Iraq says to start sales of heavy Basra crude from May -trade

* SOMO informs partners Basra Heavy sales to start in May

* But details on pricing remain sketchy (Adds quotes, background)

By Florence Tan

SINGAPORE, March 19 (Reuters) - Iraq has notified its exploration partners that it plans to start splitting its southern Basra oil production into two grades due to quality differences, and offer a heavier type of crude from May onwards, sources with knowledge of the matter said on Thursday.

The decision by OPEC's second largest producer will affect more than 2 million barrels per day of crude exports that mainly head to Asia.

Iraq's State Oil Marketing Organization (SOMO) told its partners in a fax that it will allocate Basra Heavy crude to companies with technical service contracts, the sources said.

Holders of technical service contracts include Lukoil , Petronas, CNPC, CNOOC, BP, ExxonMobil, Royal Dutch Shell and Total.

But details remained sketchy and the companies were seeking clarification from SOMO especially on how the crude will be priced, they said.

"It's a significant development depending how things pan out," said a source with a western firm.

SOMO could not be immediately reached for comment.

Iraq first floated the idea in October last year due to a rise in new production of heavier Basra crude from southern fields such as West Qurna. Basra's quality swings from a heavy oil with API gravity at 26 degrees to a medium type at 34 degrees.

SOMO's plan was delayed as it took time to sort out details especially on how the new official selling price (OSP) for the heavy grade will be set, the sources said.

API gravity is used to compare the relative densities of oil. Crude with API of 20-27 is considered heavy as it produces more of the less valuable residue fuel.

Currently SOMO gives a discount, also known as a de-escalation factor, of 60 cents a barrel for every drop in API below 27 for Basra crude. (Reporting by Florence Tan; Editing by Jeremy Laurence and Anand Basu)