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Shell set to draw line under a century of Iraqi oil

Reuters  |  LONDON 

By Ron Bousso

(Reuters) - Royal Dutch is set to end a century of production in by withdrawing from two of the Arab state's flagship fields to focus on more profitable gas development.

Shell's retreat highlights the challenges foreign operators face with low-margin contracts in Iraq, an OPEC member that sits on some of the world's biggest reserves and wants to boost production after years of conflict hindered development.

The Anglo-Dutch firm said on Wednesday it had agreed with Iraq's ministry to relinquish operations at Majnoon field to the government after unfavourable changes to fiscal terms. The announcement confirmed an earlier report.

is also selling its 20 percent stake in West 1 field in the south of the country. The field is operated by Exxon Mobil.

Investment bank Lazard is running the sale for Shell, industry sources told The bank did not immediately respond to a request for comment.

said it was still committed to producing gas in Iraq, saying it would focus on developing and expanding the Basra Gas Company, which processes gas from the Rumaila, West and Zubair fields. It has a 44 percent stake in the joint venture.

produced almost 20 million barrels of from during 2016, which accounted for about 3.5 percent of the firm's total output last year, according to Shell's annual report.

Precise terms of the contract terms are not public and has not detailed its earnings from Iraqi

But a source told last year had found limited financial benefit in recent years from production in Iraq, where it is paid in crude but has limited say on strategy.

"The Minister of formally endorsed a recent proposal to pursue an amicable and mutually acceptable release of the interest in Majnoon, with the timeline to be agreed in due course," a company spokesman said.

took the decision after applied performance penalties on the Shell-operated venture "which had a significant impact on its commerciality," he said.

Battling a sharp fall in prices since 2014, asked foreign firms to cut spending on projects in order to reduce the cash-strapped government's contribution in shared ventures.

Foreign firms in have long urged Baghdad to revise production contract terms to encourage development of reserves that estimates at about 153 billion barrels, the fourth biggest in the Organization of Petroleum Exporting Countries.

"Maybe now they will speed things up," one executive from another company operating in said.

Shell, via its subsidiary Anglo Saxon Company, was among a consortium of European firms called Turkish Petroleum Company which acquired concessions in 1912 from the Ottoman Empire to explore for in today's was found 15 years later.

started developing Majnoon, which means "crazy" in Arabic, in 2010.

It holds a 45 percent stake in the field that it operates under a technical service contract that expires in 2030. Malaysia's national company Petronas holds a 30 percent stake, while Iraqi government holds 25 percent.

(Reporting by Ahmed Rasheed in Baghdad, Rania El Gamal in Dubai and Fanny Potkin in London; Editing by Jason Neely and Edmund Blair)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Wed, September 13 2017. 18:22 IST