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By Ahmad Ghaddar and Dmitry Zhdannikov LONDON, March 14 (Reuters) - Iraq, OPEC's second-largestproducer of crude, is hitting a roadblock in the next phase ofexpanding its oil production capacity as the appetite ofinternational energy firms for investing in the country'slow-return environment slackens. Having slashed production targets in 2013 and 2014, mostinternational oil firms in Iraq are revising their oilfields'plateau production levels even lower, and the discussionsinvolved are moving slowly, Iraqi and company sources say. Growth has been the hallmark of Iraq's oil production in thepast decade with a rise of over 2.5 million barrels per day to apeak of 4.71 million bpd in late 2016, Reuters assessments show.<PRODN-IQ> Iraq owes much of that growth to the likes of BP,Exxon Mobil, Lukoil, Eni, Total andRoyal Dutch Shell, which oversaw the redevelopment ofits oilfields after the U.S.-led invasion in 2003. But those companies have long complained that the technicalservice contracts Baghdad offers are too stringent and givelittle return on investment. Most companies in the past five years negotiated theirproduction plateaus lower, forcing Iraq to reduce its capacityexpansion plan from 12 million bpd to 9 million bpd by 2018. Now this new target is far from attainable, and Iraq aims toraise capacity to 7 million bpd by 2022. All companies except Petronas and Total are suggesting theirplateaus be lowered, Abdul Mahdi al-Ameedi, head of the Iraqioil ministry's licensing and contracts office, told Reuters. On the sidelines of a conference in Berlin last month,al-Ameedi told reporters: "In principle we accept that we reducethe plateau level for certain fields to lower production rates,but this is all under discussion." Total, with partner PetroChina, has committed to phase threeof the expansion of the 4.1-billion-barrels Halfaya oilfield,which will double production there to 400,000 bpd in 2019. Petronas is on track to attain production of 230,000 bpd atits Garraf oilfield. "What you're seeing now is a second wave of renegotiationsin light of the oil price and the fact that budgets are downconsiderably compared to five years ago," Ian Thom, principalanalyst at consultancy Wood Mackenzie, said. "There are alternatives in tight oil and deepwater from manyof the Iraq players that are more favourable," Thom said. Only Lukoil has so far reached a preliminary agreement withthe oil ministry on a lower plateau target, bringing the goalfor its West Qurna 2 oilfield down to 800,000 bpd from 1.2million bpd, al-Ameedi said. But the two sides have not yet finalised talks asdiscussions continue on when Lukoil can hit the new target, hesaid. "We are in discussions but nothing has been approved yet,"al-Ameedi said. Iraq wants the plateau to be hit earlier than Lukoil does,al-Ameedi said, but he declined to specify which timeframes werebeing discussed. Lukoil declined to comment. Delays in such negotiations are a headache for any oilcompany that needs to plan its annual budget based on how manyoilfields it wants to drill and what new facilities it needs tobring extra production on stream. The impact of negotiation delays is being feltdisproportionately, with companies that have production levelsfarthest from the previously agreed plateau feeling the mostheat, a source at one of those firms told Reuters. LIMITED GROWTH ON ITS WAY Iraq's oil capacity is near 5 million bpd and it can easilyincrease that by a further 10 percent in the next year or two,even without a new agreement on plateaus, analysts and industrysources say. "If you bring the few fields where there is activity underway ... and if the Kirkuk and Bai Hassan fields return ... youcould see production capacity from existing investments gettingclose to 5.5 million bpd in the next year or two," Thom said. But beyond those investments at oilfields such as Rumaila,West Qurna 1, Halfaya and Zubair, "you would certainly expect aflat-lining of Iraq's oil production with the element of naturaldecline kicking in", Thom said. Oilfield Companies Plateau New plateau (million bpd) Rumaila BP, CNPC 2.1 (from 2.85) Majnoon Shell*, Never Petronas agreed new plateau (from 1.8) West Qurna 1 ExxonMobil, 1.6 (from PetroChina, 2.825) Pertamina Itochu** West Qurna 2 Lukoil 1.2 (from 0.8*** 1.8) Zubair Eni, KOGAS 0.85 (from 1.2) Halfaya CNPC, 0.4 (from 0.4 Total, 0.535) Petronas Maysan Oil CNOOC, TPAO 0.45 Garraf Petronas, 0.23 0.23 Japex * Shell exiting project and will hand its share https://www.reuters.com/article/us-iraq-oil-shell/shell-to-hand-over-iraqs-majnoon-oilfield-by-end-june-2018-iraqi-oil-officials-idUSKBN1D817D to Basra Oil Co by end of June** Shell selling 20 percent stake https://www.reuters.com/article/us-iraq-energy-shell/shell-agrees-to-sell-its-stake-in-iraqs-west-qurna-1-oilfield-to-japans-itochu-idUSKBN1F41TO to Itochu*** Deal on plateau reduction not finalised yet (Additional reporting by Olesya Astakhova in Moscow; Editing byDale Hudson)