UK oil major BP has signed a preliminary agreement with state-owned North Oil Company (NOC) to increase production at the disputed Kirkuk oil field in the north of Iraq.

BP will increase production capacity to 580,000 barrels a day (b/d) from about 280,000 b/d currently, according to Hussein Allam, NOC’s undersecretary, AKnews agency reports.

“The initial agreement is part of a high-level plan carried out by the Oil Ministry through the NOC to develop the production of the northern fields through a partnership contract signed with BP,” says Allam.

While BP was unavailable comment, a spokesman said in February they were not aware of any proposals for the development of the field.

Kirkuk was one of six included in Iraq’s first oil field licensing round in June 2009. It received an offer from UK/Dutch Shell Group to increase production to at least 825,000 b/d for a fee of $7.89 a barrel, which was too high for the Oil Ministry who insisted on a fee of only $2 a barrel.

Production peaked in 2001 at around 900,000 b/d. With production at Kirkuk falling, the Oil Ministry says it has been assessing offers from a number of firms, including BP and US oil field services provider, Schlumberger.

However, Baghdad and the semi-autonomous Kurdistan Regional Government (KRG) are currently locked in a dispute over the ethnically diverse Kirkuk governorate, which is home to Arabs, Kurds and Turkmen.

The results of Iraq’s most recent parliamentary elections in March 2010 were inconclusive. Kurdish parties won only about 13,000 more votes than the combined total of Arab and Turkmen parties. The region holds 12 seats in parliament, split equally between the Kurdistan List party and the Al-Iraqiya party.

With an estimated 4 billion barrels of remaining reserves, neither party will be willing to give up their claim easily. The KRG has attempted to diffuse the importance of Kirkuk’s oil, noting that new discoveries in its territories and the development of the southern oil fields have made its oil less important to both parties.