BAGHDAD (Reuters) - Royal Dutch Shell (RDSa.L) is in talks with Iraq to cut the production target for the Majnoon oilfield, oil ministry documents show, in a move that may prompt discussions with other companies and lead to a downsizing of the country's unrealistic output goals.
The documents, seen by Reuters, mention a reduction in the target at the super-giant Majnoon field to 1 million barrels per day from 1.8 million bpd.
Shell executives met oil ministry officials on March 15 and also proposed to extend the oilfield's plateau period - the time in which its peak production can be sustained and which is to begin in 2017 - to more than 20 years from seven years now.
Europe's largest oil company is also seeking to slash its overall development budget for the project, the documents said.
"Shell proposed to extend Majnoon's plateau time to more than 20 years from 7 years and to cut required total development costs by $10 billion (6 billion pounds)," the oil ministry document read.
The proposals were made during talks between Shell and the oil ministry to hammer out the firm's final development plan for the field. Shell is the first foreign firm to hold such talks, according to oil ministry officials.
The two sides are expected to meet again in the Lebanese capital Beirut in mid-May, Iraqi oil officials told Reuters.
Its discussions may prompt other oil majors to seek revisions to their existing deals with the ministry, reached when they were competing for projects in Iraq's two bidding rounds and made ambitious promises to win contracts.
Shell has spent around $1 billion since taking over the field in 2010, and planned to invest another $1 billion in 2012. Total spending over the life of the 20-year project was estimated to be around $50 billion.
Iraq's service contracts initially committed foreign firms to boosting capacity beyond 12 million bpd by 2017, but this target has proved unrealistic due to widely flagged infrastructure bottlenecks and logistical shortcomings.
It is expected to target 8-8.5 million bpd, but some oil analysts and executives see even 6 million bpd by 2017 as a stretch for the war-damaged country.
Royal Dutch Shell and its minority partner, Petronas of Malaysia PETR.UL, won a deal to develop Iraq's Majnoon oilfield in the country's second bidding round in December 2009.
The companies had proposed a per-barrel fee of $1.39 and a plateau production target of 1.8 million barrels per day.
The documents seen by Reuters say that the oil ministry is determined not to renegotiate the per-barrel fee.
"The oil ministry is not in agreement to change the remuneration fee of $1.39 for each barrel produced," one document read.
Officials with the state-run South Oil Co., the Iraqi partner in the deal, told Reuters they will agree with Shell's proposal to cut output because it will help to keep reserves pumping for longer.
"We agree with Shell to cut output, but not with changing remuneration fees as this would mean we would be signing a new deal and being fooled by Shell," an SOC official said.
Under the Majnoon contract Shell is supposed to submit its final field development plan to its Iraqi partner, SOC, according to officials of that company.
Its discussions, however, are with the oil ministry.
"The contract says (Shell) should discuss the final plan with SOC, but we can't find a reason why they bypassed us," the official said, in comments that may indicate there are still disagreements to be ironed out before a deal is struck.
A lower production target suits Baghdad, officials say, because it worries that adhering to the existing agreements would leave large volumes of unused capacity and deplete more than 50 percent of its proven reserves over the life of the 20-year agreements.
Cash is also a concern for the Iraqi government, which had estimated an investment of some $180 billion would be needed to finance its original countrywide production targets.
Iraq has signed multi-billion dollars deals with several international oil companies, including Shell, Exxon (XOM.N) and BP <Bp. l>, to develop fields in the south, where most of its crude is pumped.
Additional reporting by Peg Mackey in London; Editing by Barry Malone, Anthony Barker and David Cowell