, and requiring capital expenditure of £60 billion pounds. More reserves were expected to be discovered.

"Opportunities for investment in the North Sea are increasing," said Tholen. "Proven reserves may be down to 5.25 billion barrels, but there is probably another 20 billion barrels sitting in the ground."