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Foreword by Malcolm Webb Chief Executive of the UK Offshore Operators Association The UK offshore oil and gas industry is one of the country's major economic successes. Oil and gas produced from the continental shelf around the British Isles have fuelled this country's self-sufficiency in energy for 20 years, and have provided investment, jobs and tax revenues that confirm the sector as one of the most important in the UK economy. The industry currently contributes some £23 billion, or about 2.5 percent of the UK's Gross Domestic Product. It is the largest single investor in the industrial sector of the UK economy and demonstrates the highest productivity per employee in any sector. This is an achievement only made possible by the industry's huge investment in people, skills, technologies and infrastructure in order to meet the considerable technical, commercial and physical challenges presented by the often hostile environment offshore. In 2003, the industry produced 1.5 billion barrels of oil and gas from the UK Continental Shelf (UKCS). In 2004 the industry is expected to invest £4 billion to explore and develop future production, and will spend a further £4.6 billion in operating costs on existing installations which, in total, is the equivalent to £140 for every person in the UK. The industry directly employs 185,000 people across the UK, in exploration, production, operations, contractors and in the supply chain, and supports another 75,000 jobs across the UK economy, making 260,000 in total. It continues to be a major taxpayer with £4.5 billion of tax paid in 2003 alone, the equivalent of another £80 for every person in the UK. I am often asked when the UK`s oil and gas will run out. The answer is, emphatically, not yet — and by no means soon. Since we first started in the mid 1960s we have produced a total of 33 billion barrels of oil and gas. Production is now beginning to decline slowly, and is currently 12 percent below the peak years of 1999 and 2000, but our estimate is that there could be another 30 billion barrels of oil and gas still to be produced from the UKCS. We confidently expect this great UK success story to continue for several decades yet to come. However, finding and producing these further reserves will be more demanding. New finds are typically half the size they were ten years ago and they are in increasingly complex reservoirs, while existing fields are producing on average half of what they did a decade ago. In the same period, the total number of oil and/or gas fields in operation has doubled to over 250 located all round the UK. A vision for the industry, conceived in the late 1990s by the joint Government and Oil and Gas Industry Task Force, included a production target of 3 million barrels of oil and gas per day in 2010 and an annual investment level of £3 billion. Current projections show that while the investment target is likely to be exceeded, there could be a significant shortfall in the production target. We believe the incremental reserves (i.e. those not currently in companies' development plans) needed to close this gap are there to be discovered and produced. However the challenge is to find ways to improve their economic viability and hence commercial attractiveness so as to maximise economic recovery. This is something which will require strong support and participation from all parts of the industry and government. I am pleased to report that industry and government, particularly through PILOT, the successor body to the Task Force, have a strong and ongoing dialogue on all the issues involved. We continue to challenge, in an open and constructive manner, traditional or accepted practices in an effort to improve UKCS competitiveness and open up the North Sea to new activity. Easier access to acreage, to geological and seismic data and to the pipeline systems and infrastructure bringing the oil and gas ashore are all areas which have been and continue to be tackled by the industry, in partnership with the Department of Trade and Industry. Current work includes a fundamental revision of the Industry's Code of Practice on Access to Infrastructure, which is designed to provide fair and reasonable terms for third party access to pipeline transportation systems. Furthermore, a major new study is now underway, involving leaders from across the industry and government, to look for ways to improve and/or "unblock" the development of "brownfield" reserves near to existing facilities. If successful this initiative alone could close the shortfall on the PILOT production target mentioned above. The UKCS saw considerable commercial activity in 2003, with over 550 million barrels of reserves changing hands in a number of deals involving both existing players and new entrants. The increasing diversity of players in the North Sea is bringing a fresh perspective to this mature basin. New entrants are providing new skills and energy, investing in new production as well as developing new business models to give older fields a new lease of life. But the future success of the UKCS will not be measured purely in business terms. Alongside the 2010 production and investments targets is a vision for the UKCS to be the safest place in the world to work offshore. Although our safety performance is improving year on year and tremendous efforts are already being made, other areas of the world are also improving. We are therefore committed to make even greater efforts to achieve our goal. To mark its 30th anniversary last year, UKOOA launched a search to find its own North Sea "pearl", an oil and gas industry employee also celebrating their thirtieth birthday in 2003 who could present a unique vision of the industry in the next thirty years. This proved to be a very rewarding and invigorating exercise and to give a flavour of the professionalism and general excellence of the submissions we received, we are delighted to include the winning essay on the folder of this UKOOA 2004 Economic Report. I do hope you enjoy reading it and indeed the rest of the report and we would be most interested to hear any comments or suggestions for improvement. UKOOA itself has seen considerable change over the last 12 months. As the recently appointed Chief Executive of UKOOA, I head a new team of top industry professionals with a fresh mandate to represent the operating companies active in the UKCS and to assist them, in concert with all our colleagues in the rest of the industry and government, to secure the maximum economic recovery of Britain's remaining oil and gas resource. My colleagues and I are privileged and enthused by the extent and importance of the task with which we have been charged. We greatly look forward to working with all the stakeholders, both within the industry and outside, in the pursuit of the nationally important objective of helping to secure the continued health and vitality of the UK offshore oil and gas industry.