The Association of British Independent Exploration Companies (Brindex) says many of its members are thinking again on next year's spending due to the windfall tax.
Chairman Robin Allan said he's "not surprised" to see revisions as North Sea oil and gas producers can no longer "safely plan on fiscal stability".
He told Energy Voice: "The windfall taxes on our sector have already led many Brindex members to reconsider their 2023 spending plans.
"This reduced expenditure will negatively impact and damage all of us, but particularly damage the service sector in the UK."
The comments come after leading producer Harbour Energy said on Thursday it would shun the ongoing licensing round in the sector due to the controversial levy.
Meanwhile, oil major TotalEnergies has said it will cut £100million from its 2023 spending plan due to the tax grab.
Pressure mounts
Pressure continues to mount on the chancellor for a rethink on the severity of his tax plans.
Jeremy Hunt is hiking the energy profits levy (EPL) by another 10% to 35% - bringing the overall tax rate from January to an eye-watering 75%.
He has also extended the lifespan of the EPL until March 2028 from the previous date at the end of 2025.
The EPL is now expected to raise a total of £40billion - double the previous figure of £20billion. The total tax take from producers operators in British waters in the next six years will hit a staggering £80billion.
Tory MPs have already warned the chancellor that the windfall levy must be watered down to avoid industry collapse.
The politicians believe that unless a "sensible" price floor is agreed - where there would be a reduction in the level of the EPL if energy prices dipped substantially - producers will be "crippled" with higher taxes even when their profits fall.
'Manifestly unfair'
Mr Allan told Energy Voice that the 75% tax rate is "unlike any other industry in the UK", which he described as "manifestly unfair".
"I have made clear to the chancellor in writing and in person my dismay at the punitive tax regime that now exists in the UK - a tax regime which, if left unchanged, will be to the severe detriment of our country in terms of energy security, global emissions and industrial investment in the energy transition.
"I am not surprised that many companies in the UK are now reconsidering their investment plans - windfall taxes in any sector deter investment not just in that sector, but also across other sectors - investors across all of the UK can no longer predict that their own sector will be able to safely plan on fiscal stability."
Industry leaders had a meeting with Mr Hunt on the issue last week, and Mr Allan said he hopes what they are saying isn't being ignored.
Mr Allan added: "All of us hope that the chancellor will amend certain aspects of the tax to avoid the cliff edge of no further investment in the UK."