* CEO replaced by U.S.-educated engineer
* Algeria increasing oil, gas production
* Sonatrach seeks more flexibility with deals (Adds analyst and source comments)
By Lamine Chikhi
ALGIERS, March 20 (Reuters) - Algerian state energy firm Sonatrach has replaced Chief Executive Amine Mazouzi after less than two years in the job with Abdelmoumen Ould Kadour, the energy ministry said on Monday.
The surprise decision comes at a sensitive time for Sonatrach and Algeria, which began to increase oil and gas production last year after a prolonged period of stagnation and a lack of major foreign investment.
A statement from the ministry gave no reason for the change. Ould Kadour is an engineer who graduated from the Massachusetts Institute of Technology and headed U.S.-Algerian firm Brown & Root Condor in the 1990s.
Energy Minister Noureddine Boutarfa called in a statement on Ould Kadour to "act with full responsibility and confidence to put in place the qualitative changes that allow Sonatrach to evolve and prosper in a calm business climate".
A source close to the new CEO said Sonatrach's priorities would be reducing production costs and resolving pending arbitration cases in an amicable way to gain the confidence of foreign partners.
Total said last year it had filed a request for arbitration against Algeria for changing profit-sharing terms on oil and gas contracts in the mid-2000s, and that attempts to reach a mutual agreement had failed.
Before Mazouzi's appointment in May 2015, the energy giant went through turbulent times with five CEOs in five years, shaken by a corruption scandal, weak foreign oil interest in energy bids and pressure from the drop on crude prices.
On Saturday, Mazouzi hosted the CEO of Eni at a southern oilfield where the two discussed the Italian company's commitment to Algerian investment.
"On one hand it is frustrating because the changes are just another disruption after a series of disruptions over the last seven years. We need some continuity," said Geoff Porter at North Africa Risk Consulting.
"On the other hand we are still looking for that perfect combination of ministry of energy and Sonatrach leadership that will be able to respond to the lower-for-longer price environment," he said.
Algeria remains dependent on oil and gas earnings which provide 60 percent of the state budget and Sonatrach's performance is key to the health of the economy.
The North African OPEC member nation had struggled to attract oil investment because of tough terms that made foreign firms wary, but in 2016 Sonatrach began to take a more flexible approach to bilateral talks with foreign partners.
But there have been divergent views within Algeria's ruling elite over how hard to push for foreign investment and domestic economic reform to boost revenues and spur growth.
The sharp fall in oil prices hit Algeria hard, prompting the government to look at more flexible ways to improve revenues. Algeria's energy revenues were $27.5 billion in 2016, less than half the $60 billion it earned in 2014. (Writing by Aidan Lewis and Patrick Markey; editing by David Clarke)