Iraq auctioned contracts to run eight giant oil and gas fields Tuesday as it sought to take charge of its own reconstruction after six years of war, but oil companies were reluctant to pay what it asked.

The controversial auction took place on the same day U.S. troops, who led the invasion to topple Saddam Hussein in 2003, quit Iraq's cities and left security chiefly to the country's own forces.

A BP-led consortium including China's CNPC accepted a contract to develop the biggest oilfield, the 17-billion barrel Rumaila in the south, but only after an Exxon Mobil-led group rejected the government's proposed fee.

The sale was billed as the first chance since Iraq nationalized its oil in 1972 for major foreign companies to gain an interest in the world's third largest 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.

The BP/CNPC alliance had to accept a fee of $2 for every barrel of additional oil produced, compared with a fee of $3.99 in their initial offer.

The Oil Ministry failed to find takers for its smaller Bai Hassan and Maysan fields after Chinese and U.S.-led consortia rejected its terms. Both groups also wanted a much higher fee for each extra barrel produced than it was willing to pay.

The only group to bid for the Kirkuk oilfield, which lies in a northern region contested by minority Kurds and the Arab-led government in Baghdad, was led by Royal Dutch Shell.

The expectations of the Iraqi government and the oil companies are mismatched, one oil executive, who asked not to be named, told Reuters.

Another said the Chinese firms looked to have more state funding to be able to agree to the lower fees being offered by Baghdad: I think that the eastern companies are in a much better position to accept these, he said.

No bids were received for Iraq's Mansuriyah gas field.

VAST RESERVES

Foreign companies succeeding in the auction will have to contend not only with security risks from a still stubborn insurgency, but also discontent within ruling circles.

Some Iraqi lawmakers condemn the deals as illegal and even officials in the state-run oil industry have criticized the government for selling Iraq's vast oil wealth short.

Years after Saddam's removal was supposed to unleash Iraq's oil potential, the auction marked the first big moment for the Oil Ministry, which is under growing pressure to boost disappointing output of around 2.4 million barrels a day.

Iraq has proven oil reserves of 115 billion barrels, the world's third largest, but the true amount of hydrocarbons sitting beneath its desolate deserts could be far greater.

The auction, delayed by a day by a sandstorm, was broadcast live from a hotel in Baghdad's fortified Green Zone in a process Iraqi oil officials insisted would be fully transparent.

It appeared to live up to that promise.

But when the bidding turned out to be less enthusiastic than hoped, the Oil Ministry called a time-out to allow the bidders for Rumaila and Bai Hassan to reconsider whether they were willing to accept the ministry's proposed maximum fee.

The auction of the remaining oilfields and one gas field continued after the break.

Later this year, Iraq is due to offer another set of fields that are even more appealing since they are undeveloped.

(Additional reporting by Aseel Kami and Khalid al-Ansary; Writing by Michael Christie; Editing by Anthony Barker)

China Iraq Sale