(In March 8 story, corrects identity of operator of attacked fields to North Oil Co)
By Ahmed Rasheed
SULAIMANIYA, Iraq, March 8 (Reuters) - The Kurdish group that controls Iraq's Kirkuk oilfields has agreed with Baghdad to keep crude flowing from the region through a pipeline to a Turkish export terminal on the Mediterranean, a Kurdish official told Reuters on Wednesday.
Kosrat Rasul said the deal was reached on Tuesday between his group, the Patriotic Union of Kurdistan (PUK), and Iraqi Prime Minister Haider al-Abadi.
The pipeline carries 150,000 barrels per day (bpd) of Kirkuk crude for export to world markets via Ceyhan, in Turkey.
The PUK withdrew its threat to shut the pipeline after the Iraqi government decided to increase further the capacity of the Kirkuk oil refinery, a Kurdish source close to the talks said.
The oil ministry in Baghdad announced on Wednesday that an additional processing unit of 10,000 bpd had begun operating, boosting the plant's capacity to 40,000 bpd.
Another unit, also with a capacity of 10,000 bpd, should come on stream before the year-end, said a ministry statement, citing a message from oil minister Jabar al-Luaibi to Abadi.
The source said the additional output would improve fuel distribution in the PUK-held regions of Kirkuk and Sulaimaniya and create jobs for locals.
"The agreement ended the problem and there is no deadline anymore" to shut the pipeline, said Rasul, who is the PUK deputy secretary-general, giving no further details.
PUK forces last week seized the Kirkuk pumping facilities, operated by Iraq's state-run North Oil Co (NOC), briefly suspending oil flows and threatening further action if their demand to have a share in the revenue were not fulfilled.
Some of the reservoirs supplying the pipeline in Kirkuk are operated by NOC. The Kurdistan Regional Government (KRG) exports oil from other reservoirs in Kirkuk, using the same pipeline.
A deal to split the export revenue of the NOC-operated fields was agreed last year with the Erbil-based KRG, led by President Massoud Barzani.
The agreement was replaced this year by one in which Baghdad's share would be processed by an Erbil-based refiner to help the reconstruction of the nearby region of Mosul when taken back from Islamic State militants.
The PUK, a historic rival of Barzani's Kurdistan Democratic Party, had objected to the new deal, demanding that refineries under its control be used instead.
Kurdish peshmerga forces took control of the Kirkuk area after Islamic State overran around a third of Iraq and Baghdad's local forces disintegrated.
Prior to the signing of the Baghdad-KRG deal last year, local Kirkuk authorities and some executives from Iraqi state oil marketing firm SOMO were suggesting exporting oil from Kirkuk via Iran. (Reporting by Ahmed Rasheed; Writing by Maher Chmaytelli; Editing by Dale Hudson and Nick Macfie)