UPDATE 1-Iraq wants foreign oil firms to cut development spending - minister

(Adds details on service agreements)

BAGHDAD, Jan 19 (Reuters) - Iraq wants foreign oil companiesto cut spending as the nation seeks to narrow a budget gapcaused by lower crude prices, oil minister Adel Abdul Mahdi saidin a statement on Tuesday.

"The ministry is discussing reducing financial spending byforeign companies," he told a meeting of the oil fields' jointmanagement committees in Baghdad.

Service agreements with foreign oil companies are puttingIraq's budget under strain as the government pays them a fixedfee for increasing production at ageing field when its ownrevenue is dropping with falling oil prices.

Iraq, OPEC's second-largest producer, generates 95 percentof its public budget from oil sales. It has service agreementswith companies including BP, Shell, Eni,Exxon Mobil and Lukoil, which get paid for theextra barrels of crude produced at fields awarded to themthrough a bidding process. (Reporting by Ahmed Rasheed; Writing by Maher Chmaytelli;Editing by Mark Potter and Susan Thomas)