Summary (3/4)

The UKCS must remain globally competitive to attract new investment

• The North Sea is a technically challenging and costly environment in which to operate; discoveries are, in the main, small and expensive to develop
• In 2004, unit operating costs rose 13% compared to 2003
• In 2005 operating costs are expected to increase by £500 million above previous plans as expenditure increases to extend the life of ageing assets

Even after 40 years the UK has substantial remaining oil and gas reserves

• The UK has produced 34 billion boe but could still have another 28 billion boe to come
• Investments are not driven by short term oil and gas price movements
• This industry makes long term investments, new developments take 2-7 years to bring into production and will be producing for 10 – 25 years
• Future developments will be yet more technically and commercially challenging
• Current investment is halving the rate of production decline from the UKCS
• Extending the life of the infrastructure will be critical in facilitating new production

Activity is increasing on the UKCS

• In 2004, the 22nd licensing round,with a mix of Traditional, Promote and Frontier licences, awarded 97 licences to 57 companies, 15 of which were new entrants to the UKCS
• There was a doubling of project approvals in 2004 comprising 18 new developments and 9 incremental projects on existing fields
• Exploration activity rose significantly with 63 wells in 2004, from a low in 2002/3 and may exceed 70 wells in 2005
• Asset trading picked up, rising dramatically with 1.4 billion boe of reserves traded in 2004, dominated by commercial rather than merger activity
• Saw the launch of the new Infrastructure Code of Practice which will promote the swift development of new discoveries