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UKCS Outlook Investment and Expenditure Outlook The industry continues to maintain investment in the North Sea, demonstrating its commitment to the future of the basin. In 2003 the industry invested a total of £4 billion. In 2003, £3.6 billion was invested in capital expenditure to develop new fields and in incremental investments on existing fields. An additional £400 million was invested in exploration and appraisal activities. Capital expenditure and exploration are together forecast to be over £4 billion in 2004. Figure 4 shows the capital expenditure projection over the decade. Based on current plans the industry intends to invest over £18 billion during the period 2003-2010. This is 16% (£2.6 billion 2003 money) higher than last year's forecast and highlights the industry's commitment to the UKCS. Figure 4: UKCS Capital Expenditure Overview - 2003 — 2010 Much of the future production relies on the industry's ability to mature marginally economic "possible" and "probable" projects. This remains a challenge even in the current climate and any substantial downturn in oil price would reduce the likelihood of investment in these marginal opportunities. Operating costs remain fairly constant over the short term and are projected to be above £4 billion per annum through to 2006. As production declines, the costs per barrel will inevitably increase. This is demonstrated in 2004 where unit operating costs are predicted to rise by over 10%. Without new developments, unit operating costs could rise by 60% by 2010, underlining the need for continued investment to sustain production. Figure 5 shows the unit operating cost trend over the remainder of the decade. Figure 5: UKCS Unit Operating Cost Trends 2003 — 2010