Iraq auction terms deter oil firms

By Missy Ryan and Ahmed Rasheed

BAGHDAD (Reuters) - Iraq launched its first major energy auction since the 2003-led invasion on Tuesday, awarding its largest field to a BP-led group but doling out far fewer contracts than expected due to tough payment terms.

Most companies, including firms from resource-hungry China and India eager to get a share of the world's third largest oil reserves, balked at lower-than-expected fees and Iraq failed to strike deals on the remaining seven oil and gas fields on offer.

The controversial auction took place on the same day that U.S. combat troops withdrew from city centers, giving local forces lead responsibility for a nation still gripped by violence and which desperately needs oil income to rebuild.

"Today we have seen that the Iraqi Oil Ministry and international oil companies are living on different planets," oil analyst Ruba Husari said.

Oil Ministry spokesman Asim Jihad said the results were not a disappointment.

"The participation of these well-known, major companies is a good sign and it reflects the desire of these firms to invest in the Iraqi oil sector," he said.

Iraq's Oil Ministry asked firms to submit revised bids at the end of the day in hopes deals could be struck for remaining fields. Seven bids were revised, but were not made public. The bids will now be given to Iraq's cabinet for a decision.

The sale was billed as the first chance since Iraq nationalized its oil in 1972 for major foreign companies to get a run at the country's hydrocarbon reserves, much of which are untapped. But many Iraqi critics said it was a bad bargain.

Foreign companies servicing the fields will be paid per barrel of oil produced above a certain amount.

BP AND CHINESE GRAB SOLE DEAL

A BP-led (BP.L) consortium including China National Petroleum Corp (CNPC) CNPET.UL was the only foreign group to strike a deal -- for the 17-billion-barrel Rumaila oilfield, Iraq's biggest, in the Shi'ite south.

The deal was clinched only after an Exxon Mobil-led (XOM.N) group rejected the government's proposed fee. BP, too, was forced to reduce the fee it will accept before it won Rumaila.

The Oil Ministry failed to find takers for another huge field, Kirkuk, and for the smaller Bai Hassan, Maysan and Zubair fields, after Chinese, Italian, British and U.S.-led consortia rejected its terms. The companies also wanted a much higher fee for each extra barrel produced.

No bids were received for Iraq's Mansuriyah gas field and no deal was agreed on the Akkas gas field.

"It's a big disappointment," IHS Global Insight Middle East Energy analyst Samuel Ciszuk said. "Iraq had hinged its whole development on this licensing round ... the fact that only one field has been awarded is very disappointing. It's a flop."