* French major seeking to build on Iraq presence

* Exxon still silent on its Kurdistan deal

By Patrick Markey and Peg Mackey

BAGHDAD, Feb 9 (Reuters) - France's Total is preparing the ground to become the next oil major to move into Iraqi Kurdistan, negotiating over two blocks following Exxon Mobil's deal with the semi-autonomous region last year, Kurdish and industry sources said.

Any contract between Total and the Kurdistan Regional Government (KRG) risks exacerbating a feud between the Kurds and the Arab-dominated central government, which has already warned that Exxon's deal violates Baghdad's control over oil resources.

Since Kurdish officials announced the deal with Exxon last year, other majors have watched its outcome as they mull their own possible forays into Kurdistan or opportunities to snatch up smaller players already working there.

So far Total has signed no agreement, but KRG sources and oil executives say the French company has been in serious negotiations over two blocks, Pulkhana and Taza, which border disputed territories claimed by Baghdad and Arbil.

"The deal is very close, but Total may want to wait to see how things play out with Exxon," said one oil executive in Arbil who is aware of the talks.

Kurdish government sources say negotiations are ongoing with Total but that no deal has been finalized.

"There are people from Total on the ground in Arbil at the moment," said another source with knowledge of a Total visit to the Kurdistan capital.

Total declined to comment on the matter.

A delegation of KRG officials visited Paris in mid-December when Total's Iraqi managing director chaired a roundtable with Kurdish oil officials on the region's need for hydrocarbon development. No one commented then on whether talks on exploration deals had happened.

Total's negotiations with the KRG continue even as the French major looks to expand its presence in the south of Iraq, where it has a small stake in the Halfaya oilfield, operated by China National Petroleum Corp.

Responding to Exxon's Kurdistan deal, Iraqi officials warned the U.S. major it risked losing its contract for the West Qurna-1 oilfield in the south. The U.S. company has not commented or so far responded to the government.

The fight for control of Iraq's oil resources - the world's fourth-largest - is at the heart of the dispute between the Iraqi central government and Kurdish officials who run their own regional authority to the north.

The central government says it has full sovereignty over strategic oil reserves, but Kurdistan says it can sign agreements in its territory. A long-delayed national oil law to resolve the dispute is still mired in parliament.

As Iraq recovers from years of war and sanctions, Baghdad has already signed a series of contracts with foreign oil operators to develop oilfields in the south, which supplies most of the country's production of 3 million barrels per day.

NORTH VERSUS SOUTH

For Shi'ite Prime Minister Nuri al-Maliki, emerging from a political crisis in his power-sharing government with Sunni and Kurdish blocks, handling Exxon and any other major deals with Kurdistan will be a tricky balance.

Taking a hard line risks driving other companies north to Kurdistan, which offers attractive production-sharing agreements allowing companies to make profits from oil sales rather than the fee-based service contracts offered in the south.

Iraqi oil officials have warned Exxon it faces tough action, but Abdul-Mahdy al-Ameedi, director of Iraq's contracts and licensing division, told Reuters on Thursday that the U.S. company could freeze its Kurdish deal and keep working at West Qurna-1 until the dispute is resolved.

Exxon signed six oil and gas exploration agreements, three for blocks in disputed territories.

Sources say the U.S. company is preparing accommodation for workers and is about to issue a tender for seismic work for some of the blocks agreed with Arbil.

A power struggle over petroleum wealth and disputed territories between Baghdad and Arbil has been seen as a potential flashpoint, especially since the buffer of a U.S. military presence vanished when the last troops withdrew at the end of last year.

Neglected for many years under the rule of Saddam Hussein, Iraqi Kurdistan has prospered since obtaining semi-autonomy in 1991, although its oilfields have yet to be fully developed. But interest is growing in the area's potential.

Smaller oil companies are already operating in the Kurdistan region, and Total would be the second major after Exxon on the ground.

Total has a much smaller presence than Exxon in southern Iraq, but its negotiations with the KRG come as it seeks to increase its presence in the south after it failed to secure prized oilfields in Baghdad's recent bidding rounds.

Total officials were openly critical of commercial terms for contracts in the south. and the French company managed to secure only a minority stake in the Halfaya oilfield in the Missan province.

In the hope of expanding its operations, Total has proposed a scheme to capture and use the gas that is produced from all the oilfields in Missan, Ameedi said.

The plan was first discussed in mid-2011 with the Ministry of Oil and would use the gas from Halfaya as well as the fields of Buzurgan, Abu Ghraib and Fakka - operated by China National Offshore Oil Co - and the smaller fields of Amara and al-Nour.

"Total is hoping to have a bigger project in Iraq," Ameedi said. "We've encouraged them to become as big a player as the other majors."