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Royal Dutch Shell Plc. com: A safer Iraq needed for U.S. investment, analysts say

From The Associated Press

“Iraq certainly is a country with incredible resources”

Iraq’s instability has kept foreign oil companies from investing in reconstruction, compounding what officials see as a litany of woes confronting the country’s once-dominant oil sector–from corruption to poorly maintained fields.

While the world’s thirst for oil grows, untapped Iraqi reserves and current production that still has not reached prewar levels remain a problem with no imminent solution.

Only when Iraq’s newly formed government guarantees a safer environment will the billions of dollars needed begin to flow, analysts and officials say.

”It’s too soon to make a judgment on how close we are. … I suspect we could be a few years away,” Shell Oil Co. President John Hofmeister recently told The Associated Press.

Hofmeister and peers from other oil and gas companies will address the issue and others Tuesday during the second day of a three-day conference featuring U.S. and Arab government and business leaders.

On Monday during the U.S.-Arab Economic Forum in downtown Houston, ConocoPhillips Chairman and Chief Executive James Mulva said it is too soon to tell when Iraq will be ready for a complete commitment.

”Iraq certainly is a country with incredible resources,” he said. ”We’ve said all along we’re very interested in ultimately going into Iraq.” The situation with Iraq’s energy sector is among the most dire in the Middle East, analysts say.

From April 2003 to October 2005, there were more than 280 attacks on Iraq’s energy infrastructure, according to the Energy Information Administration, a division of the Energy Department.

There have not been enough improvements since, warns an April report by the Special Inspector General for Iraq Reconstruction, which was critical of task force protection efforts.

Jim Placke, senior associate for Cambridge Energy Research Associates, said more progress is essential.

”Until that situation becomes much-improved from where it is today, you won’t see any activity,” he said. ”It’s important to seriously act on these things. The world continues to use an increasingly higher amount of oil; therefore those reserves become more valuable.” Estimates of Iraq’s oil reserves vary greatly.

The EIA says it could be 115 billion barrels, third behind Saudi Arabia (261.9) and Canada (178.8), but does not reject estimates ranging from a third to nearly twice that figure.

Production was down nearly 400,000 barrels a day from prewar levels of 2.58 million, according to the special inspector general’s April report.

As a result exports sat around 1.4 million barrels a day by the end of March, the report said. The U.S. government estimates that Iraq lost about $90 million a month in potential revenue because of lower exports the last three months of 2005.

Problems, however, run deeper than attacks on Iraq’s energy infrastructure, according to several reports and industry executives.

Corruption that includes profit skimming in Iraq’s oil and gas industry could have implications beyond the energy sector, the special inspector general’s report.

Placke said international sanctions in the 1990s combined with Saddam Hussein’s mismanagement of the country’s energy assets put Iraq in a deep hole. Decades of neglect and poor maintenance of the oil fields and some of the nation’s largest refineries have only added to the reconstruction troubles.

”You’ve got this period of 25 years where Iraq was not able to function normally, and that is largely of Saddam’s own doing,” Placke said. ”It inhibited development of the industry.” In February an Iraqi delegation visited the United States trying to convince U.S. companies that now is the time to begin investing.

Delegates said they need at least $20 billion (euro15.9 billion), but added that number couldmore than double as the conflict with insurgents persists.

The United States has budgeted $1.74 billion (euro1.39 billion) to Iraq’s oil and gas production out of the $18.44 billion (euro14.68 billion) earmarked for relief and reconstruction.

For now, dozens of companies are offering preliminary services–consulting work and reservoir studies–often for free, the EIA’s report said.

The long-term payoff is a relationship that could help these companies land major production through joint oil and gas projects.

Hofmeister said Iraq also needs a government that prohibits arbitrary government rulings and abuse, and open markets to make investments meaningful.

”Having said that, we are doing consulting work with the Iraq Ministry of Oil. We are educating Iraqi scholars,” he said. ”We are interested and they are interested, but we need those conditions in place to take it to the next level.”

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