Oil companies in the UK are being left behind by international competition, according to an industry annual report.
The North Sea sector is facing increased costs and competition
The UK Offshore Operators Association (UKOOA) claimed that record prices could not offset rises in costs for exploration and recovery.
It said uncertainty in the Middle East was making the situation worse.
The Department of Trade and Industry (DTI) said it was working with the industry to ensure the UK Continental Shelf remained competitive.
The UKOOA said without a change in government policy, a significant proportion of the country's reserves would remain undeveloped.
Chief Executive Malcolm Webb said without significant changes there could be dark times ahead for the North Sea sector.
"There's a huge escalation in cost at the moment," he said.
"Some rig rates have trebled and some of them have gone up six fold for the semi-submersibles over the last two years. So we're facing a serious cost challenge.
"There is also global competition for resources, both physical and human, and all of that is causing competition pressures for our industry."
In its report, UKOOA also called for a UK minister for energy so that energy policy could be "properly developed and promoted."
A DTI spokesman said: "Government is well aware of challenges such as increasing operating costs, which is a worldwide issue brought about by high activity levels, and the specific issues the UK oil and gas industry faces as the North Sea continues to mature."
He also claimed UKOOA's latest economic report reflected success from government initiatives, such as licensing system innovations and an industry code of practice to enhance the commercial environment.
"The forecast of increased employment across the industry in 2006 to 380,000 is a key indicator which suggests that, while challenges exist, the sector is seizing opportunities to realise the North Sea's full potential," he said.