* Iraq must compensate firms for output curbs -documents,sources
* Baghdad has already told OPEC it will not cut production
* Says it needs every last dollar to fight Islamic State (Adds Exxon declines to comment)
By Ahmad Ghaddar and Ahmed Rasheed
LONDON/BAGHDAD, Nov 18 (Reuters) - Iraq would have tocompensate international oil companies for limits placed ontheir production, according to industry sources and documentsseen by Reuters, further reducing the prospect it will join anyOPEC deal to curb the group's output.
The compensation - stipulated in contracts - would compoundthe financial hit of losing much-needed revenue from crudesales, if the cash-strapped country were to yield to OPECentreaties to curtail national production.
OPEC member Iraq pays developers a fixed dollar-denominatedfee for every barrel of oil produced in the south of the country- home to its biggest reserves - under technical servicecontracts agreed between the international firms and thestate-owned South Oil Company (SOC).
"Immediately after (an) SOC notice of ... productioncurtailment, the parties shall agree ... a mechanism to promptlyfully compensate (the) contractor as soon as possible,"according to an excerpt of the contract the ministry signed withBP in 2009 for the company to develop the 20-billion-barrelRumaila field.
The compensation, according to the excerpt seen by Reuters,"may include, amongst other things, a revised field productionschedule or an extension to the term or payment of all or partlost income to contractor".
Britain's BP declined to comment.
The same clause also applies to other fields covered by thetechnical service contracts in the south, including fields beingdeveloped by Anglo-Dutch firm Shell, U.S. major ExxonMobil and Italy's Eni, according to industrysources.
A Shell spokeswoman said it did not comment on contracts.Exxon declined to comment and Eni did not immediately reply to arequest for comment.
A senior oil official with SOC told Reuters the countrywould not have to worry about curtailment clauses because it hadno plans to limit production.
"On the contrary, we're encouraging the foreign companies toraise production as much as they can," said the official, whodeclined to be named as they are not authorised to speakpublicly.
'EVERY DOLLAR NEEDED'
The Organization of the Petroleum Exporting Countries agreedin Algiers in late September to limit its collective output to32.5-33 million barrels per day (bpd). The group's productionhit a record 33.64 million bpd in October.
Iraq has asked to be exempted from output curbs, arguing itis still trying to regain market share lost when sanctions wereimposed in the 1990s during the Saddam Hussein era, and that itneeds to keep up a costly battle against Islamic State.
"OPEC must submit to the fact that Iraq must stay away fromany possible output cut deal because the country is in themiddle of a tough war and every single dollar is needed to keepit standing on its feet," a senior government official close toPrime Minister Haider al-Abadi told Reuters.
Iraq put its output at 4.77 million bpd in October and saidit would not go back to below 4.7 million bpd.
"Not for OPEC, not for anybody else," said Falah al-Amri,Iraq's OPEC governor and head of the country's state marketerSOMO.
There is, however, no certainty over how the discussionswill play out at an OPEC meeting on Nov. 30.
As a consequence, the Iraqi oil ministry and oil companieswill not be able to finalise their 2017 spending plans untilafter the meeting, to have enough clarity on what route Iraqwill take on its near-term production ambitions, an industrysource told Reuters.
Iraq has been making great efforts to ensure it pays itsdues to oil firms promptly and oil minister Jabar Ali al-Luaibihas made boosting production in the country a priority.
" is one of the countries in the region that doesn'thave large foreign reserves, so will want to continue tomaximise its revenue," said Jessica Brewer, Middle East upstreamoil analyst at UK-based consultancy Wood Mackenzie.
She added that while most Middle Eastern OPEC members hadall or most of their production operated by national oilcompanies, Iraq was one of the few that relied on internationaloil companies for the majority of its output. (Writing by Ahmad Ghaddar; editing by Pravin Char and JasonNeely)